Markman Advisors
Patent Valuation, Monetization and Investments


Markman Advisors Patent Blog

What is Gilead's exposure from GSK's patent lawsuit against Biktarvy®, Gilead's new integrase inhibitor HIV therapy?

Zachary Silbersher

Gilead’s new HIV drug, Biktarvy®, has received FDA approval.  Almost immediately, Gilead was hit with a patent-infringement lawsuit by ViiV Healthcare, which is owned by GSK, along with Pfizer and Shionogi.  What is Gilead’s exposure?

Gilead’s new drug is a combination therapy for HIV, combining an integrase inhibitor, bictegravir (“BIC”), with Gilead’s existing drug, Descovy®, which is itself a combination of emtricitabine and tenofovir alafenamide.  Analysts predict that Biktarvy® could be a $6B to $10B drug.  ViiV sells its own integrase inhibitors, dolutegravir, which is marketed by ViiV under the brand name, Tivicay®, and it is also included in two other ViiV drugs, Triumeq® and Juluca®.  ViiVi has a patent covering its compound, dolutegravir.  Its lawsuit against Gilead asserts that single patent, and ViiV essentially claims that Gilead’s bictegravir compound infringes its ‘385 patent.

How do anti-HIV drugs work?

In its simplest terms, HIV is a virus that attacks certain white blood cells.  The virus binds to the white blood cells, enters the host white blood cells, uses the host cells to replicate, then kills the host cells.  After entering a host white blood cell, the virus releases two RNA strands and three different enzymes.  The virus uses one enzyme to convert the viral RNA into viral DNA.  That viral DNA then enters the host cell’s nucleus.  Once inside the nucleus, the viral DNA uses a second enzyme to insert the virus into the human host’s DNA.  That second enzyme is called the HIV integrase enzyme.  After the HIV DNA is intergrated into the host’s human DNA, then the third enzyme works with the host white blood cell to replicate the HIV virus, including new HIV RNA and HIV structural proteins.  The host white blood cells eventually undergo cell death, which leads to immune system failure.

Scientists have researched different ways of stopping HIV infection by interfering with different steps of the process.  This has included exploring treatments that interfere with each of the three different enzymes released into the host cell by the HIV virus.  Gilead’s Biktarvy® is itself a combination therapy that includes a compound, bictegravir, that inhibits one of those enzymes, the HIV integrase enzyme.  Drugs inhibiting this enzyme are known as integrase strand transfer inhibitors (“INSTIs”).  They prevent the integrase enzyme from inserting the virus into the human host’s DNA.

In 2001, GlaxoSmithKline partnered with Shionogi to develop a new INSTI.  Other INSTI drugs eventually hit the market, including drugs marketed by Merck and Gilead.  These drugs apparently had disadvantages, including inconvenient administration regimes and reduced efficacy against HIV mutations.  GSK and Shionogi claim to have identified a new structural scaffold that led to the development of a new compound, dolutegravir (“DTG”).  The compound was first synthesized in 2006, and disclosed in an international patent application the same year.  A United States patent for the compound issued in March 2012, U.S. Patent 8,129,385 (“the ‘385 patent”).  This the patent GSK is now using against Gilead to seek “financial redress.”

ViiV does not seek an injunction

The first interesting aspect of GSK’s lawsuit is that ViiV is not seeking an injunction.  ViiV is not asking the Court to order Gilead to remove its Biktarvy® product from the market.  Rather, ViiV is only asking for past damages and a future royalty.  The rule of thumb in patent litigation is that you cannot ask for an injunction unless you sell a product covered by your patent.  The threat of an injunction against a burgeoning blockbuster drug can itself be material, as was seen by Amgen’s battle to knock Regeneron’s competing PCSK9-inhibitor, Praluent®, from the market.

Drug companies often have patents that they do not themselves practice.  Enforcing those patents can be a relatively cheap way of garnishing a part of a competitor’s successful revenue.  For instance, Merck recently won $200M in a royalty right related to Gilead's hep C drug, based on patents Merck owned but did not practice.  (That decision was swiftly reversed, rather explosively, after the Judge slammed Merck for enforcing a patent based upon fraud and lies.)

