PDI demands $6.4 million from Cellegy for alleged breach of settlement agreement

By Angela McDaniels

Seattle, Dec. 2 - Cellegy Pharmaceuticals Inc. said that PDI Inc. has filed a breach of contract action against Cellegy in the U. S. District Court for the Southern District of New York.

The suit alleges that Cellegy failed to notify PDI of some payments received and failed to make related payments to PDI, which PDI believes it is entitled to under the terms of a secured promissory note executed by the companies as part of a settlement agreement entered into on April 11, 2005.

PDI also believes the outstanding principal amount of $2.9 million plus default interest of the secured promissory note and outstanding principal amount of $3.5 million plus default interest of the nonnegotiable convertible senior note are immediately due and payable in cash under the default event provisions of those notes, the company said.

Cellegy renegotiated its exclusive license and distribution agreement with ProStrakan Group plc for Cellegy's Rectogesic product in November. ProStrakan assumed all responsibility for manufacturing and product support functions and agreed to purchase the product directly from the manufacturer rather than Cellegy, the company said. In return, ProStrakan paid Cellegy $2 million.

PDI claims that it is entitled to $1 million of the upfront payment to Cellegy by ProStrakan. Cellegy said it does not agree that the payments made by ProStrakan under the renegotiated agreement fall within the definition of pledged collateral in the settlement documents and does not believe it owes any amount to PDI.

Under the secured promissory note, PDI receives 50% of licensing fees, royalties or milestone payments, or other payments in a similar nature, received by Cellegy under some of Cellegy's agreements regarding its Tostrex (testosterone gel) and Rectogesic (nitroglycerin ointment) products in territories outside of North America and Fortigel licensees in North America. Amounts owed under the notes may be accelerated upon certain default events, the company said.

PDI's suit requests that the court declare that Cellegy has breached its obligations, order Cellegy to perform its obligations under the settlement agreements and award PDI damages in the amount of $6.4 million, plus default interest and other remedies.

Cellegy said it has not breached any of the provisions of the notes or the other settlement documents, that PDI's claims are without merit and that it plans to vigorously defend itself against the claims.

Cellegy Pharmaceuticals is a biopharmaceutical company based in Huntingdon Valley, Pa., that develops and commercializes prescription drugs for the treatment of women's health care conditions, including sexual dysfunction, HIV prevention and gastrointestinal disorders.

PDI provides sales and marketing services to the biopharmaceutical, medical devices and diagnostics industries and is based in Saddle River, N.J.

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