Shareholder Representative Services, LLC v. Alexion Pharmaceuticals, Inc.

Opinion

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

April 11, 2025

Michael A. Barlow, Esquire David E. Wilks, Esquire Quinn Emanuel Urquhart & Sullivan, LLP Wilks Law, LLC 500 Delaware Avenue, Suite 220 4250 Lancaster Pike, Suite 200 Wilmington, Delaware 19801 Wilmington, Delaware 19805

RE: Shareholder Representative Services, LLC v. Alexion Pharmaceuticals, Inc., Civil Action No. 2020-1069-MTZ

Dear Counsel,

As you know, I issued a post-trial opinion on September 5, 2024 (the

“Memorandum Opinion”) that left unresolved each side’s claims based on problems

with drug materials Alexion acquired from Syntimmune in connection with a

merger. 1 Syntimmune had promised in Section 4.13(a) of the merger agreement

that materials “for human use or anticipated to be for human use” were and would

continue to be manufactured in material compliance with regulations and FDA

guidance governing good manufacturing practices (“cGMP”).2 Alexion asserts

1 S’holder Representative Servs. LLC v. Alexion Pharms., Inc., 2024 WL 4052343 (Del. Ch. Sept. 5, 2024). This letter assumes familiarity with that opinion and uses its defined terms and citation formats. 2 Merger Agr. § 4.13(a). S’holder Representative Servs. LLC v. Alexion Pharms., Inc., C.A. No. 2020-1069-MTZ April 11, 2025 Page 2 of 14

Syntimmune broke that promise. Alexion sought indemnification, 3 and then brought

a claim for breach of Section 4.13.4 Specifically, Alexion asserts that drug product

lots AJ8794A, AK3858, AF6404A and AG3356A, and drug substance lots 5 CMC-

L-0125 and CMC-M-0009, were not manufactured in compliance with cGMP in

breach of Section 4.13. 6 SRS sought a declaratory judgment as to Alexion’s request

for indemnification.7 Those related claims remain pending.

3 Alexion demanded indemnification from SRS on November 1, 2019, for losses it incurred to replace Syntimmune’s contaminated drug supply, pursuant to Sections 8.1(a) and 8.3(d) of the merger agreement. See JX 1202. 4 D.I. 158 ¶¶ 109–19 [hereinafter “Counterclaims”]. 5 Drug substance refers to the active ingredient that provides a therapeutic effect, while drug product refers to the final product. See Drugs@FDA Glossary of Terms, https://www.fda.gov/drugs/drug-approvals-and-databases/drugsfda-glossary-terms (last visited Apr. 9, 2025); 21 C.F.R. § 314.3; Marshall Tr. at 1864–65. 6 ALXN Ans. Br. 58–64; ALXN Op. Br. 21–37; JX 2303 at Interrog. Resp. No. 23. Alexion broadly contends that “[w]ith the exception of DS Batch CMC-K-0068 (filled into DP lot AG7907A), all DS and DP that Alexion acquired from Syntimmune was noncompliant with cGMP.” ALXN Op. Br. 31 n.123. Alexion asserts in a footnote that CMC-M-0010 was cGMP noncompliant. ALXN Ans. Br. 62 n.243. But Alexion stated in its interrogatory responses that “batch CMC-M- 0010 was intended solely for testing and engineering purposes for developing 150 mg/mL drug product, and was not intended for human use.” JX 2303 at 21 n.21; see also JX 2462 at 36 n.40 (same). Alexion’s expert Paul Marshall disagreed, again in a footnote, and had a different theory: “although it is true that Alexion ultimately used CMC-M-0010 as an engineering batch for drug product filling . . . Syntimmune intended CMC-M-0010 as a cGMP batch for human use at the time of its manufacture.” JX 2502 at 35 n.69. But Alexion did not amend its representation to SRS in its interrogatory responses. I hold it to its initial position. CMC-M-0010 was not intended for human use. 7 D.I. 155 ¶¶ 279–83. S’holder Representative Servs. LLC v. Alexion Pharms., Inc., C.A. No. 2020-1069-MTZ April 11, 2025 Page 3 of 14

This letter addresses a gating issue: whether all the drug substance lots and

drug product lots Alexion identified were “for human use or anticipated to be for

human use” and so were encompassed by Section 4.13.8 This letter concludes all

disputed lots were at least anticipated to be for human use.

