Court Opinion

ID: 4575818
Source: CourtListenerOpinion
Date Created: 2020-10-12 15:02:23.155874+00
Date Added: 2024-06-11T13:32:02.247182
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

SHAREHOLDER REPRESENTATIVE                )
SERVICES LLC, in its capacity as the      )
Equityholders’ Representative for the     )
former stockholders of FerroKin           )
Biosciences, Inc.,                        )
                                          )
            Plaintiff,                    )
                                          )
      v.                                  )   C.A. No. 2017-0863-KSJM
                                          )
SHIRE US HOLDINGS, INC. and               )
SHIRE PHARMACEUTICALS LLC,                )
                                          )
            Defendants.                   )

                          MEMORANDUM OPINION
                           Date Submitted: July 31, 2020
                          Date Decided: October 12, 2020

Bradley R. Aronstam, Adam D. Gold, Roger S. Stronach, ROSS ARONSTAM &
MORITZ LLP, Wilmington, Delaware; Stuart L. Gasner, Laurie Carr Mims,
Jennifer A. Huber, Bailey W. Heaps, Christina Lee, KEKER, VAN NEST &
PETERS LLP, San Francisco, California; Counsel for Plaintiff Shareholder
Representative Services LLC.

Peter B. Ladig, Emily A. Letcher, BAYARD, P.A., Wilmington, Delaware; Timothy
W. Mungovan, Colin G. Cabral, Michael R. Hackett, James R. Anderson, Alexandra
Bargoot, PROSKAUER ROSE LLP, Boston, Massachusetts; Counsel for
Defendants Shire US Holdings, Inc. and Shire Pharmaceuticals LLC.

McCORMICK, V.C.
      This case arises from a merger agreement executed in 2012 under which

Defendant Shire Pharmaceuticals LLC (“Shire”) acquired FerroKin BioSciences,

Inc. (“FerroKin”) and its experimental iron chelation drug, deferitazole. The merger

agreement required Shire to make a $45 million milestone payment to former

FerroKin equityholders upon the initiation of Phase III clinical trials. It further

deemed the relevant milestone achieved as of December 31, 2015, regardless of

whether Phase III clinical trials had actually been initiated by that date. The merger

agreement terminated Shire’s obligation to make the milestone payment if its failure

to initiate Phase III clinical trials was “as a result of a Fundamental Circumstance,”

defined as a circumstance in which material safety or efficacy concerns made it

impracticable to produce and sell or to obtain regulatory approval for deferitazole.

      Shire did not make the $45 million milestone payment after it was deemed

achieved on December 31, 2015. Instead, Shire declared the occurrence of a

Fundamental Circumstance and terminated the deferitazole program.

      The plaintiff filed this lawsuit against Shire to recover the $45 million

milestone payment plus interest and attorneys’ fees. This post-trial decision finds

that Shire’s failure to initiate Phase III clinical trials by December 31, 2015 was not

“as a result of” any Fundamental Circumstance but, rather, was “as a result of” a

series of routine drug development delays and financially motivated business

decisions. Judgment is therefore entered in favor of the plaintiff.
I.       FACTUAL BACKGROUND
         Trial took place over four days. As reflected in the Schedule of Evidence

submitted by the parties,1 the record comprises 393 joint trial exhibits,2 trial

testimony from five fact and five expert witnesses, deposition testimony from

nineteen fact and five expert witnesses,3 and stipulations of facts in the pre-trial

order.4 These are the facts as the court finds them after trial.5

         A.      FerroKin Develops Deferitazole.
         In early 2007, Dr. Hugh Rienhoff, Jr. founded FerroKin for the purpose of

developing an iron chelator called deferitazole.6 An iron chelator is a molecule with

a “very high affinity for iron” that is used therapeutically to absorb excess iron in

patients who are transfusion-dependent,7 such as patients diagnosed with various

hematological diseases including beta thalassemia, sickle cell disease, and

myelodysplastic syndrome (“MDS”).8

1
    C.A. No. 2017-0863-KSJM, Docket (“Dkt.”) 180, Joint Schedule of Evid.
2
Id. Ex. A.
3
Id. Ex. B.
4
    Dkt. 158, Pre-Trial Stipulation and Order (“PTO”).
5
 This decision also cites to: trial exhibits (by “JX” number); the trial transcript, Dkts. 167–
70 (by “Trial Tr.” page, line, and witness); and the deposition transcripts of Ellis Neufeld,
Evan B. Siegel, Armand F. Girard, and Paul Streck (by the deponent’s last name and “Dep.
Tr.” page and line).
6
    PTO ¶¶ 3, 13.
7
    Trial Tr. at 16:1–6 (Rienhoff).
8
    JX-498 at 6; Trial Tr. at 16:7–13 (Rienhoff).

                                               2
         On September 3, 2009, FerroKin submitted an Investigational New Drug

application to the FDA, seeking permission to begin its first clinical study for

deferitazole in the United States.9 The clinical development process comprises three

“phases” that can “take anywhere from five to fifteen years.”10 In Phase I, clinicians

typically study “the disposition of the drug” in humans, aiming to “really understand

blood concentrations and safety”11 and to “look[] for any acute safety issues.”12 In

Phase II, clinicians assess the drug’s safety and efficacy, that is, its ability to affect

disease in the body.13        In Phase III, clinicians conduct studies negotiated and

designed with the FDA with the goal of getting the drug approved by the FDA and

placed on the market.14 Clinicians also conduct non-clinical studies both before and

during these three phases—where they typically administer the drug to animals

rather than humans—in order to further assess the drug’s safety and support the

continuation of the program in humans.15

9
    JX-1860 at 138.
10
     Trial Tr. at 308:10–12 (Henner).
11
Id. at 30:18–31:2 (Rienhoff).
12
Id. at 309:18–23 (Henner).
13
Id. at 31:6–14 (Rienhoff); id. at 310:1–7 (Henner).
14
Id. at 31:18–32:4 (Rienhoff); id. at 310:19–311:6 (Henner).
15
Id. at 103:1–4 (Streck); id. at 977:20–978:5 (Ross); id. at 1049:9–11 (Popp).

                                               3
         Around November 2009, the FDA gave FerroKin the green light to proceed

with deferitazole’s Phase I and Phase II clinical development.16 Dr. Ellis Neufeld,

who was the associate chief of hematology at Boston Children’s Hospital at the

time,17 served as deferitazole’s lead clinical investigator.18

         B.     Shire Conducts Due Diligence and the Parties Begin Circulating
                Drafts of a Merger Agreement.
         While deferitazole was in clinical development, FerroKin began reaching out

to potential acquirers.19 FerroKin hired an investment bank, Seaview Securities LLC

(“Seaview”), to advise in this process.20 In June 2010, Rienhoff contacted various

pharmaceutical companies, including Shire, in order to gauge interest.21 Initially,

Armand Girard, the senior director of business development for Shire, was

Rienhoff’s primary point of contact.22

         At the time, Shire’s board of directors and senior leadership team sought to

build a hematology business unit.23 While Shire had already amassed some assets

in that unit, it did not yet have what Girard called a “corner property” for the

16
     JX-59 at 7–8; Trial Tr. at 29:12–30:4, 32:5–18 (Rienhoff).
17
     Neufeld Dep. Tr. at 17:23–18:17.
18
     Trial Tr. at 22:14–24 (Rienhoff); Neufeld Dep. Tr. at 63:5–7.
19
     Trial Tr. at 45:8–19 (Rienhoff).
20
Id. at 46:12–18 (Rienhoff).
21
Id. at 44:15–17 (Rienhoff).
22
Id. at 44:20–45:7 (Rienhoff); id. at 733:4–7 (Girard).
23
     Girard Dep. Tr. at 61:5–62:10; Trial Tr. at 788:7–12 (Girard).

                                               4
program.24 Though optimally Shire would acquire an asset that “was marketed and

driving revenues,” deferitazole was Shire’s “latest-stage opportunity.” 25 Shire thus

viewed deferitazole as a potential “corner stone” for its new hematology business

unit.26

           In early 2011, while deferitazole was in Phase II development, Shire began

conducting due diligence regarding a potential acquisition of FerroKin.27 In May

2011, Shire’s diligence team presented an update of its diligence efforts.28 It

explained that iron overload was a “good first entry” for Shire’s hematology business

unit and that the market for iron chelators—valued at more than $1 billion in the

U.S. alone—was “[d]ominated by a single agent (Exjade).”29 The team observed

that there was an “addressable unmet medical need” in the market due to the

tolerability and safety concerns associated with Exjade.30 It further recognized that

deferitazole was a “strong opportunity” capable of addressing that unmet medical

need, as it could demonstrate “[s]uperior safety” and “comparable efficacy” to

24
     Girard Dep. Tr. at 62:2–10.
25
Id. at 62:13–20.
26
 Id. at 62:16–19; Trial Tr. at 789:2–4 (Girard).
27
     PTO ¶¶ 19–20.
28
     JX-84 at 2.
29
Id. at 3.
30
 Id.

                                                5
Exjade.31 Noting development and commercial risks, the team concluded that

deferitazole was a “[h]igh risk / high reward opportunity.”32

           By February 2012, Shire’s diligence had revealed several clinical risks

affiliated with deferitazole, including “[p]otential drug interactions,” a lack of data

concerning an “appropriate safe or efficacious dose” in MDS patients, the potential

for a black box warning,33 and the unknown effect of deferitazole on cardiac iron.34

           Shire’s diligence also revealed several commercial risks affiliated with

deferitazole, including the release of generic Exjade.35 At times relevant to this

litigation, Exjade was the most popular, “commonly used” iron chelator on the

market,36 as it was the first iron chelator to come in the form of a dispersible tablet

that patients can take orally.37 Yet, as its black box warning indicates,38 Exjade can

cause many serious side effects, including renal impairment and failure, hepatic

31
Id.
32
 Id. at 22.
33
   Black box warnings are “relatively rare among pharmaceuticals.” Trial Tr. at 253:24–
254:1 (Rienhoff). A drug affixed with a black box warning “has high risks associated with
it.” Id. at 254:2 (Rienhoff); see also id. at 486:18–487:9 (Vickers) (explaining that there
are “serious safety concerns” associated with black box warnings).
34
     JX-197 at 29, 41.
35
Id. at 6; PTO ¶ 21. Exjade is also known by its generic name, “deferasirox.” PTO ¶ 14.
36
     PTO ¶ 15.
37
Id. ¶¶ 14–15; Trial Tr. at 19:2–3 (Rienhoff) (explaining that Exjade was “revolutionary
because it was orally available”).
38
     See generally JX-377.

                                              6
impairment and failure, and gastrointestinal hemorrhage, all of which can result in

death.39 Shire’s diligence report explained:

                The key event affecting . . . commercial potential is the
                timing of generic competition for Exjade. Exjade loses
                patent protection in 2019. This is likely to push
                [deferitazole] into a second line position and limit further
                market share gains. It is important that [deferitazole]
                launches sufficiently ahead of 2019 to allow it to build [a]
                sufficiently strong formulary position and prescriber base
                in the US.40

The report recommended that Shire “proceed but ensure that the deal is structured

to ensure confidence that the product can achieve differentiation from Exjade on the

key features of renal toxicity and [gastrointestinal] side effects.”41

         In June 2011, Shire submitted to Seaview a “preliminary, non-binding,

expression of interest in acquiring FerroKin.”42 In that offer, Shire proposed to make

a $10 million up-front payment and two milestone payments thereafter: a $30

million payment upon successful completion of the Phase II trial FerroKin was

conducting at the time and a $40 million payment upon the initiation of a Phase III

study.43

39
Id. at 3; PTO ¶ 15.
40
     JX-197 at 6; PTO ¶ 22.
41
     JX-197 at 10; PTO ¶ 24.
42
     JX-80 at 2; see Trial Tr. at 739:6–741:7 (Girard).
43
     JX-80 at 2–3.

                                               7
           Seaview did not view Shire’s offer as competitive and it encouraged Shire to

submit a revised one.44 On July 25, 2011, Seaview’s managing director, Joseph

Dougherty, emailed Girard and stated: “As you know, Shire is not formally in our

second round, but we understand that you continue to work towards participating,

and in the interest of not putting you at a disadvantage we attach a draft merger

agreement for the acquisition of FerroKin by Shire.”45 Dougherty asked for Shire’s

revisions to the draft merger agreement by August 8, 2011, ahead of FerroKin’s final

bid deadline of August 10, 2011.46 Internally, FerroKin “felt that a sales price of

somewhere in the [$]300 to $500 million [range], including initial consideration and

milestones, would be a price that [it] should consider.”47

           On July 26, 2011, Shire submitted its “revised, non-binding, expression of

interest in acquiring FerroKin.”48 This time, Shire proposed to make a $75 million

up-front payment and two milestone payments thereafter: a $30 million payment

upon the initiation of a Phase III study and a $50 million payment upon deferitazole’s

44
     Trial Tr. at 744:8–14 (Girard).
45
     JX-99 at 1.
46
Id.
47
     Trial Tr. at 319:12–22 (Henner).
48
     JX-98 at 3.

                                             8
first commercial sale in the U.S.49 In an email the same day, Rienhoff expressed his

view that Shire’s offer was “[s]till too little.”50

           On August 8, 2011, Shire sent its third offer to “stay in the game.”51 In an

email to Seaview, Girard stated: “In light of our ongoing discussions, we have given

further thought to the consideration Shire would be prepared to pay for

FerroKin . . . .”52 Shire proposed to make a $100 million up-front payment and a

$25 million milestone payment upon the initiation of a Phase III study.53

           On August 25, 2011, Dougherty emailed Girard and stated that Shire’s $100

million up-front offer was “close to market,” but that the “back end d[id] not near

the value assigned by others.”54 By September 2011, the parties agreed in principle

to a $100 million up-front payment but continued to disagree on the “back end”

milestone earn-out structure.55 As Girard testified, there was a “yin and yang, if you

will, of opposing goals.”56 FerroKin sought “to realize as much of [deferitazole’s]

49
Id. at 3–4.
50
Id. at 1.
51
     Trial Tr. at 745:21–22 (Girard); see JX-105.
52
     JX-105 at 1.
53
Id.
54
     JX-118 at 2.
55
  See, e.g., id. (email from Dougherty to Girard discussing milestone payments, dated
August 5, 2011); JX-115 at 2 (email from Girard to Dougherty discussing milestone
payments, dated September 7, 2011); id. at 1 (email from Dougherty to Girard discussing
milestone payments, dated September 24, 2011).
56
     Girard Dep. Tr. at 127:18–22.

