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The Royalty Rate Report

The Royalty Rate Report

The Royalty Rate Report: A Comprehensive Assessment of Valuation in the Pharmaceutical Sector is the definitive guide for the industry and provides in-depth analysis of one of the most important but elusive components of a biopharma deal – the royalty rate.


INTRODUCTION
Overview of the Report
CHAPTER 1 WHAT ARE ROYALTIES?
1.1 The Origins of Royalties
1.2 Royalties: Incentives and Disincentives
1.3 Royalties in Other Industries
1.4 Why Focus on Royalties?
1.5 Key Lessons in Royalties
CHAPTER 2 INTRODUCTION TO EFFECTIVE ROYALTIES
2.1 Effective Royalties
2.2 Deconstructing Deals
2.3 The Visualisation of Deals
2.4 Benchmarking Effective Royalties
2.5 Biotech Royalty Stacks
2.5.1 Technology Royalty Stacks
2.5.2 Offset Clauses in Royalty Stacks
2.6 What is The 25% Rule?
2.6.1 Thoughts on Royalty Revelation
CHAPTER 3 BENCHMARKING AND ENPV
3.1 Methods for Calculating Royalties
3.2 Return of Research and Development Costs
3.3 Benchmarking
3.3.1 Deal Benchmarking in Practice
3.3.2 Feasibility
3.3.3 Information Gathering
3.3.4 Approximate Valuation
3.3.5 Refinement of the Valuation
3.4 Transfer Pricing: A Hidden Distortion to Royalties
3.5 Calculating NPV and eNPV
3.5.1 Cash Flows and Relevant Costs
3.5.2 Real versus Nominal Figures
3.5.3 Opportunity Cost/Time Value
3.5.4 Utility of Money
3.6 Evaluating Risk
3.6.1 Decision Tree Analysis
3.7 Refining the eNPV Model: Sensitivity Analysis
3.8 Development Cash Burn
CHAPTER 4 DEALMAKING TRENDS AND ROYALTIES
4.1 Disclosure of Royalties: Why the Big Secret?
4.2 Big Pharma Licensing and Royalty Rate Disclosure
4.2.1 Pfizer
4.2.2 GlaxoSmithKline
4.2.3 AstraZeneca
4.2.4 Novartis
4.2.5 Merck & Co.
4.3 Upfronts, Milestones and Royalties
4.4 Royalty Rates by Phase and Indication
4.4.1 Preclinical Deal Royalties
4.4.2 Phase I Deal Royalties
4.4.3 Phase II Deal Royalties
4.4.4 Phase III Deal Royalties
4.4.5 Preregistration/Registered/Approved Deal Royalties
4.4.6 Launched Product Deal Royalties
4.5 Are Royalties Affected by the Economic Climate?
CHAPTER 5 ROYALTIES AND DEAL STRUCTURES
5.1 Sales Milestones
5.1.1 Combining Sales Milestones with Tiered Royalties
5.2 Alternative Structures
5.3 Tiered Royalties
5.3.1 Example Tier Structure
5.3.2 Escalating Tiers or Falling Tiers?
5.3.3 Prevalence of Royalty Tiers
5.3.4 Opinions on Tier Directions: The Case for Reducing Tiers
5.4 How Much Value Does the Royalty Component Constitute?
5.5 Addressing Gaps in Agreements
5.6 Royalties in Early-Stage Technology Deals
5.7 Participation
5.7.1 Participation: a cure for uncertainty?
5.8 Royalties to Fund Development Costs
5.9 Royalties and Generics
5.10 Monetising the Royalty Stream
5.11 Utility Cost
CHAPTER 6 PHARMADEALS DEALMAKING AND ROYALTY RATE SURVEY 2015
6.1 Introduction to the 2015 Survey
6.1.1 Expected Minimum and Maximum Royalty Rates
6.1.2 Platform Technologies
6.1.3 Drug Delivery Technologies
6.1.4 Upfront Payment Trends
6.1.5 Licensor/Licensee – Who is Favoured?
6.1.6 Tiered Royalty Rates
6.1.7 Commercial Milestones
6.1.8 Royalties and Creativity
6.1.9 Factors Affecting Royalties
6.1.10 Valuation Methods
6.1.11 Summary
CHAPTER 7 REFERENCES & FOOTNOTES
APPENDICES
A.1 Royalty Rate Deals Chart: 2004 – March 2015
A.2 Effective Royalties: Developing a New Methodology
A.3 Pharmaceutical royalties in Licensing Deals: No Place for the 25% Rule of Thumb
A.4 Utility of Money
A.5 PharmaDeals Dealmaking and Royalty Rate Survey 2013
Introduction
Expected Minimum and Maximum Royalty Rates
Platform Technologies
Drug Delivery Technologies
Type of License
Trends for Upfront and Milestone Payment
Healthcare Macro-environment
Licensor/Licensee – Who is Favoured?
Tiered Royalty Rates
Royalties and Creativity
Royalties and Total Deal Values
Summary
A.6 Royalties: A Review of Literature
A.7 Auditing the Pharma Royalty Market
