A Swiss pharmaceutical company is fighting a last-ditch battle to reverse a $377 million judgment it lost in California after pulling the plug on a drug that had failed once in Phase II trials and appeared to have a dim future ahead of it.
Asahi won $91 million from Actelion in arbitration but then convinced a jury to award much more under the theory that the Swiss company had illegally meddled with its contract with CoTherix. Asahi said the drug, Fasudil, would have generated more than $600 million in sales. The jury awarded Asahi $547 million, later cut to $377 million, and an appeals court upheld the judgment.
The case is interesting both because of the highly speculative nature of the damages calculation -- according to Nature, the chances of success for a drug entering Phase II are about 15% -- and because Actelion and three of its executives were found liable for interfering with a contract between Asahi and CoTherix. (The executives were ordered to pay $30 million, personally.)
In a brief submitted to the California Supreme Court this week, Actelion says the verdict conflicts with previous California rulings and improperly mixes concepts of tort and contract law.
Normally when one party to a contract fails to live up to its terms, the other can sue for damages caused by the breach. Tortious interference applies to outsiders who have no legitimate interest in the relationship but have a hand in busting it up.
Since Actelion pulled the plug on the drug after it bought CoTherix, the Swiss company argues it had no duty to stay out of relations between Asahi and CoTherix. It was CoTherix after the merger. The proper remedy lies in contract law, Actelion argues, and indeed Asahi took the dispute to arbitration and won millions.
"By `tortifying” ordinary contract actions, the decision below threatens to discourage businesses from investing in California, for it places corporations and their executives at risk of crippling tort damages—magnified by the prospect of punitive damages—whenever a subsidiary incurs contract liability," Actelion argues.
Disputes over drug-development contracts aren't uncommon in the pharmaceutical industry, where big companies sometimes have an incentive to license a new drug and put it in a drawer so it doesn't threaten an existing blockbuster.
Actelion bought CoTherix for its drug Ventavis, a treatment for pulmonary arterial hypertension that competed with Actelion's Tracleer. It said it valued Fasudil, also a potential PAH drug, at zero, although when CoTherix was still on the market investment bankers circulated an analysis that projected Fasudil sales of more than $600 million a year if it achieved Food and Drug Administration approval. The drug had been pulled from Phase II trials by an earlier development partner because of side effects, diminishing the prospects the FDA would find it safe and effective.
The stakes are high for more companies than Actelion. Medivation is pursuing a similar theory based on hypothetical lost profits. It sued the University of California for licensing a drug that became Medivation's prostate-cancer drug Xtandi, then undercutting its success by licensing a similar compound to Aragon. A San Francisco judge rejected Medivation's hypothetical lost profits theory, but the company is appealing.
And while most corporations indemnify their executives against such lawsuits, Actelion said there's a split in California courts over whether they can even be subjected to punitive damages for purely economic losses.
This case has drawn in a lot of high-powered talent over the years, as The Recorder notes here. Joining Mayer Brown on the California Supreme Court appeal is Kathleen Sullivan, a former Stanford Law School dean and now Quinn Emmanuel partner, whose U.S. Supreme Court victories include Kiobel vs. Royal Dutch Shell, cutting back on foreign human-rights claims in U.S. courts; and Granholm v. Heald, eliminating laws against the interstate shipment of wine.
