Himawan v. Cephalon, Inc., C.A. No. 2018-0075-SG (Del. Ch. Apr. 30, 2024)

Stockholder representatives of an acquired corporation brought claims alleging that defendants had failed to use contractually-required commercially reasonable efforts to commercialize an acquired drug asset for a particular use. Under the terms of the merger agreement, the acquirer had paid $250 million in immediate consideration, agreed to a framework for milestone payments following regulatory approval for two separate uses, and retained discretion for operating the post-merger business, subject to a requirement that it use defined “commercially reasonable efforts” to develop and commercialize the drug for each use. Ultimately, after engaging regulatory authorities and deeming there to be dim prospects for success for one use, the acquirer did not persist in securing regulatory approval and bringing the drug to market for that purpose, and therefore did not reach the milestones associated with that use.

Adopting the reasoning of analogous case law, the Court of Chancery concluded that an obligation to use objectively reasonable efforts did not require defendants to take actions outside their self-interest and not expected to yield a commercially reasonable profit. Examining the trial evidence, the Court determined that the defendants had not violated the merger agreement. Following the defendants’ demonstrated efforts to engage regulatory authorities and identify a path for drug development for the specified use, the evidence indicated further development would be a high-cost endeavor with low probability of receiving approval—and, even if approval were received, mandatory labeling of warnings and an onerous mechanism for patients to administer the drug would limit commercial success in the marketplace. In that context, a failure to develop and commercialize the drug did not constitute a breach of the defendants’ obligations under the merger agreement.