Foster City-based Gilead Sciences, Inc. has resolved its dispute with Roche, which arose out of the companies’ 1996 Development and License Agreement for the flu drug Tamiflu. The settlement, which resulted in an amendment to the 1996 Agreement, provides for Gilead to accept a revised royalty structure, with a co-promotion option, and $80 million in additional royalty payments for prior Tamiflu sales. The new royalty rate will be 14% for the first $200 million in Tamiflu sales, 18% for the next $200 million, and 22% for sales above $400 million.

The dispute arose in June, 2005 when Gilead delivered a notice of termination to Roche for the 1996 Agreement, seeking to gain back all rights to Tamiflu. The biotech company had alleged that Roche had failed to pay Gilead some $18 million in royalty payments incurred pursuant to the 1996 Agreement. The companies had entered into arbitration proceeding to resolve the dispute.

As a result of Gilead’s resolution of this dispute, Forbes reports that Gilead may look for an acquisition for the pulmnology, pediatric, or specialty infectious disease markets. Forbes author Kerry Dolan wrote in today’s article Biotechnology: Gilead’s Half-Empty Pipeline :

[T]he Foster City, Calif., company also has a problem shared by much of Big Pharma–an awfully thin pipeline. . . . For Gilead to keep growing between now and then, several analysts are betting that it will make an acquisition–either of a whole company or of specific drugs in development from other companies. . . . The challenge here: Gilead competes not with biotech companies but with deep-pocketed Big Pharma. So it may have to pay richly for any acquisition it undertakes.

Clearly, the challenge for Gilead in the coming months will be how to enhance its current pipeline that has very new products on one end of the spectrum and massive products on the other. Thanks to this settlement, Gilead now has new funds to take its pipeline to the next level–the real test will be what Gilead will be able to do with its windfall.