IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE FORTIS ADVISORS LLC, in its ) capacity as the Shareholders’ ) Representative for the former ) stockholders of Oculeve, Inc., ) ) Plaintiff, ) ) v. ) C.A. No. 2019-0159-MTZ ) ALLERGAN W.C. HOLDING INC., ) ) Defendant. )
MEMORANDUM OPINION
Date Submitted: July 9, 2019 Date Decided: October 30, 2019
Bradley R. Aronstam, Roger S. Stronach, ROSS ARONSTAM & MORITZ LLP, Wilmington, Delaware; Martin S. Schenker, Matthew D. Caplan, Kristine A. Forderer, COOLEY LLP, San Francisco, California; Attorneys for Plaintiff Fortis Advisors LLC Michael A. Barlow, Daniel J. McBride, ABRAMS & BAYLISS LLP, Wilmington, Delaware; David W. Haller, COVINGTON & BURLING LLP, New York, New York; Attorneys for Defendant Allergan W.C. Holding Inc.
ZURN, Vice Chancellor. The parties to a merger dispute the seller’s entitlement to post-closing
milestone payment consideration. For the seller to earn the milestone payment, the
new company had to achieve a specifically defined enhanced treatment authorization
from the Federal Drug Administration. After the Federal Drug Administration gave
its authorization, the company declined to pay the seller the milestone payment.
The seller stockholders’ representative asserts the buyer breached the merger
agreement by refusing to pay the milestone payment and by failing to exercise
commercially reasonable efforts in pursuit of the authorization. The buyer moved
to dismiss, contending the enhanced treatment authorization did not trigger the
milestone payment, and that the buyer failed to allege sufficient facts in support of
its commercially reasonable efforts claim. This decision concludes that the seller
adequately alleged a breach of contract claim based on the plain meaning of the
contract and the authorization, and that the seller alleged sufficient facts to support
its commercially reasonable efforts claim. Accordingly, I deny the buyer’s motion
to dismiss.
I. BACKGROUND
I draw the facts from the seller’s Verified First Amended Complaint (the
“Amended Complaint”) and the documents incorporated by reference therein.1 I
1 Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 (Del. 2004). All citations to the Amended Complaint are to the Verified First Amended Complaint. Docket Item
2 must accept as true the Amended Complaint’s well-pled factual allegations and draw
all reasonable inferences from those allegations in plaintiff’s favor.2
A. The Merger Agreement
In July 2015, an affiliate of defendant Allergan W.C. Holding Inc.
(“Allergan”) acquired Oculeve, Inc. (“Oculeve”). At issue in this case is Oculeve’s
primary product in development at the time: a medical device for insertion in the
nostrils that causes a person’s eyes to tear by way of a small electric charge (the
“Product”).
The parties executed an Agreement and Plan of Merger (the “Merger
Agreement”) on July 5, 2015, and the merger closed on August 10. The Merger
Agreement designated Fortis Advisors LLC (“Fortis”) as the seller stockholders’
representative.
Under the Merger Agreement, Allergan’s affiliate paid the sellers $125
million at closing and contracted for future payments of up to $300 million upon
achievement of specific post-closing milestones. The first two milestones
compensate the sellers for the Product’s regulatory achievements, namely Federal
(“D.I.”) 10 [hereinafter “Am. Compl.”]. I address the parties’ dispute as to what documents I should consider in Section II(A), infra. 2 In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006).
3 Drug Administration (“FDA”) authorization, while the remaining milestones track
the Product’s sales.
The first milestone is triggered by “achievement of U.S. Launch,”3 defined as
the first sale of the Product “following written receipt from the FDA of FDA
Authorization for the Product with an ‘indication for use’ for Increased Tear
Production associated with dry eye disease.”4 The Merger Agreement defines
“Increased Tear Production” as “the temporary increase in tear production in the
study population in response to administration of electrical stimulation as measured
by [the] Schirmer score.”5 Allergan received FDA approval of the Product on April
24, 2017, with an indication for use that “[the Product] provides a temporary increase
in tear production during neurostimulation in adult patients.”6 Allergan then made
the first milestone payment of $100 million.
