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Himawan v. Cephalon, Inc.

Court of Chancery of Delaware

December 28, 2018

JEFF HIMAWAN, JOSH TARGOFF and STEPHEN TULLMAN, as the duly-appointed Representatives of the former stockholders of CEPTION THERAPEUTICS, INC., Plaintiffs,
v.
CEPHALON, INC., TEVA PHARMACEUTICAL INDUSTRIES LTD., and TEVA PHARMACEUTICALS USA, INC., Defendants.

          Date Submitted: September 21, 2018

          Richard L. Renck and Oderah C. Nwaeze, of DUANE MORRIS LLP, Wilmington, Delaware; OF COUNSEL: John J. Soroko, Wayne A. Mack, Jessica Priselac, and Joseph J. Pangaro, of DUANE MORRIS LLP, Philadelphia, Pennsylvania, Attorneys for the Plaintiffs.

          Kevin Shannon and J. Matthew Belger, of POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; OF COUNSEL: Jay P. Lefkowitz, Matthew Solum, Shireen A. Barday, Amanda B. Elbogen, and Z. Payvand Ahdout, of KIRKLAND & ELLIS LLP, New York, New York, Attorneys for the Defendants.

          MEMORANDUM OPINION

          GLASSCOCK, Vice Chancellor

         An antibody is a protein that allows an organism's immune system to overcome disease-causing pathogens. Science has identified numerous antibodies that are or may be useful in fighting human diseases. As with new drugs, the process of bringing antibodies to market, it appears, is long, arduous, and risky. Rigorous governmental oversight for risk and efficacy, in both the United States and in Europe, requires a significant investment of time and effort on the part of an entity seeking to monetize potentially beneficial antibodies. The Plaintiffs here are representatives of former stockholders of a company, Ception, that owned rights to such an antibody. It was purchased by another entity, Cephalon; like Ception, a Delaware corporation. The parties to that sale attempted to allocate the risk of the development of the antibody among the parties. The resulting merger agreement provided an initial sales price, together with earn-outs to be paid to the sellers by the buyer. Those earn-outs were payable upon the meeting of certain milestones in the approval of the antibody to treat two different conditions, in both Europe and the United States. The buyer agreed to use commercially reasonable efforts to develop the antibody and achieve the milestones.

         This matter involves the sellers' contention that the buyer's efforts, which have been abandoned with respect to development of the antibody to treat one of the medical conditions upon which earn-outs depend, were not commercially reasonable. The sellers argue that this breached the merger agreement, and seek damages from the buyer and its affiliates. This Memorandum Opinion concerns the Defendants' Motions to Dismiss for failure to state a claim. In short, the Defendants argue that the Complaint is inadequate, because, per the Defendants, it is entirely conclusory as to their failure to use commercially reasonable efforts.

         Ultimately, the Plaintiffs here face a difficult matter of proof. The merger agreement leaves discretion on how to pursue development of the antibody with the buyer. It is, perhaps, unlikely that the buyer failed to use commercially reasonable efforts to develop the antibody, given the buyer's financial interest in monetizing the antibody. However, here the parties have defined "commercially reasonable efforts" as "the exercise of such efforts and commitment of such resources by a company with substantially the same resources and expertise as [the buyer], with due regard to the nature of efforts and cost required for the undertaking at stake."[1] This rather inartful draftsmanship appears to create a standard based on the effort that companies similarly situated in the market employ, or would employ. The Plaintiffs, in the Complaint, point to other companies and their efforts to develop similar medical treatments, as exemplars against which the Defendants efforts fall short. In briefing, the Defendants point to dissimilarities between the buyer and its products, and the exemplars and their products. These dissimilarities, according the Defendants, render the Plaintiffs' exemplars contractually irrelevant. That may ultimately prove true. At the pleadings stage, however, I must employ plaintiff-friendly inferences, consonant with which I find that the Defendants have only identified factual issues that may be resolved when a record is created. The Plaintiffs have stated a claim for breach of contract, and the Motion to Dismiss that claim is denied. However, other ancillary claims must be dismissed. My reasoning follows.

