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© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential IP Valuation October 2010 Dr. Rahul Verma, Assistant Vice President,

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Presentation on theme: "© 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential IP Valuation October 2010 Dr. Rahul Verma, Assistant Vice President,"— Presentation transcript:

1 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential IP Valuation October 2010 Dr. Rahul Verma, Assistant Vice President, Ashutosh Pande Group Manager,

2 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential Slide 2 Presentation Plan Case Study IP Valuation Overview IP Valuation Approaches

3 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential Slide 3 Presentation Plan Case Study IP Valuation Overview IP Valuation Approaches

4 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential Slide 4 The On-Off Evolution Matrix Business Outsourcing Opportunity Technology Outsourcing Opportunity No Yes No Yes In-house On Shore R&D Centers On-Shore Markets In-house On Shore R&D Centers On-Shore Markets Captives Off-Shore R&D Centers On/Off-Shore Markets Captives Off-Shore R&D Centers On/Off-Shore Markets Licensing/Marketing Partnerships On-Shore R&D Centers Off-Shore Markets Licensing/Marketing Partnerships On-Shore R&D Centers Off-Shore Markets Technology Scouting Off-Shore Technology Partners On/Off-Shore Markets Technology Scouting Off-Shore Technology Partners On/Off-Shore Markets Borderless Innovation

5 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential Slide 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

6 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential Slide 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.''website National Innovation Foundation

7 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential Slide 7 National Innovation Foundation

8 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential Slide 8

9 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential Slide 9 India ranks 30 th 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

10 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential Slide 10 MNCs partnering with Indian companies with innovations Imtech licensed a new drug molecule to Nostrum Pharmaceutical for USD 3 million in Imtech 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. Shasun 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. Indoco Remedies Pfizer entered into licensing agreements with Indias Strides Arcolab, Aurobindo and Claris LifeSciences for supply of generic products and injectiblesStrides ArcolabAurobindo and Claris LifeSciences Imtech licensed a new drug molecule to Nostrum Pharmaceutical for USD 3 million in Imtech 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. Shasun 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. Indoco Remedies Pfizer entered into licensing agreements with Indias Strides Arcolab, Aurobindo and Claris LifeSciences for supply of generic products and injectiblesStrides ArcolabAurobindo and Claris LifeSciences MNCs 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. CSIR Eisai, a Japanese pharma major to set up manufacturing and research base in India. Eisai 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. CSIR Eisai, a Japanese pharma major to set up manufacturing and research base in India. Eisai Foreign Technology Licensing in India

11 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential Slide 11 Presentation Plan Case Study IP Valuation Overview IP Valuation Approaches

12 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential Slide 12 Increased focus of industry and markets on knowledge-based market Source – Ned Davis Research Growing Importance of IP Valuation There is an increasing need for shifting research focus from valuing tangible assets to valuing intangible assets.

13 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential Slide 13 Monetizing IP – Patents Patent Monetizing Ideas Aggressive Marketing of Products Patents as a Business Concept 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

14 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential Slide 14 Licensing 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 IP IP Brokerage Firms and Medium-Sized Enterprises M&A Deals Consulting Firms Investment Banks Private Equity Funds Consulting Firms Investment Banks Private Equity Funds Infringement Lawsuits Infringement Support Law Firms Plaintiff/Defendant Infringement Support Law Firms Plaintiff/Defendant Financing/ Securitization Banks Private Equity Funds VCs Banks Private Equity Funds VCs Context for IP Valuations Tax/Financial Reporting Any

15 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential Slide 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 Valuation and Product Valuation Patent 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 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

16 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential Slide 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

17 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential Slide 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 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 of the IP 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

18 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential Slide 18 Approaches for IP Valuation Comparable Approach Comparable Approach Cost Approach Cost Approach Income Approach Income Approach Valuation 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

19 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential Slide 19 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 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 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

20 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential Slide 20 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 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 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 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 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

21 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential Slide 21 Income Approach Approach usage rationale Establish ability of patent to generate economic benefits over the propertys 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 propertys useful life When discount rate for the IP can be known with certainty but not cash flows 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 Gives a very objective value of the IP in relation to the market Process 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

22 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential Slide 22 Presentation Plan Case Study IP Valuation Overview IP Valuation Approaches

23 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential Slide 23 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. 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 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

24 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential Slide 24 Risk Assessment/SWOT analysis ParameterLevel 1Level 2Level 3Level 4Level 5 Demand Level No existing demand Spurious demandLow demandMedium demandHigh 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, re- launch 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

25 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential Slide 25 Life Cycle Analysis

26 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential Slide 26 (Amounts in USD million)Values CurrentForecasted Overall Market Size Market Penetration 0% 3%12%22% Price Discount %0% 20%29%34% Target market Market Share of invention Market Share10% Royalty Earnings Licensing/Milestone payments Royalty Rate6% Discount Rate25% Present Value DCF Valuation Model(1/2)

27 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential Slide 27 (Amounts in USD million) Forecasted Terminal Value Overall Market Size ,475 Market Penetration31%36%40%43% Price Discount %37%39%40%41% Target market Market Share of invention Market Share Royalty Earnings Licensing/Milestone payments Royalty Rate Discount Rate Present Value DCF Valuation Model (2/2)

28 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential Slide 28 Presentation Plan Case Study IP Valuation Overview IP Valuation Approaches

29 © 2010 Evalueserve, Ltd. All Rights Reserved - Privileged and Confidential Thank you


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