Securities Law News

Teva, Cephalon Get Some Claims Trimmed in Post-Merger Suit

Dec. 28, 2018, 9:11 PM

Drugmaker Cephalon Inc. won’t have to face some investor claims in a suit over its 2010 purchase of Ception Inc., a Delaware judge said Dec. 28.

Former Ception investors said Cephalon didn’t fulfill its promise to pursue the development of a new antibody. Cephalon must face the breach of contract claim, but not the breach of implied covenant of good faith and fair dealing claim, according to the Delaware Chancery Court opinion.

Teva Pharmaceutical Industries Ltd., which acquired Cephalon in 2011, won’t have to defend against the investors’ tortious interference claim, the opinion said.

When Cephalon bought Ception, it agreed to use “commercially reasonable efforts” to develop the antibody Rezlizumab to treat asthma and esophagus inflammation, according to the opinion. The former Ception investors said Cephalon didn’t hold up its end of the deal, depriving them of up to $550 million in earn-outs payable at various stages in the new drug’s development.

The investors alleged sufficient facts to suggest Cephalon breached its contract, according to the opinion. The contract required not just reasonable efforts at development, but efforts commensurate with those a similar company would undertake.

Because the court can’t yet determine if Cephalon fulfilled that requirement, that part of the case should stay in court, the opinion said.

But there isn’t an implied covenant of good faith and fair dealing because there’s no gap in the merger agreement for one to fill, according to the opinion. Because the agreement already adequately outlined the steps Cephalon promised to take, that claim can’t go forward, the opinion said.

The Ception investors still “face a difficult matter of proof,” but full dismissal isn’t appropriate at this stage, the opinion said.

Vice Chancellor Sam Glasscock III wrote the opinion.

Duane Morris LLP represented the investors. Kirkland & Ellis LLP and Potter Anderson & Corroon LLP represented Teva and Cephalon.

The case is Himawan v. Cephalon Inc., 2018 BL 480893, Del. Ch., No. 2018-0075, 12/28/18.

To contact the reporter on this story: Jennifer Bennett in Washington at jbennett@bloomberglaw.com

To contact the editors responsible for this story: Jo-el J. Meyer at jmeyer@bloomberglaw.com; C. Reilly Larson at rlarson@bloomberglaw.com

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