A British court ruled in April that Oxford Gene Technology controlled a patent central to Affymetrix's main revenue-producing genomic tool products. Now Affymetrix has won the appeal. Adding this win to Affymetrix's first-time profitability, the company is in better shape to deal with growing competition.
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Oxford Versus "Affy"
Affymetrix sells GeneChip technology and products -- DNA-testing biochip arrays and the reagents, scanners, and software to process and analyze the genetic information. The patent fight concerned rights to this core technology, providing Affymetrix with a projected $200 million in revenue for calendar year 2000.
But in 1999, Edwin Southern, an Oxford professor who founded Oxford Gene Technologies (OGT) and transferred his patents to it, sued Affymetrix for infringement. Affymetrix didn't have a Southern license, but competitors such as Incyte Genomics (Nasdaq: INCY) and Agilent Technologies (NYSE: A) did, conceding the Southern patents' importance.
Affy end-runs Oxford
Wired Magazine has reported that Affy was about to pay OGT $20 million in June 1998 in a cross-licensing agreement, but backed off. Instead, Affy joined a consortium's deal with OGT licensee Beckman Coulter (NYSE: BEC), a laboratory equipment maker of clinical diagnostics and drug-discovery systems. If OGT refused to give the consortium a Southern patent license, Affy would pay Beckman Coulter $10.9 million for its DNA array business and research -- snaring Beckman's license on sale for 50% off the $20 million prior offer to OGT. Affy ultimately made the purchase.
A U.K. trial court ruled in April 2000 that the Beckman Coulter deal was a sham, putting Affy in a jam. Under patent law, the patent holder receives a right to exclude anyone from using her invention without a license -- there is no requirement that she use the patented invention or license anyone. So OGT could have put Affymetrix out of business, though a license was more likely. Now, the U.K. Appeals Court has ruled that Affymetrix owns a license as a result of the Beckman Coulter buy.
Who's in the chips?
Affymetrix's riding high for now, but others smack their lips at a market estimated to be anywhere from $1 billion in five years to $10 billion in 10 years. Big names such as Motorola (NYSE: MOT), Agilent, Corning (NYSE: GLW), 3M (NYSE: MMM), and Hitachi (NYSE: HIT) are moving in on the genetic testing market with their own biochip array systems, hardware, and software -- apparently unconcerned about Affy's own patents. These companies help commercialize technologies in partnership with smaller innovative biotechs such as Rosetta Inpharmatics (Nasdaq: RSTA), Caliper Technologies (Nasdaq: CALP), Lynx Therapeutics (Nasdaq: LYNX), Hyseq (Nasdaq: HYSQ), and Nanogen (Nasdaq: NGEN).
Affy is vigorously defending its patents in U.S. lawsuits with Applied Biosystems (NYSE: PEB), Hyseq, and Incyte, but the Southern patent victory may be bigger than any of these. And Affymetrix isn't sitting on its hands, but deploying its cash to move further into functional genomics. Still, with so many companies grappling for the profit prize for adding value to raw human genetic information, it's a tough call to pick the winners in the volatile genomics tool sector.
Your Turn:
With the Southern patents out of the way, Affymetrix's stock has gone north. Is there clear sailing ahead? Chime in on the Affymetrix discussion board or the Biotechnology discussion board!
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