Beleaguered biopharmaceutical stock Phosphagenics (ASX: POH) plummeted more than 90% during trade today, after it reported it had been unsuccessful in its arbitration proceedings against Mylan Laboratories regarding intellectual property rights to a formulation.
Phosphagenics initiated proceedings at the beginning of 2016 when it filed against Mylan Laboratories at the Singapore International Arbitration Centre.
When it filed, Phosphagenics claimed Mylan was “liable for breaches of several provisions” under previous agreements made between itself and Mylan’s predecessor Agila Specialties.
Phosphagenics accused Mylan of “fraudulent or negligent misrepresentations”, “breaches of confidence” and “unjust enrichment in relation to intellectual property and commercial licencing terms”.
In its filing, Phosphagenics alleged it had the intellectual property rights to a lyophilised Tocopheryl Phosphate Mixture (TPM) and daptomycin formulation that it developed with Agila in 2012 under a licencing and marketing agreement the duo had executed.
Phosphagenics also claimed Mylan had not taken “commercially reasonable efforts” to develop the formulation.
Despite Phosphagenics’ disappointment in the arbitration decision, it pointed out the licencing agreement that was enacted in 2012 remains in force.
“The licencing agreement includes clauses requiring Mylan to continue to take commercially reasonable efforts to develop TPM-daptomycin, not to sell a generic daptomycin,” Phosphagenics stated.
Additionally, the company said the original agreement required Mylan to pay royalties on any commercial revenue from selling the TPM-daptomycin formulation.
Leading up to arbitration
Back in 2011, Phosphagenics secured a master research agreement with Agila, which led to a licencing contract the following year – paving the way for the parties to develop and commercialise a product using Phosphagenics proprietary TPM technology combined with the injectable antibiotic daptomycin.
The patented formula was developed to treat complicated skin and bloodstream infections.
Mylan came onto the scene in 2013 when it acquired Agila.
Phosphagenics developed TPM, which is derived from vitamin E. According to the company, its TPM delivery system has been “proven to enhance the solubility and oral, dermal and transdermal absorption of drugs and nutrients”.
The company is developing TPM enhanced patches, gels and injectables for use in human and animal markets.
One of Phosphagenics’ primary products is the TPM-enhanced oxycodone patch for treating pain associated with postherpetic neuralgia, which is a complication frequently associated with shingles.
The condition affects nerve fibres and skin leaving sufferers with a burning pain for some time after the shingle rash and blisters dissipate.
Former CEO jailed in 2014
Today’s news follows a disastrous 2014 when Phosphagenics’ former chief executive officer Dr Esra Ogru and two other accomplices were jailed after being found guilty of pilfering millions from the company.
Dr Ogru pleaded guilty to stealing more than $6.1 million and was sentenced to six years’ in prison, with a minimum two-year stint before he would be eligible for parole.
At the time, ASIC commissioner John Price said Dr Ogru’s conduct was “dishonest” and “deliberate” and showed a “complete disregard” for Phosphagenics.
Meanwhile, Dr Ogru’s accomplice Dr Robert Gianello was given a two year minimum sentence after pleading guilty to stealing more than $4.6 million from the company, and Dr Jiang, another accomplice, was ordered to serve at least 12 months for his role in funnelling $4.3 million from the company.
“As shareholders will recognise, this arbitration loss has a serious impact on the company and the board will need to carefully consider the alternative courses of action available to it,” Phosphagenics stated.
Final costs are yet to be awarded. Phosphagenics noted it had spent about $5.6 million on legal and arbitration fees. However, the company only has $2.3 million in cash at hand.
By close of trade, Phosphagenics’ share price had dropped to $0.003 – a fall of 88.46%.