         I. BACKGROUND

         The Plaintiffs, Jeff Himawan, Josh Targoff, and Stephen Tullman, are appointed representatives of the former stockholders of Ception Therapeutics, Inc. ("Ception").[2] Ception was acquired by Defendant Cephalon, Inc. ("Cephalon") in February 2010.[3] Both companies were organized under Delaware law.[4] The merger agreement governing that acquisition forms the basis of this litigation. Later, in October 2011, Cephalon itself was acquired by Defendant Teva Pharmaceutical Industries Ltd. ("Teva Ltd."), an Israeli company that lists its principal place of business in Petah Tikva, [5] Israel.[6] Teva Ltd. has filed a Motion to Dismiss for lack of personal jurisdiction under Court of Chancery Rule 12(b)(2) and for failure to state a claim under Rule 12(b)(6).[7] Cephalon and Defendant Teva Pharmaceuticals USA, Inc. ("Teva USA"), a Delaware corporation and a wholly owned subsidiary of Teva Ltd., [8] have also filed a Motion to Dismiss under Rule 12(b)(6).[9]

         On a Rule 12(b)(6) motion to dismiss, the Court must assume as true all well-pleaded allegations of fact in the complaint, and accept as true all inferences that can be reasonably drawn in favor of the plaintiff from those well-pleaded allegations of fact.[10] The Court does not normally consider documents extrinsic to the complaint, with the exception of "documents[s] integral to a plaintiff's claim and incorporated into the complaint."[11] As a result, the factual background that follows relies only on the Plaintiffs' Complaint, which this Court accepts as true for purposes of the motions before it.

         A. Ception Acquires the Rights to "RSZ" and Pursues a Sale

         In 2004, Plaintiff Stephen Tullman and others formed Ception, [12] and through Ception they licensed the rights to Rezlizumab ("RSZ"), an antibody.[13] Ception sought to develop and commercialize RSZ as a treatment for eosinophilic asthma ("EA") and for eosinophilic esophagitis[14] ("EoE").[15] Ception took such steps as qualifying RZA for certain Food and Drug Administration ("FDA") development programs, [16] submitting data to the FDA, [17] and gaining FDA approval for clinical trials of RZA.[18] Ception designed three clinical trials, two trials for the treatment of EoE and one trial for the treatment of EA.[19] The EA clinical trial and one EoE clinical trial were designed to measure improvements in defined endpoints (an "endpoint study").[20] The other EoE clinical trial was an "open label extension study" and was designed to measure long term safety and efficacy of RSZ, [21] whereby, after the completion of the EoE endpoint study, its participants would be invited to continue receiving RZA.[22]

         In 2008, after the FDA had approved the clinical trials, but before Ception began conducting them, Ception was approached separately by Wyeth Pharmaceuticals, Inc. and Cephalon to conduct a sale.[23] In January 2009, Ception entered into an option agreement with Cephalon (the "Option Agreement").[24] Under the Option Agreement, Cephalon paid $100 million for the option to acquire Ception for a further $250 million.[25] The prospective acquisition would be made pursuant to a pre-agreed form of merger agreement, which included potential milestone payments to Ception stockholders totaling $550 million; the milestone payments, in large part, related to the development and commercialization of RZA by Cephalon.[26]As part of the Option Agreement, Cephalon also loaned Ception $25 million to help conduct the clinical trials.[27] The exercise period for Cephalon's option to purchase Ception was tied to the completion of the EoE endpoint study.[28]

