Court Opinion

ID: 4451437
Source: CourtListenerOpinion
Date Created: 2019-10-30 15:04:35.511083+00
Date Added: 2024-06-11T14:25:20.456160
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
 FORTIS ADVISORS LLC, in its              )
 capacity as the Shareholders’            )
 Representative for the former            )
 stockholders of Oculeve, Inc.,           )
                                          )
                    Plaintiff,            )
                                          )
       v.                                 ) C.A. No. 2019-0159-MTZ
                                          )
 ALLERGAN W.C. HOLDING INC.,              )
                                          )
                    Defendant.            )

                         MEMORANDUM OPINION

                         Date Submitted: July 9, 2019
                        Date Decided: October 30, 2019

Bradley R. Aronstam, Roger S. Stronach, ROSS ARONSTAM & MORITZ LLP,
Wilmington, Delaware; Martin S. Schenker, Matthew D. Caplan, Kristine A.
Forderer, COOLEY LLP, San Francisco, California; Attorneys for Plaintiff Fortis
Advisors LLC
Michael A. Barlow, Daniel J. McBride, ABRAMS & BAYLISS LLP, Wilmington,
Delaware; David W. Haller, COVINGTON & BURLING LLP, New York, New
York; Attorneys for Defendant Allergan W.C. Holding Inc.

ZURN, Vice Chancellor.
      The parties to a merger dispute the seller’s entitlement to post-closing

milestone payment consideration. For the seller to earn the milestone payment, the

new company had to achieve a specifically defined enhanced treatment authorization

from the Federal Drug Administration. After the Federal Drug Administration gave

its authorization, the company declined to pay the seller the milestone payment.

      The seller stockholders’ representative asserts the buyer breached the merger

agreement by refusing to pay the milestone payment and by failing to exercise

commercially reasonable efforts in pursuit of the authorization. The buyer moved

to dismiss, contending the enhanced treatment authorization did not trigger the

milestone payment, and that the buyer failed to allege sufficient facts in support of

its commercially reasonable efforts claim. This decision concludes that the seller

adequately alleged a breach of contract claim based on the plain meaning of the

contract and the authorization, and that the seller alleged sufficient facts to support

its commercially reasonable efforts claim. Accordingly, I deny the buyer’s motion

to dismiss.

I.    BACKGROUND

      I draw the facts from the seller’s Verified First Amended Complaint (the

“Amended Complaint”) and the documents incorporated by reference therein.1               I

1
  Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 (Del. 2004). All citations
to the Amended Complaint are to the Verified First Amended Complaint. Docket Item

                                            2
must accept as true the Amended Complaint’s well-pled factual allegations and draw

all reasonable inferences from those allegations in plaintiff’s favor.2

         A.     The Merger Agreement

         In July 2015, an affiliate of defendant Allergan W.C. Holding Inc.

(“Allergan”) acquired Oculeve, Inc. (“Oculeve”). At issue in this case is Oculeve’s

primary product in development at the time: a medical device for insertion in the

nostrils that causes a person’s eyes to tear by way of a small electric charge (the

“Product”).

         The parties executed an Agreement and Plan of Merger (the “Merger

Agreement”) on July 5, 2015, and the merger closed on August 10. The Merger

Agreement designated Fortis Advisors LLC (“Fortis”) as the seller stockholders’

representative.

         Under the Merger Agreement, Allergan’s affiliate paid the sellers $125

million at closing and contracted for future payments of up to $300 million upon

achievement of specific post-closing milestones.             The first two milestones

compensate the sellers for the Product’s regulatory achievements, namely Federal

(“D.I.”) 10 [hereinafter “Am. Compl.”]. I address the parties’ dispute as to what documents
I should consider in Section II(A), infra.
2
    In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006).

                                             3
Drug Administration (“FDA”) authorization, while the remaining milestones track

the Product’s sales.

          The first milestone is triggered by “achievement of U.S. Launch,”3 defined as

the first sale of the Product “following written receipt from the FDA of FDA

Authorization for the Product with an ‘indication for use’ for Increased Tear

Production associated with dry eye disease.”4 The Merger Agreement defines

“Increased Tear Production” as “the temporary increase in tear production in the

study population in response to administration of electrical stimulation as measured

by [the] Schirmer score.”5 Allergan received FDA approval of the Product on April

24, 2017, with an indication for use that “[the Product] provides a temporary increase

in tear production during neurostimulation in adult patients.”6 Allergan then made

the first milestone payment of $100 million.

