Hep C Patent Battles -- Gilead V. Merck/Idenix: A 10 Per Cent Royalty Demand Is Unusually Steep. . .

As we watch various MSM pundits and buy side Wall Street analysts remark (speculatively) that Idenix must have a formidable nucleotide patent estate in the field of Hep C therapies, in order to justify the eye-popping premium Merck has just offered yesterday morning. . . we would tend to agree.

We know that Merck is nothing if not deliberate -- so this is a well-thought through price. And it reflects more than pipeline.

It reflects the value of a patent estate -- patent suits now, and many more likely to come. In San Franciso, Merck has sworn/asserted that the Gilead sofosbuvir offering (a perhaps $10 billion a year juggernaut) has scant useful application in fighting Hep C, in humans -- absent the use of (it is claimed, Merck and Idenix patented) discoveries and processes -- to convert the intermediate chemical compound into various human consumable metabolites. So, Merck and Idenix claim Gilead infringes their disclosed patented art, which teaches the making of such metabolites -- all as set out in Merck's '499 and '712 patents: ". . .Gilead had knowledge that sofosbuvir [brand name: Sovaldi^TM], upon administration to human subjects, is converted into metabolites, including PSI-7411, PSI-7410 and PSI-7409, and that the therapeutic benefit of sofosbuvir [Sovaldi^TM] depends on such conversion. . . ."

For its part, Gilead had previously sued for a declaration that Gilead's patents (acquired via an $11 billion purchase of Pharmasset) do not infringe either the Merck or Idenix patents. Gilead offers the following, at paragraph 55 of its complaint in federal District Court in San Francisco (at page 9 of 13 -- PDF -- No. 13-4057):

. . . .A 10% royalty on products containing sofosbuvir is a prohibitive demand.

On information and belief, Merck understands that its license demand is prohibitive and instead is meant to threaten Gilead, on the eve of approval of sofosbuvir, with the prospect of an infringement suit and a substantial claim for damages. . . .

[Here is Merck's counter-complaint and answer (PDF).] This 10 per cent of all sales demand likely means either one of two things (in descending order of probability): (i) Merck believes these patents are extremely valuable, and rock solid, or that (ii) Merck is trying to make Gilead blink -- and come to the table to talk turkey -- and ultimately, some years from now, pay perhaps an actual rate of about one-half of one percent, all the way up to. . . about one per cent. "Aim high, settle (not quite so) low."

Me? I tend to think it is the former, not the latter. And it is silly to say that a pill that is now on market -- commanding a price of $1,000 per pill -- cannot support a 10% royalty. Silly. Just my $0.02. So, what gives, this Tuesday early morning? Odd.