AbbVie Endocrine Inc. v. Takeda Pharmaceutical Company Limitead ( 2021 )


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  •    IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
    ABBVIE ENDOCRINE INC.,                  )
    )
    Plaintiff,            )
    )
    v.                                ) C.A. No. 2020-0953-SG
    )
    TAKEDA PHARMACEUTICAL                   )
    COMPANY LIMITED,                        )
    )
    Defendant.            )
    MEMORANDUM OPINION
    Date Submitted: August 3, 2021
    Date Decided: September 22, 2021
    A. Thompson Bayliss and Joseph A. Sparco, of ABRAMS & BAYLISS LLP,
    Wilmington, Delaware; OF COUNSEL: Paul J. Loh, Jason H. Wilson, Eileen M.
    Ahern, Amelia L.B. Sargent, and Kenneth M. Trujillo-Jamison, of WILLENKEN
    LLP, Los Angeles, California, Attorneys for Plaintiff AbbVie Endocrine Inc.
    Kevin R. Shannon, Christopher N. Kelly, and Daniel M. Rusk, IV, of POTTER
    ANDERSON & CORROON LLP, Wilmington, Delaware; OF COUNSEL: Fred A.
    Kelly, Jr., Joshua S. Barlow, and Tiffany Jang, of HAUG PARTNERS LLP, Boston,
    Massachusetts; David A. Zwally and Mark Basanta, of HAUG PARTNERS LLP,
    New York, New York; and Christopher Gosselin, of HAUG PARTNERS LLP,
    Washington, DC, Attorneys for Defendant Takeda Pharmaceutical Company
    Limited.
    GLASSCOCK, Vice Chancellor
    Before me is a dispute between AbbVie Endocrine Inc. (“AbbVie” or the
    “Plaintiff”), a pharmaceutical distributor, and Takeda Pharmaceutical Company
    Limited (“Takeda” or the “Defendant”), a pharma manufacturing giant. The parties
    have a contractual relationship to purchase and sell a drug used principally to treat
    cancer. The Plaintiff initially sought specific performance of that supply contract
    (the “Supply Agreement”)—deliveries under which were interrupted following a
    problematic inspection and resulting enforcement proceedings by the U.S. Food and
    Drug Administration (the “FDA”)—as well as damages for breach of the contract.
    This matter was tried in April and May 2021 on the Plaintiff’s request for
    injunctive relief. For the reasons explained therein, I denied that relief by a
    Memorandum Opinion dated September 7, 2021. 1 The other issue tried in April and
    May was the Plaintiff’s request for a declaratory judgment that the Defendant is
    liable to it for breaching the Supply Agreement; in other words, the trial in the matter
    was bifurcated, with the April and May phase addressing liability (as well as
    injunctive relief), leaving for the next phase of trial, if necessary, the quantum of
    damages.
    1
    AbbVie Endocrine Inc. v. Takeda Pharmaceutical Co. Ltd., 
    2021 WL 4059793
     (Del. Ch. Sept. 7,
    2021) [hereinafter “AbbVie I”]. The matter was expedited with respect to the request for injunctive
    relief; accordingly, I issued a decision on the issue separately, reserving on liability, the issue
    addressed here.
    1
    For the reasons that follow, I find that the Defendant has breached various
    aspects of the Supply Agreement, and is liable in damages.
    I. ABBVIE I
    This opinion concerns the performance of the Supply Agreement entered into
    between Takeda and the predecessor-in-interest to AbbVie. As set out in AbbVie I,
    the parties have a supplier-distributor relationship wherein Takeda manufactures
    leuprolide acetate-containing drug products and AbbVie distributes one such drug
    product by the brand name of Lupron Depot (“Lupron”). The Supply Agreement is
    a requirements contract which mandates that, among other things, Takeda fulfill the
    firm orders of AbbVie with respect to Lupron. In 2020 and 2021, certain compliance
    issues came to light at one of Takeda’s manufacturing facilities (the “Hikari
    Facility”), which ultimately caused a disruption in the Lupron supply chain. Takeda
    was unable to fulfill AbbVie’s firm orders beginning in 2020. This failure to fulfill
    firm orders constitutes, per the Plaintiff, a breach of the Supply Agreement. These
    disruptions continue to date.
    In April and May of 2021 I held a three-day trial in this matter. 2 The parties
    submitted supplemental papers and records, and I heard post-trial oral argument on
    August 3.3 I released AbbVie I, a post-trial memorandum opinion, on September 7,
    2
    See Trial Tr., Dkt. Nos. 165–168.
    3
    See Tr. Of 8.3.21 Post-Trial Oral Arg., Dkt. No. 190 [hereinafter “Oral Arg. Tr.”]; Pl’s Post-Trial
    Br., Dkt. No. 172; Def.’s Opening Post Trial Br., Dkt. No. 171.
    2
    which addressed solely the Plaintiff’s requested injunctive relief. 4 I did not assess
    the question of breach at that time. 5 This Memorandum Opinion considers the
    liability of the Defendant for breach of the Supply Agreement. This Section offers
    a summary of the facts necessary to the determination of liability.
