What happened

Shares of NRx Pharmaceuticals (NRXP 9.12%) were trading 7.2% lower as of 11:25 a.m. EDT Friday. The decline came after the drugmaker submitted prospectus supplements on Thursday with the Securities and Exchange Commission.

These filings stated that NRx sent a letter to shareholders on Wednesday addressing a lawsuit recently initiated by Relief Therapeutics (RLFT.F -0.68%) in New York State Court. Relief alleges that NRx "failed to honor its obligations" under a collaboration agreement between the two companies related to the development of Zyesami (aviptadil).

A judge sitting at the bench next to a gavel with two people in the background.

Image source: Getty Images.

So what

Relief Therapeutics' lawsuit seeks damages for the alleged breaches of the collaboration agreement. The Swiss drugmaker is also claiming rights to Zyesami. NRx is pushing back against the allegations. Its position is that Relief Therapeutics quit funding the development of Zyesami in January because the company believed that the drug had failed and had "missed the pandemic."

Meanwhile, NRx plans to continue the development of Zyesami and pursue regulatory approvals and authorizations for the COVID-19 drug. The company also intends to defend itself in the lawsuit and "assert significant counterclaims against Relief."

Many lawsuits like this one end up with a settlement. Both parties have a vested interest in seeing Zyesami become a commercial success. That's probably the most important takeaway for investors right now.

Now what

Earlier this week, NRx Pharmaceuticals submitted revised documents to the Food and Drug Administration that further its goal to earn approval for Zyesami. If the drug secures FDA approval, the biotech stock will soar again despite its legal battle with Relief Therapeutics.