Biota sues GSK for lost Relenza revenues

Victorian drug-developer Biota released a bombshell this morning, announcing that it was suing its marketing partner, UK-based GlaxoSmithKline (GSK), for failure to promote and support its influenza drug, Relenza in the 5 years since the drug was launched.

The writ, issued in the Victorian Supreme Court, claims that GSK had breach its contract and also its fiduciary duty to promote Relenza.

Biota is seeking unspecified damages -- thought to be in the multiple millions of dollars -- for lost royalty revenues as well as up to ten years’ worth of future losses through the remaining life of the product’s patents. Under its agreement with GSK, Biota is entitled to a 7 per cent royalty on sales of Relenza until the patent expires in 2014.

"If the drug had been successful, Biota would have received $35 million in revenues last year instead of $1 million, said Biota’s CEO, Peter Molloy.

Initially, Relenza was approved for use in 70 countries and captured close to 50 per cent of the market for broad-spectrum neuraminidase inhibitor flu drugs. Its only competitor, Tamiflu, was launched in the US two months after Relenza in 1999.

The dream turned sour in 2000 when, according to Biota, GSK cut virtually all promotion and other support for Relenza. Relenza now holds only 3 per cent of the estimated US$330 million (A$500 million) global market for neuraminidase inhibitors.

"In the first year [after launch] we gained about half of the market, but by the end of the year something had happened -- Glaxo merged with SmithKlineBeecham. Something changed and they decided to longer support and promote Relenza," said Molloy.

"Relenza was a breakthrough influenza drug that had great potential, but it was effectively abandoned at birth."

Relenza captured the imagination of both the stockmarket and scientists when it was launched in 1999. It was the first drug to be ‘designed’ to lock into the neuraminidase enzyme found on the surface of the influenza virus, preventing the virus from replicating.

The drug was developed by CSIRO scientists and scientists at Biota and the Victorian College of Pharmacy. An effective influenza treatment is one of the holy grails of medicine and Relenza treats both A and B strains of influenza.

"Relenza is an excellent drug and a testament to Australian research. We also believe it is superior to its sole competitor, the oral drug Tamiflu," Molloy said.

Because the drug is inhaled, it gets directly to the lungs, and has fewer side effects than Tamiflu. It's also marginally cheaper according to Molloy.

Molloy explained that the motivation behind the lawsuit was to regain Relenza’s value. “The market and many people have written off Relenza. We haven't," he said.

He said that Biota was comfortable with the cost of the lawsuit, which is expected to take 12-18 months to resolve.

"We have good cash reserves and a proven ability to raise funds as needed," he said.

"Biota's court action comes as a surprise and GSK has only just been informed of the action," said Nikki Capp, spokeswoman for GlaxoSmithKline. "We'll be considering our position and we will provide comment in due course."

Analysts commented that the lawsuit was a mild positive for Biota in that the downside risk was business as usual and the upside risk was royalty payment.

Biotechnology companies and the pharmaceutical industry have developed a close, almost symbiotic relationship over the years with most legal tussles taking place over intellectual property rights. This lawsuit exposes new pitfalls in the rights and responsibilities of both biotech and big pharma.

At time of writing, Biota shares were down 4%, to 67 cents on low volumes.