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Acacia Lost Ground After Medical Sector Proved Tough

What a difference a year makes.

Newport Beach-based Acacia Research Corp., which posted record sales and profits last year, has lost that momentum in the first nine months of this year.

The company, which licenses patents from its own portfolio and for other companies, has struggled to close lucrative licensing deals, particularly in the medical industry, a segment it bet heavily on in the past year.

Its disappointing third-quarter performance, with revenue sinking 55% from a year ago to $15.5 million, was the third consecutive quarter it widely missed Wall Street expectations.

“Our job is to close deals at the right price points, preferably in a timely manner, and management is disappointed that we could not close more deals at the desired price points in this most recent quarter,” Acacia Chief Executive Matthew Vella said in a conference call with analysts following the company’s quarterly report.

Vella took the top post in late July following the retirement of Paul Ryan, who oversaw the company’s growth and expansion into new markets during 16 years at the helm, including an aggressive move into the medical device sector—as well as the transition to own patents outright rather than licensing them for others.

The shift to buying medical technology portfolios was part a larger acquisition strategy that included the company pouring $328.3 million into patent buys last year, up 2,133% from 2011.

Last year’s deal with Massachusetts-based Boston Scientific Corp., which brought more than 1,900 patents and applications, boosted the number of patent portfolios Acacia held to 250 in 2012, up from 200 a year earlier.

Acacia typically splits sales, licensing fees and court settlements with patent holders.

But monetizing medical patents has proved difficult, as the overall licensing environment seems to have cooled, evident by Kodak’s $525 million sale of 1,100 digital-imaging patents late last year to a consortium of big-name tech companies, including Apple, Google, Facebook and Samsung Electronics.

Many industry watchers had estimated the portfolio would bring in as much as $2.6 billion.

Vella, after a lengthy review of its business model and portfolios, said the company was “too optimistic” on how much medical tech companies would pay in licensing fees without the threat of patent litigation.

“We did not get rewarded for this kinder, gentler approach in the medical technology space. Instead, we had two to three quarters of underproductive discussions that ultimately did not lead to the early license agreements we hope to close,” he said. “We have now returned to our more characteristically aggressive litigation posture even as we continue to pursue licenses in the medical technology space.”


Emulex Increases Projections

Emulex Corp. investors got some good news when the Costa Mesa-based networking equipment maker recently upped its revenue and profit targets for the September quarter.

The company, which has undergone management and board changes in the past few months pushed by activist investors, said it projects sales of $113 million to $114 million for the recently ended quarter, up from the $109 million to $111 million it projected in August.

Adjusted profits were projected in the range of $10.9 million to $11.8 million, up from the range of $8.2 million to $10 million.

Emulex designs and makes networking equipment that connects storage, servers and data centers.

Its share price is up more than 18% in the past year to a market value of about $725 million, largely because the company’s been linked to a possible sale in the coming months.

Emulex is scheduled to report earnings for the September quarter on Oct. 30.

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