Chiron Corp. finalized a settlement agreement with F. Hoffmann-La Roche Ltd. concerning an HIV patent late last week, then announced Monday an agreement to provide InterMune Inc. with its hepatitis C targets.

While terms of the second agreement were not disclosed, the first agreement means a payment of $78 million in lieu of royalties for Chiron, of Emeryville, Calif.

Resolving a disagreement over licensing fees and royalties, Chiron and Roche, of Basel, Switzerland, came to terms concerning an HIV patent covering nucleic acid testing (NAT) methods.

"There was a dispute between Chiron and Roche as to the exact nature of what Chiron was owed under its HIV patent," said John Gallagher, media relations manager at Chiron.

Chiron attained the patent in March 2003 and expected to then receive royalties on Roche's NAT products used in the U.S. While payments were made, they weren't along the lines of what Chiron was expecting, so the company initiated an arbitration against Roche last November. The arbitration was held in June.

The settlement agreement concerns U.S. Patent No. 6,531,276. Roche will pay Chiron $78 million in a lump-sum payment in lieu of royalties beyond Jan. 1, 2005, and through 2020, when the patent expires. Chiron will keep the money it received while the matter was in dispute.

"We did receive payments from Roche under the agreement, but a portion of the payments were recorded as deferred revenue," Gallagher told BioWorld Today.

However, Roche has an option to obtain a partial refund of the $78 million and revert to paying royalties on the sales of its NAT diagnostic products in North America. The amount of the potential refund and the royalty rate would depend on when the election is made. It could be as much as a $64 million refund, and royalties of between 11 percent and 19 percent. The amounts decrease in equal quarterly increments over the eight quarters of 2005 and 2006.

Chiron expects to recognize $64 million of the payment as revenue over those eight quarters, while the remaining non-refundable $14 million would be recognized as revenue in the third quarter of 2004.

The settlement agreement does not affect royalties that Chiron already receives for its HIV technology from Roche and other licensees under its ex-U.S. patents.

Chiron and Roche first formed an agreement in 2000 for HIV and hepatitis C virus technology. They revised it in May 2001 for Roche to manufacture and sell probe-based HIV-1 and HCV blood screening tests worldwide, detailing new royalty rates.

InterMune Using Chiron Targets For HCV

Chiron continues to provide access to its HCV technology, with InterMune as its latest licensee. InterMune, of Brisbane, Calif., gained a nonexclusive license to discover, develop and commercialize small-molecule therapeutics against certain HCV targets covered by Chiron's patents. The license supports InterMune's 2002 agreement with Boulder, Colo.-based Array BioPharma Inc., in which the companies have identified and characterized several highly potent preclinical protease inhibitor candidates with improved in vivo bioavailability over small-molecule competitors.

InterMune needed the license from Chiron to move forward with its research, said Lawrence Blatt, the company's senior vice president of preclinical and applied research.

"It's a sign of our confidence in our program that we did take a license at this point," Blatt told BioWorld Today.

InterMune expects to present data on three protease inhibitor candidates in October at the 55th annual meeting of the American Association for the Study of Liver Diseases in Boston. The company has not disclosed when any of the candidates might reach the clinic, but has said that protease inhibitors represent one of the most promising new classes of drugs for HCV.

Another Chiron licensee, Boehringer Ingelheim GmbH, of Ingelheim, Germany, took a protease inhibitor into the clinic for HCV, but later stopped development. The product showed substantial antiviral effects, Blatt said, but researchers found evidence of preclinical cardiac toxicity.

"We believe we understand the reasons for that cardiac toxicity and that we've engineered those out of our protease inhibitors," Blatt said.

While financial terms of the agreement with Chiron were not disclosed, during the summer Chiron began offering a "no entry cost" option for the use of its HCV technology, allowing licensees to access the technology without making up-front or annual payments in return for higher royalties. The first nonexclusive no entry cost license went to San Francisco-based Prosetta Corp. in June. Neither Blatt nor Gallagher would say whether InterMune took the no entry cost option.

Chiron's HCV technology had its beginnings in 1987 when two company scientists cloned and first identified HCV as the cause of transfusion-related non-A and non-B hepatitis. It was the first time a virus was cloned before it had been grown in tissue culture or otherwise isolated.

In 2003, Chiron granted nonexclusive licenses to its HCV technology to Boehringer Ingelheim; Foster City, Calif.-based Gilead Sciences Inc.; New York-based Pfizer Inc.; South San Francisco-based Rigel Pharmaceuticals Inc.; and Cambridge, Mass.-based Vertex Pharmaceuticals Inc. Roche also has a license to the technology.

"We have an obligation to the public health because of the pioneering science that we did around HCV," Gallagher said. "Therefore, we have a broad licensing policy, which hopefully will speed production of compounds that will help address HCV infection."

Chiron markets and develops the Procleix System in collaboration with San Diego-based Gen-Probe Inc. The system screens whole-blood donations for HCV, HIV-1 and hepatitis B. Chiron also is studying two HCV vaccine candidates in Phase I and has a small-molecule therapeutic in preclinical testing.

Aside from its small-molecule program with Array, InterMune is studying Infergen in Phase II and III trials in HCV patients who do not respond to standard therapy.

About 3.9 million Americans have been infected with HCV, according to the Centers for Disease Control and Prevention. The infection causes an estimated 10,000 to 12,000 deaths annually in the U.S.

Chiron's stock (NASDAQ:CHIR) rose 47 cents on Monday, to close at $44.63, while InterMune's stock (NASDAQ:ITMN) rose 90 cents, to close at $11.04.

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