         B. The Merger of Ception and Cephalon

         The EoE endpoint study was completed in October 2009; the study met one of its two endpoints.[29] The completion of the study triggered the exercise period for Cephalon's option to acquire Ception.[30] However, Ception agreed to extend the exercise period until after the EA endpoint study was also concluded. [31] The EA endpoint study was completed in February 2010; the study missed its only endpoint.[32] With knowledge of both studies, Cephalon decided to exercise its option to acquire Ception, pursuant to an amended version of the form of merger agreement (the "Merger Agreement").[33]

         Under the Merger Agreement, Cephalon would pay Ception stockholders $250 million at closing.[34] Following closing, Cephalon would pay up to $550 million in milestone payments to the now-former stockholders of Ception.[35] The milestone payments (the "Milestones") were: (A) $150 million for FDA approval of RSZ as treatment for EoE, (B) $50 million for the European Commission's grant of marketing authorization of RSZ for the treatment of EoE, (C) $50 million for the completion of the EA endpoint study, [36] (D) $150 million for FDA approval of any asthma indication for RSZ, (E) $50 million for the European Commission's grant of marketing authorization of RSZ for the treatment of any asthma indication, and (F) $100 million for FDA approval of an Oral Anti-TNF Product.[37]

         The development and monetization of new medical treatments involves substantial risk, risk the parties attempted to allocate by their agreement. As laid out above, the initial payment to Ception stockholders was relatively modest, while a large part of the purchase price was contingent on the success of RSZ. To recapitulate, RSZ was seen as a potential treatment for two conditions, a type of asthma, EA, and an inflammation of the esophagus, EoE. In the Merger Agreement, Cephalon agreed if certain Milestones related to RSZ as a treatment for those two conditions were reached, it would pay former stockholders of Ception additional lump sums. If RSZ was approved as a treatment for EoE by both the FDA and the European Commission, then Cephalon would pay former stockholders of Ception a total of $200 million, according to Milestones (A) and (B). If RSZ was approved as a treatment for EA by both the FDA and the European Commission, then Cephalon would pay former stockholders of Ception a total of $200 million, according to Milestones (D) and (E).

         According to Section 3.4(a)(iii) of the Merger Agreement, Cephalon was required to use "commercially reasonable efforts to develop and commercialize (or cause the development and commercialization of) [RSZ] so as to achieve the Developmental Milestones set forth in clauses (A) through (E);" these are Milestones (A)-(E) referenced above.[38] "Commercially reasonable efforts" was defined "for purposes of . . . Section 3.4" as "the exercise of such efforts and commitment of such resources by a company with substantially the same resources and expertise as Parent, with due regard to the nature of efforts and cost required for the undertaking at stake."[39]

         Under Section 3.4(c) of the Merger Agreement, "(i) . . . control of the Surviving Corporation . . . shall rest with Parent . . . and the [former stockholders] shall have no right object to the manner in which business of the Surviving Corporation is conducted . . . and (ii) Parent shall have complete discretion with respect to all decisions related to the business of the Surviving Corporation . . . ."[40] The Merger Agreement was signed on March 10, 2010.[41]

         C. Cephalon's Post-Merger Efforts and the Acquisition of Cephalon by Teva Ltd.

         In May 2011, Teva Ltd. announced it was acquiring Cephalon at an enterprise value of $6.8 billion.[42] Teva Ltd. completed its acquisition of Cephalon in October 2011, and Cephalon became a wholly owned subsidiary of Teva Ltd.[43] After the acquisition, Tullman met with Teva leadership[44] more than a dozen times between 2012 and 2016 to discuss the development and commercialization of RSZ, [45] including for the treatment of EoE.[46] In 2015, Teva Ltd. acquired Allergan Generics in a transaction valued at $40.5 billion; Teva Ltd. announced that as a result of the transaction it "planned for 1, 500 generic launches globally in 2017."[47]

         Cephalon and Teva[48] continued to develop and commercialize RZA for EA;[49]in March 2016, Teva Ltd. announced FDA approval for RZA as a treatment for EA;[50]and in August 2016, Teva Ltd. received approval from the European Commission to market RSZ as an EA treatment.[51] These were Milestones (D) and (E) of the Merger Agreement. Teva USA made the related Milestone payments to the former stockholders of Ception, [52] totaling $200 million.