The second milestone is triggered by “achievement of Enhanced Product
Labeling,”7 which “means the receipt by a Milestone Party of written notice of FDA
Authorization of the Product that includes an ‘indication for use’ for Increased Tear
3 Am. Compl. Ex. A § 2.11(b)(i) [hereinafter “Merger Agreement”]. 4 Id. §§ 1.1, 2.11(b)(i). 5 Id. § 1.1. 6 D.I. 27, Ex. 5. 7 Merger Agreement § 2(b)(ii).
4 Production and for the treatment of at least one Dry Eye Disease Symptom” (the
“Enhanced Product Labeling Milestone”).8 The Merger Agreement provides
varying payments based on the date the FDA authorized the Enhanced Product
Labeling Milestone: a $100 million payment if authorized by March 31, 2018; a $75
million payment if authorized by June 30, 2018; or a $50 million payment if
authorized by September 30, 2019.
Section 2.11(i) of the Merger Agreement requires that Allergan use
“Commercially Reasonable Efforts,” as defined therein, when pursuing the
Enhanced Product Labeling Milestone.9
On May 2, 2017, Allergan began its pursuit of the enhanced product labeling
by submitting a premarket notification to the FDA to obtain enhanced product
labeling (the “510(k) Application”).10 The 510(k) Application sought an indication
authorizing that “[t]he [Product] provides a temporary increase in tear production
during neurostimulation and a temporary improvement in dry eye symptoms
following neurostimulation in adult patients.”11
8 Id. § 1.1. 9 Id. § 2.11(i). 10 Am. Compl. ¶ 22; D.I. 27, Ex. 6. 11 D.I. 27, Ex. 6.
5 In June, the FDA informed Allergan that the new indication required a
“de novo application”12 because the
predicate device is indicated “to increase tear production”; however, you propose to indicate your device for “temporary improvement in dry eye symptoms.” Because your new indication now includes a specific patient population along with an intended treatment/therapeutic effect (e.g., your new indication includes mitigation of a disease), there are new safety and effectiveness concerns that were not included as risks in the review of the predicate device in the [initial] De Novo classification request.13 On October 20, Allergan submitted its de novo application (the “De Novo
Application”) seeking approval of the following indication for use: “The [Product]
provides a temporary increase in tear production during neurostimulation resulting
in an improvement in dry eye symptoms in adult patients with dry eye disease.”14
Allergan based its De Novo Application on a clinical study that asked patients to
self-assess their symptoms five minutes after using the Product.
On December 22, the FDA responded with a deficiency letter asking for
additional metrics supporting a benefit assessment for the Product’s proposed
indication for use. The FDA requested “outcomes among subpopulations” and “the
12 Am. Compl. ¶ 22; D.I. 27, Ex. 8. 13 D.I. 27, Ex. 8. 14 Am. Compl. ¶ 23; D.I. 27, Ex. 11.
6 persistence of symptom relief after the application of the [Product].”15 As for the
clinical study assessing symptoms five minutes after using the Product, the FDA
requested measurement of the “change of symptom severity over time after the
treatment in the [controlled adverse environment] to evaluate the persistence of the
treatment effect.”16
Allergan responded to the deficiency letter two months later, on February 15,
2018. In the letter, Allergan focused on validating the study methodologies;
stratifying the results among patient populations, including mild, moderate, and
severe dry eye disease; and identifying the duration of symptom relief.
About three months later, on May 17, the FDA notified Allergan that it had
approved the following indication for the Product’s use (the “Second
Authorization”): “[the Product] provides a temporary increase in tear production
during neurostimulation to improve dry eye symptoms in adult patients with severe
dry eye symptoms.”17
Upon receiving this FDA authorization, Allergan refused to pay the Enhanced
Product Labeling Milestone. Allergan told the seller that the Second Authorization
