The valuation of intellectual property is becoming an increasingly important component of realising return on R&D; investment, overall business strategy and IP portfolio management. Like other forms of property, the value of intellectual property is determined by what the buyer is prepared to pay for its perceived value, and what the seller is willing to accept. This is ultimately decided by negotiation. However, there is much that can be done to substantiate the value in support of the position of either the seller or the buyer. From the seller’s viewpoint, being able to place the IP accurately on the competitive landscape is critical to establishing how important the IP is, and hence its perceived market value. On the buyer’s side, the accurate assessment of the market position held by the IP on the technology landscape against competition will help determine whether this is a blocking technology, or whether it can ultimately be worked around. This is a combination of science and art. There are also special considerations to be factored in for the chemical technology space. In all cases, IP information and analysis tools play a central role in providing support for valuation of IP. This presentation will use a case study approach to examine the issues and provide insight into how organizations can more accurately assess the importance of their IP, and hence the current and potential market value of that IP.

1. VALUING IP IN THE CHEMICAL SPACE – SCIENCE, ART AND SPECIAL CONSIDERATIONS
Bob Stembridge
Customer Relations Manager Thomson Reuters
13th October 2014
REUTERS/Nikola Solic

2. AGENDA
•The importance & value of IP
•How IP can be exploited
•Valuation of IP
–Quantitative
–Qualitative
•Information to support valuation
•Case study

3. THE IMPORTANCE OF IP
•Protection for innovation
•Various types
–Copyright©
–Designs
–Trademarks®, Service marksSM
–Patents
•Utility, design, petit..
•Can be bought, sold, licensed etc…
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4. VALUE OF INTANGIBLE ASSETS
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after Ocean Tomo

5. THE VALUE OF PATENTS
Research & Innovation
Application & Prosecution
Maintenance & Monitoring
Licensing &
Commercialization
Protection &
Assertion
COMMERCIAL RETURN ON INVESTMENT
A patent is a contract between the state and an individual whereby the state grants monopoly rights to the individual to exploit their invention in return for which the individual provides full disclosure of the invention
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6. HOW CAN IP VALUE BE EXPLOITED?
•Direct
–Licensing agreements
–Sale
–Investment collateral
–Infringement damages
•Indirect
–Joint ventures
–Partnerships
–Spin offs
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7. WHAT MAKES VALUABLE IP?
•Gateway technology (standard essential patents)
•Disruptive technology – e.g. Digital photography
•High value and/or global markets
•Solutions to important unsolved problems
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8. QUANTITATIVE METHODS FOR VALUATION
1.Cost-based method
2.Market-based method
3.Income-based method
4.Option-based method
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9. COST-BASED VALUATION
•Based on direct relation between costs of development of the IP and its economic value
•Two key methods:
–Reproduction cost method: estimates of costs to reproduce IP through purchase or development
–Replacement cost method: estimate of costs to obtain equivalent IP asset
•Costs considered:
–a) Direct expenditures, such as costs of materials, labour and management
–b) Opportunity costs, relating to the lost profits due to delays in market entrance or lost investment opportunities
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10. MARKET-BASED VALUATION
•Based on estimation of value of similar market transactions (e.g. similar licence agreements)
•Comparison is performed in terms of utility, technological specificity and property
•Comparable transactions may be recorded in
–company annual reports;
–specialised online databases;
–publications dedicated to licensing and royalties;
–court decisions concerning damages
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11. INCOME-BASED VALUATION
•Based on the existing or expected income flow of the IP asset
•A discount factor is applied to the estimated income to adjust it to present circumstances
–Discounted cash flow method
–Relief from royalty method
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12. OPTION-BASED VALUATION
•Based on options and opportunities related to the investment
•Reliant on option pricing models (e.g. Black- Scholes) for stock options to achieve a valuation of a given IP asset
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13. QUALITATIVE EVALUATION
•Valuation through analysis of different indicators to determine the importance of the IP asset
•Valuation indicators include:
–Technology level of the innovation
–Competition activity in the innovation space
–Market for the innovation
–Legal aspects (validity, remaining term)
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14. INFORMATION TO SUPPORT VALUATION
•Technology landscape
•Competitive landscape
•Market landscape
•Strength of IP
–Maintenance status
–Remaining protection time
–Likely validity
–Technological importance (impact)
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15. INFORMATION SOURCES, TOOLS AND SERVICES TO SUPPORT VALUATION
•Derwent World Patents Index® (DWPI)
•Thomson Innovation
•Trademark.com®
•SAEGIS
•File Histories
•Thomson IP ManagerSM
•IP Search Services
•IP Translation Services
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16. THOMSON INNOVATION: THE NEW STANDARD IN IP RESEARCH
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Patent Search: Access the most relevant and comprehensive, global IP data, including the Derwent World Patents Index®, Asia-Pacific patents and Scientific Literature.
Streamline your work with powerful productivity and collaboration tools.
Patent Analysis: Turn large volumes of data into actionable intelligence with interactive analysis and visualization tools.

