A bitter patent battle between Sibia Neurosciences Inc. and CadusPharmaceutical Corp. has gone beyond competing intellectualproperty claims to include allegations of high-tech extortion andstock market sabotage.
Sibia, of La Jolla, Calif., filed a lawsuit July 9, 1996, accusing Cadus,of Tarrytown, N.Y., of infringing Sibia's patent on technology usedin developing assays to screen drugs for their effect on cell surfacereceptors that control a broad range of cellular behavior bytransmitting external signals into cells.
Cadus, in its Aug. 1, 1996, answer and counterclaim to Sibia'scomplaint, denied infringing the patent and argued it is invalid.
The intellectual property fight, waged in U.S. District Court in SanDiego, involves key technologies for both companies.
However, equally intriguing are Cadus' counterclaims to Sibia'spatent infringement lawsuit. Sibia tried "to extort $10 million" for anon-exclusive license on the patent, Cadus alleged. And when itrefused, Cadus contended, Sibia sabotaged its rival's initial publicoffering (IPO).
Sibia's chairman and CEO, William Comer, told BioWorld TodayCadus' allegations were "nonsense," adding, "I don't believe there'sany validity to their claims."
Comer said $10 million was the value Sibia placed on the technology.He also observed his company and Cadus were in discussions for sixmonths before the patent infringement lawsuit was filed.
"We were trying to work it out," Comer said. "They were in nohurry."
Was Cadus' Timing Off?
Comer said Sibia's lawsuit had no effect on Cadus' IPO, which waspriced on one of the most volatile trading days since the October1987 market crash. (See BioWorld Today, July 19, 1996, p. 1.)
However, Cadus, in its court papers, accused Sibia of telling theIPO's underwriters about the patent violation and of waiting to filethe infringement lawsuit until Cadus was on its "road show" pitchingits stock to investors.
Cadus registered for the IPO in May 1996 and the offering waspriced July 17, 1996, eight days after Sibia filed the court action.
Beginning June 3, 1996, Cadus alleged, "Sibia undertook a series ofactions, first intending to extort money from Cadus and thereafterintending to interfere and disrupt the IPO of Cadus."
The 2.75 million share IPO, Cadus noted, "was priced at $7 pershare, well below the projected range of $10.50 to $12.50."
Both Sibia and Cadus have forged alliances with pharmaceuticalfirms based on using their drug screening assays to find compoundsto treat a variety of diseases.
Sibia has focused on central nervous system disorders. The companyconducted an IPO in May 1996 and the offering was priced at $11per share. Sibia raised nearly $30 million.
Cadus has collaborations targeting a broad range of diseases.
Sibia, in its complaint, alleged Cadus' assays "directly infringe"Sibia's patent No. 5,401,629, which was issued in March 1995 by theU.S. Patent and Trademark Office to Michael Harpold and PaulBrust. The two scientists conducted their research at the Salk Institutefor Biological Studies, in La Jolla. Sibia, founded by the SalkInstitute, received an exclusive license to the patent and Harpold isSibia's vice president of research.
Sibia has said the patent, and another (5,436,128), give it broadprotection for assays testing a drug's effect on cell surface receptorsand ion channels that regulate intracellular signaling pathways. (SeeBioWorld Today, Sept. 26, 1995, p. 1.)
After Sibia's patents were issued, the company sent a letter to Cadussuggesting they discuss the intellectual property claims, which Sibiasaid "could be of great importance to Cadus Pharmaceutical'sstrategic interests."
In its counterclaim, Cadus said that after several discussions Sibia"demanded" $10 million as a one-time payment for a non-exclusiveworldwide license. Cadus rejected the offer, but wanted to continuediscussions.
Following its registration May 24, 1996, for its IPO, Cadus said itreceived a letter from Sibia repeating the $10 million license feeprice and setting a deadline of June 14, 1996, for resolution of theissue.
Cadus and Sibia representatives met July 2, 1996, in San Diego. Thenext day, Cadus said, Sibia sent by fax to Cadus' headquarters termsfor the license, including a requirement that Cadus agree not tochallenge the validity of the two Sibia patents.
Cadus responded on July 8, 1996, that it needed time to review thelicensing agreement and proposed a meeting between Cadus'president and CEO, Jeremy Levin, and Comer.
On July 9, 1996, Cadus said Comer agreed to meet, but then canceledthe session. Sibia filed its patent infringement lawsuit that same day.
When Sibia was issued the patents in 1995 it said more than a dozencompanies were infringing its intellectual property. Comer said hiscompany has not negotiated any licenses for the technology.
Cadus was targeted first, Comer observed, because the company hadsecured potentially lucrative collaborations with two pharmaceuticalfirms.
Cadus' stock (NASDAQ:KDUS) closed Thursday at $7.62. Sibia(NASDAQ:SIBI) was at $7.50. n
-- Charles Craig
(c) 1997 American Health Consultants. All rights reserved.