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Tuesday, September 17, 2019

Del. court keeps lawsuit over Ception-Cephalon merger alive; Pursuit of eosinophilic esophagitis drug at issue


By Charmaine Little | Jan 10, 2019

WILMINGTON, Del. (Legal Newsline) – The Court of Chancery of the State of Delaware on Dec. 28 granted in part and denied in part pharmaceutical companies' motions to dismiss a case over allegations of a breach of merger agreement.

"At the pleadings stage... I must employ plaintiff-friendly inferences, consonant with which I find that the defendants have only identified factual issues that may be resolved when a record is created," Vice Chancellor Sam Glasscock wrote. 

"The plaintiffs have stated a claim for breach of contract, and the motion to dismiss that claim is denied. However, other ancillary claims must be dismissed."

Vice Chancellor Sam Glasscock | Delaware Courts

A group of representatives of former stockholders for Ception Therapeutics, a company that owned rights to an antibody, filed the suit. Ception was later bought out by defendant Cephalon, which allegedly agreed to develop efforts to help the antibody reach certain benchmarks. Teva Pharmaceuticals USA Inc. and Teva Pharmaceuticals Industries LTD were also named as a defendant in the suit.

The plaintiffs sued over allegations Cepalon abandoned efforts to develop and commercialize antibody Rezlizumab (RSZ) as a treatment for eosinophilic esophagitis (EoE) and breached the merger agreement.

The plaintiffs filed the original complaint in February 2018 and Cephalon and Teva USA filed a motion to dismiss the same month. Teva LTD filed its motion to dismiss April 2018.

While Cephalon and Teva said the plaintiffs failed to state a claim and filed the motion under Rule 12(b)(6), the court disagreed and denied the motion to dismiss. 

The court first pointed out the plaintiffs did in fact state a claim for breach of contract. Their key argument was that Cephalon had obligations to go after the commercialization for RSZ to treat EoE, and the merger agreement made that clear. 

On the other hand, the court said it was not clear what else Cephalon was obligated to do when it came to any other obligations. 

“Here, as of yet, neither side has convincingly suggested a reasonable interpretation of this language, a fact which similarly supports denial of a motion to dismiss,” Glasscock wrote.

The court also decided the plaintiffs didn’t properly state their claim for breach of implied covenant of good faith and fair dealing. The court said Ception and Cephalon did discuss the milestones for the merger agreement and the language calls for Cephalon to utilize commercially reasonable efforts to mark off those milestones. 

“However, no gap exists within with to employ implication, and the implied covenant claim must be dismissed,” Glasscock wrote.

The court also held that the plaintiffs failed to properly state a claim for tortious interference against Teva LTD and Teva USA and the plaintiffs’ lawsuit doesn’t back any argument for acquiescence.

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