In late-breaking news on Thursday afternoon, a jury has ruled in the case of Allergan Inc. (AGN:NYSE) vs. Imprimis Pharmaceuticals. If you recall, Allergan had been seeking millions in damages, claiming that false advertising on the part of Imprimis (owned by Harrow Health Inc. [HROW:NASDAQ]) cost them many thousands of orders and millions in profits.
In the case, the jury ruled in favor of Allergan, but only to the tune of $48,500. In doing so, they have basically stated that Allergan didn't suffer any real damages. This is a very positive ruling for Harrow.
If you recall, Harrow stock had been a big performer in the market last fall and early this year, going from around $2.50 to over $7 per share. This strong move was driven by operational excellence, not only in its Imprimis business, but also in the many spinoffs the company has and continues to launch as separate entities.
However, in March, the stock's move was derailed. This derailment was self-inflicted as management declared in its March earnings call that it was going to increase spending on litigation to clear up the legal issues surrounding the company. Many on the Street took this as negative, thinking that the issues must be worse than imagined if it was guiding to higher spending.
As we discussed at that time, our opinion was that Harrow knew it was in a good spot legally and also had the free cash flow to be more aggressive. Thus, the move was one of strength, not weakness, and we were buyers of the stock on the dip back down to $4.50.
Now, the issue has been settled. Allergan's case is over and Harrow is no worse off than before. Meanwhile, fundamentally, everything is humming right along at the company.
The rally in the stock the last few days is related to word getting around about the case not trending well for Allergan. And, I fully expect to see Harrow trade higher post this good news for the company. The stock will likely trade back to year highs very soon.
But that doesn't mean that Harrow shares are fully valued. This is a company whose core business is growing rapidly. In addition, its spinoffs are all performing better than expected. The value creation here has been excellent, and it appears that this is only going to accelerate.
The Allergan lawsuit ending is great news for a company that has been on a roll in terms of announcing great news. Expect the overhang to be lifted from HROW and the stock to have clear sailing for quite a while to come.
Daniel Carlson is the founder and managing member of Tailwinds Research Group and its parent company DFC Advisory Services, which is a licensed registered investment advisor (CRD # 297209). Tailwinds is a microcap focused research company that provides research on and consults to over 20 emerging growth companies in the technology and life sciences arenas. DFC Advisory Services is an RIA that manages money dedicated to investing in the companies covered by Tailwinds. For more information on these two companies and their track record, please click here. Prior to founding these two entities, Dan spent many years working with small public companies, having been CFO of two public companies and helping finance many others. A 1989 graduate from Tufts University with a degree in Economics, Dan’s formative years in business were spent as an equity trader, first on the Pacific Coast Stock Exchange then on the buyside at several multi-billion dollar firms.
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Tailwinds owns stock in Harrow. For a complete list of disclosures, please click here.[NLINSERT]
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