Licensing Executives Society
A.8 Drug 'X' Utility Cost: eNPV and Discount Rate Calculation
A.9 Royalty Monetisers: Key Deals
DRI Capital
Royalty Pharma
Glossary of Terms
TABLES
Table 1.1: Distribution of royalty rates by industry
Table 2.1: Biologics royalty rates from 2005 to 2014
Table 2.2: Effective royalty range by development phase
Table 3.1: Benchmarking sources
Table 3.2: Benchmarking our deal
Table 3.3: Refining our benchmarks
Table 3.4: Probability of success by phase of development
Table 3.5: Variables in development costs: impact on royalties
Table 3.6: Example of a basic eNPV calculation for our 'demodrug'
Table 3.7: Licensor share for our 'demodrug' as royalties
Table 3.8: Licensor share for our 'demodrug' as upfront payments, milestones and royalties
Table 4.1: Statistical analysis of disclosed royalty rates from deals involving top 15 pharma companies
Table 4.2: NPV of Deals A and B
Table 5.1: Promacta® royalty tier contributions forecast for 2017
Table 5.2: 'Steptrin' escalating royalty tiers Table 5.3: 'Steptrin' reducing royalty tiers
Table 5.4: Participation rates by development stage Table 5.5: Original licence and sublicence deal terms
Table 5.6: Utility cost and share of eNPV for drug 'X'
Table 5.7: Utility cost and share of eNPV for drug 'X' at a lower sales forecast
Table 5.8: Risk factors for late-stage and in-market drugs.
Table A1: Royalty Rates Table
Table A.2: Drug 'X' utility cost calculation
Table A.3: DRI Capital's biopharma royalty interests
Table A.4: Glossary of terms
FIGURES
Figure 2.1: Effective royalty calculation (scenario A) Figure 2.2: Adjusted royalty calculation (scenario B)
Figure 2.3: Royalty scenario comparison
Figure 2.4: Diamyd® model 1 scenarios
Figure 2.5: Diamyd® model 2 scenarios
Figure 2.6: Xiaflex® model scenarios
Figure 2.7: 'Biomol-x', Phase I effective royalty model
Figure 2.8: Biologics royalty rates from 2005 to 2014
Figure 2.9: Non-biologics royalty rates from 2005 to 2014
Figure 3.1: IMS PharmaDeals® database search engine
Figure 3.2: Pharmaceutical product decision tree
Figure 4.1: Royalty disclosure rates of licensing deals from mid-1996 to 2014
Figure 4.2: Royalty disclosure rates of royalty-bearing deals from mid-1996 to 2014
Figure 4.3: Big pharma licensing deals in the period 2005-14
Figure 4.4: Disclosed royalty rates from deals involving top 15 pharma companies in the period from mid-1996 to 2014
Figure 4.5: Pfizer’s licensing activity in the period 2005–2014
Figure 4.6: GlaxoSmithKline's licensing activity in the period 2005–2014
Figure 4.7: Volibris® (ambrisentan) model scenarios
Figure 4.8: AstraZeneca’s licensing activity in the period 2005–2014
Figure 4.9: Novartis’ licensing activity in the period 2005–2014
Figure 4.10: Merck & Co.’s licensing activity in the period 2005–2014
Figure 4.11: Upfront value trends in licensing deals
Figure 4.12: Milestone value trends in licensing deals
Figure 4.13: Royalty value trends in licensing deals
Figure 4.14: Upfront payments and milestones as a percentage of total payments in licensing deals
Figure 4.15: Deal A vs. Deal B, apparent values of upfront payments and milestones
Figure 4.16: Deal A vs. Deal B, phasing of upfront payments and milestones
Figure 4.17: Preclinical royalty rates by therapy area for the period 2005–2014
Figure 4.18: Phase I royalty rates by therapy area for the period 2005–2014
Figure 4.19: Phase II royalty rates by therapy area for the period 2005–2014
Figure 4.20: Phase III royalty rates by therapy area for the period 2005–2014
Figure 4.21: Preregistration/Registered/Approved royalty rates by therapy area for the period 2005–2014
Figure 4.22: Launched product royalty rates by therapy area for the period 2005–2014
Figure 4.23: Licensing deal numbers and mean upfront values
Figure 5.1: Pexiganan effective royalty model (scenario A)
Figure 5.2: Pexiganan adjusted royalty model (scenario B).
