Shares of 10x Genomics (TXG -1.75%) gained 17.5% last month, according to data provided by S&P Global Market Intelligence. The laboratory hardware provider had been embroiled in a costly patent dispute with Bio-Rad Laboratories (BIO -0.31%), but investors received some potentially great news on the matter in mid-December.
On Dec. 18, the U.S. International Trade Commission (ITC) upheld a previous court's ruling that certain legacy products did infringe on Bio-Rad patents but significantly reduced the amount of money that had to be set aside as a penalty. The ITC also ruled that the hardware underpinning next-generation products developed by 10x Genomics does not infringe on Bio-Rad patents, as Bio-Rad has alleged.
The decision means 10x Genomics might finally be able to remove the uncertainty hanging overhead when it transitions all business to its next-generation portfolio, which is expected by the end of 2020.
10x Genomics specializes in single-cell analysis, which provides valuable data from a biological sample. The technique is increasingly being used in drug discovery and drug development efforts in cellular medicines, checkpoint inhibitors, and immunotherapies. Despite the company's impressive growth and shrinking operating losses, investors had to nervously watch developments in the patent dispute with Bio-Rad.
Previous legal rulings forced 10x Genomics to set aside 15% of all revenue generated from products identified in the dispute. That liability reached $62.5 million at the end of the third quarter, but it was contingent on the final outcome of appeals. The ITC ruling reduced the amount of money that had to be set aside from $7 per microfluidic chip to just $0.21 per microfluidic chip, which presumably reduces the company's contingent liability to only $1.88 million.
Most important, the ITC ruling spares the Next GEM product line that was specifically designed and developed to transition the business away from the legacy products accruing penalties from the patent dispute. 10x Genomics expects that substantially all of its revenue will be generated from next-generation products by the end of 2020.
The victory in the patent dispute sent shares of 10x Genomics soaring to end the year. The stock gained 44.5% in 2019, dating back to its initial public offering (IPO) in the fall. Considering the business ended September with $427 million in cash and is slowly heading toward profitable operations, the end-of-year development might change the calculus for investors interested in the stock.