CBDWire Editorial Coverage: Intangible assets such as patents increasingly dominate the global business landscape, especially in the pharmaceutical sector.
- Intangible assets are estimated to be worth trillions of dollars in the United States alone.
- These assets drive deals as companies acquire smaller patent holders.
- In growing sectors such as cannabis, smaller companies are rushing to establish intangible assets ready for expected market growth.
Lexaria Bioscience Corp. (CSE: LXX) (OTCQX: LXRP) (LXRP Profile) is one of the leaders in the world of cannabis, with applications made for more than 50 different patents and more to come. Tilray Inc. (NASDAQ: TLRY) is also focusing on building its intellectual property (IP) portfolio, including exclusive rights to at least 22 issued or pending patents. In wake of receiving FDA approval of its Epidiolex® (cannabidiol) oral solution for the treatment of seizures associated with two rare and severe forms of epilepsy, GW Pharmaceuticals Plc (NASDAQ: GWPH) has applied for five new Epidiolex patents. Recently Canopy Growth Corporation (NYSE: CGC) announced that it has, alone or with its subsidiary or joint-venture partners, filed eight provisional U.S. patents pertaining to the delivery and application of cannabis and cannabinoid-based therapeutics. And through its ownership of CanniMed, Aurora Cannabis, Inc. (OTCQX: ACBFF) has obtained six patents related to cannabinoid delivery for pain management.
The Power of Intellectual Property
Intellectual property is now one of the most important parts of the global economy. Copyrights, trademarks and patents are a vital weapon in the arsenal of many businesses. For some companies, this is a secondary consideration, a way to strengthen and protect their positions within their fields. For others, it’s their entire focus — a way to dominate a sector or provide valuable returns.
The power of IP means that no part of the economy goes untouched. New industries often arise off the back of new IP. Even when that’s not the case, the development of new techniques and technologies frequently lead to the creation of patents, as companies work to innovate and control techniques that give them an edge over their competitors. For relatively new sectors, such as the cannabis market, this means the sudden flourishing of IP and a race by companies to stake their claim on these valuable assets. As a sector matures, so will its IP market.
The Value of Intangible Assets
Patents are a big part of business for companies such as Lexaria Bioscience Corp. (CSE: LXX) (OTCQX: LXRP), for whom developing and protecting new technology is fundamental to success. Whether it’s underlying technology such as DehydraTECH, the company’s system for increasing the body’s absorption of chemical compounds, or specific products derived from DehydraTECH, such as TurboCBD, Lexaria’s success is founded on its distinctive IP.
IP is part of a wider sector of the economy — intangible assets. This is the wealth provided not by physical assets and the processes that directly transform them but by less visible, more abstract resources. It includes IP, whose value is often examined and measured, as well as harder-to-pin-down elements such as business processes and reputation.
These factors have always played a part in business, but their growing recognition and analysis has led to the growth of companies whose main focus is on intangible assets, from investment research firms and reinsurers to patent licensing and enforcement companies.
Representing around a third of the U.S. economy, intangible assets are now consciously analyzed and developed by virtually every business, even if they don’t recognize the “intangible asset” label. Companies with a solid focus on these areas can place themselves in positions of great strength.
Patents in a New Sector
The speed at which intangible assets can develop is well illustrated by movements in the cannabis sector, where many of Lexaria’s patents apply.
The legal global cannabis market started to emerge only recently, thanks to a handful of countries allowing medical marijuana. The market has started to mature through a small but growing number of territories with legal markets for recreational cannabis, as well as the separate management and licensing of industrial hemp. Legal cannabis is now a multibillion-dollar business. Although Lexaria’s technology has other profound drug delivery applications, cannabis is where it looks set to have the most immediate impact.
This has led to a rush to control intangible assets around cannabis. It’s noteworthy that Chinese companies own more than half of the cannabis-related patents registered with the World Intellectual Property Organization, even though the cannabis trade remains illegal in China. China has a good eye for long-term developments and is setting itself up to control a growing global trade.
