Amgen to pay Mass. General $186m

Amgen Inc. has agreed to pay Massachusetts General Hospital $186 million to settle a royalty dispute over Enbrel, a lucrative drug used to treat rheumatoid arthritis, hospital officials said yesterday.

The payment eliminates future North American royalties on the drug, which reduces symptoms of rheumatoid arthritis and psoriasis. The hospital will continue to earn royalties on sales outside North America, said Mass. General president Peter Slavin.

Combined Enbrel royalties accounted for almost 75 percent of the nearly $90 million in licensing fees the hospital received last year, according to the hospital's annual report. Slavin said the settlement would be used to bolster research at a time when federal funding is being trimmed.

``This lump sum payment couldn't come at a better time, because it will enable us to support research, which is threatened by cutbacks from the National Institutes of Health," Slavin said. ``It really will help support us at a time when funding is under an incredible amount of pressure."

Enbrel has been one of Amgen's most successful drugs. Last year, sales topped $2.5 billion, up from $362 million three years earlier. Originally intended to treat rheumatoid arthritis, Enbrel later won approval to treat juvenile arthritis, arthritis of the spine, and psoriasis, among other conditions . It makes up more than 20 percent of Amgen's revenue.

``It's been a blockbuster drug for the company, and has had double-digit growth since Amgen acquired Immunex," said David Polk, a spokesman for Amgen, based in Thousand Oaks, Calif. ``We're pleased to reach an amicable resolution to this issue. "

Enbrel reduces inflammation by using decoy receptors to prevent the body's immune system from attacking healthy cells.

Its creation stems from research at Mass. General led by one of its star scientists, Harvard University researcher Brian Seed.

The prominent teaching hospital, which is affiliated with Harvard Medical School, signed the licensing agreement with Immunex Corp., the Seattle-based company that developed Enbrel in the 1990s.

Amgen later acquired Immunex and began reviewing its inherited licensing contracts.

Royalty disputes like the Enbrel case are not unusual. As a drug is developed, companies sign licensing agreements with companies or institutions that contribute technology to the drug. But as products evolve and are put to use in unforeseen ways, disputes can arise over who should receive royalties.

``You are seeing more disputes develop between academic or healthcare institutions and licensees. This was really a prototype," said Thomas F. Holt Jr., who heads the Boston intellectual property litigation practice at Kirkpatrick & Lockhart Nicholson Graham LLP. ``When you have the promise of enormous profits, that almost assuredly will lead to disputes in the future, especially where one party is perceived as reaping enormous benefits."

What observers say is unusual, however, is that Amgen has used the dispute to effectively buy out royalties to the drug.

Universities tend to favor long-term revenue streams and endowments over short-term payments, said Mark Edwards, managing director of Recombinant Capital, a consulting firm.

Edwards has no ties with either Mass. General or Amgen, but has consulted in the past for Amgen.

``It's certainly a show of strength for the product. One, that Amgen would be willing to buy out the product and two, that they are strong and getting stronger and that they are willing to give the university an offer it can't refuse," Edwards said.

Neither party would reveal details about the original licensing agreement, so it is unclear how much the hospital might have received from Amgen in the future.

``We just had to make a judgment as to whether this was sufficient to cover the future value of the drug. As for the longer run, we'll never know," Slavin said. ``Obviously by taking the lump sum, we're no longer at risk for downturns in the sale of Enbrel."

Kim-Mai Cutler can be reached at kcutler@globe.com.