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10x Genomics Shares Rise Following ITC Determination in Patent Infringement Case

This story has been updated to include a statement from Bio-Rad Laboratories.

NEW YORK – The US International Trade Commission on Wednesday issued a final determination that 10x Genomics' older GEM microfluidic chips infringed patents held by Bio-Rad Laboratories. ITC also affirmed that 10x's Next GEM product line did not infringe those patents. 

The agency issued a limited exclusion order barring 10x from importing GEM chips and a cease and desist order directed against the company. However, recent moves made by 10x could insulate it from the orders' effects. 

"[B]eginning in the third quarter of 2019, the company's [US] manufacturing facilities achieved volume production of certain of the company's legacy GEM microfluidic chips accounting for the majority of the company's [US] consumable revenue in that period," 10x said in a document filed Thursday with the US Securities and Exchange Commission. And since Aug. 28, all 10x Chromium instruments "have operated exclusively with Next GEM chips. The firm said it believes that "Chromium products utilizing the company's Next GEM microfluidic chips will constitute substantially all of the company's Chromium consumables sales by the end of 2020." 

"The ruling was largely as expected, with imposed penalties actually slightly more favorable than expected for 10X," Cowen Analyst Doug Schenkel wrote in a research note. 

In Friday morning trading on the Nasdaq, shares of 10x were up 13 percent at $69.90 after dipping more than 10 percent in Thursday trading.

"We are pleased with the International Trade Commission's decision to uphold the Administrative Law Judge's finding, supporting our belief that 10x Genomics has advanced its position in the droplet-based NGS sample prep market through its unauthorized use of Bio-Rad's intellectual property," Bio-Rad CEO and President Norma Schwartz said in a statement. "Bio-Rad will continue to pursue its legal rights to address the selling by 10x Genomics of products, including its Next GEM products, that we believe infringe Bio-Rad's patents."

The ITC case was one of several in the ongoing legal battle between Bio-Rad and 10x. In a separate ITC case, an ALJ has found that Bio-Rad imported products that infringe patents held by 10x. 

Following a November 2018 verdict that 10x's GEM chips infringed Bio-Rad patents, 10x released its Next GEM chips. In July, the US District Court for the District of Delaware issued an injunction, preventing 10x from selling GEM chips, but allowed sales to legacy customers.

In September 2018, an administrative law judge issued a final initial determination that was largely adopted by the ITC. However, the judge recommended that 10x post a bond of 100 percent of the "entered value" of the covered products during a review period; ITC is imposing a bond of only 3 percent.  

"We still believe management will continue to bring Next GEM manufacturing into the US but they do not need to accelerate the transition as we thought they would have if the ITC ruled against importing Next GEM tech," EvercoreISI analyst Luke Sergott wrote in a research note. 

10x noted to the SEC that "in response to the multiple submissions from leading researchers regarding the importance of research enabled by the company's products to 'ameliorate [such] significant public interest concerns,' the ITC expressly allowed the importation and sale of the legacy GEM microfluidic chips for use by researchers who are using such chips as of Dec. 18, 2019, and who have a documented need to continue receiving such chips for a specific current ongoing research project for which that need cannot be met by any alternative product."

The ITC final determination is subject to a 60 day presidential review period.