By Brady Huggett
Affymetrix Inc. saw its stock leap 29 percent Thursday following the reversal handed down by the UK Court of Appeals on the licensing conflict between Affymetrix and Oxford Gene Technology Ltd.
Vice President and Chief Financial Officer Edward Hurwitz told BioWorld Today the decision gives Affymetrix a "very strong patent position in the DNA array field."
"[The decision] eliminates the major overhang in [Affymetrix's] stock over the next several months," said Darren Mac, analyst with Gruntal & Co. LLC. "It bodes very well for the U.S. infringement case. In terms of eliminating potential negative catalysts with this ruling, I would say they have mitigated a lot of risks going forward with this technology. It was this ruling that drove the stock."
The battle began with Affymetrix's initial interest in patents invented by Ed Southern, called the Southern patents. Talks for those patents broke down, and Affymetrix watched Oxford Gene Technology (OGT) get the rights and then license them out to Beckman Coulter Inc. In 1998, Affymetrix and Beckman Coulter entered a consortium agreement, allowing the companies to commercialize DNA arrays under patents owned or licensed by both.
On June 4, 1999, Oxford filed litigation against Affymetrix alleging patent infringement, and three days later Affymetrix purchased the array business from Beckman Coulter, thus obtaining its patent license.
The UK High Court ruling said Affymetrix's purchase of Beckman Coulter's array business did not transfer Beckman's license to certain patents held by OGT. The Court of Appeals, however, flipped the verdict. Lord Justice Aldous delivered the judgment, stating, "Affymetrix has a license as a result of the purchase of business of Beckman."
Anne Bowdidge, director of investor relations at Santa Clara, Calif.-based Affymetrix, said that while the decision does not dismiss the U.S. infringement case with OGT, set to begin Monday, it provides Affymetrix with ammunition.
"How will it affect the trial? We don't know," Bowdidge said. "But what the decision does is put Affymetrix in a position of strength going into the trial."
Investors thought so, too. Affymetrix's stock (NASDAQ:AFFX) climbed significantly early in the day amid heavy trading, and ended Thursday up $19.359, or 32 percent, closing at $79.437 on trading of more than 11 million shares. But Affymetrix is used to significant stock movement - its 52-week range goes from $36.312 to $163.50.
Mac said that the decision also inhibits Agilent Technologies, OGT's partner, from selling into the high-density DNA microarray segment, of which Affymetrix controls about 90 percent of the market.
"Motorola is expected to get into this market by year's end, but it looks as if Affymetrix is eliminating one of its main competitors," Mac said.
Affymetrix develops and commercializes systems to acquire, analyze and manage genetic information. Its GeneChip system consists of disposable DNA probe arrays containing gene sequences on a chip, reagents for use with the probe arrays, a scanner and other instruments to process the probe arrays and software to analyze and manage genetic information. Its spotted array system enables individual researchers to create and analyze custom microarrays. Its position in the market has drawn fire from others.
"We don't think [the decision] changes things dramatically," Hurwitz said. "We always thought we were licensed if we needed patents. It's no secret that it's not just OGT but other competitors that have supported its position against us."
Besides the case with OGT, Affymetrix is in patent litigation with Applied BioSciences Inc., Incyte Genomics Inc. and Hyseq Inc. Companies that have 90 percent market share draw attention, a fact that doesn't escape Hurwitz.
"We are commercially reasonable people here," he said. "But we don't think we will have a gun put to our head and forced to have a license - we have that."