Glossary

• Acquisition : An act of buying ownership of a company to control the target firm
• Approval : An action by a ruling authority of a government to validate safety and efficacy of a drug
• Asset : A product, technology or research program that an originator is willing to sell or license out
• Biotechnology : A focused industry that uses cellular and bimolecular processes to develop technologies and products
• Buyer : The partner in the transaction process who is willing to pay for a full or partial ownership of an asset. Also called PURCHASER
• Cash Exposure : Actual amount of fund that is invested
• Co-development : A partnership agreement where both partners are committed to develop the asset through clinical development process
• COGS : Cost of Goods Sold
• COGS Margin : The margin the original manufacturer or supplier of a drug charges (Transfer Price related)
• COGS Sale : The revenue stream generated by supplying product to a partner / licensee (Transfer Price related).
• Collaboration : Involvement of both partners in development and promotion of a product
• Co-marketing : An agreement where two parties promote and sell together to book its own sales
• Commercial Milestone : A payment paid to the originator after a certain revenue / net sales numbers are reached
• Contract Manufacturing : Manufacturing of a drug to supply to the marketing company
• Co-promotion : An agreement where two parties promote and sell together
• Deal Terms : A payment agreement between licensor and licensee
• Development : A usual pathway followed by a drug from discovery to launch
• Development Milestone : A payment paid to the originator after a certain development phases become successful
• Discounted Cash Flow (DCF) : Discounted Cash Flow calculated from FCF and WACC
• Discounted Payback : Year at which the cumulative DCF is zero for the first time
• Discovery : An early development phase of a drug
• eIRR : IRR value risk-adjusted with POS
• eNPV : NPV risk-adjusted with POS
• Exclusivity Period : Period of commercialization rights without any generic entry
• Forecasting Period : Total valuation period that includes LoE and Post-LoE commercialization
• Free Cash Flow (FCF) : Cash flow of an operation / business by taking working capital movement and capital expenditure into account
• Incremental R&D Costs : Post-launch R&D spend for additional indication or studies
• Indication : Approved usage of a drug
• In-license : To acquire rights to develop / commercialize under certain terms from a licensor
• IRR : Internal Rate of Return
• Join Venture : A legal entity created from multiple independent entities
• Launch : First commercialization
• Launch Year : Year of first commercialization
• License : Rights to a product or technology under certain terms
• Licensee : The party that is granted rights to a product or technology by the originator under certain terms
• Licensor : The party that is the originator of a product or technology granting rights to a purchaser under certain terms
• Life Cycle Management : Post-launch initiatives to extend the life of an approved drug
• LoE : Loss of Exclusivity
• M&A : Mergers and Acquisition
• Manufacturing : Approved and scaled up process of making a drug
• Marketing : Activities performed by selling companies to bring a product to consumers
• Merger : A third controlling legal entity created to cease operations of two separate entities
• Milestone Payment : A payment made by the licensee to the licensor after a certain measurable event
• NPV : Net Present Value
• Opportunity Region : A bigger geography for marketing equivalent to continents in most cases
• Opportunity Sub-region : A smaller geography for marketing equivalent to a country or group of countries
• Out-license : To grant rights to develop / commercialize under certain terms to a licensee
• Payment Capitalized : Accounting treatment of Upfront, Development and Commercial Milestones
• Payment Expensed : Accounting treatment of Upfront, Development and Commercial Milestones
• Peak Revenue : The maximum net sales achieved by a drug during it exclusivity period
• Phase 1 : First phase of a drug in clinical development to study safety with healthy volunteers
• Phase 2 : Second phase of a drug in clinical development to study safety and efficacy in small number of patients
• Phase 2a : Second phase of a drug in clinical development to study dosing requirements for safety in small number of patients
• Phase 2b : Second phase of a drug in clinical development to study efficacy in small number of patients
• Phase 3 : Third phase of a drug in clinical development to study safety and efficacy in large number of patients before approval
• Pre-clinical : Phase of a drug development to test efficacy, toxicity and pharmacokinetics in non-human subjects
• Probability of Launch (PoL) : Probability of a drug candidate successfully moving through the whole development process into market
• Probability of Success (POS) : Probability of successfully moving from one phase to the next phase of development of a drug candidate
• Profit Share : An agreement in a deal term to share gross margin, usually calculated after royalty payment
• Promotional Period : Number of years an approved drug is actively promoted and a certain amount of investment made in sales and marketing efforts
• Purchaser : Licensee / Buyer
• Ratio of Sales and Marketing Costs (S&M) to Net Sales : S&M Percentage
• Registration : A formal proposal to regulatory authority seeking approval for a drug after clinical studies
• Return of R&D Investment : The ratio of total NPV of a project / asset to NPV of R&D investment
• Risk-adjusted IRR : eIRR
• Risk-adjusted NPV : eNPV
• Royalty Rate : A certain percentage of net sales is paid by the licensee to the licensor based on deal terms
• S&M Percentage : The ratio of total cumulative investment in sales and marketing to total cumulative net sales through the valuation period
• Sales and Marketing (S&M) Costs : Total investment in promotional activities (sales force, sample, DTC, all other promotional / marketing activities)
• Sales-related Payment (SRP) : A payment paid to the originator after a certain revenue / net sales numbers are reached
• Seller : Licensor
• Share of eNPV : Ratio of one partner's NPV to total NPV of both the partners
• Share of NPV : Ratio of one partner's eNPV to total eNPV of both the partners
• Share of R&D Costs : An agreement by the licensor to bear certain percentage of annual costs of R&D
• Share of S&M Costs : An agreement by the licensor to bear certain percentage of annual costs of sales and marketing
• Total Development Costs : Total investment in R&D including development cost of incremental / life cycle management
• Transfer Price : A version of COGS Sale under deal terms
• Un-discounted Payback : Year at which the cumulative FCF is zero for the first time
• Upfront : Onetime payment paid by the licensee to licensor at the time of signing a deal
• WACC : Weighted Average Cost of Capital calculated by taking capital structure into account and used to make investment decision
• Zipf's Law : A statistical formula to estimate market share based on the order-of-entry of a product in a therapeutic class