          The second milestone is triggered by “achievement of Enhanced Product

Labeling,”7 which “means the receipt by a Milestone Party of written notice of FDA

Authorization of the Product that includes an ‘indication for use’ for Increased Tear

3
    Am. Compl. Ex. A § 2.11(b)(i) [hereinafter “Merger Agreement”].
4
    Id. §§ 1.1, 2.11(b)(i).
5
    Id. § 1.1.
6
    D.I. 27, Ex. 5.
7
    Merger Agreement § 2(b)(ii).

                                            4
Production and for the treatment of at least one Dry Eye Disease Symptom” (the

“Enhanced Product Labeling Milestone”).8           The Merger Agreement provides

varying payments based on the date the FDA authorized the Enhanced Product

Labeling Milestone: a $100 million payment if authorized by March 31, 2018; a $75

million payment if authorized by June 30, 2018; or a $50 million payment if

authorized by September 30, 2019.

          Section 2.11(i) of the Merger Agreement requires that Allergan use

“Commercially Reasonable Efforts,” as defined therein, when pursuing the

Enhanced Product Labeling Milestone.9

          On May 2, 2017, Allergan began its pursuit of the enhanced product labeling

by submitting a premarket notification to the FDA to obtain enhanced product

labeling (the “510(k) Application”).10 The 510(k) Application sought an indication

authorizing that “[t]he [Product] provides a temporary increase in tear production

during neurostimulation and a temporary improvement in dry eye symptoms

following neurostimulation in adult patients.”11

8
    Id. § 1.1.
9
    Id. § 2.11(i).
10
     Am. Compl. ¶ 22; D.I. 27, Ex. 6.
11
     D.I. 27, Ex. 6.

                                           5
         In June, the FDA informed Allergan that the new indication required a

“de novo application”12 because the

                 predicate device is indicated “to increase tear production”;
                 however, you propose to indicate your device for
                 “temporary improvement in dry eye symptoms.” Because
                 your new indication now includes a specific patient
                 population along with an intended treatment/therapeutic
                 effect (e.g., your new indication includes mitigation of a
                 disease), there are new safety and effectiveness concerns
                 that were not included as risks in the review of the
                 predicate device in the [initial] De Novo classification
                 request.13
         On October 20, Allergan submitted its de novo application (the “De Novo

Application”) seeking approval of the following indication for use: “The [Product]

provides a temporary increase in tear production during neurostimulation resulting

in an improvement in dry eye symptoms in adult patients with dry eye disease.”14

Allergan based its De Novo Application on a clinical study that asked patients to

self-assess their symptoms five minutes after using the Product.

         On December 22, the FDA responded with a deficiency letter asking for

additional metrics supporting a benefit assessment for the Product’s proposed

indication for use. The FDA requested “outcomes among subpopulations” and “the

12
     Am. Compl. ¶ 22; D.I. 27, Ex. 8.
13
     D.I. 27, Ex. 8.
14
     Am. Compl. ¶ 23; D.I. 27, Ex. 11.

                                              6
persistence of symptom relief after the application of the [Product].”15 As for the

clinical study assessing symptoms five minutes after using the Product, the FDA

requested measurement of the “change of symptom severity over time after the

treatment in the [controlled adverse environment] to evaluate the persistence of the

treatment effect.”16

           Allergan responded to the deficiency letter two months later, on February 15,

2018.       In the letter, Allergan focused on validating the study methodologies;

stratifying the results among patient populations, including mild, moderate, and

severe dry eye disease; and identifying the duration of symptom relief.

           About three months later, on May 17, the FDA notified Allergan that it had

approved the following indication for the Product’s use (the “Second

Authorization”): “[the Product] provides a temporary increase in tear production

during neurostimulation to improve dry eye symptoms in adult patients with severe

dry eye symptoms.”17

           Upon receiving this FDA authorization, Allergan refused to pay the Enhanced

Product Labeling Milestone. Allergan told the seller that the Second Authorization

15
     D.I. 27, Ex. 13.
16
     Id.
17
     Am. Compl. ¶ 27.

                                             7
did not meet the Enhanced Product Labeling Milestone because it “does not include

‘treatment’ or ‘disease’[; and] increase is ‘temporary.’”18

          On February 26, 2019, Fortis commenced this litigation.19 Fortis filed the

Amended Complaint one month later, on March 26.20 Fortis claims Allergan

materially breached its obligations under the Merger Agreement by failing to make

the Enhanced Product Labeling Milestone payment, and by failing to use

commercially reasonable and good faith efforts to achieve the Enhanced Product

Labeling Milestone before March 31, 2018.                Allergan moved to dismiss the

