BioWorld Insight Contributing Writer

Have a drug lying on the shelves gathering dust? Need a compound or two to fill out your pipeline? ICAP Ocean Tomo LLC's live intellectual property (IP) auction might be able to fill the void.

The IP auction works like a typical auction you'd see for art or cars, complete with a live auctioneer. ICAP Ocean Tomo accepts submissions and creates a catalog of lots that are available. Potential buyers are vetted to confirm they're financially capable of making a bid.

The company has been putting on the auctions twice a year for the last five years. The next auction is March 30-31 in New York.

Life sciences make up one-third to one-half of the deals that ICAP Ocean Tomo currently is doing. Cameron Gray, senior vice president at ICAP Ocean Tomo, expects that eight to 10 of the approximately 100 lots available at the next auction will be drug candidates.

Sellers run the gamut from large, mid-cap, and small companies all the way down to academic institutions and individual inventers. Buyers include companies, but also include a fair amount of investors – venture capital and private equity – which may be interested in using the IP to establish a start-up.

For sellers, the auction provides a global reach that might not be available from private brokerage. "In addition to a target list, other people may become aware of the offering, who it would otherwise be difficult to identify and reach out to," Gray told BioWorld Insight.

Not all intellectual property is appropriate for the auction. "Private brokerage might be appropriate if it's a large, bulky portfolio, meaning that the due diligence timeframe is more extensive," Gray pointed out.

For buyers, an auction potentially offers one-stop shopping, saving time by not having to source deals individually. "The critical mass of inventory helps people shop more efficiently," Gray said.

The increased competition and potential for a bidding war to break out is a disadvantage for the buyers, but the auction does allow for a public record of how much items sold for. "As we do more of these auctions, people get a sense of an approximate market pricing range where different things are going to go," Gray said.

The catalog describing the lots contains public information about the compounds, but lots often have additional information that's available if potential buyers are willing to sign nondisclosure agreements.

Depending on the seller's desires, the items may be patent licenses or outright sales. Some lots also include royalties as part of the payment process.

Each lot has a reserve price that's unknown to the buyers, which sets the floor for the minimum price the lot can go for. While much attention is put on the day of the auction, some deals close after the auction when the reserve price isn't met but the bidder and seller are later able to come to a compromise.

ICAP Ocean Tomo has found that the patents for drug candidates are often not sufficient for buyers to leverage the deal and generate a return on investment, so drug candidates often come as a package deal that includes related assets such as transfer of knowhow, manufacturing capabilities, clinical trial data and even stores of the drug.

"Our goal in the clinical drug space is to create a market where drug candidates are portable assets," Gray said.

The typical lots at ICAP Ocean Tomo's live auctions have gone for $300,000 to $700,000, but Gray thinks drug candidates will "likely be somewhere north of that number" in the $1 million to $10 million range.