Delaware high court: SIGA liable in contract row

The Delaware Supreme Court has upheld a lower court's finding that SIGA Technologies Inc. is liable for breaching contractual obligations to negotiate in good faith with rival biodefense company PharmAthene.

But the court also remanded the case back to the Delaware Court of the Chancery to reconsider the damages awarded to PharmAthene.

The state high court decision, filed Friday, stems from a dispute over a licensing agreement pertaining to an antiviral therapy for treating smallpox.

SIGA acquired the drug, known initially as ST-246, now Arestvyr, in 2004. But by the following year, the New York company was facing a funding crisis as it struggled to develop the drug into a viable treatment.

That eventually led to SIGA approaching PharmAthene of Annapolis, Md., for a possible collaboration in exchange for a financial investment.

Those talks ultimately evolved into merger negotiations, even as both sides sought to hammer out the terms of a licensing agreement to support the commercial development of a smallpox treatment based on ST-246.

In October 2006, SIGA ended the proposed merger with PharmAthene, announcing shortly after that it had received a $16.5 million grant and that ST-246 provided 100 percent protection against smallpox in a primate trial.

Two months later, at odds over finalizing terms of a licensing deal for the treatment, PharmAthene sued SIGA, claiming breach of contract, among other claims.

The case went to trial in 2011 and the Delaware Court of the Chancery found that SIGA was liable for failing to negotiate in good faith a definitive license agreement for the smallpox treatment.

The court ordered SIGA to pay half of its net profits related to the smallpox treatment to PharmAthene for a period of 10 years, starting from the time it earns $40 million from the sale of a treatment with ST-246 as its active ingredient.

It also required SIGA to pay a portion of PharmAthene's attorneys' fees and other court costs, a decision the high court upheld.

In separate statements on Sunday, both companies took some measure of comfort in the high court ruling.

"We are pleased by this positive decision from the Delaware Supreme Court, which conclusively affirms SIGA's liability for their failure to negotiate the terms of a license agreement with us in good faith," Eric I. Richman, PharmAthene's president and chief executive, said in a statement Sunday.

SIGA's general counsel, William J. Haynes II, emphasized that, under the Delaware Supreme Court's decision, PharmAthene may only obtain damages for its losses if it can prove them with reasonable certainty.

"We intend to establish to the Chancery Court, consistent with that court's earlier conclusions, that PharmAthene's evidence of expectancy damages is speculative and too uncertain, contingent and conjectural to permit an award," Haynes added.