Digene Corp. of Gaithersburg will pay a New York biotechnology company at least $30.5 million to settle a patent-infringement lawsuit involving technology used in its leading product, the only approved test for a virus related to cervical cancer.
The total amount of the settlement with Enzo Biochem Inc., announced yesterday after the market's close, exceeds the $21.5 million in profit that Digene reported for the year ending June 30, its first profitable year. Digene has made a $16 million initial payment and will pay the rest as royalties over the next several years.
The company's HPV DNA test is used in conjunction with the better-known Pap test to screen for cervical cancer and its precursors in women 30 years of age and older. Worldwide sales of the test were $74.5 million in the company's last fiscal year, the bulk of its $90.2 million in revenue.
Evan Jones, Digene's chairman and chief executive, said in an interview that the settlement was a "positive development" because it allows the company to avoid a jury trial, which could have resulted in an injunction against selling the product that is the company's backbone.
Jones said Digene had $49 million in cash as of June 30 to cover the settlement's initial payment of $16 million, which already has been paid. The agreement calls for royalty payments of at least $2.5 million next year and at least $3.5 million a year for the following four years. Digene can use $2 million of the initial payment to offset future royalty payments.
The company said it will take a $14 million pretax charge in its quarter ended Sept. 30 to reflect the settlement. Jones said expected growth in sales of the cervical cancer test would cover the royalty payments, and the company will not change its guidance of $125 million to $130 million in revenue for its current fiscal year.
Jayson Bedford, an analyst with Adams Harkness Inc. in Boston, said despite the large initial payment, the settlement eliminated a significant cloud over the company's future. "This dents the balance sheet, but I think it's well worth it for the company going forward," Bedford said.
Litigation between the companies began in March 2002 in U.S. District Court in Delaware. It centered on Enzo Biochem's contention, denied by Digene, that Digene infringed on patented technology to detect nucleic acid. A jury trial was scheduled for June 14.
But on June 10, Digene was dealt a setback when the judge, acting on pretrial motions, "did not adopt Digene's position on certain matters of [patent] claim construction," according to a Digene filing with federal regulators. Two days later, the companies agreed to put off the trial for further settlement talks.
A spokesman for Enzo Biochem, which provides medical diagnostic services based on molecular biology and genetic engineering, said company officials would not comment beyond a printed statement. In it, Elazar Rabbani, Enzo's chairman, said: "We are pleased that this platform has contributed to the success of Digene's product and that it has made an important contribution to healthcare worldwide."
Shares of Digene closed yesterday at $24.88, down 30 cents, before the announcement. Enzo shares closed at $15.62, down a penny.