Source: http://de.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20170315_0000172.DE.htm/qx
Timestamp: 2017-05-27 04:21:31
Document Index: 436528698

Matched Legal Cases: ['art 1', 'art 1', 'art 2', 'art 2', 'art 1', 'art 2', 'art 2', 'art 1', 'art 2']

| Shareholder Representative Services LLC v. Gilead Sciences, Inc.
SHAREHOLDER REPRESENTATIVE SERVICES LLC, in its capacity as the Stockholders' Agent for the former securityholders of Calistoga Pharmaceuticals, Inc., Plaintiff,v.GILEAD SCIENCES, INC. and GILEAD BIOPHARMACEUTICS IRELAND CORPORATION, Defendants. GILEAD SCIENCES, INC. and GILEAD BIOPHARMACEUTICS IRELAND UC, Counterclaimants,v.SHAREHOLDER REPRESENTATIVE SERVICES LLC, in its capacity as the Stockholders' Agent for the former securityholders of Calistoga Pharmaceuticals, Inc., Counterclaim-Defendant.
Bradley D. Sorrels, Shannon E. German, and Jessica A.
Montellese, WILSON SONSINI GOODRICH & ROSATI, P.C.,
Wilmington, Delaware; David S. Steuer, Steven D. Guggenheim,
and Evan L. Seite, WILSON SONSINI GOODRICH & ROSATI,
P.C., Palo Alto, California; Attorneys for Plaintiff.
C. Ralston and Aaron R. Sims, POTTER ANDERSON & CORROON
LLP, Wilmington, Delaware; Jason Sheasby, Gary N. Frischling,
and Harry A. Mittleman, IRELL & MANELLA LLP, Los Angeles,
California; Lisa S. Glasser, IRELL & MANELLA LLP, Newport
Beach, California; Attorneys for Defendants.
post-trial decision holds that Gilead Sciences, Inc. is not
required to pay a $50 million milestone payment under the
terms of a merger agreement pursuant to which Gilead acquired
Calistoga Pharmaceuticals, Inc. in 2011. The core of the
dispute boils down to the meaning of essentially one
word-"indication"-as used in an 84-page merger
of the merger consideration, Gilead agreed to make three
payments to the former securityholders of Calistoga if its
main compound at the time-CAL-101-achieved certain
milestones. In August 2014, Gilead paid $175 million in
satisfaction of the first two milestones after receiving
certain regulatory approvals for CAL-101 from the United
September 2014, the European Commission approved CAL-101, in
combination with another drug, as a first-line treatment for
patients with chronic lymphocytic leukemia in the presence of
genetic abnormality known as 17p deletion or TP53
mutation who are unsuitable for chemo-immunotherapy. The
question before the Court is whether that approval satisfies
the third milestone, one of the triggers for which is
"the receipt of Regulatory Approval of CAL-101 in the
United States or the European Union, whichever occurs first,
as a first-line drug treatment (i.e., a treatment for
patients that have not previously undergone systemic drug
therapy therefor) for a Hematologic Cancer
parties agree that the term "indication" has
multiple meanings in the oncology industry that are context
specific. Plaintiff Shareholder Representative Services LLC
contends that, as used in the merger agreement,
"indication" means "the approved use of a drug
in a population of patients with a particular disease"
and thus that the milestone at issue can be triggered by a
regulatory approval of CAL-101 as a first-line therapy for a
subpopulation of people suffering from a disease, such as CLL
patients with 17p deletion or TP53 mutation. Gilead,
by contrast, contends that "indication" means
"disease" and thus that the milestone at issue can
be triggered only by a disease-level regulatory approval of
CAL-101.
reasons explained below, after finding that the word
"indication" is ambiguous when construed within the
four corners of the merger agreement, I find that the
overwhelming weight of extrinsic evidence supports the
conclusion that the shared intention of the parties at the
time of contracting was that the word "indication"
means "disease" and that the milestone at issue
could only be triggered by a disease-level regulatory
approval. Finally, I find that the European Commission's
approval of CAL-101 was not a disease-level approval and thus
that the milestone in question is not due.
facts recited in this opinion are my findings based on the
testimony and documentary evidence of record from a four-day
trial held in September 2016 during which four fact and two
expert witnesses testified. Plaintiff's expert was Dr.
Susan G. Arbuck, a consultant who provides strategic research
and development services for drug development. Gilead's
expert was Dr. Claire Dearden, the Clinical Director of the
Haemato-Oncology Department and the Specialist Haematological
Malignancy Diagnostic Service at the Royal Marsden Hospital
& Biomedical Research Center in London, United Kingdom. I
accord the evidence the weight and credibility I find it
the merger, Calistoga Pharmaceuticals, Inc.
("Calistoga") was a privately-held biotechnology
company that developed and held a portfolio of proprietary
compounds for the treatment of inflammatory and autoimmune
diseases and hematologic cancers.