Outside of China, Lexaria is one of the world’s biggest holders of cannabis patents with eight patents already granted. The company currently holds four patents in the United States and four in Australia, covering aspects of its work to make beneficial drugs more palatable and effective. In addition, the company has further patent applications in process in more than 40 countries as part of a concerted strategy to expand its patent portfolio. This is made possible by the focused, tangible research and development being carried out by the company and is ultimately driven by the need to develop and control intangible assets.
Lexaria has disclosed it expects four more patents to be granted in 2018, bringing its total to twelve. Of note, all twelve of these are within a single patent family — and Lexaria expects patent success across all nine families of its current applications. Indeed the company recently revealed that it has seven more patent families in the works. Lexaria’s goal is to have some 200 patents pending or granted which, if achieved, could turn the organization into an IP behemoth in the global cannabis industry.
The Value of Patents
The commercial value of patents, even those still pending approval, can be extraordinary, reaching billions of dollars. In 2011, Nortel sold 6,000 patents and patent applications for $4.5 billion. The following year, AOL sold 925 patents to Microsoft for more than a billion dollars. While some companies develop patents purely to protect their work, others develop them specifically to be sold.
This focus on intangible assets drives many mergers and acquisitions. The Craftsy digital network developed online shows such as “Man about Cake” with a focus on audience rather than immediate profit, leading to the company’s acquisition by NBC Universal. The intangible assets of the company’s identity, reputation and audience had become highly valuable in themselves.
Similar priorities can be seen on a far larger scale in SoftBank’s $31.4 billion acquisition of chip designer ARM Holdings, or roughly $7 million per patent or patent application. ARM’s revenues were only $1.5 billion per year, but its 4,500 patents cover technology of potentially incredible value. In just three years, the desire to control patented drugs and processes in the healthcare sector overall resulted in 58 mergers and acquisitions with values of a billion dollars or more.
In Lexaria’s field of pharmaceuticals, patents are crucial, representing both the outcome of years of R&D and also potential market share and control in the emerging global cannabis business. Lexaria is attempting to own enough IP in the global cannabis industry that patent royalty revenues begin to flow worldwide.
Because patents are among the most valuable assets a company can own, a small investment in research now may pay off in a huge way in years to come. In a sector with such huge growth potential as cannabis, Lexaria’s IP portfolio may generate cash flows regardless of whether other companies intend to license the technology or not; by owning core IP, other companies may be forced to pay royalties. If Lexaria’s goal of owning hundreds of issued patents becomes a reality, the company’s patent portfolio could have huge ramifications on its valuation.
Powered by Intellectual Property
Lexaria isn’t alone in its commitment to strengthen its IP collateral. Tilray Inc. (NASDAQ: TLRY) is also focusing on building its IP portfolio including exclusive rights to at least 22 issued or pending patents. Tilray CEO Brendan Kennedy has observed that if cannabis companies are going to move forward, they’ll need to develop IP in both the medicinal and recreation aspects of the cannabis spectrum.
GW Pharmaceuticals Plc (NASDAQ: GWPH) has established a leading position in the development of plant-derived cannabinoid therapeutics through its intellectual property portfolio, proven drug discovery and development processes, and regulatory and manufacturing expertise. The company successfully developed the world’s first prescription medicine derived from the cannabis plant.
In addition to the eight provisional patents it has filed, Canopy Growth Corporation (NYSE: CGC) has updated applications relating to earlier insomnia patent applications, bringing its total number of U.S. provisional patent filings to 39. The filings are part of a concerted plan by Canopy Growth to deliver to patients and healthcare providers innovative medicines and health products targeting disease areas with substantial medical needs.
Aurora Cannabis, Inc.’s (OTCQX: ACBFF) pain-management patents are only part of the company’s commitment to creating a stronghold in the cannabis market. Aurora has become one of the fastest-growing cannabis companies, as evidenced by Aurora Sky, the company’s 800,000-square-foot flagship facility; by launching the world’s only mobile app for ordering medically prescribed cannabis; and by being the only LP to service two metropolitan areas with same-day delivery.
With so much value placed on intangible assets, patents are fueling growth and acquisitions worth billions of dollars. In the pharmaceutical sector and beyond, patents definitely appear to be where the big money is.
For more information on Lexaria Bioscience Corp., visit Lexaria Bioscience Corp. (CSE: LXX) (OTCQX: LXRP)
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