Monday, May 27, 2013

SIGA: The Parasite's Dilemma

In my posting earlier today, I described a worst-case scenario:
Judge Parsons, groping for safe ground (he doesn't want to be reversed twice on the same case), may resort to the original terms SIGA and Pharmathene had been negotiating those many years ago. They would have assigned the drug to Pharmathene, who'd pay SIGA a small licensing fee of 8-12%. The problem is that Pharmathene never did any of the many things required to earn this control of the drug. And it's impossible to roll back the clock and determine where Pharmathene would be right now, money-wise, if they had (and thus determine their "injury"). It's hardly fair for SIGA to lose nearly all revenue from a drug whose development, marketing, and risk was footed entirely by them.
For those reasons, I don't think it will happen like that. But there are other factors to consider if Judge Parsons did go that route.

If control of ST-246 were taken away from SIGA and given to Pharmathene, SIGA's lucrative contract to produce ST-246 for the government would be null and void, forcing Pharmathene to:

1. gain the government's trust (Pharmathene has no successful scientific track record, just a long history of the sort of hyperbolic public touting which rubs health authorities and homeland security bureaucrats the wrong way),

2. pursue a contract of their own (after a long bidding period and extensive negotiations, which could take years...and be subject to the sort of protests that plagued SIGA's award), and

3. establish the rigorous and expensive corporate and scientific security measures required by BARDA of its contractors (which have already been completed by SIGA).

Also lost would be SIGA's connections (with other nations, with WHO, and with scientific bodies) with respect to ST-246.

The loss in value, connections, and marketing - as well as the substantial time delay and added uncertainty - would make this a distasteful scenario even from Pharmathene's perspective. I'd imagine they'd prefer a parasitic relationship, effortlessly sucking off their share. That's what the original decision ordered, and my speculation is that this is how it will wind up (though, hopefully, at a more modest profit split).

2 comments:

Connor McLemore said...

Jim, I enjoy your blog a great deal. However, I disagree with some of your latest SIGA analysis. This whole case comes down to one thing: Did SIGA and PIP agree to be bound on all the essential terms requiring negotiation. The rulings have established that they did agree to be bound to negotiate terms substantially similar to the LATS. So the question is did they agree to be bound to all the essential terms. it's If yes, then Parsons can stick to his original ruling (more or less). If no, then it will be reliance damages only. Trouble is, Parsons already said in his original ruling that a reasonable negotiator in the position of PIP would not have found the LATS as ATTACHED TO THE BRIDGE LOAN AND MERGER AGREEMENT manifested agreement on all of the license terms that SIGA and PharmAthene regarded as essential. In that context, therefore, such a reasonable negotiator would not have believed that the LATS concluded the parties’ negotiations. So Parsons himself already answered that question with a big NO. I think that is why SIGA was so confident in its press release in response to the ruling. That's my executive summary anyway, a more detailed analysis is below:

Now that the SC has reversed Parsons on promissory estoppel as a cause of action, we are left only with one cause of action on which PIP has prevailed: SIGAs breach of a binding obligation to negotiate in good faith. With his first attempt at a remedy reversed, what is going to be the structure of his new remedy based on that cause of action? That does seem to be the billion dollar question (or is it the 400 million dollar question?)

Teachers Insurance & Annuity Association v. Tribune Co. may provide the answer. It is the Cadillac of cases involving breach of a binding obligation to negotiate in good faith. In fact, during the SC oral arguments, PIP's lawyer even referenced it, and SIGA's lawyer brought it up as well: "that's a wonderful case for us!"

Teachers says: “Notwithstanding the intention of the parties at the time, if the agreement is too fragmentary,”—in this case, the agreement to negotiate in good faith in accordance with the terms of the LATS—“in that it leaves open terms of too fundamental importance, it may be incapable of sustaining binding legal obligation.” And: “The conclusion that a preliminary agreement created binding obligations may leave open the further question of the nature, scope and extent of the binding obligations.” And especially: “A preliminary contract with binding force occurs when the parties have reached complete agreement, including the agreement to be bound, on all the issues perceived to require negotiation.”

Even though Parsons determined that PIP and SIGA would have reached an agreement if not for SIGA’s bad faith, Teachers makes clear that this finding alone is not sufficient to enforce such an agreement; Parsons would also need to find that “the parties have reached complete agreement, including the agreement to be bound, on all the issues perceived to require negotiation.” And Parsons, in his ruling, says: “In particular, I find that a reasonable negotiator in the position of PharmAthene would not have concluded that the LATS, as attached to the Bridge Loan and Merger Agreements, manifested agreement on all of the license terms that SIGA and PharmAthene regarded as essential. In that context, therefore, such a reasonable negotiator would not have believed that the LATS concluded the parties’ negotiations.” However, instead of relying on the precedent established by Teachers and properly concluding that the missing essential terms rendered the preliminary agreement non-binding, Parsons, in desperation, decided to pull the missing essential terms out of his @&$.

I have little faith that Parsons won’t attempt another ridiculous way to measure damages that is not based in reality (he really doesn’t like SIGA) but I am confident that if he does, the Delaware SC is going to reverse him again.

James Leff said...

Thanks for your thoughts, Connor.

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