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Gilead Ordered to Give Files to Investors Weighing Truvada Suit

Nov. 24, 2020, 4:34 PM

Gilead Sciences Inc. investors easily proved they’re entitled to examine its records as they consider suing over business practices related to its blockbuster HIV drug Truvada, a Delaware Chancery Court judge ruled, saying the company’s arguments “border on absurd” and threatening to hit it with attorneys’ fees.

“The complaint tells a story as replete with inequity as the biblical verse that the company’s namesake brings to mind,” and Gilead’s “peripheral attacks” offer “no principled grounds for categorically disregarding” allegations from other court cases facing the drugmaker, Vice Chancellor Kathaleen S. McCormick wrote.

“Gilead’s overly aggressive defense strategy epitomizes a trend,” the judge added. “Defendants like Gilead adopt this strategy with the apparent belief that there is no real downside to doing so, ignoring that this court has the power to shift fees as a tool to deter abusive litigation tactics.”

The records case was brought by shareholders looking to investigate the monopolization, patent gamesmanship, and health care fraud schemes alleged in a wave of litigation over Truvada, a breakthrough HIV prevention drug that earns billions a year for Gilead.

The ongoing suits accuse the company of, among other things, conspiring to delay generic competition through licensing agreements with rivals after they developed other drugs that pair well with Truvada’s active ingredient.

Gilead has also faced allegations that it wrongly profited off of government patents related to Truvada, violated the False Claims Act through kickbacks, withheld critical safety data, and kept safer drugs off the market in an effort extend its monopoly.

The records suit invoked a Delaware law giving corporate shareholders expansive inspection rights if they credibly suspect wrongdoing at the top. Records cases often reflect an attempt to drum up fiduciary breach allegations for a derivative suit.

‘How Far Gilead Was Willing to Go’

After a one-day trial in June, McCormick ruled for the shareholders Monday.

Records cases involve “the lowest possible burden of proof,” and the tsunami of allegations against Gilead more than satisfies that standard, whether they’ve been proven or not, she said.

McCormick dismissed the company’s effort to portray the plaintiffs as “a passive conduit in a purely lawyer-driven” endeavor. That argument “raises more questions about Gilead’s purposes than the plaintiffs’,” the judge wrote.

She criticized the company for a “curveball” trial question about a “cut-and-paste error” in one shareholder’s retainer agreement, saying it showed “how far Gilead was willing to go in attacking plaintiffs.”

Moreover, Gilead’s “vexing” contention that the plaintiffs lack standing represented an end run around the “proper purpose” issue, McCormick said, calling it “semantic sleight of hand.”

She also rejected the company’s attempt to narrow the records request to files that line up with the plainitffs’ potential legal claims—an issue that has divided Delaware judges. The trend toward treating records cases as “surrogate” opportunities to litigate the merits is “regrettable,” McCormick said.

The shareholders were represented by Cooch & Taylor PA; Robbins LLP; Heyman Enerio Gattuso & Hirzel LLP; Pomerantz LLP; Bernstein Litowitz Berger & Grossmann LLP; Bottini & Bottini Inc.; Cotchett, Pitre & McCarthy LLP; and Klausner, Kaufman, Jensen & Levinson.

Gilead was represented by Potter, Anderson & Corroon LLP and Cooley LLP.

The case is Pettry v. Gilead Scis. Inc., Del. Ch., No. 2020-0132, 11/24/20.

To contact the reporter on this story: Mike Leonard in Washington at mleonard@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Nicholas Datlowe at ndatlowe@bloomberglaw.com

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