I. BACKGROUND 9

Alexion acquired Syntimmune, and its drug supply, in 2018. Syntimmune

was a privately held company that was developing an anti-FcRn drug from a

molecule that would become known as ALXN1830.

A year before the merger, Syntimmune entered into various “cGMP

manufacturing” work orders with one of its manufacturers, AGC Biologics. 10 AGC

Biologics agreed to manufacture drug substance lots, including CMC-L-0125 and

8 This issue was plagued by the ills of simultaneous briefing. SRS’s answering brief asserted Alexion did not dispute that the lots were not for human use. See SRS Ans. Br. 52–53. But Alexion did just that in its own answering brief. ALXN Ans. Br. 59. 9 This post-trial letter relies on the facts found in the Memorandum Opinion, and finds additional facts by a preponderance of the evidence. Alexion bore the burden of proving its counterclaim by a preponderance of the evidence. Zimmerman v. Crothall, 62 A.3d 676, 691 (Del. Ch. 2013). 10 See JX 382.02; JX 202; JX 203; JX 172; JX 949 at 6; see also JX 97. AGC Biologics was then known as CMC Biologics A/S. JX 232; JX 202. S’holder Representative Servs. LLC v. Alexion Pharms., Inc., C.A. No. 2020-1069-MTZ April 11, 2025 Page 4 of 14

CMC-M-0009, 11 “to support” Syntimmune’s “Phase I/II clinical trials.”12

Syntimmune then contracted with Patheon Manufacturing Services LLC to

manufacture drug product lots. Patheon manufactured AJ8794A for the purpose of

being “clinical supply . . . for a Phase II study.” 13 AJ8794A was later “assigned [to

a] HV IV Study to be initiated in the Netherlands in October [2018] and [was] in

storage . . . to replenish [that] study if required.” 14 AK3858 was “manufactured for

[drug product] stability testing.”15

The merger agreement was entered into on September 28, 2018, and the

merger closed on November 2. 16 As of closing, Syntimmune had completed one

Phase 1 clinical trial, had two more underway, and had planned a fourth. 17

11 See JX 382.02; JX 202; JX 203; JX 172; JX 949 at 6; JX 1342; JX 603 at 27; see also JX 97. 12 JX 202 at 4; JX 203 at 2; JX 172 at 1, 6; JX 949 at 6; see also JX 97 at 2. 13 JX 275 at 2; JX 298 at 1. 14 JX 668 at 4. 15 JX 784 at 82. 16 JX 1; JX 765. 17 Alexion, 2024 WL 4052343, at *15. “Phase 1 clinical trials are typically the first time the drug is administered to humans.” Id. at *5. S’holder Representative Servs. LLC v. Alexion Pharms., Inc., C.A. No. 2020-1069-MTZ April 11, 2025 Page 5 of 14

A. Alexion Negotiated Representations And Warranties, Then Quickly Experienced Problems With Syntimmune’s Drug Supply.

At the time of negotiations, Syntimmune competitors were further along in

developing multiple other anti-FcRn products.18 “To be successful, Alexion

believed the drug had to get to market quickly and be differentiated from its

competitors.”19 Alexion wanted to “be very aggressive in [its] timeline” in bringing

the drug to market: “time was of the essence.” 20

Alexion negotiated for representations and warranties assuring Syntimmune’s

drug supply was developed in compliance with federal regulations. Section 4.13(a)

of the Merger Agreement states, in relevant part:

The Company’s product candidates for human use or anticipated to be for human use (the “Product Candidates”) are being, and at all times have been, developed, tested, labelled, manufactured, stored, imported, exported and distributed, as applicable, in compliance in all material respects with the FDCA and applicable implementing regulations issued by the FDA, the EMA and any other applicable Governmental Entities, including, as applicable, those requirements relating to the FDA’s current good manufacturing practices, good laboratory practices, good clinical practices, investigational use, pre-market approval and applications to market a new pharmaceutical product, except as disclosed on Section 4.13(a) of the Disclosure Schedule. 21

18 Id. at *15; JX 518 at 2. 19 Alexion, 2024 WL 4052343, at *10. 20 Sarin Tr. at 952–53; see also Alexion, 2024 WL 4052343, at *5. 21 Merger Agr. § 4.13(a). S’holder Representative Servs. LLC v. Alexion Pharms., Inc., C.A. No. 2020-1069-MTZ April 11, 2025 Page 6 of 14

