Exton, Pa.-based Kensey said the argument concerns the Angio-Seal vascular closure device, which it licensed to St. Jude in 1999. KNSY believes the licensing deal calls for royalties of 8% on Angio-Seal sales, but said that its partner has been paying at 6% and plans to cut that to 2% effective last month.
Kensey claims that St. Jude has underpaid by about $30 million. Recording the Angio-Seal revenues at the 2% rate going forward will reduce current-quarter sales guidance by $1.8 million, or 14 cents per share, the company said, noting also that the outcome of non-binding mediation with St. Jude is uncertain.
"Solely for these reasons, the company is withdrawing its previously issued guidance for the quarter ending December 31, 2011, the other two remaining quarters of fiscal 2012 and for fiscal 2012 as a whole," according to a press release. "Beginning with the company’s announcement of its results for the second quarter of fiscal 2012, the company intends to provide updated guidance on a quarterly basis."
"St. Jude’s action to reduce the royalty rate to 2% suggests that St. Jude Medical intends to assert that their obligation to pay any royalties to Kensey Nash will end in April 2014. Our strongly-held view is that, based upon the current design of the Angio-Seal device, St. Jude’s royalty obligations to Kensey Nash extend at least through April 2016, and potentially through 2023," president & CEO Joe Kaufmann said in prepared remarks. "While we are hopeful that mediation will lead to an appropriate resolution of these matters, we will take all necessary steps to protect our intellectual property and the interests of our stockholders."
The news sent KNSY shares down 18.2% to $21.83 as of about 11:30 this morning. STJ shares were trading at $33.18, down roughly 1.3% on the day.