                                              9
value upfront,” while Shire sought to “defer as much of that value until future

decision points.”57

         Meanwhile, FerroKin’s clinical trials of deferitazole had progressed. In

November 2011, FerroKin had an “End of Phase [II]” meeting with the FDA.58 At

that meeting, the FDA and certain FerroKin representatives, including Rienhoff and

Neufeld, discussed deferitazole’s overall clinical development and the design for the

drug’s Phase III clinical studies.59

         Generally, clinicians testing an investigational drug must compare that drug’s

results against a control in order to demonstrate its efficacy.60 There are at least two

ways to make such a comparison: a non-inferiority trial and a superiority trial.61 In

a non-inferiority trial, clinicians “are looking to see if the drug is not much worse

than the control.”62 In a superiority trial, “the objective is to test whether [the]

investigational drug is significantly better . . . than [the] control.” 63

         Although FerroKin had initially proposed a non-inferiority trial with Exjade

as the control, the FDA rejected that proposal and informed FerroKin that it would

57
     Trial Tr. at 790:17–22 (Girard).
58
     PTO ¶ 16; JX-129 at 1, 3.
59
     PTO ¶ 16; JX-129 at 3.
60
     Trial Tr. at 987:17–22 (Ross).
61
     See id. at 987:14–989:11 (Ross).
62
Id. at 988:5–8 (Ross).
63
Id. at 987:23–988:3 (Ross); Siegel Dep. Tr. 131:24–132:3.

                                             10
instead require a superiority trial with Exjade as the control, effectively increasing

the difficulty associated with drug approval.64

          Negotiations between FerroKin and Shire progressed in the ensuing months,

with these risks known.65 Those negotiations centered on two issues: the structure

of the milestone payments and the degree to which Shire would be obligated to

pursue development of deferitazole. On December 22, 2011, Shire circulated a draft

reflecting five potential milestone payments totaling $220 million.66 In that draft,

Shire also proposed that it have “the right, in [its] sole and absolute discretion, to

direct and control the development, commercialization, manufacture, marketing,

distribution and selling of [deferitazole] in all respects.”67

          FerroKin did not react favorably to the “sole and absolute discretion”

language inserted by Shire. As Rienhoff testified at trial, FerroKin wanted the

agreement to contain “something that would compel [Shire] to go forward and not

just can the program . . . at [its] whim.”68 To that end, in a draft dated December 30,

64
  PTO ¶ 18; JX-129 at 6; see Trial Tr. at 988:13–18 (Ross) (responding “[y]es” when asked
whether “superiority [is] a higher standard than noninferiority” and whether “the
superiority standard is typically harder to achieve”).
65
   While negotiations were ongoing, Rienhoff provided Girard with the minutes of
FerroKin’s November 2011 End of Phase II meeting with the FDA. See JX-135 at 4.
66
     JX-159 at 23.
67
Id. at 24.
68
  Trial Tr. at 50:12–17 (Rienhoff); see JX-163 at 1 (email from Rienhoff to Shire’s Chief
Corporate Development Officer Barbara Deptula, identifying several “issues” with Shire’s
December 22 draft, including “the dollar amount of the milestones” and “the defined efforts
                                            11
2011, FerroKin replaced the provision affording Shire sole and absolute discretion

with the requirement that Shire “use Commercially Reasonable Efforts to develop

and commercialize [deferitazole] until achievement of each Milestone.”69 FerroKin

also proposed a total of $230 million in milestone payments and added two

automatic milestone payment provisions.70

           The first automatic payment provision applied to the first milestone, which

would become payable upon initiation of a Phase III clinical trial: “[I]n the event

that [Shire] has not [initiated a Phase III clinical trial] on or before the date that is

545 days after the Closing Date, then the [milestone] shall be deemed to have been

achieved on such date.”71 The second automatic payment provision required Shire

to pay any outstanding milestones if, “at any time prior to December 31, 2020,” Shire

“substantially abandoned efforts to develop and commercialize [deferitazole] other

than as a result of the occurrence of a Fundamental Circumstance,” as defined in the

draft.72

Shire must make to progress product development”); see also Girard Dep. Tr. at 199:12–
14 (“What I do recall is [Rienhoff] wanting some sort of assurance that Shire devoted
resources to develop this asset.”).
69
     JX-166 at 29.
70
Id. at 27–29.
71
Id. at 29.
72
 Id.

                                            12
          Shire rejected FerroKin’s changes in a draft dated January 17, 2012, and

reverted to the majority of the terms in its earlier draft of December 22.73 Rienhoff

viewed Shire’s latest draft as “very disappointing.”74 In an email to Deptula dated

January 20, 2012, Rienhoff explained: “[A] transaction so heavily dependent on the

achievement of milestones . . . must be accompanied by Shire commitments to

diligently pursue clinical development and commercialization assuming the product

is safe and effective.”75

          The parties met on January 27, 2012 to discuss the terms of the merger and

resolve their differences.76 On February 1, 2012, FerroKin circulated another draft

“incorporat[ing] the [parties’] solutions.”77 FerroKin accepted the provision giving

Shire “sole and absolute discretion” to direct the development of deferitazole,78 but

it reinserted the automatic payment provision relating to the first milestone.79

FerroKin also added the “Fundamental Circumstance” language to that automatic

payment provision:

73
     See generally JX-184.
74
     JX-189 at 2.
75
Id. at 2–3.
76
   JX-196 (summarizing the parties’ discussions at the January 27 meeting); see Trial Tr.
at 759:4–11 (Girard).
77
     JX-196 at 1; JX-198.
78
     JX-198 at 26.
79
Id. at 25.

                                           13
                 Notwithstanding anything else in this Agreement to the
                 contrary, in the event that the Company has not achieved
                 Initiation of the Pivotal Clinical Trial on or before
                 December 31, 2015, other than as a result of a
                 Fundamental Circumstance, then the Initiation of Pivotal
                 Clinical Trial Milestone shall be deemed to have been
                 achieved on such date.80

FerroKin defined the term “Fundamental Circumstance” as

                 a material safety or efficacy concern related to the Product
                 that would reasonably be expected to make production and
                 sale of [deferitazole], or receipt of applicable Regulatory
                 Approvals, impracticable.81

          After receiving the draft, Shire developed an “issues list” indicating that it

agreed with FerroKin’s position concerning the automatic payment provision,

“except that Shire would use its formulation of ‘Fundamental Circumstance.’”82

Shire proposed that the term “Fundamental Circumstance” be defined as “any safety

or efficacy concerns that Shire determines in its sole and absolute discretion would

have any of the effects described in [FerroKin’s] formulation.”83                  FerroKin

disagreed, opining that Shire’s definition of the term “Fundamental Circumstance”

80
Id. As the parties exchanged drafts, the definition of the first milestone in the agreement
flip-flopped from Shire’s desired language, “Initiation of Phase III Clinical Trial,” to
FerroKin’s desired language, “Initiation of Pivotal Clinical Trial.” See JX-184 at 25; JX-
198 at 24. Ultimately, Shire’s desired language prevailed. JX-241 § 2.9(f), at 27.
81
     JX-198 at 11.
82
     JX-201 at 5.
83
Id. at 4.

                                             14
would “gut[] the protection afforded by” the automatic payment provision.84 Shire

ultimately agreed to FerroKin’s definition of “Fundamental Circumstance” that is

block-quoted above.85

         C.      The Merger Agreement
         On March 14, 2012, the parties executed an Agreement and Plan of Merger

(the “Merger Agreement”) that named Plaintiff Shareholder Representative Services

LLC (“Plaintiff”) as the representative of former FerroKin equityholders.86 The

economic terms of the Merger Agreement called for the former FerroKin

equityholders to receive an up-front payment of approximately $95 million and

provided for up to $225 million in contingent milestone payments.87

         Several provisions of the Merger Agreement are relevant to the parties’

dispute. The first is Section 2.9(g), which memorializes the “sole and absolute

discretion” provision Shire sought to include throughout negotiations.88 Section

84
     JX-207 at 6; Trial Tr. at 65:21–66:10 (Rienhoff).
85
     JX-214 at 13.
86
     JX-241; PTO ¶¶ 2, 25.
87
     PTO ¶ 26.
88
   JX-241 § 2.9(g), at 28 (providing that, “[f]ollowing the Closing, [Shire] shall have the
right, in [its] sole and absolute discretion, to direct and control the development,
commercialization, manufacture, marketing, distribution and selling of [deferitazole] in all
respects”); PTO ¶ 27.

                                              15
2.9(g) also disclaims any obligation, duty, or expectation of Shire to develop

deferitazole in any way.89

         The second provision is Section 2.9(a), which requires that Shire make certain

milestone payments upon the occurrence of defined “Milestone Trigger Event[s].”90

The milestone payment at issue in this litigation is a $45 million payment due upon

the occurrence of the “Initiation of Phase III Clinical Trial Milestone.”91 The

relevant language of this provision appears in the Legal Analysis, infra.

         The third provision is Section 2.9(f), which provides that “the Initiation of the

Phase III Clinical Trial Milestone will be “deemed achieved” on or before

December 31, 2015, unless the failure to achieve the milestone was “as a result of a

Fundamental Circumstance.”92 The relevant language of this provision appears in

the Legal Analysis, infra.

         Internal Shire post-closing communications reflect that Shire understood that

“[t]he only scenario” in which the Initiation of Phase III Clinical Trial Milestone

89
  JX-241 § 2.9(g), at 28 (providing that “[n]one of this Agreement or the other Transaction
Documents or any other fact, circumstance or matter relating hereto or thereto (including
the process of negotiation, execution and implementation hereof or thereof) shall be
construed to impose upon [Shire] any express or implied obligation, duty or expectation to
test, develop, pursue, market, make any regulatory filings or seek any Regulatory
Approvals with respect to, or otherwise advance [deferitazole]”).
90
Id. § 2.9(a), at 24–25; PTO ¶ 29.
91
     JX-241 § 2.9(a), at 25; PTO ¶ 29.
92
     JX-241 § 2.9(f), at 27; PTO ¶ 30.

                                            16
payment “would not be made [was] for a Fundamental Circumstance.”93 It viewed

a Fundamental Circumstance as a “rare occurrence where [it] would terminate

development prior to initiation of [Phase III].”94

          D.     Shire Begins to Encounter Obstacles in Phase II Studies.
          By the time Shire acquired FerroKin, FerroKin had already initiated non-

clinical and clinical studies related to deferitazole.95 These included a non-clinical

104-week long rat carcinogenicity study (the “RatCarc Study”), in which

FerroKin—with commentary and permission from the FDA96—administered

deferitazole to rats that were fed a normal, non-iron overloaded diet.97 They also

included the first Phase II clinical trial, referred to as “Study 201,” in which

clinicians administered 16 and 32 milligrams per kilogram of deferitazole to patients

for a total of 96 weeks with the goal of testing the drug’s ability to remove cardiac

iron.98

93
  JX-268 at 1 (email dated July 9, 2012 from Susan Drexler, Shire’s Director of Corporate
Finance).
94
  JX-564 at 3; see also JX-271 at 26. Defendant Shire US Holdings, Inc. is the successor-
in-interest to Shire under the Merger Agreement. PTO ¶ 7. To simplify things, this
decision refers to Shire US Holdings, Inc. and Shire as “Shire” or “Defendants.”
95
     PTO ¶ 19.
96
Id. ¶ 16; JX-129 at 4.
97
   PTO ¶ 19. Rat carcinogenicity studies are commonplace in the drug development
industry. They “expose[] rats to the drug for an extended period of time, looking for
development of tumors . . . that could be potentially indicative of what would happen in
humans.” Trial Tr. at 113:16–114:1 (Streck).
98
     PTO ¶ 19; JX-723 at 24; Trial Tr. at 107:12–108:4 (Streck).

                                             17
         After acquiring FerroKin, Shire initiated two additional Phase II clinical

studies: “Study 202,” which was conducted in pediatric patients, and “Study 203,”

which was conducted in adult patients.99 Shire also contemplated a “follow-on

study” to Study 203 that it would call “Study 204.”100 Initially, Study 204—a “head-

to-head” trial against Exjade101—was scheduled to begin in early 2014 before Study

203 was complete.102

         Immediately after closing in April 2012, Shire desired to pursue an

“[a]ggressive development and filing strategy” and was “[f]ocused on getting to

market [as soon as possible]” with a target launch date set for some time in 2016.103

Shire’s initial goal was to achieve FDA conditional (or “accelerated”) approval104

99
     JX-723 at 7; Trial Tr. at 103:5–17 (Streck).
100
      Trial Tr. at 103:18–21 (Streck).
101
Id. at 165:10–14 (Streck).
102
      JX-723 at 7; Trial Tr. at 165:21–166:1 (Streck); see id. at 400:5–12 (Vickers).
103
      JX-253 at 10.
104
   The FDA provides drug development programs with two “approval routes”: traditional
approval and accelerated approval. Trial Tr. at 984:15–20 (Ross). As Shire’s regulatory
expert explained, “the FDA requires that an adequate and well-controlled study measure
outcomes, known as endpoints, demonstrating that a drug imparts a tangible clinical
benefit, such as improved survival or . . . decreases in symptoms.” JX-1698 ¶ 61. If
clinicians can demonstrate that the drug affects such an endpoint, the drug is qualified to
receive traditional approval. Trial Tr. at 985:1–6 (Ross). “For many chronic conditions,
however, direct demonstration of a clinical benefit may require a prohibitively long, large,
and expensive clinical trial.” JX-1698 ¶ 61. In such cases, to “allow more rapid
development of effective therapies, [the] FDA has allowed the use of surrogate endpoints
in clinical trials.” Id. ¶ 62. A surrogate endpoint is the “measurement of a laboratory
value or physical sign, such as blood pressure, as a proxy for a clinical endpoint, such as
death or stroke.” Id. If the drug has an effect on the surrogate endpoint, clinicians “have
                                               18
for the treatment of iron overload in MDS patients, with an eye toward achieving

“full” FDA approval for the treatment of iron overload in other patients thereafter.105

Shire planned to begin Phase III clinical trials in late 2013.106

          In early 2013, Shire received data from Study 201 indicating that a switch

from once-daily to twice-daily dosing would help to achieve deferitazole’s target

efficacy, particularly as to cardiac iron.107 Study 201 had revealed an increase in

the hope that that will turn out to translate into a real clinical benefit,” and they may seek
accelerated approval. Trial Tr. at 985:11–20 (Ross). Shire’s regulatory expert provided a
useful illustration at trial:
                   [I]f you have a patient with cancer, we’re interested in
                   preventing that patient from dying prematurely. That would be
                   the clinical endpoint. If you give a drug that shrinks the tumor
                   size for the patient and you look at tumor shrinkage, that’s a
                   surrogate endpoint; and that is frequently a basis for
                   accelerated approval. And the hope is that that will turn out to
                   translate into what you’re really interested in, which is keeping
                   the patient from dying prematurely.
Id. at 985:21–986:7 (Ross). Accelerated approval is a process whereby the FDA “will
conditionally approve [a drug using a surrogate endpoint], but the sponsor must then
perform a confirmatory trial verifying that the drug in question does in fact provide a true
clinical benefit.” JX-1698 ¶ 62 (citing 21 C.F.R. § 314.500); see 21 C.F.R. § 314.510
(“FDA may grant marketing approval for a new drug product on the basis of adequate and
well-controlled clinical trials establishing that the drug product has an effect on a surrogate
endpoint . . . . Approval under this section will be subject to the requirement that the
applicant study the drug further . . . .”). Only “new drug products that have been studied
for their safety and effectiveness in treating serious or life-threatening illnesses and that
provide meaningful therapeutic benefit to patients over existing treatments” can qualify for
accelerated approval. 21 C.F.R. § 314.500.
105
      JX-253 at 10.
106
Id. at 11.
107
      JX-1813 at 49.

