Asahi Kasei Pharma Corp. v. Actelion Ltd.

Opinion

Asahi Kasei Pharma Corporation (Asahi) is a Japanese corporation which develops and markets pharmaceutical products and medical devices. One of its products is Fasudil, a drug which Asahi sought to market in the United States (U.S.) for treatment of pulmonary arterial hypertension (PAH). In order to obtain regulatory approvals for Fasudil, and to develop and commercialize it in North America and Europe, Asahi entered into a licensing and development agreement (the License Agreement) with CoTherix, Inc. (CoTherix), a California-based biopharmaceutical company focused on developing and commercializing products for the treatment of cardiovascular disease. Appellant Actelion Ltd. is a Swiss pharmaceutical company that markets a PAH treatment drug, bosentan (under the trade name Tracleer), and holds the dominant share of the relevant market. Actelion Ltd., through a subsidiary, acquired all of the stock of CoTherix, and concurrently notified Asahi that CoTherix would discontinue development of Fasudil for “business and commercial reasons.”

Asahi filed suit in the San Mateo County Superior Court against CoTherix, Actelion Ltd., Actelion Pharmaceuticals Ltd., Actelion Pharmaceuticals US, Inc., and Actelion U.S. Holding Company (collectively Actelion), as well as three Actelion executives.^[1] The case went to trial on four of Asahi’s claims: intentional interference with the License Agreement; interference with Asahi’s prospective economic advantage; breach of a confidentiality agreement between Actelion and CoTherix (on a third party beneficiary theory); and breach of confidence.^[2] The jury returned a unanimous liability verdict against Actelion and the Individual Defendants (collectively Defendants), awarding nearly $546.9 million in compensatory damages, and finding that all Defendants acted with malice, oppression or fraud. The jury awarded punitive damages against the Individual Defendants. Posttrial, the court offset the verdicts for the amounts previously awarded to Asahi in an International Chamber of Commerce arbitration proceeding (ICC Arbitration) against CoTherix. Defendants’ motions for judgment notwithstanding the verdict

Defendants contend, inter alia, that any actions taken to interfere with the License Agreement were privileged and not actionable, and that Asahi’s damage claims are speculative and unsupported. The Individual Defendants further challenge the award of punitive damages. Asahi cross-appeals from the conditional new trial order. In the published portion of this opinion we address the scope of liability for tortious interference with a contract by a nonparty to the contract, and we affirm the judgment in favor of Asahi. In the nonpublished portion of our decision we reject the challenges of Actelion and the Individual Defendants to the trial court’s evidentiary rulings and to the damage awards, and we deny Asahi’s cross-appeal.

While many of the underlying facts were vigorously disputed at trial (and in the briefing on this appeal), we focus on the evidence and inferences supporting the judgment. (Lewis v. Fletcher Jones Motor Cars, Inc. (2012) 205 Cal.App.4th 436 , 443 [ 140 Cal.Rptr.3d 206 ] [we imply “all necessary findings supported by substantial evidence” and “ ‘construe any reasonable inference in the manner most favorable to the judgment, resolving all ambiguities to support an affirmance’ ”].)^[3]

Fasudil was originally formulated in 1984 for intravenous use in treatment of cerebral vasospasm after subarachnoid hemorrhage, a type of stroke, and received regulatory approval in Japan for this use in 1995. Asahi later secured approval in China. Fasudil is protected by a “composition of matter” patent covering the molecule until 2016, and by a formulation patent until 2019.

In 1997, new research showed Fasudil could inhibit a human body protein known as Rho-kinase, which contributes to constriction of smooth muscle in arterial blood vessels. Studies found inhibition of Rho-kinase could slow or even reverse cellular changes associated with certain diseases. One such disease is PAH, a chronic, progressive and often fatal disease that is characterized by severe constriction and obstruction of the pulmonary arteries. Studies indicated that Fasudil had the potential to promote healing of blood vessel lesions and limit the scarring associated with PAH.

