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Onconome, Inc. v. University of Pittsburgh

December 17, 2009

ONCONOME, INC., PLAINTIFFS,
v.
UNIVERSITY OF PITTSBURGH, DR. ROBERT GETZENBERG, DEFENDANTS.



The opinion of the court was delivered by: Arthur J. Schwab United States District Judge

MEMORANDUM OPINION RE: DEFENDANTS' MOTION TO DISMISS SECOND AMENDED COMPLAINT (DOC. NO. 31)

ELECTRONICALLY FILED

I. Introduction

No matter how plaintiff dresses up its claims, this case is fundamentally a breach of contract action; the various trespass claims set forth in Onconome, Inc.'s Second Amended Complaint are thinly disguised breach of contract claims, untimely ones at that. The Court will, therefore, grant defendants' Motion to Dismiss Second Amended Complaint or in the Alternative, Motion for Summary Judgment ("Motion to Dismiss or for Summary Judgment") (Doc. No. 31), for the reasons stated below.

II. Facts Alleged in Second Amended Complaint

A. Background Facts

Plaintiff Onconome, Inc. ("Onconome"), a privately owned biotechnology corporation incorporated under the laws of the State of Washington with its principal place of business in Redmond, Washington, filed this action against Defendants University of Pittsburgh ("Pitt") and Robert H. Getzenberg ("Dr. Getzenberg"), on the basis of diversity jurisdiction under 28 U.S.C. § 1332. The Second Amended Complaint states "an action for scientific research fraud and breach of contract" against Pitt and its principal investigator, Dr. Getzenberg, who "claimed to have developed superior biomarkers for prostate cancer, Early Prostate Cancer Antigen ("EPCA") and EPCA-2, and for other cancers." Second Amended Complaint, ¶¶ 1, 3.

Onconome, Inc., formerly known as Tessera Diagnostics, Inc., was founded in 2001 by H. Raymond Cairncross, Esquire, founder and managing partner at Cairncross & Hempelmann in Seattle, Washington, where he specialized in corporate and business law and corporate finance. Declaration of Ray Cairncross in Opposition to Motion to Dismiss Of University of Pittsburgh and Dr. Robert Getzenberg (Doc. No. 22) ("Declaration of Ray Cairncross"), ¶ 1. Mr. Cairncross had "experience with early stage biotechnology companies as a businessman and lawyer, but not as a scientist." Id., ¶ 2. Nevertheless, Mr. Cairncross co-founded Ostex International, a start-up biotech company, in 1989, serving as its Chairman and CEO until 1997, and in1994, co-founded, became a director of and arranged Series A financing for Omeros Corporation, a pharmaceutical company which recently completed its initial public offering, managed by Deutsche Bank Securities. Id. Mr. Cairncross also negotiated Corporate Research Agreements ("CRAs") with both Pitt and Johns Hopkins University ("JHU"), as well as Licensing Agreements ("LAs") with those institutions, managed Onconome's financings, and established and executed the business and development strategies employed by Onconome from its inception. Id., ¶ 3.

At Mr. Cairncross' direction, Onconome became an operating concern in 2002, seeking to market and sell immunoassays based on certain prostate cancer biomarkers represented as having been discovered by Dr. Getzenberg. Second Amended Complaint, ¶ 33. Onconome holds itself out to the public and prospective investors as a "company focusing on the discovery, development and commercialization of innovative biomarkers for the early and accurate detection of various forms of cancer . . ." See www.onconome.com. Onconome states that it "intended to manufacture and sell a superior clinical test for prostate cancer" based on "statements and assurances" by Dr. Getzenberg, who "held a series of prominent research chairs at several of the most prominent medical research universities" in the United States. Second Amended Complaint, ¶ 4. According to plaintiff, Dr. Getzenberg represented that he had "discovered a superior biomarker and immunoassay for prostate cancer based on nuclear matrix proteins," in reliance on which Onconome "funded his research for over five years, spending millions of dollars and devoting virtually its entire anti-cancer effort to the Getzenberg technology." Id.

In the Declaration of Ray Cairncross, Mr. Cairncross summarizes the relationship between Onconome, Pitt and Dr. Getzenberg as follows:

4. Onconome built its business around Dr. Getzenberg's representations that he had discovered Nuclear Matrix Protein ("NMP") biomarkers for prostate and other cancers and was developing cancer immunoassays utilizing them, and became operational in 2002. From the beginning, Onconome relied on Dr. Getzenberg as its chief scientific developer for these technologies, as described below.

