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How to Value Your Health Technology Intellectual Property

NIC Document

Summary

Taking an innovative idea to market requires an understanding of its potential value for different stakeholders. This guide looks at the need to capture and protect your idea to secure initial value, how value is related to risk and how reducing risk and quantifying markets and finances is vital to the success of a project.

In brief

  1. Define the IP to be valued
  2. Negotiating IP value
  3. IP protection and IP value
  4. Value and the market opportunity
  5. Market research
  6. Inventor and investor value
  7. Creating value in the business
  8. IP value during project progression

Introduction

There are many challenges to bringing an innovative health technology to market. Negotiating a route to market is one and for this a key approach is to assign a realistic value to your innovation. But attributing a value to an innovative health technology concept can be very complex. Value is not a fixed metric because perception of it can vary quite radically over time and for different individuals. Different collaboration partners will reach their valuation of the business with a different perspective: Companies will seek synergistic technologies that match their competencies and customers Technology brokers will seek a match with their client companies’ needs Venture capitalists will seek to balance potential returns with perceived high risks and to understand their exit strategy.

Define the IP to be valued


Innovators are often convinced that they are developing something completely novel. Yet this is often not the case. A search of patent databases can frequently reveal a good deal of existing ‘prior art’ which may limit the claims in the inventor’s patent or even indicate a potential infringement.

Negotiating IP value


Inventors must be careful not to undervalue and undersell their ideas when negotiating with potential partners and stakeholders. In these types of negotiations, potential investors will often seek to highlight weaknesses to talk down their valuation. This should be recognised and you should prepare arguments to defend a high valuation, whilst still remaining flexible. It is important to be aware of the risks involved in developing a new product and add as much value as possible before you seek investment. You can achieve this through IP protection, prototyping and clinical proof-of-concept.

IP protection and IP value


A concept will generally become more valuable once a patent is granted. Patent protection is expensive. It is important for the innovator to prove the product concept early in the process in order to avoid the high costs of patenting further down the line. It is equally important to be able to define your final product early in the process so that important features are not missed in the scope of protection. With the licensing route, some large companies will try to take out low value exclusive licences in order to kill technologies and protect their own product portfolio. However, it is possible to negotiate minimum royalties or commercialisation targets and deadlines to defend against these non-exclusive licences.

Value and the market opportunity


Once you have adequately and formally defined your IP, you need to understand your market access needs. How big is the market and what share of this might the new technology achieve based on its differentiation and benefits? It is important to balance benefits (which are based on a local viewpoint) with the commercial opportunity (which should take a global perspective). The value of your IP will be enhanced if the associated products are well differentiated, beneficial and have a large market potential.

Market research


You can access many sources of commercial market research, from bespoke market research companies to general market research reports from commercial providers. Other information is available in the public domain, such as the Hospital Episode Statistics database see: http://www.dh.gov.uk. You can find more information on this area in the guide on ‘Market and Competitor Analysis’.

Inventor and investor value


Another important standard is the time and cost to market. This is the point at which the value perceptions of innovator and exploiter most often differ. Time to market is generally determined by the type of health technology and level of innovation involved. For example, diagnostic devices and me-too products reach the market more quickly than innovative implantable devices. The closer the innovator can take a product to market, the greater the reduction in further costs and risks and the greater the value of the IP. But the innovator may not have the funds to achieve this. Patents elicit a high cost, particularly if the holder wishes to acquire protection in other territories around the world. Closing the valuation divide through the route to market demands experienced negotiation. Your business plan is an important tool in this negotiation process.

Creating value in the business


Identifying your IP and the associated marketing opportunity will form the basis of your business plan. It may estimate ‘top-line’ sales values, the costs needed to achieve these sales, and ‘bottom-line’ profits that define the value of the business and the value of the IP on which the business is based. Your business earnings will provide a return on investment that can be brought onto the same timescales as the original investment using accounting techniques such as discounted cash flow (DCF). DCF is a way of evaluating an investment by estimating future cash flows and taking into consideration the time value of money.

IP value during project progression


Developing health-related innovations is an expensive and time consuming process. You generally create value by achieving key milestones, for example an approval by a regulatory agency or purchasing authority. This means that the IP at the end of this lengthy process can become extremely valuable. To develop this high value, your technology development may go through a number of rounds of financing, each hopefully reducing the risk of failure and taking the technology closer to the patient.