Business

Biotech Firm Amyris Hit with $881M Suit over Cannabinoid IP

By Willis Jacobson Sep 17, 2020
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Willis Jacobson is an award-winning journalist whose career has spanned both coasts. Now based on the Central Coast of California, he has covered cannabis news and issues since 2015.
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Willis Jacobson is an award-winning journalist whose career has spanned both coasts. Now based on the Central Coast of California, he has covered cannabis news and issues since 2015.
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A cannabinoid manufacturer has sued biotech company Amyris for $881M, amid a fraught 18-months relationship between the companies. Among other allegations, the lawsuit claims Amyris used the partnership to artificially inflate its own value and then leveraged the plaintiff’s trade secrets to become a hostile competitor to its partner.

Lavvan, which formed in 2019 to develop biosynthetic cannabinoids, filed the federal suit against publicly-traded Amyris on Sept. 10 in the Southern District of New York. It charges Amyris with trade secret misappropriation and patent infringement. (Read the suit.)

The suit makes several allegations as it tells the story of a partnership that quickly turned sour.

Lavvan CEO Neil Closner, in a statement released shortly after the suit was filed, said the lawsuit was the only way to protect his company’s intellectual property, which the suit alleges Amyris is continuing to wrongfully use.

“We are very disappointed that we have had to take this step, but through a history of erratic and egregious conduct, Amyris has demonstrated a willful intention to undermine the agreement [between the companies],” Closner said. “This has left Lavvan with no choice but to vigorously pursue all legal avenues available.”

The many accusations in the suit include that Amyris used its $300M Research, Collaboration and License Agreement with Lavvan, inked in March 2019, to provide cover for what Lavvan alleges were “rotten” business practices by Amyris that had Amyris carrying a “crushing debt load.”

Amyris has denied the allegations. In its own statement, the company says it did not violate the terms of the agreement and defended its financial standing.

“Amyris is disappointed that Lavvan has chosen the public domain to articulate its position,” read a portion of the statement from Amyris CEO John Melo. “Amyris has not breached the RCL Agreement with Lavvan and we will continue to operate in accordance with its terms. We will pursue our legal rights to the fullest extent possible, including a vigorous defense against any assertions made by Lavvan.”

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Short honeymoon

According to the suit, New York-based Lavvan sought out the partnership with Amyris, believing it to be an ideal avenue for Lavvan to commercialize its cannabinoid ingredients for a wide range of industries, including health, beauty and cosmetics, food and beverage, and pharmaceuticals.

Emeryville, Calif.-based Amyris is a biotechnology company that produces ingredients for cosmetics, flavors and fragrances, among other things. The company had not been involved in the cannabinoid market prior to the partnership with Lavvan, according to the suit.

Under the terms of the RCL Agreement, Amyris is expected to develop cannabinoid-producing yeast strains for Lavvan, with Lavvan then able to manufacture and commercialize the biosynthetic cannabinoids. 

Fermenting yeast and other microbes for the production of sweeteners, flavors, and proteins is growing in popularity. The method is considered more efficient than using animals or maintaining large farms to extract molecules from plants — such as cannabinoids — that occur in microscopic quantities.

Through the deal, Lavvan made an upfront payment of $10M to Amyris and agreed to pay out $300M more as Amyris hit certain milestones. Amyris was also granted a cut of profits from Lavvan’s sales.

Problems with the agreement cropped up almost immediately, according to Lavvan.

Amyris announced the partnership in February 2019, and right away saw a 70% jump in its stock price. 

“This introductory announcement would prove to be the highpoint of the collaboration,” the Lavvan suit says.

After that, Lavvan alleges, Amyris failed to hold up its end of the agreement, leaving Lavvan to believe the company never had any intention of honoring the deal.

The lawsuit speculates that Amyris used the deal to get the upfront $10M payment and use the promise of future payments to satisfy its investors. 

The suit claims that Amyris, at the time of the RCL Agreement, was teetering on financial insolvency. It says that at the end of 2018, Amyris had revenues just under $120M, with deficits totaling $1.5B.

“Given the likelihood that handing Lavvan control over manufacturing and commercialization would expose Amyris’s flawed business model, Amyris likely never intended to honor the RCL Agreement,” the suit reads. “Once Amyris was flush with Lavvan’s investment and enjoying the momentum from announcing to the market its entry into the trendy cannabinoids space through its partnership with Lavvan, Amyris sought to change the deal.”

‘Destroyed’ relationship

It was at this time that Lavvan alleges Amyris began attempting to seize back control of manufacturing from Lavvan and demanding payment from Lavvan for unearned milestones.

Lavvan also alleges that Amyris “pressured” Lavvan to persuade Amyris’s auditors to recognize future earnings and to misstate work performance to Amyris’s bankers.

“When Lavvan would not capitulate to Amyris’s demands, Amyris retaliated by morphing from Lavvan’s partner to its competitor,” the suit alleges. “In fact, Amyris COO Eduardo Alvarez told Lavvan’s president Etan Bendheim that Amyris has no qualms about ripping up its agreements if it determines that they no longer ‘work’ for Amyris.”

From there, the suit alleges, Amyris effectively broke the terms of the agreement by keeping some of its yeast strains and sending some of them to third-party companies. Lavvan claims those materials were to be exclusive to Lavvan, per the RCL Agreement.

Lavvan claims that Amyris then began publicly questioning Lavvan’s financial viability and business practices, harming Lavvan’s professional reputation. Lavvan referred to those efforts as “pure misdirection.”

“The reality … is that Amyris’s tactics have, predictably, destroyed the Parties’ working relationship,” read the lawsuit. “Lavvan is not receiving the benefits of its investment and is losing out on its ability to enter this market as a leader. Meanwhile, Amyris has been trying to extract additional money from Lavvan while using Lavvan’s cash and industry expertise to independently commercialize cannabinoids manufactured from the cannabinoid-producing yeast strains it made for Lavvan, violating the RCL Agreement and Lavvan’s intellectual property rights.”

“Amyris has been using its internal cannabinoid dedicated resources (paid for by Lavvan’s $10M) to pursue its own competitive entry into the market while falsely claiming that it continues to work toward the objectives laid out in the RCL Agreement,” it continues.

The suit seeks $881M in damages, an amount Lavvan claims represents its future losses and damages due to Amyris’s actions. It calls for a jury trial.

Neither company responded to requests for comment, outside of the statements each made publicly.

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