Transcript IP Valuation Dr. Rahul Verma, Assistant Vice President, [email protected] Ashutosh Pande Group Manager, [email protected] October 2010 © 2010 Evalueserve, Ltd.

IP Valuation
Dr. Rahul Verma,
Assistant Vice President,
[email protected]
Ashutosh Pande
Group Manager,
[email protected]
October 2010
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential
Presentation Plan
IP Valuation Overview
IP Valuation Approaches
Case Study
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© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential
Presentation Plan
IP Valuation Overview
IP Valuation Approaches
Case Study
Slide ‹#›
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential
No
Technology Outsourcing
Opportunity
Yes
The On-Off Evolution Matrix
Captives
Off-Shore R&D Centers
On/Off-Shore Markets
In-house
On Shore R&D Centers
On-Shore Markets
Technology Scouting
Off-Shore Technology
Partners
On/Off-Shore Markets
Borderless
Innovation
Licensing/Marketing
Partnerships
On-Shore R&D Centers
Off-Shore Markets
No
Yes
Business Outsourcing Opportunity
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Patenting trends in India
The patent filing in India has been on the rise in the last few years. The Figure below illustrates
the increase in the filing activity in various technical fields over the last five years.
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National Innovation Foundation
National Innovation Foundation (India) in its website :
"......the time has come to unleash the creative
potential of our scientists and innovators at
grassroots level. Only then we can make India truly
self-reliant and a leader in sustainable
technologies....propose a national foundation for
helping innovators all over the country. This
fund...will build a national register of innovations,
mobilize intellectual property protection, set up
incubators for converting into viable business
opportunities and help in dissemination across the
country.''
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National Innovation Foundation
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India ranks 30th out of 134 countries on Prevalence of Foreign
Technology Licensing
Two Perspectives of Technology Licensing in Indian Context
MNCs partnering with
Indian companies with
innovations
MNCs entering the
Indian market
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Foreign Technology Licensing in India
MNCs partnering with Indian companies
with innovations
MNCs entering the Indian market
• Imtech licensed a new drug molecule to Nostrum
• Evolving Indian market and customer feel the need
Pharmaceutical for USD 3 million in 2009.
• Imtech, a CSIR laboratory licensed a clot-busting
therapeutic protein to US-based Nostrum
Pharmaceutical for USD 20 million in 2006
• Shasun, Indian drug manufacturing firm, sign nonexclusive license with Merck.
• Indoco Remedies Ltd., a Mumbai-based generic
company, announced a technology licensing
agreement to produce generics with Watson
Pharmaceuticals, Inc. Watson will file an ANDA for
US FDA approval.
for advanced and world-class products and
services
• Automatic permission for foreign technology
agreements in a few industries
• CSIR has signed a MOU with San people of South
Africa for commercialization of Hoodia, as a
blockbuster anti-obesity drug.
• Eisai, a Japanese pharma major to set up
manufacturing and research base in India.
• Pfizer entered into licensing agreements with
India’s Strides Arcolab, Aurobindo and Claris
LifeSciences for supply of generic products and
injectibles
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Presentation Plan
IP Valuation Overview
IP Valuation Approaches
Case Study
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Growing Importance of IP Valuation
Increased focus of industry and markets on knowledge-based market
Components of S&P 500 Market Value
100%
90%
17%
32%
80%
70%
68%
60%
80%
50%
40%
83%
68%
30%
20%
32%
20%
10%
0%
1975
1985
1995
2005
Years
Tangible Assets
Intangible Assets
• There is an increasing need for shifting research focus from valuing tangible assets to valuing intangible
assets.
