Step by step: The benefits of stage-based R&D licensing contracts

We examine how a licensor can optimally design licensing contracts for multi-phase R&D projects when he does not know the licensee’s project valuation, leading to adverse selection, and cannot enforce the licensee’s effort level, resulting in moral hazard. We focus on the effect of the phased nature typical of such projects, and compare single-phase and multi-phase contracts. We determine the optimal values for the upfront payment, milestone payments and royalties, and the optimal timing for outlicensing. Including multiple milestones and accompanying payments can be an effective way of discriminating between licensees holding different valuations, without having to manipulate the royalty rate, which induces licensees to invest less, resulting in lower project values and socially suboptimal solutions. Interestingly, we also find that multiple milestone payments are beneficial even when the licensor is risk-averse, contrary to standard contract theory results, which recommend that only an upfront payment should be used. In terms of licensing timing, we show that the optimal time depends on the licensor’s risk aversion, the characteristics of the licensee and the project value

Managing technology risk in R&D project planning: Optimal timing and parallelization of R&D activities.

An inherent characteristic of R&D projects is technological uncertainty, which may result in project failure, and time and resources spent without any tangible return. In pharmaceutical projects, for instance, stringent scientific procedures have to be followed to ensure patient safety and drug efficacy in pre-clinical and clinical tests before a medicine can be approved for production. A project consists of several stages, and may have to be terminated in any of these stages, with typically a low likelihood of success. In project planning and scheduling, this technological uncertainty has typically been ignored, and project plans are developed only for scenarios in which the project succeeds. In this paper, we examine how to schedule projects in order to maximize their expected net present value, when the project activities have a probability of failure, and where an activity's failure leads to overall project termination. We formulate the problem, show that it is NP-hard and develop a branchand- bound algorithm that allows to obtain optimal solutions. We also present polynomial-time algorithms for special cases, and present a number of managerial insights for R&D project and planning, including the advantages and disadvantages of parallelization of R&D activities in different settings.Applications; Branch-and-bound; Computational complexity; Exact algorithms programming; Integer; Pharmaceutical; Project management; Project scheduling; R&D projects analysis of algorithms; Risk industries;

Intellectual property rights for nanotechnology

PhD ThesisThe purpose of this study is to examine intellectual property (IP) protection for nanotechnology, comparing the laws of Malaysia with those of the United Kingdom (as a member of the European Union and European Patent Convention). As well as analysing current primary and secondary legal sources, a small number of discrete interviews were conducted with key nanotechnology scientists in Malaysia and the United Kingdom to ascertain the nature and development of nanotechnology in the jurisdictions under study and to explore the experts’ perceptions of IP laws, including the pattern of protection that might be expected as the technology matures. This study argues that current intellectual property rights are appropriate to govern nanotechnology creations, so that there is no need to devise a new form of IP right for nanotechnology. The emphasis in the IP literature to date has been on patent law, but this study argues that the law of breach of confidence is also very significant, despite difficulties presented by the technology. Furthermore, from qualitative empirical and doctrinal evidence, other forms of IP protection may be applicable to some extent. This study also investigates the current term protection of different forms of IP which may be relevant to nanotechnology, including the possible application of Supplementary Protection Certificates to allow for the time taken by nanotechnology products to enter the market. Finally, some recommendations are made for both Malaysia and the United Kingdom to protect nanotechnology appropriately.Universiti Teknikal Malaysia Melaka (UTeM) and the government of Malaysi

Research and Development Project Valuation and Licensing Negotiations at Phytopharm plc

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

Managing the tension between knowledge exploration and exploitation: the case of UK biotechnology

In prior literature it has been argued that there exists a tension between balancing investments in Exploration for new organisational knowledge against the Exploitation of current stocks. It is argued that over time firms tend towards an ever increasing focus upon Exploitation to the exclusion of investments in Exploration. It is argued that this bias is in part due to the causally complex feedback loops between Exploration activities and financial performance. The tendency for Exploitation to drive out Exploration activities over time is argued to pose a serious threat to firm's long term prosperity and survival. This thesis first reviews and interprets the diverse literature on the tension between Exploration and Exploitation. This interpretation of prior work highlights that Exploitation is not a single process, but rather two: incremental Development of current stocks of knowledge and Appropriation of a return from those stocks through use and sale in the marketplace. It is argued that the classic tension between Exploration and Exploitation is intermediated by the process of Devlopment, which seeks to convert new organisational knowledge into forms amenable to appropriation of a financial return, in addition to making incremental improvements to current stocks of organisational knowledge. It is argued that the tension between these three processes only exists in the short term. In the long term the success of each process is dependent upon the other two. It is argued, however, that in the long term it is difficult sustain individual efforts to extend the firm's knowledge stocks through Exploration, Development, or efforts to Appropriate a return through use, due to the existence of three antagonistic processes that impede each of these three processes individually. These antagonists are Core Rigidities, Slow Rate of Learning and Imitation by competitors. Through the literature review insights are offered into how management can suppress these antagonistic processes. Chapters Three and Four empirically study the phenomena of Exploration and Exploitation of organisational knowledge in the context of the UK therapeutics biotechnology sector. In Chapter Three an in-depth case study of a leading firm, Ceiltech, is undertaken. From this case it is argued that contrary to prior literature it is possible for a firm to maintain a balance between Exploratidn and Exploitation beyond the short term. It is shown that Ceiltech's Exploration activities can be linked directly to the financial renaissance of the firm between 1990 and 1998. Insights are offered into how management sought to maintain this balance and ensure that the long term complementary relationship between the processes of Exploration, Development and Appropriation was not undermined by short-term actions. Based on the experiences of Ceiltech and other biotechnology firms key quantifiable outputs of the processes of Exploration, Development and Appropriation are devised. Using an event study methodology, announcements of these key outputs, by all publicly quoted UK biotechnology firms between December 1995 and January 1999, are analysed. It is found that contrary to prior theoretic suggestions the outputs of both Exploration and Exploitation activities generate observable financial valuations in the stock market. Announcement of positive progress in Exploration and Development activities are found to coincide with increases in share price over and above either the past performance of the firm or the contemporary performance of market indices. This suggests that contrary to theoretical arguments in the literature the causal feedback loop between Exploration and Development activities and financial performance can be quite direct. It is also found that alliance formation plays an important role in value creation. It is argued that the increase in market capitalisation that formation of alliances generate is not fully explained by the sharing of resources and capabilities alone. It is argued that formation of an alliance with a firm that has a high scientific and commercial reputation within the stock market has a knock on reputational effect upon the valuation of its biotechnology partner. The alliance offers uncertainty reduction information to shareholders about the likely success and value of Exploration and Development projects undertaken by the biotechnology firm, resulting in an increase in the value of the firm. The concluding chapter of this thesis highlights major implications that the findings of this study may have for both the pharmaceutical sector and industry in general