Gilead Sciences, Inc., a Delaware corporation with its
principal place of business in California, is a
biopharmaceutical company that develops and commercializes
drugs for the treatment of life-threatening diseases and
illnesses. Defendant Gilead Biopharmaceutics Ireland
Corporation, a company formed under the laws of Ireland, was
a wholly-owned subsidiary of Gilead Sciences,
Inc.[1]
In this opinion, I refer to Gilead Sciences, Inc. and Gilead
Biopharmaceutics Ireland Corporation together as
"Gilead."
February 21, 2011, Gilead and Calistoga executed an Agreement
and Plan of Merger (the "Merger Agreement")
pursuant to which Gilead acquired Calistoga. Under Section
9.3(a) of the Merger Agreement, plaintiff Shareholder
Representative Services LLC ("SRS"), a Colorado
limited liability company, was appointed as the agent for the
former securityholders of Calistoga for the purpose of, among
other things, enforcing the terms of the Merger Agreement.
Calistoga Initiates a Sale Process
fall of 2010, Calistoga began considering various potential
strategic alternatives, including licensing the commercial
rights of its drugs, an initial public offering, and a sale
of the company.[2] By the fourth quarter of 2010, Calistoga
decided to run a sale process.[3] Around that time, it retained
J.P. Morgan Securities LLP ("JP Morgan") to assist
it in the sale process.[4] Carol Gallagher, Calistoga's Chief
Executive Officer, oversaw the sale process with assistance
from Cliff Stocks, Calistoga's Chief Business
Officer.[5]
December 7, 2010, Calistoga had received offers from a number
of pharmaceutical companies including: AstraZeneca, Human
Genome Sciences, Bristol-Myers Squibb, Daiichi Sankyo, and
GlaxoSmithKline.[6] Later that month, Gilead expressed
interest in acquiring Calistoga.[7] Gilead's team was led by
Dr. Muzammil Mansuri, Executive Vice President of Strategy,
Business Development, and Licensing; and Sean O'Connell,
Senior Director of Corporate Development.[8]
Calistoga Makes Due Diligence Presentations to
time of the sale process, Calistoga held a portfolio of
compounds.[9]Only two compounds (CAL-101 and CAL-263)
had been tested on human beings, and only one (CAL-101) had
demonstrated initial efficacy in humans.[10] CAL-101 had
shown promise in early trials to treat blood cancers,
including two types of incurable B-cell malignancies known as
chronic lymphocytic leukemia (CLL) and indolent
Non-Hodgkin's Lymphoma (iNHL).[11] CAL-101 also showed
potential as a treatment in solid tumors and inflammatory
ailments.[12] CAL-101 was later given the generic name
idelalisib, and is now sold by Gilead under the trade name
Zydelig.[13] In this opinion, I use the terms
"CAL-101, " "idelalisib, " and
"Zydelig" interchangeably.
due diligence, Calistoga provided Gilead with information
about CAL-101's potential for treating hematologic
cancers, with a particular focus on CLL and
iNHL.[14] Calistoga also explained to Gilead the
clinical trials it was conducting and planned to conduct for
CAL-101 in support of regulatory approvals of the
drug.[15] For example, in two January 2011
presentations, Calistoga outlined its plans to obtain an
accelerated approval of CAL-101 "for the treatment of
patients with iNHL refractory to rituximab and alkylating
agents" by 2013; and to obtain full approvals "for
use in combination for the treatment of patients with
previously treated CLL" by 2015, and "for use in
combination for the treatment of patients with previously
treated iNHL" by 2016.[16]
United States, the term "accelerated approval, "
which is known as "conditional approval" in Europe,
is a special process that allows a drug to be approved more
rapidly when there is a high unmet medical
need.[17] After one obtains an accelerated
approval, additional studies still must be conducted to
secure a full and unconditional approval from the relevant
regulatory authority.[18]
term "refractory" or "previously treated"
refers to "the time of treatment of the drug relative to
previous therapies."[19] The cancers that are the
subject of this case typically are incurable and will
return.[20] After the first therapy of a patient-
known as the "first-line" or "frontline"
treatment-a patient who relapses becomes
"refractory."[21] The next line of therapy for a
refractory patient is known as a "second-line"
treatment, which can progress to a third-line treatment and
so on.[22]
data for CAL-101 that Calistoga presented to Gilead suggested
that the drug was effective in all patients with
CLL.[23] The presentation highlighted the
drug's efficacy in one particular subgroup-CLL patients
with genetic abnormalities known as "17p
deletion/TP53 mutation."[24] Patients with
17p deletion do not have the short arm of chromosome 17, on
which the TP53 gene resides.[25] Even if a
patient has the TP53 gene, the TP53 gene
may have mutated and still not function.[26]
oncology community widely recognized that patients with the
17p deletion or the TP53 mutation had tumors that
were particularly resistant to then-existing forms of
treatment, such as chemotherapy and certain types of
