Let's consider a hypothetical biotech company that has developed...

Let's consider a hypothetical biotech company that has developed a promising new drug and is deciding whether to license geographical regions early in development or licensing indications later in the development process.

Early Geographical Licensing:

1. The biotech company licenses the rights to distribute the drug in a specific geographical region, say North America, at an early stage of development.
2. The licensing agreement includes an upfront payment and ongoing royalties.
3. The company receives an upfront payment of $5 million for North American rights.
4. Ongoing royalties are set at 10% of the net sales of the drug in the region.
5. The company also retains the rights to develop the drug for multiple indications.

Later Indication Licensing:

1. The biotech company decides to develop the drug further and obtain FDA approval for a specific medical indication, say a rare disease.
2. After successful clinical trials, the company licenses the indication to a pharmaceutical company.
3. The licensing agreement includes an upfront payment and milestone payments.
4. The company receives an upfront payment of $20 million for the rare disease indication.
5. Milestone payments are structured based on regulatory and sales achievements.

Assuming the drug is successful, we can compare the two scenarios:

Early Geographical Licensing:

• Upfront payment for North American rights: $5 million
• Ongoing royalties (assuming net sales of $100 million): $10 million
• Total revenue from North American licensing: $15 million
• The biotech retains rights for other regions and indications.

Later Indication Licensing:

• Upfront payment for rare disease indication: $20 million
• Potential milestone payments based on regulatory and sales achievements.
• The biotech may pursue additional indications and licenses.

In this example, early geographical licensing provides the biotech with upfront and ongoing revenue but limits its ability to maximize earnings from different indications. Later indication licensing offers a larger upfront payment but requires more development risk and potential milestone payments. The choice depends on the company's financial needs, development stage, and strategic goals.

Please note that these figures are for illustrative purposes and can vary significantly depending on the specifics of the drug, the agreements, and the market conditions.