The intellectual property created by a business is where the premium value is when it comes to making an acquisition. Grant Murgatroyd looks at how we put a price - often a big one - on something we cannot touch.

Intellectual property (IP) is valuable. Nowhere is this more obvious than the pharmaceuticals sector, where Big Pharma faces a loss of billions of dollars of patent-protected revenues every year, as patents expire.

EvaluatePharma predicts that $47.5bn (£31.1bn) of sales are at risk in 2015, with consensus forecasts saying that $17bn of those sales will be lost to generic competition, as big drugs – including Copaxone, Nexium and Nemanda – come off patent.

“When you take into account the cost of failure, the cost of capital employed, the development of new pharmaceutical products costs in the region of a billion dollars,” says David Rosenberg, vice-president of IP at GSK (GlaxoSmithKline). “It takes 10-12 years to develop and a patent term is generally 20 years, which means that from the moment you launch the product you only have 10 years to recoup the profit. Patents are probably more important to the pharmaceutical industry than to any other industry. You would not have medical R&D if you did not have patents.”

In March 2015, GSK announced it had completed a three-part deal with Swiss pharma giant Novartis. GSK acquired Novartis’s global vaccines business for $5.25bn and created a new consumer healthcare joint venture with Novartis in which GSK will have majority control and an equity interest of 63.%. It also divested its oncology  business for an aggregate cash consideration of $16bn. At the heart of the deal was balancing the IP portfolios in both businesses.

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