The Settlement That Wasn’t

Shareholders of Alnylam Pharmaceuticals may be forgiven for heaving a sigh of relief when news broke of a Settlement between Alnylam and Max Planck on the one hand and the Whitehead Institute and the University of Massachusetts (UMass) on the other hand which seemed to resolve the Tuschl II ownership issue and finally put an end to the lengthy and costly Tuschl Litigation (follow filings and commentary here).

At the heart of the dispute was Alnylam’s fear that Merck could gain access to the siRNA 3’ overhang feature if UMass got its way and certain data concerning such overhangs were left in the US Tuschl I patent application. UMass found itself to be in a particularly tough spot since whether it gave in to Alnylam’s demands or not, somebody, Alnylam or Merck, would be quite unhappy with them. So when Alnylam announced that it had ‘reach[ed] settlement in litigation regarding Tuschl patents’ and noted that Alnylam granted as part of the settlement UMass the right to sublicense the U.S. Tuschl II patent family to Merck (emphasis mine), it seemed like Alnylam, UMass, and Merck achieved the impossible and untied the Gordian Knot that Tuschl II had become.

Exhibits (Exh. 10-2 and 10-3) filed as part of Alnylam’s quarterly securities filings, however, strongly suggest that the settlement effectively solved nothing and only delayed/slightly shifted the problem. Importantly, there is no evidence that Merck agreed to or conceded anything with this settlement. In fact, the filings indicate that Merck was not part at all of the settlement negotiations as it had yet to see its details. The Merck reference is only a reference that UMass will present Merck with the option to utilize Tuschl II in the US. The only reason why Merck would remotely see any value in this is if Alnylam succeeded in stripping away the 3’ overhang claims from Tuschl I.

But even then, I very much doubt that Merck would be agreeable. One insight into its current thinking about Tuschl II comes from a recent opposition that Merck filed against that patent estate in Europe. On April 4 2011, that is after the news of the Tuschl Settlement, it and others (including Pfizer and Silence Therapeutics) appealed a recent decision by the EPO to uphold Tuschl II. In Europe, it will be the objectives of Merck and UMass, still responsible for Tuschl I patent prosecution there, to eventually get a broader Tuschl I issued and/or invalidate Tuschl II. Personally, I’m wondering whether the EPO will eventually raise the same double patenting issue the USPTO raised.

The main problem with solving the Tuschl situation is that when Alnylam sold its licenses to various Big Pharma companies, they must have been under the impression that Merck had either only limited or no rights at all to Tuschl II. After all, at least some of that half a billion dollar plus was for the strategic value that Tuschl II would give them. This is why Alnylam adds that the Tuschl II sublicense to Merck, or rather the offer of such a sublicense, is subject to certain 3^rd party obligations, pretty much meaning that Novartis will not easily give up on the exclusivity of its 31 target picks. Rest assured, Merck, having invested more than anybody else in RNAi Therapeutics, will never agree to such terms.

Something about the Settlement seemed odd to me, and I’m sure to others as well. It is, however, clear to me now that peace between Merck and Alnylam has not broken out yet.