Background and Context
A VC fund and its portfolio company, a molecular diagnostic startup developing a portfolio of predictive and prognostic oncology tests approached Sathguru to assess value of its portfolio of Intellectual Property including patents, trade secrets and trademarks. The valuation was needed to support a critical corporate structuring exercise in preparation for the next round of funding. Sathguru enjoyed a strong working relationship with the Fund; and given the techno-commercial complexity of this evolving area of clinical application, Sathguru was requested to take on this time sensitive engagement. Sathguru conducted the IP valuation based on detailed assessment of technology and IP merit and adopted a combination of globally acceptable valuation approaches to estimate realizable value.
Our Approach
To estimate intrinsic realizable value of the Intellectual Property portfolio with high level of confidence, we first gained a clear understanding of the company’s IP portfolio and commercialization plan, assessed technical merit in the light of the competitive landscape, reviewed reasonability of commercial expectations given perceived level of technology driven competitive advantage and finally quantified valuation estimate for the entire IP portfolio:
IP portfolio summary and strength in practice: We comprehensively reviewed status and strength of the company’s IP which included filed and granted patents knowhow, trade secrets and trademarks. In addition to current status by geographic region (filed provisional, PCT filing, country filings, prosecution/ grant status, remaining patent life), we also reviewed level of ring fencing and competitive advantage derived from the patents, trade secrets and trade marks in various geographic regions.
Competitive benchmarking: The technology and algorithm of client’s revolutionary cancer screening diagnostic test and overall clinical benefit offered by the test were benchmarked with current and pipeline competition. We mapped current and evolving global landscape of competing offerings and assessing technical details of each. Based on level of perceived competitive advantage, we analyzed implications for market penetration and market share in each of the geographic regions where IP was being valued. IP valuation benchmarks and transaction benchmarks for royalty and upfront payments were also identified for comparable technologies.
Understanding of commercialization plan and commercial opportunity assessment:
A high-level market sizing was performed by assessing level of clinical need in each geographic region (assessing data inputs such as disease incidence, composition by subtype etc.) and its translation to monetizable commercial opportunity (considering benchmark pricing, access to care, level of adoption of predictive/ prognostic testing etc.). A forward looking model was developing considering factors impacting clinical adoption of prognostic molecular testing, market creation efforts of competitors and other strategic inputs. Scenarios were developed for revenue and cashflow realization potential for the IP portfolio based on overall commercial projections and market share assumptions based on competitive benchmarking.
Determination of suitable valuation approaches and estimation of IP value:
The IP portfolio was valued as a sum of parts for various geographic regions were it was protected using a combination of globally accepted valuation methodologies such as income approach (DCF and foregone royalty method), market approach (comparable transactions and benchmark metrics). Level of value attributable to IP was concluded based on accepted thumb rules such as the Goldsheider rule and contextual considerations such as level of impact on competitive advantage and value realization in each geographic region assessed.
Project Output
The comprehensive and well-reasoned final report formed the basis for decisions of critical structuring decisions and has been used to defend corporate action with multiple Government authorities.