AQUIONICS*AQUIONICS*

Preseted by Preseted by ArtipArtipRosrinRosrinYazeedYazeed

Who the heck are they?Who the heck are they?

Bio-Tech Company *Bio-Tech Company *

Developed exciting new technology to treat Developed exciting new technology to treat glaucoma*glaucoma*

Has tested on animalsHas tested on animals

NOW, needs to test it on HUMANS!*NOW, needs to test it on HUMANS!*

TWO ISSUES TWO ISSUES

Protecting the value of the Intellectual Protecting the value of the Intellectual Property*Property*

Developing related-productsDeveloping related-products

Bringing the product to market with low-Bringing the product to market with low-risk and low-cost risk and low-cost

-requires BOTH a lab and the -requires BOTH a lab and the production facilityproduction facility

THREE ALTERNATIVESTHREE ALTERNATIVES

1.1. Build own laboratoryBuild own laboratory

2.2. Sub-contract a laboratorySub-contract a laboratory

3.3. License the technologyLicense the technology

1. Build own laboratory1. Build own laboratory

First approach---- Construct a laboratory facilityFirst approach---- Construct a laboratory facility

* Advantage: * Advantage:

1. sufficient for carrying out the manufacturing 1. sufficient for carrying out the manufacturing

and testing proceduresand testing procedures

2. It would be also available for clinical testing 2. It would be also available for clinical testing

of related applications of the technologyof related applications of the technology

* Disadvantage:* Disadvantage:

1. High cost and high risks1. High cost and high risks

2. Sub-contract a laboratory2. Sub-contract a laboratory

* Advantage: * Advantage:

1. Low cost1. Low cost

* Disadvantage: * Disadvantage:

1.The risk of losing control of the 1.The risk of losing control of the technology is hightechnology is high

3. License the technology3. License the technology

*Advantage: *Advantage: 1.1. Conducting both the human clinical testing and Conducting both the human clinical testing and

commercial manufacturing and marketing of the commercial manufacturing and marketing of the product.product.

2.2. An initial license fee of $ 2 million and a 5 percent An initial license fee of $ 2 million and a 5 percent royalty on future salesroyalty on future sales

3.3. The PV of royalties from licensing manufacturing and The PV of royalties from licensing manufacturing and marking is $12 million marking is $12 million

* Disadvantage* Disadvantage1. The risk of jeopardizing the value of related products it 1. The risk of jeopardizing the value of related products it

could develop.could develop.

BUILD OWN LABBUILD OWN LAB

This would allow for ALL the necessary This would allow for ALL the necessary manufacturing and testing proceduresmanufacturing and testing procedures

ANDANDAllows for development of related productAllows for development of related product

($6M)($6M) for production facilities for production facilities ($5M)($5M) PV cost for laboratory PV cost for laboratory

PV of CF= PV of CF= $20M$20MValue of related products developed= Value of related products developed= $5M$5M

SUB-CONTRACT LABSUB-CONTRACT LAB

This has a low cost This has a low cost

BUT BUT

Risk losing control of the technologyRisk losing control of the technology

($6M)($6M) for production facilities for production facilities

($2M)($2M) PV cost for contract PV cost for contract

PV of CF= PV of CF= $20 M$20 M

Value of related products developed= Value of related products developed= $ 2.5M$ 2.5M

LICENSE THE TECHLICENSE THE TECH

LESS COSTLESS COSTAllows for a $2M license fee AND a 5% royaltyAllows for a $2M license fee AND a 5% royalty

BUT,BUT,Jeopardize the value of related products it could Jeopardize the value of related products it could

developdevelop

PV of royalties= PV of royalties= $12M$12MValue of related products developed= Value of related products developed= $ 1M$ 1M

THREE SCENARIOSTHREE SCENARIOS

Best Scenario: Best Scenario:

WITHWITH

the opportunity to develop a related the opportunity to develop a related productproduct

30% probability30% probability

THREE SCENARIOSTHREE SCENARIOS

Normal Scenarios:Normal Scenarios:

Success BUT Success BUT

Related opportunities are not foundRelated opportunities are not found

= a zero value= a zero value

40% probability40% probability

THREE SCENARIOSTHREE SCENARIOS

Worst Scenario:Worst Scenario:

FAILURE- FAILURE-

Bad ProductBad Product

AND no related-product developmentAND no related-product development

30% probability 30% probability

Construct

Sub-Contract

Licensing

Scenario 1(30%)

Scenario 2(40%)

Scenario 3(30%)

Scenario 1(30%)

Scenario 1(30%)

Scenario 2(40%)

Scenario 3(30%)

Scenario 2(40%)

-(5 M + 6M) + 20M +5M=14M

-(5 M + 6M) +20M=9M

-(5 M + 6M) =-11M (Fail)

-(2 M + 6M) + 20M +2.5M=14.5M

Scenario 3(30%)

-(2 M + 6M) +20M =12M

-(2 M + 6M) =-8M (Fail)

2 M + 12M +1M=15M

2 M +12M=14M2 M =2M (Fail)

Weighted Expected NPV(1)

[ (0.3 x 14) + (0.4 x 9) + ( 0.3 x {-11}) ]= 4.5M

Weighted Expected NPV(2)

[(0.3 X 14.5) + (0.4 x 12) + (0.3 x {-8}) ]= 6.75M

Weighted Expected NPV(3)

[ (0.3 x 15) + (0.4 x 14) + (0.3 x 2) ]= 10.7M