Client and Transaction Context:
Our client is an American company focused on the development of high-performance premium algae-based products for the pharmaceutical, nutrition, aquaculture and fuels markets. The client’s Intellectual Property (IP) portfolio was developed based on in-house research and development combined with active focus on acquiring technology rights for expanding portfolio potential. They were a wholly owned subsidiary of a large Industrial conglomerate. The client engaged Sathguru and a partner IP law firm collaboratively to value the intellectual property portfolio including patents and trade secrets (knowhow) and to provide a fairness opinion on the Fair Market Value to support an intended transaction.
Overview of Technology and IP portfolio:
The client was actively involved in developing premium algae-based products and had nurtured a portfolio of intellectual property (patents and trade secrets) with potential applications spanning across multiple domains of commercial opportunity – biofuels, nutrition, pharmaceutical and feed. They had acquired technology rights from various sources too. Portfolio of IP valued included patents filed/granted across geographic regions of interest, US, India and Australia. Patents included platform technologies applicable across applications as well as inventions focused on specific applications such as feed ingredients, nutrition products etc.
Approach and methodology for IP portfolio valuation:
A] Patent portfolio review and technical benchmarking:
This unique portfolio of multiple patents were segmented based on potential applications before evaluation. Sathguru’s team of technical experts and patent attorneys from our partner law firm comprehensively reviewed each group of the segmented patents for the patent claims of each of the patents in the portfolio and ascertained the substantial value for them. Our partner law firm also thoroughly reviewed the existing patent landscape, the clients IP portfolio and claims to analyze the probability of grant of patent applications in the portfolio. The implications of the patent claims based on geography, consumer preferences, markets shares, global markets etc. were thoroughly reviewed and their impact on valuation of these patents were ascertained.
B] Market research and assessment of commercial merit:
Our segment experts from the business advisory team analyzed growth trends and geographic concentration of market for each of these segmented groups of patents along with evolving competitive landscape. Trends by application, regulatory considerations impacting competitive landscape and barrier to entry, potential for converting IP led competitive advantage to market share and commercial gain (eg: in a niche application area such as infant food where algal derived ingredient would enjoy clean label positioning, higher competitive advantage and lower competitive intensity was perceived vis-à-vis larger nutrition opportunity where marine derived ingredients enjoyed greater cost competitiveness vs algal product). Commercial opportunity review across market segments enabled more qualified review of monetization potential for the IP portfolio and bundling of IP assets for sum of parts IP valuation. Further, based on the market maturity and growth potential of the markets, the technologies were classified into three buckets of mature, growth and Indian markets.
C] Commercial value realization potential and IP valuation:
Two different valuation methods were used to evaluate the patent portfolio to arrive at an impartial view of the IP assets. We modeled monetization implications under various scenarios – commercial markets exploited by the IP portfolio owner for certain applications and out-licensing for others. We used a sum of parts approach to value the IP portfolio. After the analysis of the patent portfolio and implications for IP valuation were mapped, based on the merits of the patent applications and other considerations impacting assessment of value in use, the patents were assessed for monetization potential using Income method and Relief from Royalty methods.
Based on technical and commercial review, the potential for commercial value realization was assessed. Market share, revenue and cash flow scale-up by application, level of commercial and technical risk and regulatory requirements were considered in the financial modeling. Geographic heterogeneity in market maturity and regulatory landscape were analyzed and reflected in the country specific modeling of monetization proceeds. Value attributable to IP was assessed by analyzing comparable transactions. A combination was used for deriving final value range for the IP portfolio.
Case study highlights:
- Regulatory Considerations: It was essential to incorporate the regulatory considerations during the valuation of patents. In certain application segments such as infant foods, there is a huge impact on market segments, competitive landscape and the value of IP translating to commercial advantage based on the country’s regulatory framework. Regulatory approvals have a crucial impact on the technology specific approval process, impacting time to market and complexity on technology commercialization. A detailed review for the regulatory framework, for each of the segments in each geography of interest was considered.
- IP Portfolio evaluation: The portfolio consisted of global IP. The patents granted and patents under prosecution were evaluated in collaboration with partner IP law firm to assess patent grant probability. Opportunity for value realization being different across target markets, the prosecution led variation in final granted claims in patent portfolio across geographies had to be evaluated. Technical benchmarking, patent strength assessment and commercial review, all had to be tailored to each geography being reviewed.
- Geographic implications and combination of patents implying higher complexity of techno-commercial review required for IP valuation: Understanding the true value of the patents based on geographic implications, competitive landscape and market size implies higher reliance of IP valuation on technology benchmarking, assessment of technical merit and intrinsic in technology advancement. Our proprietary techno-commercial risk assessment model that considers stage gated technology and market risk at various stages of development was adopted. Our industry and technical experts’ review of each bundled patent technology opportunity and risk drivers was fundamental to engagement execution.