In order to gain regulatory approvals necessary for new medical uses of Fasudil, Asahi entered into the License Agreement with CoTherix on June 23, 2006. CoTherix had previously obtained regulatory approval for its own inhaled PAH treatment drug, Ventavis. Under the terms of the License Agreement, CoTherix agreed to obtain U.S. and European regulatory approvals for Fasudil to treat certain diseases, and to develop and commercialize it in those markets. CoTherix was to develop oral and inhaled formulations of Fasudil for treatment of PAH, and an oral formulation of Fasudil for treatment of stable angina (SA). It was required to use commercially reasonable efforts to develop Fasudil, and to obtain U.S. regulatory approvals for Fasudil as soon as reasonably practicable. (Asahi I, supra, 204 Cal.App.4th at p. 4.) Pursuant to the License Agreement, CoTherix prepared a development plan projecting that it would complete development and file for regulatory approval of extended release oral Fasudil (ER Fasudil) for treatment of SA in 2009, ER Fasudil for treatment of PAH in 2010, and inhaled Fasudil for treatment of PAH in 2011. Asahi considered CoTherix’s ability to move quickly in clinical development of Fasudil to be particularly important to preservation of Fasudil’s market exclusivity before facing generic competition.

Actelion Ltd. has, since December 2001, marketed Tracleer, an endothelin receptor antagonist and oral PAH drug that has been approved by the Food and Drug Administration (FDA) for use in the U.S.^[4] Tracleer is what is known in the pharmaceutical industry as a “blockbuster” drug, generating over $1 billion in revenue annually, and Actelion has held the dominant share of the relevant market. In 2006, 98 percent of Actelion’s U.S. revenues were dependent upon Tracleer sales. (Asahi I, supra, 204 Cal.App.4th at p. 5.)

At trial, Asahi presented evidence that Actelion acquired CoTherix specifically because it saw Fasudil as a significant threat to its market dominance with Tracleer and that Defendants used unlawful means to stop the development of Fasudil, thereby interfering with the License Agreement. Specifically, Asahi argued that Defendants used extortion and fraud to “painstakingly kill[]” Fasudil as a competitive product.

Actelion had been following Ventavis since 2002 and had considered acquiring CoTherix to get rights to the drug, but as late as May 29, 2006,

Attempts to negotiate a termination agreement were unsuccessful. On March 6, 2007, Asahi notified CoTherix that, by failing to confirm and commit in writing 30 days prior to the change of control that Actelion v/ould not interfere with CoTherix’s obligations, it was in material breach of the License Agreement. Recognizing that Asahi was “resigned to the fact that it is probably all over for [Fasudil] ex-Japan,” Simon suggested that Jean-Paul might need to communicate directly with Asahi’s president.

Ultimately, on March 23, 2007, Jean-Paul wrote: “As you are aware, [b]usiness executives at Actelion (on behalf of CoTherix) and Asahi have discussed the termination conditions for the [License Agreement] several times over the last few months and we have reached a point of dispute regarding the payment for product supplies. . . . [|] . . . [][] . . . [W]e have serious concerns over the long-term safety (in particular renal safety) with chronic [Fasudil] dosing. Actelion feels that this risk/benefit ratio issue is sufficiently serious for us to consider the need to inactivate or even withdraw the U.S. IND^[5] and inform the Japanese authorities. [][] In addition, for public disclosure reasons, since the amount you have requested is very high, in case we would really pay it, we would be obliged to announce this payment and the reasons why we decided to discontinue the development of [Fjasudil.” Asahi viewed these as threats. An Actelion witness testified that these were tactics discussed and “employed in the hopes that it would speed up negotiations.”

On April 3, 2007, Asahi sent notice of the termination of the License Agreement. Jean-Paul later wrote to Asahi’s president: “Since Asahi is now

Thereafter, on April 18, 2007, Actelion filed a clinical study report with the FDA, for the phase I study of ER Fasudil. The report concluded: “[0]verall, [F]asudil ER was well tolerated, the changes in the clinical safety assessments were not clinically significant, and all subjects completed the study.” On April 19, 2007, Actelion issued a press release stating only: “After careful review, Actelion has decided not to pursue further development with [F]asudil. Accordingly, the related agreement with [Asahi] had been terminated.”

