Recently, Celgene Corporation (CELG) has settled a legal dispute with Elan Corporation (ELN) regarding cancer injection Abraxane. Abraxane became a part of Celgene’s portfolio in October 2010 with Celgene’s acquisition of Abraxis BioScience Inc. Legal action against Abraxis BioScience was initiated by Elan in 2006.
In June 2008, Elan got a favorable judgment that Abraxis BioScience had infringed a patent owned by it pertaining to the application of Elan’s nanocrystal technology to Abraxane. Consequently, Elan was awarded $55 million — a royalty of 6% on Abraxane sales from January 2005 through June 13, 2008 (the date of the judgment).
The settlement of the patent dispute allows Elan to receive a one-time payment of $78 million from Celgene. Celgene will make no further payments to Elan regarding the drug. Moreover, through this settlement Celgene will acquire from Elan a fully paid-up, exclusive, global license to certain US and foreign patents for Abraxane.
We note that Abraxane is already available in the US and European markets as a second-line therapy for metastatic breast cancer. Celgene intends to launch Abraxane in other countries for treating metastatic breast cancer throughout the second half of 2011 and 2012.
The drug is being developed for other indications such as skin, lung and pancreatic cancer. US approval of the drug for lung cancer is expected to be sought in the second half of 2011. Abraxane contributed $71 million to Celgene’s revenues in the final quarter of 2010.
The addition of Abraxane has strengthened Celgene’s oncology portfolio which boasts of Revlimid, Vidaza, Istodax (obtained through the purchase of Gloucester Pharmaceuticals in 2010) and Thalomid. In addition to the marketed products, Celgene boasts of an interesting and diversified pipeline.
The company intends to evaluate multiple compounds in more than 25 pivotal and late-stage studies. We believe that the successful development and commercialization of the pipeline would boost Celgene’s top line further.
Neutral on Celgene and Elan
We have Neutral recommendations on both Celgene and Elan. Our long-term stance is supported by the Zacks #3 Rank (Sell rating) carried by the companies in the short run.
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