         When Teva Ltd. acquired Cephalon, the EoE open label extension study was ongoing.[53] Data collection for the study was substantially completed in January 2012, but Cephalon did not immediately submit the results to the FDA.[54] In 2012, Congress passed the Food and Drug Safety and Innovation Act ("FDSIA"), which created new development programs for certain types of drugs; Cephalon did not attempt to designate RSZ as a treatment for EoE under any of these new programs.[55]One of the researchers who helped conduct the EoE open label extension study continued to use RSZ to treat patients with EoE; and in February and March 2016 the researcher independently published and presented positive results for RSZ as a treatment for EoE.[56] In March 2016, Cephalon and Teva Ltd. submitted the results of the EoE open label extension study to the FDA, although not all the data collected was submitted.[57]

         On October 10, 2016, Plaintiff Himawan wrote to Francine Del Ricci, then a Senior Vice President at Teva USA, [58] and specifically asked about Cephalon's and Teva Ltd.'s efforts to commercialize and develop RSZ as a treatment for EoE.[59] Del Ricci replied on November 3, 2016.[60] Del Ricci wrote, in pertinent part:

Cephalon has the obligation under its March 10, 2010 Merger Agreement with Ception to use commercially reasonable efforts to develop and commercialize [RSZ]. However, the Merger Agreement goes on to provide that Cephalon will have "complete discretion with respect to all decisions relating to the research, development, manufacture, marketing, pricing and distribution of [RSZ] . . . and shall have no obligation to conduct clinical trials related to, or otherwise pursue regulatory approvals of, any indication for [RSZ] . . . or otherwise take any action to protect, attain or maximize any payment to be received by the holders of Stock Certificates and Stock Agreements pursuant to this Section 3.4."
In any event, it would not be commercially reasonable for Cephalon to develop [RSZ] for [EoE] for numerous reasons, including the need to commit substantial resources that such an undertaking would require in light of other ongoing development and portfolio-building initiatives of the company.[61]

         In other words, Del Ricci revealed that Cephalon had abandoned its efforts to develop and commercialize RSZ as a treatment for EoE.[62] Pharmaceutical companies Shire, [63] Sanofi and Regeneron, [64] Celgene, [65] and GlaxoSmithKline, [66] have substantially similar resources and expertise to Cephalon and are currently pursuing products for treatment of EoE.[67]

         D. Procedural History

         The Plaintiffs filed the Complaint in this action on February 1, 2018. Cephalon and Teva USA filed a Motion to Dismiss on February 28, 2018. Teva Ltd. filed a Motion to Dismiss on April 10, 2018. I heard oral argument on both Motions to Dismiss on September 21, 2018.

         II. LEGAL ANALYSIS

         The Plaintiffs bring a breach of contract claim against Defendant Cephalon, alleging that by abandoning efforts to develop and commercialize RSZ as a treatment for EoE, Cephalon breached the Merger Agreement. The Plaintiffs also bring a claim for breach of implied covenant of good faith and fair dealing against Cephalon, to the extent Cephalon's conduct is not covered by the Merger Agreement. Finally, the Plaintiffs bring a tortious interference with contract claim against Defendants Teva USA and Teva Ltd., arguing that they intentionally interfered with Cephalon's ability to meet its obligations under the Merger Agreement. The Plaintiffs seek, among other things, monetary relief in the amount of the Milestone payments related to EoE and a grant of the rights to RSZ.[68]

