UPDATE 2-Judge orders SIGA to split drug profit, stock drops

Thu Sep 22, 2011 4:40pm EDT

* Judge asks SIGA to share 50 pct of smallpox drug profit

* SIGA to challenge court's decision

* SIGA shares sink 43 pct, touch 2-year low (Adds PharmAthene CEO comment, analyst comment, background on smallpox drug, byline)

By Anand Basu

Sept 22 (Reuters) - A Delaware judge ordered biotechnology company SIGA Technologies Inc (SIGA.O) to share 50 percent of the profit from its smallpox drug with PharmAthene (PIP.A) for the next 10 years following a failed merger between the companies.

The ruling sent SIGA shares down 43 percent to a 2-year low, while PharmAthene rose 19.5 percent before being halted on the American Stock Exchange.

SIGA's ST-246 smallpox drug works by blocking the ability of the virus to spread to other cells and is seen as a protection against a potential biodefense threat. It also has a fast-track status by the U.S. health regulators, according to the company's website.

In May, SIGA was awarded a $433 million contract to supply 1.7 million doses of its drug for the strategic national stockpile by the U.S. Department of Health and Human Services. Last year, its annual revenue was under $20 million.

"Fifty percent is a significant amount of profit for SIGA to hand over," said Noble Financial Capital Markets analyst Nathan Cali, who recommends buying PharmAthene stock. "It is significantly positive for PharmAthene."

In a statement, SIGA said it will appeal the court's decision. Cali, who had expected the ruling to favor PharmAthene, said the likelihood for SIGA to win in an appeal was low.

PharmAthene is testing its anthrax vaccine and anthrax drug in clinical trials.

"The addition of ST-246 royalties firmly establishes PharmAthene as a leading biodefense contractor with a fully integrated development and commercial portfolio," Chief Executive Eric Richman said.

In December 2006, PharmAthene filed a case against SIGA after they scrapped their merger deal in October of that year.

PharmAthene had also been in talks with SIGA about licensing ST-246. It claimed that after the failed merger, SIGA proposed a licensing deal with less lucrative economic terms than in the previously discussed merger agreement.

A Delaware Chancery Court judge ruled that SIGA breached the contractual obligation of negotiating a license agreement in good faith.

However, the judge denied PharmAthene's contention that SIGA breached a binding license agreement. It also denied PharmAthene's claim for a lump sum award. (Reporting by Anand Basu in New York; Editing by Michele Gershberg and Richard Chang)

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