Judge settles years-long dispute between PharmAthene, Siga Technologies

September 23, 2011

Annapolis-based PharmAthene could receive millions of dollars in revenue a year starting next year after a Delaware court ruled that the drugmaker is entitled to half of the profits from a smallpox drug marketed by its former partner.

The influx of cash could prove transformative for the biotechnology firm, which in the past has relied primarily on government contracts and other funding to support its research and development on biodefense products.

Chief executive Eric I. Richman said the money could make the 80-person company profitable as early as 2012 when previously it was several years away from generating revenue on a future therapy. The company makes drugs to prevent or treat anthrax infections.

“This is such a significant event in the company’s history that you really have to look at PharmAthene in a very different way today than you’ve looked at it in the past,” Richman said.

The court case stems from a dispute in 2006 during which PharmAthene agreed to merge with New York-based Siga Technologies after providing the company with a loan. The deal ultimately fell apart and the companies were supposed to negotiate a revenue-sharing agreement based on a previously drafted term sheet.

The Delaware judge ruled late last week that Siga Technologies did not negotiate in good faith to settle on an agreement that was identical or comparable to the terms outlined prior to the failed merger.

Siga Technologies said that it will likely appeal “the unfavorable aspects” of the judge’s decision.

PharmAthene general counsel Jordan Karp said the two companies have 20 days to submit to the judge an agreed upon definition of net profits and other terms that will be used in the ruling.

The parties could still reach a settlement that’s different from the decision issued by the court on Sept. 22, but Karp cast doubt on whether that was a possibility. “Obviously we didn’t get to this point because we get along great,” he said.

Still, one analyst said the possibility for negotiation exists, especially now that Siga Technologies has more incentive than before to cut a deal.

“I look at this as one of those situations where PharmAthene probably got as much as they could have asked for in this ruling and we believe it’s enough ... to see some negotiations take place between the two companies,” said WBB Securities president Stephen Brozak.

Steven Overly covers the business of technology, biotechnology and venture capital in the Washington region for The Washington Post and its weekly Capital Business publication. In that capacity, he has written about start-up struggles, investment trends and major drug discoveries.
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