In what is described as the largest settlement ever in a biotechnologypatent dispute, Eli Lilly and Co. has agreed to pay Genentech Inc.$145 million to end an eight-year battle over patents relating torecombinant human growth hormone.

The out-of-court settlement, announced Thursday, also brought to aclose a breach of contract fight between the two companies overtheir 1978 agreement to manufacture and sell recombinant humaninsulin.

In addition, Genentech agreed to dismiss another patent infringementsuit against Malvern-Pa.-based Centocor Inc. relating to ReoPro, ananti-blood clotting drug Centocor is marketing in collaboration withLilly.

Genentech, of South San Francisco, and Lilly, of Indianapolis, saidthe resolution of the various disputes ends all litigation between thetwo companies.

Peter Drake of Vector Securities International in Deerfield, Ill., saidthe settlement easily is the largest in the biotechnology industryrelated to patent infringement.

Barbara Hoffman, of Piper Jaffray Inc. in Denver, said the $145million payment from Lilly exceeds Genentech's 1994 projectedtotal income before taxes of $130 million.

Under the agreement, Lilly will make an initial payment of $25million to Genentech followed by quarterly payments of $7.5 millionbeginning in March for the next four years. Also the companies'profit sharing on sales of insulin has been amended, boostingGenentech's royalties. And in return for dismissing the court actionagainst ReoPro, Genentech will receive a small percentage ofCentocor's royalties from that drug.

Hoffman estimated the overall settlement could add as much as 20cents per share to Genentech's 1995 earnings.

Genentech would not comment on how the Lilly agreement mayaffect its other patent battles over human growth hormone withBiotechnology General Corp. (BTG), of Iselin, N.J., Denmark-basedNovo Nordisk A/S and Switzerland-based Ares Serono Group. (Formore information on these cases, see BioWorld Financial Watch,Jan. 2, 1995.)

However, Genentech said the four patents under dispute with thosethree companies are included in the 14 patents involved in thesettlement with Lilly.

As a result, Hoffman speculated, resolution of the fight with Lillyprobably will have a positive effect on Genentech's effort to protectits human growth hormone patents in the U.S. against BTG, NovoNordisk and Ares Serono. All three sell their products outside theU.S., but have not received FDA approval.

Third-Party Competition Is Out

Drake suggested that "by settling the lawsuit with Lilly and cross-licensing a series of patents, Lilly and Genentech have putthemselves in a strong position to defend those patents for humangrowth hormone . . . and keep out third-party competition from theU.S. market."

Drake likened the Lilly-Genentech agreement on human growthhormone to the cross-licensing of alpha interferon by Schering-Plough Corp., of Madison, N.J., and Switzerland-based RocheHoldings Ltd. in the early 1980s.

The settlement by Lilly and Genentech has the potential of not onlyprotecting their U.S. market share for human growth hormone," hesaid, "but also of keeping third parties from competing on price."

Genentech's Protoprin was the first recombinant human growthhormone product approved by the FDA in 1985. It is marketed forhormone deficiencies in children. In 1993, the company gotclearance to market a similar product, Nutroprin, for growth failurein children due to renal insufficiency. Lilly's product, sold asHumatrope, was approved by the FDA in 1987 for hormonedeficiencies in children.

Genentech controls 75 percent of the U.S. market to Lilly's 25percent share. Total annual sales of human growth hormone arebetween $300 million and $400 million.

The growth hormone battles began in 1987 when Lilly sued infederal court alleging infringement of three patents. Genentechcounter-sued Lilly claiming 14 patent violations.

Lilly said Thursday the $145 million settlement will not affect itsincome statements because it reserved funds to cover the payments.Neither Lilly nor Genentech would comment on how the settlementfigure was reached.

Drake estimated Lilly and Genentech will save a combined $20million to $25 million a year in legal expenses by ending thelitigation.

As for dismissing the court action against Centocor, none of theparties would say specifically why the ReoPro patent infringementsuit was included in the settlement. Spokesmen for Lilly andGenentech merely suggested it was a convenient way of ending alllitigation between the two.

But Drake speculated the agreement reflects Genentech's aggressiveand creative approaches for protecting itself.

"Genentech played a chess game with its patent strategy and itplayed out favorably for Genentech," he said.

By suing Centocor last April for patent infringement, Drakesuggested, Genentech put itself in a position to affect sales ofReoPro, which was approved in late December by the FDA andEuropean Union regulatory officials. And in the long term, Drakesaid, ReoPro is more important to Lilly than Humatrope.

Centocor officials said that under the settlement between Lilly andGenentech, the latter will receive its royalties on ReoPro fromCentocor's share of the profits. In suing Centocor, Genentechclaimed that ReoPro, a monoclonal antibody, infringed on its patentcovering scientific methods used to produce monoclonal antibodies.

On Wall Street Thursday, Genentech (NYSE:GNE) closed at $46.12,unchanged. Lilly (NYSE:LLY) was up 25 cents to $65.37 andCentocor (NASDAQ:CNTO) increased 12 cents to $17.12. n

-- Charles Craig

(c) 1997 American Health Consultants. All rights reserved.