Estimation of royalty fee at different stages of pharmaceutical ? Biotechnological product development.
In PowerPoint slides you will get basics of the whole topic. I have not concluded any results. These are fake results in my presentation. The rough model of royalty estimation is in Thesis.doc file. I have mentioned factors affecting royalty fees in my presentation. You can change the whole model but factors should be the same. you have to find out the real values for the factors in my formula and have to prove them. you can use any method to prove those values. let me know if you can do this. I need 70-80 pages You can modify formula by keeping in mind the factors affecting royalty. You have to findout the suitable values for the factors in formula.
i want you to write a thesis for me. It is a literature review study. You have to study the articles and write the thesis and everything should have reference. plagiarism should not exceed 2-4%. The data that I have is attached along. I have some helping material too that will be provided. But most of the things you have to find and write by yourself.
Development of a model to estimate the royalty at different stages of pharmaceutical product development.
Acknowledgement
Table of content
Abbreviation list
Abstract
1. Introduction (1-20 pages)
1.1 what is royalty and its types
1.2 Different methods to calculate the royalty their pros and cons
1.3 different stages of pharmaceutical product development
1.4 factors affecting the royalty
1.5 two types of innovation revolutionary and evolutionary with examples from pharmaceuticals and what was the royalty for those products. This data will be used to estimate the value of factor of innovation in the model. For example we will prove that revolutionary products have 3 times more royalty than evolutionary.
2. Theory upto 20 pages
It will include the details about the significance of our work. And little bit about our work
3. materials and methods 1-2 pages
Our topic is basically some literature review.
4. Results and discussions 25-30 pages
It will include only those determinants of royalty which we are going to mention in our model. You have to explain how important is that given factor in estimation of royalty but remember to give reference of each and every statement. In this part we can discuss clinical trials value out of which we can conclude how much it costs for each single stage of clinical trial. The value of discount factor you have to find it by yourself. In this part we can also discuss the methods to evaluate the market value of a product and suggest a suitable able for proposing the market value or sales of the product.
5. Conclusion and recommendations 2 pages
6. Literature list
Appendix
INTRODUCTION
These days, determination of royalty fees in the licensing of a product has become an important issue. Many methods have been developed to estimate this figure. These methods have different approaches to calculate this value. All of these methods have some pros and cons. In our model we have tried to keep it simple and as realistic as possible. In addition, we have considered different stages of product development in our model.
Royalty fees:
It can be defined as the payment made to the owner of a property, normally intellectual property by the beneficiary of the property.(dictionary) There are several types of royalties, of which some are independent of sales or production of the licensed product and some are dependent. We will define these types here briefly:
Royalties independent of sales of the licensed product;
• Up-front or Signing fees:
In general, this is a one-time royalty payable upon the signing of agreement. It consists of a primarily, single cash payment to the license holder.(Holmes)
• Research-funding royalties
This is the amount paid by the licensee to the licensor for the research purposes to bring the technology in the market and to bring improvements in the licensed technology.(Holmes)
• Milestone Payments
These are the defined royalty payments that are granted after the achievement of a specific goal. For example, in the drug development, there are different clinical stages and there will be due royalty after successful completion of each clinical phase and this royalty increases gradually with increasing achievements. (Holmes , Orcutt, Murphy et al. 2012)
• Minimum Royalty
It is the payment that is due on the licensee whatever the future of the product will be. This is required by licensor to get a small amount of income even if the licensee fails to sell the product.(Holmes)
Royalties based on sales (Earned Royalties);
Royalties will be paid by the licensee to the owner of a patent, on the sales revenue of the product as well as percentage of all the revenues earned by sublicensing of the technology. Such royalties are primarily called as “EARNED ROYALTIES”. (Holmes)The value of these royalties is directly linked with the sales of the product. If the sales of the product are high, then the royalty rate be high too and vice versa.These royalties will be based on the net sales of the patented technology.
There are some factors that will be considered while selecting this method:
• Payments, grants or credits made as a result of mishap related to the product
• Taxes (value added, sales, income taxes)
• Duties (import, export, custom) and other imposts
• Insurances, cargo and shipping expenses
Different methods to evaluate the royalty of a product:
Different methods have been in use to calculate the royalty of a product. All of these methods have their own basis of calculation. Some of these methods are no longer of use because of their unrealistic predictions about the valuation of a product. In the following, I have described these methods, their method of evaluation, implication and their pros and cons.
1. Rule Of Thumb
2. Royalty Rates And Return On R&D Costs
3. Royalty Rates And The 5% Of Sales Method
4. Royalty Rates And Industry Guidelines
5. InfringementDamages Analysis
6. GenericPricing
7. Comparable License Transactions
8. Discounted Cash Flow Analysis
9. Investment Rate Of Return Analysis
All of these methods can be used to estimate royalty fees of a product. I will describe these methods and then we will proceed to our new method to calculate the royalty, that gives the more realistic figures to calculate the royalty fees.
