AFT Orphan Pharmaceuticals judgment

AFT Pharmaceuticals (NZX.AFT, ASX.AFP) advises of the release yesterday evening (28 October) by the High Court at Auckland of its judgment upholding in part claims by PBL Solutions Limited (PBL) against AFT, and dismissing others.

The substance of the claims made by PBL was that AFT should have provided AFT Orphan Pharmaceuticals Limited (AFTO) the opportunity to pursue the drug development opportunity for the topical skin medicine Pascomer®. PBL holds a 35% stake in AFTO and AFT owns 65%.

The High Court dismissed PBL’s claim for a lump sum payment for an assessed present value of PBL’s claimed 35% proportionate share of future profits attributable to the Pascomer opportunity.

The High Court also found that AFT had not acted dishonestly and that Managing Director Dr Hartley Atkinson genuinely believed the Pascomer opportunity was not within the scope of AFTO’s business and had not breached his director’s duties owed to AFTO.

However, the Court found that AFT owed PBL a fiduciary duty in the context of evaluating the Pascomer opportunity and that AFT breached that duty. The Court has held that PBL is entitled to an account of a 35% share of the profits which are in future made by AFT from Pascomer for orphan or orphan-like opportunities only. Any profit is to be assessed after making allowance for AFT’s costs and expenses and direct labour costs in relation to development of the Pascomer opportunity and for use of AFT’s proprietary Crystaderm® technology in Pascomer. AFT has always acknowledged an obligation for AFTO to account to PBL for its share of profits from the distribution of Pascomer for orphan applications in Asia Pacific. The judgment extends that obligation to any profits that may be earned from that orphan opportunity by AFT in markets outside Asia Pacific.

AFT is not required to account to PBL for any profit which AFT may earn from the application of Pascomer for treatment of non-orphan conditions such as Port Wine Stain (PWS).

AFT notes that no profits from the Pascomer opportunity have been earned to date or are expected to be earned in the near term. The timing and amount of any future earnings on the Pascomer opportunity remain uncertain and subject to several contingencies such as regulatory approvals.

AFT does not expect the judgment to have a material effect on AFT’s FY2024 earnings guidance.

All parties now have four weeks to decide whether to appeal the judgment.

The Court’s orders allow the result of the judgment, but not the judgment itself, to be published at this stage. As to the judgment itself, the parties have 5 working days to identify any parts of the judgment they seek to have redacted for confidentiality, following which a public version of the judgment will be released by the Court.

For and on behalf of AFT Pharmaceuticals Limited by Malcolm Tubby, Chief Financial Officer