The Litigation Below

Asahi first initiated the ICC Arbitration proceeding, against CoTherix only, claiming breach of contract. Among other damages, Asahi claimed the value of development work CoTherix failed to perform through June 2009 and development-based milestone payments. On December 15, 2009, the arbitrators awarded Asahi over $91 million.^[6]

Asahi filed the instant litigation on November 19, 2008, naming CoTherix and the Actelion entities. The Individual Defendants were added by Doe amendments to a first amended complaint in June 2009. The operative third amended complaint was filed on October 23, 2009. The complaint set forth eight claims: intentional interference with contract (Claim 1); interference with prospective economic advantage (Claim 2); breach of a confidentiality agreement^[7] (Claim 3); in the alternative to Claims 1 and 2, breach of the License Agreement (Claim 4); conspiracy in restraint of trade pursuant to the Cartwright Act (Claim 5); false advertising pursuant to Business and Professions Code section 17500 et seq. (Claim 6); unfair competition pursuant to Business and Professions Code section 17200 et seq. (Claim 7); and breach of confidence^[8] (Claim 8).

Asahi moved for summary adjudication of several of the affirmative defenses asserted by Actelion. The trial court also granted Asahi’s motion for summary adjudication of the “manager’s privilege” asserted by Actelion and by the Individual Defendants. Additionally, the court granted Asahi’s motion for summary adjudication of Actelion’s claim of limitation of damage liability under terms of the License Agreement precluding “special, exemplary, consequential or punitive damages,” finding those terms unenforceable under either Japanese or California law with respect to intentional or grossly negligent conduct.

Defendants moved to summarily adjudicate Claim 1. The motion was denied.^[9]

The Trial

In January 2011, the matter proceeded to jury trial against the Defendants on Claim 1 (intentional interference with the License Agreement), Claim 2 (wrongful interference with Asahi’s prospective economic advantage in the “continued development of Fasudil”), Claim 3 (breach of a confidentiality agreement between Actelion and CoTherix on a third party beneficiary theory), and Claim 8 (breach of confidence). On April 29, the jury returned a unanimous liability verdict against the Defendants, awarding $358.95 million for lost M&R (milestone and royalty) payments; $187.4 million for lost development costs; $450,000 for regulatory maintenance costs; and $75,000 for the cost of an investigator-sponsored study. The compensatory damage award on Claim 1 totaled $546,875,000. No damages were awarded on Claim 2, and only nominal damages were awarded on Claims 3 and 8. The jury also unanimously found the Defendants acted with “malice, oppression or fraud.”

In the punitive damage phase of trial, the jury awarded damages against the Individual Defendants only: Jean-Paul, $19.9 million; Martine, $8.9 million; and Simon, $1.2 million. Judgment was entered on the verdicts on Claims 1, 3, and 8 on August 18, 2011.^[10]

1. Jury Instructions on Wrongful Interference with the License Agreement

The jury was instructed on the elements of a cause of action for wrongful interference with contract. The court declined to give a special jury instruction, proposed by Actelion, that would have directed that the jury could not hold Actelion liable for inducing CoTherix to breach the License Agreement after the acquisition on January 9, 2007, because at that time Actelion had a direct interest in the contractual relationship between CoTherix and Asahi.

In refusing the proposed instruction, on Asahi’s objection, the trial court explained: “That’s what you’re going to argue. You want to argue that they became an affiliate, therefore, they became a party to the contract. That’s argument. And that’s argument specific as to the facts. [!]... [][] The issue of law that pertains is a party cannot be held liable for interfering with their own contract. That’s the law and that is something that I would be receptive [to] that is a neutral presentation.” Actelion’s counsel responded: “[T]he only thing that I would ask to add to that is the law also says that a party cannot be liable for interference with its own contract or a contract of one of its affiliates.” The court refused the request, stating: “[Y]ou have no case that says that.”^[11]

