sorgfältig ausgearbeitet... sonst kann das MOR noch viel Ärger einbringen.
Z.B. CAT und Abbott streiten sich immer noch um Humira-Royalties... und 1% oder 5% von zu erwartenden 2 Mrd. USD Umsatz sind nicht gerade wenig für CAT
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Abbott will mit "Humira" 2005 Umsatz von 1,2 Mrd USD erzielen
CHICAGO (Dow Jones-VWD)--Die Abbott Laboratories Inc, Abbott Park, will den Umsatz mit dem Medikament "Humira" im kommenden Jahr auf 1,2 Mrd USD steigern. Wie Abbott am Freitag während einer Telefonkonferenz zu ihren Zweitquartalszahlen weiter mitteilte, erzielt sie rasche Fortschritte bei Tests, mit denen die Wirksamkeit des Medikaments bei anderen Indikationen als rheumatischer Arthritis erprobt werde. Mit einem Umsatz von 203 Mio USD im zurückliegenden Quartal hatte Humira die Erwartungen von Abbott übertroffen und das Unternehmen veranlasst, seine Jahresumsatzprognose für das Präparat auf 800 Mio von 700 Mio USD anzuheben.
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CAT Fight with Abbott: The Calculus of Royalty Offsets and Partnering Reputation
Abbott’s contract dispute with CAT underscores the complexity of sorting through current patent thickets and the repercussions of royalty offset clauses.
By Hazel Dawson
There have been disputes over biotech/pharma contracts since the beginning of the industry—the most famous being the bitter row between Amgen Inc. and Johnson & Johnson over the co-marketing agreement signed for erythropoietin. In the original lawsuit, the courts largely agreed with J&J’s interpretation of the contract, but in another sense, J&J clearly lost: its reputation as a partner suffered for many years.
Pfizer Inc. was faced with a similar situation with Ligand Pharmaceuticals Inc., which claimed Pfizer had violated their contract when it in-licensed droloxifene (a precursor to its current pipeline product, lasofoxifene) from Fujisawa Pharmaceuticals Ltd.’s Klinge Pharma GMBH in 1994; Ligand accused Pfizer of using a proprietary Ligand screen to identify the compound. But instead of going to trial, with the attendant appeals, Pfizer decided to settle the lawsuit. Said a senior Pfizer official at the time: the company wanted to send a message "that we won’t trample over partners."
Former Warner-Lambert and Pharmacia Corp. employees might believe otherwise (Pfizer gobbled up each of those partners, the former in a hostile takeover) but in terms of biotechs since the Ligand suit, Pfizer has been extraordinarily careful—so careful, in fact, that it’s shown itself willing to pay generous prices for unfettered, royalty-free access to technologies.
Thus the contract fight between Abbott Laboratories Inc. and Cambridge Antibody Technology Group PLC (CAT) over two partly overlapping royalty-giveback clauses has implications far beyond the money—which itself is not inconsiderable.
Few European biotechnology companies have succeeded in getting products to market, so when potential blockbuster adalimumab (Humira), co-developed by CAT and Abbott, was launched in the US earlier this year, the news provided a welcome boost for both the biotechnology company itself and the broader sector. This was evidence that all the investment and faith in European biotechnology was finally starting to pay off.
A few months down the line however, things look a lot less promising for CAT. In mid-March 2003, Abbott notified CAT that it wants to apply a royalty offset clause in their contract to reduce payments to CAT by as much as 75%--perhaps $60 million annually, should Humira reach the $2 billion peak annual sales levels estimated for it, a sum that would wipe out CAT’s entire current net loss and then some.
The offending clauses date back to a contract signed in 1995 between CAT and the pharmaceutical division of BASF AG, Knoll Pharmaceuticals Co., which was acquired by Abbott in 2000 . (See "Abbott’s Knoll Advantage," In Vivo Europe Rx, March 2003 .) CAT was to use its phage display technology to deliver antibody drug candidates to six targets provided by Knoll, which would develop and market the drugs as it saw fit, paying milestones and an estimated 4-5% royalties on sales to CAT . So far, the companies have announced details of two projects that have come out of this collaboration: anti-TNF alpha antibody Humira and anti-IL12 antibody ABT 874, which is about to enter Phase II trials.
