Phosphagenics reaches settlement with Mylan after unsuccessful arbitration proceedings

Australian biotechnology company Phosphagenics (ASX: POH) has won back shareholders after settling on new arrangements in relation to a patented tocopheryl phosphate mixture (TPM) and daptomycin formula, used to treat skin and bloodstream infections.

The drug delivery company emerged from a trading suspension yesterday to announce it had reached a settlement with Mylan Laboratories and Strides Pharma Asia PTE Limited.

The company’s share price had plummeted more than 90% in mid-November after its unsuccessful arbitration proceedings against Mylan in relation to the intellectual property rights of the formulation.

Phosphagenics chief executive officer Dr Ross Murdoch said while the company had been “very disappointed” with the result of the arbitration, it has worked “feverishly since to negotiate an outcome that eliminates the potential for a substantial adverse costs order”.

According to Dr Murdoch, the negotiated outcome was “supported by all parties” and avoids “substantial cash payments”.

He added that the settlement “retains and potentially increases the future value available to Phosphagenics from TPM-daptomycin and also provides a clear incentive and opportunity for further deals.”

Phosphagenics’ claims

Phosphagenics claims it held the intellectual property rights to the lyophilised (freeze-dried) TPM-daptomycin formulation it developed under a master research agreement with Agila Specialties in 2012.

Agila was then acquired by Mylan in 2013. Strides, as the former parent of Agila, was the company from which Mylan acquired the rights to the formula as part of this acquisition.

Proceedings first started in Singapore in 2016 with Phosphagenics claiming Mylan was “liable for breaches of several provisions” under the agreements it previously made with Agila.

Phosphagenics also accused Mylan of “fraudulent or negligent misrepresentations” and said the company did not take “commercially reasonable efforts” to develop the formulation.

In mid-November 2018, the Singapore International Arbitration Centre tribunal had determined that Phosphagenics was unsuccessful in all of its claims.

Impact of arbitration loss

At the conclusion of arbitration proceedings, Phosphagenics noted the “serious impact” the loss will have on the company, stating that “the board will need to carefully consider the alternative courses of action available to it”.

The company had spent about $5.6 million on arbitration and legal fees and said the board “must take into account a significant adverse costs order”. It only had $2.3 million in cash at hand at the time.

However, Phosphagenics pointed out its licensing agreement with Mylan was still in force.

The agreement included clauses requiring Mylan to “continue to take commercially reasonable efforts” to develop TPM-daptomycin as well as forbidding Mylan from selling a generic version of daptomycin.

It also stated royalties would be payable to Phosphagenics on commercial sales of TPM-daptomycin.

Settlement details

Since the tribunal’s decision, Phosphagenics has been preparing submissions on costs and negotiating potential settlement options with both Mylan and Strides.

As a result, Phosphagenics and Mylan have mutually agreed to forego all claims including arbitration costs and to terminate the original master agreement and licensing agreement.

Under a new arrangement, Mylan will have full rights and discretion to license, market and sell TPM-daptomycin however it sees fit, although it must pay a royalty of 5% of net sales to Phosphagenics.

This agreement also works in reverse, with Phosphagenics able to license, market or sell the formulation provided it pays Mylan a 5% royalty on net sales.

In addition, Mylan must only source TPM from Phosphagenics exclusively, with a supply agreement to be negotiated between the parties.

In its settlement with Strides, Phosphagenics has agreed to pay a one-off cash payment of £100,000 with all other arbitration cost claims dropped.

Under the agreement, Strides is also given the first right of refusal to all Phosphagenics “human TPM assets existing and not other encumbered”, as well as a discount on the upfront, milestone and royalty payments associated with any deals Strides completed with Phosphagenics.

This discount will have a total accumulated value of the lesser of £5 million or the costs claimed and submitted as part of the arbitration proceedings.

Phosphagenics chairman Greg Collier said the removal of the potential for a substantial costs order not only “removes a significant concern for shareholders” but also may “remove the overhang” on the company and its stock.

Phosphagenics advised the market it currently has about $2.1 million cash at the bank, which “together with budgeted revenue satisfies working capital requirements for the next 12 months”.

The company’s stock soared 400% higher to $0.01 yesterday following the settlement announcement and resumption of trade. At close the share price finished up 300% at $0.008.