Court Grants Correlogic's Motion to Reject OvaCheck Licensing Agreements with Quest and LabCorp

The company had moved to reject the agreements as part of its July 16 Chapter 11 bankruptcy filing, claiming that uncertainty over the validity of the agreements was an impediment to obtaining new investment and was hampering its reorganization efforts.
Fri, 10/08/2010

A bankruptcy court this week granted Correlogic Systems' motion to reject licensing agreements with Quest Diagnostics and Laboratory Corporation of America for its protein biomarker-based ovarian cancer test OvaCheck.

Correlogic moved to reject the agreements as part of its July 16 Chapter 11 bankruptcy filing, claiming that uncertainty over the validity of the agreements was an impediment to obtaining new investment and was hampering its reorganization efforts.

The licensing agreements were signed in 2002 when OvaCheck was still a mass spectrometry-based test. Since then, Correlogic has moved the diagnostic to an immunoassay platform, which, CEO Peter Levine told ProteoMonitor, has created ambiguity as to whether the agreements applied to the new format.

This ambiguity, he said, made obtaining new investment difficult and therefore the company sought to reject the agreements out of "sound business judgment."

Both Quest and LabCorp objected to Correlogic's motion to reject the agreements, claiming that its assertion that it was doing so out of "sound business judgment" was unfounded. The U.S. Bankruptcy Court in the District of Maryland, however, ruled this week in Correlogic's favor.

The ruling doesn't necessarily end the dispute, though. In their objections, Quest and LabCorp both maintained that even were the licensing agreements severed, they would retain rights to OvaCheck under section 365(n) of the Bankruptcy Code, which provides certain rights to intellectual property licensees in order to protect businesses from disruptions arising when a licensor seeks to reject a license agreement as part of a bankruptcy proceeding.

Levine acknowledged that although the "rejection [of the license agreements] was the first fork in the road, the second part then is what rights do [Quest and LabCorp] have within the rejection."

He said, however, that Correlogic believes the current immunoassay version of OvaPlex isn't "really covered at all under the original agreements." He also noted that section 365(n) applies only to intellectual property that existed prior to the company's bankruptcy filing on July 16.

"There's no question that anything we do going forward, including [U.S. Food & Drug Administration] approval, is now excluded — that's outside of anything [Quest and LabCorp] have access to," he asserted.

Calls to Quest and LabCorp for comment were not returned.

Correlogic filed a 510(k) application for OvaCheck with FDA in December of 2008 but withdrew it in April after being told that the patient population used in the clinical trial for the test was not satisfactory. Currently the company is undertaking the "second arm" of the trial, which involves patient populations being treated by nonspecialists, and plans to file another 510(k) submission upon its completion.

It has also retained the investment banking firm American Medtech Advisors to help with its restructuring efforts.

Now that the motion to reject the Quest and LabCorp agreements has been granted, Levine said he expects the company's talks with "potential investors and strategic partners" to "now move forward."

"Every possible business combination or transaction will be discussed. Everything is possible — whether it's taking new investment to continue, whether it's selling off particular assets — everything is on the table," he said.

Adam Bonislawski
ProteoMonitor, The Global Newsweekly of Proteomics Technology