Network-1 Technologies (NTIP) is a nano-cap patent company trading at tangible book value with multiple catalysts on the horizon. NTIP has been a low-risk opportunity for over a year due to substantial liquid assets and minimal operating expenses. Uncertainty around the timing of positive catalysts and a couple of dividend payments have kept the share price flat in 2019, but the first six months of the new year will provide multiple opportunities for the stock to jump higher.
On the surface, not much has changed at NTIP since I first wrote about the company in early 2019. The company still has a lot of cash on the balance sheet, no revenue, and a number of investments that could pay off handsomely if circumstances go the company's way. These investments include a proven patent portfolio that has generated over $100 million in royalties and a stake in late-stage biotech company ILiAD Biotechnologies. Both of these investments have important milestones approaching that will have a chance to positively impact NTIP's share price.
ILiAD Biotechnologies' phase 2 trial results for the PBZE1 pertussis vaccine will be announced in the first quarter of 2020. The company's CEO Keither Rubin and CMO Cherly Keech are scheduled to present the results of the study at the World Vaccine Congress on April 9th, implying that the study will be complete prior to that date. I wrote about NTIP's ILiAD investment in a previous article, but the important points to know are that NTIP owns about 10% of ILiAD and the PBZE1 vaccine has an estimated addressable market of $2 billion. If the phase 2 trial is successful, NTIP's ownership stake in the company will be worth considerably more than the $4.7 million it is listed as on the balance sheet and NTIP will be a big step closer to realizing cash flow from their investment. Phase 3 trials will need to be conducted and will likely not be completed until 2021, but vaccines have had an 85% chance of being approved if they make it past stage 2 trials.
NTIP has a major litigation case that will be resolved within the first six months of 2020. The case is an appeal of the decision handed down in a patent infringement case against Hewlett-Packard. As a result of the verdict of that case in 2017, NTIP has not been collecting royalties from their Power Over Ethernet patent. Oral arguments for the appeal were heard on November 4th in the Federal Circuit Court of Appeals. For those interested, a recording of the hearing can be found on the court's website here. Oral arguments are the final step in the appeals process before a ruling is delivered by the court and it is reasonable to expect a decision within 3-6 months after oral arguments. If the Court of Appeals rules in NTIP's favor, the outcome will be a new trial against Hewlett-Packard and the opportunity to recoup nearly $50 million in deferred royalty payments. If NTIP's appeal is denied, it is unlikely that they will be able to collect any additional revenue from their PoE patent portfolio. Either way, the largest point of uncertainty around an NTIP investment should be much more certain by May of this year.
NTIP's $48 million cash balance (against a market cap of ~$50 million) has protected investors from long-term ruin, but there was a high opportunity cost to holding the company through 2019. NTIP was relatively flat through the year while the S&P 500 rose nearly 30%. Due to the catalysts occurring within the next six months, NTIP investors will either realize substantial gains or it will become clear that the company's prospects have dimmed and investors will have a clear signal to exit their position. Investors who have been waiting to start a position in NTIP have the opportunity to buy shares with a clear exit strategy and to take advantage of a low-risk and increasingly low-uncertainty situation.
Disclosure: I am/we are long NTIP.
Additional disclosure: This article should not be taken as financial advice. It is only an expression of my own opinions as an individual investor