- Several firms are commenting on Imclone (NASDAQ:IMCL) after Judge Buchwald in the New York District Court invalidated ImClone's ownership of the Schlessinger ('866) patent (anti-EGFR antibody + chemotherapy to treat cancer), assigning complete inventorship to three Weizmann Institute scientists represented by Yeda.
* Morgan Stanley thinks the loss of the Schlessinger patent is clearly negative for ImClone. While an appeal will likely push any final resolution well into 2008, they believe that ultimately Yeda will end up with 3-4% royalties on both Erbitux and panitumumab. Amgen's lack of anti-EGFR + chemotherapy IP might have given ImClone some competitive advantage by complicating panitumumab reimbursement. Yesterday's decision flattens the playing field on this score and thus ImClone's first mover advantage now looms larger. Bigger picture, the costs of litigation, potential back royalty settlements and future royalties could limit ImClone's strategic flexibility as the company attempts to establish a long-term plan as an independent concern.
* Goldman Sachs notes the final resolution on the litigation may take years to come. Meanwhile, Imclone and Yeda may negotiate a settlement. If Yeda were to eventually win,
the firm could envision 3 scenarios: 1) Yeda can seek to terminate Imclone's license. However, they do not believe that is Yeda's intent as doing so could reduce royalties to Yeda. It is also highly unlikely that the courts will allow termination due to potential interruption in patient care. 2) Yeda can license the patent to others such as Amgen. Amgen has previously indicated that the '866 patent is not valid. In their model, the firm has already assumed that Imclone cannot block Amgen nor collect royalties from Amgen. 3) The most likely case in firm's view is for Imclone to pay a higher royalty rate. They estimate the current rate to be 2%-3%.
Goldman estimates the intrinsic value for Imclone to be $27/sh, down from previous level of $30, assuming 3% higher royalties. At the current share price of $30.50, the implied technology value of $3.5/sh covers 3 indications of Erbitux with Phase 3 data in the next 15 months (~$2B combined potential) and the pipeline (5 products in Phase 1 or 2). 12-month target price was reduced to $40 from $50.
* Citigroup notes they previously projected that each 1% additional royalty obligation to Yeda on top of the 2-3% estimated royalty currently paid to Aventis would impact ImClone's non GAAP EPS and valuation by ~$0.10 and 7%, respectively. In firm's view, investors are not fully appreciating the sensitivity of IMCL's P&L to these expenses. They expect the stock to sell off by ~10% on this news.
ImClone will most likely appeal this decision, and the firm anticipates that this verdict will be upheld in '08 when a final decision is rendered. Ultimately, they expect that ImClone will pay Yeda additional 2-3% royalties to sustain its exclusive rights to this patent. Firm reiterates Sell rating ahead of the potential approval of Amgen's Vectibix by the Sept. 28 PDUFA deadline.
Notablecalls: Expect the shares to trade down around 10% on the news. I think there may be a bounce in store over the next couple of days. Not a high conviction call.
* Morgan Stanley thinks the loss of the Schlessinger patent is clearly negative for ImClone. While an appeal will likely push any final resolution well into 2008, they believe that ultimately Yeda will end up with 3-4% royalties on both Erbitux and panitumumab. Amgen's lack of anti-EGFR + chemotherapy IP might have given ImClone some competitive advantage by complicating panitumumab reimbursement. Yesterday's decision flattens the playing field on this score and thus ImClone's first mover advantage now looms larger. Bigger picture, the costs of litigation, potential back royalty settlements and future royalties could limit ImClone's strategic flexibility as the company attempts to establish a long-term plan as an independent concern.
* Goldman Sachs notes the final resolution on the litigation may take years to come. Meanwhile, Imclone and Yeda may negotiate a settlement. If Yeda were to eventually win,
the firm could envision 3 scenarios: 1) Yeda can seek to terminate Imclone's license. However, they do not believe that is Yeda's intent as doing so could reduce royalties to Yeda. It is also highly unlikely that the courts will allow termination due to potential interruption in patient care. 2) Yeda can license the patent to others such as Amgen. Amgen has previously indicated that the '866 patent is not valid. In their model, the firm has already assumed that Imclone cannot block Amgen nor collect royalties from Amgen. 3) The most likely case in firm's view is for Imclone to pay a higher royalty rate. They estimate the current rate to be 2%-3%.
Goldman estimates the intrinsic value for Imclone to be $27/sh, down from previous level of $30, assuming 3% higher royalties. At the current share price of $30.50, the implied technology value of $3.5/sh covers 3 indications of Erbitux with Phase 3 data in the next 15 months (~$2B combined potential) and the pipeline (5 products in Phase 1 or 2). 12-month target price was reduced to $40 from $50.
* Citigroup notes they previously projected that each 1% additional royalty obligation to Yeda on top of the 2-3% estimated royalty currently paid to Aventis would impact ImClone's non GAAP EPS and valuation by ~$0.10 and 7%, respectively. In firm's view, investors are not fully appreciating the sensitivity of IMCL's P&L to these expenses. They expect the stock to sell off by ~10% on this news.
ImClone will most likely appeal this decision, and the firm anticipates that this verdict will be upheld in '08 when a final decision is rendered. Ultimately, they expect that ImClone will pay Yeda additional 2-3% royalties to sustain its exclusive rights to this patent. Firm reiterates Sell rating ahead of the potential approval of Amgen's Vectibix by the Sept. 28 PDUFA deadline.
Notablecalls: Expect the shares to trade down around 10% on the news. I think there may be a bounce in store over the next couple of days. Not a high conviction call.
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