Amended Complaint on April 24.21 The parties finished briefing on June 21,22 and

the Court held oral argument on July 9.23

II.       ANALYSIS

          Allergan has moved to dismiss Fortis’ Amended Complaint pursuant to Court

of Chancery Rule 12(b)(6). When reviewing a motion to dismiss, the Court must

                   accept all well-pleaded factual allegations in the
                   Complaint as true, accept even vague allegations in the
                   Complaint as ‘well-pleaded’ if they provide the defendant
                   notice of the claim, draw all reasonable inferences in favor

18
     Id. ¶¶ 31–32.
19
     D.I. 1.
20
     D.I. 10.
21
     D.I. 22.
22
     D.I. 27, 30, 32.
23
     D.I. 37–38.

                                                8
                 of the plaintiff, and deny the motion unless the plaintiff
                 could not recover under any reasonably conceivable set of
                 circumstances susceptible of proof.24

          A.     The Court Considers Extrinsic Documents Integral To The
                 Amended Complaint, And Those Subject To Judicial Notice.

          As an initial matter, Allergan asserts that the Court should consider

twenty-five exhibits filed in support of Allergan’s motion to dismiss.25 Allergan

contends that all of its exhibits are integral to the complaint or constitute judicially

noticeable facts. Allergan cites the Amended Complaint’s “liberal[] discuss[ion]”

of the regulatory record as justification for including that entire record.26

          “On a motion to dismiss, the Court may consider documents that are ‘integral’

to the complaint, but documents outside the pleadings may be considered only in

‘particular instances and for carefully limited purposes.’”27 “Whether a document is

integral to a claim and incorporated into a complaint is largely a facts-and-

circumstances inquiry.”28 Generally, “a document is integral to the claim if it is the

24
  Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531, 536 (Del.
2011) (quoting Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002)).
25
     See D.I. 27 Exs. 1–23; D.I. 32 Exs. 24–25.
26
     D.I. 32 at 3.
27
   Wal-Mart Stores, Inc., 860 A.2d at 320 (quoting In re Santa Fe Pac. Corp. S’holder
Litig., 669 A.2d 59, 69 (Del. 1995)); see also CelestialRX Invs., LLC v. Krivulka, 2019 WL
1396764, at *1 (Del. Ch. Mar. 27, 2019) (“In a Rule 12(b)(6) motion to dismiss, the Court
does not consider documents extrinsic to the complaint, except for documents that are
integral to a plaintiff’s claim and are incorporated into the complaint.”).
28
     In re Gardner Denver, Inc., 2014 WL 715705, at *3 (Del. Ch. Feb. 21, 2014).

                                              9
‘source for the . . . facts as pled in the complaint.’”29 Fortis concedes that it

referenced some of Allergan’s exhibits in its Amended Complaint, but contends that

those documents are not integral to its breach of contract claim.30 I find that Fortis

uses these referenced documents to form the factual foundation for its claim, and

therefore that they are integral to the claim. I conclude that only those Allergan

exhibits that Fortis cited are properly considered as integral to Fortis’ complaint. I

will consider Allergan’s Exhibits 1, 6, 8, 11, 12, 13, 14, and 18.

         Allergan also claims that the Court should take judicial notice of Exhibits 2

through 19, comprising FDA approvals and nonpublic communications between

Allergan and the FDA, because the FDA regulatory record contains facts that are

“not subject to reasonable dispute.”31 Under Delaware Rule of Evidence 201, a

Court may take judicial notice of adjudicative facts.32 A judicially noticed fact “is

not subject to reasonable dispute because it: (1) is generally known within the trial

court’s territorial jurisdiction; or (2) can be accurately and readily determined from

sources whose accuracy cannot reasonably be questioned.”33 “Applying Rule 201,

29
     Id. (quoting Orman v. Cullman, 794 A.2d 5, 16 (Del. Ch. 2002)).
30
     D.I. 30 at 14.
31
     D.I. 32 at 6 (citing D.R.E. 201).
32
     D.R.E. 201.
33
     Id. 201(b).

