Court Opinion

ID: 4924240
Source: CourtListenerOpinion
Date Created: 2021-09-22 15:04:28.023433+00
Date Added: 2024-06-11T08:14:13.146640
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

ABBVIE ENDOCRINE INC.,                  )
                                        )
                  Plaintiff,            )
                                        )
      v.                                ) C.A. No. 2020-0953-SG
                                        )
TAKEDA PHARMACEUTICAL                   )
COMPANY LIMITED,                        )
                                        )
                  Defendant.            )

                        MEMORANDUM OPINION

                       Date Submitted: August 3, 2021
                      Date Decided: September 22, 2021

A. Thompson Bayliss and Joseph A. Sparco, of ABRAMS & BAYLISS LLP,
Wilmington, Delaware; OF COUNSEL: Paul J. Loh, Jason H. Wilson, Eileen M.
Ahern, Amelia L.B. Sargent, and Kenneth M. Trujillo-Jamison, of WILLENKEN
LLP, Los Angeles, California, Attorneys for Plaintiff AbbVie Endocrine Inc.

Kevin R. Shannon, Christopher N. Kelly, and Daniel M. Rusk, IV, of POTTER
ANDERSON & CORROON LLP, Wilmington, Delaware; OF COUNSEL: Fred A.
Kelly, Jr., Joshua S. Barlow, and Tiffany Jang, of HAUG PARTNERS LLP, Boston,
Massachusetts; David A. Zwally and Mark Basanta, of HAUG PARTNERS LLP,
New York, New York; and Christopher Gosselin, of HAUG PARTNERS LLP,
Washington, DC, Attorneys for Defendant Takeda Pharmaceutical Company
Limited.

GLASSCOCK, Vice Chancellor
       Before me is a dispute between AbbVie Endocrine Inc. (“AbbVie” or the

“Plaintiff”), a pharmaceutical distributor, and Takeda Pharmaceutical Company

Limited (“Takeda” or the “Defendant”), a pharma manufacturing giant. The parties

have a contractual relationship to purchase and sell a drug used principally to treat

cancer. The Plaintiff initially sought specific performance of that supply contract

(the “Supply Agreement”)—deliveries under which were interrupted following a

problematic inspection and resulting enforcement proceedings by the U.S. Food and

Drug Administration (the “FDA”)—as well as damages for breach of the contract.

       This matter was tried in April and May 2021 on the Plaintiff’s request for

injunctive relief. For the reasons explained therein, I denied that relief by a

Memorandum Opinion dated September 7, 2021. 1 The other issue tried in April and

May was the Plaintiff’s request for a declaratory judgment that the Defendant is

liable to it for breaching the Supply Agreement; in other words, the trial in the matter

was bifurcated, with the April and May phase addressing liability (as well as

injunctive relief), leaving for the next phase of trial, if necessary, the quantum of

damages.

1
  AbbVie Endocrine Inc. v. Takeda Pharmaceutical Co. Ltd., 2021 WL 4059793 (Del. Ch. Sept. 7,
2021) [hereinafter “AbbVie I”]. The matter was expedited with respect to the request for injunctive
relief; accordingly, I issued a decision on the issue separately, reserving on liability, the issue
addressed here.

                                                1
       For the reasons that follow, I find that the Defendant has breached various

aspects of the Supply Agreement, and is liable in damages.

                                         I. ABBVIE I

       This opinion concerns the performance of the Supply Agreement entered into

between Takeda and the predecessor-in-interest to AbbVie. As set out in AbbVie I,

the parties have a supplier-distributor relationship wherein Takeda manufactures

leuprolide acetate-containing drug products and AbbVie distributes one such drug

product by the brand name of Lupron Depot (“Lupron”). The Supply Agreement is

a requirements contract which mandates that, among other things, Takeda fulfill the

firm orders of AbbVie with respect to Lupron. In 2020 and 2021, certain compliance

issues came to light at one of Takeda’s manufacturing facilities (the “Hikari

Facility”), which ultimately caused a disruption in the Lupron supply chain. Takeda

was unable to fulfill AbbVie’s firm orders beginning in 2020. This failure to fulfill

firm orders constitutes, per the Plaintiff, a breach of the Supply Agreement. These

disruptions continue to date.

