A generation after heading the Human Genome Project, David J. Galas, Ph.D., established a research lab at the Keck Graduate Institute in Claremont, CA that focused on developing isothermal technology for amplifying nucleic acids as an alternative to PCR. He also founded a spinout company focused on commercializing the resulting assays.
The Keck spinout, Ionian Technologies, succeeded more than a decade ago in achieving detection of infectious diseases within minutes through rapid amplification of small samples of short DNA or RNA fragments. The technology attracted the interest of Alere, which acquired Ionian in 2010 and began commercializing the assays four years later.
Today, Galas represents roughly three dozen former Ionian shareholders who have spent nearly two years waging a legal battle to secure $30 million in milestone payments they contend are owed to them by Alere and its successor company, Abbott. The case is pending in Superior Court of California, County of San Diego, where it is headed for trial in June, after Alere tried, but failed, to have it dismissed.
Alere has argued that the Ionian shareholders had not fulfilled the terms of the companies’ merger agreement, and has accused Galas of breaching the accord—contentions that Galas denied in an interview.
At the center of the legal dispute is the Ionian-developed isothermal technology, which was designed to deliver rapid detection of infectious diseases through quick amplification of small samples of short DNA or RNA fragments. The isothermal tech was developed by Ionian researchers who earlier worked for Galas’ lab at Keck.
Ionian was founded in 2000. Three years later, Galas led a team of researchers in publishing a paper in PNAS detailing the technology, “Isothermal reactions for the amplification of oligonucleotides.”
The team noted that their isothermal reactions for amplifying DNA offered advantages over rolling-circle amplification and especially the much more widely used PCR: namely, no more need for a temperature cycling protocol to achieve amplification—which effectively limited the rate of amplification to the temperature cycling schedule—and the ability to achieve amplification above the maximum two-fold amplification achievable in each cycle.
“The robustness, speed, and sensitivity of the exponential reaction suggest it will be useful in rapidly detecting the presence of small amounts of a specific DNA sequence in a sample, and a range of other applications, including many currently making use of the PCR,” Galas and colleagues concluded.
Also in 2003, Galas secured a $489,000 grant from the Defense Advanced Research Projects Agency (DARPA) to develop the rapid-detection technology, then known as the Handheld Isothermal Silver Standard Sensor.
“[DARPA] was interested in infectious agents that were biological threats, so we never really got down to looking at just trying to actually develop…specific assays,” Galas noted. “We looked at a number of bacterial threat agents or their surrogates in bacterial sequences, to just show we could mutually—or Ionian could—actually detect those.”
“The original focus was on biological threat agents. But it was clear that in the long run, Ionian would need to develop commercial products for the healthcare market, and diagnostics for more common infectious diseases was clearly what was called for.”
The technology has since been applied in a line of CLIA-waived, marketed diagnostics designed to detect influenza A and B, respiratory syncytial virus (RSV), and strep A. Alere gained control of the technology when its predecessor company, Inverness Medical Innovations, acquired Ionian in 2010.
‘A Nice Opportunity’
“We had talked to a couple of other companies,” Galas said. “But Ionian was an extremely small company, and we as a board understood is that if we wanted to actually create FDA-approved products, we were going to have to develop a clinical group and so forth. That would have been growing the company substantially more, which would have required substantial investment.
“It seemed like a nice opportunity to get quickly into diagnostics and to also get a yield to the investors,” Galas added.
Alere commercialized the technology through a line of diagnostics it marketed under the name Alere I, starting with the influenza A and B test, which was initially launched in Europe in 2014.
Alere was acquired by Abbott in 2017 for approximately $4.5 billion, following more than a year of legal wrangling after Abbott attempted to end the deal. Since then, Abbott has rebranded the test as ID NOW, part of the Rapid Diagnostics business of Abbott’s Diagnostics segment, which finished 2018 with sales of $2.072 billion.
Alere, and its successor company Abbott, have refused to pay the $30 million in milestone payments to Galas and other Ionian shareholders. They took Alere to court in May 2017, five months before Abbott completed the acquisition, contending that Alere breached its 2010 agreement to acquire Ionian.
