F&P Healthcare to 'vigorously contest' what's likely to be lengthy IP legal spat

Tuesday 23rd August 2016

Lewis Gradon, managing director of medical devices maker Fisher & Paykel Healthcare, says it will “vigorously contest” what’s expected to be a lengthy tit-for-tat intellectual property dispute with American rival ResMed.

ResMed filed a patent infringement complaint last week in the Southern District of California as well as lawsuits in Germany and New Zealand, and to the US International Trade Commission against F&P Healthcare in relation to face and nasal masks just days after the Auckland-based company filed is own patent infringement lawsuit against the US company in the US District Court for the Central District of California relating to its flow generator products and masks.

Shareholders raised several questions on the legal dispute at the listed company’s annual general meeting in Auckland today, including whether the company was confident it had sufficient funds to meet the likely costs and potential damages.

“The short answer is yes,” said chairman Tony Carter. He also told shareholders that Resmed’s legal response “was anticipated” but he couldn’t comment further because the litigation was now before the courts.

Gradon said F&P Healthcare had been in discussions for 18 months with ResMed over the IP dispute and was unable to resolve it.

“We’ve had other experiences with patent infringements around the world but it has never got this far before, we've always settled one way or another,” he said. “The two parties were just unable to resolve their differences of opinion.”

He said the company was “well-prepared” for the legal action which it wouldn’t have taken if it wasn’t “pretty confident” about winning it. No date has yet been set for the hearings which he warned could take two to three years before it started.

“IP disputes tend to be very protracted and it could take close to a decade to be fully resolved,” Carter said. “So it’s a very long process and we’re still in the very early stages.”

The company said it spent $73 million or 9 percent of revenue on research and development in the 2016 financial year and employs over 500 scientists and had already released a number of new products this year, including its flagship humidification system.

When asked to identify the company’s major future risks, Carter said the biggest risks were a product recall, IP infringement, and the failure to innovate.

“The success of F&P Healthcare lies not in the products we sell today but in the products we market in a decade’s time,” he said.

The company also updated its earnings guidance due to a strengthening kiwi dollar, saying it now expected full-year revenue for the 2017 financial year to be at the lower end of its earlier guidance - $880 million in revenue compared to $900 million previously and $165 million in net profit compared to the prior range indicated of $165 million to $170 million. The forecast for the half-year results is for $420 million in operating revenue and net profit of $76 million, up 23 percent on the first half of last year.

A new manufacturing building programme to cope with forecast growth for the next decade is underway that is likely to cost about $200 million over the next four to five years.

A 25,000-to-30,000 square metre fourth building is planned for its existing East Tamaki site with earthworks expected to begin this summer and completion by the end of 2020. A deal is imminent on a greenfields site in an industrial park in Tijuana, Mexico near its existing factory which is expected to be operational within three years.

F&P Healthcare began manufacturing in Mexico five years and it now comprises 30 percent of products with the rest coming from New Zealand.

Gradon said the strategy was to have cross-functional teams close to the research and development and manufacturing so new products were tested and initially produced by the New Zealand team and the growth products made in Mexico. Output has been growing at 2 percent a year in New Zealand compared to 10 percent in Mexico and that shift was expected to continue.

Benefits of manufacturing in Mexico include lower costs and proximity to the company's major market, the US, and its California distribution hub but Carter said while he was still chairman manufacturing would continue in Auckland and F&P Healthcare would continue to be a “New Zealand company, in the true sense of the word.”

The company’s aim is to hit $1 billion in revenue within the next two years and double its constant currency operating revenue every five to six years.

The shares fell 0.5 percent to $10.22, having gained 15 percent so far this year.

BusinessDesk.co.nz

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