Pharmaxis sues NovaQuest over financing deal breach

Pharmaxis (ASX:PXS) has filed a lawsuit against financier NovaQuest Pharma Opportunities Fund III, after the latter decided to back out of its funding obligations to the former.

Pharmaxis is seeking a court order preventing NovaQuest from terminating its agreement to provide another US$20 million ($21.4 million) in financing.

In a statement announcing the action, Pharmaxis said it is also seeking a declaration that Pharmaxis did not breach the financing agreement, as well as compensatory and punitive damages.

NovaQuest announced last month that it is terminating the deal to provide further funding for Pharmaxis’s commercialisation of its Bronchitol drug as a treatment for cystic fibrosis. The agreement thus concluded yesterday, barring court intervention.

As justification for terminating the deal, NovaQuest alleged that Pharmaxis has failed to work in a commercially reasonable manner to obtain reimbursement status for Bronchitol in key European markets.

Pharmaxis has denied the claims and alleged that NovaQuest has manufactured the issue as a tactic to force renegotiation of the financing terms. The company claims NovaQuest also failed to raise the issue using the dispute resolution processes spelled out in the contract.

“Legal proceedings have been launched in order to protect Pharmaxis’s interests,” Pharmaxis CEO Gary Phillips commented. “We believe that the initial notice from NovaQuest was deliberately timed to gain maximum leverage for NovaQuest to force a renegotiated agreement.”

He said the company remains open to burying the hatchet with NovaQuest, but is also in talks with a potential commercial partner in the US to secure alternative financing for a pivotal clinical trial.

Last year, Pharmaxis and NovaQuest signed an up to US$40 million financing agreement to support the commercialisation of Bronchitol in the EU and US. The terms call for Pharmaxis to pay NovaQuest a proportion of Bronchitol sales for 7-8 years after the signing of the agreement.

Pharmaxis has so far received only a US$20 million initial payment, but late last year arranged to take up the full US$40 million available. Unless a court intervenes or Pharmaxis negotiates a truce with NovaQuest, it will not have access to these additional funds.

Pharmaxis (ASX:PXS) shares were trading 5% higher at $0.063 as of around 1 pm on Monday.