Drugmaker's Meddling Will Cost It $377 Million
SAN FRANCISCO (CN) - Actelion illegally interfered with Asahi Kasei's efforts to bring a new hypertension pill to the U.S. market, a California appellate court held.
Japan-based Asahi Kasei had planned to bring Fasudil to the U.S. market as a blood-pressure drug, and contracted with CoTherix to license and develop the medicine for FDA approval in 2006. The previously drug had previously been marketed for stroke prevention.
Swiss-held Actelion meanwhile had been earning $1 billion annually with its "blockbuster" medication Tracleer, which accounted for 98 percent of its U.S. revenues. Sensing a threat in Fasudil, Actelion's directors ordered a merger with CoTherix and backed out of the Asahi contract.
Officially, Actelion expressed concerns over the safety of Fasudil and told Asahi that the demanded price was too high compared with the risks involved. But the company also filed a clinical study report with the FDA concluding that Phase I went well, that Fasudil had been "well tolerated, the changes in the clinical safety assessments were not clinically significant and all subjects completed the study."
A day later, Actelion pulled the plug on Fasudil.
Asahi Kasei initially took CoTherix to arbitration only, winning a $91 million judgment that CoTherix paid. The Japanese company then sued Actelion and CoTherix in a San Mateo, Calif., claiming intentional interference with contract, economic advantage, and breaches of licensing and confidentiality agreements.
In 2011, a jury returned a unanimous liability verdict against CoTherix, Actelion and its directors, awarding nearly $547 million in compensatory damages and finding that the companies had acted with malice, oppression or fraud.
After taking into account the $91 million CoTherix had already paid, the court further reduced the award by $70 million. Although Actelion initially demanded a new trial for damages, Asahi accepted the amended $377 million judgment and the trial court entered final judgment.
On appeal, Actelion argued that it cannot be held liable for violating a licensing agreement it essentially purchased when it merged with CoTherix. A three-judge panel of the California Court of Appeal's First Appellate District nevertheless affirmed Wednesday.
"Defendants do not contend that they were parties to the license agreement after
Jan. 9, 2007," Judge Terence Bruiniers wrote for the court. "In fact, Actelion admitted in its trial court pleadings that 'no contract existed' between it and Asahi and that Actelion 'did not assume the contract between Asahi and CoTherix,'" Bruiniers wrote for the three-judge panel. "Instead, Actelion contends that case-law should be read broadly so as to limit liability for intentional interference to complete 'strangers' to the contract, not simply nonparties to the contract. Thus, it contends that the fact that there was never any contract between it and Asahi, and that it did not assume the contract between CoTherix and Asahi, is not determinative. It concedes that, after the acquisition, it was merely a parent who 'directed its wholly-owned subsidiary CoTherix to stop performing a contract.' However, it contends that the only remedy for such an act is breach of contract - a remedy which Asahi has been already afforded against CoTherix in the ICC Arbitration."
Bruiniers added: "California courts have not recognized a corporate owner's absolute privilege to interfere with its subsidiary's contract."
The court also declined to release Actelion's directors from liability on the notion they were acting at the behest of their employer. While employees are typically shielded from vicarious liability for torts committed by a corporation, they are not immune from personal liability for their own conduct, according to the 79-page ruling.
"The individual defendants do not dispute their status as 'officers' or 'directors' of Actelion, and substantial evidence was presented that each actively participated in the tortious conduct," Bruiniers wrote.
Actelion also objected to the trial court's alerting the jury of an FDA warning letter about possible deaths linked to its own drug, which Asahi had claimed Actelion deliberately withheld during discovery. The lower court found a "willful suppression of evidence," but told the jury about the FDA investigation in lieu of sanctioning Actelion.
"The trial court's finding that the suppression was willful is also supported by the record," Bruiniers wrote. "The trial court clearly did not accept an employee's suggestion that Actelion inadvertently failed to search its headquarters in South San Francisco, where the FDA inspection took place. This is supported by evidence of the employee's own involvement with the FDA investigation, which she knew to be occurring in South San Francisco."
He added: "The instruction did nothing more than inform the jury of Actelion's discovery conduct and the adverse impact this had on Asahi. It did not preclude Actelion from presenting its safety defense or invite the jury to draw any inferences regarding the cause of the Tracleer patient deaths. The redacted version of the warning letter that was received in evidence at trial and was specifically referenced in the instruction, made clear that the FDA was 'not concluding or implying that the patient deaths that were not properly reported . . . would ultimately be determined to have been caused by Tracleer use.'"
The appellate court also denied Asahi's cross-appeal for a new trial on punitive damages. The company argued that intentional misconduct by Actelion's attorneys - who accused the jury of causing the drop in Actelion's stock price and draining "police and firemen and teachers' pension funds" with its liability verdict - warranted a new trial.
"The defense argument complained of was at least partially supported by evidence in the record," Bruiniers wrote. "An Actelion representative testified during the punitive damages phase of the trial that the company offered its employees stock option plans, and an Actelion annual report received in evidence during the liability phase of the trial stated that more than 40 percent of Actelion's investors were institutional shareholders. To the extent the argument was not supported by the trial evidence or reasonable inferences therefrom (i.e., the claim that Actelion's institutional shareholders were public employee pension funds), the court admonished the jury to determine for itself whether facts asserted in Actelion's argument were, or were not, in evidence, mitigating any prejudice. Asahi further had the opportunity in rebuttal argument to challenge the defense statements, but instead chose to focus on other topics, a choice that suggests that Asahi did not view Actelion's argument as highly prejudicial at the time it was made."