Rule of thumb
Generally called as 25% rule of thumb, implies 25%-33?% of the profit before taxes in terms of royalty, from the licensee using the technology.(IPRA 2008). It takes into account “Gross Profit” to determine the value of royalty fee, so overlooking the final profitability of the profit. To have a better view of this analysis we need to understand the term “Gross Profit” that is defined as “A company’s revenue fromsales in a givenperiod of timelessitscost of goods sold.”(dictionary)
Thus, this method ignores the very important cost of selling, administration and general overhead expenses. Moreover, the royalty of the specific product must reflect the economic environment in which the product is utilised. In some situations, markets are competitive so require supporting costs that affects the net profits of the product. IP used in this type of circumstances is less valuable than a product in high profit or less competitive environment as it requires less supportive costs.An ideal royalty method should address this aspect of economy that “Rule of Thumb” method is not addressing.(IPRA 2008)
Data has shown that this method is not of use anymore, especially in pharmaceutical and biotechnology sector. “We cannot justify the rule based on evidence in the pharmaceutical industry, and we cannotjustify the rule based on the principles ofvaluation and deal making in thepharmaceutical industry.”(Borshell and Dawkes 2010)
Royalty Rates & Return On R&D Costs
The expense on research and development of intellectual property is a very important tool in determining the royalty of that asset. In this analysis problem is that costs of development are ambiguous in many cases. It becomes difficult sometimes to give the value to the duration of product development which is quite long especially in the case of pharmaceutical and biotechnology section. The value of the intellectual property is infrequently equal to the costs of research and development.Anappropriate royalty system will estimate a fair royalty according to the value of the technology, whatever the costs of development are. The actual royalty fee of the IP is founded in perspectives of expected economic benefits of the product in future and the factors that can affect the accomplishment of those economic benefits. So, determining a royalty fee on the basis of R&D costs can entirelymake it difficult to achieve the goal of gaining a reasonable return on the valuable IP.(IPRA 2008)
Borshell, N. and A. Dawkes (2010). “Pharmaceutical royalties in licensing deals: No place for the 25 per cent rule of thumb.” Journal of Commercial Biotechnology16(1): 8-16.
dictionary, F. “gross profit. (n.d.) Farlex Financial Dictionary. (2009). Retrieved January 15 2017 from http://financial-dictionary.thefreedictionary.com/gross+profit.”
dictionary, l. “royalties. (n.d.) West’s Encyclopedia of American Law, edition 2. (2008). Retrieved December 25 2016 from http://legal-dictionary.thefreedictionary.com/royalties.” from http://legal-dictionary.thefreedictionary.com/royalties.
Holmes, M. S. Patent licensing: strategy, negotiation, forms, Practising Law Institute.
IPRA, I. (2008). Royalty Rates For Pharmaceuticals & Biotechnology. IPRA, Inc., 1004 Buckingham Way, Yardley, Pennsylvania 19067, United States of America., IPRA, INC.
Orcutt, J. L., et al. (2012). Patent Valuation. Somerset, UNITED STATES, John Wiley & Sons, Incorporated.
Estimation of royalty fee at different stages of pharmaceutical ? Biotechnological product development.
Development of drugs, pharmaceutical or biotechnological is a long term process that involves a lot of time and money investment. In the present era there is continuous need of revolutionary molecules for the survival of a pharmaceutical or biotechnological company. So, companies are more interested in developing their IPRs in the form of new drug molecules, patents, copyrights, trademarks etc. There are many methods of increasing the intangible assets. This is a tricky task to analyse the actual value of an IPR since the development of IPR in pharma or biotech sector is a long term process involving multiple risks.
The development of any pharmaceutical or biotechnological product can take up to 10 years or even more. There are different stages of getting a drug approved by FDA and each stage has specific purpose of study and specified number of participants. And the risk of clinical trial failure increases as the drugs move to more advanced stage of product development. There are multiple factors needed to be considered while estimating the royalty fee for a pharmaceutical/biotechnological product.
I have developed the following model and that is based on the estimated market value.
Rf=a(¦(Mv -Dr@ß))
In this equation
Rf= royalty fee
a= Factor for type of innovation (Incremental, radical or discrete innovation)
e.g value 2 for radical and 1 for dicrete
ß= Factor for stage of development depending on the success rate of product development
e.g. value of 19 for an FDA approved drug and 77 for a product in Phase 1
Mv= Market value e.g. $200000
Discount rate= Determined by the risks related to technology. Any value e.g. $1000
According to this model, the values some I have figured out for these said factors maksimum royalty for a radical product that is at fourth stage of development, is 10.54% of the market value and minimum is 2.58 % of market value at phase 1.
These are the values if discount rate is zero.
Can it be actual?