According to CAT, the royalty offset clauses—and there are two slightly different clauses, a fact which lies at the heart of the dispute—that were incorporated to provide Knoll with some protection in the event that it had to license further IP down the line relating to the phage display technology. The clauses indicate that under certain circumstances, royalties payable to third parties can be offset against CAT’s royalties, subject to a minimum royalty level, which analysts estimate to be about 1% of sales.
It’s now broadly accepted that CAT has the dominant IP position in phage display, through patents licensed from the UK’s Medical Research Council (MRC), and as such, as far as the company is concerned, the clause is effectively redundant. But when the deal was signed in 1994, according to CAT’s CEO Peter Chambré—who didn’t join the company until 2002—the patent situation was far less clear. "It was quite natural for Knoll to seek some protection in the event that it had to take multiple licenses to operate the phage display technology described in our patents," he says.
Abbott seems to take an entirely different view of the situation, though it won’t make any official comment. It appears to be asserting that the second of the two clauses applies the offset to any royalties payable on the product, including royalties payable on both the TNFa target (over which Serono SA and Peptech Ltd. claim rights) and on the manufacturing process used to produce the antibody (owned by Genentech Inc.).
Given the financial implications, CAT hotly disputes Abbott’s assertion, and the two parties are currently in discussions in an attempt to resolve the disagreement. Since the contract dictates that royalties to CAT are payable six months in arrears, the first payment falls due in October 2003, giving the companies a target date for resolution of their differences. "If we haven’t reached a satisfactory solution by then—and by satisfactory I mean consistent with our view—it’s very likely thereafter that we will enter some form of legal process," says CAT’s Chambré.
Royalty offset (or anti-stacking) clauses are commonplace in licensing contracts between biotechs and their pharmaceutical company licensees. Given the increasing complexity of IP ownership positions, companies often have to take licenses to numerous patents in order to get a single product to market, with the royalties on different patents stacking up on top of each other. The provisions can be broad or narrow depending on what offsets the company is trying to achieve. For example, if a company needs relief against truly overlapping patents in order to practice a technology then the provision would be narrow, whereas if it’s looking for relief against the whole range of patents it would need to get a product to market, the provision would be much broader. Notes Marc Rubenstein, a partner at the law firm of Ropes & Gray LLC: "In this case, it looks like Abbott is trying to claim broad relief. But the question remains whether that is what Knoll bargained for when it initially negotiated the contract."
The dispute centers around two blocks of contract text, from Articles 5 and 12 (See Exhibit 1). The texts are slightly different and it’s those differences that give Abbott room to present its arguments. Although the contract is governed by UK law, Rubenstein suggested that under US law, "A court will look at these two provisions and be obligated as a matter of law to try and understand why the parties didn’t use the same language and would be obligated to give separate meaning to this different language."
Article 5 favors CAT’s interpretation. "I read ‘to practice or have practiced the technology claimed in the patents’ as quite narrow language that seems, after the fact, to have been drafted to cover the specific concerns over the underlying ownership of the phage display technology," says Rubenstein.
The repetitive Article 12, however, discusses the offset if additional royalties must be paid "to utilize or have utilized the inventions of the patent"--a more ambiguous phrase that could be construed as referring to the antibody itself. And one can’t necessarily "utilize" the antibody without paying royalties to the target owners and to the owner of the manufacturing patent. "I think this language is more helpful to Abbott," Rubenstein says. Moreover, he adds: if the same thing was meant in both clauses, why use different language?
