March 18, 2004 — Two events this week show that investors and corporations put a high value on nanotechnology-related intellectual property. The company at the fulcrum of this week’s action is Nanogram Corp., which is reaping the rewards of an innovative IP strategy. But analysts are not yet ready to call Nanogram’s business model a success.
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Graphic by Mike Mullen
Evolution of an IP model: NanoGram Corp. was founded in 1996 and later changed its name to NeoPhotonics. In 2002, it spun off its medical devices business as NanoGram Devices Corp. and spun off a new NanoGram Corp. as an IP holding company. The holding company now licenses the IP to NeoPhotonics, NanoGram Devices Corp. and Kainos Energy. Each has rights specific to its respective industry. |
On Tuesday, a nanotechnology company in the midst of a reorganization, NeoPhotonics, raised a whopping $40 million venture round. On the same day, a second nano firm, NanoGram Devices Corp. (NDC), was sold for $45 million.
“I think it validates the technology,” said Juan Sanchez, a nanotechnology analyst with Punk, Ziegel & Co. However, he and other experts say it’s too early to determine whether the events truly validate the business model of a holding company whose core IP is licensed by both companies.
NeoPhotonics and NDC license the same intellectual property from NanoGram Corp. “The objective of NanoGram Corp. is to maximize the value of its assets in several market verticals,” said Tim Jenks, who is chief executive of both NeoPhotonics and NanoGram Corp. (the IP holding company), which owns 28 patents. The complete portfolio, including patents pending, numbers more than 50, according to Jenks.
NeoPhotonics owns rights to exploit the IP for certain optical applications. NanoGram Devices owns rights for medical devices. A NanoGram Corp. subsidiary, Kainos Energy, is targeted toward fuel cell applications.
Jenks said the sale of NDC, which was acquired for $45 million in cash by Wilson Greatbatch Technologies Inc., does help to validate the business model of NanoGram Corp. (the IP holding company) insomuch as the company generated a sizeable return on a $9.2 million investment early last year. Greatbatch is a leading provider of batteries for pacemakers and other implantable medical devices.
Greatbatch’s president and chief executive, Ed Voboril, said in a conference call Wednesday that NDC’s technology would allow his company to extend its current medical battery product line as well as develop new power products.
However, Jenks said, the NeoPhotonics funding does less to validate the IP licensing model. “I think the NeoPhotonics funding is much less about the NanoGram model and much more about the capability that NeoPhotonics has to address the optical communications market,” he said.
Jenks and investor Charles Harris of Harris & Harris both said it was the value of NeoPhotonics’ technology, and signs of life in the optical networking industry, that helped justifying the funding round. The company’s IP portfolio also includes technology developed by Lightwave Microsystems Corp., a developer of optical components that NeoPhotonics bought in early 2003.
The funding was part of a larger plan to pull the company out of bankruptcy. NeoPhotonics filed for reorganization protection last November and its plan was confirmed in late February, according to court documents. Jenks said raising money was the next step required.
“We are post-confirmation and post-funding,” he said. “It’s virtually behind us.”
Jenks and analyst Sanchez also pointed to the company’s February launch of optical component products as evidence that it is successfully executing a turnaround.
And that, according to Sanchez, is where ultimate validation of NanoGram Corp.’s IP licensing model will lie.
“This doesn’t necessarily validate the business model,” he said. “You won’t validate it until there’s a product.” And, he added, revenue-generating sales.