Fisher and Paykel Healthcare's rampaging run on the share market came to an abrupt end today after a US medical equipment maker alleged to the United States International Trade Commission that Auckland-based company had infringed its patents.
New York-listed ResMed — which competes with the Kiwi company in the same highly specialised space — sought an order banning the importation and sale in the US of three Fisher & Paykel's masks which it said infringed five ResMed patents relating to mask system and cushion design.
The action is the latest in a string of actions taken by ResMed against F&P Healthcare.
ResMed filed a new lawsuit in the United States District Court for the Southern District of California, seeking monetary damages based on Fisher & Paykel's alleged patent infringement, plus an injunction against future sales of "infringing" masks in the United States.
Fisher & Paykel Healthcare said it would contest the patent allegations but that the cost of doing so could cut annual earnings by as much as $10 million.
Its stock has had a phenomenal run, hitting a record high last week of $16.40 after gaining close to 40 per cent over the last 12 months.
But in the aftermath of today's announcement, the stock dropped by 99 cents or six per cent to a session low of $15.41.
"In terms of of the merits of the claim, it's very hard to tell, although one thing that has become clear when this issue arose a few months ago that F&P Healthcare takes a forthright stance in protecting what it believes its patent position to be," Salt Funds managing director Matt Goodson said.
F&P Healthcare is a manufacturer, designer and marketer of products and systems for use in respiratory care, acute care, and the treatment of obstructive sleep apnea.
The company — the NZX's second biggest stock after a2 Milk — was one of handful of top stocks that was singled out for heavy buying last month as mostly foreign investors splurged on healthcare stocks across Australasia.
"F&P Healthcare was not priced for the faintest skerrick of bad news — so this clearly is a skerrick of bad news," Goodson said. "Whether or not it amounts to anything, ultimately, remains to be seen, but at the very least there will be significant costs in defending its intellectual property portfolio," he said.
Harbour Asset Management portfolio manager Shane Solly said legal costs have altered F&P's bottom line in the past.
F&P's legal expenses were less than the company expected in the 2018 financial year due to ResMed postponing its patent action, allowing the company to deliver a profit at the top end of its guidance, he said.
In today's statement, F&P Healthcare cut forecast profit to $205m to $210m in the year ending March 31, 2019, from a previous forecast of $215 million due to the cost of defending the litigation.
"F&P Healthcare respects the valid intellectual property rights of others, and we are confident in our position with respect to ResMed's patents given the rigorous clearance we conduct before any product is released to market," managing director Lewis Gradon said. "We are well prepared to vigorously contest these claims."
New York Stock Exchange-listed RedMed company withdrew a complaint to the US International Trade Commission (ITC) last year, saying at the time it still planned to file a new action.
"ResMed provides millions of consumers with high-quality products, which are the direct result of substantial and sustained investments in research and development, as well as a focus on each consumer's therapy needs," ResMed global general counsel and chief administrative officer David Pendarvis said in a separate statement.
"We will defend our intellectual property wherever necessary to ensure that patients worldwide continue to receive the high-quality care they deserve, and are confident that when the ITC and the district court hear all the evidence, ResMed will prevail in these cases."
F&P Healthcare's profit warning comes little over a week after the company raised its full-year earnings forecast by about $5m as a weak New Zealand dollar increased the value of overseas sales.
— Additional reporting: BusinessDesk