Suit Won’t Hurt Profits, Caremark Says
Although Caremark Inc. accounts for nearly half of all sales of the human growth hormone Protropin, developed by Genentech Inc., Caremark officials and one analyst agree that the Newport Beach firm isn’t likely to be affected by a recent lawsuit which alleges that Genentech’s drug violates a competitor’s patent.
Approved by the FDA last October, Protropin was only the second genetically developed drug to be licensed for human use. For the South San Francisco-based biotechnology firm, it was the first drug to be licensed for human use under the Genentech name.
Last November, Genentech granted Caremark, which specializes in home-based intravenous therapy, exclusive rights to distribute the drug for in-home use. Genentech is selling about $50 million a year worth of Protropin and Caremark accounts for about 40% of those sales, said Susan Atkins, a Genentech spokeswoman.
However, things took a nasty turn in September, when the Hormone Research Foundation and Hoffmann-La Roche Inc., a New Jersey-based drug maker, filed suit against Genentech in federal court in San Francisco, alleging that Genentech had violated a 1974 patent held by the Hormone Research Foundation and licensed to Hoffmann-La Roche.
Genentech spokeswoman Atkins said her company believes “there is no way” Hoffmann-La Roche can win its suit. Back in the early 1970s, when the patent in dispute was granted, she argues, “recombinant DNA technology was not yet dreamed of.”
Dorothy Ryan, an analyst with Swergold, Chefitz & Sinsabaugh’s San Francisco office, agrees that because the technology followed the patent, Hoffmann-La Roche probably doesn’t have much of a case.
And, even if it does, the lawsuit is not likely to affect Caremark for several reasons, not the least of which, she said, is the fact that Protropin accounts for a fairly small portion of the company’s business.
Caremark’s annualized Protropin sales are more than $20 million a year, but the drug’s importance diminishes when one considers that Caremark had more than $135 million in revenues last year. Moreover, Ryan said, Caremark’s profit margin on the drug is so low that “in terms of the bottom-line, it’s not that big.”
Gordon Clemons, Caremark’s president and chief operating officer, would not disclose how much the company’s mark-up is on Protropin. But, he said, “the margins are so tiny” that if Caremark couldn’t sell the drug “it would not affect our profitability.”
Looking for an excuse to buy into Emulex Corp.? Andrew J. Neff, who follows the company for Montgomery Securities of San Francisco, says recent stock purchases by key Emulex insiders--including three vice presidents--may be bullish signs for the Costa Mesa-based maker of computer peripherals.
Since 1983, insider purchases at Emulex have generally preceded increases in the company’s stock price, while heavy selling in 1984 and 1985 were followed by declining prices. “In our opinion, this seems to be a meaningful indicator,” Neff said.
There were some large inside sales of Emulex stock last winter, including the sale of a total of 150,000 shares at $12 each in December and February by Fred Cox, the company’s chairman. Since the beginning of summer, however, the nature of insider stock transactions at Emulex has switched, with several purchases being made by three Emulex vice presidents.
Neff said that while the stock purchases total fewer than 5,000 shares and therefore are not necessarily “earthshaking,” they are nevertheless noteworthy.
“Obviously, if they were buying millions of shares it would be more significant,” Neff said in an interview. Plenty of factors, including house payments and car purchases may account for insider selling, but “there is only one reason people buy, and that is because they expect the stock to go up,” he said.
Traded over the counter, Emulex closed Friday at $6.75 a share, up 12.5 cents for the week. Emulex’s high for 1986 was $12.375 a share, while its low this year was $5.375 a share.
