PDL BioPharma Sues Genentech for Underpayment of Royalties

Saying that biotech Genentech had unpaid royalties due it going all the way back to 2007, PDL BioPharma (NASDAQ: PDLI  ) announced this morning that it has filed for arbitration against the division of Roche Holdings.

PDL said that based on an agreement between the two companies, the biopharmaceutical had the right to inspect Genentech's books to ascertain that correct royalty payments were being made. When it dispatched auditor KPMG to view the materials, Genentech impeded its ability to do so, though based on the limited inspection it did conduct, KPMG said it appeared Genentech underpaid royalties. PDL says the amounts, if they're substantiated by the arbitration hearing, would be material.

PDL and Genentech have agreements covering a host of products, including Avastin, Herceptin, Lucentis, Xolair, and Perjeta. Royalties on the sale of the Genentech products that are made and sold outside the U.S. accounted for approximately 38% of PDL's royalty revenues last year.

The biopharma says it is seeking arbitration to affirm each party's rights and obligations under the license agreements, which Genentech breached by blocking KPMG's inspection of its books. Along with underpaying royalties, PDL also says Genentech breached the "implied covenant of good faith and fair dealing" by obstructing the inspection of its books, which concealed the extent of the underpayment. 

PDL has not said how much money is involved in the underpayment, but it noted there was no certainty in the outcome of the case and that it might not be successful in its allegations.


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