Alphamed Pharmaceuticals v. Arriva Pharmaceuticals

• Decision Date: 26 May 2006
• Docket Number: No. 03-20078 CV.,03-20078 CV.
• Court: U.S. District Court — Southern District of Florida
• Parties: ALPHAMED PHARMACEUTICALS CORP., Plaintiff, v. ARRIVA PHARMACEUTICALS, INC.; and SPINELLI CORPORATION, Defendants.

432 F.Supp.2d 1319

ALPHAMED PHARMACEUTICALS CORP., Plaintiff, v. ARRIVA PHARMACEUTICALS, INC.; and SPINELLI CORPORATION, Defendants.

No. 03-20078 CV.

United States District Court, S.D. Florida. Miami Division.

May 26, 2006.

COPYRIGHT MATERIAL OMITTED

Stephanie R. Lewis, Zelle Hoffmann Voebel Mason Gette, Los Angeles, CA, John C. Steele, Steven A. Lamb, Douglas

J. Rovens, Duane Morris, Miami, FL, for Plaintiff.

Frank Herrera, Herrera & Regalado-Herrera PA, Paul Joseph Riley, IV, Jonathan Goodman, Samuel Swain Heywood, Julie Elizabeth Nevins, Miami, FL, Akerman Senterfitt, James Alexander Stepan, Steven Eric Eisenberg, Jeffrey David Feldman, Feldman Gale, Miami, FL, David R. Chase, Hollywood, FL, Jason A. Crotty, Morrison & Foerster, San Francisco, CA, for Defendants.

OMNIBUS ORDER ON DEFENDANTS' POST-TRIAL MOTIONS

ALTONAGA, District Judge.

THIS CAUSE came before the Court on Defendant, Arriva Pharmaceuticals, Inc.'s ("Arriva['s]") Renewed Motion for Judgment as a Matter of Law [D.E. 904], filed on January 24, 2006; Arriva's Motion for New Trial and, in the Alternative, Motion for Remittitur [D.E. 923], filed on January 31, 2006; and Defendant, Spinelli Corporation's ("Spinelli['s]") Corrected Renewed Motion for Judgment as a Matter of Law [D.E. 928], filed on February 6, 2006.¹ The Court has reviewed the written submissions of the parties, the relevant portions of the record, and applicable law, and heard oral argument on March 7, 2006. For the reasons stated below, Defendant& Motions for Judgment as a Matter of Law and Arriva's Motion for New Trial are granted.

I. BACKGROUND²

A. The Roots of the Lezdey-Wachter Conflict

This litigation arose out of competition between former business partners turned bitter rivals, and between two companies involved in the potentially lucrative field of mass produced synthetic Alpha 1-Antitrypsin ("AAT").³ John Lezdey ("Lezdey"), a research chemist and patent attorney, met Dr. Allan Wachter ("Wachter"), then a research scientist at the University of Pennsylvania, in 1986. In the early 1990's, Lezdey and Wachter received several patents to use AAT to treat various indications. Together, they formed a joint venture, Sonoran Desert Chemicals LLC ("Sonoran"), a Nevada limited liability company, to hold these biotech patents. They also formed Protease Sciences, Inc. ("Protease"), as a subsidiary of Sonoran, to act as a licensing agent for the Sonoran patents.

In July 1997, Lezdey and Wachter cofounded AlphaOne Pharmaceuticals, Inc., now known as Arriva Pharmaceuticals, Inc.,⁴ Arriva was formed to develop and commercialize recombinant protease inhibitors under an intellectual property license from Protease and Sonoran, for the treatment of respiratory, dermatological and inflammatory indications. The other founding members of Arriva's board of directors, Dr. Philip Barr⁵ and David Kent, served as Chief Executive Officer and Chief Financial Officer of the company, respectively. In addition, Arriva employed Lezdey's sons, Darren Lezdey ("Darren") and Jarett Lezdey ("Jarett"), as business consultants.

In November 1997, Arriva and Protease signed a Term Sheet allowing Arriva to exploit the Sonoran Patents for one year. The Term Sheet delineated the conditions of a proposed license whereby Arriva would obtain the worldwide right to exploit the Sonoran patents. As a condition to a long-term license, however, Arriva was re quired to raise $4 million to fund its operations.

Soon after Arriva's formation, Lezdey became concerned that the new corporation was spending too much of its limited capital on salaries without showing any progress toward the development of AAT. Lezdey approached Wachter and suggested that the company reduce overhead expenses, particularly salaried positions, and "go virtual" in its efforts to identify licensees. Wachter rejected Lezdey's plan.

Dissatisfied with Arriva's inability to meet its financial or scientific benchmarks, Lezdey opposed the execution of a long term license for the Sonoran patents in Arriva's favor. In fact, in the absence of an executed license agreement, and because Arriva had been unable to obtain the financing required under the Term Sheet, Lezdey believed that Arriva's rights to exploit the Protease patents expired at the end of 1998. Unbeknownst to Lezdey, however, Arriva persuaded Wachter to sign a draft license agreement between Protease and Arriva.⁶ Under the terms of that purported license agreement, Protease granted Arriva an exclusive license to use the inventions claimed in the Sonoran patents.

