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Regeneron Settles U.S. Patent Litigation with Genentech - International Claims Still An Issue

|Includes: Regeneron Pharmaceuticals, Inc. (REGN)

Regeneron Pharmaceuticals (NASDAQ: REGN) announced yesterday that it had entered into an agreement to license certain patents from Genentech, thereby settling a legal dispute relating to domestic sale of the newly approved EYELEA. While the announcement clears up a great deal of uncertainty regarding REGN’s sales outlook, it does not cover any international claims nor guarantee the success of the company’s second approved product.

Under the terms of the agreement, REGN will license the Davis-Smyth and other related patents from Genentech through their expiration on 7-May-2016. In exchange, REGN will pay a $60 million lump sum upon cumulative U.S. sales of EYELEA reaching $400 million, a 4.75% royalty on sales between $400 million and $3.0 billion, and a 5.5% royalty on any sales in excess of $3.0 billion.

Importantly, the agreement does not cover any international claims that Genentech (a member of the Roche Group) may file. Bayer HealthCare, one of REGN’s collaborative partners, will market EYELEA outside the U.S. It submitted an application for marketing authorization in Europe in Jun-11. As of the 10-Q filed 27-Oct-11, REGN had filed actions in Germany, the U.K, and Italy seeking judgment that it does not infringe on any of Genentech’s patents.

Prior to the Nov-11 FDA approval of EYELEA, REGN had one marketed product, ARCALYST. In 9M11, sales of ARCALYST totaled $14.9 million, representing just 4.6% of total revenue and 3.1% of operating expenses. Various collaboration and licensing agreements principally accounted for the remainder of revenue.

EYELEA, an injection for the treatment of wet age-related macular degeneration received FDA approval in Nov-11. It is the only approved treatment for wet AMD labeled for less than monthly dosing.

Here is the press release regarding the settlement.