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According to a recent Bloomberg report, Gilead Sciences (NASDAQ: GILD  ) has chosen the legal route to protect sofosbuvir -- its candidate for treating the hepatitis C virus, or HCV -- after Merck (NYSE: MRK  )  demanded a 10% royalty on sales, a move Gilead considers tantamount to threatening. Gilead Sciences is asking a California court for an order that it does not require to license the drug as the patents in question are neither infringed nor enforceable.

Merck is not alone in making claims on this potential game-changing drug. Gilead got hold of sofosbuvir when it acquired Pharmasset for $11 billion, but Roche believes that it has rights over sofosbuvir under a 2004 partnership pact with Pharmasset and has demanded arbitration on the issue. Also, a small biopharmaceutical company, Idenix Pharmaceuticals (UNKNOWN: IDIX.DL  ) , is trying to prove that it is the original inventor of sofosbuvir.

A detailed report on claims on sofosbuvir can be accessed here.

The stake
Scientists have long tried to find an all-oral, interferon-free HCV treatment. Interferon is not only difficult to take but also leads some to discontinue treatment because of the side effects associated with it.

At stake is a big slice of the $20-billion HCV market as roughly 150 million suffer from hepatitis C globally. Sofosbuvir, which has recently reported extremely positive late-stage results, has caught the imagination of scientists particularly because its potential as an all-oral and interferon-free treatment regimen.

HCV replicates mainly in the liver, leading to liver damage (sometimes to cancer) and high level of immunological disorders. On the basis of genetic differences, the virus is classified into seven genotypes. Genotypes 1 and 4 are less responsive to interferon-based treatments. 

Clinical results
In phase 2 trials, sofosbuvir demonstrated that an all-oral treatment regimen to patients with genotype 1 is extremely effective in removing the virus and is also well tolerated.

This is considered as an extremely positive development that can potentially bring about a dramatic change in how HCV is treated. Earlier, in June this year, the drug showed high efficacy in genotypes 2 and 3. 

With recent data establishing the potential supremacy of sofosbuvir over competition, investors should be most encouraged by its efficacy for genotype 1 HCV infection, which accounts for almost 70% of all cases.

Review of sofosbuvir by the Food and Drug Administration is scheduled for Dec. 8. The European regulator, too, has announced an "accelerated assessment."

Investor's take
Gilead is a financially strong company with cash and equivalents of $2.2 billion as of June 30. Reported net income was $773 million (diluted earnings per share of $0.46) on quarterly revenue of $2.78 billion.

Analysts forecast that sofosbuvir has the potential of grabbing a major chunk of the HCV market from existing treatments, and sales could surge past $6 billion by 2017 -- which is why all of these companies want a piece of the drug.

That leaves the matter of claims being made for control of sofosbuvir. Biotech and pharmaceutical industries have extremely complex relationships that are often difficult for investors to fathom. The only established fact is that Gilead Sciences has the wherewithal for fighting it out. The contrarian view is that even if a small portion of the pie has to be surrendered to a claimant, it is hardly going to make a big difference to what definitely looks like a blockbuster drug. That said, I like Gilead's chances of getting the claims quashed.

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