Accordingly, the jury was instructed: “A person cannot be liable for interference with that person’s own contract, if that person was a party to the contract at the time of the interference.” And the trial court instructed the jury on the justification defense: “In certain situations, a particular Defendant may be justified to interfere with or disrupt the contract between Asahi and CoTherix. In those situations, the law will not hold the particular Defendant liable for his/her/its actions even though Asahi suffered damages as a result of the particular Defendant’s interference. [(fl] It is not Asahi’s obligation in this case to prove that the particular Defendant’s conduct was unjustified. Instead, the particular Defendant has the burden of proving to you that his/her/its conduct was justified under the circumstances. [][]... [][] . . . [Y]ou must

Thus, the jury was instmcted that a defendant was not liable for intentional interference with contract if that defendant’s conduct was justified, but that “[t]he affirmative defense of justification does not apply if the particular Defendant used unlawful means to interfere with the [License Agreement] .... ‘Unlawful means’ includes intentional misrepresentation, concealment, and extortion.”^[12] Having been so instructed, the jury nonetheless found that all Defendants intentionally interfered with the License Agreement.

2. Standard of Review

We independently review Defendants’ legal challenge to the scope of potential liability for the tort of intentional interference with contract. (Ghirardo v. Antonioli (1994) 8 Cal.4th 791 , 800 [ 35 Cal.Rptr.2d 418 , 883 P.2d 960 ].)

3. Analysis

Defendants contend that, after January 9, 2007, they could not be liable for interfering with the License Agreement because “Actelion had a

Defendants urge this court to take the Applied Equipment court’s language regarding “outsiders who have no legitimate social or economic interest in the contractual relationship” out of context and read it to mean a noncontracting party who also has no interest in the contract. (Applied Equipment, supra, 7 Cal.4th at p. 514, italics omitted.) But the California courts have not recognized a corporate owner’s absolute privilege to interfere with its subsidiary’s contract. (Woods, supra, 129 Cal.App.4th at pp. 353, 355; Collins v. Vickter Manor, Inc. (1957) 47 Cal.2d 875 , 883 [ 306 P.2d 783 ] [whether corporation owners are “privileged to cause the corporation to discontinue its relations with plaintiffs, in the belief that such a course of action was in the best interests of the corporation, is a matter of defense, to be decided by a resolution of the factual issues presumptively involved”]; Sade Shoe Co. v. Oschin & Snyder (1984) 162 Cal.App.3d 1174 , 1181 [ 209 Cal.Rptr. 124 ] [an actor with “ ‘a financial interest in the business of another is privileged purposely to cause him not to enter into or continue a relation with a third person in that business if the actor [][] (a) does not employ improper means, and [][] (b) acts to protect his interest from being prejudiced by the relation’ ”]; Culcal Stylco, Inc. v. Vornado, Inc. (1972) 26 Cal.App.3d 879 , 882-883 [ 103 Cal.Rptr. 419 ] [being a parent corporation of a subsidiary business does not, “without more,” make “intentional interference with a contract of the business privileged as a matter of law—that is, privileged ‘under all conceivable circumstances’ ”]; Kozlowsky v. Westminster Nat. Bank (1970) 6 Cal.App.3d 593 , 600 [ 86 Cal.Rptr. 52 ] [court could not “say, as a matter of law, that, by virtue of Caspers’ position as majority stockholder and

We hold that the jury was properly instructed on the elements of wrongful interference with contract and properly charged with considering whether Defendants “used unlawful means to interfere with the [License Agreement].” So instructed, the jury found that each of the Defendants intentionally interfered with the License Agreement. The trial court did not err in refusing Defendants’ proposed special jury instruction or in denying Defendants’ motion for judgment notwithstanding the verdict.^[15]

