If it's good for Enzo Biochem, Inc. (NYSE:ENZ), then it's bad for Life Technologies Corp. (NASDAQ:LIFE) - of that there can be no doubt. The question is, to what extent does it really matter? More specifically, is it possible the market has become so enamored with the idea surrounding a patent war between for Life Technologies Corp. and Enzo Biochem that it's missing more important details? If so, opportunity may be afoot.
The centerpiece for the news media is Friday's court ruling - an appeal - that a patent granted to Enzo but being used by Life Technologies' Applera division was indeed valid. Ergo, LIFE owed ENZ licensing fees for the period it was unlawfully using the technology that offered a "way to detect genetic sequences and diagnose human diseases such as cancer." The jury determined the total fees due to Enzo Biochem amounted to $49 million.
The company is also going to ask the judge for interest on the amount; the meter has been running since 2004, when the suit was first filed. In fact, the patent is so old (first issued in 1995) that it has since expired. So, LIFE and Applera aren't on the hook going forward, but the company and/or its subsidiary will have to pony up at least $49 million - and possibly interest - for at least a few years' worth of infringement. If awarded, it's expected the interest payments could reach into the tens of millions of dollars.
The knee-jerk reaction is understandably bearish for Life Technologies Corp. and bullish for Enzo Biochem, Inc. But, just how bad is it for LIFE?
For perspective, Life Technologies has generated $3.81 billion in revenue over the past four quarters, turning $445 million of it into a net profit. Its market cap is $8.4 billion, and it's got $300 million in cash in the bank right now.
Point being, it can more than afford to pay ENZ what the judge says is due; it will also be able to afford any interest payments the judge and jury deem are appropriate. It won't kill the company. It will barely even register in the blip. If the shares take a steep dive (and it looks like one is on the way, judging from Friday's action with LIFE), it may be a great buying opportunity. After all, Life Technologies is still an amazingly profitable company, with four straight years of revenue growth, and three straight years of earnings growth. The trailing P/E of 19.8 is fair - given its growth rate - and the forward-looking P/E of 11.2 is 'value' priced. The awarded payout isn't going to make much of a dent in the future 'E'.
As for Enzo Biochem, a $49 million check plus maybe $20 million or so in interest payments IS going to be a big deal. The $109.2 million company - which generates about the same in annual sales - habitually loses several million per year (ENZ lost $39 million last year), and it has $15 million in the bank, as cash. Soon it will have at least $64 million. On the surface, that's huge for the little company. It still doesn't make the company operationally profitable though. In fact, while the victory over Applera and Life Technologies Corp. bode well for a similar case ENZ is bringing against other companies, none of them will actually make the company profitable though means other than litigation. And, there's no end in sight to that problem.
Moral of the story? There's more to the story than headlines.