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Future of Stratagene s FullVelocity, Dx Plans Unclear in Wake of Jury Verdict

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After determining that Stratagene's quantitative PCR and RT-PCR reagents infringe two patents used by Third Wave's Invader technology, a US District Court jury in Wisconsin earlier this month awarded Third Wave $5.3 million in damages.

The verdict comes almost one year after Third Wave filed its suit and impacts two prominent pharmacogenomics technology vendors. The result also throws into question Stratagene's plans to use its FullVelocity technology — which infringes Third Wave's IP — as a springboard into the molecular diagnostics market.

The suit will also likely increase pressure on the company to seek a settlement in this case and its recently filed countersuit. "Hopefully, the companies can move quickly to reach some kind of conclusion," said Adam Chazan, an analyst with Pacific Growth Equities who covers both companies. "I think that's in the best interest of both companies and shareholders."

Stratagene officials declined to comment on the jury's decision or on its ongoing litigation with Third Wave. The firm, however, released a statement the following week saying that it would appeal the verdict once a final judgment has been entered by the District Court. In addition to seeking the reversal of the jury's decision, Stratagene said that it would seek to have damages reduced or eliminated.

Third Wave said that given the jury's verdict of willful patent infringement, it would seek additional damages.

According to Stratagene, other details of the decision, which include the possibility of an injunction on sales of certain of its FullVelocity products, are currently being considered by the presiding judge. The timing of a final judgment has not been set.

In a statement, Stratagene pointed out that the technology that infringes Third Wave's patents brought in total sales of less than $400,000 since the FullVelocity products were introduced last year, and represent less than .4 percent of the firm's total revenue in the current fiscal year. But the bigger question facing Stratagene is what the jury's decision could mean for future sales of the FullVelocity products, which are a major part of the firm's strategy for playing in the emerging molecular diagnostics market.

Stratagene and Third Wave are two reagent makers seeking a piece of the potentially lucrative molecular diagnostics space — a market valued at anywhere from $1.2 billion to $2.5 billion annually. Their ability to compete in that market was greatly enhanced by the March expiration of certain PCR patents held by Applied Biosystems and Roche. Both have claimed that their technologies will offer advantages over the industry standard TaqMan reagents offered by Roche and ABI.

La Jolla, Calif.-based Stratagene has been in negotiations for several months with an unnamed partner to further develop the firm's MX3005 QPCR instrument for molecular diagnostic applications (see BioCommerce Week 7/21/2005). That alliance, which is expected to be signed before the end of this year, would provide the partner — expected to be a large diagnostics player — with access to the FullVelocity technology.

It remains to be seen whether the jury's decision or ongoing litigation will affect the partnership.

Chazan noted that although most of Stratagene's revenue comes from selling real-time PCR instrumentation and assorted reagents, and not from tools that infringe Third Wave's patents, "having a proprietary chemistry is really something special. So, the possibility of being able to sell that to a potential big partner is quite interesting."

The dispute between the firms dates back one year, when Third Wave sued Stratagene, claiming that its FullVelocity technology infringed upon US patents 6,348,314, "Invasive cleavage of nucleic acids," and 6,090,543, "Cleavage of nucleic acids" (see Pharmacogenomics Reporter 9/23/2004). Patent '314 was issued to Third Wave on Feb. 19, 2002, while the '543 patent was issued on July 18, 2000.

In May, Stratagene filed a countersuit 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. Both patents are titled "Methods for Detection of a Target Nucleic Acid Sequence," with the '250 patent being a continuation in part of the '254 patent (see Pharmacogenomics Reporter 5/12/05).

In that case, Stratagene seeks monetary damages as well as a permanent injunction against further alleged infringement by Third Wave. Stratagene also noted that it expects to incur additional legal costs that will impact its earnings as a result of the countersuit.

The urgency to reach a settlement is greater for Stratagene, which in addition to facing damages awarded by the jury, also held cash of roughly $5.7 million as of the end of its second quarter on June 30. Third Wave held cash of approximately $61.5 million as of the same date.

A total of five US patents cover Stratagene's FullVelocity, with additional patents pending. Third Wave's Invader technology is covered by more than 30 patents, with more than 60 patents pending, according to the firm.

— Edward Winnick ([email protected])

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