Former SARcode Shareholder LLC v. Novartis Pharma AG

CourtCourt of Chancery of Delaware
DecidedAugust 1, 2024
DocketC.A. No. 2022-1053-NAC
StatusPublished

This text of Former SARcode Shareholder LLC v. Novartis Pharma AG (Former SARcode Shareholder LLC v. Novartis Pharma AG) is published on Counsel Stack Legal Research, covering Court of Chancery of Delaware primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Former SARcode Shareholder LLC v. Novartis Pharma AG, (Del. Ct. App. 2024).

Opinion

COURT OF CHANCERY OF THE STATE OF DELAWARE NATHAN A. COOK LEONARD L. WILLIAMS JUSTICE CENTER VICE CHANCELLOR 500 N. KING STREET, SUITE 11400 WILMINGTON, DELAWARE 19801-3734

Date Submitted: June 11, 2024 Date Decided: August 1, 2024

John G. Harris Stephen C. Norman Halloran Farkas + Kittila LLP Jaclyn C. Levy 5722 Kennett Pike Emma K. Diver Wilmington, Delaware 19807 Potter Anderson & Corroon LLP 1313 North Market Street, 6th Floor Wilmington, Delaware 19801

RE: Former SARcode Shareholder LLC v. Novartis Pharma AG C.A. No. 2022-1053-NAC

Dear Counsel:

This letter addresses my ruling on the plaintiff’s motion to vacate the prior

judgment (the “Motion”). 1 For the reasons below, I deny the Motion.

1 Former SARcode S’holder LLC v. Novartis Pharma AG, C.A. No. 2022-1053-NAC,

Docket (“Dkt.”) 9 (“Am. Compl.”). In its original filing on November 18, 2022, the plaintiff filed a “Petition to Vacate Prior Judgment” and listed itself and Novartis Pharma AG as the petitioner and the respondent, respectively. Dkt. 1, Pet. to Vacate Prior J. On April 26, 2023, the plaintiff filed what it labeled as its “Amended Petition to File a Motion to Vacate Judgment” and listed itself and Novartis Pharma AG as the plaintiff and the defendant, respectively. Dkt. 9, Am. Pet. to File a Mot. to Vacate J. Attached to the amended petition was a motion to vacate dismissal under Court of Chancery Rule 60(b)(2), which requires such a motion. Dkt. 11, Pl.’s Mot. to Vacate Dismissal. As exemplified in the plaintiff’s petition and amended petition, the parties have used terms inconsistently in their filings. But in light of the pending motion before me and the most recent filings listing the parties as the plaintiff and the defendant, I will employ the terms “plaintiff,” “defendant,” and “motion,” regardless of the inconsistent language the parties have used throughout the record. C.A. No. 2022-1053-NAC August 1, 2024 Page 2 of 16

I. FACTUAL BACKGROUND

For a more comprehensive factual background, I refer readers to the two prior

memorandum opinions issued by this Court on August 9, 2017, and February 13,

2020. 2 This decision recites only the asserted facts necessary to resolve the Motion.

The following facts are drawn from the pleadings, documents incorporated therein,

and other documents subject to judicial notice. 3

SARcode Bioscience Inc. (“SARcode”), a pharmaceutical development company

incorporated in Delaware, developed a drug—Lifitegrast, which is sold commercially

under the brand name Xiidra (the “Drug”)—to treat dry eye disease. With high hopes

for the Drug’s regulatory approval and eventual commercial use, SARcode conducted

phase II and phase III clinical trials to test the Drug’s effectiveness and safety. Those

clinical trials demonstrated that the Drug had significant potential.