       In April and May of 2021 I held a three-day trial in this matter. 2 The parties

submitted supplemental papers and records, and I heard post-trial oral argument on

August 3.3 I released AbbVie I, a post-trial memorandum opinion, on September 7,

2
 See Trial Tr., Dkt. Nos. 165–168.
3
 See Tr. Of 8.3.21 Post-Trial Oral Arg., Dkt. No. 190 [hereinafter “Oral Arg. Tr.”]; Pl’s Post-Trial
Br., Dkt. No. 172; Def.’s Opening Post Trial Br., Dkt. No. 171.

                                                 2
which addressed solely the Plaintiff’s requested injunctive relief. 4 I did not assess

the question of breach at that time. 5 This Memorandum Opinion considers the

liability of the Defendant for breach of the Supply Agreement. This Section offers

a summary of the facts necessary to the determination of liability.

       A. Factual Background

       This Memorandum Opinion adopts the factual statement set forth in AbbVie

I. 6 The further facts presented in this post-trial memorandum opinion are either

stipulated to in the parties’ pre-trial stipulation or were proven by a preponderance

of evidence at trial. 7

               1. The Supply Agreement

       On or around April 30, 2008, Takeda and the predecessor entity to AbbVie

entered into the Supply Agreement, which identifies the Plaintiff’s and the

Defendant’s rights and obligations regarding the manufacture, supply, and sale of

Lupron. 8 The Supply Agreement was amended on September 4, 2009 and July 17,

2019 9 and the parties agree that it is a valid and enforceable contract.10

4
  See generally AbbVie I, 2021 WL 4059793.
5
  See generally id.
6
  AbbVie I, 2021 WL 4059793 at *2–*5.
7
  Where the facts are drawn from exhibits jointly submitted at trial, they are referred to according
to the numbers provided on the parties’ joint exhibit list and with page numbers derived from the
stamp on each JX page (“JX __, at ___”).
8
  Joint Pre-Trial Stipulation ¶¶ 8–9, Dkt. No. 156 [hereinafter “Stip.”].
9
  Stip. ¶ 8.
10
   Stip. ¶ 10.

                                                 3
       In its post-trial argument, the Plaintiff argued that the Defendant had breached

the Supply Agreement in four ways, implicating five provisions.11 The relevant

provisions are as follows.

       Section 9.2(a) provides that: “[AbbVie] shall . . . provide Takeda . . . with (i) a

firm order for the quantities of Product that [AbbVie] will require . . ., [and] (ii) a

good faith estimate of the quantities of Product that [AbbVie] will require” in

specified future periods.12 It then provides that “Takeda shall fulfill all such firm

orders (subject to the allocation procedure described in Section 9.4).”13

       Section 9.4 provides Takeda with the right to allocate Lupron “[i]f Takeda is

unable, for any reason beyond its reasonable control . . . to supply sufficient

quantities of Product to meet Takeda’s needs, [AbbVie’s] requirements, and third

party orders that Takeda is contractually obligated to fill.”14

       Section 9.6(a) provides that “Takeda . . . shall . . . maintain in its inventory a

safety stock . . . solely dedicated to and for use by [AbbVie] in sufficient quantities

to meet [AbbVie’s] anticipated demand for Product, as reflected in the then

applicable forecast by [AbbVie], for the following twelve (12) month period, as

11
   Oral Arg. Tr. 12:21–24, 13:1–17.
12
   Stip. ¶ 18.
13
   Stip. ¶ 18.
14
   Stip. ¶ 20.

                                            4
follows: (i) . . . a supply of Product in sufficient quantities to meet [AbbVie]’s and

its Affiliates’ anticipated demand for at least the first three (3) months.”15

        Section 16.1(a) provides that “Takeda shall be exclusively responsible

for . . . compliance of its . . . manufacturing facilities and processes utilized for

purposes of manufacture, packaging, storing prior to delivery, and delivery of

Product with all Applicable Laws . . . including Good Manufacturing Practices and

all other Applicable Laws.”16

        Finally, Section 21.3 provides that “[e]ach of the Parties shall be excused from

the performance of its obligations hereunder in the event such performance is

prevented by a cause beyond the reasonable control of such Party, including acts of

