Between 1998 and some time this past summer, nearly every time Affymetrix sold GeneChip-brand microarrays, it also sold an Enzo reagent kit. As Affymetrix has become the market leader in the sale of preprinted microarrays, Enzo’s reagents have become the de facto standard kits for use with GeneChip microarrays.
However, at the end of October, Enzo Life Sciences of Farmingdale, NY, filed a breach of contract suit against Affymetrix in the United States District Court for the Eastern District of New York. The suit raises questions about the future of this tightly intertwined and, some might say, symbiotic business relationship between the two firms, and the sample labeling methods used with Affymetrix GeneChip microarrays.
For legal reasons, the firms declined BioArray News requests to discuss the lawsuit.
“We charged Affymetrix with repeated and continuing breaches of a contract that has been in place since 1998,” said Barry Weiner, president of Enzo’s parent company, Enzo Biochem, in the company’s October 29 conference call following the release of its Fiscal 2003 results. “This was not an action that we brought without a lot of careful consideration. We have been in negotiations with Affymetrix for a long period of time, and the company felt it had no choice but to terminate the agreement.”
In that same conference call, Weiner reported that fourth-quarter results (for a fiscal year ending July 31) in Enzo Life Science reflected the fact that in the quarter “we witnessed a total absence of orders from our largest distributor, Affymetrix.”
The company, which operates with three wholly owned subsidiaries — Enzo Life Sciences, Enzo Therapeutics, and Enzo Clinical Labs — reported total revenues of $53 million for its fiscal year, and a net income of $3.8 million. Fourth quarter revenues for research products sold by the Life Sciences subsidiary fell 64 percent, to $2.7 million from $7.6 million in the third quarter. In its earnings announcement, the company said that revenues for Enzo Life Sciences for the first quarter of 2004, which ended Oct. 31, “will be comparable to the fourth quarter of fiscal 2003.”
Affymetrix said that it would “continue to meet all of our customers’ needs through products held in Affymetrix’ inventory.” The company also said it planned to launch its own line of sample labeling kits “in the near future.”
An Affymetrix spokesman said the company would respond formally to the lawsuit within a 20-day period prescribed by the court. The company also declined comment on details of its plans for its own line of labeling products.
In December, Affymetrix announced a $3 million equity investment in Arcturus Engineering of Mountain View, Calif., a company that creates instruments and reagents for microgenomics — the extraction and analysis of nucleic acids and proteins from laser captured cells. Arcturus offers RNA amplification and isolation kits, and DNA amplification kits, but not labeling applications.
Also, Affymetrix in June 2002, launched its GeneChip-brand Sample Cleanup Module, jointly developed with Qiagen, and targeting “critical steps in the target labeling process: cDNA cleanup, cRNA cleanup and subsequent fragmentation.”
The complaint charges that Affymetrix breached its agreement with Enzo by, among other things, misappropriating Enzo assets, and manufacturing and selling Enzo products in violation of the terms of the agreement.
Further, according to the statement it released announcing the suit, Enzo alleged that Affymetrix improperly transferred or distributed substantial business assets of Enzo to third parties, including portions of the company’s proprietary technology, instruments, reagent systems, detection reagents and other intellectual property. The complaint also charges that Affymetrix failed to account for shortfalls in sales of Enzo’s products, or to reimburse Enzo for unauthorized manufacturing and sale of its products, and that Affymetrix improperly induced collaborators and customers to use Enzo products in unauthorized fields or otherwise in violation of the agreement.
In the complaint, Enzo claimed monetary damages from the alleged breach of contract in excess of $500 million.
You Have Been Served
Enzo is apparently not averse to taking legal actions. Currently, the company is involved in two intellectual property suits, in addition to the just-announced suit with Affymetrix. In the conference call, Weiner said the company’s legal expenses in 2003 were $5.7 million, up $3.5 million from the previous year.
Moreover, in the conference call, Weiner said that the company was in the process of expanding its direct sales and marketing efforts, specifically to the life sciences market.
“Previously, we had unveiled a line of products specifically targeted at the glass slide array market, one that does not rely on biochips, and [we] are now planning to augment this line with products that target amplification to allow Enzo to be one of the first life sciences com-panies to offer a completely integrated system for nucleic acid amplification and detection,” he said. “The ultimate goal is to get as many products and into the diagnostics area as possible.”
Enzo was founded in 1976 and lists at least 38 US patents in its intellectual property portfolio. Elazar Rabbani, CEO and chairman of the board since the company’s founding, is a Columbia University-trained biochemistry PhD. While publicly traded, the company has a family flavor to its executive staff — Shahram Rabbani, the company’s chief operating officer, is the brother of Elazar, while Weiner, the com-pany’s president, is Elazar Rabbani’s brother-in-law.
The company recently introduced its BioArray GeneBeam first-strand cDNA labeling kit and is promoting its forthcoming BioArray linear RNA amplification system.
“This lawsuit won’t have any affect on the ability to do labeling,” said Andrew Brooks, the director of the Functional Genomics Center at the University of Rochester Medical Center and director of the Micro-array Resource Center (MRC) of the Academic Medicine Development Company (AMDeC), a collaborative effort involving 39 New York institutions. “What you will find is that there are a number of labs, including our own, that have stepped away from using Enzo en masse quite some time ago. We are not dependent on Enzo for labeling and we have not been for a while. In fact I would not be surprised if there are a number of schools — even in our AMDeC network — which do not use the standard Affymetrix protocol for reasons of cost, efficiency, and, mostly, due to the push to amplify samples with small starting material.”
“Overall, the concern from the user perspective is small, they can get labeling kits from Enzo if Affy runs out — it’s a very similar product and many labs have been buying direct from Enzo for years,” he said. “RNA amplification is not a one-man-show anymore. There is no reason why, if you start with one labeling protocol, you can’t finish with another. If you start an experiment with one labeling protocol you need to finish it with the same technology. However, using an alternative technology for a completely different project is perfectly acceptable. It’s not that some of these technologies are not comparable, because they are, it is just that the noise is different. It’s no better or worse — just different.