#$mdco

[dragonflycap]

5 Trade Ideas for Monday: Apache, E*TRADE, Medicines Company, MGP Ingredients and PNC

5 Trade ideas excerpted from the detailed analysis and plan for premium subscribers

Apache, Ticker: $APA

Apache, $APA, ran higher from a low in February, peaking in May. It rolled over to its 200 day SMA at the start of August and then moved back higher. After the first leg up, it has settled into a bull flag with the RSI pulling back to the mid line and the MACD leveling at zero. Look for a break of the flag to the upside to participate.....

E*TRADE Financial, Ticker: $ETFC

E*TRADE Financial, $ETFC, has moved back higher off of a June low. It found resistance at the point where it gapped lower and pulled back to a higher low at the start of August. That same resistance stopped it again and it fell back to another higher low. Now it is at resistance for the 4th time with the RSI rising into the bullish zone and the MACD crossed up. Look for a break of resistance to participate to the upside.....

Medicines Company, Ticker: $MDCO

The Medicines Company, $MDCO, has made a series of higher highs and higher lows since making a bottom in February. Last week saw a push to another higher high and then consolidation. Friday was a strong move higher and it has support for more upside from a bullish and rising RSI and a rising MACD. Look for a push through resistance to participate to the upside.....

MGP Ingredients, Ticker: $MGPI

MGP Ingredients, $MGPI, trended higher since breaking above a zone in May until peaking at the end of July. From then it pulled back to a higher major low and has now reversed up. It starts the week at resistance and the bottom of the gap with a RSI rising into the bullish zone and a MACD crossed up and rising. Look for a push over resistance to participate to the upside.....

PNC Financial Services, Ticker: $PNC

PNC Financial Services, $PNC, started pulling back from a lower high in June, finding support at the prior low at the end of the month. Since then it has been moving higher in steps. Friday moved out of one of those steps and up to resistance. The RSI is in the bullish zone and the MACD avoiding a cross down. Both are in ranges that support a push higher. Look for a move over resistance to participate to the upside.....

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After reviewing over 1,000 charts, I have found some good setups for the week. These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which heading into the unofficial last week of Summer ahead of the Labor Day holiday the Equity markets are tired, consolidating at their highs and even pulling back.

Elsewhere look for Gold to continue lower while Crude Oil extends to the upside. The US Dollar Index looks to continue higher short term in its broad range while US Treasuries are biased lower in consolidation. The Shanghai Composite and Emerging Markets are both looking like they will continue lower in the short run, more damaging for the Emerging Markets than the Chinese.

Volatility looks to remain subdued but back at more normal levels keeping the bias higher for the equity index ETF's SPY, IWM and QQQ. Their charts have lost all their strength though and suggest they may continue to pause or pullback in the short run. Use this information as you prepare for the coming week and trad'em well.

[dragonflycap]

Come Take Your Medicine (Company)

The Medicines Company ($MDCO) aims to lead in acute and intensive care medicine worldwide.  So obviously they need to make a lot of medicine.  This was good news for the company during the major pullback in August and September last year.  The stock rose over 55% while the rest of the market was in dire straits.  The stock did take a hit in October when Hillary started rattling cages about drug prices but quickly recovered.

The top in December, just shy of the September high was the best it could do though.  Since then it pulled back, reaching a new low as new investors were shaken out.  The full action made for an interesting price pattern for a technician though.  The bullish Bat harmonic reached its Potential Reversal Zone (PRZ) and has since retraced nearly 78.6% of the move higher.  Once it gained separation from the 61.8% retracement it gave a target of a full retracement to 43.79.

That is some good news for holders.  But there is another pattern at play as well.  A classical symmetrical triangle has been tightening its range around 35.50.  The current price sits at the top of the triangle and a break above would give a target to  43.50.  Hmmm.  Notice that price is meeting resistance at the June high.  A push above this would trigger both targets.  

Momentum supports a break to the upside.  The RSI is in the bullish zone and rising and the MACD is rising as well.  The Bollinger Bands® are pointing higher too.  Time to take your medicine and add this stock to your portfolio soon.

More at Dragonfly Capital

[danravicher]

Medicine’s Company Gets Angiomax Patent Invalidation Vacated

The Court of Appeals for the Federal Circuit today vacated its July decision invalidating two Medicines Company (MDCO) patents covering Angiomax that extend to 2029. The court will rehear the case en banc (as a whole). The previous decision was issued by just three judges on the court.  Here is the Court of Appeals Order granting Medicines Company rehearing en banc regarding validity of Angiomax patents.

[dragonflycap]

Shake and Bake an Elixir in Medicines Company

Medicines Company ($MDCO) had been a bit of a sleepy stock over the last 18 months, quite the opposite of the rest of the healthcare space.  That was until August 26th.  Maybe some phase I trial data from the following Sunday leaked?  Well whatever the cause the stock started higher off of the 200 day SMA.  

From there is found resistance at 42.50, just above the January 2014 high before the rounded bottom started. This type of quick move is one that traders often look to fade, meaning they take profits or even sell short.   A pullback would establish a Handle to go along with the Cup.  The momentum indicators had moved to overbought levels.  The stock was outside of the Bollinger Bands®.  A triple whammy.

