Recent Acquisitions Suggest Patent Market is Alive

There seems to be a popular belief that the market for patents is dead, but if you look at recent transactions through Q1 of 2015, there are at least some signs that the patent marketplace is becoming more active. There have been a number of high profile acquisitions in the pharmaceutical space over the last four months, and last week Sony acquired OnLive’s patent portfolio. Earlier today Akamai Technologies, Inc. announced that acquired Octoshape, which will give Akamai access to Octoshape technologies that optimize the quality of video streams for over-the-top content and to enable Internet Protocol television solutions.

So it seems that the market for patented technologies is not as dead as some may believe.

“Although diligence and the level of communication are not indicative of future bidding, we are seeing the greatest numbers of buyers taking a look at portfolios since Spring 2012,” explained Tim Schnurr, who is Chief Operating Office of ICAP Patent Brokerage. The portfolios Schnurr was specifically discussing relate to ICAP’s upcoming April 23, 2015, Internet of Things Auction, which will auction off 34 separate patent portfolios that relate to wearables, smart-home technology, medical records and medical data collection, smartphone audio tours, voice control for mobile devices, gesture recognition eCommerce payment architecture, natural language processing and more.

Indeed, things are looking up on the transaction side of the industry. Compared to how the market seemed to bottom out right after the Supreme Court’s decision in Alice v. CLS Bank, there is much greater movement, and a sense that the worst is now in the rear view mirror.

Over the last several months there have been a number of blockbuster deals in the pharmaceutical sector. Some are attributing the recent deals to the latest so-called “patent cliff” facing the pharmaceutical industry. A patent cliff happens when a company has a number of blockbuster drugs coming off patent and does not have suitable patented replacements in the pipeline to make up the lost revenues associated with patents falling into the public domain, which leads to generic competition.

Moody’s Investors Service has recently identified AstraZeneca (NYSE: AZN), Bristol-Myers Squibb (NYSE: BMY), and Eli Lilly (NYSE: LLY) as having the highest patent expiration exposures relative to their revenue bases. According to Moody’s AstraZeneca and Eli Lilly, despite having a good deal of patent cliff exposure, have also strengthened their pipelines relative to where the companies stood in 2013.

Recent pharmaceutical deals may not, however, be directly attributed to the upcoming patent cliff that will be faced by several of the largest pharmaceutical companies in the world. For example, those companies identified by Moody’s as having the weakest pipelines and most exposure to patent expirations are not among those who have been involved in the most recent acquisition activity. Furthermore, much of the acquisition activity of late suggests a focus on orphan drugs and treatment of rare diseases, as well as drugs directed to niche markets. This focus would allow the acquiring company to charge a premium while at the same time having a far more narrow marketing campaign.

For example, in February 2015, Valeant Pharmaceuticals International, Inc. (NYSE: VRX) and Salix Pharmaceuticals, Ltd. (NASDAQ: SLXP) announced that they entered into an agreement under which Valeant would acquire all of the outstanding common stock of Salix for $158.00 per share in cash, or a total enterprise value of approximately $14.5 billion. Salix Pharmaceuticals is a widely recognized gastrointestinal market leader with a portfolio of 22 total products, including well-known prescription brands Xifaxan, Uceris, Relistor, and Apriso, as well as a strong near-term pipeline of innovative, new assets. “With strong brand recognition among specialist GI prescribers, a highly rated specialty sales force, and a significant product and commercial presence across the undertreated and underserved gastrointestinal market, this acquisition offers a compelling opportunity for Valeant to create a strong platform for growth and business development,” explained J. Michael Pearson, Valeant’s chairman and chief executive officer.

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More recently, at the end of March 2015, it was announced that Israeli pharmaceutical developer Teva Pharmaceuticals Industries Ltd. (NYSE:TEVA) would spend $3.5 billion to purchase Auspex Pharmaceuticals Inc. (NASDAQ:ASPX), paying $101 per share. Teva CEO Erez Vigodman explained that the Auspex acquisition moves his company more firmly into central nervous system and movement disorder markets, meeting a need that is currently underserved. Auspex has focused on the development of medicines for movement disorders and orphan diseases such as Huntington’s disease-associated chorea and tardive dyskinesia. Auspex has also been working on a compound known as SD-809, which has been developed into pharmaceutical treatments for involuntary movements associated with neurological disorders. SD-809’s inhibition of the VMAT2 integral membrane protein regulates levels of dopamine neurotransmitters in the brain, helping to control hyperkinetic movement disorders.

Also at the end of March 20125, Horizon Pharma plc (NASDAQ: HZNP) and Hyperion Therapeutics, Inc. (NASDAQ: HPTX) announced they entered into an agreement under which Horizon Pharma will acquire all of the issued and outstanding shares of Hyperion’s common stock for $46.00 per share in cash or approximately $1.1 billion. “The Hyperion acquisition will expand and diversify our product portfolio by adding two complementary orphan disease products, RAVICTI and BUPHENYL, and leverage as well as expand the existing infrastructure of our orphan disease business,” said Timothy P. Walbert, chairman, president and chief executive officer, Horizon Pharma plc. “This transaction will… add approximately $100 million to our adjusted EBITDA, including cost synergies contributing greater than $50 million.”

Outside of the pharmaceutical industry, last week OnLive announced that the company would be closing and had sold various assets, including its U.S. and foreign patent portfolios, to Sony Computer Entertainment. The OnLive patent portfolio covered innovations in cloud gaming. “These strategic purchases open up great opportunities for our gamers, and gives Sony a formidable patent portfolio in cloud gaming. It is yet another proof point that demonstrates our commitment to changing the way gamers experience the world of PlayStation,” said Philip Rosenberg, VP, Global Business Development of Sony Computer Entertainment.

Still further, Akamai Technologies, Inc. (NASDAQ: AKAM) announced earlier today that it acquired Octoshape in a cash transaction. The acquisition of Octoshape is expected to provide Akamai with valuable technology and experience in the area of streaming video optimization.  Through a combination of patented video and network optimization technologies, Octoshape has created efficient transport methods for the delivery of video streams across the Internet using standard media formats and players. “With the addition of Octoshape, Akamai intends to provide customers with the most comprehensive suite of video delivery and optimization technologies,” said Tom Leighton, CEO of Akamai.  “We believe this acquisition will bolster our strategy to further the deployment of Akamai software into devices, carrier networks, enterprises, and homes, and to fulfill the promise of an Internet that is fast, reliable and secure on any device, anywhere.”

In each of the aforementioned instances the acquisition of patented technology was at the core of the deal, which suggests that as of late there is a growing desire to acquire technologies created from the outside to bolster internal innovative efforts. This suggests that the market for patented technologies is not nearly as dead as many people might belief.

These and other issues will be the focus of a free webinar I am hosting on Thursday, April 9, 2015, titled The Art of Patent Dealmaking. The webinar, sponsored by Innography, will take place from 12pm to 1pm Eastern. Joining me will be Tim Schnurr, who is the Chief Operating Officer of ICAP Patent Brokerage, and Tyron Stading, the Founder and President of Innography.

In addition to taking as many questions from the audience as possible, during the webinar we will also take a look at some of the biggest patent deals over the last year and discuss the impact the patent reform debate has on dealmaking and licensing efforts. Our conversation will also touch upon the Innovation Act and the STRONG Patents Act. Finally, we will discuss whether the PTAB is becoming more patent owner friendly and what that means for patent value.

To register for this free webinar CLICK HERE.