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Waters Settles Last ABI/MDS Suit for $18.1M: Company Ready to Move On

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Waters closed a painful chapter this week with the announcement of a final settlement of its patent disputes with Applied Biosystems and MDS, in which Waters agreed to pay $18.1 million to the companies, in addition to licensing fees, to settle outstanding suits in the UK, Canada, and Japan. In addition, the companies settled a countersuit that Waters had filed in the US alleging that ABI and MDS infringed on one of its electrospray technology patents, with ABI and MDS agreeing to pay licensing fees to Waters for use of that technology. An additional suit filed by ABI and MDS against Waters in late 2002 involving alleged violation of a patent for a MALDI ion source in the US was also resolved in the settlement with an agreement to pay a licensing fee, Waters’ vice president for investor relations Gene Cassis said. None of the cross-licensing fees were disclosed.

The settlements, which were made out of court, represent the conclusion of all outstanding litigation regarding the disputed front-end ion guide technology — protected by US Patent 4,963,736, which is held by ABI and MDS — used in Waters’ high-end triple quadrupole and Q-TOF mass specs, ABI spokesperson Lori Murray confirmed. “This settles all claims for the patent,” she said. Cassis said additionally that he was not aware of any further outstanding suits regarding any of the disputed technologies.

Waters paid MDS and Applera, ABI’s parent company, $56.2 million in 2002 after the US Court of Appeals for the Federal Circuit upheld a lower court’s ruling in favor of MDS and ABI on the 736 patent infringement claims (see PM 4-1-02, 4-29-02, 3-17-03). The company also pulled its Q-TOF and Quattro Ultima triple quad, as well as its Q-TOF Ultima MALDI, off the US market following the suit, while continuing to sell the instruments abroad. An MDS spokesperson said in December 2002 that it sought an additional injunction against Waters concerning the MALDI instrument as well (see PM 12-2-02).

At this point, though, Waters will not conduct any more recalls, because the current agreement to pay cross-licensing fees now provides Waters with legal access to the disputed technologies, Cassis said. “This eliminates the possibility of instruments being withdrawn from the market in those countries,” he said. “We do have the Q-TOF … that we’re selling outside the US that does involve the technology, and to ensure that we can continue to sell that, we have the cross-licensing agreement and royalties.”

ABI has already discontinued its Mariner line of API-TOFs — the ESI-TOF products that allegedly violated the electrospray patent involved in Waters’ countersuit, Murray said. She did not say whether ABI will re-introduce the product now that the suit has been settled.

Waters has for the past year been attributing part of its disappointing performance in mass spec sales to lawsuit expenses and lost sales from its recalled instruments. The resolution of these last suits should offer a welcome relief, according to industry analysts. “They’ve been out of the market in the US for two years now with their high-end mass spectrometry products,” analyst David Zimbalist said. “Settling a lawsuit gets this thing off their back, lets them continue to market a product that they have out there without fear that they’re going to get knocked out of the block, and they can turn all those resources around and focus on R&D.”

Cassis was upbeat. He said that he did not expect the latest lawsuit to impact Waters’ revenue line or profitability in the short-term, and in the long term “it does give us the flexibility to offer instrument configurations that we cannot now.”

Spencer Nam, an analyst for the firm SG Cowen, agreed that Waters shouldn’t experience any financial fallout from the latest settlement, despite the additional $18 million payout. “This is just record-keeping,” he said. Nam also said that with the lawsuit out of the way, Waters is well-positioned to take advantage of some of the upswing predicted for the overall mass spec market in 2004. He estimated that the market for mass specs would grow in the mid- to late-single digits in 2004.

The analsysts also said Waters may be able to jump start its mass spec sales with the new UPLC front-end instrument introduced last week at Pittcon (see PM 3-12-04). Waters said last week that it will offer the UPLC with interfaces to all its mass specs. “It really is a high definition high speed HPLC … [that] could potentially give them the base to really target the customers who are thinking about replacing some of their old [mass spec] models,” Nam said. The UPLC may even give Waters an entrée into the ion trap market — a sector in which it does not currently compete, Zimbalist said. “The resolution of the new combination of the UPLC and their new LCT premier [ESI-TOF] gives you the same or a competitive level of speed, resolution, and robustness that you can get out of an ion trap,” he said. “This is now another offering with alternative technology that may be able to play in the same space — that’s an underappreciated innovation.”

With the release of the UPLC front-end and a new Q-TOF set to be released at ASMS, Waters might just be positioned for a comeback, the analysts said. “Over time you’re going to see them be more competitive than they were when the same resources were being allocated to legal battles,” Zimbalist said. Future quarterly performance, however, will reveal whether the company can now perform competitively in a more even playing field.

— KAM

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