But stock prices can still go up when they are overbought.  And overbought can get more overbought.  A Cup can just get bigger without a handle.  And that is what is happening in Medicines Company.  A bit of a Shake and Bake scenario.  After a small bull flag the price of the stock is moving higher again Wednesday.  How high can it go?  The bull flag would measure higher to 51.70.  And with short interest at almost 18%, a short covering squeeze cold get it there quickly.  

More at Dragonfly Capital

[danravicher]

Appeals Court Makes Medicines Company Angiomax Loss Even Worse

Thursday morning a Court of Appeals ruled that Medicines Company’s (MDCO) patents on Angiomax were invalid. Surprisingly, this decision has been heralded by sell side analysts as a good thing, removing an “overhang” on the stock. Indeed, the stock jumped 10% on Thursday after the decision was released. But removing an overhang by realizing the worst case scenario doesn’t seem a rational reason to justify an increased outlook or market cap. 

Indeed, the Court of Appeals decision is worse than the previous decision against MDCO, which had held that MDCO’s patents were valid, but not infringed by Hospira’s (HSP) proposed generic. Had that decision been affirmed, it would have been a loss, but one that only allowed HSP to enter the market by offering a generic competitor (because the patents would still be valid to stop other generics). However, with the decision Thursday, the patents are no longer valid to assert against any generic, including Mylan (MYL) (which had lost its case against MDCO at the district court last year). I expect several generics to enter the market quickly, which will cause a loss of revenues and margins to MDCO much faster than had HSP entered alone (statistical data show the entry of a single generic does not cause price erosion and loss of market share nearly as rapidly as when two or more generics enter the market).

Several people have mentioned to me that MDCO’s value is now based on its other products, including its pipeline, that analysts had “zeroed” out Angiomax revenues for the second half of 2015 and later. I make no comment about Medicines Company’s other products because they don’t (yet) involve legal disputes. However, all those things were present Wednesday. The only thing different between then and now is the Court of Appeal decision rendering for certain a loss of MDCO’s Angiomax patents. Does that really justify such a material positive reaction? I don’t think so, especially since the decision means MDCO will now have to revert from a company with hundreds of millions in revenues to one based on hope for its pipeline. That seems to make it much more volatile and susceptible to any biotech bubble that may burst.

Disclosure: As of the time of publication of this article, I am short MDCO and I have no business relationship with any of the mentioned companies.

[najarianbros]

What We’re Trading

PM - Philip Morris is up about 5% after a MASSIVE EPS beat on strong sales and then increased forward guidance.

C - Citi is trading up nearly 2% after an EPS beat this am.

AMGN - Trading up 1% in the pre after the FDA approves Corlanor treatment to reduce hospitalization from heart failure.

MDCO - The Medicines Company got FDA Advisory panel to recommend approval of cangrelor, which has proven to reduce ischemic events in the heart, without increasing major bleeding in the treatment of stenotic coronary arteries.

PNRA - Panera Bread announced a $750M buyback, which is nearly 17% of outstanding shares, and that and a series of upgrades have shares up 12% in the pre.

SNDK - SanDisk missed EPS forecasts by 8 cents on inline revenues, but I think it was the lowered guidance that really hurt sentiment here, shares falling 7% and approaching 52-week lows.

[danravicher]

Medicines Company Angiomax Patent Appeal Hearing Debrief

Oral argument in The Medicines Company's (MDCO) appeal of its Angiomax patent case against Hospira (HSP) took place Friday afternoon. The appeal concerns a Delaware district court decision that two of MDCO's Angiomax patents are not infringed by HSP's proposed generic. The district court reached that decision because it believes both patents require a very specific manufacturing process, one HSP does not use. The district court did, though, find both patents, which extend to 2029, valid. The original Angiomax patent, which expires this June, is not at issue in the case and MDCO has no other patents listed in the Orange Book for the drug.

At Friday's oral argument, the Court of Appeals judges assigned to the case seemed to disagree with the district court's non-infringement decision and instead believed only one of the two patents requires a specific manufacturing process. Using a broader interpretation that does not require a particular manufacturing process, it is likely HSP's proposed generic would be found to infringe the other patent, which would be very good for MDCO, as it need only prove one of its patents is infringed in order to keep HSP's generic off the market.

However, the Court of Appeals judges also found much merit in an invalidity argument raised by HSP, namely that the patented form of Angiomax was sold commercially more than a year before the related patent applications were filed. HSP had raised this issue, called the "on sale bar", with the district court, which rejected it, saying MDCO's relationships with a manufacturer and distributor for Angiomax did not count as commercial sales of the drug. The Court of Appeals judges asked many questions during Friday's oral arguments about the nature and facts of the relationships, indicating they think they could be considered commercial sales. If so, both patents in suit would be invalid.

