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SAN FRANCISCO, April 24 (Reuters) - The California Supreme Court upheld a $300 million breach of contract award against Genentech Inc DNA.N on Thursday, but set aside a punitive damage award of an additional $200 million.
The company said the decision will add about $190 million to its first-quarter net income.
“We affirm that part of the judgment awarding City of Hope $300,164,030 in damages for Genentech’s breach of contract,” the Supreme Court ruled.
“Because punitive damages cannot be awarded for breaching a contract, however, our conclusion that there was no fiduciary relationship requires us to set aside the jury’s award of $200 million in punitive damages to City of Hope.”
A Los Angeles jury in 2002 decided that Genentech breached a 1976 contract relating to research done by two City of Hope medical center scientists that lead to the invention of the first biotechnology drug, a synthetic insulin called Humulin.
The jury ordered Genentech to pay $300 million in back royalties and $200 million in punitive damages.
The South San Francisco-based company in 2002 posted a charge of $500 million to account for the judgment.
Genentech said it expects to recognize a favorable litigation settlement of around $315 million in the first quarter of 2008, reversing $200 million in punitive damages originally awarded and about $115 million in interest accrued since 2002.
The company said the settlement will add about $190 million, or 18 cents a share, to its first-quarter profit.
Genentech said it expects to pay out around $475 million in the second quarter of 2008, reflecting the amount of compensatory damages awarded, plus interest from the date of the original decision in the second quarter of 2002.
Genentech said the funds have been recorded and the final payout will come from a restricted cash account designated for this purpose.
Reporting by Adam Tanner and Deena Beasley, editing by Richard Chang