Jury Rules Merck Patents Valid…Bad For Gilead?

Merck & Co., Inc. MRK and Gilead Sciences, Inc. GILD have been going head to head in a patent war over HCV nucleoside patents.

While the war wages on, one battle has been won for Merck. On Tuesday, a U.S. District Court for the Northern District of California jury found that Merck's patents, which had been contested by Gilead, were indeed valid.

Following the jury's ruling, Merck is likely to seek damages, according to Leerink. "Merck (MRK, MP) has now indicated that it will seek damages, but a long appeals process lies ahead […] Although there are still several remaining issues to be decided from the trial – including the size of potential damages, if awarded – we expect the legal battle will continue for several years," Leerink's Geoffrey Porges elaborated.

The Situation

Beginning August 2013, the two companies began engaging in legal disputes, initiated by Merck requesting a 10 percent royalty of Gilead "on net sales of all sofosbuvir-containing products."

The request was based upon Merck alleging Gilead had infringed upon Merck's patents 7,105,499 and 8,481,712.

Related Link: Gilead Vs. Merck: What To Know

Gilead claimed the patents to be invalid and sought declaratory judgement, "Along the way, Gilead conceded that it had infringed on Merck's patents but continued to asset that the patents were invalid."

What It Means For The Stocks

Leerink asserts that in the near term, Gilead is likely to see pressure from the ruling, but due to the lengthy legal process, any long-term effects will be minimal.

Overall, the firm maintains its bullish stance on Gilead.

Leerink currently has an Outperform rating on Gilead, with an attached price target of $127.

Leerink does not cover Merck. However, Jefferies maintained a Hold rating on the stock with an attached price target of $51.00 on March 15. Bank of American has a Neutral rating and Barclay's has an Overweight rating and $66 price target on the stock. JPMorgan also holds an Overweight rating with a $65 price target, while BMO Capital has an Outperform rating and $70 price target.