                                             10
Delaware courts have taken judicial notice of publicly available documents that ‘are

required by law to be filed, and are actually filed, with federal or state officials.’”34

         Delaware courts frequently take judicial notice of public filings with the

Securities and Exchange Commission (“SEC”).35 Allergan analogizes the FDA to

the SEC, and invites this Court to extend judicial notice to the FDA’s final approvals

submitted as Exhibits 5 and 19. Exhibit 5 is the FDA final report that triggered the

Product’s first milestone payment. Exhibit 19 is the final FDA approval of another,

unrelated device. Allergan cites two cases in support of judicial notice for these

Exhibits. In Funk v. Stryker Corp., the United States Court of Appeals for the Fifth

Circuit affirmed the lower court’s decision to take judicial notice of “publicly-

available documents and transcripts produced by the FDA, which were matters of

public record directly relevant to the issue at hand.”36 In Eidson v. Medtronic, Inc.,

the United States District Court for the Northern District of California took judicial

notice of “all of the documents at issue [that] appear on the FDA’s public website.”37

34
  In re Rural Metro Corp. S’holders Litig., 2013 WL 6634009, at *7 (Del. Ch.
Dec. 17, 2013) (quoting In re Tyson Foods, Inc. Consol. S’holder Litig., 919 A.2d 563, 584
(Del. Ch. 2007)).
35
     Wal-Mart Stores, Inc., 860 A.2d at 320 n.28.
36
     631 F.3d 777, 783 (5th Cir. 2011).
37
     981 F. Supp. 2d 868, 879 (N.D. Cal. 2013).

                                             11
           Like in Funk, Allergan asks this Court to take judicial notice of FDA pre-

market approval letters. Allergan has represented that these Exhibits are publicly

available documents produced by the FDA, similar to those documents at issue in

Eidson.38 Fortis has not refuted that representation. Accordingly, I am persuaded

by Funk and Eidson to take judicial notice of Allergan’s Exhibits 5 and 19.

           Exhibits 2 through 4, and 6 through 18, are Allergan’s nonpublic

correspondence with the FDA.39 Allergan’s communications with the FDA are not

publicly available, and their contents cannot be reasonably described as “generally

known.” While the existence of the communications may be readily determined, the

accuracy of the facts contained therein cannot.40 The same is true for Exhibit 25,

which is correspondence between the FDA and a nonparty. I decline to extend Rule

201 to these communications, which are being offered to prove the facts asserted

therein.

38
     See D.I. 38 at 28:23–30:7.
39
     Id.
40
   See Rural Metro, 2013 WL 6634009, at *7–8 (citing Santa Fe Pac. Corp., 669 A.2d at
69-70) (noting that a document may be subject to judicial notice for the purpose of
determining what statements had been disclosed publicly, but not for the truth of those
statements).

                                           12
      I will take judicial notice of Allergan’s Exhibits 1, 5, 6, 8, 11, 12, 13, 14, 18,

and 19. The remainder of Allergan’s Exhibits are not properly considered on

Allergan’s motion to dismiss.41

      B.     Allergan Has Not Shown That The Plain Meaning Of The Merger
             Agreement Forecloses The Enhanced Product Labeling Milestone.

      Having circumscribed the pleadings and documents integral thereto, I

consider whether Fortis has stated a claim. Allergan claims Fortis’ breach of

contract claim must be dismissed because the Second Authorization plainly fails to

satisfy the Enhanced Product Labeling Milestone.

      “[T]o survive a motion to dismiss for failure to state a breach of contract

claim, the plaintiff must demonstrate: first, the existence of the contract, whether

express or implied; second, the breach of an obligation imposed by that contract; and

third, the resultant damage to the plaintiff.”42 “[A] claim may be dismissed if

allegations in the complaint or in the exhibits incorporated into the complaint

41
   In briefing, Allergan did not specifically advocate for consideration of Exhibits 20
through 24. To clarify the record upon which I make my decision, I will also examine
these Exhibits. Exhibits 20 through 23 comprise academic research papers and a book
chapter. These exhibits are not integral to Fortis’ Amended Complaint, and the accuracy
of their contents cannot be readily determined. Exhibit 24 is an email chain between
counsel that is not integral to the Amended Complaint and not subject to judicial notice. I
do not consider any of these documents here.
42
    VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 612 (Del. 2003). Allergan
moves for dismissal on breach alone, arguing that Fortis has not alleged a breach because
it cannot “show that [the Enhanced Product Labeling Milestone] has been achieved[.]” D.I.
27 at 33.