                                                  19
cardiac iron upon administration of deferitazole.108            The data caused Shire’s

development team to grow concerned that the ongoing Study 203—originally

designed to test 50 and 75 milligrams of deferitazole per kilogram in patients once

daily—would be “unlikely to generate the required efficacy for a Go into

[Phase III].”109 Thus, in February 2013, it proposed an amendment to Study 203

whereby clinicians would change the once-daily dose in Study 203 to the “same total

daily dose given [twice daily].”110 It proposed a similar switch to twice-daily dosing

for the anticipated Study 204.111 Shire eventually approved the switch to twice-daily

dosing in Study 203,112 and this decision delayed the projected initiation of Phase III

clinical trials to early 2015.113 To Shire, “it was important to demonstrate [that] a

reduction in cardiac iron . . . could be achieved” because most patients suffering

from iron overload “die of cardiovascular events.”114

108
      JX-723 at 24 (summarizing Study 201 results); Trial Tr. at 107:7–108:4 (Streck).
109
   JX-1813 at 47. At trial, Mr. Girard explained that a go/no-go decision is “a common
term” in the pharmaceutical industry used to describe the decision to “continue the
development of the program,” typically “based off of new information.” Trial Tr. at 781:2–
8 (Girard).
110
      JX-1813 at 49.
111
Id.
112
      Trial Tr. at 212:13–18 (Streck).
113
      JX-1817 at 5; JX-493 at 9; see Trial Tr. at 463:21–465:6 (Vickers).
114
      Trial Tr. at 107:12–21 (Streck); see Neufeld Dep. Tr. at 25:10–26:14, 28:7–14.

                                              20
            Around April 2013, ongoing Phase II studies had revealed that deferitazole

had caused some “treatment emergent Adverse Events” in patients, including a

numbness sensation called “hypoesthesia” and a pins and needles sensation called

“paresthesia.”115 Clinicians commonly categorize these conditions as symptoms of

“peripheral neuropathy,” a broad term used to refer to damage to the peripheral

nervous system.116 At the time, “[i]nvestigators deemed the intensity” of these

peripheral neuropathies “mainly as mild/moderate, and some as . . . severe.”117 As

of March 28, 2013, twelve of the fifty-seven patients enrolled in Study 201 and Study

203 experienced fourteen episodes of peripheral neuropathy.118 Of those fourteen

episodes, twelve were “described as mild to moderate.”119 None of the twelve

patients had a documented history of peripheral neuropathy prior to their enrollment

in the deferitazole Phase II clinical program.120 Although Shire could identify no

“clear trends . . . in terms of dose relationship and treatment duration,” it found that

the onset of peripheral neuropathy in some patients occurred after a “recent dose

115
      JX-498 at 17; see JX-666 at 9; JX-522 at 31.
116
      Neufeld Dep. Tr. at 197:5–12.
117
   JX-498 at 17; JX-666 at 9 (“The majority of these symptoms have been mild to moderate
in nature.”).
118
      JX-522 at 29.
119
Id.
120
Id.

                                              21
increase” of deferitazole.121        Shire did conclude, however, that symptoms of

peripheral neuropathy were “reversible within weeks of withholding [deferitazole]

in some cases.”122

            Shire viewed these instances of peripheral neuropathy as “[s]erious and

unexpected suspected adverse reaction[s]” worthy of reporting to the FDA at various

times throughout Phase II.123

            By May 2013, eight additional cases of peripheral neuropathy “were reported

which showed similar features as seen before,”124 and Shire identified “a potential

trend to increased frequency and an earlier onset at higher doses” of deferitazole.125

Shire’s Executive Safety Review Committee—a group of “the most senior

individuals within the organization”126 to whom “issues and challenges related to the

safety . . . of programs would be presented”127—determined that, while “a

benefit:risk assessment could not be clearly determined” at the time, “demonstrated

121
Id. at 31.
122
 Id. at 13.
123
   E.g., JX-308; JX-462; JX-463; JX-767; see 21 C.F.R. § 312.32(c)(1)(i) (“The sponsor
must report any suspected adverse reaction that is both serious and unexpected. The
sponsor must report an adverse event as a suspected adverse reaction only if there is
evidence to suggest a causal relationship between the drug and the adverse event . . . .”).
124
      JX-552 at 5.
125
Id.
126
      Trial Tr. at 117:14–21 (Streck).
127
Id. at 389:1–8 (Vickers).

                                             22
declines in [liver iron concentration] and appropriate measures put in place to assess

and manage patients who develop signs and symptoms of peripheral neuropathy . . .

justified the continuation of the development program for [deferitazole].”128 In late

2013, Shire formed a “group of external . . . neurologic experts”129 called the

Peripheral         Neuropathy   Adjudication        Committee   (“Peripheral   Neuropathy

Committee”) in order to “assess whether the signs and symptoms observed match

the diagnosis of [peripheral neuropathy] and to evaluate the potential relationship to

[deferitazole].”130

          E.       Shire Establishes the Pipeline Committee and Makes Additional
                   Changes to the Deferitazole Program.
          On April 30, 2013, Shire’s Science and Technology Committee—a “subteam”

of the board131—met to discuss, among other things, Shire’s research and

development structure and portfolio strategy.132 At that meeting, the committee

discussed “[d]ownward changes in Shire revenue forecasts” that had “resulted in a

2017 projected revenue gap of $700 [million].”133 “To increase the value of Shire

[research and development] long term and to address this gap medium term,” the

128
      JX-552 at 6.
129
      Trial Tr. at 108:22–109:2 (Streck).
130
      JX-802 at 4.
131
      Trial Tr. at 456:22–23 (Vickers).
132
      JX-493 at 1, 3.
133
Id. at 50.

                                               23
committee proposed that Shire “establish a company-wide Pipeline Committee and

adopt a more holistic approach to prioritize pipeline investment” and “rebalance

spend near term toward late stage assets” while “selectively decreas[ing] investment

in early stage programs.”134 In the committee’s overall breakdown of Shire’s

research and development costs for 2013, deferitazole was depicted as Shire’s most

expensive pre-proof of concept drug with clinical expenditures of $44 million.135

            The newly created Pipeline Committee considered the deferitazole

development program throughout the next few months. Dr. Phillip Vickers chaired

the Pipeline Committee.136 At a meeting on May 15, 2013, the Pipeline Committee

discussed the status of the program, including findings from Study 201, the switch

to twice-daily dosing in Study 203, and the projected start date for Phase III clinical

trials in February of 2015.137 The presentation given at that meeting indicated that

134
Id.
135
 Id. at 56. The term “proof of concept” was defined as “having clinical data showing
that the compound works as intended in patients.” Id. At the time, Shire “hadn’t shown
the safety and efficacy that [it] would need . . . in order to say [deferitazole] had clinical
proof of concept.” Trial Tr. at 476: 3–6 (Vickers). Even though deferitazole was in the
midst of Phase II studies, safety and efficacy concerns associated with the drug caused
Shire to categorize it as pre-proof of concept. Id.; JX-493 at 56.
136
    Vickers described the Pipeline Committee at trial as a “cross-functional team” of “very
senior people . . . who played an important role in making decisions on [Shire’s research
and development programs],” including “clinical, regulatory, commercial, manufacturing,
[and] legal” decisions. Trial Tr. at 386:20–387:3 (Vickers). The Pipeline Committee
reported directly to the Executive Committee, “the most senior committee within Shire.”
Id. at 387:6–13 (Vickers).
137
      JX-534 at 100–03.

                                             24
deferitazole’s “R&D cost in 2013” totaled $41 million, and that its “Total R&D cost

(to 2026)” was $257 million.138

          In August 2013, the Pipeline Committee discussed deferitazole “due to its

high 2014 cost” but concluded that Shire “should wait until [P]hase II data is

available in 2014 before considering changing course.”139 On September 26, 2013,

the Pipeline Committee discussed that “delay in the [deferitazole] program could

impact its commercial value due to the future genericization of Exjade.”140

          In an email dated September 27, 2013, Pipeline Committee member

Dr. Howard B. Mayer wrote to other Pipeline Committee members explaining that

the deferitazole program was “a complex program” that had not yet been

“extensively discussed at the [Pipeline Committee] from a technical standpoint.”141

He further stated that there were “several issues with the program,” including safety,

efficacy, and the release of generic Exjade.142 Vickers responded the next day,

agreeing with Mayer and further stating: “[F]rom a budget perspective this is a very

expensive program. . . . [W]e should consider what will be go/no go criteria- both

138
Id. at 100.
139
      JX-657 at 235.
140
      JX-677 at 64.
141
  JX-665 at 3; see Trial Tr. at 493:16–20 (Vickers) (confirming that the individuals to
whom the email was sent served on the Pipeline Committee).
142
      JX-665 at 3.

                                          25
from a pipeline and budget perspective. We plan to move forward, but should all be

aligned.”143

            On October 21, 2013, Vickers asked members of Shire’s finance team to send

him a presentation showing Shire’s budget breakdown for 2014, “including a

breakdown by program.”144 In that email, he stated: “I would like to have with me

the cost of the [deferitazole] program.”145 The presentation indicated that the

deferitazole program had the highest projected “Total External Spend” for 2014 out

of approximately fifty-five programs, as it was valued at $58 million.146 On

October 22, 2013, Vickers emailed the presentation to Mayer, calling it a “[g]ood

reminder on cost vs risk for [deferitazole].”147 Vickers then observed: “One of us

can flag that this is the most expensive program in 2014!”148

            By late October and early November 2013, deferitazole had been able to

demonstrate control of liver iron concentration but had not been able to demonstrate

control of cardiac iron concentration.149 The drug had a “[p]romising renal safety

and [gastrointestinal] tolerability profile,” but there was a “high incidence” of

143
Id. at 2; Trial Tr. at 493:21–494:7 (Vickers).
144
      JX-693 at 1; Trial Tr. at 494:12–495:3 (Vickers).
145
      JX-693 at 1.
146
Id. at 12.
147
      JX-695 at 1.
148
Id.
149
      JX-707 at 6.

                                                26
peripheral neuropathy.150 Half of the patients in the ongoing studies had “mild

residual symptoms.”151 At the time, the deferitazole program had an expected net

present value of negative $21 million.152

            On October 31, 2013, a Shire executive emailed Mayer, expressing his view

that the instances of peripheral neuropathy were “a big concern in particular as there

are ‘residual symptoms’.”153 He stated: “This is a challenging program. . . . I am

wondering why we continue working on this with a clearly negative [expected net

present value].”154        Mayer responded:            “I completely agree but the analysts

apparently love this program!”155

            On November 13, 2013, Vickers emailed Flemming Ornskov—Shire’s new

CEO as of April 2013—to update him on numerous programs, including

deferitazole.156 Vickers stated: “Personally, I think that the full risks of this program

have not been shared in full previously . . . now that we have had a chance to review

the data this program has higher risk than I was aware of.”157 He noted clinical risks

150
      Id.; see Trial Tr. at 503:5–10 (Vickers).
151
      JX-707 at 12.
152
Id. at 33.
153
      JX-710 at 1.
154
Id.
155
 Id.
156
      See generally JX-749.
157
Id. at 2.

                                                  27
affiliated with cardiac iron concentration and peripheral neuropathy and commercial

risks affiliated with the release of generic Exjade, and the program’s “negative

NPV.”158 He also noted—just as he had to Mayer previously—that deferitazole “is

the sole most expensive program in [research and development] next year-

approximately $58 [million].”159

            On November 15, 2013, the Pipeline Committee met to discuss the

deferitazole program.160 It again discussed the drug’s efficacy in decreasing liver

iron concentration, but noted that cardiac iron concentration control was still “To Be

Achieved.”161 And although it noted that deferitazole had a “[f]avourable renal and

[gastrointestinal adverse effect] profile,”162 it discussed the “[n]eed to define the

Therapeutic Window” for the drug, or the “appropriate dose for each patient to

achieve a sufficient net negative iron balance” without symptoms of peripheral

neuropathy.163 Overall, Shire’s “[e]fficacy [and] safety targets” for the drug were

not yet met, which meant potential “[d]elays for clinical trials.”164 These delays, in

158
Id.
159
 Id.
160
      JX-723 at 2; see Trial Tr. at 393:5–23 (Vickers).
161
      JX-723 at 11.
162
Id.
163
 Id. at 9.
164
 Id. at 20.

                                               28
turn, could hinder deferitazole’s commercial opportunity, as the release of generic

Exjade was rapidly approaching.