15 D.I. 27, Ex. 13. 16 Id. 17 Am. Compl. ¶ 27.
7 did not meet the Enhanced Product Labeling Milestone because it “does not include
‘treatment’ or ‘disease’[; and] increase is ‘temporary.’”18
On February 26, 2019, Fortis commenced this litigation.19 Fortis filed the
Amended Complaint one month later, on March 26.20 Fortis claims Allergan
materially breached its obligations under the Merger Agreement by failing to make
the Enhanced Product Labeling Milestone payment, and by failing to use
commercially reasonable and good faith efforts to achieve the Enhanced Product
Labeling Milestone before March 31, 2018. Allergan moved to dismiss the
Amended Complaint on April 24.21 The parties finished briefing on June 21,22 and
the Court held oral argument on July 9.23
II. ANALYSIS
Allergan has moved to dismiss Fortis’ Amended Complaint pursuant to Court
of Chancery Rule 12(b)(6). When reviewing a motion to dismiss, the Court must
accept all well-pleaded factual allegations in the Complaint as true, accept even vague allegations in the Complaint as ‘well-pleaded’ if they provide the defendant notice of the claim, draw all reasonable inferences in favor
18 Id. ¶¶ 31–32. 19 D.I. 1. 20 D.I. 10. 21 D.I. 22. 22 D.I. 27, 30, 32. 23 D.I. 37–38.
8 of the plaintiff, and deny the motion unless the plaintiff could not recover under any reasonably conceivable set of circumstances susceptible of proof.24
A. The Court Considers Extrinsic Documents Integral To The Amended Complaint, And Those Subject To Judicial Notice.
As an initial matter, Allergan asserts that the Court should consider
twenty-five exhibits filed in support of Allergan’s motion to dismiss.25 Allergan
contends that all of its exhibits are integral to the complaint or constitute judicially
noticeable facts. Allergan cites the Amended Complaint’s “liberal[] discuss[ion]”
of the regulatory record as justification for including that entire record.26
“On a motion to dismiss, the Court may consider documents that are ‘integral’
to the complaint, but documents outside the pleadings may be considered only in
‘particular instances and for carefully limited purposes.’”27 “Whether a document is
integral to a claim and incorporated into a complaint is largely a facts-and-
circumstances inquiry.”28 Generally, “a document is integral to the claim if it is the
24 Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531, 536 (Del. 2011) (quoting Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002)). 25 See D.I. 27 Exs. 1–23; D.I. 32 Exs. 24–25. 26 D.I. 32 at 3. 27 Wal-Mart Stores, Inc., 860 A.2d at 320 (quoting In re Santa Fe Pac. Corp. S’holder Litig., 669 A.2d 59, 69 (Del. 1995)); see also CelestialRX Invs., LLC v. Krivulka, 2019 WL 1396764, at *1 (Del. Ch. Mar. 27, 2019) (“In a Rule 12(b)(6) motion to dismiss, the Court does not consider documents extrinsic to the complaint, except for documents that are integral to a plaintiff’s claim and are incorporated into the complaint.”). 28 In re Gardner Denver, Inc., 2014 WL 715705, at *3 (Del. Ch. Feb. 21, 2014).
9 ‘source for the . . . facts as pled in the complaint.’”29 Fortis concedes that it
referenced some of Allergan’s exhibits in its Amended Complaint, but contends that
those documents are not integral to its breach of contract claim.30 I find that Fortis
uses these referenced documents to form the factual foundation for its claim, and
therefore that they are integral to the claim. I conclude that only those Allergan
exhibits that Fortis cited are properly considered as integral to Fortis’ complaint. I
will consider Allergan’s Exhibits 1, 6, 8, 11, 12, 13, 14, and 18.
Allergan also claims that the Court should take judicial notice of Exhibits 2
through 19, comprising FDA approvals and nonpublic communications between
Allergan and the FDA, because the FDA regulatory record contains facts that are
“not subject to reasonable dispute.”31 Under Delaware Rule of Evidence 201, a
Court may take judicial notice of adjudicative facts.32 A judicially noticed fact “is
not subject to reasonable dispute because it: (1) is generally known within the trial
court’s territorial jurisdiction; or (2) can be accurately and readily determined from
sources whose accuracy cannot reasonably be questioned.”33 “Applying Rule 201,
29 Id. (quoting Orman v. Cullman, 794 A.2d 5, 16 (Del. Ch. 2002)). 30 D.I. 30 at 14. 31 D.I. 32 at 6 (citing D.R.E. 201). 32 D.R.E. 201. 33 Id. 201(b).
