Neurelis, Inc. v. Aquestive Therapeutics, Inc.

• Citation: 71 Cal.App.5th 769,286 Cal.Rptr.3d 631
• Decision Date: 17 November 2021
• Docket Number: D077984, D078186
• Parties: NEURELIS, INC., Plaintiff and Respondent, v. AQUESTIVE THERAPEUTICS, INC., Defendant and Appellant. Neurelis, Inc., Plaintiff and Appellant, v. Aquestive Therapeutics, Inc., Defendant and Respondent.
• Court: California Court of Appeals

71 Cal.App.5th 769

286 Cal.Rptr.3d 631

NEURELIS, INC., Plaintiff and Respondent,

v.AQUESTIVE THERAPEUTICS, INC., Defendant and Appellant.

Neurelis, Inc., Plaintiff and Appellant,

v.Aquestive Therapeutics, Inc., Defendant and Respondent.

D077984, D078186

Court of Appeal, Fourth District, Division 1, California.

Filed November 17, 2021

Latham & Watkins, John T. Ryan, David F. Kowalski, San Diego, and Nicole C. Valco, San Francisco, for Plaintiff and Appellant.

Steptoe & Johnson, Jason Levin, Los Angeles, Melanie A. Ayerh, and Jamie L. Lucia, for Defendant and Respondent.

Steptoe & Johnson, Jason Levin, Los Angeles, Melanie A. Ayerh, and Jamie L. Lucia, for Defendant and Appellant.

Latham & Watkins, John T. Ryan, David F. Kowalski, San Diego, Nicole C. Valco, Amit Makker, San Francisco, Melissa Arbus Sherry, and Shannon Grammel, for Plaintiff and Respondent.

HUFFMAN, J.

Neurelis, Inc. (Neurelis) and Aquestive Therapeutics, Inc. (Aquestive) are pharmaceutical companies developing their own respective means to administer diazepam, a drug used to treat acute repetitive seizures (ARS). Neurelis was further along in the development process than Aquestive. Thus, according to Neurelis, Aquestive engaged in a "multi-year, anticompetitive campaign to derail the Food and Drug Administration" (FDA) from approving Neurelis's new drug. Based on Aquestive's alleged conduct, Neurelis sued Aquestive for defamation, malicious prosecution, and violation of the unfair competition law (UCL; Bus. & Prof. Code, § 17200, et seq. ). In response, Aquestive brought a special motion to strike the complaint under the anti-SLAPP (Strategic Lawsuit Against Public Participation) statute, Code of Civil Procedure section 425.16.¹

The superior court granted in part and denied in part Aquestive's motion, finding that the defamation cause of action could not withstand the anti-SLAPP challenge. However, the court denied the motion as to Neurelis's other two causes of action.

Aquestive appeals, contending the court erred by failing to strike the malicious prosecution action as well as the claim for a violation of the UCL. Neurelis, in turn, cross-appeals from the order, maintaining that the conduct giving rise to its defamation cause of action was not protected under the anti-SLAPP statute.

We agree that at least some of the conduct giving rise to the defamation action is covered by the commercial speech exception ( § 425.17, subd. (c) ) and not subject to the anti-SLAPP statute. Accordingly, we determine the superior court erred in granting the anti-SLAPP motion as to the defamation action. Some of this same conduct also gives rise to the UCL claim and is not subject to the anti-SLAPP statute as well. However, we note that Neurelis bases part of two of its causes of action on Aquestive's petitioning activity. That activity is protected conduct under the anti-SLAPP statute, and Neurelis has not shown a likelihood to prevail on the merits. Thus, allegations relating to this petitioning conduct must be struck. Finally, we determine that Neurelis has not shown a probability of success on the merits regarding its malicious prosecution claim. As such, that claim should be struck under the anti-SLAPP statute.

In summary, the superior court's order is affirmed in part and reversed in part. We will remand this matter back to the superior court with instructions to enter an order striking the allegations relating to Aquestive's petitioning activity, striking the malicious prosecution action, and denying the motion as to the UCL and defamation causes of action to the extent they are based on unprotected conduct.

FACTUAL AND PROCEDURAL BACKGROUND

The Operative Complaint

Neurelis is a Delaware corporation with its principal place of business in San Diego. Its focus is to develop pharmaceuticals to treat central nervous system disorders. Aquestive is a Delaware corporation with its principal place of business in New Jersey. Both Neurelis and Aquestive were working to develop a drug to treat patients with epilepsy who suffer from ARS. For over 20 years, Diastat ® was the only approved drug on the market to treat ARS, but it requires rectal administration. Therefore, Neurelis and Aquestive were trying to develop a new method to administer the needed medicine.