                                            13
effectively negate the claim as a matter of law.”43 Otherwise, “[t]he court may grant

a motion to dismiss based on contractual language . . . only if the contractual

language is unambiguous—meaning, the language is susceptible of only one

reasonable interpretation.”44

         To determine the obligations imposed by a contract, “Delaware courts start

with the text.”45 “When the contract is clear and unambiguous,” Delaware courts

“will give effect to the plain-meaning of the contract’s terms and provisions.”46 “[A]

term is not ambiguous simply because it is not defined[.]”47 “Delaware courts look

to dictionaries for assistance in determining the plain meaning of terms which are

not defined in a contract.”48 “If a contract is unambiguous, extrinsic evidence may

43
  VLIW Tech, 840 A.2d at 614–15 (quoting Malpiede v. Townson, 780 A.2d 1075, 1083
(Del. 2001)).
44
  Fortis Advisors LLC v. Stora Enso AB, 2018 WL 3814929, at *3 (Del. Ch.
Aug. 10, 2018).
45
     Sunline Comm. Carriers, Inc. v. CITGO Pet. Corp., 206 A.3d 836, 846 (Del. 2019).
46
     Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159–60 (Del. 2010).
47
   ClubCorp, Inc. v. Pinehurst, LLC, 2011 WL 5554944, at *12 (Del. Ch. Nov. 15, 2011)
(alteration in original) (quoting Sassano v. CIBC World Mkts. Corp., 948 A.2d 453, 468
n.86 (Del. Ch. 2008)).
48
  Horton v. Organogenesis Inc., 2019 WL 3284737, at *4 (Del. Ch. July 22, 2019) (quoting
Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 738 (Del. 2006)).

                                            14
not be used to interpret the intent of the parties, to vary the terms of the contract or

to create an ambiguity.”49

         Allergan’s motion to dismiss hinges on whether the FDA’s indication for use

“to improve dry eye symptoms” is equivalent to the Enhanced Product Labeling

Milestone’s requirement of “treatment of dry eye disease symptoms.”                As a

prefatory matter, I consider whether the indication, limited to symptoms, falls short

of any contractual requirement to treat the underlying disease. The FDA approved

the following indication for use: “The [Product] provides a temporary increase in

tear production during neurostimulation to improve dry eye symptoms in adult

patients with severe dry eye symptoms.”50 The FDA explained, “[t]he [Product] is

limited only to the improvement in dry eye symptoms as the safety and effectiveness

in the treatment of dry eye disease has not been established.”51 Thus, the Second

Authorization explicitly distinguished the treatment of dry eye disease, and is

cabined to symptoms.

         Similarly, the Merger Agreement only contemplated the treatment of dry eye

disease symptoms. Under the Merger Agreement, the Enhanced Product Labeling

49
  Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del. 1997); see
e.g., Citadel Hldg. Corp. v. Roven, 603 A.2d 818, 822 (Del. 1992) (“Only when there are
ambiguities may a court look to collateral circumstances.”).
50
     Am. Compl. ¶ 27 (emphasis added).
51
     D.I. 27, Ex. 18 at 2.

                                           15
Milestone required the “receipt by a Milestone Party of written notice of FDA

Authorization of the Product that includes an ‘indication for use’ for Increased Tear

Production and for the treatment of at least one Dry Eye Disease Symptom.”52 “Dry

Eye Disease Symptoms” are defined as just that:             symptoms. 53    The Merger

Agreement does not hinge milestone payments on treatment of the underlying

disease. So, the Second Authorization’s exclusion of the treatment of disease does

not foreclose the satisfaction of the Enhanced Product Labeling Milestone.

         I now turn to Allergan’s specific arguments as to why the Second

Authorization did not satisfy the Enhanced Product Labeling Milestone. Allergan

reads the Enhanced Product Labeling Milestone as imposing three requirements—

causation, duration, and the entire patient population—and concludes the Second

Authorization failed to satisfy all three. I conclude Fortis pled a breach of the Merger

Agreement over each of Allergan’s arguments.

52
     Merger Agreement § 1.1.
53
  “‘Dry Eye Disease Symptom’ means any of the following subjective patient reported
conditions associated with dry eye disease, including dry eye symptoms measured in total
score on the Ocular Surface Disease Index (“OSDI”), individual symptoms of painful or
sore eyes, eyes that feel gritty, blurred vision, poor vision as measured on OSDI coupled
with a sign endpoint, ocular discomfort measured by the Ora Calibra Ocular Discomfort
Scale, ocular discomfort, burning, dryness, grittiness, or stinging as measured by the Ora
Calibra Ocular Discomfort and 4-Symptom Questionnaire, or individual symptoms of
ocular discomfort, dryness, burning, stinging, eye pain, foreign body sensation, or
perception of blurred or poor vision measured by a validated individual dry eye
questionnaire.” Id. (emphasis added).

