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Transcript of © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential IP Valuation October...
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential
IP Valuation
October 2010
Dr. Rahul Verma, Assistant Vice President,
Ashutosh PandeGroup Manager,
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and ConfidentialSlide 2
Presentation Plan
Case StudyCase Study
IP Valuation OverviewIP Valuation Overview
IP Valuation ApproachesIP Valuation Approaches
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and ConfidentialSlide 3
Presentation Plan
Case StudyCase Study
IP Valuation OverviewIP Valuation Overview
IP Valuation ApproachesIP Valuation Approaches
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and ConfidentialSlide 4
The On-Off Evolution Matrix
Business Outsourcing OpportunityBusiness Outsourcing Opportunity
Tec
hnol
ogy
Out
sour
cing
O
ppor
tuni
ty
Tec
hnol
ogy
Out
sour
cing
O
ppor
tuni
ty
NoNo YesYes
NoNo
YesYes
In-houseOn Shore R&D Centers
On-Shore Markets
In-houseOn Shore R&D Centers
On-Shore Markets
CaptivesOff-Shore R&D CentersOn/Off-Shore Markets
CaptivesOff-Shore R&D CentersOn/Off-Shore Markets
Licensing/Marketing Partnerships
On-Shore R&D CentersOff-Shore Markets
Licensing/Marketing Partnerships
On-Shore R&D CentersOff-Shore Markets
Technology ScoutingOff-Shore Technology
PartnersOn/Off-Shore Markets
Technology ScoutingOff-Shore Technology
PartnersOn/Off-Shore Markets
Borderless Innovation
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and ConfidentialSlide 5
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.
Patenting trends in India
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and ConfidentialSlide 6
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.''
National Innovation Foundation
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and ConfidentialSlide 7
National Innovation Foundation
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and ConfidentialSlide 8
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and ConfidentialSlide 9
India ranks 30th out of 134 countries on Prevalence of Foreign Technology Licensing
Two Perspectives of Technology Licensing in Indian ContextTwo Perspectives of Technology Licensing in Indian Context
MNCs partnering with Indian companies
with innovations
MNCs partnering with Indian companies
with innovations
MNCs entering the Indian market
MNCs entering the Indian market
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and ConfidentialSlide 10
MNCs partnering with Indian companies with innovations
MNCs partnering with Indian companies with innovations
• Imtech licensed a new drug molecule to Nostrum 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 non-exclusive 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.
• Pfizer entered into licensing agreements with India’s Strides Arcolab, Aurobindo and Claris LifeSciences for supply of generic products and injectibles
• Imtech licensed a new drug molecule to Nostrum 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 non-exclusive 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.
• Pfizer entered into licensing agreements with India’s Strides Arcolab, Aurobindo and Claris LifeSciences for supply of generic products and injectibles
MNCs entering the Indian marketMNCs entering the Indian market
• Evolving Indian market and customer feel the need 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.
• Evolving Indian market and customer feel the need 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.
Foreign Technology Licensing in India
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and ConfidentialSlide 11
Presentation Plan
Case StudyCase Study
IP Valuation OverviewIP Valuation Overview
IP Valuation ApproachesIP Valuation Approaches
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and ConfidentialSlide 12
Increased focus of industry and markets on knowledge-based market
Source – Ned Davis Research
Components of S&P 500 Market Value
83%68%
32%20%
17%32%
68%80%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1975 1985 1995 2005
Years
Tangible Assets Intangible Assets
Growing Importance of IP Valuation
• There is an increasing need for shifting research focus from valuing tangible assets to valuing intangible assets.
• There is an increasing need for shifting research focus from valuing tangible assets to valuing intangible assets.
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and ConfidentialSlide 13
Monetizing IP – Patents
Patent Monetizing IdeasPatent Monetizing Ideas
Aggressive Marketing of Products
Aggressive Marketing of Products
Patents as a Business Concept
Patents as a Business Concept
Portfolio of Stocks with Strong Patent
Portfolio
Portfolio of Stocks with Strong Patent
Portfolio
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
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
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and ConfidentialSlide 14
Licensing DealsLicensing Deals
Small and Medium Enterprises in Hi-Tech Domains
• Pharmaceutical Companies
• Electronics and Computer Hardware Firms
Small and Medium Enterprises in Hi-Tech Domains
• Pharmaceutical Companies
• Electronics and Computer Hardware Firms
Sale of IPSale of IP • IP Brokerage Firms and Medium-Sized Enterprises• IP Brokerage Firms and Medium-Sized Enterprises
M&A DealsM&A Deals• Consulting Firms
• Investment Banks
• Private Equity Funds
• Consulting Firms
• Investment Banks
• Private Equity Funds
Infringement Lawsuits
Infringement Lawsuits
• Infringement Support Law Firms
• Plaintiff/Defendant
• Infringement Support Law Firms
• Plaintiff/Defendant
Financing/Securitization
Financing/Securitization
• Banks
• Private Equity Funds
• VCs
• Banks
• Private Equity Funds
• VCs
Context for IP Valuations
Tax/Financial Reporting
Tax/Financial Reporting • Any• Any
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and ConfidentialSlide 15
• 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.
• 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.
