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Mergen Becomes Latest to Settle with OGT; Launches OEM Array Business


Mergen last week became the latest player in the microarray industry to settle litigation with Oxford Gene Technology, and the firm wasted no time in trying to drum up business by offering an OEM service for DNA arrays.

The dispute dates back to December 2002, when OGT filed suit against several firms, including Mergen, for patent infringement. Like the other firms, Mergen filed a countersuit but also entered into discussions with OGT to settle out of court.

Jamie Love, vice president of business development for the San Leandro, Calif.-based firm, said that he couldn’t discuss any of the details of the settlement or the negotiations. The firm, however, did say that it had purchased a license from OGT enabling it to make DNA arrays for gene expression applications in the US, Europe, and Japan. Mergen also dropped its countersuit as part of the settlement.

Love said that the principal reason why Mergen decided to settle was due to the drain on resources that accompanies such legal battles. “Certainly, litigation is costly and time-consuming, and we just wanted to really get on with the business,” he said. But the precedent set by OGT in extracting settlements from other microarray manufacturers also played a role in Mergen’s decision.

OGT has been extremely successful in reaching settlements with firms that it believes infringe US Patent No. 6,054,270, or the ‘270 patent, as it’s known in the industry. The US patent is very broad-based and was assigned to OGT, which manages the intellectual property of microarray pioneer Edwin Southern, in April 2000. Along with Affymetrix’s US Patent 5,744,305, the OGT patent is a key consideration for any company operating in the microarray field.

In a presentation at IBC Life Sciences’ annual Chips to Hits conference in September, Paul Booth, a patent attorney with Heller Ehrman White & McAuliffe, said, “If you’re working in this field, you’re almost certainly going to get a letter from someone at OGT. It’s rather difficult to prepare a spotted array without infringing on [Southern’s] patent” (see BAN 9/29/2004).

While Affymetrix has filed relatively few suits regarding its underlying micorarray patents, OGT has been very aggressive in protecting its IP. Thus far, the UK-based firm has reached settlements with Motorola, Nanogen, Genomic Solutions, Axon Instruments, and BioDiscovery. In each of these cases, financial details of the settlements were not disclosed, though Genomic Solutions said that as part of its settlement it would display notices in connection with marketing certain genomic-related products, and would pay OGT a “nominal amount.”

OGT also previously licensed patents to Agilent Technologies and Amersham. But perhaps the most noteworthy of its settlements was the 2001 agreement reached with market leader Affymetrix after a couple of years of legal wrangling.

Affymetrix subsequently announced that it would make $62.5 million in payments to buy out the remainder of its obligations to OGT under their settlement (see BAN 6/16/2004). The buyout included a one-time $42 million payment as well as $20.5 million in royalty payments.

OGT currently has an ongoing legal battle with Telechem International, the Sunnyvale, Calif.-based microarray company. Telechem officials told BioArray News that they could not comment on the case.

Attempts to reach OGT officials by press time were unsuccessful.

Raising Its Profile?

For privately held Mergen, the settlement clearly lifts a cloud of uncertainty. “The future’s bright. Now that this litigation is out of the way, the phone is ringing off the hook,” Love told BioArray News on the day the settlement was announced. “Previous customers who had cold feet are now making contact with us.”

In a move that shows the firm is trying to raise its profile following the settlement, Mergen announced early this week that it had launched an OEM (original equipment manufacturing) business for companies that would like to resell Mergen’s DNA microarrays or co-brand with the firm. It said the new business would complement its existing ExpressChip microarrays, which the firm has been producing since 1999.

Love said that he could not disclose how many partners the firm has signed up or who it is in negotiations with regarding OEM alliances. However, he noted, “Mergen has been courting the OEM business model for about a year, and we are in discussions with some big players.”

Mergen doesn’t make readers, but Love noted that most microarray scanners can read the firm’s chips because they utilize a standard 1x3 slide. The firm produces both catalog and custom DNA arrays, as well as protein arrays. It has off-the-shelf DNA arrays for human, mouse, and rat, as well Staphylococcus aureus and Haemophilus influenzae. The prokaryotic arrays are whole genome, but the others are not.

Love said the firm had thought about making whole-genome eukaryotic arrays, but decided against getting into that market. “Most people who come to us have already used an Affy or an Agilent [chip] and done their whole genome,” Love said. “They’ve whittled down 30,000 to 40,000 genes to a few thousand, and they want to dig deeper. Mostly, that’s the way we get our customers.”

Mergen also has conducted gene-expression services for customers since late 2000. Now that the issues with OGT have been settled, Love said that part of the business “may get a big tick up because people are always interested in that.”

As far as the future of the company is concerned, Love said Mergen is looking to sign bigger contracts with bigger pharma and biotech firms. He said the retail side — “a couple of arrays here and a couple of arrays there, is probably not very useful. We won’t discontinue it, but I don’t think it has a very big future.”

The firm may eventually get into the molecular diagnostics/biomarker market, Love said, but “we’ll probably wait to find a good partner to go with us. We’re really manufacturers. For example, we did an ADME/tox array, [and] we had to get outside experts to help us out. That’s the way we would go with diagnostics as well.”

— EW


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