Dr.

Narendrans Dilemma

Submitted in partial fulfilment of the requirements of the course

WRITTEN ANALYSIS AND COMMUNICATION I

To:-

Prof. Asha Kaul Ms. Shilpa Sawant

On:2nd July 2011

By:Sunil Sagar Section A PGP 2011-13

Letter of Transmittal From, Sunil Sagar WIMWI Ahmedabad.

To, Dr. Narendran Indian Medicine College Chennai.

Date: Subject:

2nd July 2011 Patenting and licensing out of Dr. Ramkumars medicine.

Dear Sir, I have analyzed your problem and come up with a strategy regarding the patenting and licensing out of the formulation. The report is enclosed.

Yours sincerely, Sunil Sagar.

Executive Summary

Dr. Ramkumar has developed a formulation for coronary atherosclerosis and he wants to get it patented. Dr. Narendran is doubtful about patenting the formulation as he has never patented any of his work in his entire career.

It is advisable to go for patenting. The effects of one-time license fee, job work to be done by registered pharmaceutical unit and royalty on gross sales at 6 percent, on income and risk were analyzed. Job work to be done by registered pharmaceutical unit, which can provide IMC a moderate income and involves low risk, is recommended.

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Content

Situation Analysis............................................................................................................ 4 The Problem..................................................................................................................... 5 The Options...................................................................................................................... 5 Criteria for Evaluation..................................................................................................... 6 Evaluation of Options...................................................................................................... 6 The Recommendation...................................................................................................... 8 Action Plan ...................................................................................................................... 8

Situation Analysis

Dr. Ramkumar, Associate Professor and Head of the Pharmacology Department of Indian Medical College (IMC), has requested Dr. Narendran, Director of IMC to get the formula of a medicine, for treatment of coronary atherosclerosis, patented which is prepared by him and commercialize the same. Dr. Ramkumar joined IMC in mid-2008 and he is known as a good practitioner and researcher. He has a secretive personality and he generally does not discuss his work with any of his colleagues. Nobody other than Dr. Ramkumar knows what this formulation is. Dr. Ramkumar only told Dr. Narendran that a legal firm has told him that there is a 90 percent chance that the patent will be granted. The cost of applying for a patent would cost Rs. 25000. IMC has three objectives - to give education in Siddha (an ancient system of medicine) and to provide medication through Siddha, to research various aspects of Siddha and to develop and promote Siddha. IMC was started in 2004 and since then it has developed a lot. In June 2005, there were 20 beds in the inpatient department (IPD) and it has increased to 120 beds by 2008. In early 2011, the outpatient department (OPD) had an average of 1100 patients per day. IMC was also facing some problems such as shortage of personnel, congested consultation rooms.

The research activities at IMC started in 2008. IMC had received Rs. 30 lakhs from the government for various research studies in May 2010. Dr. Narendran along with Heads of the six departments felt that patenting the work done by the researchers or faculty members of IMC will motivate them and this can also make Siddha popular like other forms of medicine. Dr. Narendran also felt that the chances of keeping the composition of the formulation secret are less and there is a risk of another researcher finding out a same kind of formulation and patenting it which will prevent IMC from using the original formulation created by Dr. Ramkumar.

The Problem
Should Dr. Narendran allow Dr. Ramkumar to go for patenting and to license out the formulation prepared by him for the treatment of coronary atherosclerosis?

The Options
1) One time License Fee To grant some drug-manufacturing company the license to use the patent and earn some income by charging a one-time license fee. 2) Job work to be done by registered pharmaceutical unit - To manufacture the medicine using a registered pharmaceutical unit and the marketing should be done by IMC. 3) Royalty on Gross Sales at 6 percent - To sign an agreement with some entrepreneur, under which the entrepreneur would pay annual royalties on the sales of the medicine.
5

Criteria for Evaluation

The income generated should be high so that the infrastructure of IMC can be further developed and problems such as shortage of manpower can be solved. The risk involved with finding a suitable partner.

Evaluation of Options
1) One-time License fee According to a survey, there is a probability of 70 percent that IMC gets an income of Rs. 50000 and there is a probability of 30 percent that IMC gets an income of Rs. 75000 ( Exhibit 1 ). But in this case there is a risk of finding an unsuitable partner. Now if the patent is obtained and IMC decides to sell it to some drug-manufacturing or pharmaceutical company then the income that IMC can expect is:Rs. (0.7 x 50000 + 0.3 x 75000) = Rs.57500. The income obtained is high but there is a risk of not finding a suitable partner for doing the business with is also high.

2) Job work to be done by registered pharmaceutical unit

According to the report submitted to IMC, the income obtained in this case is Rs. 4000, Rs. 20000, Rs. 20000, Rs. 10000 and Rs. 4000 for year 1, year 2, year 3, year 4 and year 5 respectively ( Exhibit 2 ). If we take depreciation rate as 10 percent, then the Net Present Value (NPV) of the Total Income Obtained in those five years comes out to be Rs. 44505.41. The income obtained is moderate. The risk is low as IMC itself is producing the medicine using a registered pharmaceutical unit but Dr. Narendran is not sure whether the staff of IMC or someone else will be able to do it effectively.

3) Royalty on Gross Sales at 6 percent If IMC signs an agreement with an entrepreneur for manufacturing the medicine by using the formulation then the manufacturer will have to pay some royalty to IMC at the end of each year. According to the report submitted to IMC, the rate of royalty is 6 percent and the incomes obtained are Rs. 15000, Rs. 13200, Rs. 12000, Rs. 9000 and Rs. 6000 for year 1, year 2, year 3, year 4 and year 5 respectively ( Exhibit 3 ). If we take discount rate as 10 percent, then the Net Present Value (NPV) of the Total Income Obtained in those five years comes out to be Rs. 43433.88. The income obtained is low in this case. The risk of not finding a suitable partner is high.

Summary One-time License fee Job work to be done Royalty on Gross by registered pharmaceutical unit Income Risk* High High Moderate Low Low High Sales at 6 percent

* of not finding suitable partner to do business with

The Recommedation
IMC should get the formulation patented, manufacture the medicine using a registered pharmaceutical unit and do the marketing by itself.

Action Plan
Patent and register the formulation with the states Food and Drug Administration. Manufacture the medicine using a registered pharmaceutical unit. Prepare a good marketing strategy for improving the sales of the medicine.

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Exhibit 1 : One time License Fee Our survey indicates that there is a probability of 0.7 that Rs. 50000 may be obtained, and a probability of 0.3 that a higher value of Rs. 75000 may be received. Exhibit 2 : Job work to be done by registered pharmaceutical unit (Sales and Costs in Rs.) Year 1 Sales Costs Sales (-) Costs 100000 96000 4000 Year 2 80000 60000 20000 Year 3 65000 45000 20000 Year 4 40000 30000 10000 Year 5 32000 28000 4000

N.P.V. = Rs. 44505.41 Discount rate = 10 percent Exhibit 3 : Royalty on Gross Sales at 6 percent (Rs.) Year 1 Gross Sales Royalty at 6 percent 250000 15000 Year 2 220000 13200 Year 3 200000 12000 Year 4 150000 9000 Year 5 100000 6000

N.P.V. = Rs. 43433.88 Discount rate = 10 percent