God . . . .” 17

        Takeda, for its part, points to Section 8.1(a), which addresses best efforts as

follows: “Subject to the provisions of this Agreement, [AbbVie] shall purchase . . .

and Takeda or its Affiliates shall sell and deliver to [AbbVie] . . . [AbbVie]’s and its

Affiliates’ requirements for the Territory of Product . . . . Takeda shall, and shall

cause its Affiliates to, use best efforts to supply [AbbVie]’s and its Affiliates’

requirements of Product for the Territory.”18

15
   Stip. ¶ 21.
16
   Stip. ¶ 22.
17
   Stip. ¶ 24.
18
   Stip. ¶ 17.

                                            5
       The Supply Agreement must be construed under Illinois law.19

              2. FDA Inspection and Results20

       In late 2019, Takeda began realizing certain manufacturing difficulties

associated with leuprorelin products’ production. First, on or around October 28,

2019, an autoclave at the Hikari Facility, used for sterilization purposes critical to

the production of leuprorelin products including Lupron, failed its annual

requalification test.21 The FDA conducted a planned inspection (the “Inspection”)

of the Hikari Facility in November, which ultimately led to the issuance of a “Form

483” identifying observations made by the FDA agent that might constitute

violations of the Food Drug and Cosmetic Act or related Acts.22 Following Takeda’s

responses to the Form 483, in March 2020, the FDA issued an Official Action

Indicated Letter (the “OAI Letter”) that stated that the FDA had observed an

“unacceptable state of compliance” with current good manufacturing practice

(“cGMP”) during the Inspection. 23 In June 2020, the FDA issued a warning letter

(the “June Warning Letter”) relating to the Inspection which “summarize[d]

significant violations” of cGMP. 24 Further, in February 2021, the FDA issued an

19
   Stip. ¶ 26.
20
   The remedial efforts undertaken by Takeda in connection with the FDA inspection in November
2019 are described in detail in AbbVie I.
21
   Stip. ¶ 38.
22
   Stip. ¶¶ 39, 40; see also AbbVie I, 2021 WL 4059793 at *3.
23
   JX 1992, at 3.
24
   Stip. ¶ 43.

                                              6
Establishment Inspection Report (the “EIR”) which more comprehensively

addressed the violations observed as part of the Inspection. 25 That report specifically

stated that the FDA was “concerned with the number of [c]GMP deficiencies”

identified at the Hikari Facility in November 2019. 26

       The FDA inspected the Hikari Facility again in July 2021 (the “Follow-Up

Inspection”).27 Following that investigation, the Hikari Facility remains under

“Official Action Indicated” status.28

              3. Impact on AbbVie and Takeda

       The manufacturing difficulties and associated delays Takeda has experienced

as a result of the FDA inspection and its own investigations have caused a disruption

to the supply line of leuprorelin products, including Lupron. This disruption has in

turn had myriad effects on AbbVie and Takeda, certain of which are discussed in

more detail below.

