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Joining LabCorp, Quest Files Objection to Correlogic's Motion to Reject OvaCheck Licensing Agreements

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By Adam Bonislawski

Quest Diagnostics this week filed an objection to a motion filed by Correlogic Systems as part of its Chapter 11 bankruptcy filing that would allow it to reject licensing agreements between the two companies for Correlogic's protein biomarker-based ovarian cancer test OvaCheck.

In its objection, Quest asserted that it retained rights to OvaCheck even though the diagnostic has morphed from a mass spectrometry-based test to an immunoassay since the signing of the licensing agreements, and that Correlogic's claim it was rejecting the agreements out of "sound business judgment" was unfounded.

Quest cited Section 2.4 of the licensing agreement the two parties signed on Oct. 31, 2001, which it said "provides that any additional technology (as defined in the license and development agreement) created, owned, licensed, controlled, or otherwise possessed by debtor which provides additional utility relative to ovarian cancer testing shall become licensed technology."

It also said that, rather than being an impediment to obtaining investment as Correlogic has claimed, the company's relationship with Quest "gives the debtor or any purchaser of the licensed technology ready access to the marketplace, a fact that can be expected to be attractive to any prospective investor or purchaser."

Since signing their agreement, Quest has paid Correlogic $8.2 million – a factor it suggested would make rejection of the agreement "inequitable." Of this $8.2 million, however, only $1.2 million was for the licensing and development of OvaCheck. The remaining $7 million purchased a 16.9 percent equity stake in the company.

Quest's objection comes a day after Correlogic filed a response to Laboratory Corporation of America's Aug. 4 objection, which similarly countered Correlogic's motion to reject licensing agreements related to the OvaCheck test (PM 08/06/10).

In its response to LabCorp, Correlogic sought to demonstrate that the OvaCheck licensing agreements between it and the two partner companies covered only the mass spec-based test and not the subsequently developed immunoassay version.

Citing Article 1 of the licensing agreement, it said that "licensed technology relates only to the mass spectrometer test and the software necessary to perform the test and is defined… to include seven components, each of which incorporates one or more defined terms. Each of those defined terms explicitly defines and determines the intellectual property rights at issue in the license agreement and limits those rights to the mass spectrometry assay."

Chief among the defined terms Correlogic cited as limiting the licensing agreement to the mass spectrometry version of OvaCheck was "ProteomeDX", which the company said is software "designed specifically to analyze mass spectral data."

Correlogic also addressed LabCorp's assertion – echoed in the Quest objection – that it had "brought forth no facts to support" its claim that the agreement "is inhibiting its ability to obtain investment," saying that it "has met with numerous potential investors, other potential strategic partners and potential acquirers" and that "with virtually each potential partner, the 'issue' of the license agreement has been raised as a concern."

Additionally, the company challenged LabCorp's claim that, even were the agreements thrown out, it would still retain rights to OvaCheck under section 365(n) of the bankruptcy code, which, LabCorp noted in its objection, is meant to "protect businesses from the disruption that arises when an intellectual property licensor files a bankruptcy petition and seeks to reject the license agreement."

Because LabCorp "has not, and is not currently using any of the licensed technology or any of the intellectual property rights" related to the immunoassay-based OvaCheck test "there is no disruption to its business from rejection," Correlogic said.

"The threshold question really is – can we reject the contract or not," Correlogic CEO Peter Levine told ProteoMonitor. He acknowledged, however, that even if the court rules that Correlogic can reject the licensing agreements, it would still likely need to determine Quest's and LabCorp's rights to OvaCheck under section 365(n).

"That's where it gets a little bit grayer," he said. "Then it would have to get into the issue of interpreting what the scope of the original license was. As we said in our response, if [Quest and LabCorp] want to go to market with a mass spec-based ovarian cancer assay, we don't disagree that that's the scope of the original license and 365(n) would allow them to do that. Where we do disagree is whether or not the original agreement covers mulitplex immunoassay."

Quest did not respond to requests for comment.

Correlogic three years ago moved OvaCheck from a mass spectrometry platform to a Luminex bead-based multiplex immunoassay format in hopes of getting faster US Food and Drug Administration clearance. The test has existed in a state of regulatory limbo since 2004 when the FDA informed Correlogic it might have purview over the test.

In December 2008, Correlogic filed a 510(k) application with the agency, but was told by FDA that the patient population for the test was not satisfactory. Currently the company is undertaking the "second arm" of the trial, which involves patient populations being treated by non-specialists. On July 30, it filed a patent for additional protein biomarkers to be used as part of OvaCheck, and depending on the progression of the ongoing trial, the company may use these biomarkers to expand or alter the test's current eight-protein panel, Levine said.

Correlogic filed for bankruptcy on July 16. A hearing to consider the company's motion and LabCorp's and Quest's objections is scheduled for Oct. 27 in US Bankruptcy Court in the District of Maryland.

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