Patent Decision All But Dooms Cellpro -- Bothell Company Must Appeal Or Deal

Royalty payments stemming from a patent infringement lawsuit could put Bothell-based CellPro virtually out of business within a year, president Rick Murdock said yesterday after the company's annual meeting.

A federal judge ruled last week that CellPro must pay $7 million in damages plus 60 percent of the profit from its flagship cancer treatment to Johns Hopkins University, Becton Dickinson and Baxter International.

The decision phases out foreign sales of the Ceprate cancer treatment over the next year and orders CellPro to end domestic sales three months after the Food and Drug Administration approves Baxter's competing system.

Now, unless CellPro can renegotiate the court settlement, reach an agreement to work with Baxter or win the case on appeal, the company will have to phase out sales faster than the court decision requires, even if the FDA does not approve Baxter's product, Murdock said.

Licensing negotiations between CellPro and Baxter have not been successful, Baxter spokeswoman Deborah Spak said.

In a separate decision yesterday, the National Institutes of Health denied CellPro's request to license the disputed technology under a never-before-used clause of the 1980 Bayh-Dole Act. That law allows the federal government to intervene to ensure that certain life-saving technology remains available to patients.

NIH Director Harold Varmus decided that the agency should not intervene on CellPro's behalf as long as Baxter could make similar technology available.

Baxter expects its similar Isolex system to be approved by the FDA by the end of the year. It has said it can install its product free at any CellPro site if CellPro stops selling Ceprate products, a claim CellPro has disputed.

The NIH will continue to monitor the situation.

CellPro is operating at a loss. It lost $5.1 million, or 35 cents a share, for the quarter ended June 30.

The company set aside $17 million in March to cover legal fees. That's enough to cover legal costs so far. But with $47.8 million in cash and marketable securities reported at the end of June, the company cannot afford more than a year more of operations, Murdock said.

Operating expenses are about $20 million a year, and the appeal process will cost about $10 million, Murdock said.

European sales, which account for most of CellPro's sales, usually bring in $10 million to $15 million a year, but royalty payments and the court-ordered phaseout of sales will reduce that amount greatly.

The FDA just approved the Ceprate system in December, and the company has installed only about 60 of the systems so far in the United States.

CellPro could develop other products that do not rely on the disputed technology. But unless the penalty is reduced or overturned, "we would have to start winding down the company," Murdock said.

The company employs about 170 people.

In a legal dispute that began in 1992, a federal jury first decided in March that CellPro intentionally infringed on two patents owned by Johns Hopkins that were licensed to Becton Dickinson and sublicensed to Baxter.

A 1995 decision had been in CellPro's favor.

The Ceprate system separates tumor cells from healthy blood-producing stem cells. It reduces some of the risks of chemotherapy and bone marrow transplants.

CellPro gained national attention last year after its product helped save the life of Murdock, who had mantle cell lymphoma.

The issue grew on Capitol Hill, once Baxter and CellPro started lobbying congressmen, asking them for support in the Bayh-Dole case at the NIH.

CellPro stock closed at $3.25 yesterday, up 18.8 cents. It had remained down $1.375 since the court decision was released July 24.