On March 23, 2013, Shire US Holdings, Inc. (“Shire”), Owl Merger Sub, Inc.,

2 Fortis Advisors LLC v. Shire US Hldgs., Inc. (Shire I), 2017 WL 3420751 (Del. Ch.

Aug. 9, 2017); Fortis Advisors LLC v. Shire US Hldgs., Inc. (Shire II), 2020 WL 748660 (Del. Ch. Feb. 13, 2020). This litigation was originally filed in 2016 under a different docket number which ultimately culminated in the Court’s decision in Shire I. The plaintiff then appealed the Court’s decision before voluntarily dismissing the action. Soon thereafter, the plaintiff filed another action under a different docket number. The second litigation concluded with the Court’s decision in Shire II. This action is therefore the third, and hopefully final, docket to resolve this dispute. I note that Rule 60 motions are usually filed in the same case and on the same docket that the party wants re-opened. Here, I held a status conference to discuss this with the parties. During the call, the plaintiff’s counsel explained that the case was so old that it had been marked as administratively closed and could not be re-opened. For that reason, the plaintiff opened a new case in filing its petition. I questioned whether that was the administratively correct course of action. But since counsel for all parties requested that I nonetheless consider this as a Rule 60 motion, and in the interests of efficiency, I treat this as an extension of the prior litigation.

3 See Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 (Del. 2004); Franklin

v. Glenhill Advisors LLC, 2023 WL 569192, at *1 (Del. Ch. Jan. 27, 2023), aff'd, 304 A.3d 950 (Del. 2023). C.A. No. 2022-1053-NAC August 1, 2024 Page 3 of 16

SARcode, and Fortis Advisors LLC (“Fortis”), entered into an agreement whereby

Shire would acquire SARcode and the Drug (the “Merger Agreement”). Under the

Merger Agreement, if the Drug were to meet certain milestones, Fortis, acting as the

SARcode stockholders’ agent, would receive several contingent milestone payments.

Specifically, the Merger Agreement conditioned the significant milestone payments

on the Drug’s performance in a second phase III clinical trial (the “Milestone Study”).

The Milestone Study had two primary endpoints, one related to the symptoms

of the eye disease and the other related to the signs of the eye disease. If the Drug

were to meet both of its primary endpoints, Fortis would receive a $175 million

milestone payment. Unfortunately for Fortis, the Drug achieved the co-primary

symptom endpoint but had failed to achieve the co-primary sign endpoint in the

Milestone Study.

On October 16, 2015, Fortis contacted Shire to request the $175 million

milestone payment. Shire responded on November 12, 2015, stating that the

milestone had not been met since the Drug failed to meet both endpoints during the

Milestone Study. Under the Merger Agreement, Fortis had a right to review the

information and data underlying the Milestone Study. These information rights

vested when Shire denied Fortis the milestone payment.

Shire initiated a third phase III clinical trial and submitted a new drug

application to the United States Food and Drug Administration (the “FDA”) for

approval. The third phase III clinical trial confirmed the Drug’s viability, and the

FDA subsequently approved the Drug. Fortis then contacted Shire to assert that

Fortis was entitled to a $250 million payment due to the FDA’s approval, another C.A. No. 2022-1053-NAC August 1, 2024 Page 4 of 16

milestone payment outlined in the Merger Agreement.

On March 29, 2016, Fortis filed its complaint in this Court, bringing a single

claim against Shire for breach of the Merger Agreement for failing to pay the $425

million in contingent milestone payments. Shire moved to dismiss the complaint

under Rule 12(b)(6). The parties then fully briefed Shire’s motion to dismiss. On July

29, 2016, Fortis moved to amend its complaint and Shire opposed the motion. After a

hearing, the Court granted Fortis leave to amend its complaint.

On November 8, 2016, Fortis filed its amended complaint which again listed

only a single claim for breach of contract for failure to pay the milestone payments.

On December 9, 2016, Shire again moved to dismiss. It argued that the Merger

Agreement was unambiguous and that Fortis’s claim relied on an unreasonable

interpretation of the plain language of the Merger Agreement.

On August 9, 2017, this Court granted the motion, ruling that the Merger

Agreement unambiguously conditioned the milestone payments on the Milestone

Study achieving both of its primary endpoints (the “2017 Decision”). In light of the

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Former SARcode Shareholder LLC v. Novartis Pharma AG, Counsel Stack Legal Research, https://law.counselstack.com/opinion/former-sarcode-shareholder-llc-v-novartis-pharma-ag-delch-2024.