Publication Type

Journal Article

Version

Preprint

Publication Date

10-2007

Abstract

We describe a research and development project-valuation model developed for Phytopharm plc, a pharmaceutical development and functional food company based in Cambridgeshire, United Kingdom. Phytopharm uses the model to value the projects in its research and development portfolio, and in licensing negotiations with potential product development and marketing partners. We include different valuation methods, including net present value, decision analysis, and Monte Carlo simulation. We also consider the technological risks of product development, as well as the uncertainty of commercial success. In addition to determining a value for a product in development, the model proposes appropriate licensing contract structures. A typical licensing contract specifies milestone payments and royalties to be paid by the licensee to the licensor. The contract structures adhere to an agreed-upon equitable split of the project value between the two parties. The model also generates critical information during the negotiation meetings, including break-even analyses, trade-offs, and bargaining zones. Phytopharm is currently deploying the model for use with its entire project portfolio.

Keywords

Project Valuation, Negotiation, Pharmaceuticals, Decision Analysis, Monte Carlo Simulation, Real Options

Discipline

Operations and Supply Chain Management | Technology and Innovation

Research Areas

Operations Management

Publication

Interfaces

Volume

37

Issue

5

First Page

472

Last Page

487

ISSN

0092-2102

Identifier

10.1287/inte.1060.0255

Publisher

INFORMS

Additional URL

http://dx.doi.org/10.1287/inte.1060.0255

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