Tuesday, March 3, 2015

Updated SEC Disclosures -- Regarding The Keytruda® Vs. Opdivo® Patent Fights

UPDATED | 11 PM EST: I checked the PACER electronic docket, and if the current agreed scheduling motion holds, trial in the Delaware federal District Court won't begin until late 2016, or early 2017. So -- I'll lay odds that some set of outcomes, in these other courts around the globe (perhaps the United Kingdom actions), will lead the parties to settle, well before the Delaware trial date arrives. But the probable stakes are preposterously gargantuan. Opdivo® could be raking in north of $8 billion a year by 2017, and my guess on Keytruda® would be about half that. So, if the royalties (in either direction) approach 10 per cent, or are tripled (due to findings of willful infringement), the damages could easily be north of $5 billion over the life of the patents, all in. Yes, this is material litigation -- even if it first appears at page 114 of the SEC Form 10-K. Indeed it is one set of spats. . . to watch. END, UPDATED PORTION.

I'll be back this evening afternoon to explain what all this means to the average Merck investor, on Keytruda®. But make no mistake, this is material litigation, globally for Kenilworth. Backgrounder here.

For now, accept that the proverbial fat lady hasn't even begun to clear her throat. This could still go either way. From page 114 of the SEC Form 10-K, then:

. . . .As previously disclosed, Ono Pharmaceutical Co. (“Ono”) has a European patent (EP 1 537 878) (“’878”) that broadly claims the use of an anti-PD-1 antibody, such as the Company’s immunotherapy, Keytruda, for the treatment of cancer. Ono has previously licensed its commercial rights to an anti-PD-1 antibody to Bristol-Myers Squibb (“BMS”) in certain markets. The Company believes that the ’878 patent is invalid and filed an opposition in the European Patent Office (the “EPO”) seeking its revocation. In June 2014, the Opposition Division of the EPO found the claims in the ’878 patent are valid. The Company received the Opposition Division’s written opinion in September 2014 and the Company submitted its substantive appeal in February 2015. In April 2014, the Company, and three other companies, opposed another European patent (EP 2 161 336) (“’336”) owned by BMS and Ono that it believes is invalid. The ’336 patent, if valid, broadly claims anti-PD-1 antibodies that could include Keytruda. BMS and Ono recently submitted a request to amend the claims of the ’336 patent. If the EPO allows this amendment, the claims of the ’336 patent would no longer broadly claim anti-PD-1 antibodies such as Keytruda.

In May 2014, the Company filed a lawsuit in the United Kingdom (“UK”) seeking revocation of the UK national versions of both the ’878 and ’336 patents. In July 2014, Ono and BMS sued the Company seeking a declaration that the ’878 patent would be infringed in the UK by the marketing of Keytruda. The Company has sought a declaration from the UK court that Keytruda will not infringe the ’336 patent in the UK. It is anticipated that the issues of validity and infringement of both patents will be heard at the same time by the UK court, which has scheduled the trial to begin in July 2015. BMS and Ono recently notified the Company of their request to amend the claims of the EPO ’336 patent and of their intention to seek permission from the court to similarly amend the UK national version so that the claims of the ’336 patent would no longer broadly claim anti-PD-1 antibodies such as Keytruda.

The Company can file lawsuits seeking revocation of the ’336 and ’878 patents in other national courts in Europe at any time, and Ono and BMS can file patent infringement actions against the Company in other national courts in Europe at or around the time the Company launches Keytruda (if approved). If a national court determines that the Company infringed a valid claim in the ’878 or ’336 patent, Ono and BMS may be entitled to monetary damages, including royalties on future sales of Keytruda, and potentially could seek an injunction to prevent the Company from marketing Keytruda in that country.

The USPTO granted US Patent Nos. 8,728,474 to Ono and 8,779,105 to Ono and BMS. These patents are equivalent to the ’878 and ’336 patents, respectively. In September 2014, BMS and Ono filed a lawsuit in the United States alleging that, by marketing Keytruda, the Company will infringe US Patent No. 8,728,474. BMS and Ono are not seeking to prevent or stop the marketing of Keytruda in the United States. The trial in this matter is currently scheduled to begin in November 2016. The Company believes that the 8,728,474 patent and the 8,779,105 patent are both invalid.

In September 2014, the Company filed a lawsuit in Australia seeking the revocation of Australian patent No. 2011203119, which is equivalent to the ’336 patent.

Ono and BMS have similar and other patents and applications, which the Company is closely monitoring, pending in the United States, Japan and other countries.

The Company is confident that it will be able to market Keytruda in any country in which it is approved and that it will not be prevented from doing so by the Ono or BMS patents or any pending applications. . . .

What it does not say is whether Merck will be able to charge a royalty -- or have to pay one -- to keep Keytruda on market in various jurisdictions. It also gives no hint as to what those royalties might do to profitability. More later.

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