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Azco Sues Qiagen and IBS for Breach of Contract, Fraud over Qiagen's IBS Acquisition

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Azco Biotech has sued Intelligent Bio-Systems and Qiagen for breach of contract, fraud, negligent interference, and misrepresentation over Qiagen's purchase of IBS, claiming that it is entitled to compensation for its contributions to the IBS sequencing technology.

Qiagen purchased IBS in June as part of a broader strategy to enter the clinical next-generation sequencing market (IS 6/26/2012). At the time, Qiagen's CEO Peer Schatz said that the company planned to incorporate IBS's Mini-20 platform with Qiagen's DNA extraction methods, sample prep, and bioinformatics to create its own workflow.

According to documents filed last week with the US District Court for the Southern District of California, Azco is suing Qiagen, IBS, IBS CEO Steven Gordon, IBS Chief Technology Officer Jerzy Olejnik, and Jingyue Ju of Columbia University, from which IBS licensed sequencing technology

Qiagen has not disclosed the acquisition price for IBS, but the suit claims that it purchased the firm for "as much as" $138 million. The suit also alleges that Azco received no compensation for its contributions to the IBS technology.

Qiagen and IBS declined to comment. A Qiagen spokesperson told In Sequence that it "decline[s] to comment on pending litigation in line with our policies."

Last year, IBS and Azco entered into a global non-exclusive agreement to sell the Max-Seq, a short read sequencing-by-synthesis system that uses technology developed in Ju's lab and licensed from Columbia University, and incorporates some of the features of the Polonator, a sequencing system developed by George Church's lab and previously sold by Azco (IS 8/9/2011).

As part of the distribution agreement between Azco and IBS, Azco would discontinue selling and manufacturing the Polonator.

According to the suit, soon after Azco and IBS agreed that Azco would sell and distribute the Max-Seq, Azco's president J Adams realized that IBS had never produced reagents for the system at a production-level scale. Azco, therefore, developed the techniques necessary to produce the reagents for IBS sequencing technology.

Earlier this year, IBS said Azco would also distribute and sell the Mini-20 sequencer, which it planned to launch in the fourth quarter of this year (IS 3/27/2012).

However, according to the suit, while the agreement for selling and distributing the Max-Seq was a written contract, the deal for the Mini-20 was an oral agreement. Azco's role in producing the reagents was also not included in the companies' written contract, according to the suit, but "consistent with the parties' oral agreement to work together as partners, Azco developed the processes that were needed to create the reagents, for which there was no compensation, or even a discussion of the issue."

The suit alleges that after Qiagen agreed to buy IBS, but before the deal was announced, Gordon, Ju, and IBS requested and obtained information related to the production of reagents as well as marketing information and customer lists from Azco "under the pretense of continuing to be [Azco's] partner."

The day before the deal was announced, IBS's Olejnik discussed "engineering status, status of pending orders, pending large opportunities, timing for running customer samples, software, promotional plans for the Max-Seq and the Mini-20, and chemistry issues that arose with the Max-Seq in Korea and the solution Azco was developing to solve the problems" with Azco management, and IBS placed a large order for reagents from Azco.

The suit also alleges that Qiagen knew that if it offered to purchase IBS, that IBS would "breach its agreement with Azco," and claims that Qiagen acknowledged that Azco was entitled to compensation.

Azco asserts that as a result of the deal with Qiagen, it has suffered damages, including the loss of $2.1 million that it invested in the technology; lost profits in excess of $100 million; and damage to its reputation worth at least $10 million, due to its inability to service its customers and continue selling the Max-Seq and Mini-20 systems.

Azco is petitioning the court for compensatory damages; punitive damages; property, money, and other compensation that IBS and Qiagen have obtained at Azco's expense; an award "measured by the reasonable value of the services and goods" provided to IBS and Qiagen; and all costs of the suit and any other relief the court deems suitable.

Additionally, it is seeking a preliminary and permanent injunction on Qiagen and IBS from using confidential information obtained from Azco as a result of fraud or from representing that Azco and IBS never had a contract for the distribution of IBS' technology.

It is also seeking a declaration that the agreement between IBS and Azco has not been legally terminated.

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