         In response, the Defendants have filed Motions to Dismiss all of the claims brought by the Plaintiffs. Cephalon argues, pursuant to Rule 12(b)(6), that the Plaintiffs failed to state a claim that Cephalon breached the Merger Agreement; specifically, that the Plaintiffs did not sufficiently plead that Cephalon failed to use "commercially reasonable efforts." Cephalon also argues, under Rule 12(b)(6), that the Plaintiffs failed to state a claim for breach of implied covenant of good faith and fair dealing because there was no room in the Merger Agreement for such an implied covenant and, in any event, there was no bad faith. Teva Ltd. argues, pursuant to Rule 12(b)(2), that it should be dismissed from this action because Teva Ltd., an Israeli company, is not subject to personal jurisdiction in Delaware. Teva USA and Teva Ltd. argue, pursuant to Rule 12(b)(6), that the Plaintiffs made only conclusory allegations that Teva USA and Teva Ltd. "direct[ed] Cephalon to abandon . . . RSZ for EoE," and that therefore the Plaintiffs failed to state a claim for tortious interference with contract.[69] Finally the Defendants together argue that all claims against them should be dismissed because the Plaintiffs acquiesced and the Defendants relied on the Plaintiffs' apparent consent to their efforts to develop RSZ. I begin with Cephalon's Motion to Dismiss.

         A. Cephalon's Rule 12(b)(6) Motion to Dismiss the Counts of Breach of Contract and Breach of Implied Covenant of Good Faith and Fair Dealing

         1. Legal Standard

         Defendant Cephalon has moved to dismiss the counts of breach of contract and breach of implied covenant of good faith and fair dealing. Cephalon does so pursuant to Rule 12(b)(6). A motion to dismiss for failure to state a claim must be denied "unless the plaintiff could not recover under any reasonably conceivable set of circumstances susceptible of proof."[70] During this inquiry, the Court accepts all well-pleaded allegations in the complaint as true and draws all reasonable inferences in favor of the Plaintiff.[71] However, "[c]onclusory allegations unsupported by specific factual allegations will not be accepted as true."[72] A claim for breach of contract requires: "(1) a contractual obligation; (2) a breach of that obligation by the defendant; and (3) a resulting damage to the plaintiff."[73] A claim for breach of implied covenant of good faith and fair dealing requires a similar showing, except that the obligation is a "specific implied contractual obligation."[74]

         2. The Plaintiffs Stated a Claim for Breach of Contract

         Cephalon argues that the Plaintiffs failed to state a claim for breach of contract because the Plaintiffs failed to plead facts sufficient to establish that Cephalon did not use "commercially reasonable efforts" to develop and commercialize RSZ for EoE, as was their contractual obligation per the Merger Agreement. Furthermore, Cephalon argues that the Complaint shows Cephalon actually used commercially reasonable efforts as it developed and commercialized RSZ as a treatment for EA. In response, the Plaintiffs point to allegations in their Complaint that studies showed positive results for RSZ as a treatment for EoE[75] and that Cephalon could have submitted RSZ for certain FDA development programs; and that despite the promise of and opportunities for RSZ, Cephalon chose to abandon efforts to commercialize and develop RSZ for EoE. Additionally, the Plaintiffs point out that the Merger Agreement required Cephalon to use commercially reasonable efforts to achieve the Milestones related to RSZ for EoE, and not just for RSZ for EA. To determine whether the Plaintiffs sufficiently pled that Cephalon breached their contractual obligation, I turn first to the contractual obligation.

         "Commercially reasonable efforts" is defined in the Merger Agreement as "the exercise of such efforts and commitment of such resources by a company with substantially the same resources and expertise as [Cephalon], with due regard to the nature of efforts and cost required for the undertaking at stake."[76] There is no dispute that this is an objective standard. Furthermore, it is undisputed that other provisions in the Merger Agreement gave Cephalon sole discretion to decide how to proceed with RSZ. That discretion, however, was cabined by the objective standard. Thus the question remains what was required from Cephalon under this standard.

