OraSure Down; Jefferies Downgrade Raises Patent Concerns
By Christopher Hinton
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Shares of OraSure Technologies Inc. (OSUR) fell more than 14% Tuesday after Jefferies & Co. downgraded the stock to hold from buy, raising concerns the company might become the target of a patent lawsuit.
In a research note, Jefferies analyst Ryan A. Rauch said OraSure's HIV-testing products are now competing with those from Inverness Medical Technology Inc.'s (IMA) Determine/DainaScreen business, which Inverness purchased from Abbot Laboratories (ABT) this June.
Given Inverness' history of aggressively pursuing possible patent infringements, OraSure is now vulnerable to an intellectual property lawsuit regarding its HIV-testing technology, according to Rauch.
"While OraSure's (intellectual property) position has long been a concern for IMA, there has been no reason for IMA to pursue its claim as it did not have a significant HIV testing business - until now," Rauch said.
As of Tuesday, OraSure hasn't had any contact with Inverness, according to Ron Spair, OraSure's chief financial officer. Spair added he was confident his company's HIV-testing products don't infringe on any of Inverness' patents.
Inverness Chief Financial Officer Chris Lindop declined to comment on the subject.
According to Rauch, if Inverness agreed to a licensing agreement with OraSure similar to the one it met with in its litigation against Quidel Corp. (QDEL), then OraSure's fiscal 2006 earnings could be reduced to 19 cents a share from 26 cents a share.
Furthermore, OraSure currently spends $2 million to $3 million a year in legal fees, Rauch said. The reasoning behind the original buy rating for the company was based not only on expanding margins and improved manufacturing processes, but also on reduction of legal fees, he said.
The impact of a lawsuit could also threaten OraSure's public image, hurting its stock price, thereby limiting the company's operating leverage, Rauch said.
OraSure shares recently traded at $9.39, down $1.52, or 14.2%, on volume of 2.4 million shares. Average daily volume is 599,735 shares.
-Christopher Hinton; Dow Jones Newswires; 201-938-5282
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