Kensey Nash (KNSY) and St. Jude Medical (STJ) Enter Mediation to Resolve Contract Disputes over Angio-Seal
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Kensey Nash Corporation (NASDAQ: KNSY) today announced that it has agreed with St. Jude Medical (NYSE: STJ) to enter into non-binding mediation in an attempt to resolve disputes over royalty payments to Kensey Nash relating to the Angio-Seal vascular closure device, as well as other related claims. Kensey Nash has repeatedly advised St. Jude that the royalties are currently to be paid, and should since 2007 have been paid, at a rate of 8% rather than the 6% rate at which St. Jude had been paying. The Company has further advised St. Jude that, as a result of St. Jude's incorrect interpretation of the license agreements between the two companies, St. Jude has to date underpaid the Company by over $30 million. The Company was recently informed and surprised to learn that St. Jude is now asserting that, effective November 2011, the rate at which that it owes royalties to the Company with respect to Angio-Seal is to be reduced from 6% to 2% and that St. Jude intends to pay the Company at this reduced rate.
According to Joe Kaufmann, President and CEO of the Company, "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. 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."
Going forward, the Company will report revenue at the rate at which St. Jude is actually paying royalties to the Company (2%), rather than the rate at which such royalties are owed. Recognition of revenue at this reduced rate would reduce the Company's previous guidance for revenues by approximately $1.8 million and its earnings per share by approximately $0.14 in the Company's quarter ending December 31, 2011. Further, any resolution of these matters may have a positive or negative impact on the Company's results for future periods. 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. 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.
As of September 30, 2011, the Company was in a strong liquidity position, with $28.4 million of cash and $50.7 million of working capital. After considering the impact of St Jude's reduction in the rate of royalties they will be paying, the Company still expects to generate fiscal 2012 cash flow from operations of over $20 million.
According to Joe Kaufmann, President and CEO of the Company, "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. 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."
Going forward, the Company will report revenue at the rate at which St. Jude is actually paying royalties to the Company (2%), rather than the rate at which such royalties are owed. Recognition of revenue at this reduced rate would reduce the Company's previous guidance for revenues by approximately $1.8 million and its earnings per share by approximately $0.14 in the Company's quarter ending December 31, 2011. Further, any resolution of these matters may have a positive or negative impact on the Company's results for future periods. 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. 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.
As of September 30, 2011, the Company was in a strong liquidity position, with $28.4 million of cash and $50.7 million of working capital. After considering the impact of St Jude's reduction in the rate of royalties they will be paying, the Company still expects to generate fiscal 2012 cash flow from operations of over $20 million.
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