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Despite Jury Blow, Bio-Rad Still Hopes to Settle With ABI; Q4 Top and Bottom Lines to Take a Hit

Bio-Rad maintains it would like to settle its ongoing litigation with Applied Biosystems, even though a US district court last week denied the company's request to recognize an earlier settlement and upheld an injunction barring Bio-Rad unit MJ Research from making, using, offering, or selling thermal cyclers in the US that infringe certain patents held by ABI parent Applera.

"We are still interested in settling this matter, as we always have been," Bio-Rad Treasurer Ron Hutton told BioCommerce Week.

As a result of the latest court ruling, Bio-Rad will likely continue to face "substantial" legal fees and reduced revenue, meaning that it is almost certain to fall short of its fourth-quarter sales and profit goals.

Last week, the US District Court for the District of Connecticut denied MJ Research's motion to enforce a settlement agreement with ABI, which Bio-Rad claims was reached on Aug. 29 (see BioCommerce Week 9/8/2005). Though the firm is planning to appeal the court's latest ruling, it has no timeframe on when the court might rule on the appeal, and it seems very likely the matter will stretch into next year.

Asked whether a settlement or court ruling could come by the end of the year, Hutton said, "It's subject to the schedule of the court. So, it's not something we have any control over." He added, "A little longer than a little shorter is more likely, but it's not clear."

"We are still interested in settling this matter, as we always have been."

Bio-Rad said that until the matter is resolved, the firm "will continue to comply" with the original injunction, which was handed down Aug. 30. The injunction also prohibited Bio-Rad and MJ Research from servicing, repairing, advertising, instructing, or otherwise promoting use of the infringing thermal cyclers for use with PCR.

Four days after the injunction was announced, Bio-Rad said it had settled its suit with ABI, and that it was "dismayed" by ABI's statement one day earlier claiming that a US court had barred Bio-Rad and MJ Research from making or selling PCR thermal cyclers that infringe patents held by Applera.

Bio-Rad has maintained since that time that it settled with ABI "and this fact has been communicated to the court by both parties," according to a statement. The settlement, in conjunction with an existing license held by Bio-Rad, would have allowed MJ Research, which the firm acquired in August 2004 for $32 million in cash, to continue selling its products, according to Bio-Rad.

A settlement of the matter does not appear to be on the agenda for ABI, however. "The court's ruling last week is consistent with Applied Biosystems' position that the parties didn't have a settlement agreement," a spokesperson wrote in an e-mail to BioCommerce Week. "The injunction remains in force."

The spokesperson did not answer a question asking if the firms were engaged in further settlement discussions or negotiating a license of the patents (US Patents No. 5,333,675; No. 5,656,493; and No. 5,475,610).

As a result of this latest court ruling, Bio-Rad is almost certain to fall short of its fourth-quarter sales and profit goals. During the company's third-quarter conference call in early November, CFO Christine Tsingos said, "If the injunction remains in place through the remainder of the fourth quarter, our life science business could be negatively impacted with sales being reduced as much as $10 million to $15 million and pre-tax operating profits reduced as much as $8 million to $10 million versus our prior expectations." (see BioCommerce Week 11/10/2005)

She also said that legal fees associated with the ABI litigation are "substantial," which would make the firm's SG&A goal difficult to achieve. The company reported fiscal 2004 SG&A costs of $378.3 million, or roughly 34.4 percent of total revenue of $1.1 billion. Tsingos said early this year that Bio-Rad's long-term goal was to reduce its SG&A spending to 30 percent of revenue, though it did not expect to reach that goal in 2005 (see BioCommerce Week 2/24/2005).

While the injunction has hurt Bio-Rad's financials, it has helped competitor Stratagene, which recently said that its third-quarter results benefited slightly from MJ not being able to offer its thermal cycler products (see BioCommerce Week 11/10/2005). Stratagene holds a license from ABI to the patents.

Stratagene reported third-quarter revenue of $23.7 million, a 3-percent gain on revenue of $23.1 million in the third quarter of 2004. Sales growth was driven primarily by the firm's quantitative PCR products, which grew 23 percent year over year, and are up 20 percent year to date.

— Edward Winnick ([email protected])

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