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Roche Alleges CareDx Breached Contract, Seeking $3.5M

NEW YORK (GenomeWeb) – CareDx disclosed in a regulatory filing on Thursday that Roche is seeking an estimated $3.5 million from the firm for allegedly breaching a licensing deal the companies brokered in 2004.

CareDx also said in its Form 10-Q filed with the US Securities and Exchange Commission that Illumina has made a $5 million investment in the firm.

In the SEC document, CareDx said that in February Roche filed a demand for arbitration with the American Arbitration Association, seeking a declaration that the Brisbane, Calif.-based transplant molecular diagnostics firm breached the licensing agreement and failed to report and pay royalties that were due to Roche associated with services it provided to CareDx after July 1, 2011.

Roche is seeking $1.8 million in damages in the form of unpaid royalties from July 1, 2011 to March 31, 2013 plus interest of $85,000. Additionally, Roche is seeking royalties of an unspecified amount from April 1 2013 to the present, which CareDx estimates to total about $1.6 million through June 30, 2014.

A preliminary conference with the arbitration panel was held this past June, and an arbitration hearing has been scheduled for early 2015. CareDx said that it believes it has "meritorious defenses to these claims, which it plans to fully pursue in arbitration."

The dispute between the firms focuses on a deal reached in November 2004 that gave CareDx, formerly called XDx, the rights to use Roche's PCR and quantitative real-time PCR for use in clinical laboratory services, including the use of the technologies for CareDx's AlloMap Molecular Expression Testing for potential heart transplant rejection. CareDx said in its Form 10-Q that it has disputed the royalty rate Roche seeks to charge under the terms of the agreement and has withheld payment of such royalties pending the resolution of the dispute.

Among CareDx's issues with Roche is its belief that Roche failed to adequately consult with CareDx, as required by the agreement, before setting the royalty rate. CareDx added that the rate charged by Roche "fails to reflect the value contributed by the licensed services."

CareDx also disclosed in its SEC document that Illumina had invested $5 million in the company. In April CareDx issued and sold a subordinated convertible note in the aggregate principal amount of $5 million to Illumina. In June, the companies announced a supply agreement giving CareDx access to Illumina's next-generation sequencing technologies.