Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Fortis Advisors LLC v. Shire U.S. Holdings, Inc.

Court of Chancery of Delaware

August 9, 2017

FORTIS ADVISORS LLC, Plaintiff,
v.
SHIRE U.S. HOLDINGS, INC., Defendant.

          Date Submitted: June 2, 2017

          Joel Friedlander, Esquire and Christopher Quinn, Esquire of Friedlander & Gorris, P.A., Wilmington, Delaware and William S. Ohlemeyer, Esquire, Robin A. Henry, Esquire and Jack Wilson, Esquire of Boies, Schiller & Flexner LLP, Armonk, New York, Attorneys for Plaintiff.

          Stephen C. Norman, Esquire and Jaclyn Levy, Esquire of Potter, Anderson & Corroon LLP, Wilmington, Delaware; John D. Donovan, Jr., Esquire of Ropes & Gray LLP, Boston, Massachusetts; and David B. Hermes, Esquire and Adam M. Harris, Esquire of Ropes & Gray LLP, New York, New York, Attorneys for Defendant.

          MEMORANDUM OPINION

          SLIGHTS, VICE CHANCELLOR.

         Parties to a merger agreement dispute the right of the seller's representative to receive certain contingent post-closing payments. Plaintiff, Fortis Advisors LLC ("Fortis"), in its capacity as Stockholders' Agent for the former stockholders of SARcode Bioscience Inc. ("SARcode"), alleges that Defendant, Shire U.S. Holdings, Inc. ("Shire"), has breached the provisions of the parties' agreement by refusing to pay so-called milestone payments that Fortis alleges are past due.

         Shire acquired SARcode pursuant to an Agreement and Plan of Merger by and among Shire, Owl Merger Sub, Inc., SARcode Bioscience Inc., and Fortis Advisors LLC, as Stockholders' Agent Dated as of March 23, 2013 (the "Merger Agreement"). At the time the parties entered into the Merger Agreement, SARcode was in the process of developing and seeking regulatory approval for a drug, Lifitegrast, that showed promise to treat the signs and symptoms of dry eye disease. The Merger Agreement set forth a structure whereby the parties agreed to share the risks and rewards of developing Lifitegrast by allocating merger consideration between fixed up front payments and subsequent contingent payments that depended on Shire's ability to shepherd the drug through clinical trials and regulatory approvals. This arrangement allowed SARcode to monetize its at-risk investment in Lifitegrast while securing the promise of financial rewards if the drug continued to be developed successfully and ultimately was commercialized. For Shire, the milestone payments allowed it to hedge against future risks inherent in the drug's development and commercialization by allocating the price it would ultimately pay for SARcode between an initial upfront payment and subsequent payments that would become due only if the defined milestones were reached per the agreed upon schedule.

         In its Verified First Amended and Supplemental Complaint (the "Complaint"), Fortis alleges that two of the designated milestones have been achieved. This, in turn, has triggered Shire's obligation to make $425 million in milestone payments to former SARcode stockholders. Shire denies that the two milestones have been met and has refused Fortis' demands to make the milestone payments. The Complaint asserts a single Count for breach of contract. Shire has moved to dismiss the Complaint under Court of Chancery Rule 12(b)(6) on the ground that Fortis' claim of breach is premised on a construction of the Merger Agreement that cannot be reconciled with its clear and unambiguous terms.

         After carefully considering the parties' arguments, I conclude that Shire's proffered construction of the relevant provisions of the Merger Agreement is the only reasonable construction. Because Fortis has failed to proffer a competing reasonable construction of the operative language, it has failed to state a claim for breach of contract. Accordingly, the motion to dismiss must be GRANTED.

         I. FACTUAL BACKGROUND

         The facts are drawn from allegations in the Complaint, documents integral to the Complaint and matters of which the Court may take judicial notice.[1] As it must at this stage of the proceedings, the Court assumes all well-pled facts in the Complaint are true.[2]

         A. The Parties

         Prior to the Merger Agreement, SARcode was a privately-held biopharmaceutical company based in Brisbane, California. By the terms of the Merger Agreement, Fortis serves post-merger as the "sole agent and attorney-in-fact" for and on behalf of the former SARcode stockholders.

