Siga Bankruptcy Hearing Too Soon for Suit Fight: Judge

The initial bankruptcy hearing for Siga Technologies Inc., supplier of the only smallpox medicine for the U.S. strategic drug stockpile, isn’t the right place for a competitor to discuss liability in a lawsuit with the company, a judge said.

Siga, which was found liable for breaching a licensing contract with PharmAthene Inc., filed for protection from creditors yesterday, saying a possible $232 million damages award in the lawsuit may imperil its operations.

“Everyone agrees” the judgment is going to be “a very large sum of money,” U.S. Bankruptcy Judge Sean Lane said today at a hearing in Manhattan. Still, the underlying lawsuit must be dealt with later and primarily in Delaware, where it’s pending, Lane told Charles Dale, a lawyer for PharmAthene.

The judge granted several standard requests by New York-based Siga, including motions to pay wages and continue spending on critical vendors while the bankruptcy is under way.

Siga’s lawyer, Harvey Miller of Weil, Gotshal & Manges LLP, said after court that his client and Annapolis, Maryland-based PharmAthene would reach an agreement on continuing the contract litigation in Delaware while the Chapter 11 case proceeds, and file it with Lane.

Chapter 11 filings automatically put a bankrupt company’s litigation on hold unless a judge permits it to go forward.

Endanger Production

In Chapter 11 papers filed yesterday, Siga said PharmAthene’s victory in the contract dispute is endangering its ability to produce the smallpox medicine, called Tecovirimat. Court protection will allow Siga to put off posting a court bond on the damages award to PharmAthene while it attempts to lower the penalty on appeal, the company said.

Delaware’s highest court last year upheld a judge’s 2011 finding that Siga was liable for violating promises to negotiate in good faith over a license for Tecovirimat when it was being developed. Siga may have walked away from the talks after realizing the drug’s potential value, the court ruled.

Today’s hearing was attended by Siga Chief Executive Officer Eric Rose, who has said his company is committed to fulfilling a contract with the U.S., the total value of which is about $463 million. The deal, struck in 2011, calls for 2 million doses of the smallpox drug, also known as Arestvyr, and 1.3 million have already been delivered.

Smallpox, an airborne virus as infectious as the common flu, kills as many as 60 percent of patients, and Siga’s drug is the only known viable treatment, the company said.

The antiviral drug is intended for use during a possible biological terrorist attack. Siga won the contract through a unit of the U.S. Department of Health and Human Services, which was authorized by Congress under the Project BioShield Act of 2004 to acquire drugs in the national interest, even if they haven’t been approved by regulators, according to Siga’s court filing.

The case is Siga Technologies Inc., 14-bk-12623, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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