Excellenter Artile in Alpha.
Nov 11 2013, 14:07 | about: DECN, includes: JNJ
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Disclosure: I am long OTC:DECN. (More...) Recently I have been following the ongoing case between Decision Diagnostics (OTC:DECN) and Johnson & Johnson (JNJ). In my previous articles I detailed the particulars of the case, and made the prediction that Decision Diagnostics would prevail in court. This hypothesis was based mainly off the recommendations of patent judges who had reviewed the case. Last week, after over a year of proceedings the case reached a resolution, as I had predicted. The U.S. Federal Court of Appeals ruled that Shasta Technologies, a subsidiary of Decision Diagnostics, was within their rights to sell their glucose testing strips, and that any decision allowing LifeScan, a Johnson & Johnson subsidiary, to block sales would be unfairly eliminating competition. Furthermore the ruling went on to say that the strips did not embody the claimed invention and were unpatentable.
This removes the final obstacles for the sale of the GenStrip, a product Decision Diagnostics effectively bet their futures on. With all injunctions out of the way, the company expects annual revenues of over 250 million USD, providing the foundation for a major turnaround. This is welcome news for investors, as Decision Diagnostics had been posting losses every quarter since the case began, primarily due to legal expenses and an injunction barring them from selling their product. With this news, they should be back in the black within a few months. Furthermore the GenStrip's lower pricing and higher performance are expected to lead to significant market penetration, dealing a major blow to LifeScan.
While the legal disputes between the two companies have not yet ended completely, this ruling settles the major issue, patent violation, firmly in Decision Diagnostics' favor. The remaining cases consist of minor disputes, primarily use of trademark and false advertising. These cases are expected to reach a speedy resolution, likely by the end of this year.
Since the ruling, shares have seen steady appreciation, though not exhibiting the dramatic leaps in value that I had initially predicted. Projections are that this rise will continue, especially as they begin to post profits within the coming quarters. With that in mind I put forth a set of revised predictions for Decision Diagnostics.
In my original look at this stock, I set forth three possibilities: Win, Lose and Acquisition. This recent ruling effectively rules out the second option leaving two very rosy outcomes.
The former option is the current state of affairs. Decision Diagnostics has won all the important parts of their case. Free to sell their product, they are set on track for a profitable future and have removed the proverbial sword of Damocles from over their head. Expect a steady rise in value for the next few years as sales revenue begins accumulating.
The latter however, is a far more exciting possibility, and one that I certainly hope for. Earlier this year Cubist Pharmaceuticals (CBST) acquired Trius Therapeutics (TSRX) for 1.6 Billion. This allowed them to shore up weaknesses with their drug daptomycin, and more importantly extended their exclusivity past 2017. With a billion dollars in daptomycin sales per year, this move was only logical. Johnson and Johnson makes 2.6 billion annually in diabetes diagnostics sales, mainly from the disposable strips for their devices. It's not unlikely that they will make a similar move to acquire Decision Diagnostics for a fraction of that sum, eliminating a dangerous competitor and guaranteeing future control of the market. As an investor this would be the greatest opportunity to capitalize on this stock, and as such one that I am eager to see.
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