Gilead Sciences Inc. is seeking to regain the rights to influenza drug Tamiflu from Roche Holding.
Gilead, which invented the drug, said Thursday that it had ended a development agreement reached with Switzerland-based Roche in 1996 because of a "material breach" in the deal.
Roche failed to effectively promote Tamiflu and had manufacturing problems that led to shortages, according to John Milligan, chief financial officer of Foster City, Calif.-based Gilead.
The dispute comes as countries including the U.S., Britain, Japan and Italy have bought or are planning to purchase $1.4 billion worth of Tamiflu, or oseltamivir phosphate, to fight a worldwide outbreak that health experts say is inevitable.
Gilead announced its plan after the close of regular U.S. trading. Its shares had fallen $1.20 to $41.42.
Roche said it was disappointed with Gilead's action and would continue to produce the drug globally.
"We strongly disagree with their decision but have every intention to resolve this issue with them," the company said in a statement. "We remain deeply committed to keeping Tamiflu available to patients for the treatment and prevention of influenza."
Gilead probably won't succeed in taking back the rights to Tamiflu, and the companies probably will reach a financial settlement, said Geoffrey Porges, an analyst at Sanford C. Bernstein & Co. in New York.
"Gilead is frustrated with Roche's lack of response on outstanding royalty issues, and they feel as though they are not getting a response from Roche," Porges said.
"Gilead would definitely like the product back, but I think it's unrealistic that Roche would give it up."
Tamiflu won U.S. Food and Drug Administration approval in 1999. Total sales of the medicine had reached $1.2 billion at the end of this year's first quarter, Gilead's Milligan said.
Gilead signed a deal with Roche because it didn't have the resources to develop and market Tamiflu on its own, company spokeswoman Amy Flood said. Milligan said the company, which gets most of its revenue from HIV treatments, now has the capacity to hire a sales force to promote Tamiflu.