                      a. The Allocation Schedule

       The shortage of leuprorelin products impacted AbbVie’s ability to distribute

Lupron to the market, but also impacted Takeda’s ability to market similar products

in Asia. To combat the shortage, Takeda produced an allocation schedule in June

25
   JX 2527, at 22.
26
   Id.
27
   Oral Arg. Tr. 16:6–9.
28
   Oral Arg. Tr. 16:13–15.

                                           7
2020, which indicated where the leuprorelin products able to be produced would be

diverted. 29

       AbbVie has continued to submit firm orders to Takeda despite the allocation

schedule. 30 The allocation schedule produced in June 2020 and the various later

iterations have allowed for AbbVie to receive some lots of Lupron, but not in

sufficient numbers to satisfy AbbVie’s firm orders.31

                      b. Safety Stock Inventory

       Takeda and AbbVie both generally maintain a “safety stock” of leuprorelin

and Lupron.32 Safety stock is inventory, separate from firm orders placed, that

generally acts as a backup in the event of a supply chain disruption or a failure to

order the sufficient amount of product.33 It essentially acts as a “working inventory”

to ensure that product is always available should a patient or doctor require it. 34

       One indirect result of Takeda’s supply chain disruption led to AbbVie

working through all of its safety stock in order to satisfy patient need.35 When supply

29
   Stip. ¶ 44.
30
   See, e.g., Exs. A–G to Pl.’s Mot. to Suppl. R., Dkt. No. 178.
31
   See, e.g., Trial Tr. 20:3–7, Dkt. No. 165; Def.’s Answer and Defenses to Pl.’s Verified Compl.
¶ 51, Dkt. No. 38.
32
   Trial Tr. 49:11–13, Dkt. No. 165 (discussing AbbVie’s safety stock); Stip. ¶ 21 (discussing
Takeda’s safety stock).
33
   Trial Tr. 82:11–12, 83:2–6, Dkt. No. 165.
34
   Id.
35
   Trial Tr. 83:7–17, Dkt. No. 165.

                                               8
chain disruptions were first experienced in April 2020, AbbVie used its safety stock

on hand to supply patients until August 2020.36

       Takeda, too, depleted its safety stock as a result of the supply chain disruption.

Evidence at trial showed that the available product fell below target as of April 2020

and was projected to remain below target through March 2021.37 Takeda’s post-trial

opening brief indicated that the safety stock inventory remained insufficient as of

June 2021. 38

                       c. The Resulting Damages

       As was described briefly in AbbVie I, AbbVie alleges many losses stemming

from Takeda’s failure to produce sufficient lots of Lupron. These include loss of

customers, loss of reputation, loss of doctors, loss of market share and loss of overall

sales.39 I find that AbbVie has experienced injury sufficient to sustain a finding of

liability under appliable law; 40 the quantum of cognizable damages—if any—

remains AbbVie’s burden for the upcoming damages portion of the trial.

36
   Id.
37
   JX 1761, at 28.
38
   See Def.’s Post Trial Opening Br., Dkt. No. 171. “Historically, if a Lupron lot were delayed by
Takeda’s quality processes, AbbVie would not necessarily be aware of or impacted by the delay
because Takeda had the ability to ship product from its existing safety stock inventory . . . . [T]hat
inventory has been depleted.” Id. at 51.
39
   AbbVie I, 2021 WL 4059793 at *5.
40
   The Supply Agreement is subject to the law of Illinois.

                                                  9
                                    II. ANALYSIS

       As explained above, AbbVie contends that Takeda has breached the Supply

Agreement in four ways: failure to comply with good manufacturing practices;

failure to fulfill firm orders; failure to maintain safety stock; and allocation of

leuprorelin products per an allocation schedule. I find three of these four arguments

convincing and discuss each in turn.

       A. Takeda has breached the Supply Agreement.

       To prove a breach of contract claim in Illinois, the applicable forum for

interpreting the Supply Agreement, the following four elements must be satisfied:

(1) the existence of a valid and enforceable contract; (2) performance by the Plaintiff;

(3) breach by the Defendant; and (4) resultant injury to the Plaintiff.41 Elements (1)

and (2) are not disputed. 42 Elements (3) and (4) will be considered in further detail

with respect to each theory of breach below.

