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Tamiflu Partners Ink Treaty

No sooner can you say "H5N1" than Gilead (GILD - Get Report) and Roche show that humanity's propensity for self-preservation can foster cooperation against a common foe, feathered or otherwise.

The two companies have agreed to set aside their differences over the flu drug Tamiflu and get along, ending their manufacturing dispute before a pandemic has a chance to sweep the planet and lead to something frighteningly akin to a certain feature film starring Bruce Willis and Brad Pitt .

Tamiflu, developed by Gilead and licensed to Roche, has recently garnered attention as the most promising treatment in the event that a mutant human-to-human strain of the avian flu breaks out. The world's governments have been looking to stockpile Tamiflu, as well as Biota's Relenza, a flu drug marketed by GlaxoSmithKline (GSK - Get Report), to treat their citizens if it becomes necessary.

"We have ended our dispute with Roche in an effort to work together, with the utmost diligence, to address this global public health need," said John Martin, Gilead's president and chief executive.

Gilead shares were up $2.64, or 5.1%, to $54.28 Wednesday.

Cracks appeared in the relationship this summer when Gilead alleged Roche hadn't adequately promoted the drug and said that it wanted all of the commercial and manufacturing rights. Roche disagreed.

To resolve the matter, Roche has agreed to eliminate a cost adjustment from royalty calculations going back to 2004 and in the future. Roche will begin to pay Gilead at the contractually specified royalty rate based on the level of product sales, instead of the prior year's effective rate.

Gilead receives a royalty payment on sales of Tamiflu, from 14% to 22%, according to Roche's annual net Tamiflu sales. The company expects a royalty for Roche's 2005 sales in the range of 18% to 19%. Within 15 days of the new agreement taking effect, Roche will pay Gilead $62.5 million to reimburse it for cost-of-goods adjustments retroactive to 2004, and to update the royalties that are payable for the first nine months of this year.

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