Javelin sues after contamination issues prompt Hospira to delay takeover
This article was originally published in Scrip
Javelin Pharmaceuticals has filed suit in an attempt to force Hospira to complete its planned $145 million takeover and hand over a promised $2 million loan. The firm went to court after Hospira extended its tender offer for the second time, citing manufacturing issues which prompted a recall of Javelin's Dyloject (diclofenac injection) by Therabel, Javelin's commercial licensing partner in the UK.
According to Javelin, Hospira does not have grounds under the acquisition agreement for delaying the completion of the merger, and nor does it have grounds to withhold the loan, without which it says it will be "unable to fulfil its debts, including payroll". It noted that a key element in its agreement to the acquisition – for which it broke off a previous agreement to be acquired by Myriad Pharmaceuticals (scripnews.com, 13 April 2010) – was that Hospira had pledged to loan Javelin up to $17.2 million before the closing of the merger, including $4 million for working capital and general corporate purposes at a rate of up to $2 million per month. Javelin ended the first quarter with cash and equivalents of about $1.1 million.
"Because Javelin did not have sufficient capital to ensure that it would be able to fund its operations through an anticipated closing, the loan facility available to Javelin in connection with the proposed [Myriad] merger had been a key consideration in Javelin's pursuit of that transaction. The inclusion by Hospira of the loan facility in [its] proposal also was an integral factor in Javelin's decision to terminate the [Myriad] merger agreement and enter into the merger agreement with [Hospira]," Javelin noted in its court complaint, filed with the chancery court in Delaware.
Javelin claims that Hospira was in breach of the merger agreement by failing to pay it a $2 million loan on 1 June. It also argues that Hospira did not have grounds not to close the tender offer and consummate the merger.
Hospira counters that its initial analysis of the issue of the presence of particulate matter in some vials of Dyloject in Therabel's supply chain, which led to the withdrawal of all batches of Dyloject in the UK, indicates that "not all of the conditions to the offer had been satisfied as of the prior expiration date [ie 18 May]". It says it is working with Javelin "to confirm the satisfaction of the conditions to the offer as promptly as practicable".
Hospira's offer, launched on 21 April, was scheduled to expire at midnight on 18 May. However, Javelin informed Hospira of the particulate issue on that day, and Hospira extended its tender offer until midnight on 2 June. On 2 June, it informed Javelin that it would extend the offer for a further 10 business days (ie, to midnight on 16 June). Up until the close of the first extension, 78.47% of Javelin's shares had been tendered to the offer, it added.
Hospira said it was working with Javelin to analyse the cause of the problem and "assess its effect on [Javelin]". Javelin is hoping to gain FDA approval to begin marketing Dyloject in the US; it has no other marketed products.
According to a letter sent on 2 June by Hospira's senior vice-president, general counsel and secretary Brian Smith to Javelin's CEO Martin Driscoll, Hospira "believes that the occurrence of the issue has caused certain representations and warranties of [Javelin] in Article V of the merger agreement to no longer be true and correct. [Hospira] further believes that the occurrence of the particulate issue, which directly affects [Javelin's] sole viable drug product, would reasonably be expected to result in a material adverse effect, as defined in the merger agreement."
Meanwhile, Javelin's court document notes that 78.82% of its shares had been tendered to the offer at its original close on 18 May, and it seeks to force Hospira to complete the merger within five working days and "consummate the merger promptly thereafter", or otherwise pay damages.
Regarding the loan, Javelin says that it if it is not paid promptly it "may not survive long enough for money damages to be meaningful", and requests the court to order Hospira to pay it $2 million promptly.
It also seeks to obtain a declaratory judgement from the court that contrary to Hospira's claim, no material adverse effect had occurred as of 18 May, arguing that it "was not reasonable to expect – and it is not reasonable to expect today – that the identification of white particulate in some number of vials of Dyloject in the UK creates a long-term impact on the expected success of Dyloject in the US or Javelin's overall long-term success".
Under the agreement signed with Therabel in January 2009, Therabel assumed all commercial, regulatory and manufacturing responsibilities for Dyloject in the UK and future European markets, and acquired Javelin's UK subsidiary. It acquired all from Javelin existing inventory for Dyloject. Javelin receives royalties on Therabel's sales of Dyloject. Therabel said that the batches affected by the particulate presence had been in use since 2008, but noted that it had reviewed pharmacovigilance information, which did not appear to indicate any patient safety concerns.
Neither Javelin nor Therabel was immediately available for comment on any link between the manufacturing issues affecting Dyloject in the UK, and the expected supply of Dyloject should it be approved in the US.