But Article 12 doesn’t stop there. In a following sentence, the contract notes, "This offset shall not include royalties to licenses which are beyond the scope of the technology described in the patents"—language, Rubenstein contends, that is very helpful to CAT since neither Genentech’s manufacturing technology nor Serono’s target is described in CAT’s patents.
Humira is widely forecast to achieve peak annual sales of around $2 billion. If Abbott prevails in its attempt to offset third party royalties against its obligations to CAT, the company stands to lose as much as $60 million, which is bound to hurt. "It is a big blow," admits Sally Bennett, VP, biotechnology, equity research of ING Financial Markets.
Not directly, perhaps. CAT can’t use the Humira royalties to build a sustainable business: it needs a pipeline of products, which it is in fact trying to develop. But the Humira royalties won’t provide it the cash it needs to fund its R&D program, certainly not before peak royalty income kicks in after 2006, by which time it will have had to raise additional funds.
Nonetheless, the assurance of the royalty stream would have allowed it to raise more cash, on better terms, because investors would be more willing to invest in a company that could supplement its R&D spending with a significant, predictable revenue stream. The royalty stream would also have allowed it to pursue more favorable debt financing.
And financing has clearly been on CAT’s mind. It was outbid last year in its effort to buy Inwest Investment Ltd.’s Drug Royalty Corp. to access its cash flow . And the Abbott dispute, with the subsequent fall in its stock price, helped scupper its attempt to buy Oxford GlycoSciences PLC, also largely to access its cash . Celltech Group PLC’s higher cash counterbid for OGS would probably have prevailed in any event, "but the news of the royalty dispute was the nail in the coffin that made it virtually impossible for CAT to increase its bid and stay in the running for OGS," says Bennett. (See "The Battle for OGS," In Vivo Europe Rx, April 2003 .)
Abbott isn’t looking to merely save $60 million a year. One analyst notes that the same contract is also applicable to as many as five further products that could come out of the company’s collaboration with CAT, including ABT-874. Just to save the $60 million on Humira alone when the company is expecting to book sales of $19 billion this year, says Michael Weinstein, pharmaceuticals analyst at JP Morgan Chase & Co. in New York, "It’s questionable as to whether the dispute is really worth it."
Particularly because the dispute has significant non-financial costs. "Being seen to haul your biotech partner over the coals for a few percentage points—especially when they’re getting such small percentages anyway—leaves a bitter taste in the mouth and could well make other companies think twice about partnering with Abbott in the future," suggests one commentator. Others agree that while Abbott may gain a short-term financial victory, the perception that it’s an untrustworthy partner could prove much more costly in the longer term.
Few problems with royalty offset clauses have come to light as yet. But the CAT/Abbott dispute should send companies looking again at such clauses in their current contracts, and they will be much more attentive to those they agree to in the future.
The dispute’s implications aren’t limited to royalty offsets. In the first place, any time two clauses cover similar ground but use different language, that should raise a red flag. And there are plenty of details in a contract that can be covered in multiple clauses—overlapping clauses covering agreements about when to co-market and when to co-promote, for example, or clauses that set values for exit or change-of-control provisions. If possible, eliminate the duplicative clause; if not, make sure the overlapping language in the clauses is as nearly identical as it can be made.
In short, details matter. In the heat of the negotiation, and particularly towards the end of a negotiation, when the contract has been argued and re-argued, no one wants to re-open discussions about a specific clause, especially if the partner to whom it is important hasn’t brought up the problem in an earlier round of discussions—and thus appears to be either creating problems where none before existed or not having done the requisite contract examination when it should have been done. Such problems can be especially acute for biotechs doing their first few deals—like CAT with Knoll--when they need alliances the most, have the least negotiating leverage, and are focusing their attention on what seem like more important parts of the contract (R&D fees and technology usage rights, perhaps). Whatever the outcome of the dispute between CAT and Abbott, the lesson for biotech companies is clear: learn from CAT’s mistake. Pay attention to the contract details or risk the financial penalty.
(A version of this article ran in In Vivo Europe Rx, July 2003.)
