Massachusetts General Hospital and the Enbrel Royalty   Case Solution & Answer

Massachusetts General Hospital and the Enbrel Royalty Case Solution 


The Massachusetts General Hospital located in the United States is one of the oldest and biggest hospital in the United States. The hospital is also known for its remarkable services in the world. The hospital also has an incredible name for its creativity and also for its services including in Harvard Medical School. The majority of the medical staff offering their services in the school as just like the employee of Harvard Medical School.

The MGH has huge facilities including 893 beds and provides a prevalent type of assistance for the diagnosis with full of consideration. The hospital also offer-sits services in almost all of the fields such as sub-specialty in surgery and medicines.

The accomplishment of the development of Enbrel is likewise connected to the name of Massachusetts General Hospital. The researchers of the MGH together with scientists have developed the innovation by melding the immunoglobulin to change over them into chemicals-such as hormone receptors. A similar innovation was utilized to make Enbrel.(David, 2005)

Problem Statement

The director of the Corporate and Licensing of France Toneguzzo has faced problems in deciding the right price of selling the Enbrel royalty and other technologies. MGH has few choices to sell their Enbrel royalties and after getting the funds which held from selling these royalties to invest in the future research. The problem facing the company is in selling Enbrel royalties which will restrict the income from the licensing of the technology. Toneguzzo has to be decided that the right cost of royalties will minimize the loss and give benefit in the future.

The Massachusetts General Hospital have a couple of decisions to sell their royalties and contribute for the future investigation. The issue is the selling Enbrel power will restrict the compensation from the allowing of the advances. Frances Toneguzzo needs to pick the right expense to restrict the future incidents from the opportunity of the compensation from these powers.

Since the drug was launched in 1998 in early 2004. The Enbrel royalty of $97 has been received which is permitting pay of 63$ million as a licensing income of MGH. Overall Enbrel reached at the point of 1.6$ billion in 2003 and had effectively outperformed that sum in the initial 3/4 of 2004. The deal cost would need to be significant to make up for the deficiency of future authorizing pay.


Some assumptions which were in consideration when the company selling out their royalties in the market given below:

Paul Capital, Royalty Pharma and Drug Royalty are the three investing companies for royalty streams. The assessed worth of the royalty stream from Enbrel drug depends on different suspicions connected with growth rates and WACC. In this way, there is a risk which would be carried out line or unreasonable selling cost may be set for the royalty stream prompting financial issues or wrong choice made by the organization. Almost 66% of the hospital’s licensing permitting pay comes from the Enbrel royalty, quite possibly financial issues may be looked because of choosing to sell the royalty stream in light of utilizing the change of WACC and growth rates in assessing the worth of the royalty stream.

Moreover, quite possibly the development rates not entirely set in stone by the business experts may be ridiculous prompting variety in the selling cost of the royalty stream from Enbrel drug. Considering, the kickback got from individuals because of incidental effects brought about by the drug, there is possibly that the public authority could end the medication or it might neglect to accomplish the projected deals. Because of decreasing the development rates by 2% every year because of the price fluctuations, the worth of the royalty stream is determined at $808.9 million when contrasted with $1030.8 million anticipated worth of the royalty stream.


Insubstantial price to compensate the loss of future licensing income.

Enbrel was the blockbuster drug for Massachusetts General Hospital and selling or not selling its rights was very big decision to be made by MGH, because it was foretasted that out of $63 million income of MGH from its licensing income for the year 2004, Enbrel was estimated to contribute 2/3 of the foretasted income. So MGH to decide a selling price on the basis of future cash flows to be raised from Enbrel. It was a risk for MGH if it would not set a substantial selling price for Enbrel royalty.

Risks of side effects created by for TNF blocking drugs.

According to many evidences collected from several medical researches it was said that consumption of these TNF blocking May leads to severe side effects like by lowering the immune system it could increase the patient’s exposure to severe allergies and infections.

Risk of development new diseases caused by TNF blocking drugs.

It was indicated by several research reports that by using these drugs for treatment purposes, patients were exposed to the risk of catching up  another severe diseases like skin cancers, ulcers,  revival of tuberculosis, eczema etc.

Possibility of development of new drugs in the market.

Enbrel was used to treat disease like rheumatoid arthritis (RA) and others related to it. Since the growing market capacity of rheumatoid arthritis and other similar diseases, there was possibility that new Disease Modifying Anti-Rheumatic Drugs (DMARD) could be developed in order to capture maximum potential market share, there exists the market risk for Enbrel to possibly lose its market share and market growth in future.

Growth rate risk

The growth rate mentioned In the case study is 17.6%, but it is not necessarily that it will always be of the same rate for the entire revenue stream as the growth rate given is based on the forecasts and estimations of the finance analysts but forecasts and estimations could be wrong and the growth rate could be lower than the estimated for say 15% and decreases more in the coming years and have a declining rate because of many reasons mainly due to price fluctuations of the drug, so it is a risk that the growth rate would be lower than the estimation which would decrease the revenue stream of the Enbrel loyalty stream. For suppose, we have assumed that if the growth rate declines at the rate of 2% because of price fluctuations of drug, WACC used 13.69%, the NPV of the total revenue stream till year 2015 would be $808.9 million which is lower than the estimated NPV of the revenue stream i.e. $1030.8 million.

Note: Refer to Appendix 2 for quantification purposes………………………..

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