Figure 5.3: Pexiganan adjusted royalty without sales milestones model (scenario B)
Figure 5.4: Promacta® (eltrombopag) sales forecasts for the period 2008–2017
Figure 5.5: Promacta® (eltrombopag) royalties forecast by tier for the period 2008–2017 (based on 2008 forecast sales)
Figure 5.6: 'Steptrin' sales forecast
Figure 5.7: 'Steptrin' flat royalties
Figure 5.8: 'Steptrin' escalating royalties
Figure 5.9: 'Steptrin' reducing royalties
Figure 5.10: 'Steptrin' cumulative royalties
Figure 5.11: Percentage of licensing deals declaring royalty tiers 2005–2014
Figure 5.12: 'Biomol-y' effective royalty model (scenario A)
Figure 5.13: 'Biomol-y' adjusted royalty model (scenario B)
Figure 5.14: Comparison of cash flow at sales of US$1.5 B
Figure 5.15: Comparison of cash flow at sales of US$0.5 B
Figure 5.16: Expected licensor’s eNPV share by phase
Figure 6.1: Mean expected minimum and maximum royalty rates by development phase
Figure 6.2: 'Licences for 'disruptive' platform technologies have a royalty range of...' (mean values)
Figure 6.3: 'Licences for drug delivery technologies have a royalty range of...' (mean values)
Figure 6.4: Over the past 5 years, I believe that upfront payments have ... '
Figure 6.5: 'In my view the current market for deals favours...'
Figure 6.6: 'How do you expect tiered royalties to change with increasing sales?'
Figure 6.7: 'What term best describes your company's attitude to tiered royalties?'
Figure 6.8: 'What term best describes your company's attitude to commercial milestones?'
Figure 6.9: 'Have you seen any examples of creativity in royalty structures?'
Figure 6.10: 'Would you consider using alternative deal structures to royalties?'
Figure 6.11: Perceived importance of factors affecting royalties
Figure 6.12: Which valuation methods does your company use to help formulate licensing deal structures?
Figure A.1: Mean expected minimum and maximum royalty rates by development phase
Figure A.2: Licences for 'disruptive' platform technologies have a royalty range of...' (mean values)
Figure A.3: In your view, how do royalty rates for drug delivery technologies today compare with 5 years ago?
Figure A.4: 'In your experience, does the royalty rate agreed depend upon the type of licensee?'
Figure A.5: 'Over the past 5 years, I believe that upfront payments have...'
Figure A.6: 'Big pharma is keen to keep royalty rates down even at the expense of higher milestones... '
Figure A.7: 'Concern around healthcare costs and future price limitations is pushing royalty rates down? '
Figure A8: 'In my view the current market for deals favours...'
Figure A.9: 'How do you expect tiered royalties to change with increasing sales?'
Figure A.10: 'What term best describes your company's attitude to tiered royalties?'
Figure A.11: 'Have you seen examples of creativity in royalty structures?'
Figure A.12: 'Would you consider using alternative deal structures to royalties?'
Figure A.13: Perceived contribution of royalties to total deal value

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