Merck Wins Chance for Royalties on Gilead’s Hepatitis C Cure

  • Merck seeks royalty saying it paved way for liver remedy
  • Gilead dominates market with $20 billion U.S. sales since 2013

Merck & Co. won a sweeping jury verdict that allows it to seek royalties from Gilead Sciences Inc. for the drugs that have dominated the hepatitis C market with $20 billion in U.S. sales since 2013.

Jurors Tuesday embraced Merck’s claims that its scientists were responsible for early breakthroughs that led to the development of the Sovaldi and Harvoni medicines that propelled Gilead to become the world’s largest biotechnology firm by market valuation.

The panel of four women and four men unanimously sided with Merck on all 10 claims related to two of its patents. The jury remained in the courtroom to hear more evidence before deciding whether to award Merck as much as $2 billion in damages.

Gilead’s loss comes amid projections that the Foster City, California-based company’s sales will flatten this year as competition to market treatments for the liver disease intensifies among drugmakers.

“For Merck, it’s half a win,” Asthika Goonewardene, an analyst for Bloomberg Intelligence in New York, said after the verdict, noting the company has just relaunched its own hepatitis C drug. “What they really want is to see that do well."

List Prices

The compound at issue in the trial, sofosbuvir, helped generate about $19 billion in revenue in 2015 for Gilead, with list prices in the U.S. from $84,000 for a 12-week course to $94,500 before discounts. The court fight started two and a half years ago after Merck demanded a 10 percent royalty, claiming that its laboratory 15 years ago laid the scientific foundation for sofosbuvir to later be developed by Pharmasset Inc. before that company was acquired by Gilead in 2011.

At the trial in federal court in San Jose, California, Gilead and Merck each tried to show the other was claiming undeserved credit for scientific advances. Over two weeks, a parade of doctors and scientists for Gilead, Pharmasset and Merck and its partner, Ionis Pharmaceuticals Inc., testified about their roles in the patent process.

“Although we are disappointed by the jury’s verdict today, there are a number of remaining issues to be decided by the jury and the judge,” Michele Rest, a Gilead spokeswoman, said in an e-mailed statement. “Therefore, it is premature to comment any further.”

Merck said the jury’s verdict reflects the evidence in the case.

‘Strong’ Protection

“Strong patent protection is essential to innovation. Given that it guarantees a firm a period of return on investment, patent protection provides the research-based pharmaceutical and biotechnology industries with an incentive to invest in research and development,” the company said in a statement.

Juanita Brooks, a lawyer for Gilead, said during closing arguments on March 16 that Merck’s scientists “went down to the patent office and effectively took claim for the work” done by Pharmasset’s chemists.

Merck’s lawyer sought to convince the jury that a Pharmasset scientist who worked on creating sofosbuvir cheated by relying on an invention that Kenilworth, New Jersey-based Merck patented in 2002.

“Gilead blatantly used Merck’s own patent to make billions of dollars,” attorney Bruce Genderson said in his closing argument. “That’s good. We are glad they’ve helped get this drug to the market. But Merck should be credited for their role in the invention.”

Future Royalties

Once the jury decides how much Gilead owes Merck in royalties for the 2013-2015 period, U.S. District Judge Beth Labson will determine a royalty rate for future sales of Harvoni and Sovaldi. Merck is asking for 10 percent.

Ionis said in a statement it will get 20 percent of any damages awarded Merck.

Merck’s own liver disease treatments Victrelis and PegIntron last year generated $200 million in global sales, tumbling almost 63 percent in a year. The company said the fall was a contributor to Merck’s 6.5 percent drop in sales in 2015. In 2012, the year before sofosbuvir hit the market, Merck’s two hepatitis C drugs combined to generate about $1.2 billion in sales, according to data compiled by Bloomberg.

After closing up 1.1 percent at $93.72 before the verdict, Gilead shares fell as low as $91.20 in New York after the market closed. Merck shares, which closed at $53.03, rose as high as $54.55 in after-hours trading.

RBC Capital Markets LLC analysts Michael Yee and Judy Liu said while Tuesday’s verdict isn’t optimal for Gilead, its big-picture impact will be small. Gilead is expected to appeal and it’s significant that Merck is not seeking a court-ordered ban on sales of Gilead products that allegedly infringe its patents, they said in a note.

The case is Gilead Sciences Inc. v. Merck & Co., 13-cv-04057, U.S. District Court, Northern District of California (San Jose).

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