Amgen Blood Feud Nears End
Biopharmaceutical star Amgen's high-profile patent trial against Transkaryotic Therapies may finish this week. Amgen alleges that Transkaryotic infringed on its patents for Epogen, a $4-billion-a-year winner treatment for dialysis-based anemia. While a loss would impact Amgen in the short term, defeat could permanently lower the ceiling for Transkaryotic.
By Tom Jacobs (TMF Tom9)
September 5, 2000
After three years, biopharmaceutical giant Amgen's (Nasdaq: AMGN) highly publicized patent case against gene therapy pioneer Transkaryotic Therapies (Nasdaq: TKTX) may end this week. This grudge match over $4 billion-a-year drug Epogen accuses Transkaryotic of patent infringement. Widely billed as a make-or-break case for each company, it's a speed bump for Amgen, but a likely roadblock for Transkaryotic.
What's the dispute?
Amgen's Epogen is a protein that boosts red blood cells and combats anemia in dialysis patients. Amgen inserts a cloned gene into hamster ovaries (now there's a delicacy!), which grow the protein. Transkaryotic's proprietary gene therapy method is different: It delivers a DNA sequence into a human cell so that the body produces its own protein.
Amgen maintains that its patents cover any use of the Epogen protein for dialysis-related anemia, regardless of the manufacturing method. This is the remaining key defense in the trial for Transkaryotic and its partner, Aventis (NYSE: AVE): If Amgen's patents don't describe the human production method, then Transkaryotic hasn't infringed on them. At stake could be Epogen's $4 billion in annual revenues, currently split almost 50-50 between Amgen and Drip Port holding Johnson & Johnson (NYSE: JNJ), which licenses and sells Epogen under other names in Europe and in the U.S. for non-dialysis-related uses.
Risks for Amgen
A victory for either company promises obvious benefits: Either Amgen vanquishes a competitor for the remaining six years of its Epogen patent protection, or Transkaryotic scores a potentially huge new revenue stream. But a loss will likely harm Amgen only in the short term: Epogen may still beat Transkaryotic's version on price, and Amgen is developing NESP, a once-a-week version of Epogen, that could conquer anybody's two-to-three times a week version.
This chart shows that the market either favors Amgen's chances of victory or predicts less harm from a loss. Since the trial started in March, Transkaryotic's stock is down sharply and is unchanged from three years ago, while Amgen flirts with all-time highs.
Risks for Transkaryotic
Is the market right about risks for Transkaryotic? Yep, if a loss means that only the patent holder itself could take advantage of biotech advances in gene therapy for a patented drug. Then Transkaryotic and its colleagues would face a future as niche players -- selling proprietary gene therapy technology to existing patent holders -- unless Transkaryotic and others can discover or license their own protein drugs.
Transkaryotic could also apply its technology to successful drugs after their patent protection runs out. In the Epogen case, Transkaryotic might not even lose the whole banana, because some argue that European coverage for the Epogen protein patents does not include Transkaryotic's product. So while defeat clearly lowers the ceiling for Transkaryotic investors, the company has $269 million in the bank, minuscule debt and a good chance at a future in a profitable niche -- despite Genzyme's (Nasdaq: GENZ) new lawsuit against the company for another gene therapy drug.
Because a decision and likely appeal will delay any final result, Foolish investors must look beyond this case to the long term. They know that betting on a court's decision is not the way to invest. Instead, they should examine the products in the companies' drug pipelines and the future for their business models. That always beats gazing at a legal crystal ball. |
