Evaluation and Valuation of Technologies
Topic Guide for Senior Administrators

Abstract: The patenting strategies of research institutions are based on three key decisions. The first involves whether or not to file a patent. This decision must be based on sound information about the market, the uniqueness and usefulness of the invention and/or technology, the likelihood of being able to obtain patent protection, factors related to the inventor, and the potentially paradoxical impact of patenting on the institution’s social and humanitarian responsibilities. The second decision involves whether to market the invention to established companies or to develop a spinout business. The third involves how much to charge for a license. Related to all of these decisions is the key question of whether patenting is the most effective route to global access. Negotiating licensing agreements that are fair to the research institution, the private company, and developing countries can be challenging because research institutions may have difficulty determining fair market values. In addition to outlining a process for obtaining these values, this chapter offers some rough numbers for guidance. In general, the author concludes that it is far better to conclude a deal than to wait for the best agreement while fighting interminably for perfect financial terms.

Abstract: This chapter introduces technology managers to certain key issues and to six methods of valuation and pricing. The value of a technology to a buyer (licensee) depends upon how it is to be commercially employed, taking into account the cost of development, the time the technology takes to generate returns, the extent of such financial returns, and the risk involved in the process. At the time of a licensing/sale transaction of an early-stage technology many, perhaps all, of such factors need to be assessed and quantified by making judgments about how the future will unfold with respect to the technology being developed. This assessment and forecast assessment are the essence of all pro forma business models. Valuing license rights for early-stage technologies is in this sense no different than making other future business forecasts, though the details may differ because the forecast time horizon may be longer, the uncertainties may be greater as to the market size and profitability, the operating performance of the technology as it will be used in commercial operation may be less well defined, and other factors. The price paid for a technology transferred between parties is the amount of money (present and future) and/or the financial value of noncash assets given in exchange for the transfer of the technology, which can only occur if both the seller (licensor) and buyer (licensee) have by some process reached a common, present understanding of value that makes agreement possible.

Abstract: This chapter explains the basics of the various ways of estimating value of a new technology, focusing on the importance of agreeing on the value before finalizing a technology transfer deal. Indeed, value is simply the negotiated amount arrived at between two parties. Although there are many ways to place a value on a technology, most licensing deals focus on royalty amount, since it spreads the risk between the technology provider and the developer. The percentage assigned to royalty has to be negotiated. Several factors will affect royalty value: level of market demand, the improvement the technology can bring to the final product, whether or not other investments will be needed to develop the final product, and, most importantly, the predicted rate of uptake in the marketplace. Some understanding of these factors, or at least the procedures used to estimate them, will enhance one’s ability to negotiate a deal that will both help bring the technology to market and nurture the relationship between the parties, thus facilitating any future technology transfer deals.

Abstract: In this chapter, the revenue consequences of varying collection fees and royalties with regard to germplasm prospecting contracts are demonstrated. Principal factors are the uncertainty of finding marketable products and the value of these products. Negotiation factors are finding a good balance between collection (initial) fees as opposed to royalty (delayed) payments. Emphasizing collection fees reduces total payments except when national interest rates are very high. Reducing the risk of failure through in-country screening, including the use of indigenous knowledge, is a potentially valuable activity. Issues for contract negotiators are outlined and the implications for biodiversity conservation discussed. Conceptually, the highest valuation approach, royalties, will most encourage conservation, but as the future is typically heavily discounted, collection payments may get more attention and be most effective. Policy considerations for national governments, nongovernmental organization (NGOs), and development agencies are reviewed and it is concluded that grants/loans and training/equipment for in-country screening should be given a high priority as a potentially viable activity in the long term.

It should be noted that the figures and calculations in this chapter are merely for illustration. The valuation of samples, and by extension a country’s biodiversity, is a negotiation and will depend on many factors, including alternative investment options by a company, alternative technologies that could be used for lead compounds, interest rates, and a range of risk factors, such as the political situation in a given country surrounding the national debate on bioprospecting. The latter point is a key factor: valuation is always a calculation that has important political consequences. Another complicating factor is the need for confidentiality with which a country and company will hold its overall business estimates. Neither a company nor a country will be likely to share their valuation basis purely for negotiation purposes and because neither want to tip off other entities about the opportunity. It is therefore concluded that, from a practical perspective, the proper valuation is the one that (1) provides the country with compensation and other benefits such that it does not feel taken advantage of and can withstand criticism from its constituents and (2) provides the licensee (typically a company) with a reasonable cost of obtaining the crucial raw or semifinished goods it requires as an input to its business.