            In a meeting the same day, the Pipeline Committee recognized “the

competitive risks of further delay,” but nonetheless “concluded that [Shire] should

wait for the results from [S]tudy 203 before initiating further clinical studies,”

including Study 204.165         The data from a completed Study 203, the Pipeline

Committee observed, would “inform the decision whether [the] program is

viable.”166 In an email to deferitazole’s development team, the Pipeline Committee

expressed: “Although we recognize that this will delay the overall timeline (and

carries some competitive risk), we believe that this is the prudent course given the

risks and complexities inherent in the program, and the information that [S]tudy 203

will provide.”167

            As the Pipeline Committee discussed the future of the deferitazole program,

the Peripheral Neuropathy Committee continued to assess the patient risk affiliated

with symptoms of peripheral neuropathy. More than one month after the Pipeline

Committee decided to delay the start of Study 204, on December 18, 2013, the

Peripheral Neuropathy Committee submitted a preliminary report to Shire in which

165
      JX-732 at 3.
166
Id.
167
      JX-731 at 1.

                                             29
it identified peripheral neuropathy as a “dose limiting toxicity” for deferitazole

because its frequency was higher at higher doses.168 The Peripheral Neuropathy

Committee recommended that Shire halt dosing at 75 milligrams per kilogram per

day, both once daily and twice daily total.169 On January 10, 2014, the Executive

Safety Review Committee “agreed on the decision to discontinue the 75 [milligrams

per kilogram per day] . . . dosing in all ongoing clinical trials,” but also agreed to

continue with “50 and 60 [milligrams per kilogram per day] dosing.”170

         These changes to the deferitazole program—the delay of Study 204 pending

the results of Study 203 and the termination of the 75 milligrams per kilogram

dose—resulted in a delay of Phase III clinical trials. By January 17, 2014, Shire’s

internal records indicated that Phase III clinical trials would not begin until

May 27, 2016.171 This “planned program delay” would “reduce [deferitazole’s]

2014 budget” by approximately $28.5 million.172 Nonetheless, Dr. Paul Streck—the

vice president of clinical development for Shire at the time 173—testified in his

168
   JX-802 at 4; PTO ¶ 48. “Virtually all drugs have some kind of limitation in terms of
how much you can give until you see some side effect.” Trial Tr. at 82:16–24 (Rienhoff).
This concept is referred to as a “dose limiting toxicity.” Id.
169
      JX-802 at 13.
170
Id. at 5; PTO ¶ 48. See generally JX-856.
171
      JX-805 at 7; Trial Tr. at 173:24–74:4 (Streck); see also PTO ¶ 51.
172
      JX-805 at 8.
173
      Trial Tr. at 102:5–10 (Streck).

                                              30
deposition that as of early 2014, the deferitazole program remained just as promising

as “[a]ny other early Phase II program”174 and had the “opportunity to be as

successful as any other Phase II program that Shire was involved with.” 175

         F.     The RatCarc Study Reveals Tumors in the Kidneys of Male Rats,
                and Shire Halts Dosing.
         As discussed above, FerroKin had commenced the RatCarc Study before the

Merger Agreement was executed. On February 19, 2014, Shire was advised that the

pathologist’s preliminary review of the tissues from the RatCarc Study indicated an

increased incidence of tumors—both benign and malignant—in the kidneys of male

rats.176 In response, Shire’s Director of Toxicology, Dr. Richard Pfeifer, noted that,

if Shire could show that the tumors “were related to the well-documented rat-specific

tumorigenic response . . . described in the literature, . . . [Shire would] be in a better

position to discuss the findings as ‘noteworthy’ rather than ‘adverse,’ i.e., that the

tumors are of no consequence to human health.”177

         One such “rat-specific tumorigenic response” is a condition called chronic

progressive nephropathy (“CPN”). CPN is a “disease of rat kidneys”178 whereby

174
Id. at 161:11–17 (Streck).
175
      Streck Dep. Tr. at 133:24–134:11.
176
   PTO ¶ 52; JX-862 at 3. The RatCarc Study revealed two types of tumors: tubule cell
adenomas and carcinomas.         JX-862 at 3.       “[A]denomas are benign tumors[,]
and . . . carcinomas are malignant tumors.” Trial Tr. at 1062:14–17 (Popp).
177
      JX-862 at 2.
178
      Trial Tr. at 1065:15–16 (Popp).

                                           31
“rats will spontaneously develop . . . benign tumors” because their “cells grow very

quickly for various reasons associated with their genetics.”179 Because CPN is a

progressive condition, the incidence and severity of the tumors increases over

time.180 By the time male rats are two years old, there is “about a hundred percent

incidence.”181 Though CPN is not specific to male rats, its severity and incidence in

female rats is much lower.182        Because CPN can “compromise some of the

interpretation of data related to carcinogenicity” in rats,183 Shire had to figure out if

the tumors in the RatCarc Study emerged as a result of CPN or as a result of

deferitazole. To Shire, this question was a “very big deal,” as there are ethical

problems with exposing humans to a drug that could potentially cause cancer.184

            Shire sought advice from an independent expert pathologist in order to

determine whether it should continue dosing in the deferitazole program. 185 On

February 25, 2014, Streck emailed Mayer and stated: “Based on expert feedback,

the team will recommend continuing dosing in [the deferitazole program].” 186 This

179
Id. at 123:7–11 (Streck).
180
Id. at 1065:8–1066:4 (Popp).
181
Id. at 1065:20–22 (Popp).
182
Id. at 1066:6–9 (Popp).
183
Id. at 412:8–11 (Vickers).
184
Id. at 114:4–15 (Streck).
185
      JX-888 at 1.
186
Id.

                                           32
recommendation was made in part because there was a less than ten percent

incidence of tumors in the RatCarc Study and because the tumors were found toward

the end of the study’s two-year duration, presumably when the incidence of tumors

in rats with CPN would be at its highest.187 Streck explained that “[t]he team will

recommend reporting the finding to regulatory agencies, put together a rationale to

continue dosing based on animal and human data collected thus far and performing

[sic] additional pathologic analyses.”188 He further explained: “There was team

consensus to move forward in this way recognizing regulatory agencies may still put

us on clinical hold.”189

            Meanwhile, news of the rat carcinogenicity signal did not sit well with at least

one member of the Pipeline Committee.                   In an email to Ornskov dated

February 23, 2014, Vickers summarized the high-level issues with deferitazole,

including the drug’s ability to control cardiac iron, symptoms of peripheral

neuropathy, and the newly-surfaced rat carcinogenicity signal.190 He stated: “We

ha[d] already thought that this program was on[] the ropes and at the end of this

coming week we may need to make a more drastic decision on the program.” 191

187
Id.
188
Id.
189
 Id.
190
      JX-871 at 1.
191
Id.

                                               33
            On February 25, 2014, the clinical development team presented its

recommendations to the Executive Safety Review Committee.192 At the February

25 meeting, the committee discussed “whether . . . the evidence to date was robust

enough to suggest a rat-specific mechanism of action, such as progressive CPN.”193

The committee noted, among other things, that there was no “clear evidence” that

deferitazole “exacerbates CPN to the most advanced stages or that the observed

tumors are associated with advanced CPN.”194 It also noted that the incidence of

malignant tumors was higher than expected.195

            The Executive Safety Review Committee also expressed concern about the

lack of a safety margin for deferitazole.196 A safety margin is a “zone of comfort”

meant to assure clinicians that “exposing patients [to the drug] in the short term [will]

not cause any ill effects.”197 In essence, it is “a comparison between the exposure of

a drug in animals [and] the exposure [of] the drug in human subjects.”198 “Where

the exposure is greater in animals than in humans, the safety margin is positive,” and

“[a] higher safety margin generally provides greater confidence that adverse events

192
      See generally JX-1321 at 8–10.
193
Id. at 10.
194
Id.
195
Id.
196
 Id. at 9–10; see Trial Tr. at 127:4–14 (Streck).
197
      Trial Tr. at 115:5–13 (Streck).
198
      JX-1697 ¶ 32; PTO ¶ 69.

                                                34
seen in animals will not translate to human subjects, who receive significantly lower

exposures.”199 Because the exposure of deferitazole in the rats was “significantly

lower than that achieved in patients [enrolled] in the clinical trials,” deferitazole had

no safety margin, and the Executive Safety Review Committee grew concerned. 200

         Ultimately, although “the potential relevance of the [rat carcinogenicity]

finding to humans, if any, [was] unknown at [the] time,” the Executive Safety

Review Committee “voted in favor of suspending dosing in the clinical studies”

pending further investigation.201 That evening, Vickers wrote to Ornskov and stated:

“As you will see . . . the teams [sic] recommendation was to continue with the

program. However, the view of the [Executive Safety Review Committee] was that

based on the information [at] hand we feel it appropriate to halt dosing in the clinical

study.”202

         G.     The FDA Places the Deferitazole Development Program on Full
                Clinical Hold, and Shire Investigates the RatCarc Study Results
                Further.
         On March 4, 2014, Shire informed the FDA of the rat carcinogenicity signal

and that Shire had “taken the precautionary measure of implementing a temporary

199
      JX-1697 ¶ 32; PTO ¶ 69.
200
   JX-1321 at 10. The parties stipulated to the fact that “[t]here was no safety margin
between the exposure at which tumor[s] were observed in the male rats in the [RatCarc
Study] and the clinical exposure [i.e., exposure in humans].” PTO ¶ 70.
201
      JX-1321 at 10.
202
      JX-878 at 1.

                                           35
halt to the global clinical development program with the discontinuation of dosing

of all subjects in all studies across all countries with immediate effect.”203 Upon

receiving Shire’s submission, the FDA requested a meeting with Shire on March 6,

2014.204 The FDA explained that it “fully agree[d] with Shire’s approach and path

forward.”205 It further explained that, “[t]o acknowledge this and as a formality, we

are putting the [deferitazole] program on a Full Clinical Hold with an official letter

to follow within 7 days.”206

            The official letter (the “Clinical Hold Letter”) came on March 7, 2014.207 In

it, the FDA explained that the deferitazole program was “on clinical hold and all

clinical trials must be stopped.”208 The Clinical Hold Letter confirmed that the FDA

placed deferitazole on full clinical hold pursuant to 21 C.F.R. § 312.42(b)(2)(i),

which authorizes the FDA to impose such a hold if it finds that “[h]uman subjects

are or would be exposed to an unreasonable and significant risk of illness or

injury.”209 The Clinical Hold Letter explained that Shire was required to submit

certain information in order to address the clinical hold, including a final report for

203
      See generally JX-914.
204
      JX-955 at 4; PTO ¶ 57.
205
      JX-955 at 4.
206
Id.
207
      PTO ¶ 58. See generally JX-937.
208
      PTO ¶ 58; JX-937 at 1.
209
      PTO ¶ 58; JX-937 at 1.

                                              36
the RatCarc Study, certain human data to facilitate the interpretation of the RatCarc

Study results, and other items.210 Until Shire submitted this “Clinical Hold Complete

Response” and received the green light from the FDA, it could not “legally initiate

or resume clinical studies” for deferitazole.211

            In late March 2014, Rienhoff and Plaintiff’s Managing Director Christopher

Letang met with Streck and other Shire representatives to discuss the status of the

deferitazole program.212 Letang later described the meeting in an email, explaining

that Shire was “grappling with how to respond to the neuropathy and carcinogenicity

findings from the recent studies.”213 Letang’s impression was that Shire was “hoping

to be able to lift the clinical hold by the end of the year” but that this would “require

‘clear and compelling evidence’ for a rat specific mechanism on the carcinogenicity

findings.”214 Letang stated: “[Shire] assured us that they are not losing enthusiasm

for the program.”215 Rienhoff had a similar impression, as he testified at trial that it

was his “understanding that [Shire was] going to make every effort [it] possibly

210
      JX-937 at 1.
211
Id.
212
      JX-1011; Trial Tr. at 85:3–12 (Rienhoff).
213
      JX-1011.
214
Id.
215
Id.

                                              37
could to lift the hold”216 and that Shire “appeared to be enthusiastic” about the

continuation of the program.217

          In response to the results of the RatCarc Study, Shire engaged a Pathology

Working Group composed of recognized experts in renal pathology, renal toxicity,

CPN, and rodent carcinogenicity studies.218 The working group examined the

RatCarc Study results and confirmed the study pathologist’s finding that the tumors

appeared only in the kidneys of male rats.219 In late June 2014, the working group

concluded: “The human clinical relevance of the findings in male rats is most likely

to be potential renal toxicity. Since there is no comparable renal disease to CPN in

man . . . , these findings are unlikely to indicate a carcinogenic risk for humans in

the absence of renal toxicity.”220 The working group recommended that Shire

conduct two additional rodent studies: a study in iron-loaded rats and a study in

mice.221 Pfeifer believed that the working group’s findings “put [Shire] in a better

position than anticipated,” in part because they were “unlikely to indicate a

carcinogenic risk to man.”222

216
      Trial Tr. at 86:17–18 (Rienhoff).
217
Id. at 86:23–24 (Rienhoff).
218
      PTO ¶ 60.
219
      JX-1179 at 22.
220
Id. at 23.
221
Id. at 2.
222
      JX-1066 at 1.

                                          38
          On July 7, 2014, the Executive Safety Review Committee met in order to

discuss the working group’s recommendations.223            The deferitazole clinical

development team suggested that the Executive Safety Review Committee close out

the ongoing clinical studies (including Study 202 and Study 203) and move forward

with the two additional rodent studies “to ensure that carcinogenicity findings are

male rat-specific and are not relevant to humans.”224 They also suggested that Shire

continue monitoring patients who had already been exposed to the drug “for renal

tumor development until data from the [two additional rodent studies] confirm the

current assessment.”225 The Executive Safety Review Committee agreed, adopted

these recommendations, and additionally endeavored to “[e]ngage [r]egulatory

consultants to endorse [Shire’s] strategy.”226       The Executive Safety Review

Committee noted: “It would be advisable to understand that the suggested trials

would be sufficient from a FDA . . . perspective to conclude that the carcinogenicity

findings are male rat-specific and are not relevant to humans, and that this evidence

would have a good probability of success in lifting the current clinical hold.” 227

223
      See generally JX-1321 at 5–7.
224
Id. at 6.
225
Id. This monitoring study would come to be known as Study 206—a five-year safety
follow-up study in which patients who had participated in previous deferitazole studies
would not receive any dose of deferitazole. PTO ¶ 64.
226
      JX-1321 at 6.
227
Id. at 6–7.