                                           16
         First, Allergan contends that the Merger Agreement’s use of the word

“treatment” requires “a causal relationship” not present in the Second

Authorization’s use of the term “to improve.”54 The Merger Agreement does not

define “treatment,” and Allergan has provided no other definition. Dictionary

definitions for treatment include “a particular method or type of medical care”;55 “to

care for or deal with medically or surgically”;56 and “management in the application

of medicines, surgery, etc.”57 Delaware courts have also defined treatment as “[t]he

management of illness, by the use of drugs, dieting, or other means designed to bring

relief or effect a cure.”58     I accept these definitions as the plain meaning of

54
     D.I. 27 at 36.
55
  Treatment, MacMillan Online Dictionary,
https://www.macmillandictionary.com/us/dictionary/american/treatment (last visited
Oct. 27, 2019).
56
       Treat,     Merriam-Webster         Online      Dictionary,      https://www.merriam-
webster.com/dictionary/treat (last visited Oct. 29, 2019). Compare “treat” with Treatment,
Merriam-Webster               Online            Dictionary,            https://www.merriam-
webster.com/dictionary/treatment (last visited Oct. 29, 2019). Merriam-Webster defines
treatment as “the act or manner or an instance of treating someone or something”; “the
techniques or actions customarily applied in a specified situation”; “a substance or
technique used in treating”; “an experimental condition.” Thus, the noun form of treatment
is defined in terms of the verb “treat.” The definition of “treat” informs my understanding
of the plain meaning of “treatment.”
57
  Treatment, Dictionary.com, https://www.dictionary.com/browse/treatment (last visited
Oct. 27, 2019).
 Collis v. Topper’s Salon & Health Spa, Inc., 2012 WL 1408884, at *4 (Del. Super. Ct.
58

Mar. 29, 2012) (citing 2 Webster Dictionary 1337 (Int’l ed. 1998)).

                                            17
“treatment,” an unambiguous term. The definitions also support Allergan’s view

that “treatment” implies causation. The phrases “bring relief or effect a cure,” to

“care for,” and to “manage[]” an illness, suggest causation.

         According to Fortis, the indication’s use of the term “to improve” satisfies this

element of causation.         The FDA issued the Second Authorization with an

accompanying guide. That guide states “[t]he [Product] is limited only to the

improvement in dry eye symptoms . . . .”59 “An improvement in” symptoms suggests

the Product “bring[s] relief” or “care[s] for” dry eye symptoms, synonymously with

“treatment.” This interpretation is consistent with the federal statute that hinges

FDA approval on a “reasonable assurance of safety and effectiveness”60 of the

Product. The authorization is therefore based on the Product’s effectiveness in

improving dry eye symptoms.61 Thus, I conclude that both “to improve” and

59
  D.I. 27, Ex. 18 at 2. Allergan attempted to introduce Exhibit 17, detailing the course of
communications with the FDA, to inform the Second Authorization’s scope. Because
Fortis did not reference Exhibit 17 in the Amended Complaint, I do not consider it for the
purpose of this motion. See supra Section (II)(A). Further, because “treatment” and “to
improve” are not ambiguous, “extrinsic evidence may not be used to interpret the intent of
the parties, to vary the terms of the contract or to create an ambiguity.” See Eagle Indus.,
Inc., 702 A.2d at 1232. For this reason, I do not consider Fortis’ allegations of the parties’
conduct during the approval process (e.g., celebrations upon obtaining the Second
Authorization) in interpreting the unambiguous Merger Agreement and Second
Authorization. See D.I. 30 at 16–17.
60
     21 U.S.C. § 360e(d)(1)(A) (2019) (effective Aug. 18, 2017).
61
  Allergan highlights that a portion of patients with severe dry eye symptoms experienced
worsening symptoms after application of the Product, as set forth in the FDA disclosure.
See D.I. 27, Ex. 18 at 22. The FDA further stated that “[t]here were more subjects with

                                             18
“treatment” contemplate causation. Allergan has not shown the Second

Authorization cannot meet the Enhanced Product Labeling Milestone’s causation

requirement.

