UPenn trustees file suit against California-based biotech company over royalty payment dispute

By Nicholas Malfitano | Aug 2, 2016

University of Pennsylvania  

WILMINGTON, Del. – The University of Pennsylvania has initiated a federal lawsuit with a California-based biotechnology company over breach of contract claims tied to a licensing agreement and unpaid royalties.

On July 15, the Trustees of the University of Pennsylvania filed suit against Genentech, Inc. of South San Francisco, Calif., claiming it breached the terms of an amended 2010 license agreement between the two entities to market a patented treatment for cancerous tumors.

The university owns the rights to Patent 5,824,311 (The “311 Patent”) which covers dual-antibody cancer therapies targeting the Her2/neu molecule, developed by Drs. Mark Greene and Jeffrey Drebin of the University of Pennsylvania Health System.

Per the original 2004 license agreement, it granted Genentech an “exclusive worldwide license to research, develop, make, have made, use, import and export, sell, have sold and offer for sale certain licensed products, including the administration of two antibodies in combination to treat cancer”, either from separate vials (dual-vial) or from the same vial (mixed product).

The license agreement also stipulated Genentech pay the university millions of dollars in royalties for the treatment being entered into clinical trials, for being subject to regulatory approvals and authorized the payment of earned and quarterly-minimum royalties – the agreement was later amended as to the computing of royalties, as a result of settlement negotiation between the parties in November 2010.

This was done in lieu of potential litigation over the payment of royalties, at that time.

However, the suit says though the license agreement was amended nearly six years ago, it did not ultimately override the terms of the 2004 license agreement.

The original 2004 agreement stipulated tiered royalty rates for dual-vial and mixed product treatments due to annual net sales, while the amended 2010 agreement instead categorized royalty rates according to combined net sales.

In or about June 2012, the Food and Drug Administration approved a drug named Perjeta to be used in combination with another called Herceptin, to treat metastatic breast cancer. Under the license agreement's terms, Genentech began reporting sales, computing and paying earned royalties for the period ending June 30, 2012.

In early 2015, the university suspected Genentech was not accurately calculating and paying its designated royalty rates, either based on cumulative sales or annual sales. Instead, the university says Genentech was paying royalties based on quarterly net sales – which had no basis from either the 2004 or 2010 agreements.

Therefore, the university exercised its right in May 2015 to conduct an audit, in order to determine the amount by which Genentech underpaid its royalty amounts. This audit began in August 2015 and remains pending.

The university says it has been “substantially damaged” by Genentech’s alleged contractual breach. The related suit seeks compensatory damages in excess of $75,000, interest at the maximum amount allowable by law, a declaration pursuant to the 2010 Amended License Agreement attorney’s fees and other relief as deemed just and proper by the Court.

The plaintiff is represented by Colm M. Connolly of Morgan Lewis & Bockius, in Wilmington, Del.

U.S. District Court for the District of Delaware case 1:16-cv-00608

From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nickpennrecord@gmail.com

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