Ropes & Gray Secures Dismissal of Breach of Contract Suit for Shire US Holdings
Ropes & Gray secured a complete dismissal of a $425 million breach of contract suit on behalf of client Shire US Holdings Inc. in the Delaware Court of Chancery.
Fortis Advisors LLC, the agent for the former stockholders of SARcode Bioscience Inc., sued Shire in early 2016 for breach of contract, alleging that Shire was required to pay the SARcode stockholders certain “milestone” payments under the merger agreement pursuant to which Shire acquired SARcode in 2013. At the time of the acquisition, SARcode had partially developed a drug intended to treat dry eye disease (now marketed by Shire under the brand name Xiidra®), which was still undergoing clinical testing. The former SARcode stockholders alleged that, based on the results of a particular clinical trial of Xiidra® and subsequent regulatory approval of the drug, they were entitled to milestone payments under the agreement totaling $425 million.
On August 9, 2017, the Court granted Shire’s motion to dismiss, dismissing the case in its entirety. Crediting the arguments advanced by Ropes & Gray, the Court found that Shire’s interpretation of the contract was the only reasonable one. Specifically, the Court found that because Xiidra® had achieved only one of its co-primary efficacy endpoints in the relevant clinical trial, but not the other co-primary efficacy endpoint, no payment was due, notwithstanding the stockholders’ argument that the contractual condition had been met on the basis of results from a prior clinical trial of the drug. Likewise, the Court rejected the stockholders’ argument that the drug had shown sufficient success in the relevant clinical trial so as to trigger the milestone payments, agreeing with Shire that the stockholders had not alleged the requisite statistically significant clinical result required under the agreement.
The Ropes & Gray team included business & securities litigation partners John Donovan and David Hennes, and business & securities litigation senior associate Adam Harris.