From Innovation to Cash Flows: Value Creation by Structuring High Technology Alliances PDF
Preview From Innovation to Cash Flows: Value Creation by Structuring High Technology Alliances
From Innovation to Cash Flows Value Creation by Structuring High Technology Alliances ¨ CONSTANCE LUTOLF-CARROLL with the collaboration of ANTTI PIRNES and WITHERS LLP John Wiley & Sons, Inc. Copyright(cid:2)C 2009byConstanceLu¨tolf-CarrollwiththecollaborationofAnttiPirnes.All rightsreserved. PublishedbyJohnWiley&Sons,Inc.,Hoboken,NewJersey. PublishedsimultaneouslyinCanada. 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HD62.5.L892009 658(cid:3).046–dc22 2008047047 PrintedintheUnitedStatesofAmerica 10 9 8 7 6 5 4 3 2 1 To Marc and Daniel and To Mia, Santeri, and Arttu Contents Foreword xiii Preface xv Acknowledgments xix PARTONE CreativityandtheRolesoftheInventor,Innovator,andEntrepreneur 1 CHAPTER1 CreativityandtheEntrepreneurialProcess 3 GettingThatBrightIdea 3 FromIdeatoInvention 7 DistinctRolesofInventor,Innovator,andEntrepreneur 9 ClosingThoughts 14 CHAPTER2 ProtectingYourInvention 15 WhatIsIntellectualProperty? 15 HowIntellectualPropertyLawWorks 16 BasicFormsofIntellectualProperty 17 InternationalTreatmentofIntellectualPropertyLaw 18 InnovationProcess:DiffusionandAdoption 19 AppropriatingtheProfitsofInnovation 21 HowtoDecideWhichIntellectualPropertyToolstoApply 23 HowtoIdentifyIntellectualPropertyinYourOrganization 23 DevelopinganEffectiveInventionDisclosureProcess 25 ChapterTakeaways 26 Appendix2.1Remmey’sGrantedPatent 27 PARTTWO BuildingBusinessModels 37 CHAPTER3 UnderstandingStrategyBasics 39 FromStrategyasPlantoStrategyasDirection 39 IntroductiontotheStrategicManagementProcess 40 WhyIsStrategyImportantforAnyEnterprise? 41 v vi CONTENTS StrategyinaRapidlyChangingHigh-TechnologyEnvironment 42 HowOftenShouldYouChangeYourVenture’sStrategy? 43 HowDoManagersFormulateaStrategy? 43 ThreeLevelsofStrategyandHowTheyInterrelate 45 BasicToolsforExternalAnalysis 53 InternalAnalysisandOrganizationalDesign 65 UnderstandingOrganizationsandTheirCultures 73 ChallengesofOrganizationalDesign 75 HowOrganizationsSurviveTurbulenceandChange 79 ReflectionsonStrategyintheEntrepreneurialContext 80 ChapterTakeaways 81 CHAPTER4 StrategiestoGrow,Restructure,orHarvestYourBusiness 83 Growing 84 Restructuring 87 Harvesting 90 DiagnosingtheSituationalContextoftheIndustry 94 ClosingThoughts 97 ChapterTakeaways 98 CHAPTER5 KeyElementsofaBusinessModel 101 WhatIsYourBusinessModel? 101 CreatingtheBusinessModelStepbyStep 103 ChapterTakeaways 105 PARTTHREE CraftingStrategicAlliances 107 CHAPTER6 IntroductiontoStrategicAlliances 109 WhatIsanAlliance? 110 StrategicAlliances 118 ForcesofDeconstructionontheValueChain 119 VerticalIntegrationDecisions 123 StrategicAllianceswithaHighComponentofTechnology 127 ChapterTakeaways 132 Appendix6.1ComparisonofMainAllianceModesandTheir ContractualFeatures 133 CHAPTER7 ManagingAlliances 137 FillingtheStrategicGaps 137 DoingItBetter 138 Step1:DecideontheStrategicLogicfortheCollaboration 139 Step2:SelecttheRightPartneringCandidates 144 Step3:Design,Structure,andNegotiatetheAlliance 149 Step4:ManagingtheAlliance 160 Contents vii Step5:MeasureandAssessPerformance 164 Step6:ChecktheMeritsofContinuingtheAlliance,Either AdjustorExit 166 Step7:StarttheCycleAnew:StrivetoCreateaConnected