still baffled . . .
Tom,
I take it the question is, why isn't the stock price higher to reflect the apparently very good news of last Thursday's verdict, which awarded IGEN $505M in damages and, much more importantly, the termination of Roche's license to use IGEN's ORIGEN technology.
I don't I have a full answer, but I have these speculations. Part of it is disppointment that the verdict was "only" $505M. (I'm a bit disappointed, as I'd thought it at least possible that the jury would give IGEN everything IGEN's attorneys were asking for [$710M compensatory damages, a billion or two in punitives, plus termination]; my January 45's and 50' are surely disappointed.<g>)
Part of it is that the options MM's are probably desperate to keep the price under 40 through Friday (around 3800 open interest in the January 40's, another 7000+ in the 45's and 50's); plus as options are sold for salvage value, the MM's reduce their hedges, causing further selling. Part of it is that the coverage has attracted lots of daytraders and other "weak hands" holders who have little idea of the value of the likely settlement, and who have, putting it gently, limited patience.
And part of it is, as I suggested earlier in post 739, the difficulty most people have in understanding/valuing (a) legal issues and (b) biological detection technology and business plans, let alone both together; and it's a small "underfollowed" company -- research by larger brokerages (assuming they could do it) wouldn't repay effort, so that sort of "support" isn't there.
The verdict briefly attracted lots of media coverage, much of it focused only on the $505M number, missing the value of the license termination. The license is pretty surely worth 2-3-4 times the damages award, since Roche is selling several hundred million dollars [and growing] annually of equipment and supplies based on that technology). Roche minimizes that number in its PR's, but I believe admits to $300M, and the number used by some posters on Yahoo who usually get it right is $500M/year, growing at 30%.
A settlement in some form or other is very likely, IMO.
Roche can't endure the loss of the license, IMO. Its sales under this license are a substantial portion of the revenues of the diagnostics division, which has been the only bright spot in the company for a while. (The Financial Times of London website has a collection of articles under the heading "Roche in Crisis").
Settlement should happen sooner rather than later, because the loss of the license is now well known (from every business paper and every relevant trade publication in the world), so that Roche salesmen will not sell another diagnostic machine pending appeal (supplies to run the systems will be sold, but no expensive new machines). Roche salesmen will not be well received when they say, "yeah, there's a court order terminating our license for the technology we need to run this machine, but we'll get it back on appeal" -- purchasing managers will be unimpressed with that line, and will not risk their jobs by buying the Roche machines.
So Roche really can't wait 12-16 months to see how the appeal comes out. In any event, the license was rescinded on five different grounds, any one of which justifies the termination, and it seems very unlikely that the appeals court would overturn all five; accordingly, Roche's prospects on appeal on the termination issue look pretty grim.
One poster on Yahoo mentioned a Roche Diagnostics national sales conference in California in February; presumably Roche brass will get an even greater earful than they are getting now, and this may catalyze a settlement.
Sam Wohlstadter and Roche have been talking about settlement for a long time, and are presumably talking more concretely since the jury verdict has narrowed the parameters of discussion and removed Roche's wishful self-delusion that they might not lose the license. (I thought Roche was crazy to let a jury have the chance to rewrite the business plan for the only healthily-growing part of the Roche group, but maybe IGEN was really asking huge numbers and Roche decided to wait until the jury gave some numbers to focus the discussions.) One of these days, or weeks, they will reach a deal.
As to whether the settlement will, or should, take the form of a takeover, or a large payment for a renewed (and probably nonexclusive) license agreement, or something else -- no idea. I'm more inclined than some on the Yahoo board to trust Sam to negotiate us a good deal. FWIW, I haven't sold a share since the verdict.
--RCM |
