Friday, May 01, 2009
Suit winner files to keep Luna Innovations Inc. from moving assets
Hansen Medical Inc. was awarded $36.3 million in a recent trade secrets case.
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As shares of Luna Innovations Inc. have dipped below $1, Hansen Medical Inc. filed an injunction Wednesday to prevent Luna from transferring assets outside the company.
The latest court filing comes a little over a week after a California jury ordered Roanoke-based Luna Innovations to pay $36.3 million for breach of contract and misappropriation of trade secrets.
It remains unclear exactly what the next step is for the company and its approximately 210 employees working in Roanoke, Blacksburg, Danville and Charlottesville.
Scott Graeff, chief operating officer, said the company is receptive to the spirit of requests that it continue to operate and not sell, transfer or dispose of any assets outside the normal course of business.
"We expect several motions to be filed before this case concludes," Graeff said in a written statement. "We continue to evaluate our legal options and we'll have details when they are available. In the meantime, Luna continues its operations, and we will not let legal distractions get in the way of meeting our customers' needs."
Hansen's lawyers argued the injunction is needed to ensure Hansen can collect the money once the judgment is officially entered.
There is a "substantial threat that Luna will transfer its assets out of the company to prevent Hansen from effectively enforcing the judgment when it is entered," reads a portion of the motion.
Before any money is owed by Luna, or paid to Hansen, the jury's judgment must be finalized by the judge. But finalizing the judgment could take several more months as both Hansen and Luna are expected to file motions regarding the verdict and the monetary amount.
Hansen, which is based in Mountain View, Calif., said in its Wednesday filing the company plans to request enhanced damages and attorney's fees. Luna has also said it is preparing post-trial motions, but has not specified what those motions might be or when they will be filed.
Luna has said that it cannot afford to pay the millions Hansen was seeking. And Luna noted in earlier court documents that a verdict nearing $50 million could put them out of business.
"They asked for so much money in this case that if you awarded it, Luna would cease to exist," said Luna's attorney, James DiBoise, during closing arguments, according to a portion of the court reporter's transcript that was submitted as evidence with Hansen's motion.
Luna has total assets of $33.4 million for the year ended Dec. 31, 2008. That, coupled with total liabilities of $19.7 million, leaves a net worth of $14.3 million for the past year.
That said, Hansen appears to think that Luna's backlog of contracts for 2009 valued at $29.4 million are financially meaningful. Hansen said in the motion that given those contracts, "there is reason to think that Luna may receive substantial revenues in 2009."
The aftermath of the verdict and the uncertainty of what the future holds for Luna have taken a toll on Luna's stock price. Shares of Luna closed below $1 for the first time last Friday, and have continued to fall since.
Luna closed at 74 cents Thursday, down from Friday's close of 92 cents but up a penny from Wednesday. Shares closed at $1.83 on April 21, the last close before the verdict was announced.
The decline comes as the sole analyst who follows the company downgraded the stock from accumulate to source of funds, one step above a rating to sell.
The analyst, Michael Lew, set a price target of 50 cents for the stock and said there is "too much uncertainty with the verdict."
Luna's Graeff said, "As a publicly traded company, we cannot comment on stock price but we can say that Luna intends to continue to produce and support new and innovative products as we always have."
Raman Kumar, a professor of investment management at Virginia Tech's Pamplin College of Business, said the continued decline in the stock price, coupled with an increase in trading volume, indicates that uncertainty is the prevailing theme.
"In this case it seems the more they look at this event the more they think the outcome will not be good or that it will be worse than what they thought the day before," Kumar said. "Even though there is complete uncertainty, the group as a whole is turning more and more pessimistic."
Still, both Kumar and Lew suggested that Luna will likely not cease to exist.
"My guess is the company will continue in some form or another because ... the kind of things it does have some value out there," Kumar said. "The question is how will that play out."
In his report, Lew suggested Intuitive Surgical Inc., one of the largest medical device companies in country, could be Luna's "white knight."
"Intuitive could buy the underlying technology, but could leave Luna with only a portfolio of early stage development initiatives," the report reads.
Luna formed a much-publicized relationship in June 2007 with Intuitive. That deal became a central point in Hansen's case against Luna. In ruling that Luna misappropriated Hansen's trade secrets the jury agreed that Luna shared Hansen-owned trade secrets with Intuitive Surgical.