“Alere actually discussed possibly paying us half of the milestone payment, but refused to consider more, and ultimately, we then filed the complaint before the actual acquisition of Alere was closed,” Galas told Clinical OMICs. “Alere was in the process of being acquired by Abbott when the milestone payment issue came up. Alere did make it clear that whatever we might agree to, that is Alere and the Ionian shareholders, it would have to be approved by Abbott.”
Abbott representatives at deadline had not responded to queries from Clinical OMICs about the case.
Alere Strikes Back
Alere responded legally in a cross-complaint filed in October 2018, accusing Galas and Ionian’s onetime CEO Andrew P. Miller, Ph.D., founder and CEO of NAT Diagnostics, of breaching Alere’s merger agreement with Ionian. Alere also accused both men and NAT of unjust enrichment and breaches of California’s Uniform Trade Secret Act and Unfair Competition Law, while accusing Miller of breaching a severance pay agreement and fraudulent inducement.
Alere asserted that NAT misappropriated Ionian’s nucleic acid amplification technologies for its own diagnostic tests. Alere cited Galas’ role as a director of NAT, which has been disclosed in filings with the U.S. Securities and Exchange Commission, and also asserted that the two men were in “regular contact” and that Galas was an investor in NAT.
Galas insists the agreement was not breached, and that no wrongdoing against Alere and successor Abbott has occurred.
“Abbott’s theory that they used for this cross-complaint was that somehow, because of this obscure bad idea, that became somehow a trade secret of Ionian’s, and that somehow that belongs to Alere and Ionian. This is nonsense,” Galas countered. “It wasn’t even kept as a secret in my lab, and maybe the only secret might be that it didn’t work. Anybody who worked with it knew that it didn’t work, and the technology was discarded. Ionian had no interest in it.”
In December, California Superior Court Judge Joel R. Wohlfeil denied a motion by Alere for summary judgment, ruling that the wording of the agreement by which Alere bought Ionian was vague enough to allow consideration of “parol” (also called “parole”) evidence beyond the text of the contract.
“The contract language is ambiguous and subject to more than one reasonable interpretation. As a result, parole evidence is admissible, and there remains a factual dispute,” Judge Wohlfeil wrote.
Two $15M Payments
The Ionian-Alere acquisition agreement called for two separate $15 million payments tied, respectively, to achieving milestones related to tests for influenza A test and Strep A. According to the agreement, the payments “shall be earned and payable” upon meeting conditions that included issuance of at least one U.S. patent from U.S. Patent Application No. 11/778,018, or a continuation having “at least one claim substantially similar in scope to claim 67 of that application.”
Claim 67 covered a method for amplifying a double-stranded nucleic acid target sequence “under essentially isothermal conditions, wherein amplification is performed by multiple cycles of said polymerase extending said forward and reverse templates along said target sequence producing a double-stranded nicking site, and said nicking enzymes nicking at said nicking sites, or amplified copies of said sites, producing an amplification product.”
Galas and the Ionian shareholders contended in court papers that Alere wrongfully never paid the two $15 million payments even though the company commercialized tests based on the Ionian-developed technology and obtained three U.S. patents based on Application No. 11/778,018, all of which have at least one claim substantially similar to claim 67.
Two of the patents, No. 9,562,263 and No. 9,562,264, included wording that the covered technology covered a method for amplifying a double-stranded nucleic acid target sequence “under conditions wherein amplification is performed by multiple cycles of said polymerase extending said forward and reverse templates along said target sequence producing a double-stranded nicking enzyme site, and said nicking enzymes nicking at said nicking enzyme sites, producing an amplification product.”
The merger agreement was amended twice; the second amendment in 2015 added a $5 million milestone payment tied to achieving commercialization of the RSV test. Galas and the Ionian shareholders assert that Alere wrongfully delayed payment since it was not made until May 2017.
For that milestone and the two larger ones, Alere has countered that Galas and the Ionian shareholders failed to meet conditions, arguing that the claims in the issued patents were not substantially similar to those of Application No. 11/778,018, and were not allowed or issued by the agreement’s target date of January 12, 2017 since the ‘263 and ‘264 patents were issued on February 7 of that year.
Galas and shareholders said they agreed to the target date based on Alere making best efforts to secure allowance of the claims. They have accused the company of foot-dragging, while Alere has denied wrongdoing.