Patent Valuation and Product Valuation
Patent ValuationPatent Valuation
• Valuation methods, particularly early in the life of a patentable idea
• Lifecycle of a patent
• Future and uncertainties of the technology, e.g., new and ongoing research, lifecycle/term of a patent, and income attributable to a patent
• Legal issues on jurisdictions
• Valuation methods, particularly early in the life of a patentable idea
• Lifecycle of a patent
• Future and uncertainties of the technology, e.g., new and ongoing research, lifecycle/term of a patent, and income attributable to a patent
• Legal issues on jurisdictions
Product ValuationProduct Valuation
• Valuation methods, before launching a product in the market
• Cost of OEMs
• Future and uncertainties of the product market, e.g., growth trends, lifecycle of a product and competing products available in the market
• The whole world is a potential market
• Valuation methods, before launching a product in the market
• Cost of OEMs
• Future and uncertainties of the product market, e.g., growth trends, lifecycle of a product and competing products available in the market
• The whole world is a potential market
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and ConfidentialSlide 16
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
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and ConfidentialSlide 17
Process Flow in a Typical IP Valuation
• 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
AssessingIP-Centric Factors
AssessingIP-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
IdentifyingMarket for IPIdentifying
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 of the IP
Building Valuation Model
Building Valuation Model
• What is the discount rate for the DCF modeling
• How sensitive is the value on the estimations used in the model
Assessing IP Strength
Assessing IP Strength
• 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
Understanding IP
Understanding IP
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and ConfidentialSlide 18
Approaches for IP Valuation
ComparableApproach
ComparableApproach
Cost Approach
Cost Approach
Income ApproachIncome
Approach
Valuation ApproachesValuation Approaches
Value Estimate
Multiples or prices of
market transactions
involving the sale of
comparable IP
Value Estimate
Reproduction/ replacement
cost adjusted for
depreciation and
obsolescence
Value Estimate
Present value of earnings
attributable to the IP or
costs avoided as a result
of owning the IP
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and ConfidentialSlide 19
Comparables Approach
Approach usage rationaleApproach usage rationale
• Comparing the IP to comparable assets recently exchanged under similar circumstances
• Comparing the IP to comparable assets recently exchanged under similar circumstances
Disadvantage 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
• 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 Advantage
• Comparatively simpler method of valuation• Comparatively simpler method of valuation
ProcessProcess
• Establish IP comparability: type of asset, industry relevance, geographical constraints, timeframe, financial characteristics of underlying operations
• Locating similar licensing deals
• 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
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and ConfidentialSlide 20
Cost Approach
Approach usage rationaleApproach usage rationale
• Determine the value of patent by aggregating the costs involved in its development
• Determine ‘Reproduction Cost’ to reproduce the same asset
• Determine the value of patent by aggregating the costs involved in its development
• Determine ‘Reproduction Cost’ to reproduce the same asset
Disadvantage 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
• 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 Advantage
• It is a simple method
• It is easy to use
• It is a simple method
• It is easy to use
ProcessProcess
• 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
• 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
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and ConfidentialSlide 21
Income Approach
Approach usage rationaleApproach 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 certainty but not cash flows
• Establish ability of patent to generate economic benefits over the property’s useful life
• When discount rate for the IP can be known with certainty but not cash flows
Disadvantage Disadvantage
• Discounted Cash Flow (DCF) is a static model
• It only captures the expected cash flows and does not account for uncertainty
• Discounted Cash Flow (DCF) is a static model
• It only captures the expected cash flows and does not account for uncertainty
Advantage Advantage
• Gives a very objective value of the IP in relation to the market
• Gives a very objective value of the IP in relation to the market
ProcessProcess
• Proportion of the revenue attributable to the subject 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
• Proportion of the revenue attributable to the subject 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
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and ConfidentialSlide 22
Presentation Plan
Case StudyCase Study
IP Valuation OverviewIP Valuation Overview
IP Valuation ApproachesIP Valuation Approaches
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and ConfidentialSlide 23
Case Study: How do we actually value a patent?
What is patented?What is patented?
• An automatic syringe for drawing blood.• An automatic syringe for drawing blood.
Objective and NeedObjective 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.
• 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?
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
• 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
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and ConfidentialSlide 24
Risk Assessment/SWOT analysis
Parameter Level 1 Level 2 Level 3 Level 4 Level 5
Demand LevelNo existing
demandSpurious demand Low demand Medium demand High demand
Customer Segment
UnidentifiableIdentified and growing slowly
Identified and small size
Identified and moderate size
Identified and huge size
TechnologyNew 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
ProductNew and not tested in the
market
New and tested but with marginal
results
New but positive feeling
ExistingOld product, re-
launch
Substitute Products
Numerous and very good
Number fairly highFew and very
goodFew but with old
technologyNo 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
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and ConfidentialSlide 25
Life Cycle Analysis
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and ConfidentialSlide 26
(Amounts in USD million) ValuesCurrent Forecasted
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
Market Share 10%
Royalty Earnings 0 0 0 5.5 21.2 49.2
Licensing/Milestone payments 2.5 5 7.5 10
Royalty Rate 6%
Discount Rate 25%
Present Value 6.7 8.9 11.2 2.8 9.2 10.7
DCF Valuation Model (1/2)
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and ConfidentialSlide 27
(Amounts in USD million)Forecasted
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
Market Share
Royalty Earnings 75.0 93.5 107.0 117.0 233.3
Licensing/Milestone payments
Royalty Rate
Discount Rate
Present Value 22.5 23.5 22.3 20.3 33.8
DCF Valuation Model (2/2)
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and ConfidentialSlide 28
Presentation Plan
Case StudyCase Study
IP Valuation OverviewIP Valuation Overview
IP Valuation ApproachesIP Valuation Approaches
© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential
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