immunotherapy.[27] As a result, those patients were
commonly considered to have the worst prognosis among all CLL
patients.[28] Approximately 10% of newly diagnosed CLL
patients and 50% of relapsed/refractory CLL patients have 17p
deletion or TP53 mutation.[29] Calistoga's initial
data for CAL-101 suggested that, unlike some traditional
regimens, CAL-101 circumvented the treatment-resistant
characteristics of the 17p deletion or TP53 mutation
genetic abnormality.[30]
D. Gilead and Calistoga Exchange
Drafts of the Merger Agreement
January 28, 2011, Gilead provided JP Morgan with a
preliminary and non-binding expression of interest to acquire
Calistoga.[31] Gilead's preliminary offer consisted
of a cash payment of $310 million at closing and additional
contingent payments totaling $275 million based on the
achievement of three milestones:
a) One time payment of $100M payable after receipt of the
first accelerated approval (i.e., "Subpart H" in
U.S. or "Conditional" in EU) of CAL-101 for
indolent Non-Hodgkin's Lymphoma (iNHL) or Chronic
Lymphocytic Leukemia (CLL) provided such accelerated approval
is obtained no later than December 31, 2013. For
clarity, no such milestone payment will be payable if such
accelerated approval is obtained after December 31, 2013.
b) One time payment of $75 million upon dosing of first
patient in a Phase III study of CAL-101 for first line
treatment of patients with iNHL or CLL.
c) One time payment of $100M payable upon obtaining first
full regulatory approval of CAL-101 in U.S. or EU for iNHL or
CLL (in either relapsed/refractory or first line
setting).[32]
Gilead made its preliminary offer, the parties began an
exchange of drafts of a merger agreement, [33] and
occasionally engaged in conversations.
The February 1 Calistoga Draft
February 1, 2011, Calistoga sent Gilead a first draft of a
merger agreement, which contemplated an up-front payment of
at least $300 million and four different milestones totaling
at least $300 million:[34]
• $100 million within "10 business days following
the receipt of the first Regulatory Approval in the United
States or an EU Country, whichever occurs first, of CAL-101
for a hematologic cancer indication."[35]
• $75 million within "10 business days following
the receipt of the second Regulatory Approval in the United
for a hematologic cancer indication."[36]
• $50 million within "10 business days following
States or an EU Country, whichever occurs first, of a P110
Delta Product, for an indication other than a hematologic
cancer indication."[37]
the Initiation of a Registration Study involving CAL-101 as a
first line treatment for an oncology
indication."[38]
first two of these milestones were each triggered by a
"Regulatory Approval" of CAL-101 for a
"hematologic cancer indication, "[39] which term
was not defined.[40] The draft defined "Regulatory
Approval" as "all approvals, licenses,
registrations or authorizations by any Regulatory Authority
necessary to market a P110 Delta Product in such country or
jurisdiction. For clarity, an Accelerated Approval shall
constitute a Regulatory Approval."[41]
"Accelerated Approval" in turn was defined as
"a Regulatory Approval in the United States or an EU
Country, based on the results of a single Registration Study
(such as Study 101-09), i.e., without a second Registration
Study being required to be completed prior to the receipt of
such Regulatory Approval."[42]
February 1 draft of the merger agreement required Gilead to
use "Commercially Reasonable Efforts" to achieve
all of the milestones "in a prompt and expeditious
manner."[43] The term "Commercially Reasonable
Efforts" was defined to mean "the expenditure of
efforts and resources, consistent with the usual practice of
[Gilead], with respect to development and/or
commercialization of its other important pharmaceutical
products with significant market potential being actively and
diligently pursued by [Gilead]."[44]
receiving Calistoga's February 1 draft, Sean
O'Connell, the lead negotiator for Gilead, [45] prepared a
summary of Calistoga's proposed milestones for himself,
which stated in relevant part as follows:
(a) $100M upon first regulatory approval of CAL-101
in U.S. or EU country (whichever occurs first) for
hematological cancer . . .
(c) $75M upon first patient dosing in registrational
[sic] study for CAL-101 for first line treatment
(d) $75M upon second regulatory approval of CAL-101
(e) $50M upon first regulatory approval of a P110 Delta
Product for an indication other than hematological
cancer (e.g., CAL-101 for solid tumors or back-up
compound for any non-hematological cancer
indication)[46]
February 4, 2011, O'Connell sought clarification from
Cliff Stocks, Calistoga's lead negotiator, [47] concerning
the operation of the first two milestones. Stocks responded
in an email the same day, explaining that each of the
proposed milestones would have "significant commercial
As one potential example, iNHL approval in the U.S. and then
in an EU Country would trigger the First and Second
milestones, respectively.