At closing, Alexion knew AJ8794A “was contaminated with a particulate, so

that [it] could not be used.” 22 AJ8794A remained under investigation and would not

be “released into clinic until lot investigation [was] completed.” 23 Alexion also

knew multiple other lots were pending release.24 Indeed, CMC-L-0125 and CMC-

M-0009 were under investigation and “[p]ending final release,”25 but had ongoing

“[i]ssue[s]” as the deal closed in November. 26

As of closing, AK3858 was “pending release” and its “limited leftover”

supply was earmarked for “clinical inventory.” 27 But shortly after closing, Alexion

determined that AK3858 was also contaminated and experienced “particle issue[s]”

during manufacturing. 28 Alexion had planned to use that lot to resupply its clinical

trials, and was forced to pause a study. 29 A few weeks later, participants in one of

22 Ledwith Tr. at 1029; JX 722 at 3. 23 JX 784 at 82. 24 JX 668 at 3. 25 Id.; Luosey Tr. at 820–21; see also JX 784 at 11; JX 2846. 26 JX 804 at 4. 27 JX 784 at 82. 28 JX 804 at 5; JX 817; JX 2846; Ledwith Tr. at 1030–31. 29 Ledwith Tr. at 1030–31; JX 843 at 3, 10. S’holder Representative Servs. LLC v. Alexion Pharms., Inc., C.A. No. 2020-1069-MTZ April 11, 2025 Page 7 of 14

Alexion’s clinical studies started exhibiting infusion-related reactions after injection

of drug products, including AF6404A.30

Alexion’s clinical studies “were paused in February [2019] pending an

investigation into the drug supply” Alexion acquired from Syntimmune.31 Alexion

investigated Syntimmune’s chemistry, manufacturing, and controls, and determined

that all the drug product lots and drug substance lots it acquired from Syntimmune

were unusable,32 including drug product lot AG3356A which was released from

manufacturing and planned for use in clinical trials. 33 Drug product lots AJ8794A34

and AK3858, 35 and drug substance lots CMC-L-0125 and CMC-M-0009, were

never released and never used in clinical trials.36 In November 2019, Alexion sought

indemnification under the merger agreement.37

B. Litigation Ensues.

Plaintiff and counterclaim defendant SRS represents Syntimmune’s former

30 Ledwith Tr. at 1035; JX 923 at 42, 64; JX 2303 at Interrog. Resp. No. 23. 31 Alexion, 2024 WL 4052343, at *15. 32 Ledwith Tr. at 1038–41. 33 JX 804 at 7, 13; JX 983 at 8; JX 2846. 34 This was renamed from CMC-L-0079. Counterclaims ¶ 54, n.6. 35 This was filled from CMC-L-0125. 36 JX 804 at 4–5; Ledwith Tr. at 1038–41; JX 1202. 37 JX 1202. S’holder Representative Servs. LLC v. Alexion Pharms., Inc., C.A. No. 2020-1069-MTZ April 11, 2025 Page 8 of 14

stockholders under the merger agreement. SRS sued Alexion for breaches of the

merger agreement’s milestone and commercially reasonable efforts obligations, and

for a declaratory judgment on Alexion’s indemnification claim. 38 Alexion filed its

amended counterclaims on April 26, 2022. 39 Alexion claims Syntimmune failed to

properly manufacture its drug supply in accordance with current cGMP, and seeks

indemnification for the related losses it incurred to investigate, remediate and

remanufacture that supply, among other damages.40

Section 4.13 requires cGMP compliance only for “product candidates for

human use or anticipated to be for human use.”41 The parties dispute whether the

challenged lots were “for human use or anticipated to be for human use.”42

38 D.I. 155. 39 See generally Counterclaims. 40 Id. ¶¶ 109–19; ALXN Op. Br. 37–44. 41 Merger Agr. § 4.13(a). 42 SRS’s post-trial opening brief took the position that AJ8794A, CMC-L-0125 and CMC- M0009 were the only lots Alexion challenged. SRS Op. Br. 85 n.23. Indeed, those three lots were the only lots identified in the Counterclaims. But Alexion’s post-trial opening brief challenged other lots, including AK3858, AF6404A, and AG3356A, and SRS responded to those challenges in its answering brief and raised no objection. SRS Ans. Br. 52–67. It appears SRS shifted from its opening position. Alexion asserts that “[d]uring discovery, additional cGMP violations became evident, which Alexion disclosed in interrogatory responses, and SRS took fact and expert deposition discovery thereon.” ALXN Ans. Br. 62, n.242. After a review of Alexion’s interrogatory responses, expert reports, pre-trial briefing, and trial testimony, I agree. At the very least, these issues were tried by consent. See Ct. Ch. R. 15(5)(b)(2). S’holder Representative Servs. LLC v. Alexion Pharms., Inc., C.A. No. 2020-1069-MTZ April 11, 2025 Page 9 of 14