B. Instructional and Evidentiary Issues^[23]

C. Compensatory Damages

The jury was instructed that to recover for lost M&R payments which Asahi claimed it would have received under the License Agreement (lost profits), “Asahi must prove it is reasonably certain it would have earned lost [M&R payments] but for the conduct of [Defendants].” The jury awarded Asahi $358.95 million in lost M&R payments. The jury also awarded Asahi $187.4 million in development costs and $75,000 in investigator-sponsored study costs that CoTherix would have incurred for Asahi’s benefit to bring Fasudil to market if it had continued to perform under the contract. Asahi accepted the trial court’s remittitur that reduced the development costs award to $18.85 million.^[17]

Actelion insists that damages are uncertain and speculative, and that the evidence does not support any damage award. Asahi challenges the remittitur on its cross-appeal. We find that the record supports both the jury’s verdicts and the trial court’s order, and we affirm the compensatory damages awards in their entirety.

1. Legal Standards

“ ‘[D]amages for the loss of prospective profits are recoverable where the evidence makes reasonably certain their occurrence and extent.’ {Grupe v. Glick (1945) 26 Cal.2d 680 , 693 [ 160 P.2d 832 ].) ...[][] Regarding lost business profits, the cases have generally distinguished between established and unestablished businesses. ‘[W]here the operation of an established business is prevented or interrupted, as by a . . . breach of contract. . . , damages for the loss of prospective profits that otherwise might have been made from its operation are generally recoverable for the reason that their occurrence and extent may be ascertained with reasonable certainty from the past volume of business and other provable data relevant to the probable future sales.’ {[Id.] at p. 692.) ‘. . . In some instances, lost profits may be recovered where plaintiff introduces evidence of the profits lost by similar businesses operating under similar conditions. [Citations.]’ (Berge v. International Harvester Co. (1983)

By the time of trial, several reports of scientific studies were available to the jury. These reports included a substantial amount of preclinical data (basic science and animal studies) on three formulations of Fasudil (intravenous Fasudil, ER Fasudil, and immediate release oral Fasudil or IR Fasudil); a clinical study of intravenous Fasudil in Japan; phase I, phase Ha, phase lib and long-term open-label clinical (human) studies of IR Fasudil; phase I clinical studies of ER Fasudil; and data on two patient populations who had used intravenous Fasudil (15 years of use in Japan to treat subarachnoid hemorrhage patients; approximately one year of off-label use in China to treat 200 PAH patients).

Asahi presented the testimony of several experts who testified that data from the aforementioned studies established to a reasonable certainty that ER Fasudil would have been effective in treating both SA and PAH, would have had an acceptable safety profile, and consequently would have been approved by the FDA and EMEA on CoTherix’s projected timeline.^[18] The witnesses included experts on SA (Robert Weiss, M.D.), PAH (Zhi-Cheng Jing M.D. & R. James White, M.D.), Rho-kinase (James K. Liao, M.D.), nephrotoxicity (Stuart Linas, M.D.), drug toxicity (Laura Plunkett, Ph.D.), and the FDA and EMEA approval processes (Jing, White, Plunkett, & Michael Tansey, M.D.).

The medical experts testified that Fasudil had been shown to have physical effects that were known to correlate with increased exercise time, an “endpoint” required by the FDA before the drug could be approved to treat SA or PAH. Scientific studies of the effects of Fasudil on lung circulation were positive, and treating physicians and leading physicians in the treatment of PAH had expressed enthusiasm about the drug’s potential for cardiovascular treatment. The toxicity shown in certain preclinical studies were not a concern because those studies were designed to identify toxicity at high

Actelion argues that Asahi’s inability to find a successor licensee for Fasudil demonstrates substantial uncertainty about the medical or commercial viability of the drug. Asahi experts, however, provided credible alternative explanations for that outcome: Actelion’s abandonment of the drug had a chilling effect on competitors because it implied that Actelion had undisclosed knowledge of flaws in the drug, and time lost in obtaining a new licensee reduced the value of the drug, which depended on commercial exploitation during the life of the underlying patents and a unique window of opportunity in 2006 and 2007.

