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Deal structure optimization: is there a better way than Excel spreadsheets?
When a company is planning to in- or out-license a product, critical questions of company executives are about deal valuation and deal parameters, such as:
Our modeling approach, founded on mathematical optimization, assumes that deal parameters are variables within a range obtained from traditional data sources.
The model derives each variable’s value and instantly optimizes deal structure. The model advantage is that deal parameters are updated simultaneously during negotiations to guarantee deal optimality. It means significant time and cost savings. The model also can incorporate a broad range of business rules.
Company A develops a product. Company B acquires product IP and pays Company A the upfront fee and rewards/milestones for each successful development and approval phase. Company B also pays tiered royalties to Company A, depending on the projected revenue level.
The goal is to optimize deal parameters and value for each partner and to optimize negotiation strategy (e.g., optimal reassessment of all deal parameters in response to the partner’s proposal).
Partner A has an early-stage product with uncertain product monetary value. Partner B buys product from Partner A and develops it through PC, Ph1, and Ph2 clinical trials. If Partner A opts in after a specific clinical trial phase, profit will be shared as X/Y (e.g., 50/50). If Partner A decides to opt in after Ph2, then Partner A should compensate a part of the value created by Partner B. It means that after compensation, the value created by Partner B should be proportionate to the value created by Partner A.
The goal is to derive fair compensation for Partner B’s efforts.
info@orbeeconsulting.com
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ORBee Consulting offers tools for strategic and operational planning in the biopharmaceutical industry, leveraging operations research techniques for optimization, simulation, statistical analysis, and analytical decision-making.
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