17. THE THEMESCAPE ANALYTICAL AND VISUALIZATION TOOL
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ThemeScape Map
• Integrates data from multiple patent records in a visual form
• Uncover relationships between patent documents and helps focus on related technology in a crowded space
ThemeScape Map allows you to understand quickly the patent landscape and market dynamics

18. MAPPING IP TO THE INNOVATION SPACE
•ThemeScape Map can be used to support IP valuation through:
–Technology landscape: understand how patents fit in the overall technology landscape and identify dependencies
–Competitive landscape: compare IP position in the landscape relative to competitors to identify threats/opportunities
•Thomson Innovation can be used to support IP valuation through:
–Market landscape: determine potential market size
–Legal considerations: claims scope, citation impact
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19. CASE STUDY
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20. VALSARTAN
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21. MAJOR PLAYERS
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22. TECHNOLOGY LANDSCAPE
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Key Novartis technology links to other areas

23. COMPETITIVE LANDSCAPE
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Major competitors in the Valsartan space

24. MARKET LANDSCAPE
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25. MARKET LANDSCAPE
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26. MARKET LANDSCAPE
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27. MARKET LANDSCAPE
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28. LEGAL CONSIDERATIONS
•Strength of IP
–Maintenance status
–Remaining protection time
–Likely validity
–Technological importance (impact)
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29. MAINTENANCE STATUS/REMAINING TERM
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3
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3
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US Patent term normally 20 years from date of filing
1: Filing date 2: Grant date 3: Maintenance fees 4: Patent expiry
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30. LIKELY VALIDITY
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Original claims

31. LIKELY VALIDITY
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Patent office examination finds novelty destroying prior art

32. LIKELY VALIDITY
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Modified claims of granted patent

33. TECHNOLOGICAL IMPORTANCE (IMPACT)
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34. VALUE OF NOVARTIS VALSARTAN PATENTS
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35. SPECIAL CONSIDERATIONS
•Given high failure rate, early stage licensing is high risk, therefore lower value
•To bolster value, product on offer should form part of a strong portfolio
–Patents should cover broad chemistry space and sizeable market
–Patents surrounding core technology are useful to ring fence the core offering – novel molecules, synthesis, compositions, method of treatment, administration routes etc.
–Patents should be valid and in force in anticipated markets of interest
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36. CONCLUSIONS
•The value of IP can be realised through licensing or sale, as investment collateral, or as the basis of joint ventures, partnerships or spin-offs
•IP valuation is a mixture of science and art
•Quantitative methods exist to help put a dollar value on the IP
•True value lies in how important the IP is, how dependent other technologies are, the market the IP addresses, what the competition are doing in the IP space and how strong the IP is
•Reliable information sources, tools and services are critical in determining the status of IP and its value
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37. THANK YOU!
bob.stembridge@thomsonreuters.com