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Stratagene CEO Says More Adverse Court Rulings Could Be 'Lethal' for Company

At an investors’ conference this week Stratagene shareholders peppered company officials with questions about the firm’s recent litigation woes, causing Chairman and CEO Joe Sorge to say that a continuation of adverse rulings against the firm could be “potentially lethal.”
 
The firm has faced a series of legal setbacks over the past year and has been ordered to pay nearly $30 million in damages to Third Wave Technologies and Invitrogen in two separate cases, and Sorge acknowledged that the risk to the company is significant if it is forced to pay additional damages in these cases or others.
 
Yet, despite the legal problems, Sorge remained positive when discussing the future prospects for Stratagene, particularly in the molecular diagnostics market.
 
Stratagene was one of the 14 BCW Index companies to present at the UBS Global Life Sciences Conference held in New York this week. As soon as Sorge and CFO Steve Martin hit the breakout session following their presentation, investors began asking the duo about the recent legal setbacks.
 
“Your science is wonderful, but your litigation results have been horrific,” said one investor in the session. Sorge nodded his head and replied, “I would agree with that.”
 
The investor suggested that a continuation of the pattern of court defeats could be “lethal” to a company the size of Stratagene, which held $33.6 million in cash as of the end of June 30. Again, Sorge agreed, saying that the outcomes of the cases are “unpredictable” and could prove “adverse and potentially lethal.”
 
Sorge reiterated his desire to settle the ongoing litigation with Third Wave, which late last year won a judgment and damages of $15.9 million from Stratagene, which was found guilty of infringing Third Wave's Invader QPCR products (see BioCommerce Week 12/22/2005). This amount rose to $21 million when certain fees were taken into account.
 
Stratagene has since appealed that judgment, and this past summer asked the US District Court for the District of Delaware to stay its countersuit against Third Wave as the parties continued settlement talks.
 
Third Wave “feel they earned a victory” and have been unwilling in the settlement talks to come down significantly from the $21 million they were eventually awarded, Sorge said at the conference.
 
Sorge also confirmed that the firm is engaged in settlement talks with Applera regarding a suit filed by Applera and Roche against it and other defendants for allegedly infringing thermal cycler patents. BioCommerce Week originally reported the settlement talks in July (see BioCommerce Week 7/12/2006).
 
Stratagene became the last remaining defendant in this case after co-defendant Bio-Rad settled with Applera earlier this year (see BioCommerce Week 2/15/2006).
 
Martin reiterated the firm’s position that it would seek to settle such legal disputes “where the terms are commercially reasonable.”
 
The officials also said they are seeking to have the damages reduced in a case Stratagene recently lost to Invitrogen in a Texas court for infringing Invitrogen’s competent cell patents (see BioCommerce Week 7/26/2006). The jury in that case awarded Invitrogen a 15-percent royalty rate on sales between 1997 and 2004 for a total of $7.8 million in damages. Sorge called the royalty rate at which damages were awarded “excessive.”
 
Invitrogen has since filed for triple damages in the case, citing willful infringement (see BioCommerce Week 9/20/2006).
 
Accentuating the Positives
 
Despite the legal clouds hanging over Stratagene, Sorge used his presentation at UBS to focus on the firm’s efforts to position itself in the nascent and potentially lucrative molecular diagnostics market. The firm signed several pacts over the past nine months aimed at transitioning from sales of its core gene analysis and cloning products to molecular diagnostics, with the help of larger and more established partners.
 
Among these pacts is a collaboration with Bayer signed in March, under which the German diagnostics giant will sell customized versions of Stratagene’s Mx3005p instruments to clinical labs for molecular diagnostics testing worldwide (see BioCommerce Week 3/8/2006). Bayer is currently funding software development for the instruments, and will begin developing instruments based on Stratagene’s technology in the latter part of 2006.
 

“Your science is wonderful, but your litigation results have been horrific.”

Sorge said at the conference that Bayer may also use Stratagene’s FullVelocity quantitative PCR technology to develop its own diagnostic kits.
 
Another partner, Focus Diagnostics, is developing diagnostic assays based on Stratagene’s FullVelocity technology under a deal inked in December (see BioCommerce Week 12/8/2006). Herndon, Va.-based Focus, which operates a national reference lab that offers more than 1,200 infectious disease tests, received a non-exclusive license to the FullVelocity technology, and Stratagene intends to help the company develop molecular diagnostic kits and products.
 
Under the alliance, Stratagene will manufacture any diagnostic products that arise from the collaboration, and Focus will commercialize them globally. Sorge said Stratagene hopes to begin testing assays for regulatory clearance early next year and to launch some of the products in 2007.
 
Stratagene also recently established alliances with Aros Applied Biotechnology to evaluate and license certain gene groups that may be used as cancer biomarkers and with Merck subsidiary Rosetta Inpharmatics to create an automated instrument that can isolate nucleic acids from clinical samples (see BioCommerce Week 8/16/2006). Under the latter deal, the companies intend to jointly develop an instrument and a single-use consumable that Stratagene will manufacture and sell to its current customer base and to potential customers in the pharmacogenomics market.
 
“We’re going through a transition phase” into diagnostic markets, said Sorge, and as a result “we’re stepping on some toes.”

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