As a second potential example, iNHL approval in the U.S. and
then CLL approval in an EU Country also would trigger the
First and Second milestones, respectively. As a third
potential, iNHL approval in the U.S. and then CLL approval in
the U.S. also would trigger the first and second milestones,
respectively. . . . We believe in any of these cases . . .
the event would result in significant commercial value and
therefore worthy of the milestone defined.[48]
The February 8 Gilead Draft
on February 4, O'Connell wrote an email to another member
of Gilead's deal team, asking for help to generate
"a list of hematological cancers in order of size
(either patient number or size of market), " so he could
"qualify the . . . milestone payment obligations as only
applying to the first or second approval for a
'major' hematological cancer so [Gilead is not]
paying a big milestone for a tiny hemonc
indication."[49] "Hemonc" was
O'Connell's shorthand for
"hematological."[50]
February 6, a consultant from the Boston Consulting Group,
which was assisting Gilead, sent O'Connell an email
attaching some slides summarizing "estimated size of
patient populations for all hematological
cancers."[51] The first slide in the attachment listed
certain blood cancers in descending order based on the
estimated incidence for each cancer in the United States in
2010.[52] O'Connell drew a line on the slide
under "Chronic Myeloid Leukemia, " which was the
last blood cancer on the list with an incidence in the United
States exceeding 4, 000 in 2010, and placed check marks next
to nine of the blood cancers listed above the
line.[53]
nine blood cancers O'Connell selected became Schedule 1.1
in a revised draft of the merger agreement that Gilead sent
to Calistoga on February 8, 2011.[54]In this draft, which
included an upfront payment of $310 million, Gilead replaced
the undefined term "hematologic cancer indication"
in the milestone provisions of the February 1 draft with the
defined term "Specified Hematologic Cancer Indication,
" which referred to "any hematologic cancer
indication specifically listed on Schedule
1.1."[55] Schedule 1.1 in turn stated as
follows:[56]
Specified hematologic Cancer indications
Chronic Lymphocytic Lcukemia/Lymphoma
Indolent or Follicular Non-Hodgkin's Lymphoma
explained that his intent in compiling the Schedule 1.1 was
to make sure the milestones were triggered by
"significant commercial events for Gilead."
February 8 draft, Gilead proposed several other changes to
the milestone provisions contained in Calistoga's
February 1 draft, three of which are relevant here. First,
Gilead revised the definition of "Regulatory
Approval" to exclude accelerated approvals so that they
would not trigger any of the milestones.[58] Second,
Gilead further narrowed the scope of milestone-eligible
regulatory approvals by requiring the regulatory approval to
come from the United States or a "Major Market Country,
" which was defined to include only "France,
Germany, Spain, Italy and the U.K."[59] Calistoga
previously had proposed that the required regulatory approval
could come from the United States or any "country that
is a member state of the European Union."[60] Third, Gilead
removed the obligation to use Commercially Reasonable Efforts
to achieve the third milestone once CAL-101 was approved for
a Specified Hematologic Cancer Indication in both the United
States and a Major Market Country.[61]
The February 12 Calistoga Draft
February 12, Calistoga sent Gilead a revised draft of the
merger agreement that pushed back against Gilead's
revisions to the milestone provisions in three ways. First,
Calistoga introduced a new Schedule 1.1, set forth below,
which defined "Specified Hematologic Cancer
Indication" as "[a]ny indication within the
following tumor types, " and thereafter listed eleven
types of tumors. It is undisputed that tumors are
"cancers."[63]
Hematologic Cancer Indications
indication within the following tumor types:
B-ccll neoplasms
T-cell and putative NIC-cell neoplasms
Myeloid and lymphoid neoplasms associated with eosinophilia
and abnormalities of PDGFRA, PDGFRB, or
lymphoblastic lcukcmia/lymphoma
lymphoblastic leukemia/lymphoma]6
Calistoga again revised the definition of Regulatory Approval
to include accelerated approvals.[64] Third, Calistoga
reinstated Gilead's obligation to use Commercially
Reasonable Efforts to achieve all milestones and added that
Gilead shall "refrain from taking any action the primary
purpose of which is to avoid the satisfaction of any
Milestone."[65]
to this case, when it revised Schedule 1.1 in its February 12
draft, Calistoga relied on the WHO Classification of Tumours
of Haematopoietic and Lymphoid Tissues (the "WHO
Classification") to establish what
"indications" would trigger the regulatory
milestones.[66] The WHO Classification, which is
compiled by the World Health Organization, is considered the
authoritative source of hematologic tumor
classifications.[67] Thus, although the subject was a matter
of considerable dispute before trial, the evidence at trial
clearly establishes that Calistoga effectively incorporated
the framework of the WHO Classification into Schedule 1.1 for
purposes of defining when the regulatory milestone payments
would be due.[68]
in connection with preparing the February 12 draft to send to
Gilead, Dr. Gallagher asked Dr. Langdon Miller,
Calistoga's Executive Vice President of Research and
Development, to prepare "a list of possible indications
or possible diseases in which [CAL-101] might be used"
that "would be used as part of the definition of the
milestone."[69] Dr. Miller was assisted by Dr. Albert
Yu, Calistoga's Vice President of Clinical Affairs and
February 11, 2011, Dr. Yu emailed Dr. Miller, attaching a
document entitled "REAL WHO Classification
Lymphoma."[70] The next day, on February 12, Dr. Miller
emailed back to Dr. Yu, stating: "Just FYI. Here's
the final list sent to Carol [Gallagher]. Myeloid list comes
from an update published in Blood in 2009. Thanks for the
collective help on this."[71] The 2009 Blood
article Dr. Miller referred to in his email was an article
entitled "The 2008 revision of the World Health
Organization (WHO) classification of myeloid neoplasms and
acute leukemia: rationale and important
changes."[72] Table 2 of the article "lists the
major subgroups of myeloid neoplasms and acute leukemia in
the WHO classification, and the specific entities of which
they are composed."[73]
Miller testified at trial that the final list he sent to Dr.
