DAVID SHIFERAW – NEGOTIATION ON THE ZINCIT CASE – DATE 1ST OCTOBER 2016

NEGOTIATING PARTNER: BETHLEHEM SHIFERAW, NOT TAKING THE COURSE, BUT

HAS TAKEN NEGOTIATIONS SOME TIME BACK
RESULT:
We compromised on Option D, which is US$17 million upfront and a 7.5% royalty. I understood that my
lawyer would be worse off with this option than BATNA. However, I was beginning to recognize that
Zincit was not prepared to accept my first option. In addition, I realized that with a 10% expectation of
FDA approval, I would be worse off with this option – however I was sure that this product would be
getting FDA approval AND this provided me with my second best expected value. I did recognize that
the partner was not prepared to accept my first choice, which was Option B.
CONTEXT:
Following an examination of the numbers, I determined that the payoffs (or pie) under the different
options are US$30 million (10% chance of FDA approval) and US$80 million (60% chance of FDA
approval). Zincit team was very conservative on the possibility of getting FDA approval, while I was
more optimistic.

As Hasan, my preference was to get option B, which would have provided me with a net US$9 million
payoff (at 60%), see Tale 1. My second best option was option D, which provides me with a net US$6.15
million. However, I knew that this was leaving my lawyer worse off in comparison to option C.
Table 1. Payoff with 60% Chance of Approval - Over BATNA
Expected BATNA Pie Zincit Hassan & Lawyer Hassan
Returns Lawyer
A 80.0 20.0 60.0 55.0 5.0 0.25 4.75
B 80.0 20.0 60.0 51.0 9.0 - 9.00
C 80.0 20.0 60.0 54.0 6.0 - 6.00
D 80.0 20.0 60.0 54.0 6.0 - 0.15 6.15
E 80.0 20.0 60.0 56.0 4.0 - 0.40 5.00
I also believed that my counterpart would take the discussion to the payoff with a 10% chance of
approval. As a result, I was sure that my counterpart would utilize a payoff of 10% chance of approval to
decide on her preferences. As a result, I was aware of the payoffs with 10%. And, I was aware that Zincit
would be arguing for option E.
Table 2. Payoff with 10% Chance of Approval - Over BATNA
Expected BATNA Pie Zincit Has san & Lawyer Has s an
Returns Lawyer
A 30.0 20.0 10.0 5.0 5.0 0.3 5.25
B 30.0 20.0 10.0 8.5 1.5 - 1.50
C 30.0 20.0 10.0 9.0 1.0 - 1.00
D 30.0 20.0 10.0 11.5 - 1.5 - 0.2 - 1.65
E 30.0 20.0 10.0 16.0 - 6.0 - 0.4 - 6.40
So, I went into the negotiation with the calculus above.

Negotiations:
 During the negotiation, Beth and I first exchanged pleasantries – and I provided some background
to the case. I indicated that I am very confident about the product and the ability of the product to
get FDA approval. I also indicated that I was looking forward to a mutually beneficial
arrangement. I indicated outright that my preference is for option B, which was which was an
upfront US$20 million and US$15 million if the product is FDA approved.

 However, Beth started debating my levels of confidence on the product’s ability to generate sales.
She indicated that if I was confident about the product, I would be inclined towards having
royalties rather than getting any lump-sum figure. She also started questioning whether the sales
and profit numbers are realistic.
  I reaffirmed to Beth that my lawyer and myself had gone through the numbers and that we were
very confident about the sales and profit numbers – as well as the expected values – given the
likelihoods stated.

 Beth then indicated that if the payoff was US$30 million (10% expected value) and my take was
US$29 million, then that only leaves Zincit with US$1 million.

 I laughed –and indicated that I had done the math for both Zincit and myself -and that it was
unfair subtracting my expected gains from a 60% assumption amount to overall payoff gains
from a 10% assumption amount. I indicated that Zincit would be making a much higher payoff
under the 60% option.

 I, then, indicated that it wasn’t right looking at the payoffs while including the U$20 million that I
had already been offered by ZUMS. I reiterated that I could go back to Zums and get US$20
million – and therefore it is unfair for her to expect me to start negotiating on that amount. I then
asked her what she would get if there was no deal.

 She however questioned the likelihood of me getting the US$20 million from the other company
– stating that nothing was finalized and she indicated that if we couldn’t get a deal, Zincit would
not push for an FDA approval – but simply market the product as a therapeutic one – offering us
the same deal that Zums was offering.

 I was taken back by her argument and I indicated that while I was being transparent, she was not
being transparent. I highlighted the fact that Zincit would be making $0 if the deal falls through,
while I would be getting the US$20 million with Zums. I argued that my only reason for
approaching Zincit was because I believed that there were greater gains – and greater good (per
Zincit’s mission statement) for patients with this product being FDA approved. And as a result, I
was looking for a mutally agreeable deal with Zincit that rewards research and the business part
too.

 After some back and forth – we compromised on Option D, which is US$17 million upfront and a
7.5% royalty. I understood that my lawyer would be worse off with this option than BATNA.
However, I was beginning to recognize that Zincit was not prepared to accept my first option. In
addition, I realized that with a 10% expectation of FDA approval, I would be worse off with this
option – however I was sure that this product would be getting FDA approval.

RESPONSES:
1. Did either party try to calculate the pie? What did they think the pie was? Did this help them get one of
the five options? YES
2. Did either party look for creative solutions? …My counterpart indicated that she would have tried
to renegotiate the % on revenues rather than give me a flat payoff because Zincit wanted to (i)
delay any payments and (ii) make payments contingent on revenues.
3. Was their style adversarial or cooperative?..Beth was a bit adversarial in the sense that she was very
pushy and wanted to question givens in the case.
4. Did either party try to convince the other that its probability estimate was correct? I was trying to
convince the other side (Zincit) on the 60% possibility of FDA process.
5. Did Massey push for Package A? If so, did Hasan become suspicious of the lawyer? Massey wasn’t
involved in a negotiation.
6. How did Massey’s presence influence the result? I just hypothesized that Massey was by myside
and that we had done due diligence together.
7. Did Zincit argue that it only had to pay $20 million? Was that argument successful? Did Hasan/Massey
counter that Zincit was willing to go up to $30 million? Zincit tried to argue that that they would offer
me Zum’s deal as a last resort, which I refused.
8. Did the two parties agree to an intermediate probability to use? No.
9. Did either party try to make an ultimatum to the other? Was it successful? Yes. Zincit indicated that
they would not accept my first offer --- and I backed down as a result.
10. Did either party try to make up new information? Was it successful? Yes, I indicated that the % of
returns that one usually gets from this is 7%, and the fact that we already have the offer from
Zums makes it more important that we receive more.
11. Did the two parties engage in an alternative removal of offers, e.g., I’ll get rid of E if you get rid of A?
No.
12. If the parties were stuck on two options, for example C or D, did they come up with a compromise
between the two? No.
13. Did the parties fail to reach a deal? If so, how close did they come and what led to the breakdown?
No.
14. Did either party try to consider options other than A through E? If so, …..Beth indicated that she
would have come to that – changing the % on revenue and offering me the Zums deal as a last
resort.
Was it successful? No.
Did they split the pie? Yes.
Did either party suggest a very big bonus ($50m or more)? No.
15. Did either party try to renegotiate the lawyer’s contract? Was it successful? No.
16. Did either party try to employ a post-settlement settlement? Was it successful? No. We simply
reviewed our deal afterwards.