Court Sides With Beckman Coulter on Portion of BNP Suit With Quidel

This article has been updated to include comments from Quidel management on Monday morning as well as the opinions of investment analysts.

NEW YORK (360Dx) – The San Diego Superior Court has stated it intends to rule portions of an agreement related to a suit between Beckman Coulter and Quidel regarding the Triage BNP test are void as a matter of law, Quidel announced on Friday.

The B-type naturietic peptide (BNP) assays, rights to which were originally in-licensed by Biosite, were acquired by Alere, then subsequently sold to Quidel to satisfy regulatory approval of Abbott's $5.3 billion purchase of Alere.

At the time, Beckman Coulter, a Danaher company, had a supply agreement with Biosite and Alere that spanned more than 14 years. Under the transferred agreement, Quidel provided Beckman Coulter proprietary antibodies, and Beckman Coulter manufactured the assays, which it sold to Quidel. 

The assays run on Beckman Coulter analyzers, and Beckman filed a suit with the court a year ago requesting it affirm the company's rights to sell such assays directly to its customers. 

The court has now stated that it intends to enter an order granting Beckman's motion for summary adjudication relating to the agreement for the supply of antibodies and other inputs related to, and distribution of, the Triage BNP Test for the Beckman Coulter Access Family of Immunoassay Systems, according to a statement issued by Quidel.

Specifically, the court said it intends to rule that a provision of the Beckman agreement restricting Beckman from manufacturing or selling another BNP or NT-proBNP assay is void as a matter of law, Quidel said.

The remainder of the Beckman agreement remains in effect, the firm said. Beckman will continue to supply Quidel, and Quidel will continue to sell the underlying BNP assay. 

"The ruling does not end the litigation, as it concerns only one aspect of the case," said Quidel President and CEO Douglas Bryant. "Our overall view of the litigation remains unchanged, and we continue to believe that Beckman's position is meritless, in opposition to Beckman's long-standing strategy over the last 15 years of honoring the Beckman agreement with its previous partners, Alere and Biosite," he added.

Quidel intends to request that the court stay its order, and to request that the Fourth District Court of Appeal immediately review the decision, Bryant said. A trial is currently scheduled for Aug. 30, 2019.

Shares of Quidel plummeted nearly 21 percent on the Nasdaq Friday in response to the court ruling, closing at $48.73.

In a conference call with investors on Monday morning, Bryant noted that, should the judge rule as he has indicated, and provided that the appellate court affirms the decision, "the logic of the decision means that exclusive dealing business arrangements between companies in California, generally, are not lawful."

According to Bryant, Beckman has argued the BNP exclusive dealing provisions — also sometimes called "non-competes" — parallel a California Supreme Court case settled in 2008, referred to as Edwards, that prohibits a former employee from competing with a former employer.

"In an industry like ours, we believe exclusivity provisions similar to ours are used to protect legitimate business interests in a number of contexts ranging from supply and development agreements to exclusive distribution and commercialization arrangements," Bryant said. "We believe that these interests are not the ones the Edwards decision sought to invalidate, and that such an application [of Edwards] would have a chilling effect across industries in California."

On the call, Bryant said that the firm will continue business as usual for now. He also said that the Beckman BNP agreement goes through 2029, and that it states Beckman should not begin development of its own product until two years prior to the end of the agreement.

Investment analysts weighing in on Monday seemed undeterred by Friday's stock movement.

Analysts at JP Morgan maintained a Neutral rating for Quidel, while William Blair and Canaccord Genuity maintained ratings of Outperform and Buy, respectively.

"While we concede that the stock should be down from the time of the summary adjudication ruling due to some uncertainty on some cash flow, we believe the roughly 25 percent reduction from Friday’s midday price more than accounts for this," said Blair's Brian Weinstein.

Canaccord's Mark Massaro said the stock drop was "overblown and likely an overreaction," and added, "If the Abbott/Alere saga, among other cases, taught us anything, it's that oftentimes parties settle somewhere in the middle."

Analysts also highlighted the fact that Quidel has rejected offers from Danaher to acquire the BNP business, and they characterized the legal matter as a negotiating tactic. Weinstein said that it may be in Danaher's best interest to acquire the business, given a potential lengthy and unpredictable legal process, and suggested the value of the business was in the $500 million range.

Quidel's stock continued to slide on Monday morning, down 6 percent to $46.03.