To everyone who responded to last week's
column by sending in your favorite patent litigation plays, many thanks. Normally, I don't do consecutive columns on the same subject, but some of these stories are too good not to broadcast. The following, for instance:
Napro Biotherapeutics holds what looks like a rock-solid patent covering the formulation of a drug called paclitaxel, which, under the brand name Taxol, is Bristol-Myers' -- and the world's -- biggest selling cancer drug. Paclitaxel was discovered by the National Institutes of Health, so the compound itself isn't able to be patented. Bristol-Myers, however, has gotten around this by patenting things like use and dosage, which so far has given it a near-monopoly. What follows comes from a money manager who's long the stock, and wants to remain anonymous: Later this year, in partnership with Abbott Labs , Napro will bring out its own generic version of paclitaxel, which my source thinks will grab 30% of the market, netting Napro $2 to $3 a share. At the current price of $7, this alone makes it a buy. But the real upside comes from a suit that Napro has filed against Bristol-Myers, alleging patent violation on recent sales of Taxol. The case will be tried some time in 2002, and more than likely appealed into 2003, so it's a long way from yielding any actual cash. But "Napro's position is quite strong," says my source. And the numbers it's seeking -- treble damages on revenue of over $1 billion a year -- make this case a potential blockbuster for a company with a market cap of only $200 million.
Storage Computer makes high-performance data-storage systems. Operationally, it's been a mess for the past few years, with falling sales, mounting losses and the wholesale exit of top management. Its market cap, as a result, is down to about $125 million. But in 2001 it seems to have stabilized, bringing in new management, raising $25 million through a private placement and introducing a new data-storage system that it says is faster and cheaper than most of the competition. "Sales are rising on a daily basis," says Todd Viegut, marketing vice president. Meanwhile, Storage Computer owns a portfolio of patents dating back to 1984 that appear to cover data-storage systems now being sold by several large companies. After analyzing the portfolio, top-tier intellectual property law firm Sidley & Austin took the case on a contingency basis. "Their lawyers have been working for the better part of the year at their expense, not ours," says Viegut. In March, they brought their first suits, against Seagate and Hitachi . How much are we talking about? There's no way to put a dollar value on it. But the data-storage industry has sold hundreds of billions of dollars of equipment, some of which pay potentially infringe Storage Computer's patents.
Acacia Research is a developer of (mostly) life science companies whose subsidiary, Soundview Technologies, of which it owns 67%, holds the patent for the V-chip. Under FCC rules, the V-chip has to be included in all new 13-inch and larger televisions sold in the U.S. When the mandate came down in 1998, the Consumer Electronics Association settled on an industry standard -- after, apparently, discovering Soundview's patent and deciding to ignore it. "We tried to license the technology to TV makers, and got an across-the-board refusal," says Soundview president Rob Berman. So Soundview hired Ray Niro, whom Berman calls "one of the most feared patent litigators in the country," and took the TV makers to court. So far, so good. Eight companies, representing 30% to 40% of the market, have agreed to pay Soundview for the right to use the chip through the patent's July 2003 expiration. And if the current string of rulings is any indication, the rest should fall into line soon. How much is this worth? Berman can't say due to confidentiality agreements that accompany the settlements. But so far in 2001, Soundview has netted about $10 million. Extrapolating through the end of the patent, you get something like $60 million. Because Acacia owns about two-thirds of Soundview, that means $40 million or so for stockholders. Acacia is already debt-free, with about $77 million of cash on hand, so this pretty much guarantees it the capital to develop its most interesting project, a 100-person start-up called CombiMatrix. A developer of "gene chips" -- mixtures of silicon and DNA that can identify the functions of genes -- among many other things, CombiMatrix registered for an IPO way back in November, but since then has been very quiet. Soundview, meanwhile, is hunting for more marketable patents and inventions, and stands ready, says Berman, to help inventors bring their intellectual property to market. He can be reached at 626-396-8300.
John Rubino, a former equity and bond analyst, is a frequent contributor to Individual Investor, Your Money and Consumers Digest. His first book,
Main Street, Not Wall Street, was published by William Morrow in 1998. At time of publication, he had no position in any stocks mentioned. While Rubino cannot provide investment advice or recommendations, he invites your feedback at
TheStreet.com has a revenue-sharing relationship with Amazon.com under which it receives a portion of the revenue from Amazon purchases by customers directed there from TheStreet.com.