![Page 2: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/2.jpg)
Messages
1. Value increases in every stage
2. License contracts are closely related to the risk structure
3. Idea of sublicense terms
![Page 3: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/3.jpg)
Agenda
� Risk adjusted net present value (rNPV)
� License contracts
� Sublicensing
![Page 4: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/4.jpg)
Value
The value of a project/license is determined by its cash
flows.
![Page 5: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/5.jpg)
Cash Flows – Value
Cash flows are defined by
� Size (and sign)
� Time
� Probability
� Size
� Event
The value is sensitive to these three properties.
![Page 6: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/6.jpg)
Discount Rate – Cost of Capital
Indicates the rate at which investors want to be rewarded
for the risk they take.
The discount rate contains
1. Time value: interest rate (2%-5%)
2. Risk aversion: risk premium (5%-20%)
3. (Qualitative aspects: premium)
V0=Vt*(1+discount)-t
1
2
3
10%-25%
![Page 7: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/7.jpg)
Discount Rate – Mechanism
NPV of 100 $ at T=2 discounted at 5% p.a.:
NPV(T=0)=100*(1+5%)-2= 100/(1.05)2 =90.7 $
T=0 T=1 T=2
Discount for 2 years
100 $
Certain revenues
![Page 8: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/8.jpg)
Discount Rate – Mechanism
NPV of 100 $ at T=2 discounted at 11% p.a.:
NPV(T=0)=100*(1+11%)-2= 100/(1.11)2 =81.2 $
T=0 T=1 T=2
Discount for 2 years
100 $
Uncertain revenues
![Page 9: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/9.jpg)
DCF – Success Rates
� Some cash flows are uncertain
� The probability is given by the success rates
Example:
� Head: 2 $ , Tail: 0 $.
� On average we receive 1 $.
� We multiply the results with their probability.
� Risk aversion is not yet considered, this is done by means of the discount rate.
Multiply all cash flows with their probability
![Page 10: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/10.jpg)
Value of a Drug Development Project
The value is the sum of all risk adjusted discounted cash
flows.
2. Discount back to today
1. Adjust for the risk
3. Sum all adjusted cash flows
![Page 11: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/11.jpg)
Value of a Drug Development Project
Sum of all risk adjusted discounted cash flows.
![Page 12: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/12.jpg)
Value of a Drug Development Project
Sum of all risk adjusted discounted cash flows.
![Page 13: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/13.jpg)
Value of a Drug Development Project
Sum of all risk adjusted discounted cash flows.
![Page 14: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/14.jpg)
Value of a Drug Development Project
Sum of all risk adjusted discounted cash flows.
![Page 15: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/15.jpg)
DCF - Example
risk-adjusted net present value:
100
-90
T+2
60%
T -3
![Page 16: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/16.jpg)
DCF - Example
risk adjusted net present value:
60=100*60%
-54=-90*60%
T+2T -3
![Page 17: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/17.jpg)
DCF - Example
risk adjusted net present value:
49=60*(1+11%)-2
-44=-54*(1+11%)-2
T+2T -3
![Page 18: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/18.jpg)
DCF - Example
risk adjusted net present value:
2=49-44-3
T+2
rNPV>0
T
![Page 19: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/19.jpg)
DCF – Names
NPV (net present value)=DCF (discounted cash flows)
With success rates:
� rNPV (risk adjusted net present value)
� eNPV (expected net present value)
rNPV/eNPV is a simple decision tree, but it is not a real option.
![Page 20: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/20.jpg)
Valuation Methods
• rNPV
• Decision Tree
• IRR
• Payback Method
• Comparables
• Real Options
![Page 21: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/21.jpg)
Who can afford to spend US$ 1.7 BIO? Certainly no private biotech company. So, how is this number composed?
• It is assumed that for one marketed project you have to a start about 1,000 discovery projects: With US$ 1.7 BIO you can therefore be sure to launch one project.
• Costs are assumed very high, including several indications.
• Costs of all projects are capitalized to launch date: Increase of costs instead of discounting.
