Elenza, a Roanoke, Va.-based medical device company, was on the verge of bringing new technology to market that would give millions of cataract sufferers complete visual range until one of its financial backers — Fort Worth-based Alcon Labs — suddenly and unexpectedly pulled out of the project.
Losing Alcon was a huge blow, the firm’s CEO says. The action crippled its ability to find other funding and forced the company to furlough employees.
What the company learned in the ensuing months was worse. Alcon, it alleges, filed patent applications using Elenza’s technology learned during the short time it was a partner.
“We still have a difficult time believing it,” said Rudy Mazzocchi, Elenza’s chief executive. “The stink of having the market leader walk away from their investment commitment, for no documented reason or explanation, made it impossible to raise capital from other strategies or venture investors. We suspended the final development and clinical validation trials planned for the device.”
Instead, Elenza is using what money it had left and capital raised from a special-purpose venture investor to fight Alcon in court. In a civil suit filed in a Delaware state court in March 2014, Elenza accuses Alcon of misappropriation of trade secrets, breach of contract, misrepresentation and securities fraud. Elenza estimates Alcon’s action cost the company at least $25 million and asks that punitive damages be determined at trial.
In its initial legal response to the lawsuit, Alcon denied all the charges. Other court documents are under seal and cannot be accessed.
“Alcon has denied Elenza’s allegations, which are without merit,” said company spokeswoman Elizabeth Harness Murphy. “Alcon intends to vigorously defend the case and does not comment on pending litigation.”
Alcon attempted to have the case dismissed to no avail. According to the docket, the case is scheduled for a jury trial next year.
“Our valued shareholders, which now include many customers of Alcon, are not going to back down from this David versus Goliath fight,” Mazzocchi said. “A business partnership with a small company does not allow the big company to pick and choose which agreement they’ll honor and which ones they won’t.”
Alcon invests in Elenza
Elenza was developing the first electro-active, programmable. auto-focusing implantable lens for cataract replacement. Surgery has become a popular option in cataract treatment, and the lens-replacement industry has become a multibillion-dollar business. Elenza says its lens would allow patients to see more naturally and clearly.
After two years of development in 2010, Elenza approached Alcon, a leader in the cataract lens replacement industry, and other investors about financing product development plans for its “electro-active” interocular lens.
Alcon said it would take a look and a month later signed a nondisclosure agreement that would prohibit Alcon from talking about Elenza’s work for five years, the suit says. Over the next 11 months, Alcon conducted a due-diligence review and agreed to invest $15 million in two tranches.
With the initial investment, Alcon took two seats on Elenza’s board and three seats on a newly created joint development committee. Elenza, as part of the agreement, also gave Alcon, its engineers and its lawyers access to trade secrets and other confidential information, the suit says.
Alcon determined that Elenza would obtain approval for sales and distribution in the U.S. by 2016, with annual sales its first year projected to be $25 million and reach $178 million by 2020, the suit says.
Alcon signed on as a partner in February 2011. Alcon and other smaller investors entered into a stock-purchase agreement, agreeing to buying series B shares of Elenza in two equal but separate tranches, worth $11.3 million each, of which $7.5 million was to be paid by Alcon. Alcon would be a 24.3 percent holder of stock. That would increase to a 34.4 percent stake in the company after the second tranche, the suit says.
In April 2011, Alcon was acquired by Novartis, the Swiss-based pharmaceutical giant.
Judge denies motion to dismiss
Elenza spent $1.7 million and tested its product on 350 volunteer patients, saying in its suit that “the study was a success in all aspects.”
But when a vote came in late 2011 to see if the study had met the criteria for Alcon/Novartis to fund the second tranche, “Novartis had determined not to make its second tranche investment” and instead started its own development effort to “exploit the technologies invented by Elenza and to capture for itself 100 percent of the anticipated revenues from the commercialization of Elenza’s technologies,” the lawsuit says.
In July 2012, Elenza and Alcon signed a separation agreement. But within months, Elenza says it learned that Alcon had filed two applications to patent an electro-active interocular lens in February 2012. That application was published in August 2013, revealing Elenza’s work.
In a March 11 opinion denying Alcon’s motion to dismiss the suit, Judge Mary M. Johnson said she questions the timing of Alcon’s patent applications and its refusal to make the second tranche payment. Elenza “has demonstrated that it is reasonably conceivable that Alcon used Elenza’s trade secrets to help develop its electro-active interocular lens,” she wrote.
In its answer, Alcon says “it had no duty” to tell Elenza about the patent applications and “therefore did not do so.”
Mazzocchi said Alcon’s applications “not only read right on top of our patents, but that they included trade secrets that we disclosed to them during the course of our relationship. The Alcon attorneys suggested we submit a proposal for settlement. We’ve made several attempts to meet with their business people to discuss settlement options.”
Sandra Baker, 817-390-7727