It's difficult to predict how the Court of Appeals will rule in this case. Two of the three judges assigned are relatively new and none came to the Court with extensive patent or pharmaceutical backgrounds. I expect the case will come down to the "on sale bar" invalidity issue, as it seems quite likely the Court of Appeals judges will reverse the district court's narrow interpretation of at least one of the two patents, making it easy for MDCO to prove infringement of that patent. If, however, the Court of Appeals sides with HSP on the "on sale bar" invalidity issue, then the patents are dead regardless if they are infringed. If the Court of Appeals concludes MDCO's patents are valid, and if they do indeed say at least one was interpreted too narrowly by the district court, they'll then likely send the case back to the district court to consider infringement and invalidity under the new broader interpretation that is not limited to any particular manufacturing process. Only time will tell.

Of note, there is also a pending appeal by Mylan (MYL) of a Chicago district court's decision in favor of MDCO in a later filed Angiomax patent case involving the same two patents. In that case, the Chicago district court disagreed with the narrow interpretation given by the Delaware judge in the HSP case for one of the patents and held MYL infringed it. The Chicago judge agreed, however, with the Delaware judge that both patents were valid. If the Court of Appeals rules the patents are invalid in the HSP case due to the "on sale bar", it will apply that ruling to the MYL case as well, resulting in a reversal of the decision in MDCO's favor there.

I expect a decision from the Court of Appeals in the MDCO v HSP case in 2-6 months.

Disclosure: As of the time of publication of this article, I am long MDCO, but I have no business relationship with any of the mentioned companies.

[danravicher]

Medicines Company Withholds Guidance Pending Angiomax Patent Appeal

On this morning's conference call (transcript), Medicines Company (MDCO) President and CFO Glenn Sblendorio discussed in his opening remarks the company's ongoing patent litigation with potential generic competitors to MDCO's top selling drug Angiomax, which accounts for about 85% of MDCO's U.S. revenue:

Now for an update on the ANDA litigation related to Angiomax. As you know in October of last year we won a favorable decision in our litigation with Mylan where the District Court judge in Chicago found that our 727 patent is valid, enforceable, and infringed by Mylan. That decision is on appeal but the schedule for oral arguments has not been set. In the Hospira case, the District Court found in March of last year that our 727 and 343 patents are valid, but based on the claim construction, the court also found that Hospira was not infringing. We are appealing the Hospira decision and oral arguments before the appellate court will be held in early March. We expect the decision anywhere from one to six months after oral arguments.

As Mr. Sblendorio points out, there are two Angiomax patent cases that are currently on appeal. The first case, against Hospira (HSP), resulted in a loss for MDCO at the district court in Delaware. That appeal has been fully briefed and its oral argument at the Court of Appeals is scheduled for March 5. 

The second case, against Mylan (MYL), resulted in a win for MDCO at the district court in Chicago. To be technical, the company won on only one of the two patents it is asserting (the 727 and 343 patents mentioned in the quote above), but both last until 2029, so winning on only one doesn't make much of a difference as far as market exclusivity is concerned. In the HSP case, MDCO lost on both patents.

If the loss to HSP is affirmed, a generic version of Angiomax could be launched as early as June this year. If the loss to HSP is reversed, MDCO could avoid generic competition to Angiomax until 2019, as that is when the company has agreed to allow Teva and APP to enter the market with their generic versions. This of course assumes the MYL decision in MDCO's favor is affirmed. It is possible that the Court of Appeals could reverse the HSP loss but then also reverse the MYL win, meaning MYL could launch a generic as early as June this year, but that possibility is highly remote because the issues in both appeals are substantially similar, even if not identical, so I expect the Court of Appeals will either rule for, or against, MDCO in both. 

Mr. Sblendorio continued in this morning's call to say that, due to the materiality of the appellate court's decision in the HSP case, the company could not provide financial guidance:

We continue to believe that claim construction in the Hospira [case] was incorrectly decided in the District Court and we believe we will prevail. However, given the uncertainty surrounding the outcome of the case, we believe it is better to hold off on providing financial guidance at this point. Once a decision is made in the Hospira case, we will determine if appropriate to provide financial guidance.

Later in the call, in response to a question from Jeremiah Shepard at Credit Suisse, Mr. Sblendorio gave more reasoning for the lack of guidance:

If we are fortunate and are able to keep Angiomax beyond June of 2015, obviously that is very positive for the Company. It shows a whole different revenue growth profile, and in fact things that we would do around cost, we would not do. So whether that’s reduction of headcounts or slowing programs down. In the situation where it was a negative decision, that would trigger obviously other decisions around cost structures and possibly people and deployment of people around different programs. So we feel rather than put out a complex matrix of different scenarios, the best thing would be to wait until we had some clarity and provide that clarity in guidance once we had a decision.

I have been following the Angiomax patent cases for quite some time and am eagerly awaiting the oral argument on March 5, as I expect many are. As for when the Court of Appeals will rule, Mr. Splendorio said they expect a decision within one to six months after the oral argument, an expectation I share. MDCO closed down about 4% today, while PJP and the market were flat.

Disclosure: As of the time of publication of this article, I have no positions in, or business relationship with, any of the mentioned companies.