In the early months of 1999, Lezdey's disagreements with, and estrangement from his business partner, Wachter, and other colleagues on the Arriva board continued to grow. On March 16, 1999, Lezdey was hospitalized with a stroke. While Lezdey was incapacitated and unable to participate, members of the Arriva board of directors held a board meeting, during which they expanded the board, removed Lezdey as Chairman, and vested certain stock options so that Protease was no longer Arriva's majority shareholder. Thereafter, over Lezdey's objections, Arriva entered into sub-license agreements with Baxter Healthcare Corporation ("Baxter") to develop a recombinant AAT product for respiratory indications, and with ProMetic Life Sciences, Inc. ("ProMetic") to develop a recombinant AAT product for dermatological and other indications.

Arriva did not obtain the necessary consent and approval of Protease/Sonoran to enter into the licenses with Baxter and ProMetic. Lezdey, who was still a member of Arriva's board of directors, questioned the validity of the purported Protease-Arriva license⁷ and the subsequent sublicenses with Baxter and ProMetic. In retaliation, Arriva terminated Lezdey and his sons in May 1999. Wachter then filed five lawsuits concurrently in four states against Lezdey, his family, and his companies.⁸

B. The Formation and Early History of AlphaMed

Following their ouster from Arriva, Darren and Jarett Lezdey founded and incorporated AlphaMed Pharmaceuticals Corp. on July 20, 1999.⁹ John Lezdey served as patent counsel and consultant to the new company. AlphaMed was established with two distinct divisions, an antimicrobial division and a pharmaceutical division. Within the antimicrobial division, the company produced and sought to distribute two disinfectant products, Noviguard and Germ Patrol.¹⁰

The focus of the AlphaMed pharmaceutical division was to produce and distribute AAT domestically and internationally for human and veterinary use. AlphaMed approached the production of AAT through two methods, a proprietary recombinant yeast production system and a method based on expressing AAT in transgenic bovine milk. In addition to AAT, AlphaMed's pharmaceutical division explored the development and distribution of veterinary and cosmetic products utilizing Cromolyn.

Like Arriva, AlphaMed claimed an interest in Sonoran's intellectual property. On September 2, 1999, Protease entered into a license agreement with AlphaMed whereby AlphaMed obtained the right to use the Sonoran patents to develop, manufacture and sell AAT products to treat a variety of non-human conditions and disorders, including skin conditions and disorders, eye and ear conditions and disorders, viral diseases and conditions and wounds. In addition, this license allowed AlphaMed to use the Sonoran patents to pursue a variety of human conditions including skin wellness and enhancement, cosmetic applications, wound healing, carcinoma, ear diseases and conditions and allergic rhinitis. As a cautionary measure, the Protease-AlphaMed license was specifically drafted so as not to conflict with the purported Pro tease-Arriva license. On March 1, 2000, Protease and AlphaMed entered into a second license agreement that expanded AlphaMed's rights to use the Sonoran patents to manufacture and sell AAT treatments for human respiratory disorders and conditions, treat human skin disorders, treat human viral diseases and conditions, and treat human eye conditions and diseases.¹¹

Cognizant of their similarity in mission, AlphaMed sought to differentiate itself from Arriva.¹² First, unlike Arriva, AlphaMed's business plan called for initially targeting the veterinary and non-regulat-ed overseas, pharmaceutical and cosmetics markets for AAT, including treatment of eye and ear infections, and then gradually entering the market for FDA approved uses of AAT. By focusing initially on these markets, AlphaMed hoped to achieve a first mover advantage in the AAT marketplace. According to AlphaMed, the production of AAT for markets with little or no regulation carried the added benefit of allowing the company to generate immediate profits without expending time and capital on clinical trials and other aspects of the FDA approval process. AlphaMed hoped to secure a tremendous advantage by being the first to mass market a product in the AAT industry, thereby developing brand name recognition while generating cash flow to fund research and development work for FDA approved AAT treatments.

Second, AlphaMed developed its own proprietary recombinant yeast production system using Pichia pastoris yeast cells, while Arriva was working to produce recombinant AAT product from a different strain of yeast cells, Saccharomyces cerevisiae.¹³ In December 1999, AlphaMed experienced a substantial breakthrough when Invitrogen, a gene bank located in Carlsbad, California, was able to express AAT in the Pichia pastoris gene. In January 2000, AlphaMed partnered with the University of Nebraska to use the clone produced by Invitrogen to manufacture and purify enough recombinant AAT to begin clinical studies toward the eventual goal of FDA approval.¹⁴ In March 2000, AlphaMed submitted a patent application for its promising AAT production method. AlphaMed attracted early venture capital investment to fund the execution of its business plan. On August 3, 1999, AlphaMed enticed Robert C.E. Williams ("Williams"...