             1. Failure to Operate the Hikari Plant in Compliance with Good
             Manufacturing Practices

      Under Section 16.1(a) of the Supply Agreement, Takeda “shall be exclusively

responsible for” ensuring compliance of its manufacturing facilities and processes

associated with manufacturing, packaging, storage and delivery of Lupron with

41
   See Pepper Constr. Co. v. Palmolive Tower Condos., 59 N.E.3d 41, 66 (Ill. App. Ct. 2016)
(citing Coghlan v. Beck, 984 N.E.2d 132 (Ill. App. Ct. 2013)).
42
   Stip. ¶ 10; Pl.’s Post-Trial Br. 32, Dkt. No. 172.

                                            10
applicable laws, “including those . . . of the FDA . . . , including Good

Manufacturing Practices . . . .” 43

       Takeda argues that the best efforts clause in Section 8.1(a) of the Supply

Agreement mitigates its obligation to remain in compliance with cGMP. It would

have me read the Supply Agreement to require solely that Takeda undertake its “best

efforts” to satisfy the cGMP obligation. The canons of contract construction do not

allow this result, as, under Illinois law, specific provisions must prevail over more

general provisions.44 Section 16.1(a) does not require best efforts as written;45 to

impose this lower standard, one would have to find that Section 8.1(a) should be

grafted onto Section 16.1(a). But Section 8.1(a), by its own terms, refutes this

conclusion, as it begins, “Subject to the provisions of this Agreement . . . .”46

Subjecting Section 8.1(a), regarding best efforts, to Section 16.1(a), requires

imposition of a higher standard—that of strict compliance rather than best efforts.47

       The Inspection demonstrated that, as of November 2019, Takeda’s operations

at the Hikari Facility were not in compliance with cGMP. As such, Takeda breached

43
   Stip. ¶ 23.
44
   See Am. Fed’n of State, Cty. & Mun. Emps. v. State Labor Relations Bd., 653 N.E.2d 1357, 1364
(Ill. App. Ct. 1995) (holding that courts must give effect to specific clauses over general clauses
as a matter of contract construction).
45
   See Stip. ¶ 23.
46
   Stip. ¶ 17.
47
    I note that nothing in the record indicates that Takeda, which was in sole control of its
manufacturing facilities, used best efforts to comply with cGMP in the time leading up to the 2019
FDA inspection; and that the resulting breaches of contract would thus not be saved by a “best
efforts” standard in any event.

                                                11
its obligation under the Supply Agreement to comply with Good Manufacturing

Practices, and element (3) is satisfied.48

       Was there a resultant injury to AbbVie? I find that there was. Takeda’s

attempts to remedy the results of the Inspection led to delays—to be sure, delays that

were occasioned in a sincere attempt to bring the Hikari Facility back into

compliance with cGMP and to satisfy regulators—but these delays led to an

unavailability of product that has affected AbbVie’s ability to timely provide Lupron

to patients. This lack of inventory has harmed AbbVie through loss of customers

and doctors as well as loss of market share. As such, the breach of Takeda’s

obligation to maintain the Hikari Facility under cGMP caused injury to AbbVie.

              2. Failure to Fulfill Firm Orders

       Section 9.2 of the Supply Agreement requires AbbVie to provide Takeda with

firm orders for the first quarter in any eight-calendar-quarter period, and indicates

that Takeda “shall fulfill all such firm orders (subject to the allocation procedure

described in Section 9.4).”49 AbbVie is also responsible for providing Takeda with

48
   The Follow-Up Inspection conducted in July 2021 did not clear Takeda of its Official Action
Indicated status. Takeda’s counsel posited in post-trial oral argument that Takeda may actually
now be in compliance with cGMP, as the FDA does not update a company’s status until a letter is
sent 90 days after inspection. Oral Arg. Tr. 114:23–34, 115:1–11. I need not reach the question
of whether Takeda remains in breach at this time.
49
   Stip. ¶ 18.

