Biota had all of the ingredients for a big success with Relenza, an influenza drug that was the first in a new class of antivirals. The young biotech had secured an alliance with the pharmaceutical giant GlaxoSmithKline to develop and market the drug. And when the drug launched in 2000, it beat Roche's competing product Tamiflu to market by about six months.

By the time governments started to worry about pandemic avian flu in 2003 and began stockpiling the drugs, Biota should have been well positioned to reap the rewards of its work. There's also a scientific case to be made for Relenza as the preferred treatment. All the Australian biotech needed to do was sit back and count its royalties.

But instead, Tamiflu captured about 95 percent of the $2-billion market for neuraminidase inhibitors and Relenza just 5 percent. The reason why could be a cautionary tale for young biotechs entering alliances with big pharmaceutical companies. "This was a very critical and almost terminal blow at our stage of development," said Peter Cook, Biota's CEO. "The damage they have done to us is really quite significant."

Cook added that Relenza could have been a significant product even for GSK. "They are a $15-billion company," he said. "They're huge. But they could afford to get this right or wrong and not really hurt themselves."

Now Biota is suing it partner GSK in the Victorian Supreme Court in Melbourne. It alleges the pharmaceutical giant failed to live up to its contractual obligations and is seeking up to $430 million in damages. Biota had originally brought suit in 2004, but at the end of March, the company filed an amended claim after reviewing 200,000 internal GSK documents as part of its discovery. With the filing at the end of March, those damages are expected to increase.

In the amended filing, Biota argues that GSK had decided to withdraw marketing support for Relenza, even though it told the company the contrary. It was also quietly dismantling its manufacturing and distribution system for Relenza and adopted a policy to carry no surplus inventory, Biota said. This allegedly left GSK unable to respond to sudden demand for the drug from governments looking to stockpile it as concerns over avian flu swelled. That, according to Biota, left them to surrender the stockpiling market to Tamiflu without a fight.

At A 'Disadvantage'

Biota also charged that despite having trial data to support regulatory approval for use of Relenza as a preventative, GSK failed to pursue those claims in major markets until recently. The company said GSK's actions placed Relenza at a significant competitive disadvantage in the market to sell to governments stockpiling drugs for pandemic influenza and has prevented the drug from playing a significant role in combating avian flu.

GSK has until the end of this month to respond to Biota's amended filing. The two companies are set to return to court then for a hearing to determine the scope of the trial, which isn't set to begin until April 1, 2008.

Biota's Cook said he believes Relenza was a victim of Glaxo Wellcome's merger with Smith Kline Beecham in 2000, which came at a critical stage of the launch of Relenza. He believes that GSK decided to step back from putting its muscle behind the drug as part of a rationalization of the merged company's combined product lines.

Meantime, GSK has blamed the Relenza's problems not on its withdrawal of support for the drug, but instead on the fact that physician's were resistant to give their patients a drug that required the use of an inhalation device. GSK used a diskhaler inhalation device similar to those used in asthma drugs where a blister pack is punctured by the device and the user inhales the drug. Physicians, the company said, preferred the ease of Tamiflu because it is a tablet. GSK also faced launching Relenza during a mild flu season, which may have dampened their long-term expectations for the drug.

Biota's Allegations Disputed

A spokeswoman for GSK said because of the litigation, the company had restrictions on what it could say. But she offered a prepared statement that said GSK "strongly disputes" Biota's allegations.

"The challenges concerning the market for Relenza prior to a pandemic threat have been well reported, the company said. "GSK remains committed to honoring the undertakings we have given to the Australian court to ensure that documents disclosed by Biota to GSK for the purpose of the litigation are kept confidential. GSK's evidence will be presented at the trial, in context and in full. As we are in ongoing litigation we will not comment any further but will continue to vigorously defend the claim."

For Cook, the experience with GSK has been educational about dealmaking. Relenza was actually grew out of research by Australian government researchers looking to develop an avian flu treatment for livestock. Biota licensed the rights to the drug and was approached by GSK's Australian office, which made a deal for the drug in 1990. As a small company, Biota didn't have a lot of leverage and took what was offered, but now Cook does deals differently.

"A couple of things we've learned is don't get involved in a one horse race," he said. "There's got to be some deal tension. There's got to be more than one party interested. The second issue is you do have to have performance obligations spelled out in the contract. And the better they are spelled out the less likely you will urn into this problem."

He also warns against the use of catchall phrases such as "best efforts." Small biotechs, he argues, need to spell out clearly what things mean with specific deadlines and performance requirements. And he also believes in exit clauses that are clearly spelled out.

A Second Chance

But Cook looks as if he will have a chance to get it right. Biota is developing a second generation influenza antiviral in partnership with Japan's Daiichi-Sankyo. Biota has rights to the drug outside of Japan and is expected to seek a large pharmaceutical partner.

The new drug, a once-a-week version vs. once a day for preventative care, represents an important improvement not just because of compliance issue. Much of the cost in stockpiling a drug is in storage. Governments generally seek to have enough product for 25 percent of their population for five years. More potent compounds that are used less frequently have a big cost advantage. If regulators accelerate the approval of the drug as Cook expects, it could be on the market as early as 2009.

Meantime, GSK appears to have awakened somewhat to the potential of Relenza. Last year it boosted production to 15 million doses from just a million in 2005. Next year, Cook expects the company to triple production to nearly 45 million doses. He said that will still put it at less than 15 percent of the world market, but a lot better than 3 percent.

But when it comes time to shopping for a partner, Cook still sees GSK as a logical place to start since its one of the two companies steeped in the pandemic flu market. "GSK is on the list to talk to, of course," he said. "Either of the players in the market would be the logical starting point to license the second generation product, but there'll be some different bits in the contract."