Ortho Pharmaceutical Corp. v. Amgen, Inc.

• Decision Date: 23 March 1989
• Docket Number: Civ. A. No. 89-34-JJF.
• Citation: 709 F. Supp. 504
• Parties: ORTHO PHARMACEUTICAL CORPORATION, Plaintiff, v. AMGEN, INC., Defendant.
• Court: U.S. District Court — District of Delaware

709 F. Supp. 504

ORTHO PHARMACEUTICAL CORPORATION, Plaintiff, v. AMGEN, INC., Defendant.

Civ. A. No. 89-34-JJF.

United States District Court, D. Delaware.

March 23, 1989.

John A. Parkins, Jr. of Richards, Layton & Finger, Wilmington, Del., for plaintiff; David F. Dobbins, Gregory L. Diskant, Frederick B. Campbell and John J. Sipos of Patterson, Belknap, Webb & Tyler, New York City, of counsel.

Douglas E. Whitney and Matthew B. Lehr of Morris, Nichols, Arsht & Tunnell, Wilmington, Del., for defendant; Paul A. Renne, Lloyd R. Day, Jr., Louis M. Lupin, Linda A. Sasaki of Cooley Godward Castro Huddleson & Tatum, Palo Alto, Cal., of counsel.

OPINION

FARNAN, District Judge:

This action is before the Court on plaintiff Ortho Pharmaceutical Corporation's ("Ortho") motion for preliminary injunctive relief and defendant Amgen, Inc.'s ("Amgen") motion to dismiss or stay the action pending arbitration and for sanctions. Ortho, a subsidiary of Johnson & Johnson, is incorporated and maintains its principal place of business in New Jersey. Ortho researches, develops, manufactures, and markets pharmaceutical and biological products. Amgen is a Delaware corporation with its principal place of business in California, where it is involved in the research, development and manufacture of several bio-engineered products, including recombinant erythropoietin ("EPO"). The dispute between Ortho and Amgen revolves around the FDA approval, commercial manufacture and license to sell EPO in the United States.

The Court has diversity jurisdiction over this dispute under 28 U.S.C. section 1332. This Opinion constitutes the Court's findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52(a) following the completed briefing of these motions and an evidentiary hearing held on March 17, 1989.

FACTUAL BACKGROUND

The factual history behind this dispute is lengthy, detailed, and complex. In order to resolve this matter as promptly as possible, the Court will set out the essential facts.

1. EPO

EPO is a natural body protein produced primarily by the kidneys. EPO is vital to internal body functions because it produces red blood cells which transport oxygen throughout the body. The body must produce EPO continuously to generate a regular and adequate supply of red blood cells. People who suffer from anemia causing diseases such as chronic kidney failure, AIDS, and cancer, produce insufficient EPO to maintain an adequate red blood cell supply. Thus, the commercial availability of manufactured EPO to those suffering from a variety of diseases is invaluable.

The development of EPO as a commercial product began in the early 1980s. At that time Ortho participated in the production of small quantities of EPO aboard the NASA space shuttle. By 1985, Amgen had developed the recombinant technology necessary to manufacture EPO for human use and was close to developing a process to produce significant quantities of EPO for commercial marketing. Hearing Transcript, Docket Item (D.I.) 78, Wilson at 12; Amended Complaint, D.I. 42, Ex. 1. However, as a small company, Amgen was having financial difficulties proceeding with its research. Ortho, on the other hand, had access to the monetary resources and research facilities of Johnson & Johnson, but it did not have the recombinant technology necessary to manufacture EPO. D.I. 78 at 11.

2. Ortho-Amgen Agreement

In 1985, Ortho and Amgen decided to join their knowledge and resources in the development of EPO for human use and commercial marketing. Ortho and Amgen signed a product license agreement (the "Agreement") in September, 1985, in which they set out certain principles regarding FDA approval, commercial manufacture and marketing of various products, including EPO, in the United States.¹ Plaintiff's Ex. 1.

As it pertained to EPO, the Agreement essentially provided that Amgen would retain exclusive rights to the dialysis market for EPO, while Ortho would obtain the rights to all other uses of EPO. Plaintiff's Ex. 1, ¶¶ 1.14(a), 1.21, 3.03(i). Amgen would manufacture EPO for both parties, supplying Ortho's requirements at Amgen's standard cost. Plaintiff's Ex. 1, ¶ 5.01. The Agreement also provided that each company was responsible for obtaining its own FDA approval but would exchange and cross-reference all information in this regard to expedite approval of both applications by the FDA. Plaintiff's Ex. 1, ¶¶ 3.02, 3.03(i), 3.04. The Agreement further contemplated that a more detailed manufacture and supply agreement would be entered into when the parties knew Ortho's requirements and Amgen's standard cost.