Here, however, ViiV’s complaint alleges that DTG is covered by at least two claims of the ‘385 patent.  ViiV has listed the ‘385 patent in the Orange Book as covering three of its drugs, Tivicay®, Triumeq® and Juluca®.  That suggests it has standing to request an injunction.  And yet, it didn’t do so.  ViiV has stated that it seeks “financial redress” but not an injunction.

Both Triumeq® and Juluca® are combination therapies that include DTG, and Juluca® recently received FDA approval as the first complete treatment regimen containing only two drugs to treat certain adults with human immunodeficiency virus type 1 (HIV-1).  Thus, GSK and Gilead would appear to be facing off within the marketplace for HIV therapies using integrase inhibitors.  GSK’s decision not to pursue an injunction against Biktarvy® thus appears based upon business reasons outside of its standing to request one in court.

What is Gilead’s exposure? 

Given that Gilead is not (currently) threatened with an injunction, Gilead’s principle exposure will be financial.  There are no meaningful past damages in this case because ViiV sued Gilead as soon as the allegedly infringing drug, Biktarvy®, was approved.  Thus, Gilead’s exposure is essentially future damages.  If Gilead is liable for infringement, absent a settlement, its exposure will be in the form a royalty on sales of Biktarvy® paid to ViiV.  But it could also be in the form of lost profits, since ViiV is likely to claim that its own products, including Tivicay®, Triumeq® and Juluca®, have lost sales to Biktarvy®. 

The HIV drug market remains a multi-billion dollar one.  Analysts predict that Biktarvy® could start at $1B annually, and grow to $5B by 2024.  Analysts further predict that a small modest royalty could be in store for Gilead if it loses.

We are often asked by clients to estimate the potential royalty rate in a pharmaceutical litigation.  It is easy to say that royalty rates are low, on the order of 1 to 10%.  But that is because royalty rates are often assessed in digital or software cases, where the infringing feature is only of thousands of component in an end-use product.  With few exceptions, nobody is inventing the television or refrigerator today, and most patents cases typically cover tweaks or new features.  That sustains the expectation of lower royalty rates.

By contrast, most pharma patent litigation occurs under the Hatch-Waxman Act, i.e., between brands and competitors.  Those cases do not assess damages, because the case is commenced before the generic launches.  Rather, the only issue is typically whether the generic should be enjoined.  Thus, precedent regarding royalty rates for pharma patents are harder to come by. 

Pharma royalty rates have, however, been assessed in instances where a generic launches at risk, but is subsequently found to be liable for infringing the brand’s patents.  This is a rare instance, but it has happened.  An important case between from 2015 between Astrazeneca and Apotex is a case in point.  Apotex launched its generic for Prilosec® at risk.  When it was subsequently deemed an infringer, the Court assessed a 50% royalty rate against Apotex.  The case was undoubtedly limited to a unique set of facts.  But some of those facts stand out as potentially applicable to GSK’s lawsuit against Gilead. 

For instance, Astrazeneca knew that the launch of Apotex’s generic would swiftly precipitate the decline of pricing for Prilosec®.  Because of that, had the parties engaged in a hypothetical negotiation at that time (which is, for better or worse, the typical way that courts assess what a royalty rate should be), then Astrazeneca would have driven a hard bargain.  In addition, Apotex was unlikely to figure out a design-around Astrazeneca’s patent, and Apotex was poised to profit substantially from releasing its generic.

Here, some of those same principles may apply.  ViiV’s ‘385 patent is not directed to a dosage or formulation, but rather directed to the compound itself.  Unlike patented features within a smartphone, the efficacy and safety of a unique compound is itself a significant driver of sales.  Moreover, if Gilead is deemed to be using ViiV’s compound, then it is unlikely be able to configure a design-around.  (Unlike pharmaceutical compounds, the possibility of a design-around can crush future royalties in a software cases, where new code can be written and implemented in (relatively) short order, without the headache of clinical studies and FDA approvals.)  More importantly, if Gilead’s new drug relies upon using GSK’s compound, and its drug threatens to eat into ViiV’s profits for Tivicay®, Triumeq® or Juluca® (which is essentially, right now, a known-unknown), then ViiV would have theoretically demanded a high royalty for Gilead’s use of its compound in a hypothetical negotiation.  All told, with many, many more facts to be developed during this case, a royalty rate between 15-25% is not, at this stage, impossible.