Gallagher was a combination of the list Dr. Yu had sent him
and the list he took from the 2009 Blood
article.[74] Dr. Miller also testified that the
"List of Hematological Malignancies" he prepared is
"a list of diseases within hematologic cancer tumor
types, " which did not include any "subpopulations
of patients, " "any type of patient risk
stratification factors, " or any "genetic
aberrations in CLL cells."[75]
February 12, at 12:43 a.m., Dr. Gallagher emailed
Calistoga's legal and financial advisors, attaching the
"List of Hematological Malignancies" that Dr.
Miller had prepared.[76] The email read: "Langdon went to
the WHO listing which is attached for a definition of
hematological malignancies."[77] The Schedule 1.1 in
Calistoga's revision of the merger agreement, which was
sent to Gilead at 11:15 a.m. on February 12, tracks the
top-level headers in Dr. Miller's list, such as
"B-cell neoplasms" and "T-cell and putative
NK-cell neoplasms." [78] It does not contain the more
specific diseases listed under the top-level headers, but
instead uses the phrase "Any indication within the
following tumor types" before the list of top-level
headers to capture the more specific diseases.[79]
The February 16 Gilead Draft
receiving Calistoga's February 12 draft of the merger
agreement, O'Connell recognized that the new Schedule 1.1
reflected "the WHO accepted classification system of
hematological cancer diseases." [80] O'Connell
initially thought it "looked familiar" based on his
work in the field and then consulted with Dr. Michael
Hawkins, Gilead's Senior Director of Oncology and the
clinical advisor on Gilead's deal team, who
"confirmed that it was the accepted list of
hematological diseases."[81]
Hawkins corroborated O'Connell's testimony. He
explained that, at some point during the merger negotiations,
someone on Gilead's team provided him with
Calistoga's proposed schedule and asked where it came
from.[82] Dr. Hawkins recognized that the list
came from the WHO Classification because of the nomenclature,
and then went online and confirmed that there was a
one-to-one correlation between the terms in Calistoga's
list and the terms in the WHO Classification.[83] Dr. Hawkins
reported back that, "This looks to me like the WHO
classification."[84]
that Calistoga had "[e]xpanded the definition of
'Specified Hematologic Cancer Indication' to include
all hematologic cancer indications" by using the WHO
Classification, O'Connell considered making a
counter-proposal to limit the hematologic cancer indications
that could trigger the milestones to only "those that
satisfy a minimum number of annual cases."[85] Gilead
prepared an internal draft reflecting this approach, but did
not sent it to Calistoga.[86] Gilead instead took a
different approach.[87]
in a February 16 draft it sent to Calistoga, Gilead
introduced a new term-Hematologic Cancer Indication-which was
defined as "any hematologic cancer indication
specifically identified in Part 1 of Schedule
1.1."[88]Gilead then divided Schedule 1.1 into two
parts. Part 1 was identical to the Schedule
that Calistoga proposed in its February 12
draft.[89] Part 2 was identical to the Schedule 1.1
Gilead proposed in its February 8 draft.[90] Gilead also
revised the definition for Specified Hematologic Cancer
Indication, which now meant "any hematologic cancer
indication specifically identified in Part 2 of Schedule
1.1."[91]
February 16 draft included an up-front payment of $310
million and up to $300 million in five milestone
payments.[92] The first and second milestones of $100
million and $50 million, respectively, would be triggered by
the first and second Regulatory Approvals in the United
States or in a Major Market Country of CAL-101 for a
Hematologic Cancer Indication, [93] unless both approvals
were in the same location (i.e., both in the United
States or in a Major Market Country), in which case one of
the two approvals must be for a Specified
Hematologic Cancer Indication to trigger the second
milestone.[94] Once again, Gilead removed accelerated
approvals from the definition of Regulatory
Approval.[95]
before sending the February 16 draft to Calistoga,
O'Connell sent Stocks an email giving him "a heads
up on the draft" and summarizing the proposed second
milestone as follows:
$50M 2nd approval in any hematological indication but if it
is for a second indication in the same territory as the 1st,
