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Sloan-Kettering Institute Looks to Recover $72M in Unpaid Drug Royalties from Amgen

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The Sloan-Kettering Institute for Cancer Research, a division of Memorial Sloan-Kettering Cancer Center, last month filed suit against Amgen for allegedly underpaying royalties on the anti-infectives Neupogen and Neulasta by more than $72 million.
 
Sloan-Kettering, one of the top hospitals or non-profit research institutions in the US in terms of licensing revenues, has likely brought in at least $100 million in royalties from the blockbuster drugs since they were approved in 1991 and 2002, respectively.
 
The New York-based institute may also have a heightened interest in recovering any unpaid dues from Amgen since it currently owns only a 20-percent share of royalties after selling the remainder to IP-acquisition firm Royalty Pharma four years ago.
 
The agreement between Sloan-Kettering and Amgen dates back to 1986, after the institute discovered granulocyte colony stimulating factor, the basis for Neupogen and Neulasta.
 
According to court documents filed in the US District Court for the Southern District of New York, Sloan-Kettering alleges that Amgen improperly deducted rebates related to its anemia drug Aranesp from sales of Neupogen and Neulasta in its royalty calculations.
 
Sloan-Kettering claims that as a result, through September 2007, Amgen has underpaid it by more than $72 million in royalties for the drugs.
 
According to the suit, Sloan-Kettering sold a portion of its Neupogen and Neulasta future royalty streams in 2003 to Royalty Pharma, which subsequently sold the royalty rights to Royalty Pharma Finance Trust. Despite this arrangement, Sloan-Kettering retained the right to sue and collect for any underpayments, according to the complaint.
 
Amgen’s policy is not to comment on ongoing litigation. However, in a statement, an Amgen spokesperson said that the company “denies the allegations” and “intend[s] to vigorously defend our position.”
 
Amgen has until Jan. 10 to officially respond to Sloan-Kettering’s complaint, according to court documents.
 
Provoke the Litigation
 
Sloan-Kettering’s lawsuit against Amgen was filed just three weeks after the State University of New York Research Foundation accused Luminex of breach of contract, unfair competition, and patent infringement, among other complaints (see BTW, 12/10/2007).
 
Such cases of universities suing companies for IP-related matters have been on the rise in the US since the inception of the Bayh-Dole Act in the early 1980s, and particularly in the last several years, according to experts.
 
“Particularly as biotech products get closer to market and out of the lab, you’re potentially going to find more litigation, because there is more money at stake,” Kenneth Liebman, partner and head of the IP group with law firm Faegre & Benson, told BTW this week.
 
“I think biotech and pharmaceuticals is the largest area for universities, and you’d probably put computer innovations somewhere just below that,” Liebman said. “Universities now have lots of patents in lots of different areas, but these are the ones that seem to provoke the litigation because you have one large product with large amounts of sales.”
 

“Particularly as biotech products get closer to market and out of the lab, you’re potentially going to find more litigation, because there is more money at stake.”

Liebman, who served as lead counsel for the University of Minnesota in its estimated $300 million patent litigation settlement in 1999 with Glaxo Wellcome over the AIDS drug Ziagen, added that companies often face a conundrum in such suits because of some inherent differences between university-initiated litigation and litigation between corporations.
 
“One difference is that the universities are not competitors, so the whole issue of lost profits usually doesn’t exist,” Liebman said. “You’re usually talking about royalties. There is also not much that the corporations can do to the university. They can’t really countersue for their own patents.”
 
Corporations often wield as leverage the fact that they may have relationships with the universities that are more beneficial to the school, Liebman said. “But sometimes they don’t want to be seen as fighting the university and get bad publicity out of that, because it affects their relationships with other universities,” he added. “So that is very different than in company-to-company [litigation].”
 
On the other hand, universities can sometimes be hamstrung by lax standards when it comes to tracking the results of research and university-born inventions, though those standards are tightening up as tech transfer becomes big business for academia.
 
“Often there is not as good a control [at universities] as in the corporate context over who the inventors are and documents proving the invention,” Liebman said. “You’ll therefore often have more issues on inventorship than you will have in a corporate context.”
 
In the case of Sloan-Kettering versus Amgen, inventorship is not in question – only the amount of royalties the biotech giant owes the institute.
 
A Sloan-Kettering spokesperson declined to disclose how much the institute has earned in royalties from sales of Neulasta and Neupogen over any period of time. Amgen reported approximately $10.3 billion in sales of the drugs from 2004 – the first year after Sloan-Kettering sold 80 percent of its royalty interest to Royalty Pharma – through 2006.
 
Using Liebman’s royalty touchstone of 5 percent, Sloan-Kettering would have collected about $515 million in total royalties from Amgen from 2004 to 2006, of which Sloan-Kettering would have taken 20 percent, or $103 million, and Royalty Pharma would have taken 80 percent, or $412 million.
 
According to the court document, “notwithstanding Sloan-Kettering’s partial sale of its royalty stream, Sloan Kettering remains the only entity in contractual privity with Amgen under the agreement … and retains the right to sue for and collect in this action the entirety of such underpayment.”
 
If Sloan-Kettering is awarded judgment or settlement, it is unclear whether it will be obligated to pay Royalty Pharma a portion of the proceeds. It is also unclear whether Royalty Pharma has any stake at all in the court proceedings, or where it stands on the underpayment allegations. Calls to the company were not returned.
 
According to the Association for University Technology Managers’ 2006 annual licensing survey, Sloan-Kettering brought in approximately $184 million in licensing revenues over the three-year period ending 2006, and about $43 million in 2006 alone, ranking it third and fourth, respectively, among peer US hospitals and non-profit research institutions.

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