Kensey Nash Opts for Mediation in Royalties Dispute With St. Jude

Kensey Nash (Nasdaq: KNSY  ) has agreed to try to resolve in nonbinding mediation its long-standing dispute over royalties adding up to $30 million with St. Jude Medical (NYSE: STJ  ) .

The dispute is tied to royalty fees for the Angio-Seal vascular closure device, according to a press statement from the Exton, Pa., medical-device company.

The move prompted Kensey Nash to withdraw its guidance for the quarter ending Dec. 31 and for its first two quarters of fiscal 2012, sending its share price plunging to a Friday close of more than 22%.

Joe Kaufmann, Kensey Nash's CEO,said in a statement:

St. Jude's action to reduce the royalty rate to 2 percent suggests that St. Jude Medical intends to assert that their obligation to pay any royalties to Kensey Nash will end in April 2014. Our strongly held view is that, based upon the current design of the Angio-Seal device, St. Jude's royalty obligations to Kensey Nash extend at least through April 2016, and potentially through 2023. While we are hopeful that mediation will lead to an appropriate resolution of these matters, we will take all necessary steps to protect our intellectual property and the interests of our stockholders.

Kensey Nash's business model relies on strategic partners to distribute and sell the products it develops and manufactures. In October, Kensey Nash saw saw year-over-year net income decline in the first three months of fiscal year 2012, driven by a $4 million drop in collagen product sales following a change to its contract with St. Jude Medical. But royalties for the Angio-Seal device account for the majority of Kensey Nash's royalty revenue.

In a conference call with analysts, Kaufman was optimistic that the dispute could be resolved within the first half of next year, with a conclusion by April.

"We feel going forward we will prevail," said Kaufman.

This article has been edited to reflect the Friday closing performance of Kensey Nash shares.

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