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BIOCRAFT, ZENITH REACH SETTLEMENT AGREEMENT WITH BRISTOL-MYERS SQUIBB

Executive Summary

BIOCRAFT, ZENITH REACH SETTLEMENT AGREEMENT WITH BRISTOL-MYERS SQUIBB in the cefadroxil monohydrate patent dispute being fought in Newark federal court. The two companies, as well as Purepac and its parent Kalipharma, have been seeking a declaratory judgment that Bristol-Myers' patent is invalid and unenforceable. Hearings were scheduled to take place before Judge Dickinson Debevoise from March 27-30. While Biocraft and Zenith chose to settle before the conclusion of the hearings, Purepac/Kalipharma reportedly is still battling Bristol in court. Biocraft CEO Harold Snyder explained the terms of the company's settlement in a March 29 press release: "We have agreed to stop our sales of cefadroxil. In addition, we will make payments to Bristol in fiscal 1991 of $10 mil. and additional payments over seven years with a discounted present value of more than $6 mil." Bristol-Myers Squibb said the agreement calls for Biocraft payments totaling $21 mil. Biocraft will take a $.70 per share one-time charge against net earnings in fiscal 1990. He added: "The settlement is not critical to our continuing profitability and long-term growth." According to Snyder, the rationale behind the settlement is that "it was advantageous at this point in time to settle the case, given the cost of continued litigation and the uncertainty of the eventual outcome. By settling the litigation, Biocraft and its customers are released from any liability from patent infringement." Zenith also agreed to cease manufacturing and selling the product. In a March 28 release, the company said it agreed to pay Bristol-Myers Squibb "$1.2 mil. over a three-year period to be offset with credits for inventory and returned product." Zenith Chairman and CEO John Klein stated that the company began selling cefadroxil in mid-1989, and the product "accounted for approximately 13% of gross revenues" for the year. Although Biocraft and Zenith have settled the patent dispute with Bristol-Myers Squibb, the companies still have the option of developing a cefadroxil monohydrate product that would not infringe Bristol's '657 patent, which expires in 2002. Bristol-Myers won the most recent round of the dispute in a March 15 International Trade Commission final determination upholding the company's patent ("The Pink Sheet" March 26, T&G-10). The ITC ordered Biocraft and Purepac/Kalipharma to halt marketing of the product while foreign manufacturers GEMA, Istituto Biochimico Italiano Industria Giovanni Lorenzini and Institut Biochimique were told to stop importing the antibiotic. If any of the named companies continued importing and marketing the product, they were required to post bonds equal to 68% of the entered value of its shipments. The ITC final decision corroborated temporary orders that were in place since Jan. 10. As of March 16, Kalipharma had posted $500,000 in bonds. Zenith was not named by Bristol-Myers as a respondent in the ITC suit.
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