10 Delaware courts have taken judicial notice of publicly available documents that ‘are
required by law to be filed, and are actually filed, with federal or state officials.’”34
Delaware courts frequently take judicial notice of public filings with the
Securities and Exchange Commission (“SEC”).35 Allergan analogizes the FDA to
the SEC, and invites this Court to extend judicial notice to the FDA’s final approvals
submitted as Exhibits 5 and 19. Exhibit 5 is the FDA final report that triggered the
Product’s first milestone payment. Exhibit 19 is the final FDA approval of another,
unrelated device. Allergan cites two cases in support of judicial notice for these
Exhibits. In Funk v. Stryker Corp., the United States Court of Appeals for the Fifth
Circuit affirmed the lower court’s decision to take judicial notice of “publicly-
available documents and transcripts produced by the FDA, which were matters of
public record directly relevant to the issue at hand.”36 In Eidson v. Medtronic, Inc.,
the United States District Court for the Northern District of California took judicial
notice of “all of the documents at issue [that] appear on the FDA’s public website.”37
34 In re Rural Metro Corp. S’holders Litig., 2013 WL 6634009, at *7 (Del. Ch. Dec. 17, 2013) (quoting In re Tyson Foods, Inc. Consol. S’holder Litig., 919 A.2d 563, 584 (Del. Ch. 2007)). 35 Wal-Mart Stores, Inc., 860 A.2d at 320 n.28. 36 631 F.3d 777, 783 (5th Cir. 2011). 37 981 F. Supp. 2d 868, 879 (N.D. Cal. 2013).
11 Like in Funk, Allergan asks this Court to take judicial notice of FDA pre-
market approval letters. Allergan has represented that these Exhibits are publicly
available documents produced by the FDA, similar to those documents at issue in
Eidson.38 Fortis has not refuted that representation. Accordingly, I am persuaded
by Funk and Eidson to take judicial notice of Allergan’s Exhibits 5 and 19.
Exhibits 2 through 4, and 6 through 18, are Allergan’s nonpublic
correspondence with the FDA.39 Allergan’s communications with the FDA are not
publicly available, and their contents cannot be reasonably described as “generally
known.” While the existence of the communications may be readily determined, the
accuracy of the facts contained therein cannot.40 The same is true for Exhibit 25,
which is correspondence between the FDA and a nonparty. I decline to extend Rule
201 to these communications, which are being offered to prove the facts asserted
therein.
38 See D.I. 38 at 28:23–30:7. 39 Id. 40 See Rural Metro, 2013 WL 6634009, at *7–8 (citing Santa Fe Pac. Corp., 669 A.2d at 69-70) (noting that a document may be subject to judicial notice for the purpose of determining what statements had been disclosed publicly, but not for the truth of those statements).
12 I will take judicial notice of Allergan’s Exhibits 1, 5, 6, 8, 11, 12, 13, 14, 18,
and 19. The remainder of Allergan’s Exhibits are not properly considered on
Allergan’s motion to dismiss.41
B. Allergan Has Not Shown That The Plain Meaning Of The Merger Agreement Forecloses The Enhanced Product Labeling Milestone.
Having circumscribed the pleadings and documents integral thereto, I
consider whether Fortis has stated a claim. Allergan claims Fortis’ breach of
contract claim must be dismissed because the Second Authorization plainly fails to
satisfy the Enhanced Product Labeling Milestone.
“[T]o survive a motion to dismiss for failure to state a breach of contract
claim, the plaintiff must demonstrate: first, the existence of the contract, whether
express or implied; second, the breach of an obligation imposed by that contract; and
third, the resultant damage to the plaintiff.”42 “[A] claim may be dismissed if
allegations in the complaint or in the exhibits incorporated into the complaint
41 In briefing, Allergan did not specifically advocate for consideration of Exhibits 20 through 24. To clarify the record upon which I make my decision, I will also examine these Exhibits. Exhibits 20 through 23 comprise academic research papers and a book chapter. These exhibits are not integral to Fortis’ Amended Complaint, and the accuracy of their contents cannot be readily determined. Exhibit 24 is an email chain between counsel that is not integral to the Amended Complaint and not subject to judicial notice. I do not consider any of these documents here. 42 VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 612 (Del. 2003). Allergan moves for dismissal on breach alone, arguing that Fortis has not alleged a breach because it cannot “show that [the Enhanced Product Labeling Milestone] has been achieved[.]” D.I. 27 at 33.
