Skip to Content

Gilead May Have to Pay Rival Merck Billions in Royalties

117046657117046657
Gilead's hep C meds netted $12.5 billion in U.S. sales last year.Photograph by Getty Images

New Jersey-based Merck (MRK) drew first blood in a key patent scuffle against fellow U.S. drug giant Gilead (GILD) on Tuesday when a jury ruled that two of its hepatitis C drug patents are valid. The decision, which Gilead will appeal, could force the company to pay Merck and its partner Ionis Pharmaceuticals billions in royalties for U.S. sales of Gilead’s hep C mega-blockbusters Sovaldi and Harvoni.

The case centers on a pair of Merck and Ionis patents on compounds which are similar to the main active ingredient in Sovaldi and Harvoni. Merck has argued that it should be entitled to 10% in royalties from U.S. sales of the two drugs, which cure hepatitis C in the vast majority of patients and have dominated the market.

Global Sovaldi and Harvoni sales totaled $12.4 billion in 2014 and $19.1 billion in 2015, including $12.5 billion in U.S. sales last year.

“Merck believes the jury’s verdict accurately reflects the evidence in this case,” said the company in a statement. The jury still has to rule on the amount of damages it believes Merck is owed from previous Sovaldi/Harvoni sales while a judge will ultimately decide the royalty percentage Merck should receive going forward.

While it’s unlikely that Merck will ultimately win the 10% royalty it says it deserves, even a 5% royalty award could entitle the company to billions in past and future compensation.

That would also help Merck shore up revenues for its own hepatitis C franchise. The FDA approved the company’s next-gen hep C therapy Zepatier in January—but that drug was third-to-market behind Sovaldi and AbbVie’s (ABBV) Viekira Pak, putting it at a distinct disadvantage.

Fortune has reached out to Gilead for comment and will update this post if they respond.