                                              12
a “good faith estimate” for the second and third quarters of that same eight-calendar-

quarter period.50

       Reference is made in Section 9.2 to an “allocation procedure” contained

within the Supply Agreement.51 Section 9.4 of the Supply Agreement lays out an

allocation schedule that must be followed in the event that Takeda is unable, “for

any reason beyond its reasonable control,” to produce enough leuprorelin products

to satisfy its own needs, AbbVie’s needs, and the needs of any other third parties

with whom Takeda has contracted.52 Here, Takeda is unable to produce enough

leuprorelin products, but the reason for this shortage is manifestly within its

reasonable control. 53 Takeda’s failure to ameliorate the manufacturing issues thus

does not activate the allocation schedule outlined in Section 9.4, and this language

does not alter the analysis of Section 9.2.

       The evidence shown at trial indicates that Takeda did not supply AbbVie with

enough inventory to fulfill AbbVie’s firm orders from the months of April 2020 until

at least March 2021.54 Over that time period, 106 lots of Lupron had been ordered,

with only 41 delivered. 55

50
   Id.
51
   Stip. ¶ 18.
52
   Stip. ¶ 20.
53
   Causes beyond the reasonable control of a party are delineated in Section 21.3 of the Supply
Agreement. See Stip. ¶ 24.
54
   Trial Tr. 19:19–24, 20:3–7, Dkt. No. 165.
55
   Trial Tr. 20:3–7, Dkt. No. 165.

                                              13
       Takeda argues, nonetheless, that it has complied with the Supply Agreement.

It argues that there is no “timeliness” requirement in the contract, and that,

accordingly, there exists no requirement that firm orders be delivered to Abbvie by

“dates certain.” Further, Takeda argues that it is only required to use best efforts to

supply firm orders, in any event, under the Supply Agreement. 56 Therefore, per

Takeda, so long as Takeda uses its best efforts to make the required deliveries at

some point in time, Takeda has fulfilled its obligations under the Supply Agreement.

This theory cannot prevail, for it would lead to absurdity in result. 57 The very nature

of the firm order obligations in the Supply Agreement is time-based—the orders

must be placed with respect to calendar quarters.58 AbbVie did not contract for

medical products that would be delivered at any time convenient to Takeda; the

contract requires AbbVie to submit both its firm orders and attendant estimates,

based on projected need in a given quarter. 59 Further, for the reasons set out above

with respect to the cGMP obligation, the specific mandatory requirement to supply

firm orders trumps the general “best efforts” language of Section 8.1(a). To the

56
   Def.’s Answering Post-Trial Br. 5, Dkt. No. 176.
57
   See Suburban Auto Rebuilders, Inc. v. Associated Tile Dealers Warehouse, Inc., 902 N.E.2d
1178, 1190 (Ill. App. 2009) (citing Health Prof’ls, Ltd. v. Johnson, 791 N.E.2d 1179 (Ill. App.
2003)) (“Courts will construe a contract reasonably to avoid absurd results”).
58
   See Stip. ¶ 18 (“[AbbVie shall provide Takeda] with (i) a firm order for the quantities of Product
that [AbbVie] will require during the first quarter of such eight (8) quarter period, (ii) a good faith
estimate of the quantities of Product that [AbbVie] will require during the second and third
quarters of such eight (8) quarter period . . . .”) (emphasis added).
59
   Id.

                                                 14
extent there is ambiguity in this regard, Takeda’s own witness stated in his

deposition that the firm orders were “binding.” 60 Thus, I find that breach has

occurred under Section 9.2 of the Supply Agreement.

       It is clear here as well that AbbVie has experienced injury as a result of the

breach of Section 9.2. The lack of inventory prevented AbbVie from distributing

the Lupron and directly impacted AbbVie’s sales. As a result, I find that elements

(3) and (4) are satisfied, and that Takeda breached the Supply Agreement by failing

to fulfill AbbVie’s firm orders.

