Opt-out options in new product co-development partnerships

We study three contractual arrangements—co-development, licensing, and co-development with opt-out options—for the joint development of new products between a small and financially constrained innovator firm and a large technology company, as in the case of a biotech innovator and a major pharma company. We formulate our arguments in the context of a two-stage model, characterized by technical risk and stochastically changing cost and revenue projections. The model captures the main disadvantages of traditional co-development and licensing arrangements: in co-development the small firm runs a risk of running out of capital as future costs rise, while licensing for milestone and royalty (M&R) payments, which eliminates the latter risk, introduces inefficiency, as profitable projects might be abandoned. Counter to intuition we show that the biotech's payoff in a licensing contract is not monotonically increasing in the M&R terms. We also show that an option clause in a co-development contract that gives the small firm the right but not the obligation to opt out of co-development and into a pre-agreed licensing arrangement avoids the problems associated with fully committed co-development or licensing: the probability that the small firm will run out of capital is greatly reduced or completely eliminated and profitable projects are never abandoned.

An evaluation of a new product data model

Engineering companies face many challenges today such as increased competition, higher expectations from consumers and decreasing product lifecycle times. This means that product development times must be reduced to meet these challenges. Concurrent engineering, reuse of engineering knowledge and the use of advanced methods and tools are among the ways of reducing product development times. Concurrent engineering is crucial in making sure that the products are designed with all issues considered simultaneously. The reuse of engineering knowledge allows existing solutions to be reused. It can also help to avoid the mistakes made in previous designs. Computer-based tools are used to store information, automate tasks, distribute work, perform simulation and so forth. This research concerns the evaluation of tools that can be used to support the design process. These tools are evaluated in terms of the capture of information generated during the design process. This information is vital to allow the reuse of knowledge. Present CAD systems store only information on the final definition of the product such as geometry, materials and manufacturing processes. Product Data Management (PDM) systems can manage all this CAD information along with other product related information. The research includes the evaluation of two PDM systems, Windchill and Metaphase, using the design of a single-handed water tap as a case study. The two PDMs were then compared to PROSUS/DDM. PROSUS is the Process-Based Support System proposed by [Blessing 94] using the same case study. The Design Data Model is the product data model that includes PROSUS. The results look promising. PROSUS/DDM is able to capture most design information and structure and present it logically. The design process and product information is related and stored within the DDM structure. The PDMs can capture most design information, but information from early stages of design is stored only as unstructured documentation. Some problems were found with PROSUS/DDM. A proposal is made that may make it possible to resolve these problems, but this will require further research.