Law.com - Judge Dismisses $280 Million Drug Development Suit Against AstraZeneca

We can only imagine how excited the folks at a small pharmaceutical development company called Verus were when they signed a deal with the mighty AstraZeneca in the spring of 2007. AstraZeneca agreed to pay Verus $30 million to develop its early-stage pediatric asthma drug, with an eye toward a preliminary October 2008 meeting with the Food and Drug Administration to receive approval for clinical testing. If all went well, AstraZeneca would then pay Verus another $280 million to acquire rights to the drug.

All didn't go well. Early testing on rats and dogs revealed serious safety issues. By September 2008, AstraZeneca was talking about discontinuing animal testing. In fact, at a Sept. 18 meeting, someone from AstraZeneca asked Verus if the company planned to repurchase development rights to its drug, under a contractual agreement that permitted Verus to reacquire rights for $1.

After a series of communications between the companies in October -- when, in more optimistic days, they'd anticipated an FDA meeting -- Verus sent AstraZeneca what it called a "notice of election to exercise repurchase option," in which it asked AstraZeneca to guarantee the assets Verus would reacquire didn't include liabilities in excess of $200,000. AstraZeneca said Verus' proposed terms went beyond the 2007 deal and weren't acceptable. Then, to complete its rejection of Verus, AstraZeneca announced in December 2008 that it had entered into an agreement with a different small pharma company to develop a competing pediatric asthma treatment.

With great fanfare, Verus sued AstraZeneca in New York state Supreme Court for $1.28 billion -- the $280 million it alleged it was due under its contract with AstraZeneca, plus $1 billion in punitive damages. Verus' lawyers at Fensterstock & Partners accused AstraZeneca of breach of contract, fraud, conversion, unjust enrichment and breach of the implied covenant of good faith.

On Monday, Manhattan federal district court Judge Barbara Jones, who took over the case when AstraZeneca had it removed to federal court, dismissed every one of Verus' claims (pdf). She found that AstraZeneca had honored all of its contractual obligations to Verus under the development, asset purchase and repurchase deals the companies signed in 2007.

"The ruling couldn't be more of an across-the-board vindication for AstraZeneca," said AstraZeneca lead counsel Aaron Rubinstein of Kaye Scholer. "It says there was no basis for the contractual obligations Verus asserted."

Jones noted twice in her ruling that Verus did not contest AstraZeneca's assertions of safety problems with its pediatric asthma drug. Rubinstein said those safety issues precluded further development of the product. "We weren't going to push for an FDA meeting that would have been an absolute waste of time," he told us. "AstraZeneca wasn't going to ask that humans be subjected to this product that wasn't safe." And if AstraZeneca considered Verus' product worthless, he added, the company certainly wasn't going to pay $280 million for it, despite Verus' breach of contract assertions. "AstraZeneca isn't going to just roll over and throw money at them when it believes it acted properly," Rubinstein said.

Verus counsel Blair Fensterstock, however, told us that Jones erred in her interpretation of AstraZeneca's obligations under the development deal. AstraZeneca, he said, was bound to prepare the drug for a preliminary FDA meeting, and failed to honor that obligation. AstraZeneca's purported safety concerns, he said, were "a ruse"; according to Fensterstock, AstraZeneca was aware of the safety issues before it signed the 2007 agreements with Verus. Moreover, he said, those concerns were not serious enough to preclude a meeting with the FDA to discuss clinical testing on people.

And Jones, Fensterstock said, should not have assumed facts about the products safety in a dismissal ruling. "The evidence to support our case has yet to be before the judge," he said. "She was wrong to rule with regard to safety."

Versus, he added, intends to appeal.

 

This article first appeared on The Am Law Litigation Daily blog on AmericanLawyer.com.

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