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mfg ipollit
Z.B. CAT und Abbott streiten sich immer noch um Humira-Royalties... und 1% oder 5% von zu erwartenden 2 Mrd. USD Umsatz sind nicht gerade wenig für CAT
********
Abbott will mit "Humira" 2005 Umsatz von 1,2 Mrd USD erzielen
CHICAGO (Dow Jones-VWD)--Die Abbott Laboratories Inc, Abbott Park, will den Umsatz mit dem Medikament "Humira" im kommenden Jahr auf 1,2 Mrd USD steigern. Wie Abbott am Freitag während einer Telefonkonferenz zu ihren Zweitquartalszahlen weiter mitteilte, erzielt sie rasche Fortschritte bei Tests, mit denen die Wirksamkeit des Medikaments bei anderen Indikationen als rheumatischer Arthritis erprobt werde. Mit einem Umsatz von 203 Mio USD im zurückliegenden Quartal hatte Humira die Erwartungen von Abbott übertroffen und das Unternehmen veranlasst, seine Jahresumsatzprognose für das Präparat auf 800 Mio von 700 Mio USD anzuheben.
************
CAT Fight with Abbott: The Calculus of Royalty Offsets and Partnering Reputation
Abbott’s contract dispute with CAT underscores the complexity of sorting through current patent thickets and the repercussions of royalty offset clauses.
By Hazel Dawson
There have been disputes over biotech/pharma contracts since the beginning of the industry—the most famous being the bitter row between Amgen Inc. and Johnson & Johnson over the co-marketing agreement signed for erythropoietin. In the original lawsuit, the courts largely agreed with J&J’s interpretation of the contract, but in another sense, J&J clearly lost: its reputation as a partner suffered for many years.
Pfizer Inc. was faced with a similar situation with Ligand Pharmaceuticals Inc., which claimed Pfizer had violated their contract when it in-licensed droloxifene (a precursor to its current pipeline product, lasofoxifene) from Fujisawa Pharmaceuticals Ltd.’s Klinge Pharma GMBH in 1994; Ligand accused Pfizer of using a proprietary Ligand screen to identify the compound. But instead of going to trial, with the attendant appeals, Pfizer decided to settle the lawsuit. Said a senior Pfizer official at the time: the company wanted to send a message "that we won’t trample over partners."
Former Warner-Lambert and Pharmacia Corp. employees might believe otherwise (Pfizer gobbled up each of those partners, the former in a hostile takeover) but in terms of biotechs since the Ligand suit, Pfizer has been extraordinarily careful—so careful, in fact, that it’s shown itself willing to pay generous prices for unfettered, royalty-free access to technologies.
Thus the contract fight between Abbott Laboratories Inc. and Cambridge Antibody Technology Group PLC (CAT) over two partly overlapping royalty-giveback clauses has implications far beyond the money—which itself is not inconsiderable.
Few European biotechnology companies have succeeded in getting products to market, so when potential blockbuster adalimumab (Humira), co-developed by CAT and Abbott, was launched in the US earlier this year, the news provided a welcome boost for both the biotechnology company itself and the broader sector. This was evidence that all the investment and faith in European biotechnology was finally starting to pay off.
A few months down the line however, things look a lot less promising for CAT. In mid-March 2003, Abbott notified CAT that it wants to apply a royalty offset clause in their contract to reduce payments to CAT by as much as 75%--perhaps $60 million annually, should Humira reach the $2 billion peak annual sales levels estimated for it, a sum that would wipe out CAT’s entire current net loss and then some.
The offending clauses date back to a contract signed in 1995 between CAT and the pharmaceutical division of BASF AG, Knoll Pharmaceuticals Co., which was acquired by Abbott in 2000 . (See "Abbott’s Knoll Advantage," In Vivo Europe Rx, March 2003 .) CAT was to use its phage display technology to deliver antibody drug candidates to six targets provided by Knoll, which would develop and market the drugs as it saw fit, paying milestones and an estimated 4-5% royalties on sales to CAT . So far, the companies have announced details of two projects that have come out of this collaboration: anti-TNF alpha antibody Humira and anti-IL12 antibody ABT 874, which is about to enter Phase II trials.
