READ THE FULL MNOV RESEARCH REPORT
Business Update
Genzyme Patent Litigation Could Lead to Large Monetary Windfall for MediciNova
On April 5, 2022, MediciNova, Inc. (NASDAQ:MNOV) filed a Form 8-K stating that Genzyme Corp., a subsidiary of Sanofi, filed an amended complaint against Novartis Gene Therapies, Inc., Novartis Pharmaceuticals Corporation, and Novartis AG that included a claim for infringement of U.S. Patent No. 9,051,542. The lawsuit was originally filed by Genzyme in December 2021, with an amended complaint filed on February 23, 2022 that included the aforementioned patent. That patent, along with others, was included in the Assignment Agreement dated December 19, 2005 between Genzyme and Avigen, Inc. (which MediciNova acquired in 2009).
The lawsuit alleges that the defendants are infringing upon certain U.S. patents (including the patent listed above) through the unauthorized manufacture, use, and sale of adeno-associated virus (AAV) vectors for their gene therapy product Zolgensma®, which is used to treat children less than two years old with spinal muscular atrophy (SMA). Were Genzyme to receive any monetary damages as a result of the litigation, MediciNova would be entitled to receive a certain portion of those damages according to the terms of assignment agreement originally signed between Avigen and Genzyme (see section 5.2 of the agreement found here).
Zolgensma launched in 2019 and had worldwide sales of $1.351 billion in 2021, with estimated peak sales in 2025 of $1.957 billion (EvaluatePharma). While we do not know what percentage of any monetary damages collected MediciNova would be entitled to receive, since that portion of the assignment agreement isn't publicly disclosed, we believe that MediciNova's decision to file an 8-K means that it is likely a significant percentage that could be material to the company. Given that Zolgensma is a potential $2 billion drug, monetary damages that amount to only a single digit percentage of yearly sales split between Genzyme and MediciNova could lead to a significant influx of capital for the company.
While there is no set rule for determining damages if a patent infringement case is ruled in the plaintiff's favor, the plaintiff's lost profits is typically used as the baseline with the potential to consider licensing fees that could otherwise have been earned. In cases that involve willful or deliberate infringement, the court may award additional damages, known as punitive damages, in an amount of up to three times the actual damages from the lost profits. A recent patent litigation case provides an example of what kind of monetary damages can be awarded. In 2019 a jury found that Kite Pharma had infringed on a patent owned by Juno Therapeutics relating to CAR-T therapies (Yescarta® for Kite and Breyanzi® for Juno). The jury originally awarded Juno $752 million in December 2019, which was then increased to $1.2 billion by a U.S. district court judge in April 2020. To provide some context to those awards and how they relate to yearly revenues, Yescarta generated revenues of $695 million in 2021 and is projected to generate revenues of $1.5 billion in 2026, while Breyanzi is expected to generate $1.3 billion in revenues in 2026 (EvaluatePharma). Since those awards were decided, the U.S. Court of Appeals ruled key parts of the patent in question were invalid, thus reversing the prior decisions along with the monetary damages. The case may continue however as Bristol Myers, of which Juno is a subsidiary, may elect to appeal the Court of Appeals decision to a higher court.
Conclusion
Patent infringement court cases are difficult to predict and it could take several years until a final outcome is known unless a settlement is reached prior to that. Thus, investors should not expect any type of fast outcome to the aforementioned lawsuit, but should instead look at it as a free call option for MediciNova with potentially large upside. We don't believe Genzyme would undertake this expensive litigation unless it believed it had a strong case and the fact that it has filed two complaints indicates how much time, money, and energy is going into the case. This news has not affected our valuation, which remains at $27.00 per share, however we will continue to keep a close eye on how this case unfolds.
SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR.
DISCLOSURE: Zacks SCR has received compensation from the issuer directly, from an investment manager, or from an investor relations consulting firm, engaged by the issuer, for providing research coverage for a period of no less than one year. Research articles, as seen here, are part of the service Zacks SCR provides and Zacks SCR receives quarterly payments totaling a maximum fee of up to $40,000 annually for these services provided to or regarding the issuer. Full Disclaimer HERE.
