It is interesting to observe the changing status of the dispute which has arisen following Mylan’s purchase of Strides’ Agila in 2013, as disclosed by Strides Arcolab (now Strides Sashun) in its financial reports.
In Strides 2015 Annual Report (FYE 31/03/15), it was reported that a settlement had been reached with Mylan under which all claims raised by Mylan under the 2013 Purchase Agreement stood cancelled. Strides stated that it believed that it had no current obligation under the USD 200 million guarantee which had been given to Mylan towards claims/liabilities relating to the period before completion of the purchase agreement.
As at March 31, 2014, Mylan Inc., USA was in discussions with the Company and Strides Pharma Asia with regard to matters relating to the assets and liabilities of the Specialties products business taken over and had raised certain claims on the Company under the India SPA and Strides Pharma Asia under the Global SPA. The Company and Strides Pharma Asia had also counter claimed certain additional amounts from Mylan Inc.
During the current year, the concerned parties have reached a settlement under which all the claims raised by Mylan Inc on the Company under the India SPA stand cancelled.
As stated in Note (ii) above, MLL had held back an amount of USD 60 Million which were due to be received by the Company in December 2014, net off any Regulatory expenses incurred by MLL. As at March 31, 2015, the Company had received details of Regulatory expenses incurred by MLL which it intended to adjust against the amount of USD 60 Million, which has been disputed by the Company. Pending resolution of the dispute, no amounts relating to the above have been received by the Company.
The Company has given a corporate guarantee for USD 200 Million (` 12,499 Million) to the Mylan Inc towards claims / liabilities, if any, relating to the period prior to December 4, 2013. As at March 31, 2015, the Company has evaluated the possible exposure on the guarantee and believes that it is more likely that there is no present obligation under the Guarantee. (1)
As we know, Phosphagenics announced initiation of its arbitration claim against Mylan on January 6 this year. The claim against Mylan regarded the development and commercialisation of a TPM daptomycin formulation and asserted that Mylan was liable for breaches of several provisions under both a Master Research Agreement and a Licensing Agreement that Phosphagenics entered into with Agila in 2011 and 2012 respectively. Fraudulent or negligent misrepresentations, breaches of confidence and/or unjust enrichment in relation to intellectual property and commercial licensing terms were further claimed. In its Q3 Report, released in February, Strides now stated
During the current quarter, the Company has received notifications of claims from Mylan under the terms of the SPAs including in relation to certain regulatory concerns. The Company is in the process of formally responding to the notification of claims and believes that the possibility of further outflow of resources is not probable considering the amounts already set aside in escrows. (2)
In its Full Year Report, issued in May this year, Strides now not only provided more detail, it revealed that the dispute between Mylan and Strides had broadened. Mylan’s claims against Strides were now reported to include not only Regulatory claims, but also Tax claims, General claims and Third party claims. I am assuming that the reference below to Third party claims is a reference to Phosphagenics.
On December 4, 2013, the Company and its wholly owned subsidiary, Strides Pharma Asia Pte Limited (“the Singapore Subsidiary”), completed the sale of investments in Agila Specialties Private Limited and Agila Specialties Global Pte Limited (together, “Agila”) to Mylan Laboratories Limited and Mylan Investments Inc. (together, “Mylan”) for a total consideration of US$ 1.75 billion pursuant to certain sale and purchase agreements, each dated as of February 27, 2013 (the “SPAs”). The SPAs provided for categories of claims that could be made by Mylan during a period up to seven years from the date of the closing of the transaction. Pursuant to the SPAs, the Strides Group established escrow arrangements to fund certain potential indemnification liabilities, including specified employee, tax and regulatory remediation costs from such consideration. These escrow arrangements include a US$ 100.00 million tax escrow deposit (out of which US$ 8.00 million has been settled to be paid to Mylan in relation to certain claims) and a US$ 100.00 million regulatory escrow deposit. Pursuant to the SPAs, the Company has also provided a corporate guarantee to Mylan for US$ 200.00 million (valid up to December 4, 2020) on behalf of Singapore Subsidiary which can be used for discharging financial obligations, if any, of Singapore Subsidiary to Mylan. Given the uncertainties involved, as a matter of prudence, the amounts under the escrow arrangements were not included in the consideration accounted as income at the time of disposal of the investments. Under the terms of the SPAs, claims against the Group can only be made by Mylan under specific provisions contained in the SPAs setting forth the required procedures and deadlines for Mylan’s delivering notifications of claims, submitting actual claims thereafter and commencing arbitration proceedings. During the current year, the Company has received notifications of claims from Mylan under the terms of the SPAs. These include Third party claims, Tax claims, Claims against the Regulatory escrows and General claims. A significant portion of these are in the nature of estimates of potential claims / losses that Mylan expects to incur and involve significant uncertainties. The Company has formally responded to Mylan disputing the claims and also sought further details / clarifications on each of the items mentioned in the notifications of claims. Given the nature of the claims involved and the extent of information made available by Mylan, the Company is not able to make a reliable estimate of its obligations, if any, with regard to these claims. Considering the terms of the SPAs and the amounts already set aside in escrows, the Company believes that any further outflow of resources is not probable. (3)
Finally, I note that some key changes to Singapore International Arbitration Commission rules came into effect on August 1 this year, including the possibility to join an additional party to an arbitration if the additional party is prima facie bound by the arbitration agreement. (4) Previously, an additional party could only be joined with its consent. I am unaware if these changes have the potential to impact on Phosphagenics arbitration proceedings with Mylan.
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