In the absence of a judgment in the Asahi Kasei lawsuit by the trial court on the due date of June 28, 2011, European biotechnology company Actelion Ltd. (ALIOF) has decided to make a provision of $577 million for compensatory and punitive damages. If the status quo is maintained, with no supplementary information, Actelion will record the provision in the second quarter 2011 results.
Actelion had acquired CoTherix in 2007. CoTherix and Asahi Kasei Pharma had a license agreement to develop fasudil which was terminated following the acquisition of CoTherix. Asahi sued CoTehrix once it received intimation from the latter that fasudil development would be closed. An arbitration panel settled in favor of Asahi who received $91 million.
Asahi also sued Actelion in California in 2008. In May 2011, a Californian court jury awarded up to $547 million as compensatory damages to Asahi Kasei Pharma and punitive damages of $30 million against certain officials of Actelion. Actelion has also a filed a motion which could significantly reduce the compensatory damages.
If the judgment award remains unchanged at $577 million, Actelion is expected to report an operating loss in 2011. The provision is a one-time expense and is not expected to affect the adjusted results of the company. Subsequently the guidance provided by Actelion for 2011 remains unaffected. The legal costs associated with this trial are expected to drop after 2011.
Our Take
The shares of Actelion carry a Zacks #1 Rank (short-term Strong Buy rating). Actelion has a dominant position in the multi-billion dollar PAH market with drugs like Tracleer and Veletri in its product suite. We also like the company’s strong pipeline in spite of the termination of development of pipeline candidates, almorexant and clazosentan (September 2010).
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