                                          39
            At the time, Shire’s internal development plan documents showed that Phase

III clinical trials were not expected to begin until at least mid-2017 and that

deferitazole would not receive approval before mid-2020—after the release of

generic Exjade.228

            H.    Shire Sends Plaintiff a Notice of Fundamental Circumstance and
                  Does Not Make the Initiation of Phase III Clinical Trial Milestone
                  Payment.
            As Shire continued to wrestle with the RatCarc Study findings, members of

the Pipeline Committee discussed the implications of “any plans to announce

discontinuation” of the deferitazole program, including those arising from the

Merger Agreement.229 In an email dated April 30, 2014, Mayer explained to

Vickers:          “My understanding is that there is a significant milestone

payment . . . based on termination of the program in the absence of a clear

efficacy/safety reason and this could be an issue from the perspective of Hugh

Rienhoff and other legacy Ferro[K]in investors.”230

            Mayer’s concern resurfaced later on in a June 8, 2014 Pipeline Committee

“Priority Programs Update.”231 The update noted that the Pathology Working

Group’s evaluation of the RatCarc Study results was “favorable” and estimated that

228
      PTO ¶ 62.
229
      JX-1041 at 1.
230
Id.
231
      See generally JX-1854.

                                            40
the clinical hold “potentially could be lifted in ~ 1 year.”232 The update went on to

discuss the Merger Agreement, stating that payment of the Initiation of Phase III

Clinical Trial Milestone was “required even if [the deferitazole program were]

terminated, absent the occurrence of a Fundamental Circumstance.” 233 It explained:

“If FDA declines to lift Clinical Hold after considering Shire’s complete response,

this would likely be a Fundamental Circumstance (depending on FDA’s actual

response).”234 And if the problems the program faced thus far were to be “considered

together,” the update explained, a Fundamental Circumstance may also be said to

have occurred—but this outcome was “not as clear cut.”235 The update recognized

that termination of the deferitazole program “due to changes in Shire’s business

model or financial forecasts (in and of themselves) would not qualify as a

Fundamental Circumstance.”236

            The Pipeline Committee met on July 8, 2014—the day after the Executive

Safety Review Committee adopted the recommendation that Shire continue

monitoring patients and move forward with two additional rodent studies. During

232
Id. at 23. The update explained that the two additional rodent studies—the study in
iron-loaded rats and the study in mice—would take thirteen weeks and six months,
respectively. PTO ¶ 63. The study in iron-loaded rats began in late 2014, and the study in
mice began in mid-2015. Id.
233
      JX-1854 at 26.
234
Id.
235
 Id.
236
Id.

                                           41
the July 8 meeting, the Pipeline Committee formally terminated the deferitazole

clinical studies subject to the full clinical hold, but it neither formally terminated the

deferitazole program nor made a determination that a Fundamental Circumstance

had occurred.237

         It was only following the July 8 Pipeline Committee meeting that Streck

“began to assemble information in terms of what had happened with the clinical

development program . . . from the time it started until the time it was put on clinical

hold by the FDA.”238 That exercise culminated in a September 2014 document titled

“[deferitazole] Fundamental Circumstance Justification Outline.” 239 By October

2014, that outline had evolved into a detailed document that would “likely be used

for discussions and legal proceedings with FerroKin.”240 The same month, Mayer

expressed: “At the moment, I think we can safely say we have no plans to resurrect

this program but we are doing . . . our due diligence in understanding the safety

findings and the risks to humans.”241

237
      JX-1107 at 6; Trial Tr. at 148:15–19 (Streck).
238
      Trial Tr. at 149:14–18 (Streck).
239
   JX-1131; see Trial Tr. at 193:23–194:13 (Streck). The document’s unaltered name is
“602 Fundamental Circumstance Justification Outline.” JX-1131. Internally, Shire used
variations of the number 602 to refer to the deferitazole program. Trial Tr. at 35:6–8
(Rienhoff).
240
      JX-1178.
241
      JX-1287 at 145.

                                              42
            At meetings in February 2015, the Pipeline Committee and the Executive

Committee made the decision to terminate development of deferitazole completely

and to send a Notice of Fundamental Circumstance to Plaintiff.242 Section 2.9(b) of

the Merger Agreement required that, “[i]n the event that [Shire] believes that a

Fundamental Circumstance has occurred, [Shire] shall promptly provide notice

thereof to [Plaintiff] together with reasonable detail (based upon the information

then possessed by [Shire]) of the material facts known to [Shire] giving rise to such

belief.”243

            On February 25, 2015, Shire sent Plaintiff a “Notice of Fundamental

Circumstance.”244 It cited several safety concerns with deferitazole, including “renal

carcinogenicity in animals and peripheral neuropathy, as well as undesirable drug-

drug interactions.”245 It noted that “[t]he observation of renal carcinogenicity in

preclinical studies resulted in the current FDA-issued full clinical hold.”246 “Taken

together,” the notice explained, “these observed dose-dependent adverse effects

make it improbable that [deferitazole] would demonstrate an improved safety profile

compared to Exjade” and even that, “like Exjade, [deferitazole] may carry a ‘black

242
      PTO ¶ 71.
243
      JX-241 § 2.9(b), at 25; PTO ¶ 33.
244
      JX-1294 at 57–61.
245
Id. at 58.
246
Id.

                                          43
box’ or similar warning, meaning that [it] would have no meaningful competitive

advantage over Exjade in regard to safety.”247

            The notice also cited certain efficacy concerns with deferitazole, stating: “The

clinical and commercial success of [deferitazole] further requires that [it]

demonstrate efficacy at least comparable to Exjade, including with respect to its

effects on both hepatic and cardiac iron.”248 It explained that the results from “one

Phase 2 dose-finding study”—Study 201—“raised a signal that [deferitazole] failed

to demonstrate adequate control of cardiac iron overload.”249 It also asserted that

deferitazole “demonstrated questionable and, at best, dose-dependent iron chelation

capacity for managing liver iron overload.”250 The notice went on to explain that

“the prospect of finding a dosage level that is effective for managing both liver and

cardiac iron overload without seriously compromising [deferitazole]’s safety

profile . . . appears remote.”251

            The notice states that these safety and efficacy concerns “rendered the receipt

of applicable Regulatory Approvals impracticable” and also meant that deferitazole

“could not be launched within the required window for [it] to be commercially

247
Id.
248
Id.
249
 Id.
250
Id. at 59.
251
 Id.

                                               44
viable.”252 The receipt of Regulatory Approvals would be impracticable because

Shire would have to convince the FDA to lift the full clinical hold and “re-initiate

Phase II clinical studies.”253 And the commercial viability of deferitazole was no

longer, in light of the “substantial delay stemming from the FDA-issued full clinical

hold and the stoppage of the previous Phase II clinical trials” as well as deferitazole’s

“potential[] inferior[ity] to the current standard of care.”254

          The notice concluded that the Initiation of Phase III Clinical Trial Milestone

“shall not be deemed to have been achieved on December 31, 2015.”255 Shire did

not make the $45 million Initiation of Phase III Clinical Trial Milestone payment

with Plaintiff on December 31, 2015, and has not done so since then.256 Shire did

not submit a Clinical Hold Compete Response to the FDA in order to attempt to lift

the full clinical hold.257

252
Id. at 59–60.
253
 Id. at 59.
254
Id. at 60.
255
 Id. at 61 (emphasis added).
256
      PTO ¶ 75.
257
Id. ¶ 74.

                                            45
          I.      This Litigation
          Plaintiff filed the Verified Complaint in this action on December 4, 2017.258

Trial took place over four days in October 2019.259 Post-trial briefing concluded on

February 19, 2020,260 and the Court heard post-trial arguments on March 2, 2020.261

Thereafter, the parties made supplemental submissions, which were complete by

July 31, 2020.262

II.       LEGAL ANALYSIS
          Plaintiff asserts two causes of action. In its First Cause of Action, Plaintiff

claims that Shire breached its obligation to make the Initiation of Phase III Clinical

Trial Milestone payment.263 In its Second Cause of Action, Plaintiff claims that it is

entitled to its attorneys’ fees in connection with this lawsuit.264

          A.      Breach of Contract
          In its First Cause of Action, Plaintiff claims that Shire breached its obligation

to make the Initiation of Phase III Clinical Trial Milestone payment under Sections

258
Id. ¶ 81.
259
      Dkts. 167–170.
260
  Dkt. 171, Pl.’s Opening Post-Trial Br.; Dkt. 174, Defs.’ Post-Trial Br.; Dkt. 177, Pl.’s
Reply Post-Trial Br.
261
      Dkt. 181, Post-Trial Oral Arg. (“Oral Arg. Tr.”).
262
   Dkt. 185, Shire’s Post-Trial Suppl. Opening Br. (“Defs.’ Opening Suppl. Br.”); Dkt.
187, Pl.’s Opening Suppl. Post-Trial Br. (“Pl.’s Opening Suppl. Br.”); Dkt. 193, Pl.’s
Answering Suppl. Post-Trial Br.; Dkt. 194, Shire’s Reply Post-Trial Suppl. Br.
263
      Dkt. 1, Verified Compl. for Breach of Contract ¶¶ 59–64.
264
Id. at ¶¶ 65–70.

                                              46
2.9(a) and 2.9(f) of the Merger Agreement. “To prevail on a breach of contract

claim, the plaintiff must prove: 1) the existence of a contract; (2) the breach of an

obligation imposed by the contract; and (3) damages suffered because of the

breach.”265

          Section 2.9(a) of the Merger Agreement provides:

                  Upon the first occurrence of any of the events set forth in
                  the table below under “Milestone Trigger Event” (each a
                  “Milestone”), [Shire] shall promptly . . . deliver a notice to
                  the Equityholders’ Representative of such occurrence,
                  and, within fifteen (15) Business Days of such notice,
                  deposit or cause to be deposited the amount of cash in U.S.
                  dollars set forth in the table below under “Milestone
                  Payment” opposite such Milestone . . . with the
                  Equityholders’ Representative . . . .266

          The table referenced in the above language lists the “trigger event” for the

milestone payment at issue in this litigation as the “Initiation of Phase III Clinical

Trial Milestone.”267 Section 1.1 defines “Initiation of Phase III Clinical Trial

Milestone” as “the earlier to occur of (i) the first dosing of the first patient in the first

Phase III Clinical Trial or (ii) the filings of an NDA or an MAA with respect to a

Covered Product.”268

265
   Zayo Gp., LLC v. Latisys Hldgs., LLC, 2018 WL 6177174, at *10 (Del. Ch.
Nov. 26, 2018).
266
      JX-241 § 2.9(a), at 24–25.
267
Id. § 2.9(a), at 24.
268
Id. § 1.1, at 11.

                                               47
          Section 2.9(f) provides that

                 Notwithstanding anything else in this Agreement to the
                 contrary, in the event that the Company has not achieved
                 the Initiation of the Phase III Clinical Trial Milestone on
                 or before December 31, 2015, other than as a result of a
                 Fundamental Circumstance, then the Initiation of Phase III
                 Clinical Trial Milestone shall be deemed to have been
                 achieved on such date.269

          Neither the first dosing of the first patient in the first Phase III clinical trial

nor the filings of an NDA or an MAA with respect to a Covered Product occurred

on or before December 31, 2015. The Initiation of Phase III Clinical Trial Milestone

is therefore “deemed achieved” under Section 2.9(f) unless the failure to achieve the

milestone was “as a result of a Fundamental Circumstance.” Plaintiff’s claim thus

hinges on the clause “other than as a result of a Fundamental Circumstance,” which

this decision refers to as the “Fundamental Circumstance Clause.”

                 1.     Shire Bears the Burden of Proof.
          Typically, the party seeking to enforce the contract must prove each element

of its breach of contract claim by a preponderance of the evidence.270 Contracts that

269
Id. § 2.9(f), at 27; PTO ¶ 30.
270
   Dermatology Assocs. of San Antonio v. Oliver St. Dermatology Mgmt. LLC, 2020 WL
4581674, at *19 n.214 (Del. Ch. Aug. 10, 2020); Braga Invs. & Advisory, LLC v. Yenni
Income Opportunities Fund I, L.P., 2020 WL 3042236, at *8 (Del. Ch. June 8, 2020);
Simon-Mills II, LLC v. Kan Am USA XVI Ltd. P’ship, 2017 WL 1191061, at *36 (Del. Ch.
Mar. 30, 2017); Zimmerman v. Crothall, 62 A.3d 676, 691 (Del. Ch. 2013); 23 Williston
on Contracts § 63:14 (4th ed. 2020).

                                              48
contain conditions, however, require another layer of analysis when allocating the

burden of proof.

       Where a contractual obligation is subject to a “condition precedent,” that

obligation will only mature on satisfaction of a contractually specified condition.271

In that situation, the party seeking to enforce that obligation bears the burden of

proving that the condition has been satisfied in order to establish the first element of

a claim for breach of contract—the existence of a contractual obligation. 272

271
    SLMSoft.com, Inc. v. Cross Country Bank, 2003 WL 1769770, at *12 (Del. Super.
Apr. 2, 2003) (“A term rendering performance by one party contingent upon a
condition . . . is generally a condition precedent.”); 13 Williston on Contracts § 38:7 (“A
condition precedent is either an act of a party that must be performed or a certain event that
must happen before a contractual right accrues or a contractual duty arises.”); Restatement
(Second) of Contracts § 224 & cmt. e (Am. Law Inst. 1981) (“A condition [precedent] is
an event, not certain to occur, which must occur . . . before performance under a contract
becomes due.”); 2 Farnsworth on Contracts § 8.02, at 8-5 & n.2 (4th ed. 2019) (same
(quoting Restatement (Second) of Contracts § 224)); 8 Corbin on Contracts § 30.7, at 14
(rev. ed. 1999) (defining conditions precedent as “those facts and events occurring after the
making of a valid contract, that must exist or occur before there is a right to immediate
performance, before there is a breach of contract duty and before the usual judicial
remedies become available” (emphasis removed)).
272
   Ewell v. Those Certain Underwriters of Lloyd’s, London, 2010 WL 3447570, at *3 (Del.
Super. Aug. 27, 2010) (“The burden of allegation and proof of a condition precedent is on
the plaintiff . . . .”); 13 Williston on Contracts § 38:26 (“[T]he ultimate burden of proof
with regard to conditions precedent . . . remains on the plaintiff.”); see, e.g., El Paso Nat.
Gas Co. v. Amoco Prod. Co., 1994 WL 148263, at *9 (Del. Ch. Mar. 29, 1994) (explaining
that the plaintiff had “met its burden of proving” that certain events “satisfied the condition
precedent” in the agreement the plaintiff sought to enforce); 2 Farnsworth on Contracts
§ 8.02, at 8-13 (“[T]he plaintiff ha[s] the burden of pleading and proof as to a condition
precedent to the defendant’s duty . . . .”); 8 Corbin on Contracts § 30.7, at 13 & n.19 (noting
that the plaintiff bears the burden of proof with regard to conditions precedent).

