Merck & Co. ($MRK) scored a hepatitis C patent win against Gilead Sciences ($GILD) on Tuesday. And if the jury verdict stands, Merck could collect big royalties on Gilead's megablockbuster hep C drugs Sovaldi and Harvoni.
It would be a coup for Merck, which recently won FDA
approval for its own hep C contender, Zepatier--which, as a
third-to-market product, has sales expectations much more modest than
Sovaldi and Harvoni's.
The jury will next weigh in on damages Merck and its partner Ionis should collect from Gilead.
As Merck noted in a Tuesday
statement, the companies haven't asked that Sovaldi and Harvoni be
taken off the market, but "for due compensation for the use of our
intellectual property rights." The company initially requested 10%
royalties from Gilead.
Gilead
says it will appeal, which stands to extend the legal battle for
several more years.
Leerink Partners analyst Geoffrey Porges says Gilead will ask for a
bench trial, thinking that a panel of judges--who'd be better versed in
patent questions than a jury--would view Merck's patent claims
differently.
Bernstein
analyst Tim Anderson pointed out that pharma patent fights often lead
to royalty deals, and such payments are often booked as part of ongoing
operations.
If Merck were to win 5% royalties on the two meds, its earnings per
share could get a lift of about 4% over five years, he said in a Tuesday investor note.
If
Gilead's meds hit consensus sales forecasts--which amount to $17
billion this year, declining to $9.9 billion in 2020--a 5% royalty
stream would start at $863 million this year and end the decade at
about $500 million, he estimated.
Total for the period: More than $3 billion.
Analysts figure that a single-digit royalty percentage is more likely
than Merck's requested 10%.
Gilead
sued in 2013 after receiving Merck's royalty demand, asking the court
to declare two patents invalid: No.7,105,499 and No.
8,481,712.
Merck said the jury verdict reflected the evidence and validated the
company's "many years of research and significant investment" by it and
its partners, including Ionis Pharmaceuticals.
"Strong
patent protection is essential to innovation," the company said in a
statement.
"Given that it guarantees a firm period of return on investment, patent
protection provides the research-based pharmaceutical and biotechnology
industries with an incentive to invest in research and development."
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