Tech Firm Looks to V-Chip, Biochip to Reverse Fortunes.

YOU'D think that a firm named after the Amazonian vine that boosts the immune system might be somewhat immune to market conditions.

But just like most new technology companies, Acacia Research Corp. has seen its stock nosedive since its razzle-dazzle run last spring. In fact, the stock of the Pasadena-based operator of life science and technology startups hit a 52-week low of $11.31 a share on Feb. 23, a painful tumble from its 52-week high of $58.37 last March. Acacia, which was founded in 1993 and went public in 1995, was trading at around $13 a share as of last week.

It has been a hectic time for Acacia and its portfolio companies. CombiMatrix Corp., a majority-owned subsidiary and maker of biochip technology, filed for an initial public stock offering on Feb. 6, but has yet to go public.

Rumors have been swirling that the IPO had been dropped, which drove Acacia's share price down, according to First Liberty Investment Group analyst Sheldon Traube.

That rumor was dispelled by Acacia Chairman and CEO Paul Ryan, who said CombiMatrix would go public "shortly."

"We'd like to come out in a market that is more favorable than what we've seen in the last few weeks," Ryan said. "We're ready to go. Acacia is well financed and is making great progress. There's no urgency on a cash-flow basis."

CombiMatrix is developing a technology for rapid production of "biological array processors," which are semiconductor-based tools that identify genes, their mutations and proteins. Acacia owns 58 percent of CombiMatrix. The unit's products are scheduled to come to market before the end of the year, Ryan said.

A week after filing for the IPO, Acacia shut down another subsidiary, online radio channel Soundbreak.com. Soundbreak, perhaps best known for employing original MTV personality Mark Goodman, closed its doors and laid off its 35 remaining employees because it was unable to generate enough advertising revenue or secure additional capital.

Better news for Acacia came in January. Soundview Technologies, another majority-owned subsidiary, settled a lawsuit related to its patented television V-chip technology with Pioneer Electronics Inc. Soundview will receive payment and will grant non-exclusive licenses for the patent to Philips Electronics North America Corp. and Hitachi Ltd. as part of a settlement it made with those companies.

Also in January, Acacia announced the closing of $19 million in institutional private equity financing, which the company said it would use to maintain majority ownership of CombiMatrix.

"Acacia Research now has $92 million in cash and short-term investments on a consolidated basis," Ryan said. "Acacia Research finished the year in the strongest financial position in its history."

Acacia is altering that position beginning this quarter by focusing on the technology developed through CombiMatrix.

"We won't be making any investments in non-life science technology," Ryan said.

The goal, he said, is to build and acquire compames in the life science and material science fields that will use CombiMatrix's new biochip technology.

The rumored nixing of the IPO, the shut down and losses associated with Soundbreak and general skepticism towards new tech companies triggered the recent stock drop, Traube said.

For the fourth quarter ended Dec. 31, Acacia reported a net loss of $18 million ($1.12 a share), compared to a net loss of $1.8 million (15 cents a share) in the like year-earlier quarter.

The company attributed the fourth-quarter loss to expenses related to the growth and expansion of CombiMatrix and to Soundbreak's losses.

None of Acacia's subsidiaries have generated significant revenues to date. For the fourth quarter, there were no revenues, which wasn't much different from the year-earlier quarter, when the company generated just $10,000 in revenues.

That will change this quarter, Ryan said.

"At its current share price, Acacia offers some interesting speculative appreciation," Traube said. "If you look at just the potential of its V-chip and what it could generate annually, you're getting good speculative value."

A few major players evidently believe in that potential. Acacia has attracted institutional investors that include The Vanguard Group Inc and Paramount Capital Assets Management Inc.

                           Acacia Research Corp.
                               Stock Prices
Feb. 28, 2000 $45.00
Feb. 28, 2001 $10.50
YEAR (Dec. 31)                   2000     1999
Revenue                       $57,000 $122,000
Operating Expenses (millions)    36.9      7.8
Operating Loss (millions)      (36.8)    (7.7)
Net Loss (millions)            (38.9)    (8.2)
Loss Per Share                ($2.67)  ($0.75)

SUMMARY

Business: Life science, technology companies

Headquarters: Pasadena

CEO: Paul Ryan

Market Cap: $219.1 million

Dividend Yield: N/A [*]

Total Liabilities: $23.0 million

P/E Ratio: N/A [*]

Long-Term Debt: None

(*.) Acacia Research does not have any earnings and does not pay dividends.