In a dual blow to ImClone Systems Inc. and its distribution partner Bristol-Myers Squibb Co., a federal judge in New York ruled that three Israeli scientists are the true owners of the patent covering the big-selling cancer drug Erbitux. Other patent cases
ImClone is expected to appeal the 140-page decision issued late last night by U.S. District Judge Naomi Reice Buchwald that awards sole ownership of the Erbitux patent to the Israeli scientists.
Spokesmen for ImClone couldn't be reached. A spokesman for Bristol, which is still reeling from woes related to generic-drug competition and the firing of its chief executive, declined to comment, saying he hadn't seen details of the decision.
In 2003, Yeda Research & Development Co., the technology-transfer arm of Israel's Weizmann Institute, sued ImClone, challenging its exclusive license from patent holder Sanofi-Aventis to the tumor-inhibiting drug patent. Aventis had claimed ownership of a method of using the drug, a monoclonal antibody, in combination with chemotherapy. But an award of sole ownership would give Yeda power to license the drug to others.
The decision casts doubt on who will reap future profits from Erbitux, which is used to treat late-stage colorectal cancer. In March, the drug won an expanded label for the treatment of head and neck tumors. Some analysts expect 2006 world-wide sales to top $1 billion, of which ImClone receives a 39% royalty from partner Bristol on U.S. sales and a 9.5% royalty from its European partner Merck KGaA on sales outside the U.S.
The ruling is more bad news for Bristol, which has been reeling from a failed deal to delay generic competition to its best-selling drug, the blood thinner Plavix. Last week, Bristol-Myers fired its CEO, Peter Dolan, after the company disclosed that a Plavix knockoff launched by Canada's Apotex Inc. Aug. 8 would cost it as much as to $600 million in lost sales. Though a court has ordered Apotex to stop selling the generic, enough of it has been shipped to wholesalers to satisfy demand through the beginning of next year.
Under a 2001 deal with ImClone, Bristol is Erbitux's co-marketer. Erbitux brought Bristol $172 million in revenue in the second quarter. If ImClone loses patent rights over the drug, that revenue could be in jeopardy. Bristol also owns a 20% stake in ImClone that it paid $2 billion for under the 2001 deal. Bristol faces the risk of having to further write down the value of that stake, which would also affect its earnings.
But ImClone, practically a one-product company, lacks Bristol's variety of products to cushion the potential blow.
"This can only be bad for ImClone," HSBC biotech analyst Gene Mack said. "It will be a hit to their earnings." Among immediate questions: Does ImClone owe Yeda scientists a penalty or back royalties? Also unclear is who will win a license from Yeda, and longer term, who will win on appeal. But a forecast of hundreds of millions of dollars at stake may be overblown, he said.
"Realistically, what's going to happen? Yeda doesn't have wherewithal to commercialize the drug. ImClone is going to have to keep making and selling it. It is in both parties' interests that the drug remain on the market. Royalties on zero is still zero," Mr. Mack said. He said filing of an appeal is "absolutely" certain.
Under one scenario, Mr. Mack said, ImClone might license the drug from Yeda and pay a 3% royalty on projected 2006 Erbitux sales of $1.1 billion, amounting to about $34 million of ImClone's anticipated royalties stream equaling $314 million. "So it would be over a 10% hit."
Still, Erbitux is ImClone's only real asset, and analysts like Mr. Mack have expressed concern that the company's pipeline holds few other candidates for near-term growth. After a disappointing response to its invitation to suitors this year, ImClone's management has decided to go it alone. Investor Carl Icahn recently increased his stake in the company to nearly 14% and proposed a slate of three directors facing election at ImClone's annual meeting this week. In trading before the court's decision yesterday, the company's stock was down 25 cents to $30.52 on the Nasdaq Stock Market.
Whoever now owns it, Erbitux faces competition from Amgen Inc.'s rival colon-cancer drug Vectibix (panitumumab), which has received priority review from the Food and Drug Administration, pointing to possible market approval as soon as late 2006 or early 2007. The Amgen drug is expected to be Erbitux's equal in efficacy, with a potential edge in patient tolerability.
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