NetworkofAlliances 171 ClosingThoughts 172 ChapterTakeaways 172 CHAPTER8 HowAlliancesCompletetheValueChaininBiotechnologyand PharmaceuticalBusinessModels 175 RisksandUncertaintyAssociatedwithDrugDevelopment 175 ValueChainsinPharmaceuticalsand(Bio)Pharmaceuticals 179 CompletionoftheBiotechnologyandPharmaceuticalValue ChainthroughAllianceFormation 181 BusinessModelsinPharmaceuticalsand(Bio)Pharmaceuticals 188 RecentTrendsandEmergingBusinessModelsinHealthcare 199 AllianceFormationCrucialtoBiotechnologyand PharmaceuticalBusinessModels 205 ChapterTakeaways 206 PARTFOUR UnderstandingLegalAgreements 209 CHAPTER9 ContractLaw,KeyLegalAgreementsforBusiness,and IncorporationIssues 211 ElementsConstitutingaContract 212 FormoftheContract 214 Cross-CulturalDifferencesinContractualAgreements 215 NondisclosureAgreements 216 Shareholders’Agreements 218 IncorporationIssues:ChoosingtheAppropriateLegalStructure 219 SoleTrader(SoleProprietorship) 220 Corporations 221 Partnerships 224 WhatIstheRightChoiceofVehicle? 225 IntellectualPropertyIssuesPertainingtoIncorporation 226 ChapterTakeaways 227 CHAPTER10 InvestmentAgreements 229 InvestmentandFinance 230 PreferredShares 234 TransferabilityofSharesandExit 236 OtherTermsoftheInvestmentAgreement 237 ChapterTakeaways 240 Appendix10.1InvestmentTermSheet 240 viii CONTENTS CHAPTER11 TheIntellectualPropertyLandscape 249 IPPerspective 249 Copyright 252 Designs 255 Know-HoworTradeSecrets 257 Trademarks 262 ClosingThoughts 269 ChapterTakeaways 270 CHAPTER12 TheBasicsaboutPatents 273 PatentFacts 273 FilingPatents—OverviewofInternationalPatentTreaties 277 PatentApplicationProcesses 282 TrendsinGlobalPatentingActivity 289 ClosingThoughts 295 ChapterTakeaways 296 CHAPTER13 GeneralPatentingStrategiesinHigh-TechnologyIndustries 297 DevelopingaPatentStrategyforEarly-StageBusinesses 297 QuestionstoAskWhenDevisingaPatentingStrategy 302 DefensiveandOffensivePatentStrategies 304 Real-LifeExamples 307 StrategicPatenting—ClaimingFirsttoWintheBattle 308 StrategicPatentConsiderationsforGenericsDrugCompanies 311 ChapterTakeaways 313 CHAPTER14 NavigatingTechnologyLicenseAgreements 315 StructureofaBasicTechnologyTransferAgreement 316 OutlineoftheAgreement 317 CompetitionLawandAntitrustProvisions 326 HeadsofTermsorMemorandumofUnderstanding 328 ChapterTakeaways 331 Appendix14.1SampleHeadsofTermsorMemorandumof Understanding 332 PARTFIVE CompetitiveIntelligenceandDueDiligence 335 CHAPTER15 CompetitiveIntelligenceandPatentSearching 337 AskingtheRightQuestions—DoingVariousPatentSearches 338 BusinessIntelligenceforBenchmarking 340 CompetitiveIntelligence 340 Contents ix CarryingOutInformationandPatentSearches 341 SearchingforTechnicalandBusinessInformation 345 GoingfromPatentDatatowardTechnologyIntelligence 348 ChapterTakeaways 358 CHAPTER16 DueDiligence 361 WhatIsDueDiligence? 362 PreliminaryIssuesBeforeCommencingDueDiligence 362 HowLegalDueDiligenceWorks 365 NonlegalDueDiligence 367 IssuesinCross-BorderDueDiligence 369 WhatIfDueDiligenceUncoversaProblem? 