The Drug, the Deal, and the Disappearing Partner

Ixchel Pharma was a small biotechnology company working on a drug to treat Friedreich's ataxia — a progressive neurodegenerative disorder with no approved treatment at the time. The active ingredient was a compound called dimethyl fumarate, or DMF. Since 2012, Ixchel had been developing the drug in partnership with a Danish company called Forward Pharma, under a collaboration agreement that gave Forward the responsibility for conducting clinical trials while Ixchel provided assistance and retained a percentage of revenues if the drug reached market.¹

The problem was that DMF was also the active ingredient in Tecfidera, an approved multiple sclerosis drug manufactured by Biogen — one of the world's largest biopharmaceutical companies. Ixchel's drug development program was not targeting multiple sclerosis, but physicians can legally prescribe drugs for conditions beyond their approved indications. Ixchel's program, if successful, could have created a competing DMF-based product that physicians might prescribe off-label in ways that cut into Tecfidera's market.

Forward and Biogen had their own separate dispute — a patent conflict over DMF-based drug development. In resolving it, Biogen agreed to pay Forward $1.25 billion for patent licenses and other intellectual property rights. But buried in Section 2.13 of their settlement agreement was a requirement that Forward terminate, within 60 days, any and all existing contracts with Ixchel related to DMF drug development.²

Forward complied. The collaboration agreement was terminated. Ixchel lost its development partner, could not find another, and its Friedreich's ataxia program ended. Ixchel sued Biogen in federal court, arguing that Biogen had tortiously interfered with its contract with Forward and that the termination clause in the Biogen-Forward settlement violated California Business and Professions Code Section 16600 — the state's broadly worded anti-restraint-of-trade statute.³

The Two Legal Questions the Supreme Court Answered

The case reached the California Supreme Court through an unusual procedural path. The federal district court dismissed Ixchel's complaint, Ixchel appealed to the Ninth Circuit, and the Ninth Circuit — recognizing that the legal questions turned on unsettled California law — certified two specific questions to the California Supreme Court for resolution. The Supreme Court's answers to those two questions are the law that every California business operating under at-will contracts or business-to-business non-compete clauses must understand today.

Understanding the Two Legal Standards — What They Mean in Practice

Tortious Interference: At-Will Contracts vs. Fixed-Term Contracts

California law has long recognized that a third party who intentionally and improperly induces one party to breach a contract with another can be held liable for tortious interference. The classic scenario: Company A has a supply agreement with Company B. Company C wants that supply relationship, so it persuades Company B to breach its contract with Company A. Company C may be liable.

The analysis changes when the contract in question is terminable at will — meaning either party can end it at any time without cause. Before Ixchel, there was uncertainty in California law about whether tortious interference with an at-will contract required any independently wrongful conduct at all. The Supreme Court resolved that uncertainty: it does. When a contract is at-will, causing a party to exercise their right to terminate is not a tort. To prevail on a tortious interference claim involving an at-will contract, the plaintiff must show that the defendant used independently wrongful means — deception, threats, fraud, or some other independently actionable conduct — to bring about the termination.⁴

For Ixchel, this was fatal. The court found that Ixchel had not adequately alleged that Biogen used independently wrongful means to cause Forward to terminate the collaboration. Biogen had induced a termination that Forward was already contractually permitted to make under the at-will terms of its agreement with Ixchel.

The Rule of Reason for Business-to-Business Non-Competes

California Business and Professions Code Section 16600 has historically been interpreted broadly: every contract by which anyone is restrained from engaging in a lawful profession, trade, or business is void. This has made California one of the most hostile states in the country to non-compete agreements — particularly in employment.

But the Ixchel court drew an important distinction. The categorical ban on non-competes developed primarily in the employment context, where power imbalances between employers and employees justified strong protection. When two commercial businesses negotiate a transaction and include a competitive restraint as part of their deal, the equities are different. Both parties are sophisticated actors, the restraint is part of a negotiated commercial arrangement, and there may be legitimate business reasons for it.⁴

The Supreme Court held that business-to-business non-compete clauses are subject to a rule of reason analysis: the court weighs the pro-competitive benefits of the restraint against its anti-competitive effects. A restraint that is reasonably necessary to achieve a legitimate commercial purpose may be valid. An unreasonably broad restraint that eliminates competition without sufficient justification may not be. The question is one of degree, not category.

Why This Case Matters for California Businesses of Every Size

Ixchel Pharma v. Biogen is often discussed in the context of pharmaceutical and technology companies, because those industries frequently use collaborative agreements, at-will development contracts, and competitive restraints in commercial settlements. But the legal principles the Supreme Court established apply to every California business that relies on contracts — and every business that faces the possibility of a competitor or a third party interfering with those contracts.

What At-Will Contracts Are — and Why Their Terms Matter

Many business contracts — vendor agreements, independent contractor arrangements, distribution agreements, referral relationships — are structured as terminable at will by either party, often with limited or no notice. This flexibility is commercially useful, but it comes with a legal consequence after Ixchel: at-will contracts offer less legal protection against third-party interference than fixed-term agreements.

If a competitor, customer, or other third party induces your contractual partner to walk away from your at-will agreement, your ability to recover depends entirely on whether that third party used independently wrongful means to bring it about. Normal competitive activity — making a better offer, entering a deal that requires the other party to move on — is generally not enough on its own.

Businesses that rely heavily on at-will commercial relationships should understand this distinction. Where a relationship is critical enough to warrant protection, a fixed-term agreement with appropriate damages provisions offers substantially stronger legal footing if a third party attempts to interfere.³

Commercial Contracts and Competitive Restraints — What Is Now Permissible

The Ixchel ruling also opened a door that was previously uncertain in California. Businesses negotiating commercial agreements — joint ventures, licensing arrangements, distribution deals, acquisitions — can now include competitive restraints that are reasonably necessary to the transaction without those clauses being automatically void under Section 16600. Exclusivity provisions, non-solicitation clauses, and restrictions on working with specific competitors during the term of an agreement may be enforceable where they are proportionate to the legitimate business interests they protect.⁴

The key word is "proportionate." The rule of reason is a balancing test, not a blank check. A restraint that completely eliminates a party's ability to conduct its entire business — as the Forward-Biogen clause effectively did to Forward — will face harder scrutiny than a narrowly drawn exclusivity provision. Drafting matters enormously.

How DiJulio Law Group Handles Business Contract Disputes in Southern California

Ixchel Pharma v. Biogen illustrates a risk that affects California businesses of every size — not just pharmaceutical companies. Vendor agreements, contractor relationships, distribution arrangements, and joint ventures are all potentially vulnerable when a third party's separate transaction includes terms that affect your commercial relationships. Whether your contracts are structured as at-will or fixed-term, whether competitive restraints in your agreements are likely to hold up, and what remedies are available when a third party interferes — these questions require a clear understanding of current California business law.

DiJulio Law Group has represented businesses, contractors, and commercial property owners in contract disputes and breach of contract claims, business law matters, and related commercial litigation throughout Glendale, Los Angeles, and Southern California for more than 35 years. We advise clients on contract structure, help businesses navigate commercial disputes when relationships break down, and pursue or defend claims involving interference with contracts, fiduciary duty, and business competition.

If your business has lost a key commercial relationship because of a third party's conduct — or if you are structuring agreements and want to understand what protections California law does and does not provide — the time to get that clarity is before a dispute arises.