13 effectively negate the claim as a matter of law.”43 Otherwise, “[t]he court may grant
a motion to dismiss based on contractual language . . . only if the contractual
language is unambiguous—meaning, the language is susceptible of only one
reasonable interpretation.”44
To determine the obligations imposed by a contract, “Delaware courts start
with the text.”45 “When the contract is clear and unambiguous,” Delaware courts
“will give effect to the plain-meaning of the contract’s terms and provisions.”46 “[A]
term is not ambiguous simply because it is not defined[.]”47 “Delaware courts look
to dictionaries for assistance in determining the plain meaning of terms which are
not defined in a contract.”48 “If a contract is unambiguous, extrinsic evidence may
43 VLIW Tech, 840 A.2d at 614–15 (quoting Malpiede v. Townson, 780 A.2d 1075, 1083 (Del. 2001)). 44 Fortis Advisors LLC v. Stora Enso AB, 2018 WL 3814929, at *3 (Del. Ch. Aug. 10, 2018). 45 Sunline Comm. Carriers, Inc. v. CITGO Pet. Corp., 206 A.3d 836, 846 (Del. 2019). 46 Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159–60 (Del. 2010). 47 ClubCorp, Inc. v. Pinehurst, LLC, 2011 WL 5554944, at *12 (Del. Ch. Nov. 15, 2011) (alteration in original) (quoting Sassano v. CIBC World Mkts. Corp., 948 A.2d 453, 468 n.86 (Del. Ch. 2008)). 48 Horton v. Organogenesis Inc., 2019 WL 3284737, at *4 (Del. Ch. July 22, 2019) (quoting Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 738 (Del. 2006)).
14 not be used to interpret the intent of the parties, to vary the terms of the contract or
to create an ambiguity.”49
Allergan’s motion to dismiss hinges on whether the FDA’s indication for use
“to improve dry eye symptoms” is equivalent to the Enhanced Product Labeling
Milestone’s requirement of “treatment of dry eye disease symptoms.” As a
prefatory matter, I consider whether the indication, limited to symptoms, falls short
of any contractual requirement to treat the underlying disease. The FDA approved
the following indication for use: “The [Product] provides a temporary increase in
tear production during neurostimulation to improve dry eye symptoms in adult
patients with severe dry eye symptoms.”50 The FDA explained, “[t]he [Product] is
limited only to the improvement in dry eye symptoms as the safety and effectiveness
in the treatment of dry eye disease has not been established.”51 Thus, the Second
Authorization explicitly distinguished the treatment of dry eye disease, and is
cabined to symptoms.
Similarly, the Merger Agreement only contemplated the treatment of dry eye
disease symptoms. Under the Merger Agreement, the Enhanced Product Labeling
49 Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del. 1997); see e.g., Citadel Hldg. Corp. v. Roven, 603 A.2d 818, 822 (Del. 1992) (“Only when there are ambiguities may a court look to collateral circumstances.”). 50 Am. Compl. ¶ 27 (emphasis added). 51 D.I. 27, Ex. 18 at 2.
15 Milestone required the “receipt by a Milestone Party of written notice of FDA
Authorization of the Product that includes an ‘indication for use’ for Increased Tear
Production and for the treatment of at least one Dry Eye Disease Symptom.”52 “Dry
Eye Disease Symptoms” are defined as just that: symptoms. 53 The Merger
Agreement does not hinge milestone payments on treatment of the underlying
disease. So, the Second Authorization’s exclusion of the treatment of disease does
not foreclose the satisfaction of the Enhanced Product Labeling Milestone.
I now turn to Allergan’s specific arguments as to why the Second
Authorization did not satisfy the Enhanced Product Labeling Milestone. Allergan
reads the Enhanced Product Labeling Milestone as imposing three requirements—
causation, duration, and the entire patient population—and concludes the Second
Authorization failed to satisfy all three. I conclude Fortis pled a breach of the Merger
Agreement over each of Allergan’s arguments.
52 Merger Agreement § 1.1. 53 “‘Dry Eye Disease Symptom’ means any of the following subjective patient reported conditions associated with dry eye disease, including dry eye symptoms measured in total score on the Ocular Surface Disease Index (“OSDI”), individual symptoms of painful or sore eyes, eyes that feel gritty, blurred vision, poor vision as measured on OSDI coupled with a sign endpoint, ocular discomfort measured by the Ora Calibra Ocular Discomfort Scale, ocular discomfort, burning, dryness, grittiness, or stinging as measured by the Ora Calibra Ocular Discomfort and 4-Symptom Questionnaire, or individual symptoms of ocular discomfort, dryness, burning, stinging, eye pain, foreign body sensation, or perception of blurred or poor vision measured by a validated individual dry eye questionnaire.” Id. (emphasis added).
