Pharmathene, Inc. (f/k/a PIP)

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PharmAthene Wins Delaware Court Ruling on Profits for Siga Smallpox Drug

Siga Technologies Inc. (SIGA) must share with PharmAthene Inc. profits from sales of a smallpox drug that may total more than $400 million, a judge ruled. Trading in shares of both companies was halted.

Delaware Chancery Court Judge Donald Parsons Jr. in Wilmington said today New York-based Siga breached its obligation to negotiate in good faith on ST-246, an antiviral drug for use in case of a biological attack. Parsons rejected PharmAthene’s claim that Siga breached a binding license agreement. He also denied claims for a lump sum award and instead ordered the companies to share the profits.

“The plaintiff is entitled to share in any profits realized from the sale of the drug in question,” Parsons said today in a 118-page opinion.

Siga spokesman Lewis Goldberg said the company couldn’t immediately comment on the ruling. Siga was preparing a statement to be released today, he said. Stacey Jurchison, a spokeswoman for Annapolis, Maryland-based PharmAthene, didn’t immediately return a call for comment.

PharmAthene sued Siga in 2006 claiming the biotechnology firm lost more than $1 billion in potential profits when its rival reneged on the licensing agreement for the smallpox drug. Government officials awarded Siga a $433 million contract to provide ST-246 to the U.S. Department of Health and Human Services, the company said in May.
‘Non-Binding’

Lawyers for Siga argued at trial that licensing talks were never completed and documents outlining proposed terms were marked as “non-binding.” A PharmAthene official said in court that the heading was left on the documents by mistake.

PharmAthene’s attorneys argued during a two-week trial in January that Siga was running out of money to develop ST-246 in late 2005 when it proposed a merger or license agreement.

PharmAthene executives ultimately loaned Siga $3 million to keep the drug’s development going while the two companies negotiated, according to court testimony. Company officials claimed that ex-Siga Chairman Donald G. Drapkin guaranteed the companies would either merge or Siga would grant PharmAthene a license for the medicine.

Drapkin, a former executive of billionaire Ronald Perelman’s MacAndrews & Forbes Holdings Inc. holding company, countered during the trial that he never promised PharmAthene officials a license. A term sheet was intended to serve as a “jumping off point” for negotiations if merger talks faltered, Drapkin said.

PharmAthene rose 48 cents, or 21 percent, to $2.74, before trading was halted on the NYSE Amex stock exchange. Siga fell 2 cents to $4.70 before trading was halted on the Nasdaq Stock Market.

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

To contact the reporters on this story: Sophia Pearson in Wilmington, Delaware, at [e-mail]; Jef Feeley in Wilmington, Delaware, at [e-mail]; Dawn McCarty in Wilmington, Delaware, at [e-mail]