West Coast Editor
Ariad Pharmaceuticals Inc.'s stock jumped after news of a victory valued at about $65.2 million in its patent lawsuit against Eli Lilly and Co. - though Lilly plans first to ask the judge to set aside the jury's verdict regarding Evista and Xigris and then to appeal, if necessary.
Wall Street boosted Cambridge, Mass.-based Ariad's stock (NASDAQ:ARIA) 26.2 percent to close at $6.99, up $1.45.
"We think it's pretty impressive, what Ariad was able to do," said Joel Sendek, analyst with Lazard Capital Markets in New York, calling the decision "about as positive as you can get, at this point in the process."
The dispute involved Ariad's U.S. patent covering methods of treating disease by regulating NF-kappa B cell-signaling activity, and jurors awarded damages to Ariad and its co-plaintiffs based on a royalty rate of 2.3 percent, to be paid in accordance with U.S. sales of Evista and Xigris from June 25, 2002 (when the lawsuit was filed), through Feb. 28, 2006.
Evista (raloxifene) is a selective estrogen modulator for osteoporosis that sold upward of $1 billion last year for Indianapolis-based Lilly. Xigris (drotrecogin alfa), the only approved therapy for septic shock, sold $215 million.
Further damages are to be paid on an ongoing basis, in amounts yet to be determined, equal to 2.3 percent of U.S. sales through 2019, when the patent expires. Co-plaintiffs in the case are Massachusetts Institute of Technology, the Whitehead Institute for Biomedical Research and the President and Fellows of Harvard College.
Sendek estimated the value of the decision for Ariad at about $3 per share, "including $1 for the $65 million, and $1.85 or so" in the future, using what he said was a "relatively conservative growth rate" for the two products.
Robert Armitage, senior vice president and general counsel for Lilly, said that "if practicing technology that's already known, and therefore is old, infringes a patent, the inventor hasn't properly limited the patent to technology that is new."
The patent in question "arose from the discovery of a naturally occurring biological pathway," he added in a prepared statement, "but Ariad contends that the patent examiner issued a patent on all means for modulating this pathway" - a position Armitage said is "equivalent to discovering that gravity is the force that makes water run downhill and then demanding the owners of all the existing hydroelectric plants begin to pay patent royalties on their use of gravity."
Sendek estimated a decision in appeals court would take a year to 18 months. Ariad said that, once the smoke clears, the company intends to go after others using the technology - which would include Thousand Oaks, Calif.-based Amgen Inc.'s Enbrel (etanercept), the rheumatoid arthritis drug that sold $2.5 billion last year.
Amgen apparently saw it coming, and last month filed to seek a declaratory judgment that claims in the Ariad patent are invalid, and that Amgen has not infringed on them with Enbrel or Kineret (anakinra), also for RA.
If the latest decision is upheld, Ariad will have "carte blanche to solicit licenses from a number of other biotech companies, and royalties that could be even higher," Sendek said - possibly in the 3 percent to 4 percent range, consistent with the lucrative antibody humanization held by Protein Design Labs Inc., of Fremont, Calif.
Companies with drugs in the works that use the pathway might line up for licenses, too, he said, "although it's really unclear how aggressive or conservative companies would be in that process."
A ruling that holds up to appeals could be "transformational" for Ariad, Sendek said, although "we do our best to handicap that" and keep a realistic view.