Biota reveals terms of Relenza settlement with GSK

Australian company Biota and GlaxoSmithKline have now settled their dispute over flu treatment Relenza through mediation in compliance with orders from the Victorian Supreme Court.

Under the terms of the settlement Biota will discontinue the action it commenced in 2004 in return for a payment of A$20m (Euro 12m), to be made on 18 August. Biota will continue to receive royalties from Relenza sales in the future, as the existing agreement remains in place. Each party will bear its own litigation costs. In addition, GSK has agreed to establish senior executive liaison arrangements with Biota to better support the Relenza franchise.

In a letter to shareholders, chairman John Grant said the settlement met Biota's objectives of balancing the risks the litigation posed, with the rewards it could reasonably expect, especially in the light of the fact that the outlook for Relenza had improved markedly over the four-year course of the litigation with the emergence of pre-pandemic stockpiling of avian flu antiviral drugs.

When Biota first decided to initiate legal proceedings against GSK in 2004, Relenza royalties were some $600,000 ( €353,171) a year. "The prospects for a revival in sales appeared dim and from our perspective, our commercial concerns were not being addressed by GSK. Biota's board was questioning the value of the licensing agreement with GSK," Grant said.

The board's objectives in commencing the litigation were to have GSK restore Relenza to an acceptable position in world markets; and seek compensation for shareholders for what Biota considered to be a breach of GSK's contractual obligations.

The change in Relenza's market performance was significant in relation to the case because it led to increased royalties from Relenza sales, which would have to be offset against any compensation Biota was awarded against GSK.

With a trial likely to be 12-18 months away and possibly as late as 2010, and legal costs rising sharply, Biota was looking at a funding level of up to $100m ( €59m) to see the process through. On the other hand, royalties from Relenza had increased from less than $600,000 in 2004, to $40m ( €24m) in 2007 and $20m ( €12m) in 2008.

Relenza has a six-year patent life ahead and on the basis of its recent performance in the market, total future royalties could be expected to be in the range of $120-240m ( €71-141m). With $65m ( €38m) in royalties received since Biota launched the litigation, the drug could have a total earnings potential of $300m ( €177m) or more.

"The improving position of Relenza was significantly reducing the size of the damages we could expect to receive," said Grant. "After extensive consultation with its advisors, the board addressed these changing circumstances objectively and the settlement decision was taken on logical commercial grounds.

"The settlement enables Biota to redirect further resources into its strong research and development pipeline, which has advanced significantly in recent years. It is our pipeline that underpins the long term potential income and value of Biota beyond Relenza," Grant concluded.