Case 1 - Multivariate Licensing Model
Our client, a stem cell developer, required a financial model it could take into licensing
negotiations that would allow changes to literally hundreds of input variables such that
discussions could continue on a sound footing and without interruption.
The model allows for 15 or more medical indications to be included and clustered as
appropriate to the proposed field of the licence. Each indication has market size based on
an epidemiological approach that incorporates prevalent population as well as newly
diagnosed, incident, patients; breakdown across multiple geographic regions with individual
launch dates; selling price in different regions; and a peak market share with adjustable
ramp-up time and profile (linear or various sigmoid curves) and potential for subsequent
Cell production may be with either the licensee or the licensor with variable manufacturer's
premium. There is provision for improving production costs through economy-of-scale or
The model allows for all possible variations on option fees, variable option terms, licence
fees, and milestone and revenue-based payments. The tiering of royalties is included.
Clinical trial durations may be entered on a monthly basis with post licence development
costs distributed on any chosen basis between licensee and licensor.
The terms of the licence is computed to the date of cessation of the last to expire patent of
relevance to each indication with provision for patent extensions and, for JV modelling,
life-to-perpetuity through inclusion of a terminal value.
The valuations, for both licensee and licensor, are based on probability adjusted NPVs
although the discount rate to either party can be individually set. Where probabilities are
used an 'effective discount rate' is presented.
Using the model, the client can explore the many medical and market assumptions as well
as various licensing scenarios to achieve a suitable apportionment of net benefit between
the licensee and licensor or to understand the effects of a licensing arrangement on its own
cash flows and valuation.
Our client used the model during negotiations for a multi-billion dollar licensing deal.
Acuity also provided information on markets, competition, incidence and prevalence,
specific clinical niches for proposed products, achievable selling prices and other relevant