370 FromInnovationtoCashFlowsandBeyond:DueDiligence duringtheBusinessLifeCycle 371 ClosingThoughts 378 ChapterTakeaways 379 PARTSIX ValuingCompanyCashFlows 381 CHAPTER17 ValuationUsingDiscountedCashFlow 383 WhyValuationIsanImportantSkilltoLearn 383 CompoundingandDiscountingMoney:PresentValueTechniques 384 DefinitionofNetPresentValue 385 InternalRateofReturn 386 MeaningofIntrinsicValue 388 ValuingYoungGrowthCompanieswithNoDividends 394 OverviewofDiscountedCashFlowMethods 396 PresentValueofanInfiniteStreamofDividends 397 Zero-GrowthPerpetuityModel 398 Constant-GrowthModel 400 Multiple-PeriodDividendGrowthModel 402 IntroductiontotheCostofEquity 406 CapitalAssetPricingModel 407 EnterpriseValuationMethod 411 DefiningtheWeightedAverageCostofCapital 415 ApplyingtheEnterpriseValuationApproachbyDiscounting FreeCashFlows 417 PracticalAdviceonSelectingtheProperDiscountRate 423 EstablishanEstimatedRangeofValuationValues 424 NextStepsforTestingYourKeyAssumptions 426 NextStepsforPracticingValuations 427 ChapterTakeaways 428 Appendix17.1UsingtheEnterpriseValuationMethodtoValue aHigh-TechnologyCompany 429 x CONTENTS CHAPTER18 ValuationUsingMarketMultiplesandComparableDealTransactions 441 EnterpriseValueoftheFirmIsaMarketValue 441 PuttingtheMoneytoWorkintheBusiness 443 WhyAccountingValuesAreNottheSameThingasMarketValues 445 EconomicBalanceSheetReflectstheCapitalMarket’sView 447 FinancingtheBusiness:ThePeckingOrderofFinance 449 ImportantCharacteristicsofEquityMarkets 451 WhoSetstheMarketPriceofaStock? 452 MeasuresofValueUsedinAppraisalsunderaVarietyof Circumstances 456 RelativeValuationbyComparingSimilarCompaniesand Transactions 458 TypicalRatiosandMultiplesUsedinRelativeValuation 461 CaseStudy:DeterminingtheTechnologyValueofaSampleof ComparableBiotechnologyFirms 467 SelectingtheRightMultipleforaGivenSituation 470 ChapterTakeaways 472 CHAPTER19 VentureCapitalMethodofValuation 475 ActivitiesofPrivateEquityInvestors:AnOverviewoftheIndustry 475 FinancialIntermediariesversusPrincipalInvestors 476 BuyoutFunds 476 Megafunds 477 VentureCapitalFunds 477 TypicalVenture’sLifeCycleofDevelopment 481 TypicalApproachtoCreatingaVentureCapitalorPrivate EquityFund 483 HowVentureCapitalistsImproveTheirChancesforSuccess 490 SpecialCaseofLifeScienceVentures:RecentExitTrends 492 VentureCapitalMethodofValuingYoungFledglingFirms 494 CaseStudy:TSPEnterprisesSeeksVentureFinancing 497 ApplyingtheVentureCapitalValuationMethod 498 AdjustingtheVCMethodforMultipleRoundsofFinancing 502 SummaryofTwoFinancingRoundsforTSPEnterprises 508 Multiple-RoundversusSingle-RoundFinancing 510 QuestionsWhenApplyingtheVentureCapitalMethod 512 ClosingThoughts 515 ChapterTakeaways 516 CHAPTER20 ValuingandStructuringHighTechnologyStrategicAlliances 517 ValuingLicensesasthePresentValueoftheFutureBenefitsof OwnershipandDevelopment 518 BasicLicensingModel—SharingtheEconomicPie 521 CaseStudy:AdvancedDermalDelivery,Inc.andtheLaunchof theNewTransdermalPatch 522 Contents xi NewProductOpportunity 523 LicensingDeal 524 UpcomingLicensingNegotiations 525 ConstructingtheFinancialForecastsandLicensingModel 526 ComparingSpreadsheetResults 535 NextStep:SensitivityAnalysis 546 NextStep:DevelopingScenariostoQuantifytheRisksofNew ProductFailure 549 DevelopingOtherLikelyScenariosandNegotiatingPoints 551 FinalTipsonNegotiationPreparationsforStructuringtheDeal 553 ChapterTakeaways 555 CHAPTER21 Conclusion 557 TheBasicBrothofBusiness 558 BuildingtheHigh-TechnologyBusinessVenture 560 Notes 569 References 589 AbouttheAuthors 599 AbouttheContributors 601 AbouttheWebSite 605 Index 607
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