Chesapeake Securities on 1/15/02 Has Issued a 2.5 Page Continued Strong Buy Recommendation on IGEN International, Inc. (Nasdaq: IGEN)1/15/02 Intraday Price $39.23 Per Share
PR NEWSWIRE - January 15, 2002 13:30
BALTIMORE, Jan 15, 2002 /PRNewswire via COMTEX/ -- The following and additional information is contained in the update report being issued by Chesapeake Securities Research Corporation (CSRC), a member of the National Association of Securities Dealers, CRD number 14161.
Although we think that Roche Diagnostics (RD) will appeal their recent defeat, we do not believe that the three-judge appellate court will significantly modify the recent jury verdict. By far the most important jury ruling was what appeared to be a conclusive contract cancellation award as a result of the jury finding that RD committed five material breaches of five separate material contract obligations.
Since we don't think that Roche seriously believes an appellate court will reverse the lower court's contract cancellation rights, we think that IGEN is significantly undervalued, trading at the lower end of a new higher trading range that should reach $80-$100 per share with a Roche buyout or settlement over the next 1-12 months.
With an estimated $350 million in Elecsys System/Modular E-170 2002 sales generating $75-$85 million in net income, contract cancellation rights are conservatively worth an additional $1.5-$1.7 billion or an additional $60-$68 per share that is not in IGEN's present share price. Elecsys systems sales were reported in court at $74.5 million during Q2, 2001. We know that this was an under reported sales figure as it did not include equipment sales, wash reagents and disposables that are part of each diagnostic run on the Elecsys Systems. It also did not include the Modular E-170, which was just launched in September 2001. Since RD's ECL-based diagnostic business is growing at 30% per year, the 20 times price/earnings multiple we are applying to the estimated $75-$85 net income is very conservative. Beckman Coulter, a pure clinical diagnostic company that is projected to grow at 13% per year, is trading at a 17 times 2002 EPS multiple. With RD's ECL-based diagnostic business growing at 30% per year, the longer RD waits to settle or buy IGEN, the more it will cost.
Relinquishing the ECL license and turning over its 7,000 plus Elecsys System accounts to IGEN is not a RD option at the conclusion of what we think will be a failed appeal (estimated to take 18 months). RD has also recently publicly stated that while appealing it intends to continue to:
-- provide its customers with the products and services and will drive forward all planned innovations based on the ECL technology, -- develop new assays for the Elecsys Systems, and -- market the instruments and assays covered by the agreement focusing on the recently introduced Modular E-170.
It makes no sense to us that Roche would pursue this ambitious broadening of ECL-based new products and marketing when faced with the very slim chance of an appellate court reversal of the lower court's contract cancellation. Consequently, we are confident that Roche plans to secure its customers' long- term reliable access to its ECL-based diagnostic products through either:
-- a near-term settlement with IGEN or -- an IGEN buyout,
with either option costing Roche $80-$100 per share. A buyout would give Roche exclusive control of ECL technology in all markets and therefore it is worth more to RD and makes much better sense.
A rapid buyout of IGEN would enable RD to rapidly launch a full-scale marketing effort into the physician's office lab market. It has proven instruments and assays and has already done its "test marketing" in this market. We believe that RD could dominate this estimated $600 million per year market. The longer RD waits to buy IGEN, the more it will cost plus waiting forestalls the increase in ECL-based diagnostic revenues from the Elecsys Systems' launch into the very lucrative physician's office market. Consequently, a decisive near-term buyout move appears to make the most sense for RD. No advantage appears to be gained by RD by waiting an estimated 18-months for what will almost certainly be a failed appeals effort.
CONTACT: Dennis L. Roth of Chesapeake Securities Research Corporation, +1-410-296-7740. |
