Judge nixes Merck's $200M hep C patent win, citing 'fabricated' testimony, 'pervasive' misconduct

Merck & Co. won’t collect the $200 million it won in a hepatitis C patent fight against Gilead Sciences after all. And according to a federal judge, that’s Merck's own fault--and crucially, the fault of one of its expert witnesses.

Judge Beth Labson Freeman found “a pervasive pattern of misconduct” by Merck ($MRK) in the patent fight, according to a Monday ruling. A retired Merck scientist and lawyer “intentionally fabricated testimony” about early discoveries that led to the development of next-generation hepatitis C drugs, including Gilead’s blockbuster duo, Harvoni and Sovaldi, the ruling states. And Merck supported the “bad faith conduct,” the judge said.

A trial jury had awarded Merck $200 million back in March, after hearing evidence about R&D at Pharmasset, the drug developer Gilead ($GILD) bought in 2011 for its hep C meds. The judge reopened the case last month when Gilead served up evidence of potential misconduct on Merck’s part.

Merck says it plans to appeal. Labson Freeman’s ruling “does not reflect the facts of the case,” the drugmaker said in an emailed statement.

The ruling turns on testimony by Philippe Durette, an in-house patent lawyer at Merck who previously worked in the company’s chemistry labs. Durette served on the team that drafted Merck’s applications for its ‘499 and ‘712 patents--the two patents Merck is defending against Gilead.

In a pretrial deposition, Durette had said he did not participate in a due diligence phone call between Merck and Pharmasset about the latter’s hepatitis C program. At the time, Merck was considering acquiring the smaller company, and Pharmasset had disclosed confidential specifics about its in-development compounds.

During the deposition, Durette said he was “positive” that the structure of Pharmasset’s key compound was “never” revealed to him--and he said he was certain he didn’t participate in that call, partly because his other patent work created a conflict of interest, the judge’s ruling notes.

At trial, however, Durette admitted that he had participated in that call, saying that it had previously slipped his mind. After that call, rather than recusing himself from related hep C patent work, Durette continued to tweak Merck’s pending patent applications, the ruling states. And Labson Freeman concluded that Durette made those changes partly because of what he’d learned on the conference call with Pharmasset.

“Dr. Durette’s lying at his deposition, recanting that testimony at trial without proper prior notice to Gilead, and further untruthful testimony at trial all support the court’s conclusion that Merck did intend to deceive Gilead and the court,” the judge wrote.

Merck obviously does not agree and says it “will be filing the appropriate motions to begin the appeals process.”

“The compounds and methods at issue in this case facilitated significant advances in the treatment of patients with HCV infection,” the company said in its statement, “and achieving these advancements required many years of research and significant investment by Merck and its partners.”

Merck had hoped to capture a piece of Gilead’s enormous revenue stream from Harvoni and Sovaldi. The earlier jury verdict not only delivered that $200 million award but also opened the way for Merck to pursue royalties from the two blockbuster drugs’ ongoing sales. Merck’s rival hep C cocktail, Zepatier, recently won FDA approval, but Gilead’s meds have an enormous head start in the market, with more than $23 billion in combined sales since their launches.

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