Evaluate, then Valuate: An Economical Approach to Building

Biotechnology

Patent Analysis

Market Analysis

Evaluation Valuation

Is there a scarcity/demand in the targeted technology area?

Scarcity creates a

need to make a

choice

Deman

d cr

eate

s sc

arcit

y

Scarcity determines

valueSc

arcit

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influ

ence

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Resource-Based View:

Barriers to Entry

• Government regulations• Patents/IP • Asset Specificity• Economy of scales (minimum efficient scale)

Robert M. Grant. The Resource-Based Theory of Competitive Advantage (1991) California Management Review 33: 114-135

Porter’s 5 forces

Patent Citations used to:

• Determine patent quality/value

• Determine business strategies

• Determine knowledge spillover

What can we learn from Patent Citations?

• Potential partners

• Potential competitors

• Licensing opportunities

• Surrounding technologies

• Potential Infringements

• Potential market direction

• Hot/Cold technologies

• IP barriers to entry

• New markets• Focused Patent landscape analysis based on patent counts

Co-citation Provides a Natural Clustering Mechanism

5862322 5848248 hot patents

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6298352

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6298457

6370567

6219668

6442594

next generation

citing patent

sConnie K. N. ChangDirector, Ocean Tomo Federal Services, LLC

Collaborative Expedition Workshop #71National Science Foundation

Ballston, VirginiaMarch 18, 2008

Comparison to related patents

Comparison to rivals

Assessing rival products

Determining key markets & assessing market pull

Determining rivals, rivals’ market share, & anticipate technologies that rivals are securing

Assessing current innovations & probable direction of the market

Patent AnalysisResource-based view

“Nothing can have value without being an object of utility”

Karl Marx

“Everything is worth what its purchaser will pay for it.”

Publilius Syrus

Valuation

1. Patent Legal Factors

2. Economic value of the market protected by the patent

3. Economic value of the technology

Value patent based on three factors:

Qualitative!!!

Quantitative:

1. Market-based approach (comparable approach)

2. Asset-based approach (cost approach)

3. Income-based approach (discounted cash-flow)

“…demand cannot be known without prices”Ludwig Von Mises

Infringements Market Share Innovation

“The first lesson of economics is scarcity: There is never enough to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.”

Thomas Sowell

“When a management with a reputation for brilliants tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.

Warren Buffett.

evaluation

Management

Environment/Politics

valuation

An Economical Approach to Building Biotechnology

The ULR contract market overcomes the inefficiencies of traditional bilateral licensing by providing:• Contract standards• Efficient distribution model• Market transparency• Price discovery• Consistency in enforcement strategy

Financial Exchange Focused on Intellectual Properties

Scarcity:• Q Ratio (Tobin's Q ratio)• What Does Q Ratio (Tobin's Q ratio) Mean?

A ratio devised by James Tobin of Yale University, Nobel laureate in economics, who hypothesized that the combined market value of all the companies on the stock market should be about equal to their replacement costs. The Q ratio is calculated as the market value of a company divided by the replacement value of the firm's assets:

• Investopedia explains Q Ratio (Tobin's Q ratio)For example, a low Q (between 0 and 1) means that the cost to replace a firm's assets is greater than the value of its stock. This implies that the stock is undervalued. Conversely, a high Q (greater than 1) implies that a firm's stock is more expensive than the replacement cost of its assets, which implies that the stock is overvalued. This measure of stock valuation is the driving factor behind investment decisions in Tobin's model.

By examining the characteristics of patents that were renewed relative to those that were abandoned, one can begin to make certain predictive assessments about the quality and likely value of other patents that share statistically similar attributes.

The Ocean Tomo Relevance Engine determines the most closely related patents and identifies their current owners based on USPTO Assignment records. This allows decision makers to quickly and objectively obtain information regarding relevant patents, technologies, potential partners, acquisitions or other strategic targets based on Patent information.

IPXI has qualified the following companies as having especially strong intellectual property, including patents, copyrights, and trademarks. In order to be included on this list of qualified equities, a company must meet at least one of the following criteria: OT300 Top Quartile

The company is rated in the top quartile of companies listed in the Ocean Tomo 300® Patent IndexAppraised Value

The value of the company's intellectual property, as determined by an independent, third-party appraiser, exceeds $1 billion Innovation Ratio

The Innovation Ratio (IP value/book value), as determined by an independent, third-party appraiser, exceeds 25% Licensing Revenue

Licensing revenue from intellectual property exceeds 15% of total revenues or 50% of earnings

Shows the citation relation between two patents: 1st generation = direct citation (i.e. they both cite the same patent); 2nd generation = they are linked via on patent citation removed; etc. (1st generation has 2 path between P1 and P2; 2nd generation has 3 paths betw P1 and P2, and etc.

The determined count of citational relationships at each generation 2-5 are provided as input predictor variables (independent variables) to a multi-variate probit regression model. The regression model is formulated and optimally adjusted to predict the existence or absence of a first generation citational relationship between documents P 1 and P 2 (whether such relationship actually exists or not) and/or some other objective relationship based on some or all of the input predictor variablesprovided. The resulting probability score (and/or a mathematical derivation thereof) is an objective and repeatable probabilistic quantification of the likely relevance between documents P 1 and P 2.

Market Share    =    Firm's Sales  /  Total Market Sales

Easy to enter market if: 1.Common Technology exist2.Little brand franchise exist3.Large access to distribution channels4.Low scale threshold (minimum efficient scale; MES)

Difficult to enter market if: 1.Patented or proprietary know-how is involved2.Difficulty in brand switching3.Restricted distribution channels exist4.High scale threshold (MES)

Easy exit, if there are:1.Salable assets2.Low exit costs3.Independent business

Difficult exit, if there are:1.Specialized assets2.High exit costs3.Interrelated businesss