$300 million settlement ends U patent lawsuit

V. Paul

The University’s patent lawsuit against the world’s third-largest pharmaceutical company ended Monday with an estimated $300 million settlement for the University, the nation’s largest legal recovery by a public university.
Glaxo Wellcome agreed to pay the University royalties on the worldwide sale of Ziagen, an AIDS-inhibiting drug, University President Mark Yudof announced Tuesday.
About two-thirds of the royalty payments — about $200 million — will be used for University scientific research and education, including construction of a new Center for Drug Discovery building in the College of Pharmacy. The funds will also establish a University-wide endowment program for graduate student fellowships.
Under University patent policy, about $100 million will be paid to Robert Vince, the University professor who developed the anti-HIV drug, and his research colleague, Mei Hua.
A signed agreement dating back to the 1980s between the two researchers stipulates Vince will receive 95 percent of the inventors’ share. The University is required to use the royalty payments on research and education, but Vince and Hua have no restrictions on the use of their portion, said University General Counsel Mark Rotenberg.
Ziagen restricts replication of an HIV virus, keeping it from spreading within a human’s host cell. The Food and Drug Administration approved the drug’s sale last January.
The University estimates Glaxo Wellcome owes $6 million for its 1999 net sales, according to a University press release.
“This settlement is historic for the University and for Minnesota,” Yudof said. “This is one of the largest publicly reported licensing agreements in history. It is a compelling example of the value of the public support for this institution.”
The University sued Glaxo Wellcome in Hennepin County District Court in 1998, alleging breach of contract and patent infringement. The company decided to manufacture Ziagen solely in the United Kingdom, but the license agreement required the drug to be manufactured in the United States, according to court documents.
Glaxo Wellcome claimed they were not required to make royalty payments.
In its defense, the company filed a counter lawsuit, arguing that the University’s patents for the drug were invalid because the principal inventor of the compounds was not identified in them. Glaxo Wellcome officials claimed that Susan Daluge, a company researcher who was Vince’s graduate student, created the compounds with him.
In the settlement negotiated late Monday in St. Paul federal court, Glaxo Wellcome agreed that the University’s patents were valid, and both the University and Glaxo Wellcome acknowledged Daluge and Vince’s role in the development of the drug.
The key agreement, however, was that although Daluge and Glaxo Wellcome developed and marketed Ziagen, the drug’s key compounds were developed by Vince.
“We’re not trying to take anything away from Susan Daluge,” Rotenberg said. “The settlement reflected the relative strengths of the parties’ positions in the lawsuit.”
Glaxo Wellcome has already made a $1 million royalty payment and will make an Oct. 23 payment of $7.25 million to cover the University’s legal fees and out-of-pocket expenses.
Over a 12-year period, the expected life of Ziagen, Glaxo Wellcome will pay between 5 and 10 percent in royalties, depending on the amount of net worldwide sales of Ziagen.
Those annual payments are expected to range between $6 million and $30 million, according to a University press release. Royalty payments are limited to funding scientific research and education, under the 1980 Bayh-Dole Act.
“This settlement demonstrates the unprecedented potential of this intellectual property to generate funds for further research and teaching,” Rotenberg said.

On the receiving end
The proposal for a new Center for Drug Discovery came out of recommendations made by Department of Medicinal Chemistry faculty members, said Christine Maziar, vice president of research.
Because the center is still in preliminary stages, its size, scope and location are yet to be determined, Maziar said. Ideally, the center will allow a newly discovered product, process or idea to be applied practically.
“By moving that basic science discovery along a step or two, it would make it much easier for that work to be attractive to an industrial partner to take the work to that next step,” Maziar said. “We think this is a positive direction to go.”
Working in the same direction as the University’s construction boom, officials have begun developing a new building to house the center, although its size and location are also still unknown.
The center and its building are highly dependent upon how much the University earns in annual royalty payments. Neither have been included in the University’s annual capital budget request, Maziar said.
In addition to the new center and building, the University will create a matching-funds endowment program for graduate student fellowships in any field of study. The endowment will fund matching fellowships for private-sponsor donations.
The program is expected to start as soon paperwork is completed and funds are available, although University officials “don’t anticipate another payment for several months,” Maziar said.

Modest beginnings
Vince, who earned his doctorate degree in medicinal chemistry in 1966 from the State University of New York, has worked in the College of Pharmacy since 1967. In 1979 he was recognized as a University scholar of the year. He has authored 96 academic publications and received 19 scientific patents since 1962.
Of these research papers, 17 involved carbocyclic nucleosides — the compounds at the heart of the legal dispute — and were co-authored with Daluge. Six were written with Hua.
Vince’s research expenses related to the compound totaled $1.2 million between 1979 and 1991. He received grants from the National Institutes of Health.
During the first five years of his tenure at the University, Vince developed the anti-viral compounds used in Ziagen. The compounds’ anti-HIV potential was discovered in 1987 after Vince began working with Hua. In 1988, the University applied for numerous national and international patents to protect the discovery.
Eleven years later, two decades of research have translated to the University’s largest financial gain from a lawsuit in its history.
“Certainly, this will go a long way for the University,” Rotenberg said. “This is an enormous victory.”

V. Paul Virtucio welcomes comments at [email protected]