5. Before Onconome could become operational, it needed to raise equity capital. Its ability to do so related directly to the attractiveness to investors of both the potential of the licensed technology and the efficiency of the business model selected by Onconome to pursue the cancer diagnostic opportunity. As an outgrowth of its discussions with Dr. Getzenberg, Onconome adopted an efficient "virtual" business model under the terms of which Onconome would initially maintain a staff comprised principally of people experienced in the formation, management, financing and growth of a biotechnology enterprise but not people with backgrounds in research, discovery or technology development. Instead, Onconome would secure the research expertise of Pitt and Dr. Getzenberg, who would perform these functions. Onconome would fund this research, discovery and immunoassay development work through annual Corporate Research Agreements with Dr. Getzenberg and his research institutions, first Pitt and later JHU. Pitt and Dr. Getzenberg (and later JHU) committed that Dr. Getzenberg would "oversee and coordinate the entire project," including the responsibilities to "oversee the protein isolation, antibody production and characterization as well as immunoassay development," "supervise sample collection and processing," and "conduct all data analysis and interpretation."

6. The business model described above was attractive to Onconome's investors and management due in no small measure to the fact that it had been used successfully at Ostex. The underlying principal was that Onconome would be delegating the scientific research and development work to the researcher credited with discovering the technology, in this case Dr. Getzenberg, and to the prominent institutions with which he was associated.

Declaration of Ray Cairncross, ¶¶ 4-6.

During this period, Onconome asserts in its Second Amended Complaint, Dr. Getzenberg repeatedly made false claims and misrepresentations regarding "'amazing' results for his immunoassays for prostate and other cancers, [which] showed the assays were working consistently, reproducible and demonstrated 'sensitivities' (meaning few false negatives) and 'specificities' (few false positives) approaching 100 percent." Second Amended Complaint, ¶ 5. Plaintiff claims that Dr. Getzenberg embarked upon and maintained a consistent and calculated course of deception to hook and then string Onconome along in order to secure additional backing and funding, even though Dr. Getzenberg knew his "assay was no more accurate in distinguishing cancerous tissue from normal tissue than flipping a coin." Second Amended Complaint, ¶¶ 5-6. "Despite the many historical assertions to the contrary, the Getzenberg laboratory now admits that their immunoassay worked just once in late 2005, for one run, for one researcher alone, and never worked before or since for either this researcher or anyone else." Second Amended Complaint, ¶ 7.

The Second Amended Complaint further alleges that, at all times relevant to the allegations contained therein, "to about January 1, 2005 (or about September 14, 2005, the exact date on which Dr. Getzenberg's agency ended being uncertain), Dr. Getzenberg was employed by and [was] an agent of Pitt, and in all actions alleged herein acted within the scope of that employment and agency. Dr. Getzenberg was the Director of Urological Research of the Department of Urology, a Co-Director of the Prostate and Urologic Cancer Center of the Pitt Cancer Institute, and a Professor of Urology, Pathology, and Pharmacology at the Pitt School of Medicine. Dr. Getzenberg was the lead investigator for Pitt in conducting the fraudulent research services that were rendered by Pitt to Onconome as alleged in this Complaint." Second Amended Complaint, ¶ 14.

Onconome's Second Amended Complaint contains 260 numbered paragraphs organized as follows:

Section (A) outlines the problem and the need for better prostate cancer diagnostic tool. Section (B) sets forth facts concerning immunoassay and biomarker development. Section (C) sets forth facts addressing the use of nuclear matrix proteins as prostate cancer biomarkers. Section (D) sets forth, in an overview fashion, the relationship between Onconome and Dr. Getzenberg. Section (E) sets forth the specific misrepresentations made by Dr. Getzenberg, organized by date. Section (F) sets forth additional evidence of falsity. Sections (G)-(J) summarize the four core categories of misrepresentations. Section (K) alleges Onconome's contracts with defendants. Section (L) sets forth specific facts germane to Onconome's reasonable reliance and damage. Section (M) sets forth additional facts establishing defendants' fiduciary duty, and establishing the timeline of Onconome's filing suit. Section (N) sets forth the recent testimony of Dr. Eddy Leman, chief researcher in the Getzenberg laboratory, admitting, inter alia, that the true data showed the assays, in fact, did not work.

Second Amended Complaint, ¶ 15 (summarizing the organization of the Statement of the Facts at ¶¶ 16-260).

For purposes of deciding the Motion to Dismiss or for Summary Judgment, the critical averments of the Second Amended Complaint are contained in Sections D and K, regarding the relationship between Onconome and Dr. Getzenberg and Onconome's tri-parte contractual relationship with Dr. Getzenberg and Pitt, and Section M,*fn1 which attempts to bolster Onconome's claim that defendants had a fiduciary duty to Onconome, and sets forth the timeline of defendants' alleged misconduct and Onconome's initiation of this lawsuit.