         Second, Allergan contends the Merger Agreement imposes a duration

requirement that the Second Authorization failed to satisfy. Allergan contends that

the Enhanced Product Labeling Milestone requires “a long-term improvement—i.e.,

that the device actually results in long-term reduction or elimination of a Dry Eye

Disease Symptom.”62

         The plain meaning of “treatment” does not differentiate between short-term

and long-term improvement. Short-term relief is consistent with the definition of

treatment that contemplates “management . . . designed to bring relief.”63 Allergan

has not offered an alternative definition that requires long-term improvement.

          As the term “treatment” is used in the Enhanced Product Labeling Milestone,

Allergan sees an interplay between the two requirements of a) Increased Tear

Production, and b) the treatment of at least one Dry Eye Disease Symptom.

severe dry eye symptoms that had a meaningful improvement in symptoms from baseline
as measured with the OSDI than the number with meaningful worsening of symptoms
. . . .” Id. Although this result does not demonstrate unanimous improvement, the FDA’s
authorization shows meaningful improvement among certain patients, supporting
causation.
62
     D.I. 27 at 36.
63
     Collis, 2012 WL 1408884 at *4 (citing 2 Webster Dictionary 1337 (Int’l ed. 1998)).

                                             19
“Increased Tear Production,” is defined as a “temporary increase in tear

production.”64 Allergan points out that the word “temporary,” present in the

Increased Tear Production requirement, is absent from the treatment requirement,

and concludes that “treatment” must be longer-term.

         I draw a different conclusion. In my view, an “increase in tear production” is

specified to be “temporary” to make clear that the patient’s eyes should not produce

tears at that increased rate at all times, forever. I do not construe the unmodified

term “treatment” to preclude short-term relief.

         More fundamentally, Allergan has yet to show that the Second Authorization

was limited to temporary symptom relief. Allergan points to a FDA deficiency letter

dated December 22, 2017, in which the FDA requested support for “the persistence

of symptom relief after the application of the [Product]” beyond the five minute

measurement to evaluate the benefits and risks for the proposed indication.65

According to Allergan, this letter shows the Second Authorization did not

contemplate persistent relief.

         But after that letter, and additional advocacy by Allergan, the FDA issued the

Second Authorization with the guide that detailed the FDA’s evaluation of symptom

64
     Merger Agreement § 1.1 (emphasis added).
65
     D.I. 27, Ex. 13 at 3.

                                           20
improvement at days seven and thirty.66 This guide explained “[t]he proportion of

subjects with a clinically important change in [Ocular Surface Disease Index] at the

follow-up days 7 and 30 for all available subjects [were] stratified by dry eye severity

subgroup . . . .” 67 And “[o]f the 97 subjects that were enrolled, 77 had severe dry

eye symptoms at the start of the study and were seen following treatment. Of these

subjects, between 18 (23%) and 33 (43%) were shown to have a clinically

meaningful improvement in their symptoms.”68 In my view, on the available record,

the Second Authorization guide shows that Allergan remedied the FDA’s concerns

expressed in the December 2017 deficiency letter. In relying on the December 2017

deficiency letter, Allergan falls short of demonstrating that the Second Authorization

was for only temporary improvement.

           Finally, Allergan contends that the Second Authorization fell short of an

Enhanced Product Labeling Milestone requirement to improve dry eye symptoms

for the entire patient population. The Second Authorization states, “[the Product]

provides a temporary increase in tear production during neurostimulation to improve

dry eye symptoms in adult patients with severe dry eye symptoms.”69 Allergan

66
     D.I. 27, Ex. 18 at 22.
67
     Id.
68
     Id.
69
     Am. Compl. ¶ 27 (emphasis added).

                                           21
contends “[t]he parties agreed to an Enhanced Product Labeling Milestone payment

if the device could be marketed as a treatment for dry eye disease symptoms

generally, implicitly but clearly to the total patient population.”70 Allergan notes the

truism that the Product’s commercial success is dependent on the population eligible

to use it to Allergan; complains that the Second Authorization’s limited patient

population has dramatically undercut the Product’s commercial success; and

concludes the parties could not have contracted for less than the entire patient

population. Because the Second Authorization is limited to patients suffering from

severe dry eye symptoms, Allergan contends it falls short of the Enhanced Product

Labeling Milestone.

          Allergan correctly notes that any requirement that the Second Authorization

apply to the entire patient population would be implicit. On its face, the Enhanced

Product Labeling Milestone does not specify any patient population. Allergan fails

to show an ambiguity in the text that would allow the Court to import an implicit

reading that is not otherwise evident. Even if Allergan now views the resulting

limitation to patients with “severe” symptoms as “a patent commercial failure,”71

Allergan’s post hoc disappointment does not support an otherwise unsupported

requirement that the Second Authorization be available to the entire population.

