Eli Lilly hit with $65M damages
Federal jury rules in favor of Ariad, but impact on big drugmaker seen as 'negligible.'
By Aaron Smith, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) - A federal jury ruled that Eli Lilly & Co. infringed the patent of Ariad Pharmaceuticals with its drugs Evista and Xigris, and ordered the drugmaker to pay the Massachusetts biotech firm $65.2 million, the companies said.

In U.S. District Court in Boston, the jury ruled unanimously that Lilly infringed a patent that covers methods of treating disease by regulating cell activity with two of its drugs. Ariad licensed the patent from the co-plaintiffs, the Massachusetts Institute of Technology, the Whitehead Institute for Biomedical Research, and the Fellows of Harvard College.

Ariad's (down $0.25 to $6.74, Research) stock price surged 25 percent on the news Thursday, then slipped about 3 percent in Friday morning trading.

The case involved the osteoporosis treatment Evista, which totaled $242 million in sales in the first quarter, and Xigris, a treatment for sepsis. In addition to back royalties, Lilly is required to pay 2.3 percent royalty on future sales of Evista and Xigris until the patent expiration in 2019, said Lilly.

Lilly's (up $0.68 to $52.70, Research) stock price rose slightly in Friday morning trading. Jon LeCroy, analyst for Natexis Bleichroeder, said the ruling and the damages have a "negligible impact" on Lilly and other companies.

"The impact of a tiny little royalty like this is not a big deal at all," said Bleichroeder.

The patent covers a pathway in the body that is used by osteoporosis drugs, said Bleichroeder. So, in theory, the case could also affect Merck (up $0.14 to $34.45, Research), because one of the drugmaker's lead products is Fosamax, an osteoporosis treatment that totaled $3.2 billion in 2005 sales. But the potential damages are "almost negligible, relative to the size of the pharmaceutical companies," the analyst said.

Lilly said it would appeal the ruling, and senior vice president and general counsel Robert Armitage criticized the patent as too broad in covering all use of a naturally occurring drug pathway in the human body.

"The Ariad position is equivalent to discovering that gravity is the force that makes water run downhill and then demanding the owners of all the existing hydroelectric plants begin to pay patent royalties on their gravity," said Armitage, in a press release. "We just don't believe that the patent law could possibly move in such a direction."

Ariad spokeswoman Andrea Johnson said the biotech has not filed any other patent infringement suits. When asked if Ariad plans to sue any more drugmakers, Johnson said, "The company has a very broad licensing program and is willing to license the technology to anyone who needs it."

Academic researchers can obtain licenses for free, said Johnson, but pharmaceutical companies have to pay.

Al Rauch, analyst for A.G. Edwards, said Ariad was using Lilly as a "test case" to sue other drugmakers in the future because their patented pathway is used by "almost every drug company."

"I think Ariad plans to go after a lot of different drug companies, because this pathway is very commonly used for a lot of therapeutics," said Rauch. "There were drugs out there using that pathway before the pathway was even known."

But Rauch said the impact on Lilly, and the potential impact to other drugmakers, is limited. "This is probably more important to Ariad than to other companies," he said.

Rauch said the outcome of the suit against Lilly was unexpected and unusual, and is not likely to be repeated in future cases. It's unusual for a jury to make a decision in a patent case instead of a judge because patent law is very complex and most jurors don't have a background in it, he said.

Rauch added that judges would probably make the rulings in future cases, if there are any, and that judges, not jurors, would make the rulings regarding Lilly's appeal.

However, Amgen (up $0.55 to $67.50, Research) isn't taking any chances. The world's No.1 biotech recently took a pre-emptive measure to protect its rheumatoid arthritis treatments Enbrel and Kineret. Believing that these drugs could be vulnerable to a lawsuit from Ariad, Amgen said it filed for declaratory judgment, which would legally define the status of the drugs.

"Looking at that from a legal perspective, we anticipated a legal claim could be made and we made a pre-emptive measure," said Amgen spokesman David Polk. "We filed for declaratory judgment and our belief is that, while we respect the intellectual property rights of others, we don't believe that [Ariad's] patent covers Enbrel and Kineret. We've also said that the patent is invalid, in addition to the fact that we don't violate it."

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To read about first-quarter earnings for Lilly and other drug manufacturers, click hereTop of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.