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Case study ---- Aquionics Prepared by Chia-Yin Lee David Dai.

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Presentation on theme: "Case study ---- Aquionics Prepared by Chia-Yin Lee David Dai."— Presentation transcript:

1 Case study ---- Aquionics Prepared by Chia-Yin Lee David Dai

2 Overview Overview * A biotech company * A biotech company * Developed technology for treatment of glaucoma * Developed technology for treatment of glaucoma ----- Already tested its product on animal, but has yet to conduct the human-subject clinical ----- Already tested its product on animal, but has yet to conduct the human-subject clinical * Trade – off * Trade – off Protecting the value of the intellectual property Protecting the value of the intellectual property Limiting the costs and risk of developing the product for commercial use Limiting the costs and risk of developing the product for commercial use

3 Alternatives Alternatives * Commercial development of the product would occur in two stages. 1. human clinical testing 1. human clinical testing 2. commercial manufacturing 2. commercial manufacturing * Three approaches 1. Construct a laboratory facility 1. Construct a laboratory facility 2. Sub- contract to an existing laboratory 2. Sub- contract to an existing laboratory 3. License the technology to an existing firm 3. License the technology to an existing firm

4 First approach---- Construct a laboratory facility * Advantage: * Advantage: 1. sufficient for carrying out the manufacturing 1. sufficient for carrying out the manufacturing and testing procedures and 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 technology of related applications of the technology * Cost : PV $ 5 million * Cost : PV $ 5 million

5 Second approach--- Sub- contract the clinical testing to an existing laboratory * Advantage: Low cost * Advantage: Low cost * Risk: losing control of the technology is * Risk: losing control of the technology is increased increased * Cost: PV$ 2 million * Cost: PV$ 2 million Notes: 1. Both alternatives need additional $ 6 Notes: 1. Both alternatives need additional $ 6 million for production facilities million for production facilities 2. PV of cash flow is $ 20 million 2. PV of cash flow is $ 20 million

6 Third approach--- Third approach--- License the technology for treatment of glaucoma to an existing firm License the technology for treatment of glaucoma to an existing firm*Advantage: 1. Conducting both the human clinical testing and commercial manufacturing and marketing of the product. 2. An initial license fee of $ 2 million and a 5 percent royalty on future sales 3. The PV of royalties from licensing manufacturing and marking is $12 million * Risk : Jeopardize the value of related products it could develop

7 Three Scenarios 1. The product is a success, and the success affords opportunities to develop a number of related products 1. The product is a success, and the success affords opportunities to develop a number of related products ------- Probability 30 % ------- Probability 30 % Alternative Value of related product Construct a laboratory facility $ 5 million Sub- contract to an existing laboratory $ 2.5 million License the technology to an existing firm $ 1 million

8 Three Scenarios -cont. 2. The clinical testing is a success, but 2. The clinical testing is a success, but related applications are not found related applications are not found ---- Probability is 40 % ---- Probability is 40 % ---- The value of related product is zero ---- The value of related product is zero 3. The clinical testing will fail ---- 30% 3. The clinical testing will fail ---- 30%

9 Decision Tree For Three Approaches Construct Sub-Contract Licensing Scenario 1(30%) Scenario 2(40%) Scenario 3(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=14M 2 M =2M (Fail)

10 Weighted Expected NPV(1)= [0.3X14+0.4X9+0.3X(-11)]=4.5M Weighted Expected NPV1(2)=[0.3X14.5+0.4X12+0.3X(-8)]=6.75M Weighted Expected NPV1(3)=(0.3X15+0.4X14+0.3X2)=10.7M Decision Tree For Three Approaches


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