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With Third Wave Appeal Planned, Stratagene s Windfall from Other Suit Will Go to Investors

Though Stratagene is in the midst of planning to appeal a $5.29 million judgment handed down against it this summer for infringing certain patents held by rival Third Wave Technologies, the firm has decided to use proceeds from a separate ruling to issue a one-time dividend of $.25 per share to shareholders.

Last month, Stratagene announced it would realize $14.6 million after taxes in the fourth quarter this year from a settlement with Cambridge Antibody Technology (see BioCommerce Week 10/27/2005). Rather than use the windfall to expand its portfolio through technology acquisitions or licenses — something company officials have repeatedly said they intend to do — they opted to return some cash to shareholders.

Stratagene President and CEO Joe Sorge said this week that while those are still avenues the company is interested in pursuing, and some of the settlement funds would be used for strategic business purposes, "given the magnitude of the funds we received, we thought it would be beneficial to shareholders to distribute some of that out to them."

A Stratagene spokesperson told BioCommerce Week that the decision was based solely on the firm's current cash position, liquidity, and funds received from the settlement. Though the firm is hoping the Third Wave judgment will be overturned on appeal, the spokesperson said it played no role in the decision on the dividend.

"Since the jury verdict, we have continued our discussions with these companies and they remain interested in our non-infringing embodiments."

A US District Court jury in Wisconsin awarded rival Third Wave $5.29 million in damages after determining that certain of Stratagene's quantitative PCR and RT-PCR reagents infringe two patents held by Third Wave (see BioCommerce Week 9/8/2005). Sorge said the firm would soon file an appeal in the Court of Appeals for the Federal Circuit in Washington, DC, seeking to have the injunction lifted and the damages reduced or eliminated.

Stratagene also has countersued Third Wave in the US District Court for the District of Delaware claiming that some of Third Wave's Invader products infringe its 6,528,254 and 5,548,250 patents. In this case, Stratagene is seeking monetary damages as well as a permanent injunction against Third Wave.

Sorge has maintained that a lost appeal against Third Wave will have no impact on the firm's plans to participate in the molecular diagnostics market, and the firm plans to capitalize on its non-infringing FullVelocity technology to develop molecular diagnostic products (see BioCommerce Week 10/6/2005).

Sorge said the firm continues to sell its non-infringing FullVelocity products to clinical reference and university laboratories, and intends to establish marketing partnerships to enter the hospital lab market. "Over the past couple of months, we have been in discussions with several potential partners that have shown great interest in FullVelocity," Sorge said. "Since the jury verdict, we have continued our discussions with these companies and they remain interested in our non-infringing embodiments."

Even if the judgment were to stand, Stratagene would have sufficient funds to pay Third Wave. The firm finished the quarter ended Sept. 30 with cash, cash equivalents, and marketable securities worth roughly $9 million, up from $5.7 million as of the end of its second quarter.

Buoyed by a Rival's Misfortune

This week, 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.

Stratagene's QPCR instrument sales grew about 22 percent compared to last year's third quarter, Sorge noted during the firm's third-quarter conference call. The company's newest instrument, the MX30005P, accounted for approximately 45 percent of the units sold during the quarter, he said.

QPCR reagent revenue grew 24 percent compared to Q3 last year.

Sorge noted during the call that Stratagene was helped during the quarter after one competitor was barred by a court from selling its QPCR products. He refused to name the competitor, but he clearly was referring to Bio-Rad subsidiary MJ Research, which in early September was barred by a US District Court from making or selling PCR thermal cyclers that infringe certain patents held by Applied Biosystems (see BioCommerce Week 9/8/2005).

"It wasn't a huge impact, but we did see a little bit of benefit from that," Sorge said.

Stratagene posted net income of $700,000, or $.03 per share, for the quarter, down from $2.2 million, or $.10 per share, in the comparable quarter a year ago. This year's Q3 results were negatively affected by $2.5 million in legal expenses associated with patent litigation matters.

Stratagene's R&D costs rose 4 percent year over year to $2.8 million, and the firm also noted that since early 2004 it has repaid approximately $17 million of debt, which now stands at $4 million.

— Edward Winnick ([email protected])

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