                                              49
       Where a contractual obligation is subject to what was traditionally referred to

as a “condition subsequent,” or what the Restatement (Second) of Contracts § 230

refers to as “Event that Terminates a Duty,” that obligation exists unless it is

extinguished by the occurrence of a contractually specified event.273                In that

situation, the party seeking to avoid a finding of breach bears the burden of proving

that the event has occurred and its obligation was extinguished.274

       For the purpose of allocating the burden of proof, Shire contends that the

Fundamental Circumstance Clause creates a condition precedent and that Plaintiff

273
    Restatement (Second) of Contracts § 230 cmt. a (“Parties sometimes provide that an
obligor’s matured duty will be extinguished on the occurrence of a specified event, which
is sometimes referred to as a ‘condition subsequent.’”); id. § 224 cmt. e (“Parties
sometimes provide that the occurrence of an event . . . will extinguish a duty after
performance has become due, along with any claim for breach. Such an event has often
been called a ‘condition subsequent’ . . . .”); 13 Williston on Contracts § 38:9 (“A condition
subsequent has been defined as a future event, the happening of which discharges the
parties from their otherwise binding agreement.”); 2 Farnsworth on Contracts § 8.02, at 8-
12 (“[A]n event that extinguishes a duty that has already arisen . . . has traditionally been
called a ‘condition subsequent.’”); 8 Corbin on Contracts § 30.7, at 14 (“‘Conditions
subsequent’ are traditionally those facts and events that . . . terminate both the right to
immediate performance and also the right to a judicial remedy.”); see also Redux, Ltd. v.
Com. Union Ins. Co., 1995 WL 88251, at *3 n.7 (D. Kan. Feb. 7, 1995) (“There is no
reason to believe that the semantic change [in Section 230] affected the viability of the law
concerning burden of proof which developed around ‘conditions subsequent.’”).
274
   Ewell, 2010 WL 3447570, at *3 (“[T]he burden of proof and allegation of a condition
subsequent is on the defendant.”); 16 Williston on Contracts § 49:87 (“[T]he burden of
proof with respect to conditions subsequent is on the defendant . . . .”); 2 Farnsworth on
Contracts § 8.02, at 8-13 (“[T]he defendant ha[s] the burden as to a condition
subsequent.”); 8 Corbin on Contracts § 30.7, at 13 & n.19 (noting that the defendant bears
the burden of proof with regard to a condition subsequent).

                                             50
must prove the absence of a Fundamental Circumstance in order to prevail.275 Shire

relies solely on syntax, arguing that “[t]he basic structure of Section 2.9(f) is one of

if-then conditionality”: “if Shire did not start Phase III Clinical trials by December

31, 2015 as a result of a Fundamental Circumstance, then the milestone was never

achieved and any resulting milestone payment obligation never arose.”276

            Shire is technically correct that the structure of Section 2.9(f) uses conditional

language, but this observation does not resolve the parties’ dispute. Conditions

subsequent are often expressed using conditional language.277 For this reason, the

difference between a condition precedent and a condition subsequent “is one of

substance and not merely of the form in which the provision is stated.”278 “If

performance under the contract is not to become due until occurrence of an event,”

that event is a condition precedent.279 But if “an obligor’s matured duty will be

275
      Defs.’ Post-Trial Br. at 17, 59–62.
276
Id. at 60; accord. PTO ¶ 97; see also Defs.’ Opening Suppl. Br. at 4.
277
   See, e.g., Restatement (Second) of Contracts § 230 cmt. a, illus. 1 (describing conditions
subsequent and providing the following illustration: “A, an insurance company, insures
the property of B under a policy providing that no recovery can be had if suit is not brought
on the policy within two years after a loss. A loss occurs and B lets two years pass before
bringing suit. A’s duty to pay B for the loss is discharged and B cannot maintain the action
on the policy.” (emphasis added)).
278
      Restatement (Second) of Contracts § 230 cmt. a.
279
Id.

                                                51
extinguished on the occurrence of a specified event,” that event is a condition

subsequent.280

            In substance, the Fundamental Circumstance Clause provides for an event that

terminates Shire’s duty rather than a condition precedent to Shire’s duty. Section

2.9(a) provides that Shire’s payment obligations arise “[u]pon the first occurrence”

of the earliest of the two events listed in the definition of the Initiation of Phase III

Clinical Milestone.281 Section 2.9(f) automatically deems the Initiation of Phase III

Clinical Trial Milestone to have occurred on December 31, 2015. At that point, the

Merger Agreement imposes a mandatory obligation, providing that Shire “shall

promptly . . . deposit or cause to be deposited”282 the Initiation of Phase III Clinical

Trial Milestone payment with Plaintiff.               That mandatory obligation could be

extinguished only upon the occurrence of the specific “event” set forth in the

Fundamental Circumstance Clause. The Fundamental Circumstance Clause is thus

a condition subsequent that Shire must prove.

            The same outcome is reached when drawing by analogy from decisions

allocating the burden of proof on parties asserting material adverse effect and similar

280
Id.
281
      JX-241 § 1.1, at 12; id. § 2.9(a), at 24–25.
282
Id. § 2.9(a), at 24–25 (emphasis added).

                                                 52
contractual provisions as a basis for termination.283 In Hexion, for example, this

court allocated the burden to prove the existence of a material adverse effect on the

party seeking to excuse performance.             The court explained that “[t]ypically,

conditions precedent are easily ascertainable objective facts, generally that a party

performed some particular act or that some independent event has occurred.”284 The

court further observed that “[a] material adverse effect clause does not easily fit into

such a mold,” and concluded that it was preferable to allocate the burden on the party

seeking to avoid its contractual obligation.285 In this case, as in Hexion, the relevant

provision does not call for “easily ascertainable objective facts” and thus does not

283
    Hexion Specialty Chems., Inc. v. Huntsman Corp., 965 A.2d 715, 739 (Del. Ch.
Sept. 29, 2008) (finding that “the burden of proof with respect to a material adverse effect
rests on the party seeking to excuse is performance under the contract”); see also Channel
Medsys., Inc. v. Boston Sci. Corp., 2019 WL 6896462, at *16 (Del. Ch. Dec. 18, 2019)
(observing that the terminating party “bears the burden of ‘proving by a preponderance of
the evidence the facts supporting the exercise of its termination rights’” (quoting Akorn,
Inc. v. Fresenius Kabi AG, 2018 WL 4719347, at *4 (Del. Ch. Oct. 1, 2018), aff’d, 198
A.3d 724 (Del. 2018))); Akorn, 2018 WL 4719347, at *47 (“Because [the buyer] seeks to
establish a General MAE to excuse its performance under the Merger Agreement, [the
buyer] bore the burden of proving that a General MAE had occurred.”); Frontier Oil Corp.
v. Holly Corp., 2005 WL 1039027, at *25 (Del. Ch. Apr. 29, 2005) (“[T]he expectation of
the parties, as reflected in the Merger Agreement and as informed by the case law, was that
the burden of demonstrating that [a material adverse effect occurred] falls on [the party
seeking to terminate the agreement].”); cf. In re IBP, Inc. S’holders Litig., 789 A.2d 14,
68–71 (Del. Ch. 2001) (applying New York law and placing the burden of proving the
existence of a material adverse effect on the terminating party).
284
965 A.2d at 739.
285
Id.

                                            53
fit the mold of a condition precedent.286 As the party seeking to avoid its contractual

obligation, Shire bears the burden of proof.

                  2.    Shire Has Not Proven That Its Failure to Initiate Phase III
                        Clinical Trials Was “as a Result of” a Fundamental
                        Circumstance.
            To escape its obligation to make the Initiation of Phase III Clinical Trial

Milestone payment, Shire must prove that its failure to initiate Phase III trials by

December 31, 2015 was “as a result of a Fundamental Circumstance.” This clause

requires Shire to prove two things: (i) the existence of a “Fundamental

Circumstance” and (ii) that the failure to initiate Phase III trials was “as a result of”

that Fundamental Circumstance.

            To demonstrate the first element, Shire points to the RatCarc Study results

and subsequent FDA clinical hold, which Shire says “caused the early termination

of all ongoing human clinical trials” and therefore prevented Shire from initiating

Phase III clinical trials by December 31, 2015.287 This opinion assumes for the sake

of argument that either of these events constituted a Fundamental Circumstance.

Nevertheless, Shire has not met its burden of proving the second element—that its

failure to initiate Phase III clinical studies before December 31, 2015 was “as a result

286
Id.
287
   Defs.’ Post-Trial Br. at 2, 18–45; see id. at 21 (“The cancer finding injected years of
delay to Shire’s projected development timeline and caused an expectation of huge
monetary losses should development continue.”).

                                             54
of” any Fundamental Circumstance it claims occurred. The record reflects that, post-

closing, Shire altered deferitazole’s development timeline such that Shire’s failure

to initiate Phase III clinical studies by December 31, 2015, was inevitable,

notwithstanding any Fundamental Circumstance that later occurred.

          Immediately after closing in April 2012, Shire desired to pursue an

“[a]ggressive development and filing strategy” and was “[f]ocused on getting to

market [as soon as possible]” with a target launch date set for some time in 2016.288

At that time, Shire planned to begin Phase III clinical trials in late 2013—

approximately two years ahead of the December 31, 2015 automatically-deemed

date.289 But Shire made two primary decisions in 2013 that collectively prevented

the initiation of Phase III clinical trials by December 31, 2015.

           The first decision that delayed deferitazole’s overall development timeline

was Shire’s choice to switch to twice-daily dosing in Study 203. That decision was

made in early 2013, after Shire received data from Study 201, which indicated that

deferitazole’s ability to decrease cardiac iron concentration was not as strong as its

ability to decrease liver iron concentration.290 As Neufeld testified, it takes longer

to see a decrease in cardiac iron than it does to see a decrease in liver iron—in fact,

288
      JX-253 at 10.
289
Id. at 11.
290
   JX-1813 at 49; see JX-723 at 24 (summarizing Study 201 results); Trial Tr. at 107:7–
108:4 (Streck).

                                           55
“it really can take a year longer to get the heart to move in the same direction [as]

the liver.”291        Shire was aware that “[c]ardiac iron can take longer to really

adequately come down,”292 but did not feel as though the Study 201 data was enough

for it to “walk away from the program.”293 It was thus “somewhat optimistic” that

switching from once-daily dosing to twice-daily dosing in Study 203 would “be the

key to appropriately controlling iron concentrations in various tissues.”294 As Streck

testified at trial, Shire “felt that the benefit associated with [the switch to twice-daily

dosing in Study 203] outweighed risks” and therefore elected to move in that

direction.295 The switch to twice-daily dosing in Study 203 delayed the projected

initiation of Phase III clinical trials from late 2013 to early 2015.296

          Decisions like the one Shire made to switch to twice-daily dosing in Study

203 are routinely made in the drug development context. Streck testified at trial that

291
      Neufeld Dep. Tr. at 117:22–118:6; id. at 263:1–9.
292
      JX-1014 at 8.
293
Id. at 8–9.
294
Id. at 9; id. at 9–10 (Mayer stating: “The cardiac iron in the first study was . . . not a
reason necessarily to walk away from the program, but there was concern that it was
trending in the wrong direction and so one of the things we were hoping to get out of this
study . . . is to see whether that [was] going to happen again or is this something that could
actually control cardiac iron.”); Trial Tr. at 215:7–11 (Streck) (“We felt that increasing the
dosing frequency to twice daily would certainly increase the amount of time the drug was
in the bloodstream and, subsequently, hoped that it would have impact on the outcome of
the trial.”).
295
      Trial Tr. at 215:12–14 (Streck).
296
      JX-1817 at 5; JX-493 at 9; see Trial Tr. at 463:21–465:6 (Vickers).

                                              56
Shire’s experience with Study 203 “was very classic drug development in terms of

things coming up, questions about efficacy.”297 He went so far as to agree that it

could be called “progress.”298 This testimony is consistent with the general purpose

of Phase II clinical studies. Phase II studies are exploratory in nature—they seek to

better understand the efficacy of the drug while addressing any safety issues patients

might encounter.299 They are typically called “dose-range-of-findings” or “dose-

ranging” studies.300 Clinicians might therefore “change the criteria for the patients

[they]’re treating, . . . drop particular doses or add particular doses, or chang[e]

[their] dosing strategy during Phase II.”301 Shire did just that.

         The second decision that delayed deferitazole’s overall development timeline

was the Pipeline Committee’s decsion to delay the start of Study 204 until

completion of Study 203. Around April 2013, instances of peripheral neuropathy

began to emerge in Phase II clinical studies.302 By May 2013, the Executive Safety

Review Committee determined that “demonstrated declines in [liver iron

297
      Trial Tr. at 217:21–23 (Streck).
298
Id. at 217:24–218:3 (Streck).
299
Id. at 310:15–17 (Henner); id. at 31:6–14 (Rienhoff).
300
Id. at 31:6–14 (Rienhoff); id. at 310:8–9 (Henner).
301
Id. at 310:8–17 (Henner); Siegel Dep. Tr. at 38:13–23 (explaining that it is “very
common” for “a sponsor to make changes to dosing or frequency of dosing based on the
emergence of new clinical data”).
302
      JX-498 at 17; see JX-666 at 9; JX-522 at 31.

                                              57
concentration] and appropriate measures put in place to assess and manage patients

who develop signs and symptoms of peripheral neuropathy . . . justified the

continuation of the development program for [deferitazole].” 303             But at its

November 15, 2013 meeting, the Pipeline Committee hedged the continuation of

deferitazole’s development plan and “concluded that [Shire] should wait for the

results from [S]tudy 203 before initiating further clinical studies,” including Study

204.304

         Two aspects of the Pipeline Committee’s decision are particularly striking.

