Legal

Gilead’s rep takes another punishing blow as a bad, no good, awful year just got worse

Round two in the heavyweight fight over control of billions of dollars in hepatitis C drug money goes to Merck after a jury leveled a knockout, $2.54 billion punch against Gilead for violating its drug patents.

The record patent judgment covers a 10% royalty payment on Gilead’s blockbuster sales for Sovaldi and Harvoni, with the jury adding insult to injury by upholding Merck’s patent claims, which originated from its $3.9 billion buyout of Idenix in 2014.

The first round in this legal war went to Gilead, after a $200 million jury award in California was thrown out after a judge concluded that a prominent Merck witness had lied, exposing Merck to a hefty penalty on legal costs. But investors quickly took their eyes off that misstep with a much bigger award in the separate case in Wilmington, DE.

Merck’s shares $MRK tipped up more than 1% on the news, while Gilead $GILD saw its stock take a 2% hit.

Gilead will certainly appeal the decision, and Merck likely faces years of litigation before it sees a dime. But the award stains one of the signal achievements of the past 10 years, after Gilead scored a mountain of revenue in painlessly curing hepatitis C. Its advance of Sovaldi created a new standard for treatment in the field, which Merck and AbbVie have been vying to match.

Brian Skorney, Baird

Brian Skorney, Baird analyst

The punishment phase also isn’t over.

“Now, the judge will decide if the penalty should be upped and if Gilead must pay a go-forward royalty,” notes Baird’s Brian Skorney this morning. “Gilead plans to appeal, but a royalty is looking increasingly likely even though we think the basis for infringement claims are tenuous.”

The flow of blockbuster cash has slowed considerably for Gilead, leaving the company in a weakened position. The big biotech has ignored repeated advice to wade out into the market and make another big purchase to help build a late-stage pipeline that has now suffered repeated setbacks in recent months.

While Gilead may be able to continue its fight with Merck, it has to do something now that can help mend a badly frayed reputation, which just took another punishing blow.


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