               3. Failure to Maintain a Safety Stock of Leuprorelin 61

       The Supply Agreement also contains a requirement that Takeda keep a “safety

stock” of three months’ worth of Lupron, to be maintained “at all times” and “solely

dedicated to and for use by [AbbVie].”62 At trial, the evidence demonstrated that

Takeda did not have adequate reserves of safety stock to satisfy its contractual

obligations.63 In particular, the “Apr 2020 update” to the “AbbVie US Finished

60
   Oral Arg. Tr. 24:8–24.
61
   Takeda argues that, because this claim was not alleged in AbbVie’s complaint, any breach under
Supply Agreement Section 9.6(a) could not suffice as a basis for recovery. See Def.’s Answering
Post-Trial Br. 5, Dkt. No. 176. However, Court of Chancery Rule 15(b) allows issues not raised
by the pleadings to be tried by the express or implied consent of the parties, and to thus be treated
“in all respects as if they had been raised in the pleadings.” Ct. Ch. R. 15(b). AbbVie included in
the Pre-Trial Order, stipulated to by Takeda, AbbVie’s intent to demonstrate Takeda’s breach of
Section 9.6(a) of the Supply Agreement. See Stip. ¶ 53. Evidence with respect to the same was
presented at trial. As such, AbbVie may seek relief on the safety stock theory, despite its lack of
inclusion in the complaint.
62
   Stip. ¶ 20.
63
   JX 1761, at 28.

                                                15
Goods Safety Stock Plan” produced by Takeda showed a deficiency in the amount

of safety stock available beginning in April 2020 and projected to continue through

March 2021.64 Because the amount of safety stock Takeda reserved for AbbVie fell

below required parameters, I conclude that there was a breach.

         The resultant injury here is part and parcel of the same injury caused by the

failure to fulfill firm orders. If Takeda had safety stock on hand, it could provide

product to AbbVie and mitigate some of the delays associated with firm orders.

Because no safety stock is available, delays in production result in an immediate

shortage of Lupron available to AbbVie, which again has caused loss of sales,

customers, doctors and market share. Thus, a resultant injury does exist, which

occurred when the safety stock was required to satisfy AbbVie’s firm orders.

Element (4) is thus satisfied, and Takeda is liable for breach of contract.

                 4. Use of an Allocation Schedule

         AbbVie’s final contention is that Takeda’s allocation schedule also constitutes

a breach of the Supply Agreement under Sections 9.4 (as above) and 21.3 (a force

majeure clause). On this front I am unable to agree.

         The Supply Agreement does not, by its terms, prohibit the creation and use of

an allocation schedule. 65 In fact, the Supply Agreement expressly contemplates the

64
     Id.
65
     See generally JX 1849.

                                           16
possibility of allocation of leuprorelin products in Section 9.4.66 Takeda would be

required to implement an allocation schedule under Section 9.4 if it was unable, due

to any reason beyond its reasonable control (generally itemized in Section 21.3), to

supply sufficient quantities of leuprorelin products to each of AbbVie and its

affiliates, third party orders, and Takeda itself. 67 As AbbVie’s counsel argues, this

section is inapplicable, because the reasons for insufficient production are within

Takeda’s control. 68 That is, Takeda controls its production facilities, and it is its

own failure to comply with cGMP at that facility, together with its attempts to

remediate the failure and satisfy the regulators, that have caused a shortage of

product. Thus, while Section 9.4 is not triggered, its existence is instructive.

       In other words, nothing in the contract prohibits an allocation schedule, per

se. However, imposition of an allocation schedule may cause breach of a duty under

the Supply Agreement, leaving Takeda liable for breach of that provision. Here,

Takeda is allocating production because it is unable, due to reasons under its

reasonable control, to supply enough leuprorelin products. The current allocation

schedule merely aggravates the existing breaches in the failures to fulfill firm orders

and to maintain enough safety stock; it is not itself a breach. Thus, element (3)

66
   Stip. ¶ 20.
67
   Id.
68
   Oral Arg. Tr. 28:3–20.

                                          17
cannot be satisfied, and I decline to find that Takeda breached the Supply Agreement

by use of an allocation schedule.

                                III. CONCLUSION

      Takeda has breached the Supply Agreement and is liable for breach of

contract. The parties should confer and inform me as to a schedule for the remaining

matters for trial, and whether a form of order at this stage is desirable.

                                          18