By Matthew Santoni

Law360 (June 4, 2020, 6:28 PM EDT) -- Inovio Pharmaceuticals is accusing one of its suppliers of "holding ... hostage" the development of Inovio's COVID-19 vaccine, and has asked a Pennsylvania state court to make the supplier turn over its manufacturing technology so other companies can use it.

Inovio's lawsuit, filed in the Montgomery County Court of Common Pleas on Wednesday, claims that Texas-based VGXI Inc. and its South Korean parent, GeneOne Life Science Inc., signed a contract to make Inovio's vaccine products that requires them to share their manufacturing methods with Inovio or other suppliers if VGXI can't make the products itself.

With VGXI already at capacity, Inovio demanded that VGXI share its technology with other suppliers so Inovio can meet its goal of making 1 million doses of its DNA-based vaccine, now in the first phase of clinical trials, by the end of 2020 so they're ready to be distributed as soon as the U.S. Food and Drug Administration approves them, the suit says.

"Inovio cannot wait until it receives regulatory approval before starting manufacturing scale-up. ... VGXI's breach significantly delays this process and will substantially reduce the number of available doses, which harms public health and the economy," Inovio says in its complaint. "VGXI is holding the vaccine and world health hostage, perhaps to squeeze more money from Inovio or because it is having buyer's remorse over its existing contract."

The suit claims breach of contract and seeks a declaratory judgment that VGXI has to share its technology, along with damages.

Inovio says its vaccine is based on using viral DNA to stimulate patients to manufacture antibodies for immunity rather than injecting dead or weakened versions of the virus, so it requires specialized forms of manufacturing the vaccines. It signed a contract with VGXI in 2008, and even though the initial term of the contract has expired, it remains in effect because neither party has formally terminated it, the suit says.

VGXI was the primary manufacturer of Inovio's DNA-based products and had "most-favored" status under the contract that effectively gave the company the right of first refusal when making new Inovio products, according to the lawsuit.

Inovio's suit says the company got a sample of the COVID-19 virus DNA from China in January, which it "used to design a construct for a DNA vaccine candidate to protect against the virus." The company was later hit with stock-drop and derivative lawsuits after CEO J. Joseph Kim twice claimed that Inovio had a vaccine "in a matter of about three hours" when it was only the construct, or first stages, of the vaccine.

VGXI turned out about 30,000 doses every two weeks and had provided about 55,000 doses for pre-clinical trials and the first phase of human tests, according to the suit, and it was working on a larger manufacturing line that wouldn't be ready until 2022. As Inovio developed its vaccine, VGXI told the company that it couldn't churn out the COVID-19 vaccine at the rate Inovio wanted, because other customers had claimed all but two of the "slots" in 2020, the suit says.

"In short, VGXI admittedly cannot meet Inovio's need for 1 million doses of the vaccine by the end of 2020, and VGXI repeatedly informed Inovio of that fact," the complaint says.

According to Inovio, a portion of its contract with VGXI said that if the manufacturer couldn't make or refused to make one of Inovio's products, VGXI must give it all the documentation of its manufacturing and material-handling process that would allow another manufacturer to use VGXI's methods.

This "technology transfer" was crucial, Inovio said, because it designed its vaccines to be made with VGXI's technology. It had contracted two other companies to help it meet its goals for the COVID-19 vaccine, but those companies may need more time to adapt their production methods to Inovio's product.

"If VGXI refuses to permit the technology transfer, Inovio cannot manufacture the product promptly, safely, or perhaps at all," the complaint says. "Other manufacturers would need to develop their own manufacturing process, which is often a time consuming and regulated process that would substantially delay the successful manufacture and distribution of Inovio's products."

One of the two other companies Inovio hired to make the vaccine, Richter-Helm BioLogics GmbH & Co. KG, already had access to VGXI's methods through a 2015 technology transfer related to a different Inovio product and was able to contract for 500,000 doses, the suit says.

The second company, Ology Bioservices Inc., was trying to use its own methods while waiting for VGXI's technology, but the suit says it is unknown whether they would succeed and VGXI has refused to allow the transfer, attempting to claim that the expired contract is now invalid.

The suit asks the court to declare that the agreement is still in effect and that VGXI has to honor the technology transfer.

"By disregarding its clear and unequivocal contractual obligation to transfer the technology, VGXI is standing in the way of Inovio's efforts to manufacture at sufficient quantities, to address public health needs, a vaccine that the world needed yesterday," said Cooley partner Mike Klisch, who is representing Inovio. "In addition to impeding a process that needs to start now, VGXI has offered no credible legal basis for its conduct."

VGXI released a statement Thursday saying the company was surprised by the lawsuit, as it continued to work with Inovio to make doses of the vaccine for clinical trials.

"The allegations in the complaint are inaccurate, and the court has already denied Inovio's motion to seal the record from the public," the statement said. "For reasons unknown to VGXI, rather than continue working with VGXI to achieve accelerated manufacturing levels, Inovio has instead filed this court action to try to take VGXI's intellectual property."

Inovio is represented by Michael J. Klisch, Joshua Siegel and Robert T. Cahill of Cooley LLP and John C. Romeo and Stephen J. Finley of Gibbons PC.

Counsel information for VGXI was not immediately available.

The case is Inovio Pharmaceuticals Inc. v. VGXI Inc. et al., case number 2020-06554, in the Court of Common Pleas of Montgomery County, Pennsylvania.

--Editing by Nicole Bleier.

Update: This article has been updated with statements from Inovio's attorney and VGXI.

For a reprint of this article, please contact reprints@law360.com.