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Commercial LitigationLife Sciences

Delaware Court of Chancery finds FDA’s approval of new drug application raise factual issues that preclude motion to dismiss

February 3, 2014

Commercial LitigationLife Sciences

Delaware Court of Chancery finds FDA’s approval of new drug application raise factual issues that preclude motion to dismiss

February 3, 2014

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Plaintiff Shareholder Representative Services, representing former stockholders of Topaz Pharmaceuticals, Inc. (“Topaz”), brought suit against defendant Sanofi Pasteur (“Sanofi”) for breach of a Merger Agreement pursuant to which Sanofi acquired Topaz.  Shareholder Representative Services, LLC v. Sanofi Pasteur Inc., C.A. No. 8467-VCP (Del. Ch. 2013).

At the time of the merger, Topaz was awaiting FDA approval of a pending new drug application (“NDA”) for a topical lice medication called Sklice.  The parties included a provision in their merger agreement stating that Sanofi would pay Topaz’s stockholders a $12 million “Label Indication Increase” if the FDA approved an NDA “which contains a claim permitting marketing and selling of the Sklice product as a treatment for Nits” – the eggs or young form of a head louse.

After the merger, the FDA approved the Sklice NDA.  According to Plaintiff, the approval of the Sklice NDA satisfied the requirement for the $12 million milestone payment and Sanofi breached the merger agreement by failing make such payment. Sanofi disagreed, arguing that the NDA does not have any claims that permit it to market Sklice “as a treatment for Nits,” and consequently, Topaz’s stockholders are not entitled to the $12 million payment.  In its motion to dismiss, Sanofi relied heavily on the full version of the NDA (which the plaintiff did not have when it drafted the complaint), the FDA approval letter, and various draft of the NDA that included FDA comments.

At the Delaware Court of Chancery, the threshold issue on the motion to dismiss was whether the documents that Sanofi relied on were integral to the complaint and whether Sanofi used them to establish the truth of their contents.  The Court found that Sanofi’s reliance on the NDA was improper . . . in the context of this motion to dismiss.” The Court stated that while “Sanofi arguably had a basis to present this Court with a complete version of the final NDA to ensure that SRS had not misrepresented its contents . . . Sanofi has gone well beyond that in this instance, however, by attaching various drafts of the NDA that include FDA comments. These drafts appear to be a selective sampling of the voluminous file that comprises all of the documents relevant to Sklice’s approval process. Even assuming that the NDA was integral to [plaintiff’s] complaint, Sanofi may not challenge SRS’s characterization of the NDA by providing its own partially complete account.”

“It would have been equally inappropriate for Sanofi to present the entire NDA record to the Court for purposes of deciding this motion to dismiss. The Court could not properly consider and analyze a complete NDA record in a vacuum before having the benefit of the parties engaging in discovery. Engaging in such an analysis of the entire NDA would make it necessary to understand the factual context that surrounds the NDA. That crucial factual context is something that can be developed best over the course of discovery and other proceedings that necessarily occur after the motion to dismiss stage of litigation.”

Turning to the merits, the Court found that Plaintiff’s claims, “if proven, would entitle it to relief under a reasonably conceivable set of circumstances.”  The Court also stated that at this stage of the dispute, neither party’s interpretation of the $12 million payment provision was “the only reasonable construction as a matter of law.”

The Court was not persuaded by Sanofi’s argument that the removal of all references to lice eggs and emerging larvae in the NDA during the NDA approval process “evidences the lack of relevant claims.” The Court stated that“[w]hile this factual evidence ultimately may help Sanofi succeed in this litigation, it does not establish as a matter of law that either the NDA or the label is devoid of claims that would allow Sanofi to market Sklice as a treatment for Nits. The removal of terms standing alone does not explain why those terms were moved. The answer to that question – a question of fact – is essential to determining what the FDA actually approved and whether Sanofi can market Sklice as a treatment for Nits.”

In addition to the ambiguity that exists in the contract provision, the Court held that dismissal was not warranted because plaintiff argues that Sanofi is marketing Sklice for the treatment of Nits. “Whether SRS’s examples actually demonstrate that Sanofi is marketing Sklice as a treatment for Nits presents a question of fact that cannot be resolved on a motion to dismiss.”

 

Related Tags

Delaware Chancery Court
Life Sciences
Breach of Contract

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