Realising tangible value from strategic alliances, joint ventures and partnering arrangements

The issue

A rapidly growing US-based biopharmaceutical manufacturer had entered into an exclusive worldwide development and marketing agreement with a major European-based pharmaceutical company. The biopharmaceutical manufacturer sought assistance from PricewaterhouseCoopers’ (PwC) licensing management practice in order to determine the accuracy and completeness of periodic royalty payments that our client received from the European company. Their agreement allowed for a third party our firm to analyse the royalty calculations and report back to our client on any issues we found with the calculations or reporting.

Our approach

PwC won the work based on our global reach and the deep industry-based licensing management experience of our team. The work required a detailed analysis of the royalty calculation, which was based upon the contractual definition of net sales. Additionally, the royalty rate was subject to adjustment based upon the actual cost of goods sold experienced by the pharmaceutical company. Our client was concerned about whether the other company was calculating net sales and cost of goods sold in accordance with the negotiated terms of the agreement. PwC utilised its fact-based, industry knowledge and sound forensic approach analysis to validate some of our client’s concerns regarding the royalty calculation, primarily related to the cost of goods sold component. Specifically, the European company included certain manufacturing costs that were not contemplated in the originally negotiated contract terms. The inclusion of these expenditures had previously resulted in a dramatically reduced royalty rate that was reported to our client.

The outcome

Our findings were used by the company to negotiate over US$60 million of settlement payments as well as higher royalty rates for future sales. PwC was told by the client that we exceeded their expectations and our team was complimented on their quality, dedication and technical ability.