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IARU value of research apr 2012

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IARU value of research apr 2012

  1. 1. HOW NOVOZYMES MEASURES R&DPer Falholt, EVP and Chief Scientific Officer of Novozymes A/SAt International Alliance of Research Universities (IARU) workshop: The Value ofResearch Universities. April 2012
  2. 2. NOVOZYMES IN BRIEFWORLD LEADER IN BIO-INNOVATION WE GREEN THE WORLD:  Enzymes save energy, chemicals, raw- materials and water  Microorganisms in agriculture improve yield and reduce the need for pesticides  In 2011, Novozymes helped customers save 45 million tons of CO2 BASED ON INNOVATION:  14% of sales re-invested in R&D  7000 patents granted or pending  >1100 employees in R&D
  3. 3. “If you are not keeping score, you are onlypracticing”Jan LeschlyFormer CEO of SmithKline Beecham
  4. 4. But it is challenging to measure differentbusiness areas or university faculties bythe same criteria...
  5. 5. …if the prerequisites are not the same.e.g. varying cost associated with regulatory approval of enzymes
  6. 6. 6 22/08/2012 NOVOZYMES PRESENTATION So how do we do it in Novozymes ? Internal Rate of Return of New Product & Concept Sales
  7. 7. 7 22/08/2012 NOVOZYMES PRESENTATION Model overview Internal Rate of Return of New Product & Concept Sales Model description Internal Rate of Return • The objective of this model is to estimate • IRR is the other side of Net Present Value the value of the R&D resources, spend in (NPV), where NPV is the discounted value the previous year. of a stream of cash flows, generated from an investment, IRR thus computes the • This model is based on a model developed break-even rate of return by McKinsey in 2006, and improved several times. • Internal Rate of Return provides a simple ‘hurdle rate’: • The model calculates IRR (internal rate of return) values based on a simple lifecycle  Hurdle Ratein ISG • R&D spend (IRR)>WACC  Continue model for the Industry Subgroups (ISG) in Novozymes Enzyme Business • The IRR is set in relation to the ratio: • Hurdle Rate (IRR)<WACC  Avoid R&D Spend in ISG R&D spend in % of total Industry Subgroup Sales ... Unless it’s a strategic decision
  8. 8. 8 22/08/2012 NOVOZYMES PRESENTATION Calculated IRR without cannibalization Past performance 2007-2011 Average: 6,7%IRR product innovation 60% NZ overall IRR = 21.1% 50% Circles represent industry subgroups. Size of circles represents relative turnover in 2011. 40% 30% Average: 21.1% 20% WACC: 15% 10% 0% -5% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13 R&D spend for product innovation (% of total sales of ISG)
  9. 9. Thank you for your attention

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