3M Company Forced to Pay for Breach of Obligations Over MRSA - High Court

LONDON, November 7, 2011 /PRNewswire/ --

Note: numbers in square brackets relate to
- paragraphs in the Judgment.

Harvey Boulter is available for interview.

Investment fund manager Porton Group and the Ministry of Defence subsidiary Ploughshare Innovations* today won a court battle with 3M over the multi-national company's failure to promote a test for the "superbug" MRSA.

The High Court in London found 3M was "in material breach of its obligation" under an agreement to actively market the product, BacLite. [218]

Porton Group CEO Harvey Boulter said:- "I am delighted that we have been vindicated in our attempt to force 3M to face up to their responsibilities.

"But the victims here are those infected with MRSA. A weapon in that fight was wrongfully abandoned by 3M.

"This is a question of trust and honour which in my opinion seems to have been sadly lacking in 3M's behaviour.

"The Judge has made it quite clear that 3M did not live up to its promises."

BacLite detects MRSA within 5-6 hours, a rapid detection time that could save lives around the world.

Judge Mr Justice Hamblen awarded Porton Capital Technology Funds, Porton Capital Inc and the Ministry of Defence's technology development arm, Ploughshare Innovations Ltd (hereafter "MoD"), damages of approximately $1.3 million($1,299,808) in compensation.

The Judge also said that Porton and the MoD had not been unreasonable when they objected to 3M's decision to shut down the project on December 31 2008, just a day before a 12-month earn-out period, under which the sellers would be paid part of the profits, began. [233(8)]

The issue dates back to February 2007 when 3M agreed to buy a company called Acolyte Biomedica - part-owned by Porton and MoD - set up to exploit the BacLite technology.

The price was £10.4 million in cash with up to £41 million to be paid based on worldwide sales of BacLite in 2009, including the UK.

3M convinced Acolyte that 3M had the medical device expertise and the global sales and marketing expertise to take over successful sales of BacLite worldwide and specifically in four major markets - the EU, including the UK, the US, Canada and Australia.

But the Judge said that 3M was not only in breach of its obligation to "actively market" BacLite but also failed to gain regulatory approval in the US.

"I find that from the end of March 2008 3M was in breach of its obligation diligently to seek regulatory approval for BacLite in the US and that had it complied with its obligation such approval would have been obtained by the beginning of February 2009," the Judge said. [158]

The test was originally developed by the British Government's Defence Science and Technology Laboratory at Porton Down, Wiltshire, to detect biological weapons.

The judge found that 3M had breached its obligations in all four territories in the deal - the EU, the United States, Canada and Australia. [218]

In the course of the trial, the Judge heard that 3M's original estimate of the earn-out payment under the Share Purchase Agreement in January 2007, a month before the purchase, was $33 million. [225(2)]

While the companies and the MoD were not unreasonable to reject 3M's decision to close down the project, he added: "It was also reasonable for them to suspect that the failure of the business had been contributed to by 3M's own breaches of the SPA." [233(5)].

Referring to 3M's compensation offer before the trial, the Judge went on: "The reasonableness of the vendors' refusal is borne out by the fact that there were a number of 3M estimates at the time which exceeded the figure offered and that the figure was meant to be conservative." [233(8)].

The failure by 3M "diligently" to pursue approval for BacLite by the US regulator - the Food and Drug Administration ("FDA") - after March 2008 was an important element in the project's termination, the Judge said. [166]. The judge found that 3M could have achieved US FDA regulatory approval by February 2009 "at the earliest" if they had corrected their own errors. [157]

Despite having identified problems with the methodology of the pre-approval testing, which had been changed by 3M from that carried out originally in the UK, and with 3M scientists suggesting solutions, there were concerns at the highest level in the company that the project was not making money fast enough. [81-82]

In an internal email of 7 March 2008, the Judge said, 3M's chairman and Chief Executive Officer, George Buckley, since awarded a knighthood, suggested "pulling the plug." A day later he said in another email he stated "tell them to deliver or tell them that we are likely pulling the plug" and warned "its time to fish or cut bait." [82].-

* Ploughshare Innovations Limited was a co-claimant in the UK High Court action with Porton against 3M. Ploughshare Innovations Limited is a wholly owned subsidiary of the Defence Science and Technology Laboratory ("Dstl") which is in turn a wholly owned agency of the Ministry of Defence ("MoD")

Notes to editors:

1. Harvey Boulter is available for interview. All inquiries to Eben Black, DLA Piper on 07968 559 198-or eben.black@dlapiper.com or Anna Brown on 07834 570 464 or anna.brown@dlapiper.com. Also contact us for a copy of the Judgement.

2. Timeline:

Early 2000s

• UK Ministry of Defence investigates using photoluminescence biotechnology to detect biological weapons of mass destruction, producing BacLite.
• Dstl, the research agency of the Uk MoD, and equity investment group Porton Group form joint venture called "Acolyte" to market BacLite for MRSA detection.

2006

• Clinical trials demonstrate BacLite predicts the presence or absence of MRSA with 95% reliability.
• BacLite approved for sale and use in the European Union on the basis of clinical trials.
• 3M approaches Acolyte about purchasing BacLite.

2007

• 3M convinces Acolyte to sell BacLite, promising in its purchase contract to "actively market" and to use "diligence" to obtain regulatory approvals in the United States, Canada and Australia.
• 3M promotes BacLite, citing 95% reliability results from the EU clinical trials. It publishes brochure, still on the Internet at 3M's site, touting the reliability and importance of the technology.
• 3M asks and receives FDA approval to run US clinical trials using the same comparator used in the EU trials.
• 3M runs US clinical trials with different comparator than in EU trial and stores test samples at wrong temperature. Under these new conditions BacLite's reliability drops to 50%.
• An 11-member 3M Technical Advisory Committee to investigates the trials. Committee finds avoidable and careless errors in conducting trials.
• 3M refuses to redo trials.

2008

• 3M notifies Acolyte it is abandoning all its obligations to sell and market BacLite.
• 3M representative(s) pull out BacLite devices from UK medical facilities, despite successful use of the machines and published opinions from scientists that "BacLite assay's performance, ease of use, and capacity best met the needs of the authors' hospital for rapid MRSA screening.

Web: http://www.portoncapital.com

SOURCE Porton Group