Input Parameters – Costs
Early Discovery
0-2
Lead Optimization
1-8
Preclinical2-12
Phase I5-15
Phase II40-60
Phase III80-150
Approval4
US$ 1.7 BIO
106
2 1
17
25
500-1,000
Capitalized to launch
![Page 22: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/22.jpg)
The figures below can be used as guidelines for drug
development costs:
Phase Cost
Lead Optimisation US$ 2-3 mnPreclinical Phase US$ 2-3 mnClinical Phase 1 US$ 1-5 mnClinical Phase 2 US$ 3-11 mnClinical Phase 3 US$ 10-60 mnApproval US$ 2-4 mn
Pharma drug development 3-5x more expensive.
Input Parameters – Costs
![Page 23: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/23.jpg)
Input Parameters – Success Rates
60%
40%
50%
80%
NCE: Kola, Landis (nat rew drug dis, 2004), DiMasi (TUFTS)NBE: Janice Reichert (TUFTS)
![Page 24: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/24.jpg)
Input Parameters – Success Rates
Probability of success 11%
![Page 25: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/25.jpg)
Agenda
� rNPV
� License contracts
� Sublicense terms
![Page 26: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/26.jpg)
Licence Contracts - Valuation
If the project is self-conducted or in-licensed, then we
have large costs in the beginning.
![Page 27: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/27.jpg)
Licence Contracts - Valuation
The company has to invest before revenues arrive.
![Page 28: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/28.jpg)
Licence Contracts - Valuation
With a license contract, the licensor starts making revenues.
![Page 29: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/29.jpg)
Licence Contracts - Valuation
Part of the value is securitised before commercialisation.
![Page 30: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/30.jpg)
Licencing in Life Sciences
Licensor: Access to ressources
• Non-dilutive capital
• Marketing
• Production
• Know-how
Licensee: Access to innovative products
Risk management
• Diversification
• Securitisation
![Page 31: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/31.jpg)
Licence Contracts - Structure
Payments
• Upfront payment risk free
• Milestone payments attrition risk
• Royalties attrition risk and market risk
Development/Commercialisation
• Co-development
• R&D Funding
• Co-marketing/Co-promotion
![Page 32: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/32.jpg)
Why to Value License Contracts?
• Define your negotiation leeway.
• Find out your partners negotiation leeway.
• Optimise your deals in terms of value, return, and risk profile.
• Benchmark your deals.
• Prepare rational arguments for the negotiation.
![Page 33: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/33.jpg)
Agenda
� rNPV
� License contracts
� Sublicense terms
![Page 34: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/34.jpg)
Early-Stage Contracts (Sublicensing)
Licensee licenses the product again (sublicense)
If product exhibits better potential:
• Licensor wants to participate
Of products exhibits worse potential:
• Original terms should not prevent a deal
30%0.3Sublicense at IND
20%0.50.3Sublicense at POC
15%10.50.3Sublicense at Launch
40%Sublicense in prec
2 and 3%10.50.3Original terms
LaunchPOCINDpreclinicalIn US$ Mio
![Page 35: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/35.jpg)
Early-Stage Contracts
• University of Queensland (AUS) licenses vaccine in early stage to CSL (AUS)
• CSL continues development
• Large potential recognised
• Sublicense to Merck (USA)
![Page 36: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/36.jpg)
Licence Contracts - Weights
1.0 0.9 1.94.1
38.3
8.36.2
1.0 0.7 1.3
18.4
4.02.3
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
Pr eclinical
Discover y
![Page 37: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/37.jpg)
Book
Valuation in Life Sciences
Springer Verlag, 2007
2nd edition to appear in May 2008
![Page 38: ralph.villiger@avance.ch IP Valuation in Life Sciences · ralph.villiger@avance.ch. Messages 1. Value increases in every stage 2. License contracts are closely related to the risk](https://reader031.vdocuments.mx/reader031/viewer/2022011922/603ec9e5efc8591f74302f66/html5/thumbnails/38.jpg)