Glenmark takes Napo to arbitration over crofelemer

Napo Pharmaceuticals Inc, the innovator company behind anti-diarrhoea drug crofelemer, is finding itself in litigation with its partners. The company owns crofelemer, a novel anti-diarrhoeal drug under development, which is in advanced stages in the clinial trial process and is widely anicipated to hit the market.

India’s Glenmark Pharmaceuticals and Salix Pharmaceuticals are its two key partners in jointly developing and marketing this drug. The Indian company has rights to about 140 countries outside North America, Europe and Japan, while Salix has the rights for these three countries. By partnering with them, Napo has been sharing the risks and costs of developing this drug.

Today, Glenmark announced that it has filed a statement of claim with the American Arbitration Association, asking it to declare that Glenmark’s rights to sell crofelemer in these 140 countries (many of which would be emerging markets) also includes an exclusive right to distribute the drug through relief agencies in these jurisdiction.

The origins of this arbitration claim are not clear, but Glenmark may either wish to prevent or may have reason to fear that Napo may interpret their agreement not including tender supplies to aid agencies. Crofelemer is an anti-diarrhoeal drug, which is being developed at present for treating the condition in people with AIDS (acquired immune deficiency syndrome). Salix has rights for all indications while Glenmark has the rights for crofelemer used to treat diarrhoea in AIDS patients, infectious diarrhoea and pediatric diarrhoea.

In developing countries, particularly poor ones, the main conduit for AIDS drugs are relief agencies, either set up by international agencies or by the government, or in partnership between the two. Even in the case of infectious diarrhoea, relief agencies play a key role in the treatment of this disease in poor countries.

Glenmark’s statement says: “…contractually it (Glenmark) believes it has exclusive legal rights with respect to relief agency distribution in the countries and indications licensed to Glenmark.” The statement appears to indicate that their agreement does not explicitly state that any supplies to relief agencies will also be done by Glenmark, in the 140 countries it has exclusive rights over.

Glenmark goes on to say that the arbitration seeks to confirm that it has exclusive rights even for relief agency supplies and Napo has no rights to distribute in Glenmark territories through any channels. A relief agency may float a global tender for ordering drugs, and then distribute it among its units in various countries. Glenmark may have feared that Napo might participate directly in that tender.

Earlier, in May 2011, Napo took Salix to court, claiming that Salix had engaged in fraudulent conduct and breached its collaboration agreement dated December 9, 2008. It asked for damages of $150 million or about Rs 670 crore at current exchange rates, and also the right to terminate the agreement. This agreement was the one that conferred upon Salix the rights to crofelemer in North America, Europe and Japan. These are the three most prized pharmaceutical markets in the world. Again, specifics on what caused Napo to file this case is not known.

But closer to the launch of crofelemer, investors would be assessing the impact of this drug launch on Glenmark and Salix. There is nothing concrete at present to suggest they have anything to worry, but litigation and the uncertainties and delays involved call for some caution. At the time of posting, Glenmark was down by about 0.6% at Rs 320, while the market was down by about 1%.

Read Glenmark’s release on the arbitration filing here and a statement on Napo’s lawsuit against Salix here.

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