A federal judge’s decision to order Regeneron and Sanofi to pull their PCSK9 drug Praluent from the market managed to stun some of the most grizzled observers of the biotech world.
These patent disputes are not at all unusual and are almost always settled with a share of the royalties when there’s a case to be made. And the court acknowledged that creating a monopoly here was not in the public’s best interest. But the judge came down squarely for Amgen, saying:
(P)laintiffs have demonstrated irreparable harm, as well as the inadequacy of money damages.
Investors clearly didn’t like the sound of any of this. Regeneron’s shares $REGN dropped 7% — about $3 billion in market cap — and Sanofi saw its stock slide 3%, about the same in market cap. Amgen’s stock, meanwhile, jumped 4.5%.
The first response, which everyone anticipated, was word from Regeneron/Sanofi that the partners would appeal the decision. But the very real possibility exists that an appeals court may not be quick to overturn a ruling that came after Regeneron/Sanofi’s losing argument was flattened by the court. And the possibility that Amgen will prevail here got some top analysts thinking overtime about the implications and possible outcomes. We’ve gathered a few below.
Sales of these new cholesterol drugs have not been impressive. But despite the slow takeoff, a number of analysts still believe that these drugs will gradually build up a market worth billions. Geoffrey Porges at Leerink crunched the numbers if Amgen’s win sticks:
Assuming that AMGN captures the majority of the future ~$2bn US Praluent sales and maintains a similar margin structure with these incremental sales, our DCF value for AMGN increases by $13, or 8%. This represents a cash flow increase of $600mm in 2020E growing to a $950mm benefit in 2025E, which AMGN could use for continued dividend growth, share buybacks, or future acquisitions.
Brian Skorney at Baird believes a royalty deal is the most likely outcome. He writes:
Though the ruling does indicate that if Sanofi/Regeneron do not file to appeal the decision within 30 days, Praluent will be pulled from the market, we doubt that will be the reality in the long run. The U.S. Court system is clearly created to instill competition, not create monopolies. The Judge’s opinion clearly notes that “the public generally is better served by having a choice of available treatments. Therefore, the court finds itself between a rock and a hard place…taking an independently developed, helpful drug off the market does not benefit the public.” The Judge also clearly hopes further proceedings with “encourage the parties to each an appropriate business resolution.” As a result, we think a hefty settlement is likely, possibly to the tune of 20%+ royalties to Amgen. As a result, we are raising our price target to $165.
If it does go to an appeals court, Biren Amin at Jefferies doesn’t like the odds for Sanofi/Regeneron.
Recall in July, we wrote about AMGN’s filing an appeal case WBIP v. Kohler involving low-emission houseboat generators in which the Appeals Court vacated the judgment of the District Court denying WBIP a permanent injunction. In this case, the District Court felt that a PI would deprive the consuming public “a potentially life-saving product.” The Appeals Court argued that the public interest argument alone was not sufficient to deny a PI for a life-saving good and specifically cited pharmaceutical drugs as an example in its ruling. If the Appeals Court is consistent with the WBIP v. Kohler ruling, it would mean a low likelihood that an appeal will be granted.
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