No contracts work both ways. Have them finish the work, but withhold payment. If the "agreement" was on delivery of an accepted piece of work, make sure to always have a problem with the finished product. Have them run around fixing "bugs" for as long as you can, on their dime.

While they're doing this, work on a solid marketing plan for the product. Even if they go to market with your product, you can still beat the snot out of them.

Eventually, they'll be as frustrated as you. Maybe they'll even demand a written agreement. If so, now's your chance! Add a stipulation of "work-for-hire", a non-disclosure, and a non-compete.

It's Machiavellian, but so what? Business is business, as your "friend" has shown you quite clearly.