Shares of Igen International Inc., a diagnostic-systems maker, surged last week after a federal court jury issued a final ruling to a 10-week trial saying Roche Holdings AG must pay Igen about $504 million in damages for underpaying licensing fees on blood-testing technology.
Jurors deliberated more than four days before finding Roche’s diagnostic unit deliberately underpaid royalties on the technology, which is used to test bodily fluids for cancer and thyroid problems. The jury also found Roche engaged in unfair business practices and that its license rights to the technology should be terminated.
Roche’s announcement that it would appeal did not deter the surge in Igen’s shares, which halted trading midday Thursday at $38.09 when the jury’s verdict was being announced. The stock rose during after-hours to $48.33 in trading of 1.6 million shares. Shares of Igen closed Friday at $42.15.
“We are pleased the jury concurred with our view that Roche engaged in an egregious pattern of misconduct over the years,” Samuel J. Wohlstadter, Igen’s chief executive officer, said in a statement.
The trial was followed closely by medical industry analysts, as Roche, of Basel, Switzerland, is the world’s largest diagnostic-products maker and its license to Igen’s technology is estimated to be worth more than $1 billion.
The overall valuation of Igen with sales of $31.36 million during fiscal 2001 is much higher following the ruling last week. But exactly what that value is, or at what price its shares should be trading, is still under question.
“The wild card in the valuation process, excluding the uncertainty of the ultimate cash settlement after appeal, is the value of the technology license,” Robert Parente, an analyst with Leerick Swann & Co., a Boston firm that followed the court case, writes in a Friday report on Igen.
Roche derives at least $250 million annually from the license to Igen’s technology, Mr. Parente says. What type of revenues can be derived from it if the technology is integrated into another diagnostic company’s network is not clear, he adds.
Likely buyers of the technology include any company in the clinical chemistry or diagnostic business, such as Abbott Laboratories, Bayer AG or Beckman Coulter Inc., analysts say.
But integrating Igen’s technology into a network other than Roche’s would take considerable time and money, says Mr. Parente. He adds that Roche and Igen may still be able to settle the case without having the license officially revoked.
Another analyst, Daniel Owczarski with Chicago’s Gruntal & Co., says it’s in Roche’s interest to settle, as jurors told the company to turn over any improvements it made to Igen’s technology.
“We’re talking about two, three generations of hospital diagnostics systems,” Mr. Owczarski says. “Now Roche is at risk of losing the technology to its competitors. This will make Roche come to the bargaining table and really take a look at acquiring Igen at the right price, I think they are interested.”
Officials from Igen did not return calls last week.
Jurors said Igen is entitled to $101 million in actual damages and $400 million in punitive damages for Roche’s mishandling of the licensing agreement. The company is getting another $4.8 million in damages for unfair competition.
Igen posted net income loss of $12.1 million (64 cents per share) on sales of $9.4 million for the second quarter ended Sept. 30. The company posted losses of $8.76 million (59 cents) on sales of $6.57 million a year earlier.