3. Food and Drug Administration Involvement

In May, 1987, Amgen and Ortho met with FDA officials with respect to commencing the approval process for EPO. D.I. 78, Longstreet at 46; Plaintiff's Exs. 6-8. Amgen and Ortho met separately with FDA officials but on the same day. During Ortho's meeting, Amgen observers were present and during Amgen's meeting, Ortho observers were present. D.I. 78, Alton at 355. At their respective meetings, both companies discussed their contractual division of the EPO commercial market and their intention that each company file for FDA approval of EPO for their separate commercial uses as dictated by their Agreement. D.I. 78, Alton at 357.

During the May, 1987 meetings the FDA officials who were present expressed their strong interest in approving EPO for use in the United States, but expressed their reservations with regard to both Amgen and Ortho pursuing separate applications. Apparently, the FDA believed that if Amgen and Ortho filed separately the FDA might be in the position of interjecting itself into the commercial arrangements of the parties. Plaintiff's Ex. 7. The FDA, therefore, counseled the parties that it would prefer that Amgen and Ortho submit one application covering all the indications for EPO, since the FDA viewed EPO as the same drug regardless of the companies' intended commercial use. The FDA officials at the meeting opined that two separate applications would only confuse and delay the approval process. Plaintiff's Ex. 7 at pp. 1-2; D.I. 78, Longstreet at 54, Binder at 322-23.

As a result of the meeting, both companies understood that the FDA wanted Ortho and Amgen to file one joint PLA/ELA (Product License Application/Establishment License Application) with respect to EPO for the indication of chronic renal failure. Plaintiff's Exs. 6, 7, 8; D.I. 78, Binder at 316-317, Longstreet at 52. This joint PLA/ELA would seek FDA approval for both companies' commercial markets. Thereafter, on June 12, 1987, Ortho and Amgen met to discuss the FDA's preference for one filing. D.I. 78, Binder at 317-318. At the meeting, Amgen proposed, along with other matters, that it would submit one FDA filing for chronic renal failure. Plaintiff's Ex. 10. Amgen's proposal provided that Amgen would file the single PLA/ELA and supplement that application with Ortho's clinical data for Ortho's commercial market. Plaintiff's Exs. 12a, 13; D.I. 78, Binder at 333-334. In September, 1987, Amgen specifically agreed to supplement its PLA/ELA with Ortho's data in April, 1988. Plaintiff's Ex. 13; D.I. 78, Alton at 372, Binder at 333-334. Amgen prepared its PLA/ELA in the summer of 1987 with Ortho's help. D.I. 78, Alton at 387. Amgen filed its application for chronic renal failure in October, 1987. Amgen, however, never supplemented its PLA/ELA with Ortho data, despite Ortho's request to do so. Amgen alleges that before it could file the supplement, it needed further agreement on other matters discussed on June 12, 1987, such as Ortho's requirements for EPO and an agreement on price, both of which Ortho allegedly refused to discuss. Over the course of 15 months, from June, 1987 until September, 1988, the parties exchanged a number of draft proposals on marketing collaboration. Although none of these was finally signed, none of them contemplated Ortho filing separately with the FDA. Plaintiff's Ex. 20 (sealed); D.I. 78, Longstreet at 89. During that time period, Amgen knew Ortho had not made a separate application and Amgen certainly did not want Ortho to make a separate application. D.I. 78, Binder at 322-323, 345. The Court finds that as a result of the parties' discussions, proposals and conduct during the 15 month period after the May, 1987 meetings with the FDA their 1985 Agreement was modified.

Amgen now contends that Ortho could have and should have filed on its own with the FDA, D.I. 78, Alton at 373, despite the fact that such an action would have been contrary to the FDA's stated preference for one EPO application and contrary to the Agreement of the parties as modified.

4. The Souring of the Parties' Relationship

The parties' commercial relationship with respect to EPO began to sour for a variety of reasons.

Amgen disregarded its obligation to supplement its PLA/ELA with Ortho data, while assuring Ortho and the FDA that it would do so, and asking Ortho to refrain from making its own filing. Further, Amgen had unrealistic ideas about the price it would charge Ortho under the Agreement. Amgen initially suggested to Ortho that the standard cost price it would charge Ortho was $300,000 per gram. D.I. 78, Williams at 163; Plaintiff's Ex. 21. Gordon Binder, Amgen's Chief Executive Officer, implied in his testimony that this was reasonable because he was aware of another company that charges $200,000 per gram in Europe. D.I. 78, Binder at 306. However, no evidence was presented that the $200,000 per gram referred to by Binder was based on standard cost or arrived at pursuant to a contract that mandated a standard cost price. Further, evidence to the contrary estimated that a reasonable price based on the experimental start up costs quoted to Ortho by Amgen would be $40,000—$45,000 per gram. D.I. 78, Longstreet at 104. Dennis Longstreet, President of Ortho's Biotech Division, testified that based on Ortho's European manufacturing experience...