Actelion is taking a $577 million provision to cover damages in connection with its long-running legal tussle in the USA with Japan's Asahi Kasei Pharma Corp over the heart disease drug fasudil.
In January 2007, Actelion acquired the US firm CoTherix which in turn told Asahi Kasei it would not continue development of fasudil and returned the rights. At the end of 2009, a jury decided that CoTherix should pay Asahi Kasei some $91 million, plus interest.
Then in May this year, a California jury awarded Asahi Kasei up to $547 million in compensatory damages and an extra $30 million in punitive damages against certain individual officers of Actelion. In a post-trial motion, the Swiss biotech requested an election between damages of nearly $359 million for alleged lost profits or $187.4 million in alleged development costs. In addition, from either amount, the motion requested the deduction of $78.4 million from a previous payment related to arbitration in 2009.
However, Actelion notes that in the absence of a judgment by the trial court, it will record the $577 million provision in its second-quarter financial statements. The Allschwil-based firm added that it is now “very likely” to post an operating loss for 2011 if the damages remain at that level.
Actelion went on to say that "the company and its external advisers believe that the verdict is neither supported by the facts nor is it correct as a matter of law”. The firm is "therefore confident that there are significant grounds for a successful appeal, which will be filed in due course".
Meantime, Matrix Group analyst Annie Cheng has initiated coverage on Actelion with a 'buy' recommendation.
She says that "we are positive on the long-term fundamentals of Actelion, particularly the two chances the company has to reinvigorate its market position in the $3.2 billion pulmonary arterial hypertension (PAH) market". Most of the firm's revenues come from the PAH blockbusterblockbuster Tracleer (bosentan).
However, Ms Cheng added that "we see near-term risks to the share price due to the strength of the Swiss franc and see no downside in waiting a little to build a position". She goes on to say that the most important near-term news flow will be the Phase III results for next-generation Tracleer, macitentan, in PAH.
If the trial is perceived to be successful, Matrix believes the patent expiration of Tracleer in August 2016 "will no longer be a concern for investors". However, she adds that "we are more excited about the second PAH drug candidate, selexipag", which is "a second chance for Actelion to extend its PAH franchise".
She expects Actelion to prevail on appeal, noting that the trial was predicated on the claim it discontinued a promising drug candidate to the detriment of Asahi Kasei. Ms Cheng said that given Actelion's "long-standing efforts to develop new drugs to diversify its revenue base, it seems rather unlikely to us that the company would discontinue the development of a promising new drug".