16 First, Allergan contends that the Merger Agreement’s use of the word
“treatment” requires “a causal relationship” not present in the Second
Authorization’s use of the term “to improve.”54 The Merger Agreement does not
define “treatment,” and Allergan has provided no other definition. Dictionary
definitions for treatment include “a particular method or type of medical care”;55 “to
care for or deal with medically or surgically”;56 and “management in the application
of medicines, surgery, etc.”57 Delaware courts have also defined treatment as “[t]he
management of illness, by the use of drugs, dieting, or other means designed to bring
relief or effect a cure.”58 I accept these definitions as the plain meaning of
54 D.I. 27 at 36. 55 Treatment, MacMillan Online Dictionary, https://www.macmillandictionary.com/us/dictionary/american/treatment (last visited Oct. 27, 2019). 56 Treat, Merriam-Webster Online Dictionary, https://www.merriam- webster.com/dictionary/treat (last visited Oct. 29, 2019). Compare “treat” with Treatment, Merriam-Webster Online Dictionary, https://www.merriam- webster.com/dictionary/treatment (last visited Oct. 29, 2019). Merriam-Webster defines treatment as “the act or manner or an instance of treating someone or something”; “the techniques or actions customarily applied in a specified situation”; “a substance or technique used in treating”; “an experimental condition.” Thus, the noun form of treatment is defined in terms of the verb “treat.” The definition of “treat” informs my understanding of the plain meaning of “treatment.” 57 Treatment, Dictionary.com, https://www.dictionary.com/browse/treatment (last visited Oct. 27, 2019). Collis v. Topper’s Salon & Health Spa, Inc., 2012 WL 1408884, at *4 (Del. Super. Ct. 58
Mar. 29, 2012) (citing 2 Webster Dictionary 1337 (Int’l ed. 1998)).
17 “treatment,” an unambiguous term. The definitions also support Allergan’s view
that “treatment” implies causation. The phrases “bring relief or effect a cure,” to
“care for,” and to “manage[]” an illness, suggest causation.
According to Fortis, the indication’s use of the term “to improve” satisfies this
element of causation. The FDA issued the Second Authorization with an
accompanying guide. That guide states “[t]he [Product] is limited only to the
improvement in dry eye symptoms . . . .”59 “An improvement in” symptoms suggests
the Product “bring[s] relief” or “care[s] for” dry eye symptoms, synonymously with
“treatment.” This interpretation is consistent with the federal statute that hinges
FDA approval on a “reasonable assurance of safety and effectiveness”60 of the
Product. The authorization is therefore based on the Product’s effectiveness in
improving dry eye symptoms.61 Thus, I conclude that both “to improve” and
59 D.I. 27, Ex. 18 at 2. Allergan attempted to introduce Exhibit 17, detailing the course of communications with the FDA, to inform the Second Authorization’s scope. Because Fortis did not reference Exhibit 17 in the Amended Complaint, I do not consider it for the purpose of this motion. See supra Section (II)(A). Further, because “treatment” and “to improve” are not ambiguous, “extrinsic evidence may not be used to interpret the intent of the parties, to vary the terms of the contract or to create an ambiguity.” See Eagle Indus., Inc., 702 A.2d at 1232. For this reason, I do not consider Fortis’ allegations of the parties’ conduct during the approval process (e.g., celebrations upon obtaining the Second Authorization) in interpreting the unambiguous Merger Agreement and Second Authorization. See D.I. 30 at 16–17. 60 21 U.S.C. § 360e(d)(1)(A) (2019) (effective Aug. 18, 2017). 61 Allergan highlights that a portion of patients with severe dry eye symptoms experienced worsening symptoms after application of the Product, as set forth in the FDA disclosure. See D.I. 27, Ex. 18 at 22. The FDA further stated that “[t]here were more subjects with
18 “treatment” contemplate causation. Allergan has not shown the Second
Authorization cannot meet the Enhanced Product Labeling Milestone’s causation
requirement.
