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Disclosing that the FDA has accepted its biologics license application for Avastin, Genentech Inc. said also that it has agreed in principle to resolve the patent dispute with Protein Design Labs Inc. involving humanized antibodies, including that drug and two others already approved.

"I don't think Genentech really wanted to go into litigation and I don't think they would have been best served by going into litigation," said David Bouchey, analyst with CE Unterberg Towbin in Denver.

Wall Street gave PDL credit, too. Its stock (NASDAQ:PDLI) rose $3.16, or 22.8 percent, to close Monday at $17.02. Genentech's shares (NYSE:DNA) ended the day at $85.23, up 93 cents.

The agreement, which both parties are working to ratify by the end of this year, would include South San Francisco-based Genentech's exercise of licenses under the companies' cross-licensing deal for the asthma drug Xolair (omalizumab), the psoriasis drug Raptiva (efalizumab) and - when it's approved - the colorectal drug Avastin (bevacizumab).

PDL's stock dipped more than 25 percent when, in August, Genentech said it believed the 1988 deal did not require a license for Xolair. The news caused investors to worry that royalties from other products also would be endangered. (See BioWorld Today, Aug. 18, 2003.)

"Genentech's arguments were very scientific and factual based on the sequences for Xolair," Bouchey said, noting that the dispute did not specifically include Raptiva or Avastin.

He said he was surprised that Avastin was included in the agreement, although investors otherwise probably would have expected it later.

"Raptiva should be in there," he added. "It's about time for them to take a license for that anyway, since it's approved." The FDA cleared the drug about a month ago. (See BioWorld Today, Oct. 29, 2003.)

The original license agreement let both companies avoid a patent skirmish, with Genentech paying $6 million up front and PDL paying $1 million. Genentech took a nonexclusive license for the breast cancer drug Herceptin (trastuzumab), approved in September 1998, under PDL's patents, and PDL was expecting more as sales from the other drugs rolled in.

PDL gets royalties from other humanized monoclonals as well: Gaithersburg, Md.-based MedImmune Inc.'s Synagis (palivizumab) for respiratory syncytial virus; Nutley, N.J.-based Hoffmann-La Roche Inc.'s Zenapax (daclizumab) for rejection of kidney transplants; and Mylotarg (gemtuzumab ozogamicin) from Wyeth, of Madison, N.J.

The agreement with Genentech, once nailed down, seems to keep the money flowing to PDL even though, as part of the deal, PDL would agree to reductions for high levels of annual sales of the antibodies. Nothing specific was disclosed, but Bouchey said he did not expect a change in the royalty income as a result of the deal during "the next three or so years."

That's important, he said, because in five years or less, investors will begin to regard PDL's royalty revenues from Genentech as "gravy, but not what you own the stock for."

Earlier this year, PDL paid $80 million to Hoffmann-La Roche for all rights outside of transplants to Zenapax, which targets the interleukin-2 receptor on activated T cells. As part of the new arrangement, PDL's royalties rose from 10.5 percent to a number just shy of 20 percent. (See BioWorld Today, Oct. 1, 2003.)

Zenapax is in a Phase II fully enrolled trial in patients with severe asthma, with data due in the first quarter of next year. PDL also is developing Nuvion (visilizumab), a humanized antibody for severe ulcerative colitis, and data from a Phase II trial are expected in mid-2004. Another PDL Phase II program is evaluating HuZAF (anti-gamma interferon antibody) in a pair of trials for Crohn's disease, with results expected at a scientific meeting in May 2004.

With the changed picture regarding Genentech, Bouchey upped his royalty revenue estimates for PDL from $62.5 million to $82 million for 2004; from $71.9 million to $117 million for 2005; and from $89.6 million to $157 million in 2005.

"However you want to design the specifics [of the patent agreement], it comes out to the same thing in the end," Bouchey told BioWorld Today. "The base royalty does not get reduced, which is a positive for PDL, and the overall amount that Genentech has to pay appears to be restrained."

Separately, Genentech said the Avastin BLA has been accepted and granted priority review by the FDA, which means the agency has until the end of March to take action on the filing. Avastin would be a first-line treatment for metastatic colorectal cancer in combination with chemotherapy.

Recently, the company reported Avastin missed its primary endpoint in a Phase II trial for colorectal cancer, but the data from the smaller trial - testing Avastin plus 5-FU/leucovorin - were not expected to impede the drug's approval. (See BioWorld Today, Dec. 1, 2003.)

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