Zacks_Analysts' Blog : Favorable Court Ruling for PDLI - Analyst Blog

PDL BioPharma (PDLI) recently announced that the Second Judicial District Court of Nevada ruled in its favor in an ongoing patent dispute with Roche (RHHBY).

The court rejected Roche’s motion filed in November 2010 to dismiss PDL’s lawsuit due to lack of personal jurisdiction. The court also denied Roche and Genentech’s (a subsidiary of Roche) motion to dismiss four of PDL's five claims for relief. The court however dismissed one claim brought by PDL.

The companies have been in litigation since 2010. PDL believes that supplementary certificates (SPCs) granted to it by various European nations are enforceable against Roche’s products. Roche disputed its need to pay royalties on ex-US sales. Roche is asserting that it does not owe PDL royalties on sales of Avastin, Herceptin, Lucentis and Xolair manufactured and sold outside the US. Lucentis is co-marketed by Novartis (NVS) and Roche. Roche holds the US marketing rights for the drug.

In August 2010 PDL filed a complaint against Roche and Novartis in Nevada to enforce its rights against Roche under the 2003 settlement agreement. PDL believes that Roche has breached the agreement, which could lead to payment of liquidated and other damages of up to $1 billion by Roche. In February 2011, PDL entered into a settlement agreement with Novartis under which PDL agreed to dismiss all claims against Novartis as well as the Nevada lawsuit.

In November 2010, Roche filed a motion claiming that the complaint should be dismissed as the 2003 agreement relates only to PDL’s US patents and Nevada does not have jurisdiction over Roche.  It doesn't believe that it owes PDL royalties on sales of products manufactured and sold outside the US.

As a result of the recent ruling, PDL can continue with its claims. Moreover PDL is also seeking compensatory and other damages from Roche.

Our Recommendation

Currently, we have a Neutral recommendation on PDL BioPharma. The recommendation is supported by a Zacks #3 Rank (short-term “Hold” rating). Overall, we are encouraged by PDL’s recent progress in resolving multiple disagreements with Novartis, UCB Pharma (UCBJF) and the European Patent Office’s decision to uphold the validity of the European patents. The litigation with Roche, however, continues.

Though the recent favorable Nevada ruling is encouraging, the final resolution of the Roche issue is not expected in the near term. A trial date is not likely before late 2011 or early 2012. We, therefore, prefer to remain on the sidelines until a decision is reached in this case. The near-term patent expiration of the Queens patents also concerns us.