InspiRx, Inc. v. Lupin Atlantis Holdings SA

• Decision Date: 23 July 2021
• Docket Number: 20 Civ. 3214 (JPC)
• Parties: INSPIRX, INC., Plaintiff, v. LUPIN ATLANTIS HOLDINGS SA, Defendant.
• Court: U.S. District Court — Southern District of New York

554 F.Supp.3d 542

INSPIRX, INC., Plaintiff,

v.LUPIN ATLANTIS HOLDINGS SA, Defendant.

20 Civ. 3214 (JPC)

United States District Court, S.D. New York.

Signed July 23, 2021

Filed August 12, 2021

Joshua David Sibble, Gene Young Kang, Gregory David Miller, Rivkin Radler LLP, Hackensack, NJ, Carlton R. Asher, Jr., Law Offices of Carlton R. Asher, Jr., New York, NY, for Plaintiff.

Frank E. Morreale, Holland & Knight, Jacksonville, FL, Matthew Rudolph Diblasi, Holland & Knight LLP, New York, NY, for Defendant.

OPINION AND ORDER

JOHN P. CRONAN, United States District Judge:

In 2013, Plaintiff InspiRx, Inc. contracted with Defendant Lupin Atlantis Holdings SA ("Lupin") for Lupin to distribute InspiRx's new product, the InspiraChamber. Sales of the InspiraChamber proved disappointing, and in 2019, Lupin terminated the contract. In 2020, InspiRx filed this action, alleging that Lupin breached the contract and the implied covenant of good faith and fair dealing. Now before the Court are the parties’ cross-motions for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. For the reasons set forth below, the Court grants Lupin's motion and denies InspiRx's motion.

I. Background

A. Facts¹

This case concerns the InspiraChamber, a type of valved holding chamber ("VHC") used to deliver aerosolized asthma

and allergy medicine. InspiRx Counter-56.1 ¶¶ 3, 5. VHCs, which were developed in the early 1980s, are designed to improve delivery of medicines for diseases such as idiopathic pulmonary fibrosis. Id. ¶¶ 3, 13. The AeroChamber device was the leader in the VHC market from the early 1980s. Id. ¶¶ 29, 30.

In the mid-2010s, InspiRx, a pharmaceutical and device company that researches and produces medical devices, sought to launch a new VHC product, the InspiraChamber. Id. ¶ 3. Various InspiRx officers worked on the AeroChamber before joining InspiRx: InspiRx's Chief Medical Officer, Dr. Michael Newhouse, invented the AeroChamber in the 1980s, id. ¶ 5, and InspiRx's Chief Executive Officer ("CEO"), Michael Amato, built AeroChamber into a global market leader between 1984 and 2011, id. ¶¶ 7, 8. To launch the InspiraChamber, InspiRx partnered with Lupin, a pharmaceutical company that for several years had supported Forest Labs, a marketing company, to promote the AeroChamber. Id. ¶¶ 9, 12.²

In December 2013, after Lupin's contract with Forest Labs ended, Lupin and InspiRx entered into the Exclusive Distribution and License Agreement. Id. ¶ 18; Dkt. 29 ("DiBlasi Decl."), Exh. 1 ("Agreement"). Pursuant to the Agreement, Lupin accepted "the appointment as InspiRx's independent distributor with the sole and exclusive right to Distribute the Products" in the United States, with the exception of the U.S. hospital market. Agreement § 2.1; see id. § 1.1. The "Products" governed by the Agreement included the InspiraChamber as well as the InspiraMask and Soother Masks, two "mask[s] used in the administration of inhalable medication." Id. § 1.1. InspiRx contracted with another entity, Salter Labs, for distribution in the hospital market. InspiRx Reply to Lupin Counter-56.1 ¶ 71.

The Agreement mandated that, "[s]ubject to the terms and conditions set forth in th[e] Agreement, Lupin shall use Commercially Reasonable Efforts to Distribute the Products ... using its current distribution capabilities and resources." Agreement § 2.1(b). The Agreement defined "Commercially Reasonable Efforts" as follows:

"Commercially Reasonable Efforts" means, with respect to the efforts to be expended by a Party with respect to any task or objective under this Agreement, reasonable, diligent, good-faith efforts to accomplish such task or objective as soon as practicable, which efforts shall not be less than the efforts that other similarly situated companies would normally use to accomplish a similar task or objective under similar circumstances exercising reasonable business judgment, with respect to a product owned by it or to which it has similar rights as the Products, which product is at a similar stage in its product life and is of similar market, commercial and profitability potential as the Product, taking into account efficacy, safety, approved labeling, the competitiveness of alternative products in the marketplace, the patent and other proprietary position of the product, and other relevant factors commonly considered in similar circumstances. It is understood that the level of efforts required to meet the above standard may change over time if there are changes in the status of the Products or of the above criteria applicable to the Products.

Id. § 1.1. In section 7.1(a), the Agreement provided that "Lupin shall have, in its sole discretion, the authority to market and otherwise Distribute the Products ... to the extent and in such manner as it deems appropriate." Id. § 7.1(a). The Agreement also stated, however, that "[n]otwithstanding Section 7.1(a), Lupin or its Affiliates shall use Commercially Reasonable efforts to exhibit the Products at one or more major physician group meetings in the Territory during each Contract Year." Id. § 7.1(b).

