PDL BioPharma, Inc. (PDL) (Nasdaq: PDLI) announced today it has received a facsimile letter from Genentech asserting that Avastin®, Herceptin®, Lucentis® and Xolair® (the Genentech Products) do not infringe supplementary protection certificates (SPCs) granted by various countries in Europe to PDL and is seeking a response from PDL to these assertions. The letter was received at 4:00 pm PDT on Wednesday, August 11, 2010.
The letter does not suggest that the Genentech Products do not infringe PDL's United States patents to the extent that such Genentech Products are made, used or sold in the United States, including Genentech Products that are made in the United States and sold elsewhere. As a result, PDL anticipates that Genentech will continue to make royalty payments on such activities.
PDL's SPCs covering the Genentech Products effectively extend its European patent protection generally until December 2014, except that the SPCs for Herceptin will generally expire in July 2014. PDL's SPCs were applied for and granted by the relevant national patent offices in Europe and by their terms specifically cover the Genentech Products. PDL believes that these SPCs are enforceable against the Genentech Products and intends to vigorously assert its SPC-based patent rights.
Genentech does not state what actions, if any, it intends to take with respect to its assertions and specifically stated that the letter is not "intended to comment on the validity of PDL's SPCs in Europe." However, we note that Genentech and PDL entered into a settlement agreement related to certain intellectual property disputes in 2003 which imposes limitations on Genentech's ability to challenge infringement of PDL's patent rights which we believe apply in this instance, for example, by requiring Genentech to establish non-infringement of its products by a considerably higher standard than that typically applied by the courts. In addition, in the settlement agreement, Genentech waived its right to challenge the validity of PDL's patent rights, including its SPCs. Certain breaches of this settlement agreement will subject Genentech to substantial liquidated and other damages.
Royalties on sales of the Genentech Products that are made and sold outside the United States accounted for approximately 30 percent of PDL's revenue in the first half of 2010.