         Contract interpretation "is a question of law and thus suitable for determination on a motion to dismiss."[77] "If the contractual language is 'clear and unambiguous,' the ordinary meaning of the language generally will establish the parties' intent."[78] However, where there is ambiguity, "[o]n a motion to dismiss, a trial court cannot choose between two different reasonable interpretations of an ambiguous document."[79] The Plaintiffs argue that Cephalon was obligated to pursue the development and commercialization of RSZ as a treatment for EoE under all circumstances.[80] The Merger Agreement is clear and unambiguous in this regard: Cephalon was obligated to use only "commercially reasonable efforts," as defined, and was not obligated to pursue RSZ as a treatment for EoE to all ends. However, it is not clear and unambiguous, at this stage in the pleadings, what additional obligation "the exercise of such efforts and commitment of such resources by a company with substantially the same resources and expertise as [Cephalon]" imposes on Cephalon. This contractual language presumptively has meaning.[81] If I were faced with two reasonable interpretations of ambiguous contractual language on a motion to dismiss, I would have to deny that motion. Here, as of yet, neither side has convincingly suggested a reasonable interpretation of this language, [82] a fact which similarly supports denial of a motion to dismiss. One reasonable interpretation, I suspect, is to treat the language as intending to define "commercially reasonable efforts" as those efforts "a company with substantially the same resources and expertise as [Cephalon]" would expend under the circumstances at hand; such a definition, again supports denial of the Defendants' Motion to Dismiss. Before denying the Motion, however, I analyze whether that language is implicated in the alleged breach of contract.

         On many occasions, this Court has dealt-indeed wrestled-with contractual obligations in merger agreements made subject to varying "efforts clauses" imposed on the acquiring party.[83] While some cases required factual inquiry and even trial, [84]others could be (and were) resolved at the pleadings stage.[85] Cephalon explained to the Plaintiffs in its November 3, 2016 letter that "it would not be commercially reasonable for Cephalon to develop [RSZ] for [EoE] for numerous reasons, including the need to commit substantial resources that such an undertaking would require in light of other ongoing development and portfolio-building initiatives of the company."[86] The Plaintiffs allege that there was promise and opportunity in RSZ as a treatment for EoE. However, as Cephalon points out, the Plaintiffs have not made any allegations that pursuing such promise and opportunity was commercially reasonable "with due regard to the nature of efforts and cost required for the undertaking at stake."[87] That is, the Plaintiffs have not alleged any facts that controvert Cephalon's stated economic rationale for abandoning RSZ as a treatment for EoE.

         If taking into account the "nature of efforts and cost" was all that was required of Cephalon, it might be appropriate and consistent with this Court's prior rulings to grant a motion to dismiss for failure to state a claim in this instance, as the Plaintiffs did not allege facts from which to reasonably infer that the "nature of efforts and cost" supported continued efforts. However, Cephalon was also obligated to "exercise . . . such efforts and commit[] . . . such resources [as] a company with substantially the same resources and expertise as [Cephalon]."[88] In their Complaint, the Plaintiffs alleged that several companies with substantially the same resources and expertise as Cephalon are currently working to develop treatments for EoE. I assume that one reasonable reading of the contractual language here is that the actions of other similarly situated companies are a relevant yardstick to decide at this stage in the pleadings whether Cephalon itself used "commercially reasonable efforts." At Oral Argument, the Defendants argued that, even so, the exemplars in the Complaint are not similar to the Defendant entities, and are not pursuing approval of the same antibody. The Defendants conclude that the actions of these companies are ultimately irrelevant to the reasonableness inquiry here. Perhaps so. However, at the pleading stage, I find that the allegation that similarly situated companies are pursuing treatments for EoE reasonably supports the inference that Cephalon, in doing otherwise, did not meet its contractual responsibility here.

