Gilead, Biogen Troubles Remind Investors Why Strong Drug Patents Are Vital

Editors' pick: Originally published March 23.

Ask most people to identify the lifeblood of the biotech industry, and they'd probably point to scientists conducting carefully calibrated experiments in a laboratory. That's only partially true. If your goal is for the biotech industry to be successful and profitable, those scientists need a phalanx of lawyers writing, filing and defending patent applications.

Scientists might invent drugs, but lawyers filing patents to protect those drugs from competition turn those drugs into billion-dollar revenue generators.

A flurry of patent infringement lawsuits and decisions in recent days, affecting some of the biotech sector's largest companies, underscores this point.

On Tuesday, a federal jury upheld the validity of two patents owned by Merck  (MRK) in a lawsuit against Gilead Sciences (GILD) over highly profitable hepatitis C drugs. Next, the jury will decide damages. Gilead could ultimately be forced to pay billions of dollars to Merck in damages and royalties on future sales, although an appeal is inevitable.

Also Tuesday, hedge fund investor Kyle Bass scored a victory against Biogen (BIIB) when the U.S. Patent and Trademark Office granted Bass' request to conduct a trial to review the validity of a patent protecting the company's most important multiple sclerosis pill Tecfidera. It could be a year before the trial outcome is known, but Tecfidera sales were $2.9 billion in the U.S. last year ($3.6 billion worldwide), so a Biogen loss could cut significantly into the drug's growth.

Last week, Amgen (AMGN)  scored a legal victory over Regeneron Pharmaceuticals (REGN) in a lawsuit over patents protecting Repatha, the company's newly launched cholesterol-lowering drug. The jury decision in Amgen's favor puts Regeneron's competing product Praluent at risk of being pulled off the market. At a minimum, Regeneron will be forced to pay sales royalties to Amgen.

Need one more? Editas Medicine (EDIT) , a newly public biotech startup, is embroiled in an ongoing, multi-party lawsuit over ownership to important patents covering the gene editing technology known as Crispr.

Biotech drug-patent conflicts are typically settled early, usually with discreet licensing deals, which is why all this courtroom drama is so notable. It's also a reminder to health care investors that the risk-factor sections devoted to intellectual property in Securities and Exchange Commission filings are just as important as paragraphs devoted to clinical trial data and regulatory strategies.

For now, none of these patent conflicts are fully resolved, which leaves the adversely affected companies in some limbo.

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