Patents could mean cash for bankrupt biotechs

By Phil Wahba - Analysis

NEW YORK (Reuters) - The biotechnology industry has been hit by a wave of bankruptcies that threatens to worsen before the sector gets any relief, but many companies and their creditors may be overlooking the potential value of patents.

Even in a market tough for selling intellectual property, patents can often yield much-needed cash as companies try to stave off bankruptcy or creditors try to maximize the funds they can recover, experts said.

"You never know what they're going to be worth, or how they're going to be monetized," said Stephen Gray, a managing partner at restructuring firm CRG Partners, in reference to patents.

"Sometimes they just fade into the woodwork because people don't think they have any value or don't want to spend the time and energy to try to realize what the value might be," Gray said.

Bankruptcies are on the rise among biotech companies. Since November, there have been 10 Chapter 11 bankruptcy protection filings in the United States, according to industry group Biotechnology Industry Organization.

Last week alone, two companies -- North American Scientific Inc NASM.O, a California-based developer of cancer treatments, and Life Sciences Inc LFSC.PK, a Florida-based maker of enzymes for diagnostic kits -- sought Chapter 11 bankruptcy.

And the pace of bankruptcies is likely to accelerate, with about two-thirds of U.S. biotech companies having less than one year's worth of cash to operate, according to BIO.

One company, Pennsylvania-based Isolagen Inc (ILE.A), which makes anti-wrinkle products, said last week it only had about three weeks' worth of cash left on hand.

WHAT IT'S WORTH TO YOU?

A major challenge for biotech companies is valuing their intellectual property in a distressed market.

For one, there is no organized, transparent auction market for them. Biotech patents can also be a tough sell because of the long timelines between securing a patent and generating revenue if it reaches commercialization at all.

Many biotech patents are for products not yet on the market, making their value somewhat theoretical, experts said.

"So many of these products get killed in Stage III of the clinical trials," said David Resnick, a patent lawyer with Nixon Peabody in Boston.

Making matters worse, the desperation of distressed companies to quickly unload a patent, often without the time and resources to shop it around, and the higher number of patents on the market often mean it is a buyers' market.

"My concern now is that the companies are facing bankruptcy and everyone knows it, so it changes the dynamic. The leverage is gone, so people are waiting for a fire sale," Resnick said.