West Coast Editor

SAN FRANCISCO - Using one big-pharma firm's money to fight another in court, Emisphere Technologies Inc. scored a resounding win, disclosed earlier this week, in its dispute over an oral PTH partnership with Eli Lilly and Co.

But the other shoe in the dispute with Lilly has yet to drop - and when it does, there had better be money inside, said Michael Goldberg, chairman and CEO of Emisphere.

"Lilly's at a critical stage, and they don't have a lot of time to make up their mind," he said. "They could say, Screw you, Emisphere. Too bad, this is how we do business.' If they do, I can take one of our contingency lawyers [and sue them], or we can do it ourselves. The judge opened a golden door for us to go after these guys for massive damages."

Speaking with BioWorld Today before he presented at the 24th Annual JPMorgan Healthcare Conference, Goldberg did not specify how much Emisphere would ask for, but estimated that if Lilly had "put the resources in place that were diverted to all these other projects, we'd probably be on the market today" with oral parathyroid hormone (PTH) for osteoporosis, which has reached the Phase II stage.

"Obviously, we want to be compensated," he said. "It's not the kind of thing we're going to debate forever."

In late 2004, Emisphere signed a new oral PTH deal with longtime collaborator Novartis AG, of Basel, Switzerland. Potentially worth $40 million, the deal brought $10 million up front in exchange for a convertible note, and Emisphere used the money in its war with Lilly. (See BioWorld Today, Dec. 3, 2004.)

"Probably 90 percent of these things settle, and settle unfairly," he said. "We were crazy and determined enough to fight them," adding that his company is "excited [about the Novartis deal], but basically we lost four years" with Lilly.

The PTH market, teeming with would-be competitors, is estimated at $3 billion, and Emisphere was in line for royalties from Lilly higher than 10 percent. Tarrytown, N.Y.-based Emisphere terminated the Lilly arrangement in the summer of 2004 for breach of contract, and at issue in the U.S. Federal District Court of the Southern District of Indiana - Lilly's turf - was whether Emisphere acted correctly in quashing the pact.

Judge David Hamilton said yes.

The court agreed with Emisphere that Lilly had formed a secret research team to use Emisphere's eligen technology not only in PTH, but also elsewhere, "in about seven to 10 compounds," Goldberg said, adding that the research apparently only got as far as animals, "though I don't know. We didn't do discovery on all that."

News of the decision sent Emisphere's stock (NASDAQ:EMIS) up 24 percent Monday, to close at $5.80. Shares ended Thursday at $5.94.

Sounding still incredulous about the Lilly case, Goldberg said he didn't know about "this whole secret oral protein delivery team until the first day of trial," since some of the evidence was for the lawyers' eyes only.

"These are people I talked to every day, and I found out they took an invention we made, and they used it as their own," he said, noting that Emisphere has made the judge's decision available from a link provided on its website.

Hamilton wrote in his decision that Lilly found that "it really did not need Emisphere any further, so it decided to pursue a secret research strategy" using eligen, which is based on synthetic chemical carriers that transport macromolecules across biological membranes such as those of the gastrointestinal tract.

About the 60-page ruling, Goldberg said, "If you look at how long it took, and how detailed the judge's response is, the emotion and intensity he put into it [suggest that] he's saying Lilly is probably not the only company doing this. For the industry to survive, it has got to stop. Hopefully, this is a shot across the bow."

A small group at Lilly "tried to browbeat us into settling this," Goldberg recalled. "They said, We have more lawyers than you guys have scientists. For us, a few million dollars in legal fees is nothing. For you, it's a major research project.' They really tried to jam a deal down our throats."

Goldberg said that he hoped "rogue scientists" did the work at Lilly, and that they would be terminated.

Now that the Lilly ruling has come down, Novartis has 60 days to exercise the license option. Goldberg said oral PTH could go directly into Phase III, but the decision has yet to be made.

"What's really interesting for us is that Novartis believes the ideal treatment will be a combination of calcitonin and PTH," he said. "When patients get back to a [bone] level that's reasonable, you can take them off the PTH and leave them on the calcitonin." He called the approach "very physiology driven," and pointed out that it "promotes bone remodeling," as not all therapies would.

Already on the market is Lilly's recombinant, injected PTH, Forteo (teriparatide), approved in 2002 for treating osteoporosis in postmenopausal women and for increasing bone mass in men with primary or hypogonadal osteoporosis who are at high risk for bone fracture.

In July, the FDA accepted for review from NPS Pharmaceuticals Inc., of Salt Lake City, the drug application for Preos, another PTH for osteoporosis in postmenopausal women. A similar application to market Preos in Europe, under the name Preotact, is under review by the European Medicines Agency.

Nastech Pharmaceutical Co. Inc., of Bothell, Wash., in September reported positive data from a Phase I study of intranasal PTH designed to show a similar pharmacokinetic profile to Forteo. A six-month non-inferiority trial, with an endpoint of bone mineral density, is expected to begin this year.

Also, this week, Lilly disclosed a deal with Cambridge, Mass-based Alkermes Inc. to develop and sell inhaled PTH.

Goldberg said there's plenty of room in the market, since "only a small percentage of osteoporosis patients are being adequately treated. You don't really know you have the disease until you get a fracture, and it can take years to see an effect, so patients don't jump to [therapy]."

An advantage of calcitonin in the regimen after a fracture, though, is that it provides pain relief after such injuries, he added.

The JPMorgan conference ended Thursday.