According to CAT, the royalty offset clauses—and there are two slightly different clauses, a fact which lies at the heart of the dispute—that were incorporated to provide Knoll with some protection in the event that it had to license further IP down the line relating to the phage display technology. The clauses indicate that under certain circumstances, royalties payable to third parties can be offset against CAT’s royalties, subject to a minimum royalty level, which analysts estimate to be about 1% of sales.
It’s now broadly accepted that CAT has the dominant IP position in phage display, through patents licensed from the UK’s Medical Research Council (MRC), and as such, as far as the company is concerned, the clause is effectively redundant. But when the deal was signed in 1994, according to CAT’s CEO Peter Chambré—who didn’t join the company until 2002—the patent situation was far less clear. "It was quite natural for Knoll to seek some protection in the event that it had to take multiple licenses to operate the phage display technology described in our patents," he says.
Abbott seems to take an entirely different view of the situation, though it won’t make any official comment. It appears to be asserting that the second of the two clauses applies the offset to any royalties payable on the product, including royalties payable on both the TNFa target (over which Serono SA and Peptech Ltd. claim rights) and on the manufacturing process used to produce the antibody (owned by Genentech Inc.).
Given the financial implications, CAT hotly disputes Abbott’s assertion, and the two parties are currently in discussions in an attempt to resolve the disagreement. Since the contract dictates that royalties to CAT are payable six months in arrears, the first payment falls due in October 2003, giving the companies a target date for resolution of their differences. "If we haven’t reached a satisfactory solution by then—and by satisfactory I mean consistent with our view—it’s very likely thereafter that we will enter some form of legal process," says CAT’s Chambré.
Royalty offset (or anti-stacking) clauses are commonplace in licensing contracts between biotechs and their pharmaceutical company licensees. Given the increasing complexity of IP ownership positions, companies often have to take licenses to numerous patents in order to get a single product to market, with the royalties on different patents stacking up on top of each other. The provisions can be broad or narrow depending on what offsets the company is trying to achieve. For example, if a company needs relief against truly overlapping patents in order to practice a technology then the provision would be narrow, whereas if it’s looking for relief against the whole range of patents it would need to get a product to market, the provision would be much broader. Notes Marc Rubenstein, a partner at the law firm of Ropes & Gray LLC: "In this case, it looks like Abbott is trying to claim broad relief. But the question remains whether that is what Knoll bargained for when it initially negotiated the contract."
The dispute centers around two blocks of contract text, from Articles 5 and 12 (See Exhibit 1). The texts are slightly different and it’s those differences that give Abbott room to present its arguments. Although the contract is governed by UK law, Rubenstein suggested that under US law, "A court will look at these two provisions and be obligated as a matter of law to try and understand why the parties didn’t use the same language and would be obligated to give separate meaning to this different language."
Article 5 favors CAT’s interpretation. "I read ‘to practice or have practiced the technology claimed in the patents’ as quite narrow language that seems, after the fact, to have been drafted to cover the specific concerns over the underlying ownership of the phage display technology," says Rubenstein.
The repetitive Article 12, however, discusses the offset if additional royalties must be paid "to utilize or have utilized the inventions of the patent"--a more ambiguous phrase that could be construed as referring to the antibody itself. And one can’t necessarily "utilize" the antibody without paying royalties to the target owners and to the owner of the manufacturing patent. "I think this language is more helpful to Abbott," Rubenstein says. Moreover, he adds: if the same thing was meant in both clauses, why use different language?
But Article 12 doesn’t stop there. In a following sentence, the contract notes, "This offset shall not include royalties to licenses which are beyond the scope of the technology described in the patents"—language, Rubenstein contends, that is very helpful to CAT since neither Genentech’s manufacturing technology nor Serono’s target is described in CAT’s patents.
