BioDelivery
fight escalates - Investor wants to eject management, could
win rights to experimental treatment
BioDelivery Sciences International of Morrisville could
lose the rights to its most promising product, an experimental
pain patch for cancer patients, if it doesn't resolve
a dispute with one of its largest investors.
A fund controlled by New York investment firm Elliott
Associates claims that BioDelivery is wasting money and
compromising the regulatory approval of the patch. The
fund wants to oust BioDelivery's management and could
win rights to the patch.
The dispute started in June and continues to escalate,
according to filings submitted Thursday with the Securities
and Exchange Commission.
BioDelivery and Elliott accuse each other of breaching
a collaboration agreement to develop and market the patch,
SEC filings show.
Elliott claims BioDelivery is spending too much time
and money on other projects and is in danger of running
out of cash. The investor is upset that it wasn't consulted
before BioDelivery tinkered with the way the patch is
being tested and notified regulators about the changes.
Also, Elliott claims that BioDelivery included California
patients in the tests without asking the patients for
permission.
According to the filings: BioDelivery acknowledged that
the Elliott fund could gain certain rights to the patch
and that it is trying to address some of the problems
fueling the dispute. But Elliott doubted they can be fixed
and terminated its agreement with the company.
Mark Sirgo, BioDelivery's chief executive, and Frank
O'Donnell, chairman of BioDelivery, did not return calls
for comment.
O'Donnell is also general manager of Hopkins Capital
Group, a Baltimore venture capital firm and BioDelivery's
largest investor. Hopkins would have to pump more money
into BioDelivery to pursue the fight with Elliott.
Settling the dispute could cost millions, said Jim Verdonik,
a Durham securities lawyer.
"This mess is a litigator's dream," Verdonik
said. "The legal fees will be enormous; that's about
the only thing you can bet on."
The patch is BioDelivery's best chance to generate product
revenue.
A more advanced treatment for nausea failed regulatory
review in February. Three other experimental drugs have
yet to be tested in people. The company reported $5.2
million in cash reserves at the end of June, enough to
finance operations for about six months.
Called Bema Fentanyl, the patch attaches to the inside
of the mouth and delivers a narcotic already available
as a pill or in an injection. Bema Fentanyl is designed
for patients who receive chemotherapy or treatment in
the emergency room, or who are coming out of surgery.
The patch is in the final stages of testing and is projected
to come to market in the first half of 2008.
BioDelivery estimates that Bema Fentanyl could generate
up to $250 million in annual sales.
Elliott funded part of the work that BioDelivery did
to develop and test Bema Fentanyl through a fund called
Clinical Development Capital IV. About a month ago, the
fund also helped BioDelivery buy the technology behind
the patch.
Clinical Development has pumped about $7 million into
BioDelivery since the collaboration agreement took effect
July 14, 2005.
In return, the investor was to receive a portion of the
sales and also gained a 22 percent stake in BioDelivery.
BioDelivery shares fell 5 cents to $2.28 Thursday.
