Tuesday, March 22, 2016

Jury's Patent Verdict Is Good News For Merck -- But May STILL Never Translate To Material Dollars

To be sure, the fact that the jury has found Merck's patents valid is good news for Kenilworth.

Now, as I earlier mentioned, a subsequent bench trial will largely decide (using legal principles) what would be the right size, for a fair royalty payment. And the court could well decide that Merck's two patents are not so valuable as Merck hopes. In fact (as I've long suggested), the court could decide that the real heavy lifting here was done by the company Gilead acquired -- not Merck. [Or. . . the parties may elect to settle, and we may never know what the terms are -- especially if those terms are immaterial to both companies' financial results.]

It is not unusual to see courts order only very small royalties -- even where a patent has been held valid, and infringed by another party -- if the patent is deemed not to be integral to teaching the method for making the final drug product in question. So -- the $0.50 after-hours pop in Merck's stock is likely premature -- just as the after-hours nearly $2 decline in Gilead is likewise. . . premature. We may see that some big running royalty (i.e., a multi-billion dollar transfer) is ultimately warranted, but that is not what this verdict means. Not yet, at least. We aren't really even to the intermission, in this three act play. That's my take. So do sit tight -- that's my advice.

Here is a bit from the New York Times, on it all -- but most MSM outlets are catching the vapors, here, prematurely:

. . . .A federal jury on Tuesday upheld the validity of two Merck patents in a dispute with Gilead Sciences, which could be forced to hand over a portion of the billions of dollars in revenue from its blockbuster cure for hepatitis C.

The verdict in federal court in San Jose, Calif., is a setback for Gilead, whose drugs Sovaldi and Harvoni brought in $19.2 billion in worldwide sales last year. Merck has demanded more than $2 billion in damages and a royalty of 10 percent of Gilead’s sales going forward. The jury must now decide exactly how much Gilead owes.

Gilead shares were down $1.92 to $91.80 in after-hours trading. Merck rose 57 cents to $53.60.

In a statement, a Gilead spokeswoman, Michele Rest, said, "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."

A spokeswoman for Merck said the verdict "accurately reflects the evidence in this case," adding that strong patent protection is essential to innovation. . . .

We should know more in about two weeks' time. Until then -- let's just try to chill, okay? Now off to bed, all you buckaroos!

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