NYU Gets Another Shot at Earning Royalties From Pfizer’s Xalkori

Stay ahead of developments in federal and state health care law, regulation and transactions with timely, expert news and analysis.

By John T. Aquino

New York University earned another chance to show that Pfizer owes it royalties from sales of cancer drug Xalkori ( New York University v. Pfizer, Inc. , N.Y. App. Div., 1st Dep’t, No. 654590/13. BL 145353, reversed and vacated 5/2/17 ).

If NYU were to prevail in the litigation, it would be owed royalties from global sales of Xalkori, which were $561 million in FY 2016, up 17 percent from the prior year.

NYU appealed the lower state court decision dismissing its breach of contract litigation against New York-based Pfizer Inc. to the New York Supreme Court First Appellate Division. The appeals court 3 to 2 reversed the decision and sent it back to the Supreme Court of New York, New York County, for reconsideration.

Two appeals court judges, however, disagreed with the majority’s interpretation of the contract’s language. The dissent said the majority’s interpretation would mean “Pfizer would owe a royalty on any drug that targets any receptor that is discovered at any time by anyone,” and could provide Pfizer with ammunition for an appeal.

A Pfizer spokeswoman told Bloomberg BNA in a May 3 email, “The court’s decision merely reinstates the complaint for consideration by the lower court. We remain confident that the company has complied with the research agreement NYU entered into with Sugen, a company later acquired by Pfizer, and believe that the complaint lacks merit.”

Two Types of Royalties

The Food and Drug Administration in August 2011 approved Xalkori, a tyrosine kinase inhibitor (TKR), to target the chemical receptor EML4-ALK, which was discovered by Japanese scientists as a cause of non-small cell lung cancer after Sugen’s ownership changed and its research project with NYU had ended. NYU alleged that it was nevertheless entitled to royalties under Section 9 of the governing second amended research and license agreement because Xalkori’s active ingredient, a small molecule inhibitor drug substance named crizotinib, was derived from its research and know-how.

NYU and Sugen entered into a research license agreement in 1991, which was amended in 1996 in anticipation of Sugen being acquired by another company. Under Section 8 of both the original and revised agreements, NYU would receive royalties from Sugen products developed from an “adopted target” and only if an investigational new drug (IND) application was filed with the FDA within four years after the research period ended.

A revised Section 9 in the 1996 agreement provided that if Sugen were acquired, Sugen products based on receptor targets that weren’t adopted into drug discovery when the acquisition closed would be subject to royalties. This would be done regardless of whether an IND application was filed within four years from the end of the research period and “provided that with respect to such Sugen Product there exists a Patentable Invention with respect to such target and/or utility which is derived from or based on the Research Technology.”

Pharmacia acquired Sugen in 1999, and Pfizer acquired Pharmacia in 2003. Pfizer filed an IND in December 2005 for crizotinib as an inhibitor of the c-Met receptor. On the discovery of the EMLA4-ALK receptor, it amended its IND for crizotinib to include studies of lung cancer patients who tested positive for that receptor. After the FDA approved Xalkori and Pfizer rejected NYU’s demands for royalties, NYU filed its litigation.

Lower Court Dismissed

Pfizer argued to the New York County court that, based on the plain meaning of the 1996 agreement, crizotinib was developed based on the “adopted target” c-Met, so a product based on that patentable invention, including Xalkori, was subject only to the royalty provisions of Section 8. However, Pfizer noted, the Section 8 royalty provisions didn’t apply in that situation because no IND was filed within four years of the end of the research period.

Pfizer further asserted that no royalties were due for Xalkori under Section 9 because, even though EML4-ALK was a “non-adopted target,” crizotinib was based on the “adopted target” c-Met.

The New York County court agreed with Pfizer’s interpretation and dismissed the litigation.

Reversed and Vacated

The appeals court, in an opinion authored by Judge Richard T. Andrias, wrote that the interpretation of the contract language given by Pfizer, the New York County Court and the dissent, was reasonable but not definitive.

“The phrase ‘provided that with respect to such Sugen Product there exists a Patentable Invention with respect to such target and/or its utility which is derived from or based on [NYU’s] Research Technology,’ implies that the nexus between the invention and the target need not be direct,” Andrias wrote. “It does not require Patentable Inventions on a target per se—which, NYU argues, would be a legally impossible requirement, since a target is an unpatentable product.”

Finding the language of the agreement ambiguous, the majority wrote that it couldn’t determine for the purposes of a motion to dismiss that either party’s interpretation was controlling as a matter of law. The court reversed the dismissal of the complaint and reinstated the complaint.

In dissent, Judge Karla Moskowitz, joined by Judge Ellen Gesmer, wrote that they agreed with the lower court’s interpretation of the language of the agreement and would have found that NYU wasn’t entitled to royalties under the agreement’s plain meaning.

NYU was represented by Lerner David Littenberg Krumholz & Mentlik, Westfield, N.J., and Pfizer by White & Case LLP, New York.

To contact the reporter on this story: John T. Aquino in Washington at jaquino@bna.com

To contact the editor responsible for this story: Randy Kubetin at RKubetin@bna.com

For More Information

The court's opinion is at http://src.bna.com/ouj.

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Health Care on Bloomberg Law