Eli Lilly & Co. v. Emisphere Techs., Inc., No. 03-cv-1504-DFH (S.D. Ind.)
By Robert Dailey --
This week Eli Lilly agreed to pay $18 million to settle
its contract and patent dispute with biotech start-up Emisphere. In the late 90s, the two companies had agreed
to work together to develop an oral delivery of parathyroid hormone (PTH) for
treatment of osteoporosis. Lilly already
sells Forteo®, an injectable delivery of recombinant human PTH 1-34. But Lilly, like many drugmakers, preferred to
market an oral delivery.
Emisphere is a small biotech company in upstate New York
that specializes in drug delivery technologies. Particularly, Emisphere develops proprietary carrier molecules that
enable therapeutic proteins to bypass the digestive process and pass through
the intestinal wall into the bloodstream. Ordinarily, digestive processes would metabolize any peptide-based
therapies, rendering them unavailable as a drug. Lilly sought to use Emisphere's technology to
develop an oral delivery for PTH, a small peptide.
The relationship went smoothly for six years as both
companies shared proprietary information. As part of the contract between the companies, Lilly agreed not to
conduct research on Emisphere's carrier technology for projects other than the
development of an oral delivery for PTH and human growth hormone. The contract also placed limits on Lilly's
internal distribution of knowledge related to Emisphere's technology. The parties further agreed that Emisphere
would own any inventions arising out of the collaboration. For Lilly, the prospect of cashing in on an
oral delivery of PTH outweighed the burdensome provisions of the joint research
agreement.
But the relationship soured in September 2003 when
Emisphere identified a published Lilly PCT application (International Pub. No. WO 03/072195)
which it believed covered the use of its carrier technology for the delivery of glucagon-like
peptide (GLP), a protein outside of the scope of the collaboration. Emisphere terminated the
contract, and Lilly filed a declaratory judgment action contesting Emisphere's
right to terminate.
In a 2005 bench trial, a District Court in Indianapolis
found that Lilly had breached its agreement with Emisphere by (1) using the carrier technology for projects that lay outside of the
agreed scope of the collaboration, and (2) disseminating proprietary knowledge
of Emisphere's technology to unapproved researchers at Lilly. Therefore, the District Court permitted
Emisphere to terminate its relationship with Lilly, and issued an injunction
ordering Lilly to assign all of its interest in the inventions of WO 03/072195
to Emisphere. Lilly indicated that it
would appeal Judge Hamilton's injunction, but PACER records for the Seventh
Circuit show no indication of an appeal having been filed.
Additionally, Emisphere sought to recover monetary
damages for Lilly's contract breach, and sought to hold Lilly liable for patent
infringement. For the past 18 months,
the two parties have been conducting discovery related to these issues. The settlement is unsurprising, though, since
Judge Hamilton's previously issued opinion
and order
are not favorable for Lilly.
The terms of the agreement are confidential. The $18 million is a substantial sum for a company of Emisphere's size. That sum represents its entire research budget for 2006, and is nearly triple the amount that Emisphere earned from its collaborations in 2006. The Lilly-Emisphere PTH project appears to be dead; Emisphere is now working with Novartis to develop an oral delivery of PTH 1-34. Press reports have not disclosed whether Emisphere granted Lilly a license to keep using the carrier technology that Lilly had learned from the six-year collaboration. Emisphere's stock price moved about 5-10% following this announcement.
For additional information regarding this case, please see:
- Reuters report
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