The first striking aspect is that it was made before the Pipeline Committee received

the      Peripheral      Neuropathy   Committee’s     preliminary   conclusions.    By

November 15, 2013, the Peripheral Neuropathy Committee had not yet had its first

meeting—its first meeting was scheduled for December 2, 2013.305 And it was not

until December 18, 2013, that the Peripheral Neuropathy Committee preliminarily

concluded that peripheral neuropathy was a “dose limiting toxicity” for

deferitazole.306 Prior to December 18, 2013, peripheral neuropathy had not yet been

identified as a dose limiting toxicity—and the Peripheral Neuropathy Committee

303
      JX-552 at 6.
304
      JX-732 at 3; Trial Tr. at 493:7–11 (Vickers).
305
      JX-723 at 9.
306
      JX-802 at 4, 10.

                                              58
had not yet recommended that Shire terminate the 75 milligrams per kilogram per

day dose.307

         The second striking aspect of the Pipeline Committee’s decision was that it

was made in the context of a company-wide effort to shift corporate spending to

products in later stages of development. On April 30, 2013, Shire’s Science and

Technology Committee discussed “[d]ownward changes in Shire revenue forecasts”

that had “resulted in a 2017 projected revenue gap of $700 [million].”308 It was from

this projected revenue gap that the idea of the Pipeline Committee sprang.309 The

Pipeline Committee’s purpose would be “to prioritize pipeline investment” and

“rebalance spend near term toward late stage assets” while “selectively decreas[ing]

investment in early stage programs.”310 The Pipeline Committee would “[a]dvance

the cross-Shire prioritization process to define which programs should be included

in [Shire’s] 2013 and 2014 plans/budgets.”311

307
     In briefing, Defendants suggest that the Peripheral Neuropathy Committee’s
conclusions and recommendation to terminate higher doses of deferitazole played some
role in the Pipeline Committee’s decision to delay the start of Study 204. Defs.’ Post-Trial
Br. at 9–10. But the record does not support this assertion.
308
      JX-493 at 50.
309
   Id.; see Trial Tr. at 472:19–24 (Vickers) (confirming that the Pipeline Committee had
not been a committee at Shire prior to April 30, 2013).
310
      JX-493 at 50.
311
      JX-538 at 28.

                                            59
            At a meeting on August 20, 2013, the Pipeline Committee identified a “target

budget” for 2014 R&D spending and noted that it would “require[] significant

savings to be identified.”312 The minutes of that meeting explain that “[p]otential

levers were discussed including further portfolio refinement (focus on reducing early

stage).”313 They also explain, under the heading “Portfolio Prioritization Refresh,”

that Shire’s then-current “pipeline dr[ove] sub-optimal growth” and that this sub-

optimal growth was “the fundamental driver for the need to rebalance the pipeline

toward later-stage opportunities.”314 In the same section, the minutes reflect that the

Pipeline Committee reviewed “[r]evised prioritization of [Shire’s] development

programs” and that “several programs [were] selected for reassessment.”315 The

Pipeline Committee discussed deferitazole “due to its high 2014 cost” but concluded

that Shire “should wait until [P]hase II data is available in 2014 before considering

changing course.”316

            Approximately one month later, on September 26, 2013, the Pipeline

Committee discussed that “delay in the [deferitazole] program could impact its

312
      JX-657 at 233.
313
Id.
314
 Id. at 235.
315
Id.
316
 Id.

                                             60
commercial value due to the future genericization of Exjade.” 317 The Pipeline

Committee resolved to “[o]btain commercial perspective on the impact of the

delay.”318

         The next day, on September 27, 2013, Mayer emphasized the need for the

Pipeline Committee to discuss the deferitazole program “from a technical

standpoint.” 319 In response, Vickers stated: “[F]rom a budget perspective this is a

very expensive program. . . . [W]e should consider what will be go/no go criteria-

both from a pipeline and budget perspective. We plan to move forward, but should

all be aligned.”320

         On October 21, 2013, Vickers asked certain members of Shire’s finance team

to send him a presentation showing Shire’s budget breakdown for 2014, “including

a breakdown by program.”321 In that email, he stated: “I would like to have with

me the cost of the [deferitazole] program.”322 The presentation indicated that the

317
      JX-677 at 64.
318
   Id.; see Trial Tr. at 492:18–493:6 (Vickers) (confirming that, at the September 26, 2013
Pipeline Committee meeting, “[t]here was a review of the timelines of the program and the
fact that it would take it to that time point”).
319
      JX-665 at 3; see Trial Tr. at 493:16–494:5 (Vickers).
320
   JX-665 at 2. At trial, Girard explained that a go/no-go decision is “a common term” in
the pharmaceutical industry used to describe the decision to “continue the development of
the program,” typically “based off of new information.” Trial Tr. at 781:2–8 (Girard).
321
      JX-693 at 1; see Trial Tr. at 494:12–18 (Vickers).
322
      JX-693 at 1.

                                              61
deferitazole program had the highest projected “Total External Spend” for 2014 out

of approximately fifty-five programs,            valued at $58      million.323     On

October 22, 2013, Vickers emailed the presentation to Mayer, calling it a “[g]ood

reminder on cost vs risk for [deferitazole].”324 Vickers then observed: “One of us

can flag that this is the most expensive program in 2014!”325

            By late October 2013, the deferitazole program had an expected net present

value of negative $21 million.326 On October 31, 2013, a Shire executive emailed

Mayer and stated: “This is a challenging program. . . . I am wondering why we

continue working on this with a clearly negative [expected net present value].”327

Mayer responded:          “I completely agree but the analysts apparently love this

program!”328

            On November 1, 2013, Jeremy Chadwick—Shire’s Vice President of Clinical

Development Operations—emailed Mayer and Vickers, stating that he “struggle[d]

to see the justification for the [deferitazole] program.”329 He explained that, in light

of the issues facing the program, “[e]ven the best case appear[ed] totally

323
Id. at 12.
324
      JX-695 at 1.
325
Id.
326
      JX-707 at 33.
327
      JX-710 at 1.
328
Id.
329
      JX-715 at 2.

                                            62
unconvincing.”330 In response, Mayer identified several “reasons for concern” with

the deferitazole program and explained: “[W]e could look at this program vs other

programs in development.”331

            On November 13, 2013, Vickers emailed Ornskov and again noted—just as

he had to Mayer previously—that deferitazole was “the sole most expensive

program in [research and development] next year- approximately $58 [million].”332

            Collectively, this evidence demonstrates that, in the months leading up to the

November 15, 2013 meeting, the Pipeline Committee was actively engaged in an

effort to reduce the deferitazole program’s budget in light of its sheer expense and

its “tight squeeze with generic Exjade.”333 The Pipeline Committee’s decision to

delay the start of Study 204 until the end of Study 203 was made in the midst of that

effort. It was also made before the Peripheral Neuropathy Committee met for the

first time or provided Shire a preliminary conclusion concerning the severity of the

peripheral neuropathies observed in patients and deferitazole’s correlation with

those peripheral neuropathies. The Pipeline Committee also knew that the decision

would “delay the overall timeline” for deferitazole’s development program334 and

330
Id.
331
Id. at 1.
332
      JX-749 at 2.
333
      Trial Tr. at 493:12–15 (Vickers); see JX-677 at 64.
334
      JX-731 at 1.

                                              63
specifically delay the initiation of Phase III clinical trials “until after [Study] 204

reports.”335

         By January 2014—after Shire made decisions to switch to twice-daily dosing

in Study 203 and to delay the start of Study 204—Shire’s internal records indicated

that Phase III clinical trials would not begin until May 2016.336 This delay fulfilled

the Pipeline Committee’s reprioritization goal, reducing deferitazole’s 2014 budget

by approximately $28.5 million.337 May 2016 was of course several months past the

December 31, 2015 automatically-deemed date, but Shire’s potential contractual

obligation to pay $45 million as of that date was not raised in the budgeting

discussions leading up to the November 15, 2013 meeting.

         The delay in the initiation of Phase III clinical trials to May 2016 occurred

before even the preliminary results of the RatCarc Study were announced. It was

not until February 19, 2014, that the study pathologist’s preliminary review of the

data indicated an increased incidence of tumors in the kidneys of male rats.338 And

335
   JX-750 at 2 (email from Streck to Mayer dated November 21, 2013, confirming that
there would be an 18 month delay in deferitazole’s projected launch and stating, “[t]he 18
month delay is accurate and predicated on delaying the 204 program until completion of
203, and then delay of the phase 3 programs until after 204 reports”).
336
      JX-805 at 7; see also PTO ¶ 51.
337
   JX-805 at 8; Trial Tr. at 401:8–14 (Vickers) (testifying that, in the year the decision was
made to postpone Study 204, “there was . . . cost saving . . . that was a consequence of the
decision”).
338
      PTO ¶ 52; JX-862 at 3.

                                             64
it was not until February 25, 2014, that the Executive Safety Review Committee

“voted in favor of suspending dosing in the clinical studies” pending further

investigation.339 Before these events occurred, however, the deferitazole program

remained just as promising as “[a]ny other early Phase II program”340 and had the

“opportunity to be [just] as successful.”341

         Defendants respond to this timeline with two points. Defendants first argue,

on the factual record, that the May 2016 projection was conjectural and not actual,

such that the decisions to switch to twice-daily dosing in Study 203 and to delay the

start of Study 204 did not necessarily result in the relevant delay. Defendants next

argue, as a matter of law, that the delay in the initiation of Phase III clinical trials to

May 2016 “did not foreclose the possibility that a Fundamental Circumstance could

occur and prevent the initiation of Phase III clinical trials on or before December 31,

2015.”342

         For their first argument—that the May 2016 date was not firm—Defendants

cite only Vickers’ testimony at trial that the delay was not “set in stone.”343 But the

documentary and other testimonial evidence presented at trial tell a contrary story.

339
      JX-1321 at 10.
340
      Trial at 161:11–17 (Streck).
341
      Streck Dep. Tr. at 133:24–134:11.
342
      Defs.’ Post-Trial Br. at 46.
343
Id. at 45–46. See generally Trial Tr. at 429:3–31:22 (Vickers).

                                              65
Delay in the initiation of Phase III clinical trials to May 2016 was more than mere

projection. The record reflects that, as of January and early February 2014, the

initiation of Phase III clinical trials simply would not occur until May 2016—it was

a “planned” and inevitable delay, not a projected or estimated one.344 This was most

evident in a “Progress Memo” dated February 3, 2014, in which Streck explained to

Plaintiff that the “[f]irst patient first visit in a Phase [III] study [is] currently planned

as May 2016.”345 At his deposition, Streck explained that, as of the date he authored

this Progress Memo on February 3, 2014, it “seem[ed] to be the case” that Shire’s

plan was to begin Phase III clinical trials in May 2016.346 This conclusion is further

344
    JX-805 at 8 (draft presentation in which Shire refers to the “[i]mplementation of delay”
to the deferitazole program and identifies the program delay as “[p]lanned”); JX-789 at 5
(minutes of the deferitazole development team’s meeting dated January 7, 2014, stating:
“It was confirmed that the amendment to study 204, and consequent delays, will go ahead
regardless of any decision on the conduct of study 203, ie there will not be a reversion to a
quick start for study 204.” (emphasis added)); JX-750 at 2 (email from Streck to Mayer
dated November 21, 2013, confirming that there would be an 18-month delay in
deferitazole’s projected launch and stating, “[t]he 18 month delay is accurate” (emphasis
added)); see also Trial Tr. at 173:24–174:4 (Streck) (counsel asking Streck whether the
development timeline in JX-805 indicated that Phase III clinical trials were “not even
scheduled to start . . . until May of 2016,” and Streck responding, “[y]es, that’s correct”);
Trial Tr. at 111:2–9 (Streck) (testifying that “there was going to be a delay with not starting
the 204 at the same time that the 203 study was running” (emphasis added)).
345
      JX-831 at 50 (emphasis added).
346
    Streck Dep. Tr. at 172:15–23. This testimony is consistent with Plaintiff’s own
interpretation of the Progress Memo at the time it was sent. In an email dated
February 19, 2014, Letang explained his view that Shire was continuing to move forward
with the deferitazole program, but that “timelines ha[d] slipped significantly.” JX-866 at
1. He stated: “You’ll recall that the first milestone (initiation of a Phase 3 study, now
planned for mid-2016) is deemed achieved on December 31, 2015 unless there has been a
Fundamental Circumstance . . . . That provision is now implicated based on the current
timelines.” Id. at 1–2 (emphasis added). Henner replied: “Drug development at Shire
                                              66
buttressed by general testimony that delays in drug development processes are

commonplace.347

         For their second argument—that a later Fundamental Circumstance could

independently prevent the initiation of Phase III clinical trials—Defendants rely on

the plain meaning of the phrase “other than as a result of a Fundamental

Circumstance.” Defendants contend that this language compels the conclusion that,

if “a Fundamental Circumstance occurred that would have been independently

sufficient to result in a delay of the initiation of Phase III clinical trials . . . , it would

extinguish Shire’s obligation to pay.”348 Taken to its logical extremes, under Shire’s

interpretation, Shire could have done nothing to develop deferitazole, but if a

Fundamental Circumstance precipitated, Shire would be excused from making the

milestone payment.

looks to be glacially slow.” Id. at 2. At trial, Henner explained: “Well, drug
development . . . is an inherently risky process and goes through fits and starts, and
sometimes things happen that make your initial plan change. But at this point, it appeared
that the program was about two years behind what the initial estimates had been of when
Phase III would have started.” Trial Tr. at 331:16–22 (Henner).
347
    See Trial Tr. at 467:11–13 (Vickers) (“Delay is common. Well, there are challenges
associated with . . . drug development which you need to overcome.”); id. at 467:23–468:2
(Vickers) (responding “[y]eah” when counsel asked whether he would “agree that the
problems that cause and increase delays happen more often than the challenges that result
in the program speeding up”); Siegel Dep. Tr. at 65:16–23 (testifying that delay in drug
development processes are “very common” and that he has “seen programs delayed six
months, a year, two years, three years”); Trial Tr. at 331:24–332:3 (Henner) (confirming
that “delays such as those [he] observed in the development of deferitazole” were common
in drug development).
348
      Defs.’ Opening Suppl. Br. at 1.

