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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, 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.

Documents detail Turing, Valeant strategy to buy life-saving drugs, then hike prices to squeeze more profit

Bloomberg

Federal lawmakers have released excerpts from thousands of documents detailing how two drugmakers hiked prices to squeeze more revenue from some live-saving medicines, an exercise that has recently sparked public outrage.

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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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