The Agreement mandated that Lupin pay InspiRx, "[a]s full consideration for the grant by InspiRx of the exclusive Distribution rights and exclusive licenses hereunder," a total of [Redacted] Id. § 2.5. The Agreement did not require InspiRx to pay Lupin for Lupin's efforts to market and sell the InspiraChamber, nor did it contain a royalty-sharing provision pursuant to which InspiRx would have been compensated for a portion of each sale. Id. ; InspiRx Counter-56.1 ¶ 26.

Finally, the Agreement required Lupin to purchase a certain number of InspiraChambers from InspiRx for the first three years of the contract (the "Annual Purchase Obligation"). See Agreement § 3.11(a) ("[D]uring each of the first, second and third Contract Years during the Term, Lupin agree[d] to a minimum annual purchase obligation with respect to units of the Products as set forth on Exhibit C attached hereto ...."). The Agreement provided that, in the event Lupin failed to purchase the minimum amount, "InspiRx's sole right and remedy with respect to such failure shall be to terminate th[e] Agreement on sixty (60) days prior written notice ... and Lupin shall bear no other liability therefor." Id. § 3.11(d). It further stated that, "[i]n the event that InspiRx fails to deliver such written notice within such period, InspiRx shall be deemed to have irrevocably and unconditionally waived for all purposes Lupin's failure to meet the Annual Purchase Obligation for such Contract Year, and th[e] Agreement shall remain in full force and effect for the remainder of the Term." Id.

At the time of the launch, the VHC market was a "mature" consumer market, as it had been around for close to four decades. InspiRx Counter-56.1 ¶ 15; DiBlasi Decl., Exh. 2 ("Newhouse Depo. Tr.") at 28:5-29:18. The VHC market faced several challenges, "including a lack of patient awareness as to the importance of VHCs, lack of physician awareness as to the importance of VHCs and prescribing practices, lack of pharmacy availability because prescriptions are filled based on the VHCs that are currently stocked on the shelf, and a lack of payor coverage." Lupin Reply to InspiRx Counter-56.1 ¶ 76. In addition, in the United States, VHCs are not as popular as products such as small volume nebulizers

to treat asthma. InspiRx Counter-56.1 ¶ 17.

The parties were nonetheless initially optimistic that the InspiraChamber would be successful. In March 2014, Lupin provided InspiRx with a preliminary forecast predicting the following market share by year: (1) [Redacted] in 2015, (2) [Redacted] in 2016, (3) [Redacted] in 2017, (4) [Redacted] in 2018, and (5) [Redacted] in 2019. Lupin Counter 56.1 ¶ 30; Dkt. 26 ("Miller Decl."), Exh. M. Lupin budgeted $1,543,511 for marketing of the Products for fiscal year 2015, and proposed an increased budget of $2,380,175 for fiscal year 2016. Lupin Counter-56.1 ¶ 32. At the time of the Agreement, Lupin had a total sales force of approximately 123 to 150 representatives, id. ¶ 41, which was responsible for selling the company's entire brand portfolio, including Lupin's historic anchor brand, Suprax

, InspiRx Counter-56.1 ¶ 36.³ A subset of this 123- to 150-person sales force, the pediatric sales force, focused on products like the InspiraChamber. Lupin Counter-56.1 ¶ 41.

The parties launched the InspiraChamber in February 2015. InspiRx Couter-56.1 ¶ 34. InspiRx was satisfied with the launch, with its CEO, Amato, calling it "perfect." Id. Lupin met the Annual Purchase Obligation in 2015. Id. ¶ 45. Throughout 2015 and 2016, Lupin engaged in journal advertising and attended numerous meetings to exhibit the Products. Id. ¶¶ 38, 41.

Nonetheless, sales during this period proved disappointing and "flat-lined" by summer 2015. Id. ¶ 44. Results were unsatisfactory across other markets as well: InspiRx's European distributor faced similarly disappointing sales following the launch of the InspiraChamber in that region, id. ¶ 47, and, as InspiRx admits, the opportunities in certain Asian markets that InspiRx had considered expanding into "did not materialize," id. ¶ 48. InspiRx's distributor for the U.S. hospital market, Salter Labs, did not order any new InspiraChamber product in 2016 and returned a significant number of unsold products. Id. ¶¶ 49-50.⁴ Salter Labs and InspiRx ultimately terminated their contract for distribution in the U.S. hospital market. InspiRx Reply to Lupin Counter-56.1 ¶ 72.

In late 2016, Lupin decided to change its marketing strategy, restructure its pediatric sales force, and reduce the budget for the InspiraChamber. InspiRx Counter-56.1 ¶¶ 53, 54, 58, 59, 60. Lupin created a three-pronged marketing strategy to generate sales through large retail pharmacy chains, selected large allergy group practices, and managed care companies. Id. ¶¶ 57, 63, 68, 72. It reduced its pediatric sales force to nine employees, id. ¶ 61, before ultimately...