Lilly broke contract by not paying royalties on top-selling diabetes drugs, court says

Eli Lilly has generated billions of dollars from his diabetes drugs over the years, but now the company could be in danger of serious damage by not paying royalties on these drugs.

In Arizona federal court, U.S. District Judge Scott H. Rash ruled that Lilly had violated a contract she originally made in 1990 with Philips Petroleum to license “certain yeast expression technologies for research and commercial ”. Lilly has agreed to pay a 2% royalty on sales of final products or reagents resulting from the license, but now faces claims from another company that she did not.

In 1993, Phillips sold the technology to Tucson, Ariz., Research Corporation Technologies. This company filed a lawsuit in 2016, alleging that Lilly had not paid her end of the deal.

In this case, Lilly argued that her diabetes drugs are not the “end product” because they are not the direct result of RCT’s technology. Instead, Lilly’s drugs are a product of an enzyme called carboxypeptidase-B – which is itself made with the RCT system – and other ingredients. For its part, RCT argued that its technology is essential to the production of Lilly’s diabetes drugs.

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After reviewing the arguments, Rash ruled that Lilly’s diabetes drugs are in fact the “end products” covered by the agreement and that Lilly “has breached its reporting and royalty obligations.” The court will determine the amount of damages Eli Lilly owes RCT in a lawsuit, the judge wrote.

This is also a 2001 Lilly sublicense inked with Sandoz to produce carboxypeptidase-B with the technology in question. RCT argued that had Lilly shared information about this sublicence in a timely manner, it “would have sparked a discussion of the royalties owed to RCT.”

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A representative for Lilly did not immediately respond to a request for comment.

Lilly has been a prominent diabetes player for many years so the lawsuit could spark a big win for RCT, likely subject to appeals.

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