Hard times can make for hard feelings between former drug development partners, which seems to be what’s happening between Novato, CA-based BioMarin (NASDAQ: BMRN) and San Diego’s ailing La Jolla Pharmaceutical (NASDAQ: LJPC). Once the love was gone, BioMarin just couldn’t get rid of the La Jolla Pharmaceutical shares it owned fast enough. So it sued.
Accusing its former partner of breach of contract, BioMarin filed suit last month in California Superior Court against La Jolla Pharmaceutical for failing to speed registration of its shares with the SEC, a step that must be completed before the shares can be sold. La Jolla denied the allegation, which it disclosed in an SEC filing.
The lawsuit arose from an ill-fated partnership deal between the two biotech companies. In January, BioMarin paid $7.5 million for a 15.5 percent stake in La Jolla as a part of a transaction that gave BioMarin marketing rights to La Jolla’s experimental lupus drug, abetimus sodium (Riquent). A month later, the drug failed to work in a late-stage clinical trial, driving La Jolla’s shares down 90 percent.
The month-old partnership blew up. La Jolla stopped work on the failed drug, and BioMarin asked La Jolla to accelerate registration of the shares so it could unload them. La Jolla countered that it wasn’t required to move quickly.
Now La Jolla is trying to get the lawsuit dismissed. Worries about its litigation with BioMarin derailed talks with an unidentified party interested in buying La Jolla, the company said in its SEC filing. La Jolla further disclosed that its board has decided to wind down the business because a merger is no longer likely. In April, the company cut 75 of its 86 employees.
Calls to La Jolla executives weren’t returned. Ryan A. Murr, a San Diego-based attorney for La Jolla Pharmaceutical, said he wasn’t authorized to comment.
La Jolla sent the registration documents to the SEC at the end of May and the shares held by BioMarin were cleared for sale last week. In three days, the Novato company unloaded 5.7 million shares, about half its total stake, at share prices ranging between 20 cents and 23 cents, for a total of about $1.2 million.
“We’re selling shares and are continuing to sell them,” said Eric Davis, BioMarin vice president and general counsel. Davis said BioMarin would settle the suit if it made $3 million on the sales – the amount it would have made if it could have sold the shares sooner. During May, La Jolla shares closed as high as 42 cents. BioMarin may continue the suit if it gets less than $3 million, Davis said.
He said BioMarin had no regrets about the partnership deal, which also involved a $7.5 million upfront payment to La Jolla. “The product was very interesting scientifically,” he said. “We knew the challenges with it and structured the deal in a way that gave us a really good risk profile and went in with out eyes open.” Davis noted that a price tag of $15 million for a drug in a late-stage trial was “remarkably low.”
“We still feel good about the price and the way the deal was structured,” he said. “Unfortunately, it didn’t work out.”
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