Irish pharmaceutical company Shire PLC lost a bid Friday to shut down a Delaware Chancery Court contract breach suit demanding an overdue $45 million drug development “milestone” payment, filed by the post-merger representatives of the drug’s original owner.
In a ruling from the bench, Vice Chancellor J. Travis Laster refused to dismiss the case filed by Shareholder Representative Services LLC, which represents equity holders of FerroKin BioSciences Inc.
The vice chancellor said in part that it appeared that Shire “made up” regulator-approval deadlines that played a part in its defense of its refusal to pay the contracted amount.
Shire bought FerroKin in 2012 in a $325 million deal that included $95 million in cash up front and the balance in a series of payments linked to development of deferitazole, FerroKin’s candidate drug for treatment of patients who build up excess iron in their blood as a result of repeated transfusions.
Under the agreement, Shire was required to pay $45 million on Dec. 31, 2015, based on the anticipated start of human clinical trials by that time. Only the emergence of a “fundamental circumstance” that made production and sale of the drug for the intended use “impracticable” could cancel the debt.
Shire argued that a fundamental circumstance emerged when the Food and Drug Administration order a clinical hold on the drug’s development in March 2014 after discovery of kidney tumors in rats given deferitazole.
The drug company accused SRS of mounting an effort to camouflage the consequences of the FDA clinical hold and of trying to convince the court to ignore the reason the milestone was not achieved.
But Vice Chancellor Laster said that SRS raised arguments sufficient to take the case forward. They included allegations that a restructuring by Shire led to the departure of key personnel and a change in the company’s focus, as well as business judgments regarding the potential profitability of deferitazole compared with other ventures.
Laurie Carr Mims of Keker Van Nest & Peters LLP, counsel to SRS, said that Shire’s reliance on the clinical hold was “the epitome of an after-the-fact litigation construct” and said the case involves a factual dispute that requires a battle of experts.
“The bottom line is that all of these issues are factual or they are contract interpretation questions where each side, or at least SRS, has a reasonable interpretation of the contract,” Mims said. “For that reason, this is not the type of case where a motion to dismiss is the proper place to make a decision.”
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