                                              67
          Plaintiff counters that the phrase “other than as a result of a Fundamental

Circumstance” invites a but-for causation analysis and “means that Shire cannot be

excused from its duty to pay . . . unless Shire demonstrates that, but for a

Fundamental Circumstance, it would have initiated Phase III on or before

December 31, 2015.”349 To Plaintiff, “[d]emonstrating only that a Fundamental

Circumstance could have caused Phase III to be delayed beyond December 31, 2015

is not enough,”350 and Defendants must demonstrate that the Fundamental

Circumstance was the actual cause of the failure to initiate Phase III clinical trials.

          The analysis starts with the text of the Merger Agreement. “When interpreting

a contract, the Court will give priority to the parties’ intentions as reflected in the

four corners of the agreement.”351 “[B]ecause Delaware adheres to an objective

theory of contracts, the contract’s construction should be that which would be

understood by an objective, reasonable third party.”352 Accordingly, “[t]he Court

will interpret clear and unambiguous terms according to their ordinary meaning.”353

“Contract terms themselves will be controlling when they establish the parties’

349
      Pl.’s Opening Suppl. Br. at 10.
350
Id. at 12.
351
      GMG Cap. Invs., LLC v. Athenian Venture P’rs I, L.P., 36 A.3d 776, 779 (Del. 2012).
352
      Leaf Invenergy Co. v. Invenergy Renewables LLC, 210 A.3d 688, 696 (Del. 2019).
353
      GMG Cap., 36 A.3d at 780.

                                             68
common meaning so that a reasonable person in the position of either party would

have no expectations inconsistent with the contract language.”354

       The parties’ dispute again finds itself centered on the meaning of the clause

“other than as a result of a Fundamental Circumstance.” For the purpose of this

discussion, two portions of this clause inform its meaning: (i) “other than,” and (ii)

“as a result of.” The plain meaning of the phrase “other than” is “with the exception

of” or “except for.”355 Put differently, the phrase signals an exception. The plain

meaning of the phrase “as a result” is “because of something.”356

354
Id. (quoting Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232
(Del. 1997)).
355
            Other         Than,         Merriam-Webster,            https://www.merriam-
webster.com/dictionary/other%20than (last visited October 12, 2020); see, e.g., Bathla v.
913 Market, LLC, 200 A.3d 754, 761 (Del. 2018) (interpreting a contract and explaining:
“Section 2.3 requires [the defendant] to convey title ‘free and clear of all liens and
encumbrances other than real and personal property taxes not yet due and payable and the
Permitted Exceptions (hereinafter defined).’ In other words, [the defendant] must convey
title without any liens or encumbrances on the property, except for certain liens and
encumbrances that the parties have decided are acceptable.” (emphasis added)); Trunkline
Gas Co. v. Miss. State Tax Comm’n, 119 So. 2d 378, 379 (Miss. 1960) (interpreting the
words “other than” in a Mississippi statute “to have the identical meaning as the word
‘except’”); Sullivan v. Ward, 24 N.E.2d 672, 673 (Mass. 1939) (interpreting a
Massachusetts statute and observing that the words “‘other than’ . . . have the same legal
effect” as the word “except”).
356
           As       A         Result,      Merriam-Webster,           https://www.merriam-
webster.com/dictionary/as%20a%20result#:~:text=%3A%20because%20of%20somethin
g%20He%20sprained,of%20work%20for%20three%20months                        (last      visited
October 12, 2020); see, e.g., United States v. Sandlin, 589 F.3d 749, 757 (5th Cir. 2009)
(interpreting a federal statute and analogizing the “as a result of” language therein to the
phrase “because of”).

                                            69
       Piecing it together, the phrase calls on the court to answer the following

questions:    Did Shire fail to initiate Phase III clinical trials on or before

December 31, 2015 because of a Fundamental Circumstance? If the answer is yes,

then Shire’s payment obligation is excused. Because the clause is cast as an

exception, the converse question becomes equally informative: Did Shire fail to

initiate Phase III clinical trials on or before December 31, 2015 because of anything

except for a Fundamental Circumstance? If the answer to this question is yes, then

Shire’s payment obligation is not excused. In other words, if the delay would have

transpired notwithstanding the absence of the Fundamental Circumstance Shire

claims to have occurred, Shire’s payment obligation remains intact.357

357
    This interpretation is also supported by the “but-for” causation analyses applied by
courts interpreting similar language, albeit in different contexts. See, e.g., Finocchiaro v.
D.P., Inc., 2006 WL 3873257, at *2, *6 (Del. Super. Dec. 29, 2006) (interpreting a
Delaware statute limiting an employee’s entitlement to workers’ compensation if the
employee is “injured as a result of [his] own intoxication” and concluding that the statute
required the employer to establish that “intoxication was a ‘but for’ cause of the accident
which led to the injury”); State v. Richardson, 245 S.E.2d 754, 762–63 (N.C. 1978)
(interpreting a North Carolina statute requiring the suppression of evidence “obtained as a
result of” of police misconduct and concluding that such statutory language “require[s], at
a minimum,” a but-for causal relationship between the police misconduct and the collection
of the evidence sought to be suppressed); cf. Burrage v. United States, 571 U.S. 204, 214
(2014) (interpreting the federal Controlled Substances Act and stating: “[I]t is one of the
traditional background principles against which Congress legislate[s] that a phrase such as
‘results from’ imposes a requirement of but-for causation.”). Under Delaware’s
formulation of but-for causation, “[t]he defendant’s conduct is a cause of the event if the
event would not have occurred but for that conduct; conversely, the defendant’s conduct is
not a cause of the event, if the event would have occurred without it.” Culver v. Bennett,
588 A.2d 1094, 1097 (Del. 1991).

                                             70
            Three aspects of the contractual scheme further support this interpretation of

Section 2.9.(f).358 First, the economic terms of the Merger Agreement called for

former FerroKin equityholders to receive approximately $320 million in Merger

consideration.359 That consideration was structured in terms of one up-front $95

million payment and up to $225 million in post-closing milestone payments.360

Under this scheme, approximately seventy percent of the total Merger consideration

was deferred post-close. Second, Section 2.9(g) of the Merger Agreement broadly

gave Defendants “the right, in their sole and absolute discretion, to direct and control

the development, commercialization, manufacture, marketing, distribution and

selling of [deferitazole] in all respects, including the determination . . . to make any

strategic product portfolio decisions affecting [deferitazole].”361 Third, Section

2.9(g) also emphasizes that no provision of the Merger Agreement “shall be

construed to impose upon [Shire] any express or implied obligation, duty or

358
   GMG Cap., 36 A.3d at 779 (“In upholding the intentions of the parties, a court must
construe the agreement as a whole, giving effect to all provisions therein.” (quoting E.I. du
Pont de Nemours & Co. v. Shell Oil Co., 498 A.2d 1108, 1113 (Del. 1985))); HUMC
Holdco, LLC v. MPT of Hoboken TRS, LLC, 2020 WL 3620220, at *6 (Del. Ch.
July 2, 2020) (describing the “whole-text canon,” which “stems from the theory that
context is the primary determinant of meaning”).
359
      PTO ¶ 26.
360
Id.
361
      JX-241 § 2.9(g), at 28 (emphasis added).

                                              71
expectation to test, develop, pursue, market, make any regulatory filings or seek any

Regulatory Approvals with respect to, or otherwise advance [deferitazole]. 362

            Read together with the text of Section 2.9(f), these aspects of the Merger

Agreement indicate that Section 2.9(f) is a FerroKin-friendly backstop. Section

2.9(f) requires generally that the Initiation of Phase III Clinical Trial Milestone “be

deemed to have been achieved” on December 31, 2015, even “in the event that

[Shire] has not achieved [it].”363 Given that (i) payment of the bulk of the Merger

consideration was deferred post-close, (ii) Shire wielded control over “all respects”

of the drug development and commercialization process, and (iii) there was no

obligation, duty or expectation imposed on Shire to advance deferitazole in any way,

it makes sense that Section 2.9(f) provides Shire with only a narrow escape.

            Shire’s failure to initiate Phase III clinical trials by December 31, 2015 did

not come “as a result of” a Fundamental Circumstance. As discussed above, the

record reflects that by the time Shire received the RatCarc Study results, Shire had

already made decisions—the decision to switch to twice-daily dosing in Study 203

and the Pipeline Committee’s decision to delay the start of Study 204—that delayed

the initiation of Phase III clinical trials to May 2016.364 In other words, even in the

362
Id.
363
 Id. § 2.9(f), at 27.
364
   Defendants do not assert that a Fundamental Circumstance occurred prior to these
decisions being made.

                                              72
absence of the Fundamental Circumstance Defendants claim to have occurred, Phase

III clinical trials would still have been delayed past December 31, 2015.

         In support of a contrary outcome, Defendants claim that this reading of

Section 2.9(f) would render Section 2.9(b) of the Merger Agreement

“unworkable.”365 The portion of Section 2.9(b) upon which Defendants focus

provides:

                [I]n the event that there occurs a Fundamental
                Circumstance, but [Shire] pursues development of an
                Alternative Covered Product that constitutes a Covered
                Product, then any remaining Milestone Payments that first
                become due and payable following the occurrence of such
                Fundamental Circumstance shall be one-half (1/2) the
                applicable amount set forth in the table above.366

         To Defendants, “if Shire elected to develop an Alternative Covered Product,

as provided for in Section 2.9(b), [Plaintiff’s] . . . interpretation would require Shire

to pay the full amount of the milestone payment regardless of whether Shire ever

initiated Phase III clinical trials, as opposed to half of the amount upon initiation of

Phase III clinical trials, as Section 2.9(b) specifies.”367

         Defendants’ reading of Section 2.9(b) is unreasonable. If Shire’s failure to

initiate Phase III clinical trials by December 31, 2015 was as a result of a

365
      Defs.’ Opening Suppl. Br. at 9.
366
      JX-241 § 2.9(b), at 25.
367
      Defs.’ Opening Suppl. Br. at 9.

                                            73
Fundamental Circumstance, then the Initiation of Phase III Clinical Milestone would

not be deemed achieved under Section 2.9(f), regardless of whether Shire elected to

develop an Alternative Covered Product. By contrast, if Shire’s failure to initiate

Phase III clinical trials by December 31, 2015 was not as a result of a Fundamental

Circumstance, then the Initiation of Phase III Clinical Milestone would be “deemed

achieved” under Section 2.9(f), and one of two payment scenarios could kick in:

(1) a scenario in which Shire elects to develop an “Alternative Covered Product,” or

(2) a scenario in which Shire does not elect to develop an “Alternative Covered

Product.” In the former scenario, Section 2.9(b) would require Shire to pay only

one-half of the Initiation of Phase III Clinical Trial Milestone.          In the latter

scenario—which is the scenario here—Section 2.9(b) has no application, and Shire

would be required to pay the full amount of the Initiation of Phase III Clinical Trial

Milestone payment. Shire’s attempt to manufacture inconsistencies in the provisions

of Section 2.9 fails.368

       Because Shire has not met its burden of proving that its failure to initiate Phase

III clinical trials by December 31, 2015 was “as a result of a Fundamental

368
   In any event, Section 2.9(f) contains a “notwithstanding” clause. Its mandate survives
“[n]otwithstanding anything else in [the Merger Agreement] to the contrary.” JX-241
§ 2(f), at 25. Thus, even if it were to somehow conflict with Section 2.9(b)—it does not—
Section 2.9(f) would prevail.

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Circumstance,” Shire must make the $45 million Initiation of Phase III Clinical Trial

Milestone payment pursuant to Section 2.9(a) of the Merger Agreement.

         Plaintiff is also entitled to interest on the First Milestone Payment calculated

in accordance with Section 2.9(a) of the Merger Agreement. The parties shall confer

on the precise calculation of the interest due and submit any disputes to the Court.369

         B.     Attorneys’ Fees
         In its Second Cause of Action, Plaintiff requests reasonable attorneys’ fees

and costs in connection with this lawsuit under Section 10.3 of the Merger

Agreement.370       Section 10.3 of the Merger Agreement, captioned “Costs and

Attorneys’ Fees,” provides:

369
   Section 2.9(a) entitles Plaintiff to interest on the $45 million Initiation of Phase III
Clinical Trial Milestone payment calculated as follows:
                [I]n the event that [Shire] fails to deliver timely notice of a
                Milestone Triger Event to the Equityholders’ Representative or
                fails to deposit any Milestone Payment, in each case in
                accordance with this Section 2.9(a), then the applicable
                Milestone Payment shall bear interest from the date upon
                which such Milestone occurred until the date of deposit with
                the Equityholders’ Representative or its designated agent at a
                rate per annum equal to (i) the prime rate as published in the
                Wall Street Journal, Eastern Edition in effect from time to time
                during such period plus (ii) one percent (1%).
JX-241 § 2.9(a), at 25; accord. PTO ¶ 34; see also id. ¶ 82 (stipulating that “[a]pplying the
interest rate set forth in Section 2.9(a) of the Merger Agreement, the interest on the $45
million [Initiation of Phase III Clinical Trial Milestone] is approximately $9.0 million from
January 1, 2016 through June 30, 2019, and is projected to be approximately $10.8 million
from January 1, 2016 through December 31, 2019, assuming the applicable prime rate stays
relatively stable”).
370
      PTO ¶ 87; Pl.’s Opening Post-Trial Br. at 64 n.14.

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                [I]n the event that any action, suit or other proceeding is
                instituted concerning or arising out of this Agreement, the
                prevailing party shall recover all of such party’s costs and
                reasonable attorneys’ fees incurred in connection with
                each and every such action, suit or other proceeding,
                including any and all appeals and petitions therefrom.371

         In the Pre-Trial Order, the parties stipulated to the fact that Section 10.3 is

implicated “in the event that litigation such as this lawsuit is instituted.”372 Because

Plaintiff has prevailed in this action, Plaintiff is entitled to “recover all of [Plaintiff’s]

costs and reasonable attorneys’ fees incurred in connection with” this action.373

III.     CONCLUSION
         For the foregoing reasons, judgment is entered in favor of Plaintiff. The

parties shall confer on a form of order implementing this decision. If an agreement

cannot be reached as to an amount of interest or fees to include in the form of order,

the parties shall confer on an appropriate means of presenting those issues to the

court for resolution.

371
      JX-241 § 10.3, at 71–72.
372
      PTO ¶ 35 (emphasis added).
373
      JX-241 § 10.3, at 71–72.

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