$600 Million Drug Cheat, Researchers Say
SAN FRANCISCO (CN) - Venture capitalists swiped the rights to a new heart drug and stand to make $620 million from it, cheating the research company that developed it, the neuroscience company claims in Federal Court.
The Florey Institute of Neuroscience and Mental Health sued the six-member consortium that controlled Corthera Inc., which is not named as a defendant itself.
Florey claims that "the consortium of venture capitalist shareholders who collectively controlled Corthera" converted and misappropriated "Florey's patent rights and know-how" and sold the rights to its relaxin drug to Novartis.
"If and when all reported upfront and milestone payments are made by Novartis, defendants and all of the former shareholders will have received a total of $620 million, a return of more than 10 times their estimated total investments of $50-60 million," according to the federal complaint.
Novartis is not a party to the complaint.
Named as defendants are Kleiner Perkins Caufield & Byers, Domain Associates, Sears Capital Management, Caxton Advantage Venture Partners, Stanley E. Abel, and Peter M. Breining. Four are based in California, one in New Jersey and one in New York.
Florey claims they sold the rights to the drug to Novartis without Florey's authorization, and that payments from Novartis went directly to Corthera's shareholders, bypassing the Florey Institute.
Florey, of Australia, describes itself in the complaint as "one of the world's top six brain research centers, and the largest brain research group in the Southern Hemisphere." It has a staff of more than 600, including 450 researchers, and educates more than 100 post-graduate students a year, according to the complaint. It is named for Nobel Laureate Howard Florey, and works on a wide range of brain disorders, including stroke, epilepsy, Alzheimer's, Parkinson's and Huntington's diseases, multiple sclerosis, motor neuron disease, bipolar diseases and addiction.
Florey has been researching "peptides such as relaxin" for more than 30 years.
"Peptides such as relaxin are short chains of amino acid monomers, the building blocks of proteins, that are distinguishable from proteins by the overall length of their amino acid chains," the complaint states. Peptides are generally much shorter than proteins. "In the human body, peptides serve as hormones, which perform signaling functions between cells."
The complaint continues: "Relaxin is naturally occurring in the human body and is utilized, for example, during childbirth in allowing a mother's pelvic muscles to relax and expand. Although relaxin was first discovered in 1926, it is only since 2000 that the receptors for relaxin and related receptors have been specifically identified. The relaxin peptide and related receptors are often involved in age-related conditions such as fibrosis, wound healing, and responses to tissue death. The relaxin systems are therefore considered likely to represent important pharmacological targets in the clinical management of aging."
Florey says its institute began studying relaxins when two Australian hormone researchers joined its staff from Harvard.
"Florey researchers have been responsible for much of what is known about the chemistry and biology of relaxin. Scientists at the Florey were the first to isolate and characterize the genes that code for relaxin in humans and were the first to chemically synthesize the hormone. Current research is at the forefront in defining the mechanisms of action of the hormone and in the design and synthesis of the next generation of relaxin drugs," the complaint states.
Florey claims that it and Cothera had an agreement by which Florey would receive 2 percent of net sales from the proceeds of sales of relaxin-related licensed products. Florey also would receive a percentage of any up-front payments and any drug development milestone payments resulting from any relaxin development partnering deals, the complaint states.
However, "Without any advance notice by Corthera of its negotiations with Novartis, without any advance notice of Corthera's intent to assign any of its rights in the Florey's intellectual property to Novartis, and without providing any documentation of the agreement between Corthera and Novartis to the Florey, the Florey learned, through a December 23, 2009, press release, that Novartis apparently had agreed to acquire Corthera with an up-front payment of $120 million in cash," the complaint states. "Upon information and belief, the purchase was misleadingly labeled by defendants as a stock-purchase agreement, when its intended effect was that Novartis would become Corthera's drug development partner, as had been mutually contemplated by the parties throughout the course of their relationship. ...
"The press release further indicated that, under the Novartis-Corthera transaction, Novartis would make 'additional milestone payments' of up to $500 million, but to the Corthera shareholders instead of to Corthera itself. The press release further stated that the sole purpose of the transaction was to allow Novartis to acquire rights to the Florey's intellectual property in relaxin, so that Novartis could develop and commercialize relaxin for therapeutic purposes."
Florey claims the defendants did this to "unjustly enrich themselves to the detriment of the Florey Institute, the Florey's expectation based on the multiple and repeated representations made to it, and the obligations due it from the agreements with Corthera, of receiving 1 percent of any up-front payments and 15 percent of any milestone payments paid by any pharmaceutical development partner such as Novartis."
Novartis recently announced successful results from clinical studies of patients with acute heart failure who were helped by relaxin, a "milestone" that is expected to trigger additional payments from Novartis to the defendants, the complaint states.
The Florey Institute seeks more than $1.2 million in damages, for conversion, common-law misappropriation, restitution based on a quasi-contract, and imposition of constructive trust.
It is represented by Mark Jansen with Crowell & Moring.