No sooner can you say "H5N1" than Gilead ( GILD) 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), 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.
Additionally, Roche has agreed to waive its rights on $18.2 million that it previously paid to Gilead, but that Gilead deferred, for disputed royalty calculations from 2001 through 2003. Gilead, based in Foster City, Calif., and the Swiss drug giant have agreed to establish joint committees to oversee manufacturing, commercial requirements and pandemic planning for the drug. Gilead will have the option to co-promote Tamiflu in certain areas of the U.S., but said it won't do so in 2006. The company hasn't decided whether to exercise its option to co-promote the drug in 2007 or beyond. "The redefined agreement with Gilead is an important step," said William Burns, Roche Pharmaceuticals' CEO. "Together, Roche and Gilead will be able to focus their efforts even more on making sure that the needs for this medicine can be met, both for the treatment and prevention of seasonal influenza as well as for the worldwide stockpiling for pandemic plans." Word of the companies' amended marketing agreement comes as China reports three confirmed cases of bird flu in humans, two of them deaths. The country also announced plans to vaccinate its entire poultry stock of billions of birds. Certainly lethal cases are nothing to treat lightly, but lately concerns about the bird flu have approached hysterical levels. The avian flu first surfaced in humans in Hong Kong in 1997. More recently, cases also have been reported in Indonesia, Cambodia, Thailand and Vietnam. The H5N1 strain of the avian flu has been reported in birds in Romania and Turkey. More than 100 other instances have been reported since the first human case eight years ago.