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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Selling an option to large companies is how small biotechs get the cash to finance future trials without losing out on the potential upside. Big companies can flood their drug pipelines with minimal risk and cost, and appease shareholders who monitor expenses closely. Still, this specific deal had been a small departure for Valeant.
A cornerstone of Valeant’s strategy has been to spend little on research. Rather than developing most drugs in-house, it has bought firms that make the late-stage drugs that it wants to add to its roster. In 2007, for example, it had devoted 12 per cent of total revenues on R&D. By 2013, this figure had fallen to 3 per cent. The process made the organization a darling for bankers and investors on Wall Street, who propelled its stock price to new heights before it fell down again to Earth in the second half of 2015.
“To our surprise, admittedly, Valeant didn’t stop the deal,” added Cumberlidge, who had been expecting the procedure to require costly research, including additional numerous studies, to get across the goal line.
It’s been very dangerous. It nearly killed us.
In July 2014, after completing the medical trial, officials from Mimetogen, Bausch & Lomb and Ora Inc., the organization that conducted the testing, met using the U.S. Fda to discuss the findings and discover what more it could do to enhance the probabilities that a drug for the treatment of dry eye would be approved.
Dry eye is really a chronic condition that occurs when the eye doesn’t produce enough tears or when the tears which are produced evaporate too quickly. It affects an estimated 60 million people globally, but medications available today are only treating about 15 percent of all instances. Clinicians are clamouring for options to prescribe to their patients, which is why drug makers such as Mimetogen are racing to have their drugs into the market.
“The hardest thing is getting these drugs approved,” said Preeya K. Gupta, an ophthalmologist who works in Durham, N.C. She consults for that likes of Allergan Plc. and Shire Plc., which owns the rights to the dry-eye drug called Lifitegrast that, she says, is the first in line for FDA approval. “Mimetogen has become the next closest drug to approval. It’s such a growing market that there’s space for a lot of options. There’s a genuine unmet need.”
According to a copy of the official minutes of the meeting obtained from Mimetogen, the FDA suggested the parties conduct a minimum of two additional efficacy studies because the things they tried so far would not be sufficient to support the FDA’s approval of a New Drug Application for that treatment of dry eye.
At the center of the dispute is whether the FDA deemed the efficacy from the compound to become “inconclusive,” as Mimetogen is arguing, or “defeated,” as Valeant’s Bausch & Lomb is claiming. A copy from the agreement, which was obtained from Mimetogen, specifies when the option isn’t renewed or extended following the trial, an “inconclusive” finding would trigger the break fee, while a “not successful” conclusion would not.
Bausch & Lomb let its option agreement expire in August and it has refused to pay Mimetogen the break fee.
Mimetogen alleges that Bausch & Lomb walked away in August 2014 because Valeant have been pursuing a hostile takeover of Allergan, which happens to be the producer of Restasis, the only real prescription medication in the U.S. for the treatment of dry eye. Despite the fact that Valeant’s make an effort to buy Allergan failed spectacularly, Mimetogen still claims that Valeant and Bausch & Lomb “conspired to … injure” it, its drug compound and its reputation.
Valeant dismisses the allegation it “breached the agreement using the intent or reason for destroying the business of a soon-to-be competitor,” as Mimetogen alleges, and it has requested that the claim that it acted in bad faith “for the objective of destroying MPI’s reputation and enterprise” be dismissed. It says Mimetogen is distorting the interpretation of “not successful” which “mischaracterizes and misquotes the agreement.”
In an email, Rene Soto, an external spokesperson for Valeant, declined to comment further on this litigation.
For Valeant, the case is just one of several legal matters with which it’s involved. It has been hit with multiple class-action lawsuits that allege shareholders suffered losses after Valeant misrepresented or failed to disclose its relationship with Philidor. On Thursday, Howard B. Schiller, interim leader at Valeant, told a U.S. House of Representatives committee hearing on the rapid increase of drug prices the company had made mistakes, but said it intended as “a responsible corporate citizen” going forward.
After surviving with little funding and without the break-fee payment, Mimetogen entered into another option agreement. In a twist, the little Canadian biotech said in November that it sold the choice because of its compound to Allergan, which has decided to a US$160-billion merger with Pfizer Inc., to have an upfront fee of US$50 million.
“The counter move is that Valeant or Bausch & Lomb may say, well, look, you are on your feet. What exactly are you complaining about? You haven’t been damaged,” said David Shlansky, managing partner at Shlansky Law Group, which represents Mimetogen. “But it doesn’t undo the clock or the proven fact that you’ve caused harm.”