Biotech Values

[DewDiligence]

Genentech, Tanox, and Novartis: a partnership made in hell:

[The story of the asthma drug, Xolair.]

http://www.mercurynews.com/mld/mercurynews/business/technology/8093529.htm

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Biotech fight has happy ending

By Paul Jacobs
Mercury News

The three partners that developed the new biotech asthma drug Xolair -- Genentech, Novartis and Tanox -- announced recently that they had finally settled the last of a decade-long series of legal disputes.

From the start, this was not a partnership made in heaven but one signed and sealed in the courthouse.

The story starts in the late 1980s with Tanox, a start-up Texas company, talking to Genentech in South San Francisco about developing a new treatment for allergies.

The deal didn't work out, so little Tanox shopped its idea instead to a Swiss company, now part of the mega-drug company Novartis. The two companies worked together to develop an antibody that would block a protein called IgE, which plays a key role in triggering allergy and asthma attacks.

In 1993, Tanox learned that Genentech was developing similar anti-IgE drugs of its own and cried foul, claiming that this violated a confidentiality agreement. Genentech countersued.

Avoiding a trial

Such disputes can go on forever, but the three companies seemed to work things out three years later without going to trial. Tanox would get $16 million plus royalties and all three companies would develop a new allergy drug together.

From the crop of anti-IgE drugs under development, they agreed to focus on the one now called Xolair, which was manufactured by Genentech. They chose it over a competing drug developed by Tanox and Novartis, called TNX-901.

Under the terms of the companies' agreement, Tanox believed it had the right to develop TNX-901 for prevention of food allergies -- a use that would not compete with Xolair in the hay fever and asthma markets.

But the two larger companies would not permit it.

In the summer of 1997, a Tanox executive sent a memo to Genentech, pointing out that while the two other companies had a variety of experimental drugs in development, anti-IgE compounds including TNX-901 were “our primary source of sustenance.”

Cartoon depictions

Attached was a series of cartoons depicting the three partners at the dinner table, two adults representing Genentech and Novartis in business suits while the smaller Texas company was depicted as a small boy in a cowboy hat. In one cartoon, the two adult figures, Novartis and Genentech, are pointing a gun at the boy and saying, “We told you to share -- or else!!”

Defying its partners, Tanox continued to develop its own compound. In 1999, Novartis and Genentech sued their very much junior partner in federal court in San Francisco, arguing that the three-company agreement prohibited Tanox from going ahead on its own.

At one of many hearings in the case, Chief Judge Marilyn Hall Patel expressed her astonishment at all the lawyers involved in a seemingly unending dispute. “This is the problem,” the judge said. “This is why you never had an agreement that you could agree upon. This is why you can't agree on what I said. There are too many lawyers. There are too many lawyers. How can your clients afford all of this lawyering?”

Testing TNX-901

Tanox would lose its battle, but not before testing TNX-901 in scores of patients with peanut allergy. Preliminary results published a year ago in the New England Journal of Medicine seemed to show that the drug prevented severe reactions in patients exposed to low levels of peanuts. This was the equivalent to the kind of accidental exposure that can send a sensitive patient to the emergency room.

But Tanox was blocked from carrying the research any further and today the companies plan to test Xolair in patients with peanut allergy instead.

Last week, the three companies tied up the remaining loose ends. Genentech and Novartis agreed to pay Tanox a total of $6.6 million to cover the small company's TNX-901 development costs.

Tanox in turn gave up a contractual right to produce Xolair on its own, and will instead get payments based on the amount of Xolair produced by the others.

I suppose you can call that a happy ending.
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