Steven Renwick
PharmaVentures Ltd, Consultant, Oxford, UK
James A. McCarthy
CLP, EGEN, Inc., Senior Vice President, Corporate Development, Huntsville, AL, USA
Intellectual property valuation in the healthcare sector is often achieved through a combination of discounted cash flow (DCF) and net present value (NPV) calculations, supported by benchmarking based on publicly available deal information. Published total deal value figures invariably show upfront and various milestone payments. However, it is an unfortunate situation for dealmakers that royalties, potentially the largest financial component of the deals they would most like to benchmark, are the one piece of information that almost all companies will keep closest to their chest. The details of these figures are almost always kept confidential by the companies involved. In the United States, public companies are required to file the contracts of material licensing transactions with the U.S. Security and Exchange Commission (SEC). However, the relevant sections and numbers related to financials, and royalty rates in particular, are generally redacted in these filed contracts and are protected under restrictive confidentiality clauses for five or more years. These SEC filing requirements are only for public companies and material transactions. Thus, deals not subject to this requirement include public company deals that are not material to the overall size of the company (i.e. “large pharma”), deals by private companies such as numerous biotech companies, small pharmaceutical companies, ex-U.S. companies and university deals. The result is that actual or primary data on licensing royalty rates and deal terms is limited for a large portion of the industry.
Databases, such as PharmaDeals® and ReCap, will provide deal information where it has been made publicly available; or, where possible, request unredacted versions of filed contracts that are over five years old, through the Freedom of Information Act (FOIA). Nevertheless, there remains an unsatisfactory amount of contemporary royalty information available, covering current deals conducted in the last five years, for dealmakers to use as benchmarks in their licensing negotiations.
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