Recasts first paragraph; adds oral argument throughout, financial details, stock price, byline

By Jonathan Stempel

May 6 (Reuters) - California's highest court on Wednesday appeared skeptical of requiring Gilead Sciences GILD.O and other manufacturers of drugs that are considered safe to try developing drugs that could be safer.

Gilead is appealing lower court rulings that said about 24,000 patients using an HIV drug it produced can pursue negligence claims over its decision to stop developing an alternative drug that had fewer side effects.

A decision against the Foster City, California-based company could change product liability law if it effectively required drugmakers to spend more to develop and quickly commercialize alternative products, sometimes called a "duty to innovate."

Several justices on the California Supreme Court suggested to the HIV patients' lawyer that finding Gilead failed to use reasonable care could stifle innovation, or require juries to review case-by-case in hindsight how drugmakers should develop new products.

"Isn't this a better problem for the legislature to solve?" Justice Goodwin Liu said. "The fact is the law does not prevent a company from reaping profits from its innovation. The idea that those profits should now be capped because the company innovated even more and did it even better strikes me as a kind of problem."

HIV drugs accounted for 70% of Gilead's $29.4 billion of revenue in 2025. Gilead shares were up 1.4% in late afternoon trading.

PATIENTS SAY GILEAD PUT PROFIT FIRST

The case was brought by HIV patients who took Gilead drugs made with tenofovir disoproxil fumarate, or TDF.

Those drugs won U.S. Food and Drug Administration approval in 2001 despite possible side effects including kidney dysfunction and bone problems.

Gilead soon began testing the similar tenofovir alafenamide fumarate, or TAF, which had fewer side effects.

It discontinued TAF development in 2004, saying its effectiveness and safety were not different enough from TDF to justify continued spending.

Holly Boyer, a lawyer for the patients, said Gilead delayed the commercialization of TAF for nearly a decade to maximize profit, and coincide with the expiration of TDF's patent exclusivity in 2017.

"Gilead was willing to accept the suffering of tens of thousands of patients with HIV forced to endure a drug that was destroying their kidneys and breaking their bones, all so that Gilead could make more money, $27 billion more," she said.

GILEAD CALLS PATIENTS' THEORY EXPANSIVE

But justices pointed out that TDF is considered safe, and negligence is more common when a product is unsafe.

"At what point do we say, because you didn't take a different developmental path, ... you're negligent and you owe huge damages because you could have done it differently--even though by the way you cured my disease?" Justice Carol Corrigan said.

Gilead's lawyer Joshua Rosenkranz said the company simply focused on TDF because it achieved "the holy grail," a one-a-day pill that saved millions of lives.

"Plaintiffs' theory is extraordinarily expansive," he said. "Just to be reasonable is not a standard that manufacturers in any sector can implement, and certainly not in this critically important sector."

The court did not say when it will rule.