By Susan Decker, Caroline Chen and Christopher Yasiejko, Bloomberg News
If Gilead Sciences Inc. has to pay Merck & Co. $2.54 billion in patent royalties it may come down to the details of what happened between two scientists who once were close friends.
Merck claims its Idenix unit, which it bought in 2014 for about $3.85 billion, developed a new class of compounds to treat the potentially deadly virus hepatitis C, which attacks the liver and afflicts as many as 150 million people globally. By Merck’s telling, Idenix’s chief executive officer and patent co-inventor, Jean-Pierre Sommadossi, told his “best friend” Raymond Schinazi, a member of Idenix’s scientific advisory board, about the promise of the new compounds.
Schinazi was also the founder of another company, Pharmasset Inc., that was working on treatments for hepatitis C.
Merck contends that Schinazi told Pharmasset scientists what he learned from his friend, and they came up with the key compound, sofosbuvir, that’s used in Gilead’s blockbuster treatments Sovaldi and Harvoni.
Merck’s lawyer, Stephanie Parker of Jones Day, told jurors the case was “a story of betrayal,” a charge Gilead denied.
Merck spokeswoman Lainie Keller declined to comment.
Years of Research
Gilead said Pharmasset scientists didn’t take anything from Idenix and instead developed its own compound over three years of research. It bought Pharmasset for $11 billion in 2011, and the resulting drugs accounted for more than half its sales in 2015.
“They made no contribution and assumed none of the risk in the discovery and development of sofosbuvir and its metabolites,” Gilead said in a statement. The company said Thursday it intends to “vigorously challenge” the outcome.
That rivalry may have been what swayed a jury in Wilmington, Delaware, on Thursday to award a record verdict of $2.54 billion, saying Gilead should pay 10 percent royalties on sales of the two drugs.
“The jury, they’re real humans,” said Eldora Ellison, a biotechnology-patent lawyer with Sterne Kessler in Washington who isn’t involved in the case. “What will be of interest to them? The drama, the back story.”
After deliberating for less than two hours, the jury rejected a number of arguments that the Idenix patent was invalid, decided that Pharmasset and Gilead knew of the patent and continued to infringe it anyway, and awarded the biggest monetary damages in a patent case in U.S. history.
“Gilead has their hands full with this one,” said Pete Corless, a biotechnology-patent lawyer with Mintz Levin in Boston, who isn’t involved in this case.
There are number of legal arguments that Gilead can make to get the verdict overturned, Corless said. Gilead already has raised a number of legal questions about whether the Idenix patent is valid, and Ellison said the royalty rate — typically in the low- to mid-single-digit percentage — is high for these types of cases.
“We would be very surprised if the damages remained at these levels,” Piper Jaffray & Co. analyst Joshua Schimmer said Thursday in a note to clients. Gilead “has a strong track record defending sofosbuvir.”
The revenue on which the royalty is based is unlikely to change, and stems in large part from the high prices that Gilead charges for its drugs. Sovaldi costs $84,000 for a 12-week course of treatment, while Harvoni’s list price is $94,500, though the drugs are typically discounted significantly. A newer version called Epclusa, which can treat more genotypes of the virus but is based on the same basic compound, has a list price of $74,760.
While judges are loathe to overturn the will of a jury, patent cases tend to focus on more esoteric legal issues such as whether the judge was correct in his interpretation of key terms within the patent, or whether there was some prior research that was similar enough to say Idenix’s approach wasn’t as groundbreaking as it claimed.
Those questions will go before the U.S. Court of Appeals for the Federal Circuit in Washington, which handles all patent appeals and has a reputation for overturning judges and big- dollar verdicts.
The largest patent verdict before this one, $1.67 billion won by Johnson & Johnson against Abbott Laboratories over the antibodies used in the arthritis drug Humira, was thrown out in 2011 after the Federal Circuit deemed the J&J patent invalid, based on similar legal arguments that Gilead made in the trial.
‘Law and Chemistry’
The Federal Circuit judges “are much more receptive to both patent law and chemistry” than a jury, said Barclays analyst Geoff Meacham. Gilead seemed “unfazed” by Thursday’s ruling, in part because it had fended off similar claims in Canada and Europe, though some cases remain pending, he said.
The case will take at least two years to reach a final court decision, unless the two sides can resolve their differences before then. Merck will argue that it’s entitled to both an increase in the award based on the jury’s finding of willfulness and continued sales of Sovaldi, Harvoni and possibly Epclusa.
The jury verdict is based on sales of the Sovaldi and Harvoni through August 2016. The patent expires in May 2021, so Gilead might be ordered to continue paying royalties on those drugs until that patent term ends.
— With assistance from Margaret Cronin Fisk.
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