ARIAD's Victory Over Eli Lilly: The Impact (ARIA, LLY)

Includes: ARIA, LLY
by: Jon Ogg

ARIAD Pharmaceuticals (ARIA-NASDAQ) was briefly halted before re-opening above $7.00 after winning a lawsuit for patent infringement against Eli Lilly (NYSE:LLY) for Evista® and Xigris®. The damage award was $62.5M for past royalties of 2.3% of the sales, but the kicker is that ARIAD will get 2.3% royalties thru 2019 when its patent expires.

As far as how this will hit LLY, it is really more of an irritation than a killer for the company as LLY has a market cap of nearly $60 Billion with over $5 Billion in cash and equivalents. ARIAD's market cap is only $341M so you would expect them to get a jump on this. ARIAD is (or WAS before today) basically a non-revenue stage biopharma that posted merely $242,000 in revenues over its last quarter and it post losses of $14.99M after R&D and SG&A costs. As of December 31, 2005 the company had liquid cash and equivalent assets of $81.5+M and it listed its total liabilities at $24.7M after having only $5.7M in long-term debt.

LLY's sales on Evista for osteoporosis were $1.03B in 2005, but that is a worldwide number and it is approved in many countries. The annual report shows US sales were $652.9M and foreign sales were $383.2M.

This is a US ruling, so for now it will have to be calculated based upon US-sales only. Xigris sales in 2005 were $214.6M, with $118.9M in the US and $95.7M outside of the US.

ARIAD also has a decent sized short interest ratio of 7.5% that could alter the reaction a bit.


CAMBRIDGE, Mass.--(BUSINESS WIRE)--May 4, 2006--ARIAD Pharmaceuticals, Inc. (Nasdaq: ARIA - News) and its co-plaintiffs today announced that the jury in the United States District Court for the District of Massachusetts has found in favor of the plaintiffs in their lawsuit against Eli Lilly and Company ("Lilly") alleging infringement of the plaintiffs' pioneering U.S. patent covering methods of treating human disease by regulating NF-(kappa)B cell-signaling activity. The jury ruled unanimously in favor of the plaintiffs in finding that the claims of the NF-(kappa)B patent asserted in the lawsuit are valid and infringed by Lilly with respect to Lilly's osteoporosis drug, Evista®, and Lilly's septic shock drug, Xigris®.

The jury awarded damages to the plaintiffs in the amount of approximately $65.2 million, based on the jury's determination of a reasonable royalty rate of 2.3% to be paid by Lilly to the plaintiffs based on U.S. sales of Evista and Xigris from filing of the lawsuit on June 25, 2002 through February 28, 2006. The jury awarded further damages on an ongoing basis, in amounts to be determined, equal to 2.3% of U.S. sales of Evista and Xigris through the year 2019, when the patent expires.

The co-plaintiffs are Massachusetts Institute of Technology, The Whitehead Institute for Biomedical Research, and The President and Fellows of Harvard College.

"We are extremely pleased with the jury's verdict supporting our assertions regarding Lilly's infringement of our patent and its validity. This finding coincides with the twentieth anniversary of the discovery of NF-(kappa)B by the research groups led by Professors David Baltimore, Phillip Sharp and Tom Maniatis and highlights the importance of their pioneering discoveries," said Harvey J. Berger, M.D., chairman and chief executive officer of ARIAD.

Dr. Berger added, "While Lilly has the right to challenge the verdict in the trial court and on appeal, and certain limited issues relating to validity and enforceability of our patent remain pending before the judge, we are confident that we will prevail in the trial court and the verdict will be upheld by the appeals court, if Lilly files an appeal."