one of the two indications would need to be in the narrower
list of Specified Hematological Indication (i.e., CLL, iNHL
and the other major hemonc cancers, as we tentatively agreed
yesterday in Foster City)[96]
O'Connell's email to Stocks reflects, the intent of
creating the term "Specified Hematologic Cancer
Indication" was to create a "narrower list" of
"cancers" to trigger the milestone when that term
applied rather than the boarder term "Hematologic Cancer
The February 18 Calistoga Draft
February 18, 2011, the day after Gilead's board of
directors authorized the purchase of Calistoga for up to $750
million in total consideration, [97] Calistoga sent Gilead a
further revision of the merger agreement. The February 18
draft increased the up-front payment from $310 million to
$375 million and contained a new set of three milestones
totaling $225 million-down from $300 million in the prior
draft.[98]O'Connell summarized the terms of the
milestones in an email to Stocks, stating that if his summary
was correct, "we are in agreement with the economic
terms of the agreement:"[99]
(1) $100M upon first approval of CAL-101 in [the] U.S. or EMA
(centralized approval) for any hematologic indication
(CRE[100] APPLIES)
(2) NO EARLY APPROVAL MILESTONE[101]
(3) $75M upon second approval of CAL-101 in [the] U.S. or
EMA, provided that if the second approval is in the same
territory as the first, one of the approvals must be for a
"specified" hematologic indication (CRE APPLIES)
(4) $50M for the first to occur of the following: (i)
approval of CAL-101 for solid tumors, (ii) approval of
CAL-101 as a first-line treatment for any hematologic
indication, OR (iii) if annual net sales of CAL-101 exceed
$1B (NO CREs)[102]
made several other changes to the milestone provisions.
First, it revised the definition of Hematologic Cancer
Indication in Part 1 of Schedule 1.1 to add a twelfth
category to the previous list of eleven tumor types, namely:
"Any Specified Hematologic Cancer Indication listed in
Part 2 of this Schedule 1.1."[103] Second, it again
defined Regulatory Approval to include an accelerated
approval, which term was not separately
defined.[104] Third, it changed the geographical
limitation in the milestone provisions from "in the
United States or in a Major Market Country" back to
"in the United States or in the European
Union"-what it proposed in its initial February 1
draft.[105] Finally, it agreed to limit
Gilead's obligation to use Commercially Reasonable
Efforts to the first two milestones, although it still
required Gilead to "refrain from taking any action the
primary purpose of which is to avoid the satisfaction of any
Milestone."[106]
The Parties Finalize and Execute the Merger
evening of February 18, Calistoga informed Gilead that its
"Board supports management's recommendation to move
forward expeditiously with Gilead to get to a deal
announcement by Monday [February 21]
night."[107] On February 21, the parties executed
milestone provisions in the final Merger Agreement differed
from Calistoga's February 18 draft in one significant
respect: the requirement that Gilead refrain from taking any
action for the primary purpose of avoiding the third
milestone payment was removed.[108] The final Schedule
1.1, which was renamed "Section 1.1" in the Company
Disclosure Schedule, reads as follows:[109]
1.1 Hematologic Cancer Indications
- HEMATOLOGIC CANCER INDICATIONS:
• B-cdl neoplasms
• T-cell and putative NK-cell neoplasms
• My el oproliferative neoplasms (MP N)
• Myeloid and lymphoid neoplasms associated with
eosinophilia and abnormalities of PDGFRA, PDGFRB, or FGFRI
• Myelodysplastic/myeloproliferative neoplasms (MDS/MPN)
• Myelodysplasia- syndrome (MDS)
• Acute leukemias of ambiguous lineage
• B lymphoblastic leukemia/lymphoma
• T lymphoblastic leukemia/lymphoma
• Any Specified Hematologic Cancer Indication listed in
Part 2 of this Schedule 1.1
- SPECIFIED HEMATOLOGIC CANCER INDICATIONS:
• Chronic Lymphocytic Lcukcmia/Lymphoma
• Indolent or Follicular Non-Hodgkin's Lymphoma
• Marginal Zone Lymphoma
I refer at times to the two parts of Section 1.1 of the
Company Disclosure Schedule as "Part 1" and
Section 9.1(a)(i) of the Merger Agreement, the first
milestone payment of $100 million (the "First
Milestone") became due fifteen business days after the
receipt of "the first Regulatory Approval in the United
States or in the European Union, whichever occurs first . . .
