Resolving a legal dispute over anti-IgE antibodies, Tanox Inc. relinquished its manufacturing rights to the marketed asthma drug Xolair and will receive reimbursed development costs for TNX-901.

The settlement finalizes the terms of its three-way partnership with Novartis Pharma AG, an affiliate of Basel, Switzerland-based Novartis AG, and Genentech Inc., of South San Francisco, concerning the development and commercialization of certain anti-immunoglobulin E, or anti-IgE, antibodies.

As part of the agreement, Genentech and Novartis each will reimburse Tanox $3.3 million - for a total of $6.6 million - for expenses related to the development of TNX-901 for peanut allergies. In turn, Tanox is giving back its manufacturing rights for Xolair, but will receive payments tied to the quantity of Xolair produced.

"Overall, we feel this is a very fair resolution for all companies," said Ashraf Hanna, vice president of strategic planning and business development at Houston-based Tanox. "We didn't think that any arbitrators would have the time to delve so deeply and make the appropriate compromises that would satisfy us all so much in settlement."

Tanox did have rights to manufacture 50 percent of Xolair supplies, but Hanna said it would have required the company to build a large manufacturing facility. Novartis will take over most of the manufacturing responsibilities from Genentech, he said.

As part of the resolution agreement, Tanox also will be forgiven a Novartis loan, which was used to finance the construction of its biologics manufacturing plant in the mid-1990s. The plant had manufactured Tanox's clinical materials of TNX-901 and would not have been big enough to manufacture Xolair. TNX-901 finished a Phase II peanut allergy trial in 84 patients last year. The drug showed an increase in the amount of peanut flour required to induce a hypersensitivity reaction.

However, Tanox plans to develop Xolair for peanut allergy, using TNX-901 as a back-up product, Hanna said.

TNX-901 was the first anti-IgE antibody developed globally by Tanox, which obtained the intellectual property to the product, Hanna said. Tanox and Novartis took Xolair, the second drug developed, through Phase II trials. At the same time, Genentech announced it had its own anti-IgE antibody, igniting the legal disputes that began in 1993 between the companies over breach of contract and patent infringement. The companies thought they resolved the situation in 1996 when Genentech paid Tanox about $60 million. (See BioWorld Today, July 10, 1996.)

"The biggest issues were resolved then," Hanna told BioWorld Today. "But all that was written was an outline, an eight- or 10-page outline of terms. What was supposed to happen was a definitive agreement that was supposed to be signed."

The companies continued to dispute details of the agreement. In 2002, an arbitration panel issued a decision that Tanox did not have the right to independently develop TNX-901, but that Novartis was obligated to share with Tanox its expertise regarding Xolair. (See BioWorld Today, Oct. 18, 2002.)

Now, the companies have a 500-page document to guide them in their collaboration.

"Xolair is on the order of reaching $1 billion in sales," Hanna said, "so everyone has every incentive to make sure all the smallest possibilities are taken care of."

As was stated in the original agreement, Tanox receives a 10 percent royalty on U.S. and European sales of Xolair, while Novartis and Genentech co-promote the drug in the U.S. Novartis markets it outside of the U.S. Representatives of all three companies will serve on committees to oversee further development and commercialization of the drug and other collaboration products. The companies filed an investigational new drug application with the FDA in November to begin a Phase II trial of Xolair in peanut allergy early this year.

Last June, the FDA approved Xolair (omalizumab), a first-in-class monoclonal antibody for moderate to severe persistent asthma in adults and adolescents. (See BioWorld Today, June 23, 2003.)

Xolair is Tanox's first approved drug. Genentech reported $25.3 million in sales for the year.

Tanox's stock (NASDAQ:TNOX) dropped 12 cents on Thursday to close at $16.12.