B. Section D - The Confidential Relationship Between Onconome and Dr. Getzenberg

In Section D, Second Amended Complaint, ¶¶ 31-38, plaintiff asserts that it "placed its trust, confidence and reliance on defendants for the research and development of the NMP biomarker immunoassays concerned in this complaint, and defendants possessed a corresponding opportunity to abuse that trust for their own gain." Second Amended Complaint, ¶ 31. Onconome submits that a "confidential and fiduciary relationship existed between Onconome and Pitt and Dr. Getzenberg" in that defendants "solicited Onconome to trust them in matters in which they represented themselves as experts, whereas Onconome was not an expert and accepted the offer and reposed trust in defendants," that defendants had an "overmastering influence on Onconome and occupied a position of advisor or counselor to reasonably inspire confidence that defendants would act in good faith for the interest of Onconome in the research and development of immunoassays," and that "Onconome had weakness, dependence and trust on defendants in regard to these matters." Id.

Onconome further alleges that "Pitt and Onconome agreed in the Corporate Research Agreement that Dr. Getzenberg, as Pitt's agent, would oversee and coordinate the entire [development] project," and that Dr. Getzenberg would "oversee the protein isolation, antibody production, and characterization as well as immunoassay development" thereunder. Second Amended Complaint, ¶ 32. Dr. Getzenberg also was to "supervise sample collection and processing" and "conduct all data analysis and interpretation" because Onconome did not have "the scientific expertise to perform these functions" as defendants were aware. Id. Onconome's staff was "comprised principally of people experienced in the formation, management, financing, and growth of a biotechnology enterprise, but not (initially) people experienced in the discovery or technology development side of biotechnology." Id. The relationship between plaintiff and defendants required Onconome to "fund all research and immunoassay development work through annual Corporate Research Agreements ("CRA") with defendants." Id.

Specifically, Onconome alleges that beginning in 2002, it "entered into a series of . . . CRAs and License Agreements ('LAs'), with Pitt and later Johns Hopkins University ('JHU')", where Dr. Getzenberg was the principal investigator for both universities. Second Amended Complaint, ¶ 34. Under the first CRA dated March 22, 2002, Second Amended Complaint, Exhibit A (Doc. No. 30-2), Dr. Getzenberg agreed and was obligated to "oversee the protein isolation, antibody production and characterization as well as immunoassay development. Similarly, he will supervise sample collection and processing." Id. Dr. Getzenberg assumed similar performance obligations in subsequent CRAs.

In return for funding the Pitt and JHU laboratories relating to nuclear matrix proteins as prostate cancer biomarkers, and paying to prosecute related patent applications, Onconome acquired the exclusive right under the CRAs to market any biomarkers in commercial applications. Second Amended Complaint, ¶ 35. From the outset, the plan was to develop a commercial test kit for the new cancer biomarkers that would replace current PSA screening tests. Id. Onconome also was to pay all maintenance fees, minimum royalties and other payments based on future sales to the licensing institutions, Pitt and JHU. Id. Under the "terms of CRAs, Onconome was obligated to and did pay all direct and indirect costs associated with the research and development work to be done at Dr. Getzenberg's laboratories, at Pitt and later at JHU, including funds for at least three full-time laboratory personnel plus paying a portion of Dr. Getzenberg's salary, along with allowances for outside collaborators." Id., ¶ 36.

Onconome claims that between 2002 and the end of 2008, it spent millions of dollars in fulfilling its commitments under these agreements, and millions more "ramping up its capacity to make and market the biomarkers . . . ." Id., ¶ 37. During that time period, Dr. Getzenberg was the "chief scientific developer and spokesperson for Onconome and its licensed technology, with all third parties including actual and potential investors." Id., ¶ 38. In that capacity, Dr. Getzenberg attended almost every Onconome Board meeting, wherein he would present written "Research Updates" and make oral presentations which "routinely presented empirical and factual data reflecting his lab research results, e.g., the specificity and sensitivity of the immunoassays his lab developed, and which Onconome paid for." Id.

C. Section K - Onconome's Contractual Relationship With Defendants

Pitt and Onconome entered into their initial CRA on or about March 22, 2002. See Second Amended Complaint, Exhibits A-C (Doc. No. 30-2 to 30-4) (Initial CRA and amendments thereto); Second Amended Complaint, ¶ 211. Under the CRA, Pitt was obligated to "use its best efforts to perform research services to [Onconome] in accordance with [Onconome's] Statement of Work." Id., ¶ 212. The CRA also required Pitt to provide Onconome with periodic progress reports, and to meet with its representatives to discuss research results and Dr. Getzenberg's final written report, when requested or as required by the CRA's Statement of Work. Further, the Pitt CRA required it to give Onconome "on a quarterly basis photocopies of laboratory notebooks from the preceding quarter." In addition, the April 1, 2004 amendment to the Pitt CRA required that "research data shall be shared on a monthly basis, or more frequently if appropriate." Id., ¶ 213. ...


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