A drug that brings in billions of dollars in its first year on the market -- that's billions, with an s at the end -- is bound to draw a lot of interest. For Gilead Sciences (NASDAQ: GILD), that interest comes in the form of other companies claiming patent infringement by its hepatitis C drug Sovaldi. A royalty in the low single-digits would be worth hundreds of millions of dollars annually.
But Gilead Sciences' antagonists haven't gotten anything yet.
Earlier this year, the European Patent Office granted a patent that Idenix Pharmaceuticals, which Merck (NYSE: MRK) recently bought, claimed covered Sovaldi, and the biotech initiated lawsuits in United Kingdom, Germany, and France.
On Monday, Gilead Sciences disclosed in a filing with the SEC that the U.K. court invalidated all claims in the patent because, among other reasons, the patent lacked novelty over Gilead's published patents. Idenix's patent apparently claimed rights on hundreds of billions of compounds, but didn't say which of those compounds might have activity against the hepatitis C virus. A corresponding patent in Norway has also been invalidated.
More trials to come
Gilead Sciences' lawyers can't rest on their laurels just yet. More Idenix patent infringement lawsuits are scheduled for January in Canada, February in Germany, and September in Australia. The lawsuit in France is still awaiting a court date.
The U.S. Patent and Trademark Office's Patent Trial and Appeal Board determined that Pharmasset, which developed Sovaldi before being bought by Gilead, was the first to invent that drug and related compounds. Idenix has appealed the decision to a U.S. District Court.
Before Merck bought Idenix, the pharma claimed separate patents it owns with Isis Pharmaceuticals (NASDAQ: ISIS) covered Sovaldi. Gilead made a pre-emptive strike, filing a lawsuit asking U.S. courts to invalidate Merck's patent claims on Sovaldi. The trial for that lawsuit is scheduled for March 2016.
Gilead also has a pending lawsuit with AbbVie (NYSE: ABBV), which claims that its patents cover the combination of Sovaldi with ledipasvir, a cocktail that Gilead markets as Harvoni. No word on a court date for that one yet.
I'm not a lawyer, but I play one on the stock market
While sales figures are more interesting to investigate -- especially for instant megablockbusters such as Sovaldi and Harvoni -- investors must have a rudimentary knowledge of the patent landscape for the drugs developed by companies in which they buy stock. The risk of having to pay a royalty or having a patent invalidated, creating generic competition, has to be factored into a company's valuation.
Fortunately for Gilead's shareholders, the risk seems to be minimal, at least for Idenix's claims. While other courts might rule differently, the favorable decisions in the U.K., Norway, and the U.S. should give investors confidence that its patents will hold up elsewhere.
Brian Orelli has no position in any stocks mentioned. The Motley Fool recommends Gilead Sciences and Isis Pharmaceuticals and owns shares of Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.