Humira is widely forecast to achieve peak annual sales of around $2 billion. If Abbott prevails in its attempt to offset third party royalties against its obligations to CAT, the company stands to lose as much as $60 million, which is bound to hurt. "It is a big blow," admits Sally Bennett, VP, biotechnology, equity research of ING Financial Markets.
Not directly, perhaps. CAT can’t use the Humira royalties to build a sustainable business: it needs a pipeline of products, which it is in fact trying to develop. But the Humira royalties won’t provide it the cash it needs to fund its R&D program, certainly not before peak royalty income kicks in after 2006, by which time it will have had to raise additional funds.
Nonetheless, the assurance of the royalty stream would have allowed it to raise more cash, on better terms, because investors would be more willing to invest in a company that could supplement its R&D spending with a significant, predictable revenue stream. The royalty stream would also have allowed it to pursue more favorable debt financing.
And financing has clearly been on CAT’s mind. It was outbid last year in its effort to buy Inwest Investment Ltd.’s Drug Royalty Corp. to access its cash flow . And the Abbott dispute, with the subsequent fall in its stock price, helped scupper its attempt to buy Oxford GlycoSciences PLC, also largely to access its cash . Celltech Group PLC’s higher cash counterbid for OGS would probably have prevailed in any event, "but the news of the royalty dispute was the nail in the coffin that made it virtually impossible for CAT to increase its bid and stay in the running for OGS," says Bennett. (See "The Battle for OGS," In Vivo Europe Rx, April 2003 .)
Abbott isn’t looking to merely save $60 million a year. One analyst notes that the same contract is also applicable to as many as five further products that could come out of the company’s collaboration with CAT, including ABT-874. Just to save the $60 million on Humira alone when the company is expecting to book sales of $19 billion this year, says Michael Weinstein, pharmaceuticals analyst at JP Morgan Chase & Co. in New York, "It’s questionable as to whether the dispute is really worth it."
Particularly because the dispute has significant non-financial costs. "Being seen to haul your biotech partner over the coals for a few percentage points—especially when they’re getting such small percentages anyway—leaves a bitter taste in the mouth and could well make other companies think twice about partnering with Abbott in the future," suggests one commentator. Others agree that while Abbott may gain a short-term financial victory, the perception that it’s an untrustworthy partner could prove much more costly in the longer term.
Few problems with royalty offset clauses have come to light as yet. But the CAT/Abbott dispute should send companies looking again at such clauses in their current contracts, and they will be much more attentive to those they agree to in the future.
The dispute’s implications aren’t limited to royalty offsets. In the first place, any time two clauses cover similar ground but use different language, that should raise a red flag. And there are plenty of details in a contract that can be covered in multiple clauses—overlapping clauses covering agreements about when to co-market and when to co-promote, for example, or clauses that set values for exit or change-of-control provisions. If possible, eliminate the duplicative clause; if not, make sure the overlapping language in the clauses is as nearly identical as it can be made.
In short, details matter. In the heat of the negotiation, and particularly towards the end of a negotiation, when the contract has been argued and re-argued, no one wants to re-open discussions about a specific clause, especially if the partner to whom it is important hasn’t brought up the problem in an earlier round of discussions—and thus appears to be either creating problems where none before existed or not having done the requisite contract examination when it should have been done. Such problems can be especially acute for biotechs doing their first few deals—like CAT with Knoll--when they need alliances the most, have the least negotiating leverage, and are focusing their attention on what seem like more important parts of the contract (R&D fees and technology usage rights, perhaps). Whatever the outcome of the dispute between CAT and Abbott, the lesson for biotech companies is clear: learn from CAT’s mistake. Pay attention to the contract details or risk the financial penalty.
(A version of this article ran in In Vivo Europe Rx, July 2003.)
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mfg ipollit