II. ANALYSIS

The first step in evaluating whether the challenged lots were “for human use

or anticipated to be for human use” per Section 4.13 is to construe that language. To

do so, “we apply our well-established principles of contract interpretation.” 43 “In

construing a contract, our goal is to give effect to the intent of the parties.”44 “The

court’s task is to fulfill the parties’ shared expectations at the time they contracted.”45

“Delaware adheres to the ‘objective’ theory of contracts, i.e. a contract’s

construction should be that which would be understood by an objective, reasonable

third party.” 46 “When interpreting a contract, the Court will give priority to the

parties’ intentions as reflected in the four corners of the agreement.” 47 “Delaware

courts read the agreement as a whole and enforce the plain meaning of clear and

unambiguous language.”48 “If a contract is unambiguous, extrinsic evidence may

43 Weinberg v. Waystar, Inc., 294 A.3d 1039, 1043 (Del. 2023). 44 Id. at 144. 45 Centene Corp. v. Accellion, Inc., 2022 WL 898206, at *5 (Del. Ch. Mar. 28, 2022) (quoting Leaf Invenergy Co. v. Invenergy Renewables LLC, 210 A.3d 688, 696 (Del. 2019) (internal quotation marks omitted)). 46 Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010) (quoting NBC Universal v. Paxson Commc’ns, 2005 WL 1038997, at *5 (Del. Ch. Apr. 29, 2005)). 47 Alexion, 2024 WL 4052343, at *29 (quoting GMG Cap. Invs., LLC v. Athenian Venture P’rs I, L.P., 36 A.3d 776, 779 (Del. 2012)). 48 Manti Hldgs., LLC v. Authentix Acq. Co., Inc., 261 A.3d 1199, 1208 (Del. 2021). S’holder Representative Servs. LLC v. Alexion Pharms., Inc., C.A. No. 2020-1069-MTZ April 11, 2025 Page 10 of 14

not be used to interpret the intent of the parties, to vary the terms of the contract or

to create an ambiguity.” 49

The merger agreement does not define “for human use” or “anticipated to be

for human use.” I construe the plain meaning of this language “in accordance with

its ordinary dictionary meaning.”50 Merriam-Webster defines “anticipate” to mean

“to look forward to as certain.” 51 The Cambridge dictionary defines it as “to imagine

or expect that something will happen.”52 Based on these ordinary meanings, a

challenged lot was “anticipated to be for human use” if it was expected to be used

by or in humans. Section 4.13 represents that product candidates expected to be used

by or in humans were compliant in all material respects with cGMP while

“developed, tested, labelled, manufactured, stored, imported, exported and

distributed, as applicable.” 53

49 Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del. 1997). 50 USA Cable v. World Wrestling Fed’n Ent., Inc., 766 A.2d 462, 474 (Del. 2000); see also Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 738 (Del. 2006) (“Under well- settled case law, Delaware courts look to dictionaries for assistance in determining the plain meaning of terms which are not defined in a contract.”). 51 Anticipate, Merriam-Webster Dictionary, https://www.merriam- webster.com/dictionary/anticipate#dictionary-entry-1 (last visited Apr. 10, 2025). 52 Anticipate, Cambridge Dictionary, https://dictionary.cambridge.org/us/dictionary/ english/anticipate (last visited Apr. 10, 2025). 53 Merger Agr. § 4.13(a). S’holder Representative Servs. LLC v. Alexion Pharms., Inc., C.A. No. 2020-1069-MTZ April 11, 2025 Page 11 of 14

My next task is to apply that language to the lots at issue. I begin with the

released lots: AF6404A and AG3356A. SRS does not dispute that released batches

were for human use or anticipated for human use. AF6404A and AG3356A were

both released from manufacturing. AF6404A was used in humans in clinical trials

and AG3356A was clinical supply. They were actually used, or planned for use, on

humans. They were for human use.

