Kolon Life Science said it would return 15 billion won ($12.3 million) upfront payment it had received from Mundipharma for licensing-out its gene therapy Invossa-K, as the U.S. firm decided to exercise the right of pledge amid the issue of Invossa’s ingredient mislabeling.
Despite the FDA’s recent approval to resume the phase-3 trial on Invossa in the U.S., Mundipharma requested Kolon to return the money.
The Korean biotech firm publicly disclosed on Wednesday that Mundipharma exercised the right of pledge on the 15 billion won down payment.
Earlier, the two companies partially changed the licensing deal over the osteoarthritis gene therapy in May last year, immediately after Kolon found about the ingredient labeling error. Usually, an advanced payment does not have to be returned in a licensing agreement.
However, Kolon’s mislabeling debacle led the two to revise the deal, setting Mundipharma as the owner of the right of pledge for the 15 billion won cash payment.
Mundipharma could exercise the right if at least one of the following six conditions were met.
The six conditions are: If the FDA decides to discontinue the phase-3 trial of Kolon TissueGene due to data from phase-1 and phase-2 studies; if the FDA does not decide on the resumption of the phase-3 study until February 28, 2020; if the Ministry of Food and Drug Safety’s suspension of Invossa sales and distribution is permanent, and it is impossible to make any objection using current clinical data until February 28, 2020; if Kolon Life Sciences is found to violate the principles of good faith in connection with the upfront payment; if the pledgee provides a significant portion of the company's assets as collateral to a third party, or if the bankruptcy, liquidation or inability to pay the liquidation occurs; and if a possibility of bankruptcy or insolvency occurs.
The right of the pledge was set from the day of the decision of the boardroom (May 7, 2019) until the MFDS allows the resumption of Invossa sale in Korea, and the FDA decides on the resumption of the phase-3 trial.
On Mundipharma’s request, Kolon Life Science is obliged to return the 15 billion won. However, the effect of the licensing deal between the two remains unchanged.
Kolon Life Science seemed to be perplexed by Mundipharma’s abrupt notice because the FDA’s nod to resume the phase-3 Invossa study in the U.S. reduced the likelihood of returning the upfront payment, observers said.
Mundipharma could exercise the right last year because some of the six conditions were met already. However, the U.S. firm did not do so probably because it had anticipated for the resumption of the phase-3 trial, industry watchers said.
Kolon did not mention the reason Mundipharma decided to exercise the right.
Observers assume that the company decided so because of the following conditions -- if the FDA does not decide on the resumption of the phase-3 study until February 28, 2020; and if the MFDS’ suspension of Invossa sales and distribution is permanent, and it is impossible to make any objection using current clinical data until February 28, 2020.
Besides, the prosecution said e-mails by Kolon Life Science CEO Lee Woo-sok and company executives revealed that they had been aware of the mislabeling. This case might apply to the condition, “if Kolon Life Sciences is found to violate the principles of good faith in connection with the upfront payment.”
An official at Kolon Life Science said he did not understand why Mundipharma exercised the right of pledge despite the resumption of the phase-3 study in the U.S.
“It is legally right that we must return the down payment. But our deal will remain unchanged. We’re reviewing whether to write a new contract with Mundipharma,” he said.
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