Barbara Borden and Jamie Leigh are partners and Mutya Harsch is special counsel at Cooley LLP. This post is based on a Cooley publication by Ms. Borden, Ms. Leigh, Ms. Harsch, Rama Padmanabhan, Al Browne and Steve Tonsfeldt, and is part of the Delaware law series; links to other posts in the series are available here.
Former stockholders of SARcode Bioscience were recently denied a claim that they were entitled to be paid $425 million in milestone payments under a merger agreement. The decision provides an anecdotal lesson in drafting milestones and suggests that the more technically prescribed milestones may be more difficult to meet, even though the development of the drug is ultimately successful.
In Fortis Advisors v. Shire, the Delaware Court of Chancery granted Shire’s motion to dismiss a complaint filed by the stockholder representative of the former stockholders of SARcode Bioscience seeking the payment of two milestones totaling $425 million. The first milestone related to the outcome of a Phase 2 clinical trial of the drug in development to treat dry eye disease. It required the occurrence of an “achievement date,” which the merger agreement defined as the receipt of audited final tables, figures and listings from an OPUS-2 Study demonstrating that both components of the co-primary efficacy endpoints of the study, as specified in an attached OPUS-2 Study Protocol, was achieved. The definition also required that a specified safety standard (not relevant to the dispute) was also achieved. At the time of the acquisition, the Phase 2 clinical trial was ongoing. The second milestone was payable upon receipt of regulatory approval for the drug, contingent on the occurrence of the achievement date milestone.