Next, the unreleased lots: AJ8794A, AK3858, CMC-L-0125 and CMC-M-

0009. Syntimmune’s contracts, internal investigation documents, and due diligence

materials produced to Alexion reflect the unreleased lots were manufactured to

support Phase 1 and/or Phase 2 clinical trials in humans.54 CMC-L-0125 and CMC-

M-0009 were manufactured to support human clinical trials. 55 AK3858’s limited

leftovers were earmarked for clinical use.56 AJ8794A was assigned to a study and

stored to be used in a study. 57 At the very least, AJ8794A, AK3858, CMC-L-0125

54 SRS contends that Alexion’s expert “acknowledged that until a drug product is released, the sponsor has not represented that the drug is manufactured in conformance with GMP,” and therefore it is not anticipated for human use until release too. SRS Op. Br. 84–85 (citing Elder Tr. at 1968–69). But Dr. Elder was talking about representations in the context of the FDA, not whether a product was for “human use” or “anticipated to be for human use” under the merger agreement. 55 JX 202 at 4; JX 203 at 2; see also JX 97 at 2; JX 172 at 6. 56 JX 784 at 82. 57 JX 275 at 2; JX 298 at 1; JX 668 at 4. S’holder Representative Servs. LLC v. Alexion Pharms., Inc., C.A. No. 2020-1069-MTZ April 11, 2025 Page 12 of 14

and CMC-M-0009 were expected to be used in humans. They were anticipated for

human use.

SRS asserts that because these lots were intercepted or quarantined before

they were released or qualified for use in human trials, they were not even

“anticipated” for human use.58 AK3858, AJ8794A, CMC-L-0125 and CMC-M-

0009 were subjected to quality investigations and were never released for use in

clinical trials. But the merger agreement does not say the material must actually be

“released” or used in clinical trials to be a product candidate under Section 4.13.

They must only be expected to be used in humans. Indeed, the cGMP promise

encompasses “develop[ment]” and “manufactur[ing].”59 This makes sense: Alexion

bought all of Syntimmune’s drug supply with the goal of rapid development through

clinical trials. Alexion bought a promise that the supply would be compliant.

Having concluded each challenged lot was at least anticipated to be for human

use or actually for human use, I turn to next steps. In accordance with my

instructions, the parties have identified potential experts to assist the Court under

Delaware Rule of Evidence 706 in determining these lots’ compliance with cGMP.60

58 SRS Op. Br. 84–85. 59 Merger Agr. § 4.13(a). 60 See D.I. 381; D.I. 401; D.I. 402; D.I. 403. S’holder Representative Servs. LLC v. Alexion Pharms., Inc., C.A. No. 2020-1069-MTZ April 11, 2025 Page 13 of 14

The parties identified three issues on which they could not agree. 61 My ruling on

each follows.

(1) The question posed to the expert shall be: “Whether the Syntimmune drug

product lots and drug substance lots Alexion has identified were

manufactured in compliance in all material respects with the FDCA and

applicable implementing regulations issued by the FDA, the EMA and any

other applicable Governmental Entities, including, as applicable, those

requirements relating to the FDA’s current good manufacturing practices.”

This language tracks Section 4.13(a). SRS properly understood my

January 24 letter.

(2) The expert may be provided with the Memorandum Opinion. It provides

important procedural context. I do not believe it would prejudice a cGMP

expert against Alexion. The expert may also be provided with this letter

opinion and those considering the expert’s appointment and role.

(3) The parties should not plan on rebuttal reports and additional depositions

from their own experts. This ruling is without prejudice to request such

procedures for a specific issue.

61 D.I. 402; D.I. 403. S’holder Representative Servs. LLC v. Alexion Pharms., Inc., C.A. No. 2020-1069-MTZ April 11, 2025 Page 14 of 14

The parties submitted two experts for in camera consideration. The Court

selects Robert Sharpnack. The parties should confer with Mr. Sharpnack and submit

a stipulated order of appointment.

III. CONCLUSION

The challenged drug substance lots and drug product lots were either for

human use or anticipated to be for human use. Section 4.13 applies. Alexion’s

breach of contract claim, and SRS’s indemnification claim, march forward.

Sincerely,

/s/ Morgan T. Zurn

Vice Chancellor

MTZ/ms

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