Source – Ned Davis Research
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Monetizing IP – Patents
Patent Monetizing Ideas
Aggressive Marketing
of Products
Patents as a Business
Concept
Adobe markets its key
product, Adobe Reader
7.0, with 51 utility US
patents, 4 US design
patents, and patent
pending legal notices
A 2002 study by the
Equipment Leasing and
Finance Foundation
listed the market value of
patent-based licenses at
USD 1 trillion in the US
Portfolio of Stocks
with Strong Patent
Portfolio
Ocean Tomo 300™
Patent Index, the first
equity index based on the
value of corporate IP of
300 diversified
companies, was
launched in 2006; it is
published by Amex
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Context for IP Valuations
Licensing Deals
Small and Medium Enterprises in Hi-Tech Domains
• Pharmaceutical Companies
• Electronics and Computer Hardware Firms
Sale of IP
• IP Brokerage Firms and Medium-Sized Enterprises
M&A Deals
• Consulting Firms
• Investment Banks
• Private Equity Funds
Infringement
Lawsuits
• Infringement Support Law Firms
• Plaintiff/Defendant
Financing/
Securitization
• Banks
• Private Equity Funds
• VCs
Tax/Financial
Reporting
• Any
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Patent Valuation and Product Valuation
Patent Valuation
• Valuation methods, particularly early in the life of a
patentable idea
Product Valuation
• Valuation methods, before launching a product in
the market
• Lifecycle of a patent
• Cost of OEMs
• Future and uncertainties of the technology, e.g.,
• Future and uncertainties of the product market,
new and ongoing research, lifecycle/term of a
patent, and income attributable to a patent
e.g., growth trends, lifecycle of a product and
competing products available in the market
• Legal issues on jurisdictions
•
• The whole world is a potential market
Patent and product valuation go hand in hand. To estimate the value of a patent or product, knowledge
about the related product or patent and the associated market/legal boundaries is helpful.
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Factors for IP Valuations
Novelty of the technology
Competitive technologies/products in the domain
Benefits of the technology over the competing technologies
IP Landscape in the domain
Regulatory requirements
Product Features
Target Market
Market acceptance
Cost of the product
Marketing Strategy
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Process Flow in a Typical IP Valuation
Understanding
IP
• Understand how is
the IP different from
other existing IP in
the market
• What are the
competing companies
and technologies
• What does the IP
uniquely add to the
market
• What factors of
market demand does
it satisfy
Assessing IP
Strength
• How powerful is the
IP in terms of the
existing IP
• Will it sustain an
invalidation attempt
by competitors
• How does the IP fare
in comparison with
competing
technologies, in terms
of major
advancement or
minor adjustment
Assessing
IP-Centric Factors
• How broadly does the
IP claim
• In which jurisdiction is
the IP applicable
• What is the remaining
life of the IP
• Are there any risks
associated with
government rules
with the IP
Identifying
Market for IP
• What is the market
for the technical
domain in the specific
jurisdiction
• What is the growth
trend of the market
• What is the lifecycle
Building
Valuation Model
• What is the discount
rate for the DCF
modeling
• How sensitive is the
value on the
estimations used in
the model
of the IP
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Approaches for IP Valuation
Valuation Approaches
Comparable
Approach
Cost
Approach
Income
Approach
Value Estimate
Value Estimate
Value Estimate
Multiples or prices of
market transactions
involving the sale of
comparable IP
Reproduction/ replacement
cost adjusted for
depreciation and
obsolescence
Present value of earnings
attributable to the IP or
costs avoided as a result of
owning the IP
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Comparables Approach
Approach usage rationale
• Comparing the IP to comparable assets recently
exchanged under similar circumstances
Disadvantage
• Finding a comparable asset in same technology
domain as the IP to be valued can be difficult
• Comparing two different IPs, even the ones in the
same domain can be difficult
Advantage
• Comparatively simpler method of valuation
Process
• Establish IP comparability: type of asset, industry
relevance, geographical constraints, timeframe,
financial characteristics of underlying operations
• Locating similar licensing deals
This method is very easy to use and estimates
the value of IP based on past occurrences
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Cost Approach
Approach usage rationale
• Determine the value of patent by aggregating the
costs involved in its development
• Determine ‘Reproduction Cost’ to reproduce the
same asset
Disadvantage
• Cost based approach provides a benchmark for
management to control cost of development and
not a fair value of the IP
• The data is not publicly available
Advantage
• It is a simple method
• It is easy to use
Process
• Collect and analyze IP R&D cost
• Review comparable cost data of similar IPs
• Identify direct cost and multiples for allocation of
indirect cost
• Prepare a cost sheet for the IP R&D project
This method is useful in identifying the floor
value of IP
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Income Approach
Approach usage rationale
• Establish ability of patent to generate economic
benefits over the property’s useful life
• When discount rate for the IP can be known with
Disadvantage
• Discounted Cash Flow (DCF) is a static model
• It only captures the expected cash flows and does
not account for uncertainty
certainty but not cash flows
Advantage
Process
• Gives a very objective value of the IP in relation to
• Proportion of the revenue attributable to the subject
the market
IP
• Estimating size and growth rate of relevant industry
• Estimate revenue, risk and growth associated with
the IP proportion of the revenue attributable to the
subject IP
• Application of DCF, Monte Carlo and option pricing
techniques
This method is useful in identifying the intrinsic
value of IP
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Presentation Plan
IP Valuation Overview
IP Valuation Approaches
Case Study
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Case Study: How do we actually value a patent?