It is for the jury to determine the probabilities as to whether damages are reasonably certain to occur in any particular case. (Garcia v. Duro Dyne Corp. (2007) 156 Cal.App.4th 92 , 97 [ 67 Cal.Rptr.3d 100 ].) Substantial evidence, including competent expert testimony, supported the jury’s finding that, if CoTherix had continued developing Fasudil, there was a reasonable certainty ER Fasudil would have obtained FDA and EMEA approval to treat SA and PAH on the timeline projected by CoTherix.

b. Price, Market Share, and the CoTherix Timeline

Having determined there was sufficient evidence of the fact of lost profit damages, we turn to the reliability of Asahi’s evidence regarding the projected price and market share of Fasudil, which set the amount of damages. “ ‘Where the fact of damages is certain, the amount of damages need not be calculated with absolute certainty. [Citations.] The law requires only that some reasonable basis of computation of damages be used, and the

In September 2006, CoTherix prepared revenue projections for Fasudil through 2019 for the purpose of negotiating its sale price with Actelion. Actelion dismisses these projections as “guesswork” without foundation and contends that Rausser’s lost profits calculations are “fatally defective because Rausser essentially adopted rosy projections prepared by CoTherix employees who were not proven to be qualified to create reliable forecasts.” But the evidence presented showed that the projections were based in part on CoTherix’s findings during its internal due diligence process, which included consultation with experts, before it signed the License Agreement with Asahi, and on market surveys that were conducted before Actelion expressed interest in buying CoTherix.^[20] The September 2006 projections estimated product launch dates (which were consistent with the projected regulatory approval timeline), an initial price for ER Fasudil, annual price increases, numbers of patients in target populations for both conditions with annual increases, initial market penetration into those populations with annual increases, and resulting net revenues.^[21] On at least one measure (size of the targeted SA population),

Actelion characterizes this case as a “new business” case and argues there is insufficient evidence of prior performance by CoTherix selling Fasudil or by similar businesses selling a similar product to support the lost profit damages. But this case does not fit neatly into the established business versus new business paradigm. Unlike the company at issue in Sargon, CoTherix had a track record of obtaining FDA approval for and marketing a PAH drug (Ventavis) and had a sales and marketing team already in place. (Cf. Sargon, supra, 55 Cal.4th at pp. 778-780.) Rausser verified the CoTherix projections by reviewing the pharmaceutical market specifically for SA and PAH drugs. Actelion’s suggestion that the only adequate comparison would be to a company already selling Fasudil is an overreach: the case law requires reasonable certainty, not absolute certainty, and once the occurrence of lost profits is established a plaintiff has greater leeway in establishing the extent of lost profits, particularly if the defendant was shown to have prevented the relevant data from being collected through its wrongful behavior. (See Sargon, supra, 55 Cal.4th at p. 775.)

Actelion also attacks the reliability of Rausser’s expert opinion generally, including reference to instances in which a federal trial court has found his testimony flawed or unpersuasive.^[22] Our concern, however, is with the testimony given by Rausser in this case. Actelion does not challenge Rausser’s extensive qualifications as an expert in economics. As in Sargon, the trial court “presided over a lengthy evidentiary hearing and provided a detailed ruling.” (Sargon, supra, .55 Cal.4th at p. 776.) The court heard testimony from Rausser in an Evidence Code section 402 hearing over two days, on January 13 and 19, 2011, in response to an Actelion motion in limine. The trial court issued a detailed order granting the motion in part, and set the parameters of the testimony Rausser would be permitted to give. Rausser testified within those parameters. Unlike Sargon, this is not a situation in which the trial court’s gatekeeper role required exclusion of speculative expert testimony. We have reviewed Rausser’s testimony and find nothing that would have required the trial court, or the jury, to reject his conclusions,

3., 4.^[23]

D„ E.*

The judgments are affirmed. Asahi shall recover its costs on appeal.

Jones, P. J., and Needham, J., concurred.

Petitions for a rehearing were denied January 16, 2014, and the opinion was modified to read as printed above. The petition of appellants Jean-Paul Clozel, Martine Clozel and Simon Buckingham for review by the Supreme Court was denied March 12, 2014, S216123.