City of Hope, Genentech Spar Over Drug Royalties

City of Hope National Medical Center claimed in court Tuesday that biotechnology powerhouse Genentech owes it $460 million in royalties and interest on drugs arising from its research.

In opening statements, City of Hope attorney Morgan Chu told a Los Angeles County Superior Court jury that Genentech hid 27 licensing deals with drug companies to avoid paying royalties to the world-renowned cancer research center.

Chu, a partner with the Los Angeles firm Irell & Manella, outlined a pattern of concealment that began in 1980, four years after City of Hope and Genentech signed a contract to conduct DNA research. The 1976 contract led to the discovery of human insulin, the world’s first bioengineered drug, and launched the $19-billion biotechnology industry.

Chu accused Genentech of a “string of broken promises” under the contract, which gave City of Hope a 2% royalty on drugs that were developed based on its research.

He said Genentech promised to pay royalties in the first five years of the contract on any drugs that used DNA strands made at City of Hope. In subsequent years, Chu said, Genentech promised to pay royalties on drugs that resulted from patents on City of Hope research.

Chu told jurors that drugs with cumulative sales in excess of $9.6 billion have been produced under 11 patents issued to Genentech based on City of Hope research. They include $7.2 billion in sales of Glaxo SmithKline’s hepatitis B vaccine and $1.3 billion in sales of Monsanto’s bovine growth hormone.

Genentech attorney Susan J. Harriman disputed City of Hope’s allegations. She argued that the contract entitled City of Hope to royalties only if two conditions are met. She said the drug must use DNA developed at City of Hope. And the drug must be produced under a City of Hope patent.

Harriman, a partner with the San Francisco firm Keker & Van Nest, said human insulin, human growth hormone and somastostatin are the only drugs that meet those criteria. Genentech has paid City of Hope more than $285 million in royalties, she said.

Genentech did not hide the licensing deals, Harriman argued. She said they were mentioned in a 1993 annual report and other documents. And Harriman questioned the timing of City of Hope’s lawsuit, which was filed in 1999, as the first of the 11 patents expired. According to court documents, the last patent runs out in 2012.

“We don’t know what City of Hope’s motivations are in this case, we’ll leave that up to you,” she told jurors, calling the case “troubling.”

City of Hope has denied any connection between the patent expirations and the lawsuit.

Chu told jurors that Genentech sought to reduce payments to City of Hope as far back as in 1980. He said the company’s internal projections showed the hospital stood to make $8 million in royalties through 1984. It offered City of Hope a $400,000 “pre-payment” instead of those royalty payments, a deal City of Hope rejected.

City of Hope did not learn about the licensing deals until it filed the lawsuit, Chu said.

In 1998, City of Hope asked for a portion of Genentech’s settlement in a patent infringement case against Scandinavian drug company Novo Nordisk over its human growth hormone. Genentech refused, leading to the current lawsuit.