Paul Betten, Ph.D.

Abstract

This paper discusses several methods of calculating an option fee for a license. It is concluded that most option fees, with a technology now ready for the market, can be calculated simply as “interest” due on the net present value of the license. If substantial risk or time is involved before the product can come to market, like pharmaceuticals, the purpose of the option fee changes and it becomes a “place holder” for more potential income; but, the option fee can still be determined from a simple net present value calculation that includes both a discount rate factor and a technology risk factor.