         Shire is a Delaware corporation and subsidiary of Shire PLC, a global biopharmaceutical company, whose United States headquarters is located in Lexington, Massachusetts. Shire acquired SARcode in March 2013.

         B. SARcode's Development of Lifitegrast

         Prior to the Shire acquisition, SARcode developed Lifitegrast as a treatment for dry eye disease. Dry eye disease is diagnosed by an eye care professional based on tests for objective signs of the disease, such as staining or tear break-up time (signs), and subjective symptoms reported by patients, such as eye dryness or discomfort (symptoms).

         SARcode developed Lifitegrast to Phase III clinical trials. Phase III clinical trials are performed to test both efficacy and safety of drugs using larger patient populations than are involved in Phase I and Phase II trials. Prior to the Merger Agreement, SARcode had conducted a Phase II clinical trial and a Phase III clinical trial (OPUS-1) that had successfully established the efficacy and safety of Lifitegrast in reducing the signs of dry eye disease. These clinical trials demonstrated the commercial potential of Lifitegrast and their results attracted the interest of several pharmaceutical companies that sought to acquire development rights for the drug.

         A second Phase III clinical trial (OPUS-2) was designed and initiated in late 2012 to evaluate the efficacy, safety and tolerability of Lifitegrast. The OPUS-2 Study had two co-primary efficacy endpoints that were specified in the OPUS-2 Study Protocol. One efficacy endpoint, the co-primary sign endpoint, was designed to evaluate Lifitegrast's effectiveness in treating the signs of dry eye disease while the other efficacy endpoint, the co-primary symptom endpoint, would evaluate the drug's effectiveness in treating the symptoms of dry eye disease. The OPUS-2 Study was underway when Shire approached SARcode with an interest in acquiring the company and, by extension, Lifitegrast. Shire and SARcode began negotiating the Merger Agreement in early 2013.

         C. The Merger Agreement

         At the time SARcode and Shire entered into the Merger Agreement, the OPUS-2 Study was ongoing and Lifitegrast was many steps away from commercialization. To share the risks and rewards of further development of the drug, the parties included in the Merger Agreement a number of additional payments to SARcode stockholders that were contingent upon the drug successfully achieving certain defined milestones. These milestones are divided into several categories, described in § 9.1 of the Merger Agreement, only one of which is relevant to the current dispute. That category of milestone payments, the "Base Case Milestones, " is triggered by the occurrence of the OPUS-2 Study Endpoint Achievement Date (the "Achievement Date"). When the Achievement Date is reached, former SARcode stockholders are entitled to receive $175 million for the OPUS-2 Successful Completion Milestone.

         Following achievement of the OPUS-2 Successful Completion Milestone and regulatory approval of the drug, Shire is required to make an additional $250 million payment for the Base Case Approval Milestone. If certain revenue targets are met following commercialization, former SARcode stockholders would be eligible for another $100 million for the Base Case Revenue Milestone. Fortis alleges that it is currently due the OPUS-2 Successful Completion Milestone Payment and the Base Case Approval Milestone Payment.

         As noted, all of the Base Case Milestones are contingent upon the occurrence of the Achievement Date. That term is defined in the Merger Agreement as follows:

"OPUS-2 Study Endpoint Achievement Date" shall be deemed to occur upon receipt by or on behalf of Parent, or one of its Affiliates, Licensees, or other transferees, of audited final tables, figures and listings from the OPUS-2 Study (x) that demonstrate that both components of the co-primary efficacy endpoints of the OPUS-2 Study as specified in the OPUS-2 Study Protocol have been achieved and (y) which do not, in a significant and clinically meaningful respect, result in a materially less favorable safety/tolerability profile (e.g., treatment emergent adverse events, Serious Adverse Effects, etc.), taken as a whole, for the Product than for corresponding data generated for the Product in the OPUS-1 Study, which less favorable safety/tolerability profile would reasonably be expected to significantly reduce anticipated Product Sales (it being understood that such determination pursuant to this clause (y) shall be made in accordance with Section 9.3).[3]

