Michael M Avedesian Valuation and Pricing of Technology Based Intellectual Property PDF
Michael M Avedesian Valuation and Pricing of Technology Based Intellectual Property PDF
Michael M Avedesian Valuation and Pricing of Technology Based Intellectual Property PDF
Technology- Based
Intellectual Property
Presented to the
by
Michael M. Avedesian
11 December 2007
1
“….it is the sign of an educated mind
not to expect more certainty from a
subject than it can possibly
provide…”
Aristotle
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3
Pythagorean Artistic
Theory phronesis Interpretation
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Business Reasons
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Drug Development Process
5,000-10,000 compounds screened Discovery
Value Creation
5 compounds go to Phase I Phase I
80% pass Phase I
Phase IIA
NDA
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Risk vs. Valuation Correlation
of a Drug
$825 Market
94%
Valuation
of a US$275M
(peak sales)
Development product
Valuation
Risk
Probability of Failure
$624
80%
68% $311
$176
$115
57% 44%
$61 13%
$15
0%
Pre- Clinical Phase I Phase IIA Phase IIB Phase III NDA Filing Market &
Manufacturing
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Source: MDS
Commercialization Strategy
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Costs of Commercialization
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Six Methods of Technology
Valuation and Pricing
1. Industry standards 1. Find as many relevant and
comparable agreements
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Exclusivity and Size of the
Licensed Market
Do I license exclusively at a higher royalty rate to
one licensee who in turn will have a modest
market penetration or…..
Do I license non-exclusively at a lower royalty
rate to multiple licensees who in aggregate may
reach close to 100% of the license addressable
market
Depends on market conditions (sole vs. multi-
source)
Stanford and UCSF licensed its Cohen-Boyer gene
splicing patent to over 500 companies and
received $250M in royalties over the lifetime of
the patent in the USA market
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Cost as a Method?
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Method 1.- Industry Standards
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The Universal Paradox
How can different things be comparable?
how can any previous agreement be “like” my
opportunity?
There are so many unique dimensions to a
technology deal
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Surveys
http://www.cptech.org/ip/health/roy
alties
http://www.mediuspublications.com/
Resources/Royalty%20Rates%20Cur
rent%23B4F9C.pdf
http://www.royaltystat.com/
http://www.lesi.org/lesnouvelles/
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Proposed or Established Norms
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Shopped Term Sheets &
Price Lists
Term sheets not generally available,
however over time licensing
practitioner may be exposed to many
of these.
Price lists available e.g. Lucent, Intel,
IBM
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News Sources
Wall Street Journal, Business Week,
New York Times
Licensing Economics Review (LER)
Windhover Information
(Windhover.com)
34
Journals, Proprietary Databases,
Reports, Consultants
Les Nouvelles- LES
• http://www.lesi.org/lesnouvelles
Journal of AUTM, AUTM data base
Recombinant Capital-Recap.com
(Mark Edwards)
InteCap (Daniel McGavock) bought
by CRA International
Royaltysource.com
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Published License Agreements
Large population of published
agreements
DuPont’s license from the University
of Houston on superconductor
material
Intuitive Surgical Inc. license from
IBM for the use of an endoscope-
SEC filing
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Court Cases
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Lifetime and Organizational
Learning
One’s own experience and the
accumulated experience at OTT over
time
Over 220 licenses executed by McGill
of which over 150 are still active
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Method 2.- Rating/ Ranking
Sometimes called “factor analysis”
Rating wrt benchmark reference
5 elements that comprise the rating/
ranking method
1. Scoring criteria
2. Scoring system
3. Scoring scale
4. Weighting factors
5. Decision table
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Scoring Criteria
Market size, specifically the target
market
Product margins
IP strength
IP breadth
Stage of development
External environment trends
Etc.
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Scoring System
1 to 5 point system where 5=best,
1=worst and 3=equivalence to the
reference or standard
Likkert scale 1-7
Metric mindsets 0-10
Obsessive compulsives 0-100
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Scoring Scales
Subjective and objective
Subjective- experts or expert panels-
consensus or voting
Objective- numerical scales derived
from numerical examples- derived
scales called “influence coefficients”
42
Weighting Factors
Means of assigning a higher importance to
some criteria and a lower importance to
others
Danger of counting same criteria multiple
times e.g. market size, projected sales,
likelihood of use in other applications,
likelihood of sales in other countries….this
is tantamount to counting market size 4
times
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Decision Table
Criteria Score (1-5) Weight (1-3) Weighted
Score
1. Market size 3 2 6
2. Product 5 3 15
margins
3. IP strength 4 2 8
4. IP breadth 3 3 9
5. Stage of 2 3 6
development
6. External 3 1 3
environment
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Calculation
Weighted score sum= 47
Had all the scores been 3
(reference), the total would have
been 42
Subject opportunity is perceived to
be 47/42=1.12 or 12% better than
the comparable
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Method 3.- Rules of Thumb
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Guidelines
25% of what?.....
• Cost savings attributed to the
technology
• New sales….. use EBIT
Stacking- apportionment in the
context of the enabling technologies
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Method 4.- Discounted Cash Flow
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Risk Adjusted Hurdle Rate
Characterization RAHR %
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Prescribed Distributions
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An Example
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Method 6.- Auctions
Auctioning and Industry Standards
method based on direct market
determinations
Industry Standards method based on
previous transactions similar to..
Auction Method uses existing and pending
offers for precisely the technology being
valued
Because buyers are at a disadvantage,
requires special circumstances to induce
prospective buyers to “play”
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Auctions Are Feasible When….
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