of CAL-101 for a Hematologic Cancer Indication." Under
Section 9.1(a)(ii) of the Merger Agreement, the second
milestone payment of $75 million (the "Second
receipt of the second "Regulatory Approval of CAL-101 in
the United States or in the European Union, whichever occurs
first, for a Hematologic Cancer Indication, " but if the
second approval was obtained in the same location as the
first approval, and the First Milestone was "achieved
for an indication other than a Specified Hematologic Cancer
Indication, then the [Second Milestone] shall not be
satisfied unless such second Regulatory Approval is received
for a Specified Hematologic Cancer Indication."
Section 9.1(a)(iii) of the Merger Agreement, the third
milestone of $50 million (the "Third Milestone")
became due fifteen business days after the earliest to occur
(A) the receipt of Regulatory Approval of CAL-101 in the
for a solid tumor indication, (B) the receipt of Regulatory
Approval of CAL-101 in the United States or the European
Union, whichever occurs first, as a first-line drug treatment
(i.e., a treatment for patients that have not previously
undergone systemic drug therapy therefor) for a Hematologic
Cancer Indication, or (C) Annual Net Sales of CAL-101
achieving at least $1 Billion, so long as such Annual Net
Sales are achieved on or before the first day of the first
calendar quarter beginning after the Outside Date
[i.e., the tenth (10th) anniversary of the Closing
Date[110].
Merger Agreement further provides that, if the First
Milestone has been met but the Second Milestone has not when
CAL-101 achieves annual net sales of at least $1 billion,
then the Second Milestone shall be deemed to have been
met.[111]In other words, the achievement of
annual net sales of at least $1 billion for CAL-101
potentially could trigger both the Second and Third
Milestones, provided that they have not already been paid and
the First Milestone has been met.
presentation to Calistoga dated February 21, 2011, the day
the Merger Agreement was executed, JP Morgan estimated that
there was a 63% chance that the Third Milestone could be
triggered by 2019.[112]
March 8, 2011, after the parties executed the Merger
Agreement but before the merger closed, representatives from
Calistoga and Gilead met to discuss their strategic plans
after the merger.[113] A slide deck for the meeting
identified a "comprehensive" development program
for CAL-101 that Calistoga was generating, which included
three registration studies.[114]
Gilead's Development of CAL-101 after the
to a Gilead internal document dated May 3, 2013, Gilead's
project review committee had "previously approved two
Phase 3 . . . trials [of idelalisib] in previously untreated
CLL patients, "[115] and Gilead's idelalisib project
team was "requesting approval for a companion single arm
Phase 2 study, in order to address the del(17p) patient
population which is unlikely to participate in the Phase 3
trials due to concerns of lack of efficacy on either of the
control arms."[116] Dr. Hawkins explained the rationale
for taking this approach, as follows:
[The] concern was that if you only had the two Phase 3
studies and you didn't have very many 17p patients in it,
that the regulators might come back to you and say[:]
"Well, you haven't studied enough 17p patients. And
so you can't include them in your label, " even
though you knew that the drug worked in that population. So
to get around that, you create a Phase 2 study, a single-arm
study, where all the patients get CAL-101.[117]
same internal document showed that the idelalisib project
team planned to meet with the FDA "to discuss the
proposed development plan in untreated CLL (two Phase 3
studies plus this proposed Phase 2 study). Included in this
meeting will be a discussion of whether data from the
proposed Phase 2 study could support accelerated approval in
patients with untreated CLL with 17p
deletion."[118]
September 5, 2013, representatives of Gilead met with FDA
officials "to discuss Idelalisib for the treatment of
previously untreated chronic lymphocytic
leukemia."[119] When requesting this meeting, Gilead
stated that the "Proposed Indication" was
"[f]or the treatment of previously untreated chronic
lymphocytic leukemia (CLL)."[120]
to the minutes of the September 5 meeting, Gilead asked if
the FDA had "any comments on whether [the Phase 2 study
in subjects with previously untreated CLL with 17p del and/or
TP53 mutation] meets the requirements for regular
approval in patients with previously untreated CLL with 17p
del and/or TP53 mutation."[121] The FDA
officials responded that they "do not agree that the
proposed study design would be adequate for regulatory
submission because it does not isolate the effect of
idelalisib."[122] Gilead also asked whether the FDA
"agree[d] that with demonstration of efficacy of IDELA
in the 3 proposed CLL registration studies, a companion
diagnostic for 17p del and/or TP53 mutation will not
be required in the post-approval setting."[123] The FDA
referred Gilead to the previous response and added that it
was "unclear at this time whether a companion diagnostic
[would] be required for the indications described in this
submission."[124]
Gilead Receives Approval from the FDA and Pays the First and
23, 2014, Gilead announced that the FDA had granted approval
for CAL-101 under the trade name Zydelig.[125] The
FDA-approved label (the "FDA Label") states as
Zydelig is a kinase inhibitor indicated for the treatment of
• Relapsed chronic lymphocytic leukemia (CLL), in
combination with rituximab, in patients for whom rituximab
alone would be considered appropriate therapy due to other
co-morbidities. (1.1)
• Relapsed follicular B-cell non-Hodgkin lymphoma (FL)
in patients who have received at least two prior systemic
therapies. (1.2)
• Relapsed small lymphocytic lymphoma (SLL) in patients
who have received at least two prior systemic therapies.
