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J. Open Innov. Technol. Mark. Complex. 2016, 2(4), 21; https://doi.org/10.1186/s40852-016-0047-7 (registering DOI)

Valuation method by regression analysis on real royalty-related data by using multiple input descriptors in royalty negotiations in Life Science area-focused on anticancer therapies

1
Patent Law Firm WELL (WELL), 4F Daemyung Building shingwan, 205 Bangbae-ro, Seocho-gu, Seoul 06562, South Korea
2
School of Business, Chungbuk National University, 1 Chungdae-ro, Seoweon-gu, Cheong-Ju, Chungbuk 28644, South Korea
3
Korea Institute of Science and Technology Information (KISTI), Hoegi-ro, 66, Dongdemun-gu, Seoul 130-741, South Korea
4
Science Co., Ltd (DS), # 304, 3 F, Kumkang B/D, 71 Garak-ro, Songpa-gu, Seoul 138-846, South Korea
5
KMA Consultants Inc, 8F, 101 Yeouigongwonro, Youngdeungpo-gu, Seoul 02741, South Korea
*
Author to whom correspondence should be addressed.
Received: 13 July 2016 / Accepted: 5 October 2016 / Published: 17 October 2016
PDF [4899 KB, uploaded 9 February 2018]

Abstract

Purpose: This research seeks to answer the basic question, “What would be the most determining factors if I perform regression analysis using several independent variables?” This paper suggests the way to estimate the proper royalty rate and up-front payment using multiple data I can get simply as input.
Design/methodology/approach: This research analyzes the dataset, including the royalty-related data like running royalty rate (back-end payments) and up-front payment (up-front fee + milestones), regarding drug candidates for specific drug class of anticancer by regression analysis. Then, the formula to predict royalty-related data is derived using the attrition rate for the corresponding development phase of the drug candidate for the license deal, TCT (Technology Cycle Time) median value for the IPC code (IP) of the IP, Market size of the technology, CAGR (Compound Annual Growth Rate) of the corresponding market and the revenue data of the license buyer (licensee).
Findings: For the anticancer (antineoplastics) drug classes, the formula to predict the royalty rate and up-front payment is as follows.
<Drug Class: Anticancer activity candidates>

Royalty Rate = 9.997 + 0.063 * Attrition Rate + 1.655
* Licensee Revenue ‐ 0.410 * TCT Median

‐1.090 * Market Size ‐ 0.230 * CAGR (Formula 1)

Up‐Front Payment (Up‐front + Milestones) = 2.909 ‐ 0.006 * Attrition Rate + 0.306 *
Licensee Revenue ‐ 0.74 * TCT Median ‐ 0.113 * Market Size ‐ 0.009 * CAGR (Formula 2)

In the case of Equations Equation 1 to estimate the royalty rate, it is statistically meaningful at the significance level of 1 % (P-Value: 0.001); however, in the case of Equations Equation 2 to estimate the up-front payment it is statistically not meaningful (P-Value: 0.288), thus requiring further study.
Research limitations/implications (if applicable): This research is limited to the relationship between multiple input variables and royalty-related data in one drug class of anticancer (antineoplastics).
Practical implications (if applicable): Valuation for the drug candidate within a specific drug class can be possible, and the royalty rate can be a variable according to drug class and licensee revenue.

Keywords: Valuation, Licensing deal, Drug, Royalty data, Royalty rate, Up-front fee, Upfront Payment, Milestones, Regression, Drug class, Anticancer, Antineoplastics, Attrition rate, Development phase, Licensee, Life sciences, rNPV, eNPV (expected NPV), DCF, Multivariable analysis, IPC code, TCT median value, Market Size, CAGR, IP, Revenue, Multiple input descriptor, Significance level, P-Value, Prediction Valuation, Licensing deal, Drug, Royalty data, Royalty rate, Up-front fee, Upfront Payment, Milestones, Regression, Drug class, Anticancer, Antineoplastics, Attrition rate, Development phase, Licensee, Life sciences, rNPV, eNPV (expected NPV), DCF, Multivariable analysis, IPC code, TCT median value, Market Size, CAGR, IP, Revenue, Multiple input descriptor, Significance level, P-Value, Prediction
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).

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Lee, J.H.; Khee-Su, B.; Lee, J.W.; In, Y.; Kwon, T.; Lee, W. Valuation method by regression analysis on real royalty-related data by using multiple input descriptors in royalty negotiations in Life Science area-focused on anticancer therapies. J. Open Innov. Technol. Mark. Complex. 2016, 2, 21.

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J. Open Innov. Technol. Mark. Complex. EISSN 2199-8531 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert
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