70
     D.I. 27 at 40 (emphasis added).
71
     Id. at 41.

                                           22
Allergan has failed to demonstrate that the Second Authorization’s limitation on

“severe” symptoms could not have satisfied the Enhanced Product Labeling

Milestone.

           In sum, Allergan has failed to establish that the Second Authorization fell

short of the Enhanced Product Labeling Milestone in any of the three ways advanced

in Allergan’s motion to dismiss. Fortis has sufficiently alleged a breach, and so

Allergan’s motion to dismiss on these grounds is denied.

           C.     Fortis Has Pled A Breach Of The Commercially Reasonable
                  Efforts Provision.

           Allergan contends that Fortis failed to plead that Allergan breached the

Merger Agreement by failing to use commercially reasonable efforts to obtain the

Second Authorization.72 Allergan first asserts that this claim is moot because Fortis

cannot plead that the Enhanced Product Labeling Milestone requirement was

satisfied.73 Having concluded otherwise, I turn to Allergan’s second argument that

Fortis has not adequately alleged that Allergan failed to use “Commercially

Reasonable Efforts” as defined in the Merger Agreement.74

72
     Id. at 44.
73
     Id.
74
     Id. at 45–46.

                                            23
         Under the Merger Agreement, Commercially Reasonable Efforts means:

               [W]ith respect to the performance of development,
               regulatory or commercialization activities with respect to
               the Product, the carrying out of such activities using
               commercially reasonable, diligent and good faith efforts
               and expending resources that Buyer would typically
               devote to, and with respect to, products of similar market
               potential at a similar stage in development or product
               life, considering the following: conditions then prevailing
               and taking into account, without limitation, issues of
               safety and efficacy, expected and actual cost and time to
               develop, expected and actual profitability, expected and
               actual competitiveness of alternative products in the
               marketplace, the nature and extent of the expected and
               actual market exclusivity (including patent coverage and
               regulatory exclusivity), the expected and actual
               reimbursability and pricing, the expected and actual
               amounts of marketing and promotional expenditures
               required, product profile (including the expected and
               actual labeling), anticipated timing of commercial entry,
               the regulatory environment and status of the product
               (including the likelihood of regulatory approval), and all
               other relevant legal, medical, scientific, technical and
               commercial factors.75

         Fortis alleges that Allergan waited for two years to apply for the Enhanced

Product Labeling Milestone;76 filed a procedurally deficient 510(k) Application;77

75
     Am. Compl., Ex. A § 1.1.
76
     Am. Compl. ¶ 40.
77
     Id. ¶¶ 40–41.

                                           24
waited another four months to submit the De Novo Application;78 and prolonged that

delay by waiting two months to respond to the FDA’s deficiency letter.79

         Allergan contends that Fortis fails to allege any facts about Allergan’s

comparable commercial efforts, which serves as the metric for Commercially

Reasonable Efforts under the Merger Agreement.80                Allergan stops short of

demonstrating what it must: that Fortis failed to give notice of its claim, or that

Fortis alleged no facts that, if true, could support a breach of the Merger Agreement’s

Commercially Reasonable Efforts provision.81 Drawing all reasonable inferences in

favor of Fortis, as I must at this stage,82 I find that Fortis has alleged substantial delay

during multiple phases. These allegations support an inference that Allergan’s

efforts fell short of its comparable efforts for other similar products. From the facts

alleged, and with the aid of discovery into Allergan’s comparable efforts, Fortis may

prevail on its breach of contract claim. Fortis’ claim survives Allergan’s motion to

dismiss.

78
     Id. ¶ 42.
79
     Id. ¶ 43.
80
     D.I. 27 at 45.
81
  VLIW Tech., 840 A.2d at 615 (“A trial court must not dismiss any claim pursuant to Rule
12(b)(6) unless it appears with reasonable certainty that the plaintiff cannot prevail on any
set of facts which might be proven to support the allegations in the complaint.”).
82
     Cent. Mortg. Co., 27 A.3d at 536.

                                             25
III.   CONCLUSION

       Fortis has stated a claim for breach of the Merger Agreement based on

Allergan’s refusal to make the Enhanced Product Labeling Milestone payment.

Fortis has also pled facts that, if proven, would support a breach of the Commercially

Reasonable Efforts provision. For these reasons, Allergan’s motion to dismiss is

DENIED.

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