What is patented?
• An automatic syringe for drawing blood.
Objective and Need
• You need to present the patented idea to a medical
company to sell the patent.
• They are already convinced that there is a market
that can be tapped.
• You need to identify the target market and what
value should you go to the negotiation table with.
What methodology will you follow to
identify the price of the patent?
• Assess the strength of IP and the competing IP in
the space
• Identify market targeted by the IP based on IP
centric parameters
• Identify licensing amount
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Risk Assessment/SWOT analysis
Parameter
Level 1
Level 2
Level 3
Level 4
Level 5
Demand Level
No existing
demand
Spurious demand
Low demand
Medium demand
High demand
Customer
Segment
Unidentifiable
Identified and
growing slowly
Identified and
small size
Identified and
moderate size
Identified and
huge size
Technology
New and not
tested
New and tested
but with marginal
results
New but positive
results
Existing and
growing rapidly
Existing and well
established but not
growing rapidly
Product
New and not
tested in the
market
New and tested
but with marginal
results
New but positive
feeling
Existing
Old product, relaunch
Substitute
Products
Numerous and
very good
Number fairly high
Few and very
good
Few but with old
technology
No substitutes
Strength of the
patents
Low;
Clustered domain
of patents
Moderate;
Numerous other
patents
Moderate; Few
patents in the
domain
High; Few patents
in the domain
Very High; Are key
patents
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Life Cycle Analysis
S-Curve Analysis for Market Penetration
45%
40%
35%
Percentage
30%
25%
20%
15%
10%
5%
0%
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
-5%
Market Penetration
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DCF Valuation Model
(1/2)
Current
(Amounts in USD million)
Forecasted
Values
2010
2011
2012
2013
2014
2015
Overall Market Size
0
0
0
9516
10372
11300
Market Penetration
0%
0%
0%
3%
12%
22%
Price Discount %
0%
0%
0%
20%
29%
34%
Target market
0
0
0
228
883
1668
Market Share of invention
0
0
0
91
353
667
Royalty Earnings
0
0
0
5.5
21.2
49.2
Licensing/Milestone payments
2.5
5
7.5
10
6.7
8.9
11.2
2.8
9.2
10.7
Market Share
10%
Royalty Rate
6%
Discount Rate
25%
Present Value
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DCF Valuation Model
(2/2)
Forecasted
(Amounts in USD million)
2016
2017
2018
2019
Terminal Value
Overall Market Size
11532
11760
12002
12239
24,475
Market Penetration
31%
36%
40%
43%
Price Discount %
37%
39%
40%
41%
Target market
2226
2612
2879
3073
6146
Market Share of invention
890
1045
1152
1229
2458
75.0
93.5
107.0
117.0
233.3
22.5
23.5
22.3
20.3
33.8
Market Share
Royalty Earnings
Licensing/Milestone payments
Royalty Rate
Discount Rate
Present Value
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Presentation Plan
IP Valuation Overview
IP Valuation Approaches
Case Study
Slide ‹#›
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential
Thank you
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