Home / Financial News / The behemoth, the biotech and the break fee: How a small Canadian firm ended up in a legal battle with Valeant Pharmaceuticals International Inc

The behemoth, the biotech and the break fee: How a small Canadian firm ended up in a legal battle with Valeant Pharmaceuticals International Inc

Valeant Pharmaceuticals International Inc.'s stock plunged after the company said it was cutting its guidance for 2016.

On Dec. 16, as a dozen approximately top bosses at Valeant Pharmaceuticals International Inc. were with an investor call touting a company model that’s been under siege, lawyers for the Laval, Que., company were in the courthouse in Rochester, N.Y., defending it.

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The case had nothing to use the short-seller’s are convinced that accused Valeant in October of utilizing Philidor Rx Services LLC, a mail-order pharmacy Valeant has since shuttered, to artificially inflate drug sales. Nor did it pertain to the criticism that Valeant is facing from top U.S. lawmakers for its practice of purchasing the rights to older drugs and sharply raising the prices.

Rather, it was the most recent salvo inside a legal battle against a significantly smaller adversary.

Since November 2014, Valeant and its Bausch & Lomb Inc. unit have been locked in a legal tussle with a small Canadian biotech called Mimetogen Pharmaceuticals Inc., that is located within one half hour’s drive of Valeant’s headquarters in Quebec. In contention is whether Valeant’s Bausch & Lomb is obliged to pay Mimetogen a break fee of US$20-million for terminating an option agreement to licence the upstart’s solution for the treatment of dry eye.

Lawyers for Valeant and Bausch & Lomb have argued this is simply a contract dispute, but Mimetogen contends that Valeant desired to sabotage its growth and stifle innovation, a claim Valeant vehemently denies.

The US$20-million break fee pales in comparison to the US$8.3 billion in sales Valeant recorded in 2014. But for Mimetogen, which employs merely a number of people on a full-time basis, it’s been dependent on survival.

“We were expecting the US$20 million so that as a little biotech, the possible lack of US$20 million is a lack of operating funds,” said Garth Cumberlidge, CEO at Mimetogen. “It’s been very dangerous. It nearly killed us.”

The origins of the conflict date back to early 2013, when Bausch & Lomb, newly acquired by Valeant, bought an option to licence Mimetogen’s compound for an upfront fee of US$10 million, that was used to partially fund an Initial Phase III clinical trial. If the option was ever exercised, Mimetogen could have been paid a licensing fee as high as US$95 million – and as almost as much ast US$345 million more whether it met commercial milestones and purchasers targets.

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