Roche settles dispute with Gilead

Roche, the producer of Tamiflu, the drug thought to be the best means of defence against a possible bird flu pandemic, has settled a dispute with the drug's inventor, US-based Gilead Sciences, over production and royalties after Gilead delivered a notice of termination in June 2005 concerning a 'material breach' of a deal signed in 1996 which granted Roche exclusive licence to manufacture and sell the antiviral worldwide.

Gilead claimed that: 'Roche has not adequately demonstrated the requisite commitment to Tamiflu since its launch in the US nearly six years ago, nor has it allocated the necessary resources to realise the potential of the product as a treatment and preventive for influenza. It is essential for public health that healthcare professionals and consumers have improved access to information about Tamiflu, as well as to the product itself.'

The US company will now be given a greater say over plans to increase production of the drug by farming out parts of the process to third-party producers, such as generic drug makers. Demand for the drug has rocketed in the face of a potential outbreak of avian influenza, and Roche has come under pressure with concerns that production could fall short of requirements. Roche has also waived Gilead's obligation to cover 'certain manufacturing costs', meaning that Gilead is no longer exposed to soaring prices for star anise, the base ingredient for Tamiflu's core ingredient, shikimic acid.

Gilead will also have the option to co-promote Tamiflu in 'specialised areas' in the US, but will not co-promote in 2006 and has not yet determined whether it will exercise its option for co-promotion in 2007 or beyond.

Gilead receives a blended royalty on sales of Tamiflu, tiered from 14-22% based on Roche's annual net sales. However, Roche has now agreed to elimi-nate the pre-existing contractual cost of goods adjustments from the royalty calculations, retroactive to calendar year 2004 and for all future calculations, meaning that it will begin to pay Gilead at the contractually specified royalty rate based on the level of sales achieved, instead of at the prior year's effective royalty rate. The Swiss company will also pay $62.5m as reimbursement for cost of goods adjustments retroactive to 2004 and to update the royalties payable for the first nine months of 2005 based on current year royalty rates, and waive its rights on $18.2m that it previously paid to Gilead, and that Gilead deferred, for the disputed royalty calculations in the period from 2001 to 2003, as outlined in the notice of termination delivered to Roche in June. If the dispute had remained unresolved all rights would have reverted back to Gilead.

Despite fears over levels of demand for Tamiflu being unmet, Roche claims that it is increasing production, but while it has agreed to outsource some stages of production, it has refused to relinquish its patents. UN Secretary General Kofi Annan has called for patent issues to be resolved, asking pharmaceutical companies to 'be helpful, making sure that we do not allow intellectual property to get in the way of access of the poor to medication', and there has been some talk of the opening up of a loophole in international intellectual property agreement that allows governments to waive the patent rights of a private company and grant a compulsory production licence to a domestic company, thus allowing generic copies of a drug to be made, in order to protect public health.