Smart money: the rise of intellectual property farms

IP farms are not new. They are companies that nurture early-stage technology projects in order to commercialise the intellectual property (IP) therein. Some of these techno-Emmerdales have enjoyed glittering stock market careers.

At the battery end, IP Group and Allied Minds are the giants, capitalised at €1.8bn each; at the ornamental level, Frontier IP comes in at just €7m. But this fledgling sector is beginning to move fast. Oxford Sciences Innovation has just raised €293m and grabbed exclusive access to all Oxford University's IP for 15 years.

Curiously, Britain is at the centre of the IP "agri-boom". You'd have thought the Americans with their Silicon Valley savvy and their Nasdaq knowhow would have taken the lead. But no, they don't get it. This has been highlighted by the fact that Allied Minds is based in Boston but quoted in London.

Now, another Bostonian IP farm is about to float in London: PureTech Health. PureTech is a science-driven healthcare company that scours hundreds of technologies each year in order to address unmet healthcare needs.

"We develop programmes rooted in academic research, and then place them in independent companies and build strategies around them," says Daphne Zohar, CEO. "We didn't even think about listing on Nasdaq. The UK is where this sector exists. It has analysts, peers and sophisticated investors."

Some of PureTech's investee companies probe the weird and whacky fringes of healthcare. The Sync Project explores the health potential of music. "Music affects the brain like a dopamine pathway," says Zohar. "Sync looks for signatures of what types of music might create certain effects.

"Sometimes, what is impossible in one discipline is solvable in another," continues Zohar. "We are focused on healthcare approaches that fall between and beyond existing disciplines. Healthcare is converging with technology. Google and Apple are entering this space."

The business model of your typical IP farm sounds cruel but it works well. As Charles Weston of Numis Securities explains, it aims to "stress-test to failure an investee company to see if it is patentable, scaleable, marketable and reproducible". Once on the stock market, it can be presented to shrewd investors like Invesco, Neil Woodford or Lansdowne.

This is PureTech's model, based squarely on that of IP Group. "Absolutely," says Zohar, "In fact, Dave Norwood [founder of IP Group] is in the next door room right now."

This sector is so fast-growing that it still hasn't got a name. The London Stock Exchange classifies it under "financials". If Britain wants to maintain its head start on the US, perhaps it better think of one fast.

Smart money: the rise of intellectual property farms | Business