Diomed wins injunction by Roth Capital
Matt Dolan
(949) 720-5796
Price: $1.08
Mkt. Cap.(mil): $32.2
EPS P/E
2006A (0.67) NM
2007E (0.49) NM
2008E (0.28) NM
Permanent Injunction Served
Yesterday Judge Gorton granted Diomed a permanent injunction against defendants Vascular Solutions (VASC-$9.68 -NC) and AngioDynamics (ANGO-$18.02-NC). Additionally, damages were increased by $2.2 million (for pre-judgment interest and post-judgment sales) and now total $14.6 million.
Based on our initial read of the permanent injunction document, the wording of the injunction is relatively strong and broad and includes both kits and laser consoles "that are not more than a mere colorable variation of" those respective devices. The ruling includes all of the components we anticipated, as well as the inclusion of language on laser consoles in its wording. From our conversations with Diomed management, the company's legal interpretation of the injunction would impede the defendants from selling not only laser kits but also the corresponding laser consoles. Depending on the actual outcome in the marketplace, we believe the possible exclusion of laser consoles would be a significant incremental development for Diomed, as its competitors would be precluded from obtaining new account market share without substantially altering its device and would only be able to service its current installed-base (and that assumes competitive workarounds are viable).
In a related press release, it appears that Vascular Solutions will continue to sell both laser consoles and its new Bright Tip fibers under its interpretation that these products are not covered under the Court's recent rulings.
Ultimately, we believe the relatively broad language of the ordered injunction, coupled with the inclusion of laser consoles in its wording, will at least create a fair amount of uncertainty for those physicians looking to adopt endovascular laser ablation devices. Given Diomed's current legal position, we believe more physicians would be inclined to adopt Diomed's system as opposed to risking the potential legal and therefore economic ramifications of purchasing the defendants' products. Further, we believe the lack of clinical experience to date for more recently launched products may also leave some physicians cautious.
With respect to workaround kits, we understand Angiodynamics and Vascular Solutions continue to sell products, with Vascular indicating that the most recently ending quarter experienced sequential growth in its Vari-Lase business. We believe that Diomed continues to make progress in its clinical evaluation of both workaround products and expect to obtain more clarity on these devices over the next couple of quarters.
We reiterate our Buy rating on the shares of DIO.
AI
