Zincit Case

Instructions

Overview: This is a case study where you negotiate with others, hopefully using the techniques
you've learned so far. This assignment is required in order for you to complete the course. Once
you find your negotiation partners, this assignment should take between 2-3 hours to complete—
about 45 minutes of negotiation, then perhaps another hour or two to report your results, edit and
upload your video (or write your summary), and review the projects of three peers.

Here are the instructions and guidelines for the Zincit case.

Before the Negotiation

1. Be prepared: Read the case (below) and do some preparation before beginning your
negotiation.
2. Determine how you want to negotiate, when, and with whom: The next page, Negotiation
Logistics, provides information on how to do the negotiation cases (in-person or online) and
how to find partners.
3. Get ready to record and review: This negotiation is a peer-reviewed assignment. You will
need to either video record your negotiation and edit it down to a five-minute highlight video or
submit a 500-750 word summary of your negotiation. See the How to Record Your
Negotiation page for detailed information.
4. There are three roles in this case: (i) Zincit: that is, the Zincit team representative; (ii) Eli Hasan:
the inventor; and (iii) Sam Massey: Hasan’s lawyer. You may assign roles however you like. If
there are only two people in the negotiation, you should omit the Sam Massey lawyer role. All
three parties are reading the same case material so there are no secrets.

During the Negotiation

1. You should limit the negotiation to 45 minutes. If after 45 minutes you do not have a deal, then
your result is no deal.
2. Remember, no-agreements are better than bad agreements. You should never make a deal
that is worse than your reservation value, or BATNA.
3. If you reach an agreement and have extra time, you should try for a post-settlement settlement.
If you want to debrief the negotiation with your partners, you may. Just remember, once the
debriefing begins, there should be no more negotiating.
4. If 2 out of 3 people (likely Hasan and Massey) would like to have a private side conversation,
they may but for no more than five minutes. In person, this means leaving the room. In online
negotiations, they will need to ask the third person to temporarily mute his or her volume. They
can decide to set a time for the third person to return (like five minutes) or simply get his or her
attention (by waving or by sending a chat message) to rejoin.

After the Negotiation

1. Each participant must report the results at: http://coursera-negotiation.som.yale.edu/.

2. In order for you to complete the peer-review assignment, the person who did the recording
needs to send the complete negotiation video file to the rest of the group. There are lots of free
(or free trial) services that will allow you to send such a large file, e.g., Dropbox, WeTransfer,
Mail Drop (Mac), or SugarSync. You may choose to work together with your negotiation
partners to create a single highlight video OR work on your own to create individual highlight
videos. For guidelines on how to edit and upload your video (or write your summary), see
the Zincit Negotiation Peer Review page after (and only after) you complete your negotiation.
3. Please do not discuss the negotiation with any other students until they have completed the
exercise.

Zincit

Eli Hasan had always wanted to be an inventor. In high school, he was a runner-up in the Intel
Science Talent Search. He went on to study chemistry at MIT, before earning an MD from Tufts.
Dr. Hasan’s day job is radiation oncology in private practice, but weekends are a chance to
experiment. His latest experiment was highly personal. Hasan’s father was suffering from acid
reflux, a condition that is both extremely unpleasant and dangerous, as it can lead to esophageal
cancer. Hasan experimented with traditional medicines along with minerals, and settled on a
compound made up of turmeric, barley grass, and zinc salts. This compound was added to
calcium carbonate, the main ingredient in Tums, and compressed into a tablet.

After seeing dramatic benefits for his father, Dr. Hasan did a pilot study and used the data to
obtain a patent on the use of zinc salts for acid reflux. The results were published in
the American Journal of Gastroenterology. After the article came out, Hasan started receiving
inquiries from companies looking to obtain an exclusive license to the patent. One company
wants to use the tablet as a competitor to Tums. The “Zums” team is not going to apply for FDA
approval; they plan to sell Hasan’s invention as a dietary supplement. Dr. Hasan hired lawyer
Sam Massey to help negotiate the deal. Hasan was more than a bit surprised (and pleased)
when Massey came back with a $20 million all-cash offer.

While this is a great option, as a physician and scientist Hasan wants the invention to have the
credibility of a medicine, not a dietary supplement. That is not an option with Zums, who has no
experience or interest in seeking FDA approval. However, Massey has been talking with a
second potential buyer of the license. The “Zincit” (pronounced Zinc-It) team has experience with
the FDA approval process. The process would likely cost $10 million, but since getting FDA
approval would be a huge boost to sales, Zincit is willing to commit to the expense. After lots of
back and forth with Zincit, the following five packages are options under mutual consideration:

Package Upfront Bonus If FDA Approval

A $25m $0

B $20m $15m
 C $20m $10m

D $17m $15m

E $12m $20m

With FDA approval, the company expects to earn $120 million in profits over the life of the drug
(all numbers in present discounted value). If the FDA does not grant approval, Zincit would settle
for the dietary supplement route, where its estimated profits would be $20 million. Note: $120
million and $20 million are the profits after taking into account the $10 million FDA submission
cost.

The Zincit team has concluded Hasan’s compound only has a 1 in 10 chance of winning
approval. Even after hearing Zincit’s estimates, Hasan still believes the efficacy of the drug is so
great there is a 60% chance it would be approved.

Given the Zums offer, Zincit knows it can’t buy the license for less than $20 million. At the other
extreme, Zincit can’t afford to pay more than its expected profit of $30 million (a 90% chance of
$20 million plus a 10% chance of $120 million). Although risk might be a legitimate concern, all
contracts should be evaluated by their expected cost.

As Hasan’s lawyer, Massey receives a fee of 5% of Hasan’s upfront payment. His contract
doesn’t provide for any share of a bonus in the event of FDA approval. There is no potential to go
back and renegotiate Zums’ $20 million offer. And there are no other potential bidders.

Barry Nalebuff prepared this exercise as the basis for class discussion. The names, companies,
and drugs in the case are entirely fictional. ©2014 Barry Nalebuff. All Rights Reserved.