Second, Allergan contends the Merger Agreement imposes a duration
requirement that the Second Authorization failed to satisfy. Allergan contends that
the Enhanced Product Labeling Milestone requires “a long-term improvement—i.e.,
that the device actually results in long-term reduction or elimination of a Dry Eye
Disease Symptom.”62
The plain meaning of “treatment” does not differentiate between short-term
and long-term improvement. Short-term relief is consistent with the definition of
treatment that contemplates “management . . . designed to bring relief.”63 Allergan
has not offered an alternative definition that requires long-term improvement.
As the term “treatment” is used in the Enhanced Product Labeling Milestone,
Allergan sees an interplay between the two requirements of a) Increased Tear
Production, and b) the treatment of at least one Dry Eye Disease Symptom.
severe dry eye symptoms that had a meaningful improvement in symptoms from baseline as measured with the OSDI than the number with meaningful worsening of symptoms . . . .” Id. Although this result does not demonstrate unanimous improvement, the FDA’s authorization shows meaningful improvement among certain patients, supporting causation. 62 D.I. 27 at 36. 63 Collis, 2012 WL 1408884 at *4 (citing 2 Webster Dictionary 1337 (Int’l ed. 1998)).
19 “Increased Tear Production,” is defined as a “temporary increase in tear
production.”64 Allergan points out that the word “temporary,” present in the
Increased Tear Production requirement, is absent from the treatment requirement,
and concludes that “treatment” must be longer-term.
I draw a different conclusion. In my view, an “increase in tear production” is
specified to be “temporary” to make clear that the patient’s eyes should not produce
tears at that increased rate at all times, forever. I do not construe the unmodified
term “treatment” to preclude short-term relief.
More fundamentally, Allergan has yet to show that the Second Authorization
was limited to temporary symptom relief. Allergan points to a FDA deficiency letter
dated December 22, 2017, in which the FDA requested support for “the persistence
of symptom relief after the application of the [Product]” beyond the five minute
measurement to evaluate the benefits and risks for the proposed indication.65
According to Allergan, this letter shows the Second Authorization did not
contemplate persistent relief.
But after that letter, and additional advocacy by Allergan, the FDA issued the
Second Authorization with the guide that detailed the FDA’s evaluation of symptom
64 Merger Agreement § 1.1 (emphasis added). 65 D.I. 27, Ex. 13 at 3.
20 improvement at days seven and thirty.66 This guide explained “[t]he proportion of
subjects with a clinically important change in [Ocular Surface Disease Index] at the
follow-up days 7 and 30 for all available subjects [were] stratified by dry eye severity
subgroup . . . .” 67 And “[o]f the 97 subjects that were enrolled, 77 had severe dry
eye symptoms at the start of the study and were seen following treatment. Of these
subjects, between 18 (23%) and 33 (43%) were shown to have a clinically
meaningful improvement in their symptoms.”68 In my view, on the available record,
the Second Authorization guide shows that Allergan remedied the FDA’s concerns
expressed in the December 2017 deficiency letter. In relying on the December 2017
deficiency letter, Allergan falls short of demonstrating that the Second Authorization
was for only temporary improvement.
Finally, Allergan contends that the Second Authorization fell short of an
Enhanced Product Labeling Milestone requirement to improve dry eye symptoms
for the entire patient population. The Second Authorization states, “[the Product]
provides a temporary increase in tear production during neurostimulation to improve
dry eye symptoms in adult patients with severe dry eye symptoms.”69 Allergan
66 D.I. 27, Ex. 18 at 22. 67 Id. 68 Id. 69 Am. Compl. ¶ 27 (emphasis added).
21 contends “[t]he parties agreed to an Enhanced Product Labeling Milestone payment
if the device could be marketed as a treatment for dry eye disease symptoms
generally, implicitly but clearly to the total patient population.”70 Allergan notes the
truism that the Product’s commercial success is dependent on the population eligible
to use it to Allergan; complains that the Second Authorization’s limited patient
population has dramatically undercut the Product’s commercial success; and
concludes the parties could not have contracted for less than the entire patient
population. Because the Second Authorization is limited to patients suffering from
severe dry eye symptoms, Allergan contends it falls short of the Enhanced Product
Labeling Milestone.
Allergan correctly notes that any requirement that the Second Authorization
apply to the entire patient population would be implicit. On its face, the Enhanced
Product Labeling Milestone does not specify any patient population. Allergan fails
to show an ambiguity in the text that would allow the Court to import an implicit
reading that is not otherwise evident. Even if Allergan now views the resulting
limitation to patients with “severe” symptoms as “a patent commercial failure,”71
Allergan’s post hoc disappointment does not support an otherwise unsupported
requirement that the Second Authorization be available to the entire population.
