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Factors Affecting Pricing in Patent Licensing Contracts in the Biopharmaceutical Industry

Author

Listed:
  • Jeong Hee Lee

    (Graduate School of Health Science Business Convergence, College of Medicine, Chungbuk National University, Cheongju 28644, Korea)

  • Eungdo Kim

    (Graduate School of Health Science Business Convergence, College of Medicine, Chungbuk National University, Cheongju 28644, Korea)

  • Tae-Eung Sung

    (Department of Computer and Telecommunications Engineering, College of Science and Technology, Yonsei University, 1 Yonseidae-gil, Wonju 26493, Gangwon-do, Korea)

  • Kwangsoo Shin

    (Graduate School of Health Science Business Convergence, College of Medicine, Chungbuk National University, Cheongju 28644, Korea)

Abstract

This paper analyzes factors affecting pricing in patent licensing contracts in the biopharmaceutical industry based on a dataset that includes royalty-related data such as running royalty rate, up-front payment, milestones, and deal value. Data on drug candidates for 11 drug classes is obtained for regression analysis between royalty-related data and multiple input descriptors such as market factors, licensor factors, and licensee factor in order to derive the formula for predicting royalty-related estimates such as royalty rate, up-front payment, milestones, and deal value. Data is gathered from multiple sources including MedTrack and is processed through merging and cleaning. We found that the three most important factors in pricing in patent licensing in the biopharmaceutical industry are CAGR (Compound Annual Growth Rate), PDELR (Previous Deal Experience of Licensor), and AR (Attrition Rate). We found that factors in the formula used to estimate the license fee are totally different by drug class. We found that the three most important factors in the frequency in the formula used to estimate the license fee are PDELR, RnDLR (R&D Costs of Licensor), and PDELE (Previous Deal Experience of Licensee). This study suggests a method of estimating the proper royalty rate, up-front payment, milestones, and deal value of the drug candidates of 11 drug classes by using easily obtained input data.

Suggested Citation

  • Jeong Hee Lee & Eungdo Kim & Tae-Eung Sung & Kwangsoo Shin, 2018. "Factors Affecting Pricing in Patent Licensing Contracts in the Biopharmaceutical Industry," Sustainability, MDPI, vol. 10(9), pages 1-21, September.
    • Handle: RePEc:gam:jsusta:v:10:y:2018:i:9:p:3143-:d:167486
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    References listed on IDEAS

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    Cited by:

    1. Chien-Shu Tsai & Ting-Chung Tsai & Po-Sheng Ko & Chien-Hui Lee & Jen-Yao Lee & Yu-Lin Wang, 2019. "On the Sustainability of Technology Licensing Under Asymmetric Information Game," Sustainability, MDPI, vol. 11(24), pages 1-15, December.
    2. Eungdo Kim & InGyu Lee & Hongbum Kim & Kwangsoo Shin, 2021. "Factors Affecting Outbound Open Innovation Performance in Bio-Pharmaceutical Industry-Focus on Out-Licensing Deals," Sustainability, MDPI, vol. 13(8), pages 1-17, April.

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