Which economic return can I expect?

The market for top selling drugs is enormous and consequently promising drug candidates may be divested at a very high price. However, the risk for failure is also very high and this is particularly true for projects in early development.

The final return to owners will depend on the ownership structure when the project is divested. The initialowners’ share will be diluted over time as new shares are issued.

WHAT WILL BE THE RESEARCHERS’ SHARE BY THE TIME OF DIVESTURE?

The researchers’ percentage of the deal value depends on the ownership structure at the time of divesture. This in turn depends on the need to raise additional funds and the increase in project value.

Table 1 illustrates a fictive deal and how the researchers’ return is affected by share dilution1. We assume that there are initially 1000 shares in the company and that the researchers hold 500 of those. The company is being further capitalised by 2.5 MSEK annually through a share issue to Actar. Consequently, the researchers’ share of the company is decreasing and reaches 15% after four years. Assuming the company is divested at this point in time, the researchers are entitled to 15% of all cash-flows including the immediate upfront payment and future milestones and royalties.

Click to view enlarged image

Table 1. A fictive project and deal. Actar's annual investments dilute the researchers' percentage of the company. The increase in company value more than compensates for share dilution.