Merck agrees to $625 million payment, royalties to Bristol-Myers Squibb for sales of Keytruda cancer treatment

Keytruda. Copyright © 2009-2016 Merck Sharp & Dohme Corp., a subsidiary of Merck & Co., Inc., Kenilworth, N.J., U.S.A. All rights reserved.

On January 20th, NYC-based drugmaker Bristol-Myers Squibb Co. (NYSE:BMY) and Kenilworth, NJ-based pharmaceutical firm Merck & Co. (NYSE:MRK) announced that the two companies had entered into a settlement and licensing agreement resolving worldwide patent litigation over a cancer treatment. As per the announced terms of the settlement, Merck will make a one-time payment of $625 million to Bristol-Myers Squibb and will also pay future royalties through 2026 on sales of Merck’s Keytruda.

Keytruda, the brand name for pembromizulab, is a treatment which has been approved by the U.S. Food and Drug Administration (FDA) to treat various forms of cancer. The cancer treatment works by shutting off a chemical pathway for programmed cell death receptor 1 (PD-1), which in turn improves the human body’s natural ability to fight cancer through the immune system. Merck first earned FDA approval in September 2014 to market Keytruda as a treatment for advanced melanoma. Last August, the FDA granted accelerated approval for Keytruda as a treatment for recurrent or metastatic head and neck squamous cell carcinoma (HNSCC). A few months later, in October, the FDA approved Keytruda as a treatment for patients with metastatic non-small cell lung cancer (NSCLC). Sales projections from FiercePharma indicate that sales of Keytruda as an immuno-cology therapy could grow from $605 million in 2015 up to $4.5 billion in 2020.

Merck’s cancer treatment is in direct competition with Bristol-Myers’ Opvido, the brand name for nivolumab. Opvido is another immuno-cology therapy which attacks cancer by shutting down the PD-1 chemical pathway in the human body. In 2016’s second quarter, sales of Opvido far outpaced sales of Keytruda by greater than $500 million. FiercePharma’s analysis predicts that Opvido sales will grow by an even greater margin than Keytruda in the years to come, from $942 million in 2015 up to $8.4 billion by 2020.

The patent infringement suit involving the cancer treatments developed by these two companies was filed last January in the U.S. District Court for the District of New Jersey (D.N.J.). The plaintiff named in the case was PDL BioPharma, a pharmaceutical firm from Incline Village, NV. PDL entered into an agreement with Bristol-Myers back in August 2008 for the global development and commercialization of the immunotherapy agent known as elotuzumab. Under the terms of the agreement, Bristol-Myers would develop and market elotuzumab-based treatments in exchange for an up-front cash payment of $30 million, additional payments of up to $480 million for development and regulatory milestones and additional payments of up to $200 million for sales-based milestones of elotuzumab in multiple myeloma and other potential oncology indications.

The patent-in-suit asserted by PDL BioPharma in the case is U.S. Patent No. 5693761, titled Polynucleotides Encoding Improved Humanized Immunoglobulins. The patent, which was issued to Protein Design Labs in December 1997, protect polynucleotides encoding heavy and light chain variable regions of a humanized immunoglobulin which binds to an antigen. The technology enables an improved means for the production of humanized antibodies which are specifically reactive with strong affinity to a predetermined antigen.

As PDL’s complaint notes, the technology covered by the ‘761 patent enabled breakthroughs in the process of producing monoclonal antibodies for the removal of harmful cells from the human body. Nonhuman antibodies contained sequences of amino acids which the human body identified as foreign antigens. Chimeric antibodies created through genetic engineering techniques still produced negative immune responses caused by amino acid sequences from mouse antibodies. The high antigen affinity of the humanized antibodies enabled the technology covered by the ‘761 patent to produce monoclonal antibodies which attacked antigens while reducing the negative immune system response.

PDL argued that the production of Keytruda involves the humanization of a murine, or rodent-related, antibody to obtain a humanized antibody using techniques covered by the ‘761 patent. Specifically, PDL believes that Keytruda manufacturing involves first and second polynucleotides encoding variable regions of the heavy and light chains of a humanized antibody infringes upon the first claim of the ‘761 patent. PDL alleges that the infringing techniques are outlined by Merck’s U.S. Patent No. 8952136, titled Antibodies to Human Programmed Death Receptor PD-1. Additional, PDL argues that Merck has known about the ‘761 patent for more than a decade going back to a licensing agreement for the patent signed by Merck back in 2005 to secure the rights of the patent for the production of potential treatments, but the scope of that agreement doesn’t cover Keytruda.

Along with the up-front cash payment settling the PDL lawusit, Merck also agreed to pay royalties of 6.5 percent of net sales of Keytruda from January 1st, 2017 and December 31st, 2023. From January 1st, 2024 through December 31st, 2016, Merck will pay royalties of 2.5 percent of net sales for Keytruda to Bristol-Myers.