What Does It Mean for Celgene Shareholders?
One reason the stock looks cheap now is that traders have baked the patent issue into the price. If the Markman hearing results in a positive ruling for Celgene, or better yet a quick settlement via apparent legal leverage, the overhang is lifted and the stock should get an immediate boost.
Celgene says it has a fortress of patents around its No. 1 selling drug.
Here's a remark by CEO and Chairman Bob Hugin from the Celgene first-quarter earnings conference call:
We have spent a long time building expensive intellectual property estate for REVLIMID. We intend to vigorously defend our rights. And we're confident about the outcome and we don't believe there is anything in the near-term that will be [dis]positive on the case through market hearing.
Importantly, Celgene has also filed an "unclean hands" defense against Natco/Actavis. Celgene has raised questions around how Natco obtained certain information about the product formulation to begin with, involving an ex-employee now working for Natco.
Citigroup has offered some commentary on that facet of the case here. Investors should not underestimate the power of this claim.
Readers, Celgene management is noted for being smart, arguably among the best in the biotech industry. Revlimid is the company's franchise product.
The Markman hearing is coming up next week, and I encourage Celgene shareholders to watch what comes out of it.
Shares have been beat up on a one-two punch of market disdain for highflyers and this Revlimid issue.
I see asymmetrical risk: moderate downside if everything breaks against Celgene in a crash-and-burn scenario, but significantly greater upside if the issue simply takes a more pedestrian course.
My money is on sharp management and a ring fence of patents around a franchise product. An alleged "unclean hands" defense is an ace in the hole.
I envision Celgene settling for less than three years of exclusivity rights, a positive development.
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At the time of publication, Merola was long Celgene.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.