LEGAL ISSUES

Why This Pharma Legal Battle Is a Big Win for Startups

A recent legal dispute in California between two biotech companies could give startups the upper hand in future acquisitions.
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When a larger company acquires a startup, the deal can often spell the end (or at least the neglect) of the products, licensing deals, and other assets that made the startup successful in the first place. But a recent legal battle waged between two pharmaceutical companies could change that fate for acquired startups--and for the better.

It's a David and Goliath story for the biotech set.

As Businessweek reports, the case centers on a Japanese pharmaceutical company called Asahi, which licensed a drug called Fasudil to the San Francisco-based company CoTherix in 2006. As part of the deal, CoTherix was to help Fasudil get FDA approval in the United States. But when CoTherix was acquired by the Swiss drugmaker Actelion, Actelion halted development of Fasudil. According to Actelion, the decision was made because of safety risks associated with the drug. Asahi, howver, viewed it as a move to block a rival drug company.

And so, Asahi sued CoTherix for breaching the licensing agreement, and, as expected, won. CoTherix paid Asahi $90 million in damages. What was less expected, however, was that Asahi would also go after Actelion, claiming it had "torturously interfered" with Asahi's motives. Yet again, in 2011, Asahi won, and was awarded approximately $400 million to make up for lost profit potential. 

Actelion requested a review in California Supreme Court, but on Wednesday, the San Francisco Chronicle reports, the judges unanimously denied the review of appeal, making the case a massive win for not only Asahi, but for other startups considering an exit by acquisition in the future. 

As Businessweek writes, "Tech giants and other corporations that have grown by serial acquisition fear the Actelion precedent could expose them--at least in California--to open-ended liability over licensing disputes involving the smaller new-technology companies they are wont to gobble up like so many cocktail nuts."

But for the startups who actually believe in these agreements, as well as for the startups that license their technology out, this case could protect their companies being completely gutted post-acquisition in the future. 

IMAGE: Shutterstock
Last updated: Mar 13, 2014




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