Accelerated approval was granted for FL and SLL based on
overall response rate. Improvement in patient survival or
disease related symptoms has not been established. Continued
approval for these indications may be contingent upon
verification of clinical benefit in confirmatory
trials.[126]
undisputed that CLL, FL, and SLL are all B-cell blood
cancers, and that CLL and FL are both Specified Hematologic
Cancer Indications under Part 2 of Schedule 1.1 of the Merger
Agreement.[127]
24, 2014, the day after receiving the FDA Label, Gilead sent
Calistoga a notice that the First and Second Milestones had
been satisfied, but the notice did not specify which of the
three approvals had triggered either the First or Second
Milestone.[128] In August 2014, Gilead paid $175
million to the former Calistoga securityholders in
satisfaction of those milestone obligations.[129]
Gilead Receives Approval from the European
Gilead sought regulatory approval of idelalisib in the United
States, it also sought regulatory approval in the Europe. On
October 29, 2013, Gilead submitted a "Marketing
Authorization Application" for idelalisib to the
European Medicines Agency ("EMA"). [130] The
application stated that the "proposed indications are
treatment of refractory indolent non-Hodgkin lymphoma and,
alone or in combination, treatment of relapsed chronic
lymphocytic leukaemia."[131]
26, 2014, the Committee for Medicinal Products for Human Use
("CHMP"), the scientific committee of the EMA,
provided its preliminary review of Gilead's application.
The CHMP noted the exceptional result of idelalisib among
patients with either 17p deletion or TP53 mutation,
and asked Gilead "to discuss a potential (explicit)
inclusion of these patient groups in the indication for
idelalisib, ie as first line treatment."[132]
28, 2014, Gilead responded to the CHMP's preliminary
review, noting that:
The development program for IDELA in CLL has to date reported
on clinical outcomes from 153 subjects with either 17p
deletion or TP53 mutation; an additional 216 subjects are
currently enrolled in the ongoing, randomized studies. Both
treatment-naïve and relapsed, refractory subjects with
these and other adverse genetic features have been
successfully treated with IDELA monotherapy or with IDELA in
combination with chemoimmunotherapy.[133]
also discussed four clinical studies in its response, based
on which it proposed "that the data summarized herein
are sufficient to support the following proposed indication
Zydelig is indicated in combination with rituximab for
the treatment of adult patients with chronic lymphocytic
leukaemia (CLL):
• who have received at least one prior therapy,
• as first line treatment in the presence of
high-risk features, such as a 17p deletion or TP53
mutation.[134]
14, 2014, the Rapporteurs (i.e., reporters) for the
CHMP issued an assessment report in which they recommended
following modified approval for Zydelig:
Zydelig is indicated in combination with rituximab for the
treatment of adult patients with chronic lymphocytic
-who have received at least one prior therapy, or
-as first line treatment in the presence of 17p deletion or
TP53 mutation in patients unsuitable for
chemo-immunotherapy.[135]
25, 2014, the CHMP recommended that the European Commission
approve Zydelig as a first-line treatment in combination with
rituximab for CLL patients in the presence of 17p deletion or
TP53 mutation who are unsuitable for
chemo-immunotherapy.[136]
internal Gilead presentation in this timeframe noted that
"17p deletion is an important segment, "
"[f]rontline is a smaller population, " and
"[t]he fact that Zydelig is 'EVEN' indicated for
frontline (difficult patients) suggests that it should be an
excellent option for second/third."[137] Another
internal Gilead presentation, dated August 15, 2014,
similarly noted that "[t]he first line indication in the
hardest-to-treat patients will have a positive halo effect on
the attractiveness of Zydelig, " and that going forward,
"CLL relapse forecast should assume . . . [s]trong
competitive advantage for both Zydelig and irutinib in
patients with 17pDel/TP53 which account for 31% of the whole
relapse population: expect maximum penetration in this
segment at peak."[138]
September 19, 2014, Gilead announced that it had received
approval of Zydelig from the European Commission.
[139] The "Summary of Product
Characteristics" the European Commission issued in