Healthcare Industry News:   Emisphere Technologies 

Biopharmaceuticals Licensing Litigation

 News Release - January 5, 2006

Emisphere Technologies, Inc. Announces Pending Verdict in Litigation Against Eli Lilly and Company

TARRYTOWN, N.Y., Jan. 5 (HSMN NewsFeed) -- Emisphere Technologies, Inc. (Nasdaq: EMIS ) today announced it has received notice from the United States District Court for the Southern District of Indiana that United States District Judge David F. Hamilton intends to release, after the close of trading on Friday, January 6, 2006, a decision in Emisphere's pending litigation against Eli Lilly and Company (NYSE: LLY ), ("Lilly"). The decision will address the claims that were heard before Judge Hamilton in January and February 2005. The issue tried before the court, which was contractual in nature, was whether Emisphere was entitled to terminate its license agreement with Lilly in August 2004. The forthcoming decision will not address Emisphere's claims that Lilly's conduct infringed Emisphere's patents, which issues were stayed by agreement of the parties pending the trial on the contract issue.

"The conclusion of this step in the judicial process should provide new momentum in the development of oral PTH, an important improvement to the existing injectable product for osteoporosis," commented Michael M. Goldberg, M.D., Chairman and Chief Executive Officer of Emisphere Technologies. "We have always placed the patients who will use the products that are developed and enhanced with our technology as our highest priority and for that reason have been fully transparent with our partners on issues such as patent pending improvements and proprietary know-how. The outcome of this litigation will have a key role in determining how we share information with our partners in the future."

Background

The suit resulted from a notice Emisphere delivered to Lilly declaring Lilly to be in material breach of certain research and collaboration agreements entered into with Lilly with respect to the development of oral formulations of recombinant parathyroid hormone, PTH 1-34. Following receipt of the notice, Lilly filed a complaint seeking a declaratory judgment stating that Lilly was not in breach of its agreements with Emisphere concerning oral formulations of PTH 1-34, and permanently enjoining Emisphere from terminating those agreements. On February 12, 2004, Emisphere served Lilly with an amended counterclaim, alleging that Lilly filed certain patent applications relating to the use of Emisphere's proprietary technology in combination with another drug, in violation of Emisphere's agreements with Lilly, and that the activities disclosed in such applications infringe upon Emisphere's patents. Emisphere also alleged that Lilly had breached the agreements by failing to make a milestone payment of $3 million, as required upon the completion of oral PTH 1-34 product Phase I studies. Lilly has denied that the $3 million is currently due, arguing that the requisite Phase I studies had not been completed and that the patent applications that Lilly filed relating to the use of Emisphere's proprietary technology in combination with another drug were not in violation of Emisphere's agreements with Lilly, and that the activities disclosed in such applications did not infringe upon Emisphere's patents. On February 13, 2004, the court entered a case management plan and the parties commenced the exchange of discovery materials in March 2004. By notice dated August 23, 2004, Emisphere notified Lilly that in light of Lilly's ongoing, repeated and uncured violations of its PTH 1-34 license agreement, both Lilly agreements with Emisphere were terminated. Thereafter, Lilly amended its complaint to seek a declaration that Emisphere was not entitled to terminate those agreements and also sought a judgment that Lilly had not infringed Emisphere's patents. The case went to trial on January 31, 2005. The trial lasted four days and closing arguments were heard on February 9, 2005.

Novartis Agreement

In December 2004, Emisphere announced that it had entered into a contingent license with Novartis (NYSE: NVS ) that will allow Novartis to use Emisphere's eligen® technology with PTH in the event that the court agrees that Emisphere's termination of the Lilly license was proper. In addition to the $10 million investment that Emisphere received from Novartis in the form of a convertible note, Emisphere is eligible for milestone payments totaling up to a maximum of $30 million, plus royalties on sales of the product if Novartis exercises its option to the license. The repayment of the convertible note is not contingent on the outcome of the pending litigation with Lilly. Repayment can be in cash or stock, at Emisphere's option. The stock price will be set at the time of conversion.

About Oral Parathyroid Hormone

Parathyroid hormone (PTH) is produced by the parathyroid glands that regulate the amount of calcium and phosphorus in the body. Recombinant PTH, currently approved for the treatment of osteoporosis, is available only by injection.

About Emisphere Technologies, Inc.

Emisphere Technologies, Inc. is a biopharmaceutical company pioneering the oral delivery of otherwise injectable drugs. Emisphere's business strategy is to develop oral forms of injectable drugs, either alone or with corporate partners, by applying its proprietary eligen® technology to those drugs or licensing its eligen® technology to partners who typically apply it directly to their marketed drugs. Emisphere's eligen® technology has enabled the oral delivery of proteins, peptides, macromolecules and charged organics. Emisphere and its partners have advanced oral formulations or prototypes of salmon calcitonin, heparin, insulin, parathyroid hormone, human growth hormone and cromolyn sodium into clinical trials. Emisphere has strategic alliances with world-leading pharmaceutical companies. For further information, please visit http://www.emisphere.com.

Safe Harbor Statement Regarding Forward-looking Statements

The statements in this release and oral statements made by representatives of Emisphere relating to matters that are not historical facts (including without limitation those regarding the timing or potential outcomes of research collaborations or clinical trials, any market that might develop for any of Emisphere's product candidates and the sufficiency of Emisphere's cash and other capital resources) are forward-looking statements that involve risks and uncertainties, including, but not limited to, the likelihood that future research will prove successful, the likelihood that any product in the research pipeline will receive regulatory approval in the United States or abroad, the ability of Emisphere and/or its partners to develop, manufacture and commercialize products using Emisphere's drug delivery technology, Emisphere's ability to fund such efforts with or without partners, and other risks and uncertainties detailed in Emisphere's filings with the Securities and Exchange Commission (the "SEC"), including those factors discussed under the caption "Risk Factors" in Emisphere's Annual Report on Form 10-K (file no. 1-10615) filed on March 11, 2005, as amended by Form 10-K/A filed on March 29, 2005.


Source: Emisphere Technologies

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