Celgene: Willing to ‘Sacrifice the Stock’ to Protect Revlimid?

Celgene (CELG) has been embroiled in a patent suit over its Revlimid, which went to a so-called Markman hearing, which is used to define key terms in patents, on May 5. The US District Court for New Jersey released its decision today, earlier than many had expected–and it looks to be good news for Celgene, whose shares have gained.

Citigroup’s Yaron Werber explains the implications of today’s Markman decision:

While the court agreed with Natco on the disputed R/S terms in the '230 and '554 patents, these patents expire in '16 before Celgene's '19 compound and '23/'24 method patents which still provide protection. Importantly the court agreed with Celgene's definition of a hemihydrate as described in the '800 patent which expires in '27. While the court narrowed the scope of the '598 and '357 patents which expire in '24/'25 as limited to anhydrous Form A, the court agreed with Celgene's definition in the '219 polymorph patent which expires in '24 and protects other anhydrous polymorphs. With the '23 method patents settled before the Markman hearing and no longer at play, earliest Natco could launch generic lenalidomide would be post '23 assuming they can get around the '24/'25 Form A and '27 hemihydrate polymorph patents. Thus, we continue to believe Celgene has a strong case.

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In our view and from speaking with mgt, we don’t believe Celgene will likely settle quickly with Natco. Celgene’s management believes that they have a strong case and as a result would look to settle only if they get a good deal. While Celgene’s management does care about the stock price, we believe that they are more concerned about protecting Revlimid and maximizing the value of the franchise over the long-term. Hence, they may be willing to sacrifice the stock over the near-term especially given that they have a strong hand in the patent case. In our view, Celgene will only settle if they can get a 2024/25 protection.

Today, at least, it doesn’t look like Celgene will have to sacrifice anything. Shares of Celgene have gained 2.6% to $153.97 at 2:30 p.m. today, a day which has been good for biotech stocks generally. Gilead Sciences (GILD) has risen 1.4% to $82.03, Biogen Idec (BIIB) has advanced 2.2% to $306.38 and Regeneron Pharmaceuticals (REGN) is up 2.6% at $305.89.