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Stratagene in Settlement Talks with Applera, Third Wave; Calls Bayer Pact 'Sound' Despite Siemens Buy

Stratagene is involved in settlement discussions with Applera and Third Wave Technologies in two separate cases, according to court documents filed over the past month.

Resolving the disputes could decrease Stratagene's legal expenses and erase concerns among potential partners that the firm's products may infringe other technologies. It could also provide a boost to Stratagene's sagging stock, which has hovered around its 52-week low for most of the past month.

A Stratagene official also said this week that the firm believes its partnership with Bayer is "sound," after Siemens last week said that it would acquire the diagnostics division of the healthcare giant.

Company officials declined to comment this week on the settlement talks, but the court documents confirm earlier suggestions by Stratagene President and CEO Joe Sorge that the firm had begun settlement talks with both parties (see BioCommerce Week 5/10/2006).

"We are attempting some kind of resolution prior to that trial, and both sides are hopeful that can be reached," he said during a conference call in May. "I'm hopeful. We're putting a lot of effort into it, but we're not at that stage yet."

Seeking a Settlement with Applera …

According to a filing with the US District Court District of Connecticut dated June 30, Stratagene is seeking to push back some deadlines in its ongoing litigation with Applera, the parent of Applied Biosystems. "As grounds for this motion, Stratagene represents that the parties continue to be engaged in discussions that may lead to the resolution of this dispute and wish to further pursue those discussions for at least an additional period of thirty days," according to the document.

If the court grants the delay, burden-of-proof reports would be due August 2, with responsive reports due Sept. 1, reply reports due by Sept. 22, and all expert discovery completed by Oct. 25, 2006.

Stratagene is currently the last remaining defendant in a suit filed by Applera and partner Roche Molecular Systems on Nov. 9, 2004, against Stratagene, Bio-Rad Laboratories, and MJ Research alleging infringement of Applera's US Patent No. 6,814,934. The patent covers real-time PCR instruments, and Applera claimed that MJ Research's Opticon, Opticon 2, and Chromo 4 systems; Bio-Rad's iCycler iQ and MyiQ instruments; and Stratagene's Mx4000 and Mx3000P instruments infringed the patent.

Stratagene, Bio-Rad, and MJ sought to have the case dismissed alleging that the '934 patent was invalid, and all three asked the court to order Applera and Roche to pay their litigation and other costs.

However, earlier this year, Applera and Roche settled the suit with Bio-Rad and MJ, which Bio-Rad acquired in August 2004 for $32 million (see BioCommerce Week 2/15/2006). In addition to settling the issue in the US, Bio-Rad agreed to license certain Applera and Roche RT-PCR patents in Europe and Japan, even though patent offices for those jurisdictions had invalidated Applera's RT-PCR patents. As part of the settlement, Applera licensed certain Bio-Rad technology related to capillary electrophoresis.

Applera settled with Bio-Rad and MJ after the Connecticut court had awarded Applera and Roche over $35 million in damages due to what it considered MJ's "willful infringement" (see BioCommerce Week 4/7/2005). The court subsequently issued an injunction preventing MJ from selling thermal cycler products, which cost Bio-Rad approximately $10 million to $15 million in the fourth quarter of 2005 (see BioCommerce Week 12/22/2005).

So, even though Stratagene would like to settle the issue before a judgment is made, it is possible the firms could settle after the case is heard.

For Applera, a settlement with Stratagene would be the latest of several it has reached over the past year, the most recent being a settlement with Beckman Coulter regarding capillary electrophoresis technology (see related article).

Applera officials told BioCommerce Week that the firm does not comment on ongoing litigation.

… And Third Wave

On June 1, Stratagene also asked the US District Court for the District of Delaware to stay its countersuit against Third Wave through June 30, as the parties continued settlement talks. According to the court document, Stratagene and Third Wave had until July 10 to submit a new proposed scheduling order for the case.

Despite Siemens' acquisition of Bayer's diagnostics division, Stratagene believes its alliance with Bayer is "sound and that it remains an important part of the company's molecular diagnostics strategy."

According to a June 13 court filing, mediation with a magistrate judge is tentatively scheduled for August 10.

Also, as promised last December, Stratagene has appealed a judgment and damages of $15.9 million it was ordered to pay Third Wave for infringement of Third Wave's Invader QPCR products (see BioCommerce Week 12/22/2005).

Settlements with Applera and/or Third Wave could provide a boost to Stratagene's stock, which hit a 52-week low of $5.51 on June 27, but has since regained some ground, closing Tuesday at $7.

In May, Stratagene CFO Steve Martin told BioCommerce Week via e-mail that legal activities "resulted in $5.3 million in spending level [in 2005] above a more normal 2004. The first quarter of 2006 was affected by continuing activity on the Third Wave and Applera matters; the before-tax impact of the additional legal costs related to these matters was approximately $1.1 million."

However, he said that the firm expects the impact on earnings from legal fees to be less in 2006 than it was in 2005.

Molecular Dx Strategy on Track?

While Stratagene pursues a settlement with Applera and Third Wave, another industry event could have a significant impact on the firm's plans for the molecular diagnostics market. Siemens' announcement that it would acquire Bayer's diagnostics division for $5.26 billion (see BioCommerce Week 7/5/2006) could raise questions about the future of Stratagene's partnership with Bayer.

In early March, Stratagene said that Bayer would sell customized versions of the firm's Mx3005P instruments to clinical labs for molecular diagnostic testing worldwide (see BioCommerce Week 3/8/2006).

The partnership is expected to provide as much as 2 percent of Stratagene's total revenue in 2006, Martin previously told BioCommerce Week. But the future return for Stratagene could be much greater with increased reagent sales as Bayer seeks US Food and Drug Administration approval for the instrument and related tests.

Asked if Siemens' purchase of Bayer Diagnostics will affect the companies' partnership, Martin responded via e-mail that Stratagene believes it is "sound and that it remains an important part of the company's molecular diagnostics strategy. As before, Stratagene looks forward to continuing its collaboration with a strong diagnostics partner."

Likewise, it is unknown whether Quest Diagnostics' recent $185-million acquisition of Focus Diagnostics — another molecular diagnostics partner for Stratagene — will result in any changes to the alliance with Stratagene (see BioCommerce Week 5/24/2006). At the time the acquisition was announced, Martin said, "We believe that our opportunity with Focus is sound." He declined to elaborate.

— Edward Winnick ([email protected])

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