Plenty of med-tech stocks are well into the green for the year, and C.R. Bard (NYSE:BCR) has earned its place among them. Although there are legitimate concerns about the growth rates of Bard’s legacy businesses, opportunities in sealants, emerging markets and drug-coated balloons shouldn’t be ignored.
More recently, though, Bard gave shareholders 2 solid updates that bode well for the future. First, the company released early, but very encouraging, data on its drug-coated balloon. Second, the ongoing litigation with Gore seems to be winding down, with Bard recently securing some key victories in court.
For balloons, it’s still early but it’s looking good
Earlier this month, Bard presented early-stage roll-in data on 56 patients in the Levant 2 trial who were treated with the Lutonix drug-eluting balloon. At 6 months, these patients showed primary patency of over 90%, with total lesion revascularization of only 3.8%.
This is, of course, only early-stage data from a limited sample of patients, but it nevertheless supports the idea that drug-coated balloons will be a major player in treating peripheral artery disease. All told, this opportunity could boost Bard’s growth rate by 1% or 2%, though competitors like Medtronic (NYSE:MDT), Boston Scientific (NYSE:BSX), Johnson & Johnson (NYSE:JNJ), and Covidien (NYSE:COV) have posted their own encouraging early-stage data packages. Although I expect that this market will ultimately become intensely competitive, the present extent of under-treatment gives me confidence that there will be enough business here to go around.
Gore running out of time and options
Bard also recently reported some significant legal victories in its ongoing battle with Gore over infringements of Bard’s stent-graft patents.
An Arizona court granted a Bard motion to execute judgment on issues deemed final and unappealable (as the U.S. Supreme Court refused to hear the case). This would normally mean that Gore has to release the $855 million that has been held in escrow, but Gore can (and likely will) file a motion to stay the release of the funds and/or appeal the ruling to release those funds. Given the refusal of the SCOTUS to hear the case, Gore will have to pay, but the question of timing is still up in the air – a best-case scenario (1 in which Gore’s motions/appeals on the release of funds are denied) could see Bard receiving the money in November.
The court also denied a Gore motion to determine that the infringement was not willful, as well as a motion for a new trial. About $200 million is in play here and the option of appealing to the SCOTUS is still available to Gore. Given how these proceedings have gone thus far, Bard investors should expect Gore to fight this battle to the end.
Even so, this was the best-case scenario for Bard. Everything that could go Bard’s way did and the receipt of the $855 million is in sight. As a reminder, Bard has already committed to using a substantial portion of the funds for growth-oriented M&A; the company has announced 2 deals just in the last few months.
But the mesh litigation rolls on…
While the patent litigation with Gore has gone well for Bard, the litigation over transvaginal mesh is still ongoing. Bard lost its 1st bellwether case and was ordered to pay $2 million (with $1.75 million of the award designated as punitive damages). It’s worth remembering, though, that the first 2 cases are chosen by the plaintiffs; shareholders should expect these to be the strongest cases against Bard. The next 2 will be chosen by Bard, with the outcome of those cases going a long way toward determining the outcome of settlement talks.
The bottom line
Even with the funds expected from Gore and the positive data on the Lutonix drug-coated balloon, it’s harder now to argue that Bard shares are substantially undervalued. Further acquisition announcements could continue the run, but shareholders may want to consider protecting their positions with stops as the valuation starts to get a little steep.