70 D.I. 27 at 40 (emphasis added). 71 Id. at 41.
22 Allergan has failed to demonstrate that the Second Authorization’s limitation on
“severe” symptoms could not have satisfied the Enhanced Product Labeling
Milestone.
In sum, Allergan has failed to establish that the Second Authorization fell
short of the Enhanced Product Labeling Milestone in any of the three ways advanced
in Allergan’s motion to dismiss. Fortis has sufficiently alleged a breach, and so
Allergan’s motion to dismiss on these grounds is denied.
C. Fortis Has Pled A Breach Of The Commercially Reasonable Efforts Provision.
Allergan contends that Fortis failed to plead that Allergan breached the
Merger Agreement by failing to use commercially reasonable efforts to obtain the
Second Authorization.72 Allergan first asserts that this claim is moot because Fortis
cannot plead that the Enhanced Product Labeling Milestone requirement was
satisfied.73 Having concluded otherwise, I turn to Allergan’s second argument that
Fortis has not adequately alleged that Allergan failed to use “Commercially
Reasonable Efforts” as defined in the Merger Agreement.74
72 Id. at 44. 73 Id. 74 Id. at 45–46.
23 Under the Merger Agreement, Commercially Reasonable Efforts means:
[W]ith respect to the performance of development, regulatory or commercialization activities with respect to the Product, the carrying out of such activities using commercially reasonable, diligent and good faith efforts and expending resources that Buyer would typically devote to, and with respect to, products of similar market potential at a similar stage in development or product life, considering the following: conditions then prevailing and taking into account, without limitation, issues of safety and efficacy, expected and actual cost and time to develop, expected and actual profitability, expected and actual competitiveness of alternative products in the marketplace, the nature and extent of the expected and actual market exclusivity (including patent coverage and regulatory exclusivity), the expected and actual reimbursability and pricing, the expected and actual amounts of marketing and promotional expenditures required, product profile (including the expected and actual labeling), anticipated timing of commercial entry, the regulatory environment and status of the product (including the likelihood of regulatory approval), and all other relevant legal, medical, scientific, technical and commercial factors.75
Fortis alleges that Allergan waited for two years to apply for the Enhanced
Product Labeling Milestone;76 filed a procedurally deficient 510(k) Application;77
75 Am. Compl., Ex. A § 1.1. 76 Am. Compl. ¶ 40. 77 Id. ¶¶ 40–41.
24 waited another four months to submit the De Novo Application;78 and prolonged that
delay by waiting two months to respond to the FDA’s deficiency letter.79
Allergan contends that Fortis fails to allege any facts about Allergan’s
comparable commercial efforts, which serves as the metric for Commercially
Reasonable Efforts under the Merger Agreement.80 Allergan stops short of
demonstrating what it must: that Fortis failed to give notice of its claim, or that
Fortis alleged no facts that, if true, could support a breach of the Merger Agreement’s
Commercially Reasonable Efforts provision.81 Drawing all reasonable inferences in
favor of Fortis, as I must at this stage,82 I find that Fortis has alleged substantial delay
during multiple phases. These allegations support an inference that Allergan’s
efforts fell short of its comparable efforts for other similar products. From the facts
alleged, and with the aid of discovery into Allergan’s comparable efforts, Fortis may
prevail on its breach of contract claim. Fortis’ claim survives Allergan’s motion to
dismiss.
78 Id. ¶ 42. 79 Id. ¶ 43. 80 D.I. 27 at 45. 81 VLIW Tech., 840 A.2d at 615 (“A trial court must not dismiss any claim pursuant to Rule 12(b)(6) unless it appears with reasonable certainty that the plaintiff cannot prevail on any set of facts which might be proven to support the allegations in the complaint.”). 82 Cent. Mortg. Co., 27 A.3d at 536.
25 III. CONCLUSION
Fortis has stated a claim for breach of the Merger Agreement based on
Allergan’s refusal to make the Enhanced Product Labeling Milestone payment.
Fortis has also pled facts that, if proven, would support a breach of the Commercially
Reasonable Efforts provision. For these reasons, Allergan’s motion to dismiss is
DENIED.