On Dec. 16, like a dozen approximately top bosses at Valeant Pharmaceuticals International Inc. were on 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 report 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 because of its practice of buying the rights to older drugs and sharply raising the prices.
Rather, it was the latest salvo inside a legal battle against a much smaller adversary.
Since November 2014, Valeant and its Bausch & Lomb Inc. unit have been locked in a legitimate tussle with a small Canadian biotech called Mimetogen Pharmaceuticals Inc., which is located within a half hour’s drive of Valeant’s headquarters in Quebec. In contention is whether Valeant’s Bausch & Lomb is obliged to pay for 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 that this is simply a contract dispute, but Mimetogen contends that Valeant wanted to sabotage its growth and stifle innovation, claims 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 only a number of people on the 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 damaging. It nearly killed us.”
The origins of the conflict date back to early 2013, when Bausch & Lomb, newly acquired by Valeant, bought a choice to licence Mimetogen’s compound for an upfront fee of US$10 million, that was used to partially fund an Initial Phase III medical trial. When the option was ever exercised, Mimetogen would have been paid a licensing fee as high as US$95 million – and as much as US$345 million more if it met commercial milestones and purchasers targets.
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Selling a choice to large companies is how small biotechs obtain the cash to fund future trials without missing out on the possibility upside. Big companies can flood their drug pipelines with minimal risk and cost, and appease shareholders who monitor expenses closely. Still, this particular deal had been a small departure for Valeant.
A cornerstone of Valeant’s strategy has been to spend little on research. Instead of developing most drugs in-house, it’s bought companies that make the late-stage drugs it really wants to increase its roster. In 2007, for instance, it had devoted 12 percent of total revenues on R&D. By 2013, this figure had fallen to three 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 back down to Earth in the second half of 2015.
“To our surprise, admittedly, Valeant didn’t stop the deal,” added Cumberlidge, who was expecting the process to want costly research, including additional clinical trials, to get across the aim line.
It’s been very damaging. It nearly killed us.
In July 2014, after completing the clinical trial, officials from Mimetogen, Bausch & Lomb and Ora Inc., the organization that conducted the testing, met with the U.S. Food and Drug Administration to discuss the findings and discover what more it could do to enhance the chances that a drug for treating dry eye would be approved.
Dry eye is a chronic condition that occurs when the eye doesn’t produce enough tears or once the tears which are produced evaporate too fast. It affects an estimated 60 million people globally, but medications available today are just treating about 15 per cent of all instances. Clinicians are clamouring for alternatives to prescribe to their patients, which is why drug makers such as Mimetogen are racing to have their drugs in to 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 towards 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 some copy from the official minutes from the meeting from Mimetogen, the FDA suggested that the parties conduct a minimum of two additional efficacy studies because what they had done so far wouldn’t be sufficient to aid the FDA’s approval of the New Drug Application for the management of dry eye.
At the center of the dispute is whether or not the FDA deemed the efficacy of the compound to become “inconclusive,” as Mimetogen is arguing, or “defeated,” as Valeant’s Bausch & Lomb is claiming. A duplicate from the agreement, that was obtained from Mimetogen, specifies that if the option isn’t renewed or extended after the trial, an “inconclusive” finding would trigger the break fee, while a “not successful” conclusion wouldn’t.
Bausch & Lomb let its option agreement expire in August and contains refused to pay Mimetogen the break fee.
Mimetogen alleges that Bausch & Lomb walked away in August 2014 because Valeant had been pursuing a hostile takeover of Allergan, which is the producer of Restasis, the only real prescription drug in the U.S. for treating dry eye. Even though Valeant’s attempt to buy Allergan failed spectacularly, Mimetogen still claims that Valeant and Bausch & Lomb “conspired to … injure” it, its drug compound and it is reputation.
Valeant dismisses the allegation that it “breached the agreement with the intent or reason for destroying the process of a soon-to-be competitor,” as Mimetogen alleges, and has requested that the claim that it acted in bad faith “for the purpose 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 e-mail, Ren