The Medicines Company – Judge In Angiomax Patent Dispute Validates MDCO Patents But Declares Hospira Does Not Infringe
A judge in the U.S. District Court of Delaware ruled that two MDCO patents in The Medicines Co. vs. Hospira (HSP) case were valid. On the other hand, he also ruled that there was insufficient evidence that Hospira infringed on those patents. As a result, MDCO shares have plunged ~15%, hitting a 52-week low to start the second quarter. The court has yet to make a final judgment in the case. However, the current decision is likely to lean heavily on that final ruling, which is due this summer. On any ruling for HSP, MDCO is expected to immediately appeal.
Background – As a reminder, the jury case for Angiomax patents took place last September and while a Markman hearing in the summertime leaned towards HSP, the last two days of comments from the judge seemed tilted towards MDCO. Nonetheless, most expected a settlement between the two companies before the final decision. While an agreement is still possible (and MDCO has previously hinted that it might occur before any ruling), the timing of last night’s decision puts a dent in MDCO’s negotiation position.
The validated patents were for the 2015 Angiomax patent expiration, so there will not be any generic versions until then. MDCO has already settled favorably with two other generic makers for a 2019 introduction – but that is contingent on all the other generic companies (e.g., there are four more to go) not entering the market before 2019. Hence, the ruling gives a powerful player, HSP, incentive to be the first out and/or at least command favorable terms with MDCO.
MDOC has been successful in 2 of 3 decisions so far, and the Appeals courts have also been in their favor, so there is a chance they are successful on appeal. Nonetheless, coupled with the negative cangrelor advisory panel in February (a final likely negative FDA outcome is expected by the end of April), there is little near-term for people to get excited about – in particular with their core franchise now seemingly on the ropes. The next court case vs. Mylan begins in June and, while it appears MDCO is in good shape there, HSP may wait for the outcome before negotiating.
We are still strong believers in CEO Clive Meanwell’s ability to defend his intellectual property, and we cannot rule out the chances of an acceptable settlement. HSP was extremely crafty in their approach to the MDCO patents. However, the timing of last night’s decision – first day of the (new) second quarter and before a settlement – is likely to keep investors on the sidelines until further clarification on Angiomax occurs.
Trading at a little more than 2x sales, we believe MDCO is a very inexpensive stock. However, with cangrelor’s disappointment and now this, there are not a lot of positive catalysts around the corner. In a fragile biotech tape, no one is rushing into a broken stock with new additional baggage. Yesterday, an FDA panel did unanimously recommended both DRTX’s and CBST’s new antibiotics – and that bodes quite well for the approval of MDCO’s novel oritavancin approval later this year. For longer-term investors, we believe the current price represents an excellent and potentially very rewarding opportunity. Our confidence in management (whom we are familiar with since 1997) begs us to differ with current bearish consensus that is reflected in the current share price. Should a settlement keep generics off the market until 2019, the bulls will then come out in droves.
MDCO is a BUY under 42 with a TARGET PRICE of 60.