To this end, Neurelis formed in 2007 with the aim of combining various technologies to find an effective way to create an intranasal delivery system for an ARS treating drug (diazepam ). In 2008, Neurelis had developed a novel formation for nasal delivery of the drug diazepam, which would be named Valtoco®.

In 2011, after initial nonclinical studies, Neurelis began discussions with the FDA regarding Valtoco as an investigational new drug. That same year, Neurelis conducted the first human proof-of-concept study. It announced the completion of dosing on April 20, 2011. Two months later, Neurelis publicly announced the results from this phase 1 study that demonstrated a bioavailability² of 96 percent when comparing Valtoco with intravenous diazepam.

Based on these results, Neurelis scheduled a pre-investigational new drug application with the FDA, which was conducted in November 2011. On February 6, 2012, Neurelis publicly announced the FDA's acceptance of the NRL-1 (Valtoco) investigational new drug application. Per the direction of the FDA, Neurelis continued working toward the development of Valtoco throughout 2012, 2013, and 2014.

On December 22, 2015, Neurelis announced the receipt of orphan drug designation from the FDA for Valtoco for management of ARS. Such designation may be obtained when a rare disorder or condition meets criteria specified by the Orphan Drug Act of 1983 and the FDA's implementing regulations. This designation did not indicate that Valtoco was safe or effective for public use but, instead, operated to qualify Neurelis for various development incentives, like tax credits and potential exclusivity for seven years if the FDA ultimately approved Valtoco.

On January 5, 2017, Neurelis announced receipt of fast track designation from the FDA for Valtoco. That designation allows for the potential expedited or priority review from the FDA once the new drug application has been submitted. It also provides for prioritized interactions with the FDA during the clinical development program.

On September 24, 2018, Neurelis announced the filing of a new drug application for Valtoco as a treatment for ARS. At the time of filing the operative complaint (December 9, 2019), the FDA was still considering that application.

While Neurelis was in the process of developing Valtoco and seeking FDA approval, Aquestive also was working toward the development of its own drug to treat ARS, Libervant®. However, Aquestive was not as far along in the process as Neurelis. Indeed, at various times, Aquestive approached Neurelis about partnering in the development process, but Neurelis declined.

Libervant has a different delivery system than Valtoco. Although Valtoco is administered nasally, Libervant utilizes "fast-melt strips" for a "buccal delivery of diazepam." So, the drug is delivered by placing a soluble strip in the patient's mouth against the cheek, which would quickly dissolve for oral administration. Libervant obtained orphan drug designation on November 10, 2016.

In June 2017, Aquestive's chief executive officer, Keith Kendall, and its chief operating officer, Dan Barber, met with Neurelis's chief executive officer, Craig Chambliss, to discuss "the two companies' diazepam programs and ... to forge a potential strategic partnership between Aquestive and Neurelis." Chambliss explained Neurelis's historical efforts to bring Valtoco to market as well as his views of the importance of formulating a nasal administration of diazepam to treat ARS for the epilepsy community. Kendall interrupted Chambliss's explanation, stating, " ‘Look, let's be honest here. We don't care about the patients, epilepsy, or any of this. We are not here for patients, we are here for our investors and need to show them a return.’ " After these comments, Chambliss left the meeting.

Kendall and Barber requested another meeting with Chambliss in January 2018. Chambliss agreed in the hopes of discussing "some type of proposal about other products[ ] because the significant gap in progress between the two diazepam programs would not make a good partnership." However, at the meeting, Chambliss came to believe that Kendall and Barber were merely trying to obtain competitive intelligence on Neurelis and Valtoco. Kendall "attempted to insert Aquestive into a strategic partnering process with Neurelis," but Chambliss explained that Aquestive was not an appropriate partner for Neurelis.

Aquestive completed its initial public offering on July 24, 2018. Before the offering, Aquestive filed a Form S-1 with the Securities and Exchange Commission (SEC). In that form, Libervant was featured prominently. Although development of Libervant was not as far along as Valtoco, Aquestive represented that it was "further along" than other companies who were developing "other routes of administration" of diazepam for the treatment of ARS, including companies developing intranasal and subcutaneous implementations. However, Aquestive admitted that if any of these other companies obtained FDA approval for their formulations of diazepam for the treatment of ARS before Aquestive, then Aquestive would be barred from marketing Libervant in the United States for seven years.³

In a subsequent filing with the SEC, Aquestive did not claim that it was further along in the development of Libervant than other companies developing their diazepam products, but it still admitted that if a company were to get its product approved by the FDA before Libervant then Aquestive would most likely not be able to market Libervant in the United States for seven years.

Because Aquestive encountered multiple obstacles in the development of Libervant and its stock value decreased significantly, Aquestive...