10/18/2013 05:30 EDT | Updated 01/23/2014 06:58 EST

Valeant ordered to pay Anacor Pharmaceutical US$100M in arbitration award

MONTREAL - Valeant Pharmaceuticals International Inc. has been ordered to pay US$100 million to Anacor Pharmaceuticals Inc. in an arbitration award, the companies announced Friday.

The award, once finalized, will resolve a breach of contract dispute arising out of services provided by Dow Pharmaceutical Sciences Inc. prior to its acquisition by Valeant.

Valeant (TSX:VRX) said the one-time payment covers damages plus costs and lawyers' fees to Anacor (Nasdaq:ANAC)

The Quebec-based company said the arbitrator did not grant an injunction or ongoing royalty, meaning it would not prevent the launch of its Jublia topical antifungal solution set for next year. Regulators had delayed its approval due to concerns about the container closure apparatus, said an industry analyst.

Anacor had sought an award of at least $215 million plus injunctive relief after it launched the arbitration proceedings last October. It claimed Valeant breached a 2004 master services agreement between Anacor and Dow related to "certain development services provided by Dow" to develop the product for the treatment of onychomycosis, a fungal infection of the nail.

"Anacor's assertions included breach of contract, breach of implied covenant of good faith and fair dealing, misappropriation of trade secrets and unfair competition," it stated in a news release.

Douglas Miehm of RBC Capital Markets described the adverse ruling as "negligible" for Valeant.

He estimates the total award equates to about 30 to 40 cents per share.

Neil Maruoka of Canaccord Genuity said the arbitration ruling means there are no significant hurdles for Jublia's U.S. launch next year.

"While we view this ruling as an incremental negative for Valeant (the $100 million award will have a negligible impact), we believe that the removal of an overhang could ultimately be regarded as positive for the stock," he wrote in a report.

He estimates peak U.S. sales for Jublia of about US$250 million. Maruoka said the anti-fungal treatment's mild and transient side-effects are likely the "key differentiator" from existing oral anti-fungals that carry the risk of liver damage.

The interim award will become final within 10 days if no unresolved issues are presented. Valeant also has up to three months to appeal the decision through the California courts. The company couldn't be immediately reached for comment.

On the Toronto Stock Exchange, Valeant's shares closed at C$116.25, up 88 cents on Friday.