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The Stratagene-Third Wave Fight Goes On; FullVelocity, Invader Clash Patents

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In a counterstrike against Third Wave Technologies, Stratagene has sued the Madison, Wis.-based company for infringement of patents related to Stratagene's FullVelocity quantitative PCR technology, the same technology Third Wave claimed in September infringed on patents related to its Invader mismatch-detection technology.

"We are respectful of the intellectual property of others and committed to vigorously defending our own intellectual property," said Rod Hise, Third Wave spokesperson. He declined to comment further on the lawsuit.

Stratagene declined to comment beyond the text of a press release, according to a spokesperson.

Stratagene's countersuit, filed last week in the US District Court for the District of Delaware, seeks monetary damages as well as a permanent injunction preventing Third Wave from selling certain of its Invader products. Company officers named the Invader-Plus as the offending product in a conference call with investors this week.

Specifically, the new lawsuit involves Stratagene patents 6,528,254 and 6,548,250, issued March 4, 2003, and April 15, 3003, respectively. Both patents are entitled "Methods for Detection of a Target Nucleic Acid Sequence," and both are owned by Stratagene and credited to Joseph Sorge, the company's president and CEO. The two patents are substantially similar — the '250 patent is a "continuation-in-part" of the '254 patent. Both deal with the production of a signal as the result of the cleavage of a single-stranded DNA "flap" with a five-prime exonuclease activity of a FEN enzyme [five-prime exonuclease or flap endonuclease]. Both patents also deal with methods of detecting or measuring a target sequence when the method involves incubating the target with a polymerase followed by FEN cleavage and detection after the release of a fragment.

The '250 patent also covers the use of this method in a cleavage structure formed by the hairpin or loop secondary structure of the target or probe.

In September, 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." Patent '314 was issued to Third Wave on Feb. 19, 2002, while '543 was issued on July 18, 2000.

The technologies do appear quite similar. Third Wave's Invader technology "uses a flap endonuclease for allele discrimination and a universal fluorescence resonance energy transfer (FRET) reporter system," according to an article in the March 2000 issue of the journal Genome Research co-authored by a company scientist.

A total of four US patents cover Stratagene's FullVelocity, "with additional patents pending," and Third Wave's Invader is covered by "more than 30" patents, with more than 60 patents pending, the companies said in separate statements.

Third Wave has aggressively defended Invader — the technology is responsible for the majority of the company's revenues, which were $6.9 million for the quarter ended March 31. Its September suit against Stratagene may be coming back to haunt the Madison, Wisc.-based company.

Stratagene Posts 27-Percent Increase
in Q1 Revenues, Though Receipts
Fall 2 Percent Ex-Hycor

Stratagene this week reported a 27-percent increase in total revenues and increased earnings for the first quarter of 2005, but the company's core receipts fell more than 2 percent if revenue from its Hycor acquisition are excluded.

Revenues amounted to $24.6 million for the quarter, up from $19.4 million during the same period in 2004. Hycor, a subsidiary of Stratagene, boosted revenues by $5.7 million, meaning that without this revenue Stratagene's core receipts for the period ended March 31 fell 2.6 percent to $18.9 million.

Stratagene merged with Hycor Biomedical in mid-2004. Also, Stratagene's Quantitative PCR and clinical allergy diagnostics tests led revenue growth, according to a company statement.

Research and development costs increased to $8.5 million, up from $5.9 million during the same period last year.

The company's net earnings were $2.9 million, or $.13 per share, up from $2.1 million, or $.13 per share, during last year's first quarter.

As of March 31, Stratagene had $4.7 million in cash, cash equivalents, and marketable securities.

"Our expenses increased primarily due to legal fees associated with our patent litigation against Stratagene," John Puisis, Third Wave CEO, told investors during a first-quarter conference call with investors last week, though he would not elaborate. The company reported a 58-percent increase in administrative expenses, which were $3.8 million for the first quarter of this year, compared to $2.4 million in the similar period last year.

Net loss for Third Wave was $4.4 million for the first quarter of 2005, compared to $2.8 million for the quarter ended March 31, 2004.

Real-time PCR technology accounts for approximately 25 percent of Stratagene's total revenue, which was $84.8 million in 2004, and perhaps only 5 percent of revenue comes from real-time PCR reagents, Adam Chazan, an analyst who covers the companies for Pacific Growth Equities told Pharmacogenomics Reporter in September. FullVelocity products make up only a fraction of those reagent sales, he said.

Stratagene reported first-quarter 2005 revenues of $24.6 million, up from $19.4 million in the first quarter of 2004. "During the first quarter our QPCR product line achieved sales growth of 15 percent," said Sorge.

— CW

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