[Pharm-policy] Schering-Plough - won't pay royalties to US patent owner for donated drugs

[James Love]

The reporter of this article is Blue Derkin, and he would appreciate
comments on this (I believe) very important legal dispute. 
Schering-Plough says it should not have to pay royalties to a patent
owner for drugs that it gives to indigent patients.  This of course is
in line with recent proposals to ask the WTO to accept an Article 30
compassionate use exception under TRIPS.  Jamie

"Derkin, Blue" <Blue.Derkin@bridge.com>
(312)466-4484 work

-- [B] ICN Pharma says Schering-Plough wants $11.9 mln returned  --

--Schering-Plough seeks return of some ICN ribavirin royalties 
   
    By Blue Derkin
    Chicago, July 9 (BridgeNews) - Schering-Plough Corp. asked ICN
Pharmaceuticals to return almost $12 million in royalties that it paid
on a 
drug given to the poor.
            *                  *                  *
    The dispute centers on Ribavirin, a hepatitis drug made by ICN and
distributed under a royalty agreement by Schering-Plough.
    In a filing with the Securities and Exchange Commission, ICN said
Schering-Plough is seeking the return of $11.9 million, representing
royalties it paid to ICN on Ribavirin that was given out in a program in
which indigent patients receive drugs.
    Schering-Plough also said it doesn't believe that $1.2 million and
$1.8 million for the first quarter of 2001 and the fourth quarter of
2000 should be included in royalties paid to ICN, according to the
filing.
    ICN Pharmaceuticals said Schering-Plough didn't "clearly articulate
a contractual basis for the nonpayment of royalties" but based its
argument on "moral or humanitarian" grounds. The company said if
Schering-Plough is successful in pursuing its claim there could be an
impact on ICN pharmaceuticals' earnings, though a company spokesman
declined to provide specifics.
 

[Begin BridgeLinks]
    BridgeNews, Tel:  (312) 466-4484
    Send comments to: equity@bridge.com
[End BridgeLinks]  Copyright 2001 Bridge Information Systems Inc.  All
rights 
reserved.


>From Blue Derkin:

And here's [part of] the filing....The filing is actually for an
exchange offer, but they included this bit of info because they think it
might affect their earnings.

>From a filing of Form S-4 dated 7/9/01 with the SEC:
The Company is dependent upon royalties from its license arrangement
withSchering-Plough to fund its research and development program.
Schering-Ploughhas sole discretion to determine the pricing of ribavirin
and the amount andtiming of resources devoted to the marketing of
ribavirin. Any significant decrease in royalties from this license
arrangement could require the Company to reduce its research and
development expenditures and other activities. The Company also may not
be able to repay any borrowings it has incurred in anticipation of
receiving these royalties. Schering-Plough has informed the Company that
it believes royalties for the first quarter of 2001 and the fourth
quarter of 2000 should not include royalties of approximately $1.2
million and $1.8 million, respectively, onproducts distributed as part
of an indigent patient marketing program. It alsoinformed the Company
that amounts that had previously been paid under this program, which
they estimate to be approximately $11.9 million, should bereturned to
Schering-Plough. In raising the dispute, Schering-Plough has not clearly
articulated to the Company a contractual basis for the nonpayment of
royalties. Rather it has based its arguments on primarily moral or
humanitarian grounds, essentially equitable arguments, indicating that
they believe they should not have an obligation to pay royalties on
product given to indigent patients. The Company has not been provided
with appropriate information or documentation, and does not agree with
such adjustment as the license agreement articulates those programs for
which royalties would not be due. Should Schering-Plough successfully
apply this adjustment retroactively, it could have an impact on the
Company's results of operations. Further, if Schering-Plough were to
apply the proposed adjustment to future royalty payments, royalties
could be reduced in approximately the same proportion as the proposed
historical adjustment.  . . .