A lawsuit alleging a breach of contract was filed against Sanofi-Aventis US LLC last month. The pharmaceutical company was accused of delaying the development of its multiple sclerosis drug Lemtrada so it could avoid paying $708 million to rights holders. The trustee for rights holders of biotech company Genzyme Corp., which was developing Lemtrada when Sanofi acquired it in 2011, accused Sanofi of violating the acquisition deal by failing to move quickly to gain regulatory approval for the potential blockbuster drug and commercialize it. The rights holders were supposed to receive payments that depended directly on Lemtrada meeting certain benchmarks, including a payment on approval by the U.S. Food and Drug Administration (FDA), according to the complaint.
American Stock Transfer & Trust Co. LLC (AST), which is seeking at least $236.4 million in damages, claims Sanofi had promised to ignore any cost of milestone payments to the trustee in order to get FDA approval of Lemtrada before April 1, 2014. It’s stated in the complaint:
In contravention of this provision, Sanofi took those potential milestone payments into account in evaluating Lemtrada’s profitability, embarked on a slow path to FDA approval and departed from its own drug commercialization patterns and those of others in the industry.
Sanofi recently revealed that it didn’t expect to meet a $400 million sales milestone, according to AST. The trustee allegedly hasn’t received any payments in connection with the milestones. Genzyme had been conducting clinical trials on Lemtrada when Sanofi entered a deal in February 2011 to buy the company for $20 billion, according to the complaint. Under the terms of the agreement, Sanofi allegedly said it would make up about $3.8 billion in payments to Genzyme shareholders. It’s claimed that Sanofi allegedly agreed that for each Genzyme share it bought, it would pay $74 and issue a contingent value right to each holder of a Genzyme share. Those rights entitled AST to receive payments for the benefit of the rights holders so long as regulatory-approval and sales-volume benchmarks were met.
For example, the rights holders were due to receive $1 per contingent value right after the FDA approved Lemtrada, and $2 per contingent value right after total sales for the multiple sclerosis drug surpassed $400 million, according to AST’s complaint. Beginning in 2011, it’s alleged that the companies issued numerous press releases assuring investors that the drug had a 90 percent chance of being approved. Then, on Dec. 30, 2013, Sanofi issued a press release announcing that the FDA had rejected Lemtrada’s supplemental biologics license application. It’s alleged that Sanofi missed the FDA approval milestone deadline described in the agreement and also fell short of sales milestones due to its failure to sufficiently promote and commercialize Lemtrada.
It’s claimed in the suit that Sanofi allegedly engaged in bad faith conduct intended to keep Lemtrada sales below a contractual threshold and lower the amounts owed to the Genzyme rights holders. Sanofi is said to have breached the implied covenant of good faith and fair dealing. This isn’t the first investor suit that Sanofi has faced over Lemtrada. In January, a New York federal judge dismissed an investor class action and a related securities fraud damages suit against Sanofi over a 2013 setback in its effort alongside Genzyme to win FDA approval for Lemtrada. The judge found that the “rosy” statements predicting on-time approval were genuinely believed by the company when they were made. AST is represented by Stacey J. Rappaport and Andrew M. Leblanc of Milbank Tweed Hadley & McCloy LLP. The case is American Stock Transfer & Trust Co. LLC v. Sanofi and is in the U.S. District Court for the Southern District of New York.
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