The other side of Gilead’s exposure could be lost profits.  ViiV is likely to claim that its own products, including Tivicay®, Triumeq® and Juluca®, have lost sales to Biktarvy®, at least during the pendency of the litigation.  Triumeq® alone is expected to be a $4B by 2020.  Lost profits are typically more menacing than damages based upon a royalty rate.  That is because a competitor’s profits typically eclipse what it would otherwise receive from a royalty rate.  Indeed, lost profits measure sales and profits literally robbed from you by virtue of your competitor’s infringement.  To that extent, GSK’s lost profits could be material to Gilead.  Yet, on the other hand, GSK brought suit just when Gilead will be hitting the market.  Thus, because any potential lost profits will really be concentrated during the pendency of this litigation (2-3 years), and Gilead’s sales will be ramping up during that time, they are not likely to be the central focus of Gilead’s exposure.

ViiV seeks enhanced damages

ViiV’s complaint shows that it intends to boost any royalty rate by showing that Gilead is a willful infringer.  Willful infringement has long been the gold ring for patent plaintiffs.  That is because the Patent Statute provides that if patentee can show that a competitor willfully copied its patent, then patentee can recover triple damages.  For future damages, that would mean an enhanced royalty rate. 

Yet, proving that a defendant’s infringement was “willful” has been elusive.  In the early 2000’s, proving willfulness was viewed to be too easy.  In response, the Federal Circuit issued its decision in In re Seagate Tech., LLC, 497 F.3d 1360 (Fed. Cir. 2007).  The “Seagate” test set a high bar for proving willfulness.  The test required that a defendant knew that it was acting objectively recklessly with respect copying a valid patent.  That meant that, even if defendant did in fact copy a competitor’s patent, that same defendant could avoid treble damages simply by mustering a reasonable defense during litigation.  The “Seagate” test proved nearly impossible to meet, and for several years, allegations of willfulness were met with skepticism, by both defendants and courts.  In 2016, the Supreme Court relaxed the standard in Halo Electronics, Inc. v. Pulse Electronics, Inc.,136 S. Ct. 1923 (2016).  Willfulness still requires egregious misconduct, but a reasonable defense can no longer stave off treble damages if the defendant intentionally, or subjectively, copied a patent.

ViiV’s complaint levies several allegations to suggest Gilead intentionally copied its patent.  Most of these allegations, however, go to showing Gilead was simply aware of the ‘385 patent before developing its BIC compound.  ViiV claims that it announced the chemical structure of DTG at a scientific conference for HIV/AIDS in February 2010, and Gilead representatives were in attendance at that conference.  ViiV claims that DTG’s structure was also disclosed in the Annual Report in Medicinal Chemistry, Volume 45, in October 2010, and one of the Section Editors for the volume was a medicinal chemist at Gilead.  ViiV claims that in 2012, Gilead scientists published a journal article that discusses DTG.  ViiV claims that Gilead cited to the ‘385 patent during prosecution of one of its own patents.  ViiV claims that the DTG structure was otherwise published in very visible and widely-disseminated publications, further bolstering ViiV’s allegations that Gilead must have known about the ‘385 patent prior to developing its own BIC compound. 

Altogether, ViiV’s allegations show that Gilead was most likely aware of the ‘385 patent.  Prior knowledge of a patent is the first hurdle to mounting any showing of willful infringement.  Indeed, in a highly pedigreed scientific niche covering HIV therapies and unique enzyme inhibitors, it would not be surprising that competing scientists and companies are acutely aware of each others compounds and related patents. 

On the other hand, ViiV’s allegations alone do not smack of the type of egregious conduct that may be required to satisfy willfulness, even under the relaxed Halo standard.  Discovery in the litigation will undoubtedly involve numerous depositions burrowing into who knew what when, and why and how and so forth.  At this stage, however, Gilead does not likely face material exposure for willful infringement, but it could potentially face a non-negligible, double-digit royalty rate if proved to be an infringer.