         In light of the absence of reasonable interpretations of the contractual obligation to "exercise [ ] such efforts and commit[ ] such resources by a company with substantially the same resources and expertise as Parent, with due regard to the nature of efforts and cost required for the undertaking at stake," the relative novelty of this contractual obligation, and the Plaintiffs' allegations that companies with similar resources and expertise as Cephalon are currently developing treatments for EoE, I cannot say that the Plaintiffs cannot recover under any reasonably conceivable set of circumstances susceptible of proof. As a result, the Motion to Dismiss as it relates to the breach of contract claim brought against Cephalon must be denied.

         3. The Plaintiffs Failed to State a Claim for Breach of Implied Covenant of Good Faith and Fair Dealing

         Defendant Cephalon moved to dismiss the claim of breach of implied covenant of good faith and fair dealing. "When presented with an implied covenant claim, a court first must engage in the process of contract construction to determine whether there is a gap that needs to be filled."[89] That is, "because the implied covenant is, by definition, implied, and because it protects the spirit of the agreement rather than the form, it cannot be invoked where the contract itself expressly covers the subject at issue."[90]

         Here, the subject at issue is Cephalon's efforts (or lack thereof) to commercialize and develop RSZ for EoE. Cephalon argues that the parties to the Merger Agreement expressly chose an objective standard, "commercially reasonable efforts," as defined in the Agreement, to measure Cephalon's efforts, and that this standard leaves no "gap" for an implied term. The Plaintiffs, in turn, argue that they "reasonably expect[ed] that Cephalon would take affirmative steps to develop and commercialize RSZ for EoE" and "Cephalon's refusal to develop and commercialize RSZ for EoE is unreasonable and arbitrary, and intentionally designed to avoid achieving [the Milestones in the Merger Agreement and making the associated payments] . . . ."[91] The Plaintiffs contend that there is no language in the Merger Agreement to address such behavior.

         The Plaintiffs have not, however, identified a gap in the Merger Agreement, and there is therefore no role for the implied covenant of good faith and fair dealing. Cephalon and the Plaintiffs contracted for a series of Milestones and related payments, and Cephalon agreed to use "commercially reasonable efforts" to achieve those Milestones. "Commercially reasonable efforts," as defined by the Agreement, is an objective standard. Cephalon did not meet the Milestones related to RSZ as a treatment for EoE and the Plaintiffs cried foul. The Agreement set a contractual standard by which to evaluate whether Cephalon's failure to achieve and pay these Milestone payments was improper.[92] The standard (once adequately construed) is applicable and relevant, even if Cephalon's failure to achieve the Milestones was based on complete inaction or if it was based on Cephalon's opinion that the Milestone payments would make the endeavor uneconomical. As such, in the light most favorable to the Plaintiffs, there is nevertheless no gap.

         Through their claim of breach of an implied covenant of good faith and fair dealing, the Plaintiffs seek to impose an alternative standard with which to review Cephalon's efforts. To the extent I understand the Plaintiffs' view, this alternative standard prohibits Cephalon from abandoning efforts to develop and commercialize RSZ for EoE because that abandonment could never be "commercially reasonable" in light of the associated Milestone payments.[93] But this contradicts the express understanding of the parties.

         The Plaintiffs, having agreed to the Milestones being contingent on Cephalon's "commercially reasonable efforts," cannot now contend that they did not actually expect any contingency. "The implied covenant of good faith and fair dealing . . . serves a gap-filling function by creating obligations only where the parties to the contract did not anticipate some contingency, and had they thought of it, the parties would have agreed at the time of contracting to create that obligation."[94]

         Ception and Cephalon negotiated over the Milestones in the Merger Agreement, and the bargained-for language requires Cephalon to use "commercially reasonable efforts" to achieve those Milestones. I have found that a claim for breach of contract based on that "commercially reasonable efforts" standard survives the Defendants' Motion to Dismiss and may proceed past the pleadings stage. However, no gap exists within which to employ implication, and the implied covenant claim must be dismissed.[95]

         B. Teva Ltd. and Teva USA's Rule 12(b)(6) Motion to Dismiss the Count of Tortious Interference with Contract

         1. Le ...


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