A Delaware federal judge has agreed to increase the royalty rate a specialty drugmaker has to pay drug manufacturer Jazz Pharmaceuticals Inc. for using a patented process behind a newer narcolepsy drug, but by less than what Jazz asked for.

U.S. District Judge Gregory B. Williams, in a decision filed on Sept. 15 and unsealed Thursday, increased the initial ongoing royalty rate Avadel CNS Pharmaceuticals LLC had to pay from 3.5% to 3.85%, marking a 10% increase. Jazz, however, had asked for a 30% rate through this year, followed by a 13% rate between 2026 and 2032 and a 3.5% rate from 2033 until the expiration of the patent three years later.

While Judge Williams said numerous factors are neutral or weigh against increasing the rate, he agreed with Jazz's argument that the commercial success of Avadel's narcolepsy drug Lumryz warranted increasing the royalty. The judge pointed to evidence that Avadel is anticipating greater sales and wider insurance coverage of its product and that the company is increasing its market capitalization, among other things.

But even though Judge Williams said there should be an increase, he said it "should be modest." He further said "Jazz's requested royalty rate schedule is excessive and not supportable for" various reasons, including that the company didn't point to any "cases where a court has implemented an ongoing royalty schedule like the one that Jazz proposes under circumstances similar to those in this action."

Jazz makes the narcolepsy drugs Xyrem and Xywav, with the latter also treating a related sleep disorder, idiopathic hypersomnia.

Avadel submitted a new drug application in December 2020, aiming to get approval for Lumryz, while relying on safety and efficacy data from Jazz. The U.S. Food and Drug Administration granted that approval, and Avadel launched the drug in 2023.

Its attempt to extend its drug to treat idiopathic hypersomnia is what is at issue.

Between the application and approval, Jazz received a new patent, which it then sued Avadel for infringing. Both sides agreed that Avadel would infringe, so the subsequent jury trial looked only at whether the patent was invalid. The jury found it was not invalid and granted Jazz about $234,000, reflecting a royalty rate of 3.5% on $6.6 million in past sales of Lumryz.

Judge Williams last year issued a limited permanent injunction barring Avadel from seeking approval for the use of Lumryz for idiopathic hypersomnia. He allowed the company to continue its ongoing clinical studies, which are protected from infringement by a Hatch-Waxman Act safe harbor, but barred the company from allowing trial participants to remain on the drug after the trial ended and from starting new clinical trials.

But in a precedential opinion in May, the Federal Circuit reversed the testing aspects of the injunction while vacating and remanding the part that stopped Avadel from trying to get its drug approved before Jazz's patent expires in 2036.

In a separate order unsealed last month, Judge Williams determined that Avadel cannot be enjoined from seeking approval, which is an activity the parties have agreed is noninfringing. Citing the Federal Circuit's opinion, the judge held that an injunction barring noninfringing acts is not necessary to prevent infringement under the current circumstances.

Counsel for the parties did not immediately respond to requests for comment from Law360 on Thursday.

The patent-in-suit is U.S. Patent No. 11,147,782.

Jazz is represented by Jeremy A. Tigan and Cameron P. Clark of Morris Nichols Arsht & Tunnell LLP, and F. Dominic Cerrito, Eric C. Stops, Evangeline Shih, Andrew S. Chalson, Gabriel P. Brier and Frank C. Calvosa of Quinn Emanuel Urquhart & Sullivan LLP.

Avadel is represented by Daniel M. Silver and Alexandra M. Joyce of McCarter & English LLP.

The cases are Jazz Pharmaceuticals Inc. v. Avadel CNS Pharmaceuticals LLC, case numbers 1:21-cv-00691, 1:21-cv-01138 and 1:21-cv-01594, all in the U.S. District Court for the District of Delaware.