Saturday, May 25, 2013

SIGA's Appeal

The Delaware Supreme Court has spoken. The original decision, with its bizarre "split the baby" solution ordering a 50/50 profit split for SIGA's drug, ST-246, has been reversed. The original judge, Parsons, has been ordered to start over and assign only expectation damages (which, if I understand correctly, would need to reflect ST-246's position back in the 1990's, as an unproven drug with no government contract on the horizon).

And here is Judge Parson's previous explanation (from his written decision) of why SIGA should pay no expectation damages at all:
Having carefully reviewed the testimony and reports of PharmAthene’s experts, including especially Baliban, I find that PharmAthene’s claims for expectation damages in the form of a specific sum of money representing the present value of the future profits it would have received absent SIGA’s breach is speculative and too uncertain, contingent, and conjectural.

Therefore, I decline to award such relief. The evidence adduced at trial proved that numerous uncertainties exist regarding the marketability of ST-246 and that it remains possible that it will not generate any profits at all. These uncertainties relate to, among other things, regulatory matters, questions of demand, price, competition, and the parties’ marketing competency. Moreover, when it comes to expert evidence, reliability is of the essence.

In appraisal proceedings, for example, this Court often accepts discounted cash flow (DCF) calculations prepared by experts, but also “repeatedly has recognized that the reliability of a DCF analysis depends on the reliability of the inputs to the model.”

Similarly with breach of contract claims to recover lost profits, “[r]eliability of the lost profits projections is essential in making a determination of lost profits.”

The huge fluctuations in Baliban’s estimated damages (in the hundreds of millions of dollars) based on changes to a few variables in his analysis confirm that it would be unduly speculative to attempt to fix a specific sum of money as representative of PharmAthene’s expectation damages.
I'm sure Judge Parsons will still manage to inflict some level of punishment. But he is seemingly boxed in by his own prior statement.

And, in any event, the market's irrationally and sharply undervaluing SIGA even at the very worst case scenario (i.e. even if the original decision stood). ST-246 is that biotech rarity: a fully developed drug whose remarkable safety and efficacy is challenged by no one. There's a big contract in hand, currently being delivered upon. Pharmathene valued ST-246 at $4B during trial. And this lengthy legal cloud is finally unwinding.

So I continue to look to the big picture: important and powerful people are clearly paying attention to SIGA - both in a positive way (their board keeps getting more impressive, having recently added a former Pfizer CEO) and negative (lawsuits, accusations, shorting frenzies). If there wasn't big substance and potential, none of this drama would be happening.

I.e. lots of people angling for a piece of a prospective pie is a big "tell" that there's prospective pie.

1 comment:

jim said...

Congratulations. (I think.)

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