PharmAthene May Get $500 Million From Smallpox Drug Sales

(Corrects to show court ruled Donald Drapkin “took no active role” in licensing talks that triggered bad faith claims beginning in 10th paragraph of story published yesterday.)

Siga Technologies Inc. (SIGA) may be forced to pay more than $500 million to partner PharmAthene Inc. over sales of a smallpox drug that is the subject of a dispute between the two biotech firms, a judge ruled.

Siga, which won a government contract to provide about 2 million doses of Arestvyr, must pay “damages in the form of a lump sum for lost profits” to PharmAthene under a licensing accord, Delaware Chancery Judge Donald Parsons ruled Aug. 8. Parsons re-examined PharmAthene’s damage claims at the behest of the Delaware Supreme Court.

Parsons must now decide whether PharmAthene’s request for more than $500 million in so-called expectation damages is reasonable or to back Siga’s argument that the rival biotech firm deserves no more than $50 million, said John Lewis, a Siga investor and former president of Gardner Lewis Asset Management.

“It all comes down to what the judge considers is reasonable based on the expectations of the sales of this drug,” Lewis said today in a telephone interview. “An award of more than $500 million would be absurd.”

The ruling, which is likely to be reviewed again by Delaware’s highest court, is the latest chapter in the six-year case over the drug, touted as a tool for fighting smallpox outbreaks linked to terrorist attacks. Officials of New York-based Siga, whose investors include billionaire Ronald Perelman, delivered the first batch of the drug to a U.S. Department of Health and Human Services unit last year.

Stock Moves

Shares of Annapolis, Maryland-based PharmAthene rose 43 percent to $1.80 today in New York, their biggest one-day gain since October 2010. Siga sank 39 percent to $1.68 in Nasdaq trading, the biggest single-day drop in almost three years.

Eric Rose, Siga’s chairman and chief executive officer, didn’t immediately return a call seeking comment on the ruling.

PharmAthene sued New York-based Siga in 2006, claiming rights to the antiviral drug under a licensing agreement. PharmAthene contended it deserved a share in more than $1 billion in potential sales of the drug since the company helped fund its development.

Siga’s Rose, also an executive of Perelman’s MacAndrews & Forbes holding company, testified that the licensing talks were never completed and documents outlining proposed terms were marked as “non-binding.”

‘Guaranteed’ Rights

PharmAthene executives have alleged that their Siga counterparts, including former Perelman lieutenant Donald Drapkin, “guaranteed” the company’s rights to a merger or a share of the drug’s profits. They said PharmAthene loaned Siga $3 million to fund Arestvyr’s development while the two companies negotiated.

The Delaware Supreme Court in May 2013 agreed with Parson that some Siga officials failed to negotiate in good faith. The state high court, however, threw out Parsons’ findings that PharmAthene was entitled to a share of the drug’s profits and ordered him to re-examine how much it should get in “contract-expectation damages,” according to court filings.

The state high court also noted “Drapkin apparently took no active role in the post-September 2006 licensing negotiations” after a proposed merger collapsed. The court found other Siga officials acted in bad faith in those negotiations.

Siga had said PharmAthene’s evidence that it expected millions of dollars in damages from the Arestvyr agreement was “speculative” and based on conjecture and shouldn’t form the basis for a new award.

In the Aug. 8 ruling, Parsons said PharmAthene had “established a reasonable expectancy” that Siga would be able to sell Arestvyr to the U.S. government for $100 per course of treatment.

The judge still must decide how many Arestvyr courses Siga could have expected to sell that were affected by the breach of the agreement before ruling on what PharmAthene is entitled to in damages.

The case is PharmAthene Inc. (PIP) v. Siga Technologies Inc., CA2627, Delaware Chancery Court (Wilmington).

To contact the reporter on this story: Jef Feeley in Wilmington, Delaware at jfeeley@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net David E. Rovella, Andrew Dunn

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