         If the Achievement Date is reached, the former SARcode stockholders are eligible to receive the Base Case Milestones payments at various designated intervals defined, in relevant part, as:

(a) Base Case Milestones. If the OPUS-2 Study Endpoint Achievement Date shall have occurred:
(i) OPUS-2 Success. Within ten (10) business days following the OPUS-2 Study Endpoint Achievement Date (the "OPUS-2 Successful Completion Milestone"), Parent shall notify the Stockholders' Agent that the OPUS-2 Successful Completion Milestone has been satisfied and shall, within twenty (20) business days following the date of achievement of the OPUS-2 Successful Completion Milestone, pay or cause to be paid in accordance with Section 9.2(b), $175, 000, 000 (such amount, the "OPUS-2 Successful Completion Milestone Payment");
(ii) Base Case Regulatory Approval. Within ten (10) business days following receipt by or under the authority of Parent (or any of its Affiliates, Licensees or other transferee) of the first Regulatory Approval in the United States for a Product for the Covered Indication with the co-primary Sign and Symptom specified in the OPUS-2 Study Protocol included in the "Indications and Usage" section of the label of the Product (the "Base Case Approval Milestone"), Parent shall notify the Stockholders' Agent that the Base Case Approval Milestone has been satisfied and shall, within twenty (20) business days following the date of achievement of the Base Case Approval Milestone, pay or cause to be paid in accordance with Section 9.2(b), $250, 000, 000 (such amount, the "Base Case Approval Milestone Payment")....
(iii) Base Case Revenue Milestone. If the Base Case Approval Milestone has been achieved, then within sixty (60) days following the first time on which Product Sales within any four consecutive calendar quarters exceed $750, 000, 000 (the "Base Case Revenue Milestone"), Parent shall notify the Stockholders' Agent that the Base Case Revenue Milestone has been satisfied and shall, within five (5) business days after such notification, pay or cause to be paid in accordance with Section 9.2(b), $100, 000, 000 (such amount, "Base Case Revenue Milestone Payment").[4]

         The Merger Agreement defines several other terms that appear in the definition of Achievement Date and are relevant to the determination of whether the Achievement Date has occurred. The term "OPUS-2 Study" is defined as:

"OPUS-2 Study" means the Phase III clinical trial for Lifitegrast to be conducted in accordance with the OPUS-2 Study Protocol, as further described on Schedule C.[5]

         The OPUS-2 Study Protocol is defined as:

"OPUS-2 Study Protocol" means the Company's Protocol Number 1118-Dry-300, dated November 6, 2012, as amended from time to time in accordance with this Agreement.[6]

         Importantly, the Merger Agreement separately defines the prior Phase III clinical trial, the OPUS-1 Study, as:

"OPUS-1 Study" means the Phase III clinical trial for Lifitegrast conducted by or on behalf of the Company in accordance with the Company Protocol Number 1118-KCS-200, dated May 27, 2011, as amended August 5, 2011 [7]

         Both parties were represented by sophisticated counsel in connection with the negotiation, drafting and execution of the Merger Agreement. As noted, the Merger Agreement was finalized on March 23, 2013.

         D. Regulatory Approval of Lifitegrast

         Following the Merger Agreement, and at the completion of the OPUS-2 Study in November 2013, Shire informed Fortis that the OPUS-2 Study had achieved the co-primary symptom endpoint but had failed to achieve the co-primary sign endpoint. In a December 5, 2013 press release, Shire publicly reported that "Lifitegrast did not meet the pre-specified co-primary endpoint for the sign of inferior corneal staining score ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.