Drug firm, MGH fight over royalties

A dispute over royalties between Massachusetts General Hospital and the manufacturer of the drug Enbrel could cut into the millions of dollars in royalties received by the hospital and one of its star scientists.

Amgen Inc. last year sold nearly $2 billion worth of Enbrel, which doctors prescribe to treat rheumatoid arthritis and psoriasis. Under terms of a licensing agreement, the company paid Mass. General approximately $41 million for its role in helping invent the drug -- about two-thirds of the $63 million in licensing payments the hospital received from all sources last year. The money supports a major genetics laboratory run by Brian Seed, a Harvard University biophysicist who made key discoveries that led to Enbrel's development.

But now Amgen wants to reduce its payments to Mass. General.

Amgen, which is based in Thousand Oaks, Calif., inherited the Enbrel pact with the hospital in 2001 when it bought Immunex Corp., a Seattle company that developed the drug in the 1990s. Amgen's lawyers later discovered language in the licensing agreement that ''allowed for a certain amount of interpretation," said Frances Toneguzzo, director of licensing deals at Mass General. The company's lawyers believe the wording may allow Amgen to pay the hospital less, Toneguzzo said. Mass General disagrees.

''When there are big dollars on the table, you tend to scrutinize every piece of your contracts, and that's what happened here," Toneguzzo said. She declined to say how much of its Enbrel royalties might be in jeopardy.

In an e-mail statement, Andrea Rothschild, an Amgen spokeswoman, did not address the dispute. She said the company routinely reviews such ''agreements and their value to the company."

During a drug's development, companies commonly sign licensing agreements with other firms and research institutions whose discoveries contributed to the product's creation. The complexity of such arrangements often results in disagreements and the courts are cluttered with conflicting claims from biotech inventors, though many cases result in negotiated settlements. A trial involving an academic institution and its partners in the private sector is unusual, but it could happen in this case.

''This dispute may result in litigation being filed in the near future," Partners HealthCare, Mass. General's parent corporation, said in a financial disclosure statement this year.

Amgen -- which has a research laboratory in Cambridge -- is one of the country's two largest biotech companies. A major portion of its muscle stems from the $16 billion Immunex acquisition.

Drug companies typically conduct careful reviews of licensing contracts after a merger, said Thomas F. Holt Jr., who heads the Boston intellectual property practice at Kirkpatrick & Lockhart Nicholson Graham LLP, and is not involved with Amgen or Mass. General. During such an audit, they may question a laboratory's underlying claim to an invention, for example, or question what sales royalties should be based on.

Because of Enbrel's value, Holt added, it is not surprising that Amgen is paying close attention to details.

''What's covered within all four corners of that licensing agreement can get very complicated," he said. ''The bigger the stakes, the more intense the scrutiny."

Losing even a portion of Amgen royalties would be a significant loss for Mass. General, as well as a personal blow to Seed. Under the hospital's formula for intellectual property deals, royalties are divided into four parts -- a quarter each for the inventor, his laboratory, the department, and the hospital.

Although the hospital has not disclosed numbers, last year's payment to Seed under that formula would have been about $10 million. His laboratory would have received another $10 million.

The laboratory budget supports three dozen researchers and technicians who work with state-of-the-art genomics equipment, according to the lab's website. It helps Mass. General compete with other institutions for research grants from the National Institutes of Health, which pumped about $1.6 billion into the Boston-area healthcare economy in 2003.

Enbrel is among the most successful biotech drugs on the market. It reduces inflammation by using decoy receptors to divert the body's immune response away from healthy cells. The techniques Immunex used to create its decoys were first developed by Seed at Mass. General in the late 1980s and early 1990s, according to Mass. General. At the time, Seed was working with private-sector money from Hoechst AG to develop HIV treatments.

Immunex signed a licensing agreement for Seed's technology in 1998, the same year the drug won approval from the Food and Drug Administration. It also signed an agreement with Hoechst.

''There were a lot of patents that had been filed by different people," said Toneguzzo. ''They were interested in ours not just because of the subject matter, but because we had an early one."

Since buying Immunex, Amgen has resolved a major patent dispute with another Seattle firm, ZymoGenetics, for an undisclosed sum. It has also solved Enbrel production shortages that plagued Immunex. That has helped Amgen make the drug hugely successful, with sales rising 46 percent from 2003 to 2004. Analysts expect sales to approach $3 billion by 2006.

Toneguzzo said Mass. General's dispute with Amgen focuses on specific wording in the contract. When the sales figures reach billions of dollars, she said, ''small changes can make a big difference in terms of revenue."

Christopher Rowland can be reached at crowland@globe.com.