    A. Factual Background
    This Memorandum Opinion adopts the factual statement set forth in AbbVie
    I. 6 The further facts presented in this post-trial memorandum opinion are either
    stipulated to in the parties’ pre-trial stipulation or were proven by a preponderance
    of evidence at trial. 7
    1. The Supply Agreement
    On or around April 30, 2008, Takeda and the predecessor entity to AbbVie
    entered into the Supply Agreement, which identifies the Plaintiff’s and the
    Defendant’s rights and obligations regarding the manufacture, supply, and sale of
    Lupron. 8 The Supply Agreement was amended on September 4, 2009 and July 17,
    2019 9 and the parties agree that it is a valid and enforceable contract.10
    4
    See generally AbbVie I, 
    2021 WL 4059793
    .
    5
    See generally 
    id.
    6
    AbbVie I, 
    2021 WL 4059793
     at *2–*5.
    7
    Where the facts are drawn from exhibits jointly submitted at trial, they are referred to according
    to the numbers provided on the parties’ joint exhibit list and with page numbers derived from the
    stamp on each JX page (“JX __, at ___”).
    8
    Joint Pre-Trial Stipulation ¶¶ 8–9, Dkt. No. 156 [hereinafter “Stip.”].
    9
    Stip. ¶ 8.
    10
    Stip. ¶ 10.
    3
    In its post-trial argument, the Plaintiff argued that the Defendant had breached
    the Supply Agreement in four ways, implicating five provisions.11 The relevant
    provisions are as follows.
    Section 9.2(a) provides that: “[AbbVie] shall . . . provide Takeda . . . with (i) a
    firm order for the quantities of Product that [AbbVie] will require . . ., [and] (ii) a
    good faith estimate of the quantities of Product that [AbbVie] will require” in
    specified future periods.12 It then provides that “Takeda shall fulfill all such firm
    orders (subject to the allocation procedure described in Section 9.4).”13
    Section 9.4 provides Takeda with the right to allocate Lupron “[i]f Takeda is
    unable, for any reason beyond its reasonable control . . . to supply sufficient
    quantities of Product to meet Takeda’s needs, [AbbVie’s] requirements, and third
    party orders that Takeda is contractually obligated to fill.”14
    Section 9.6(a) provides that “Takeda . . . shall . . . maintain in its inventory a
    safety stock . . . solely dedicated to and for use by [AbbVie] in sufficient quantities
    to meet [AbbVie’s] anticipated demand for Product, as reflected in the then
    applicable forecast by [AbbVie], for the following twelve (12) month period, as
    11
    Oral Arg. Tr. 12:21–24, 13:1–17.
    12
    Stip. ¶ 18.
    13
    Stip. ¶ 18.
    14
    Stip. ¶ 20.
    4
    follows: (i) . . . a supply of Product in sufficient quantities to meet [AbbVie]’s and
    its Affiliates’ anticipated demand for at least the first three (3) months.”15
    Section 16.1(a) provides that “Takeda shall be exclusively responsible
    for . . . compliance of its . . . manufacturing facilities and processes utilized for
    purposes of manufacture, packaging, storing prior to delivery, and delivery of
    Product with all Applicable Laws . . . including Good Manufacturing Practices and
    all other Applicable Laws.”16
    Finally, Section 21.3 provides that “[e]ach of the Parties shall be excused from
    the performance of its obligations hereunder in the event such performance is
    prevented by a cause beyond the reasonable control of such Party, including acts of
    God . . . .” 17
    Takeda, for its part, points to Section 8.1(a), which addresses best efforts as
    follows: “Subject to the provisions of this Agreement, [AbbVie] shall purchase . . .
    and Takeda or its Affiliates shall sell and deliver to [AbbVie] . . . [AbbVie]’s and its
    Affiliates’ requirements for the Territory of Product . . . . Takeda shall, and shall
    cause its Affiliates to, use best efforts to supply [AbbVie]’s and its Affiliates’
    requirements of Product for the Territory.”18
    15
    Stip. ¶ 21.
    16
    Stip. ¶ 22.
    17
    Stip. ¶ 24.
    18
    Stip. ¶ 17.
    5
    The Supply Agreement must be construed under Illinois law.19
    2. FDA Inspection and Results20
    In late 2019, Takeda began realizing certain manufacturing difficulties
    associated with leuprorelin products’ production. First, on or around October 28,
    2019, an autoclave at the Hikari Facility, used for sterilization purposes critical to
    the production of leuprorelin products including Lupron, failed its annual
    requalification test.21 The FDA conducted a planned inspection (the “Inspection”)
    of the Hikari Facility in November, which ultimately led to the issuance of a “Form
    483” identifying observations made by the FDA agent that might constitute
    violations of the Food Drug and Cosmetic Act or related Acts.22 Following Takeda’s
    responses to the Form 483, in March 2020, the FDA issued an Official Action
    Indicated Letter (the “OAI Letter”) that stated that the FDA had observed an
    “unacceptable state of compliance” with current good manufacturing practice
    (“cGMP”) during the Inspection. 23 In June 2020, the FDA issued a warning letter
    (the “June Warning Letter”) relating to the Inspection which “summarize[d]
    significant violations” of cGMP. 24 Further, in February 2021, the FDA issued an
    19
    Stip. ¶ 26.
    20
    The remedial efforts undertaken by Takeda in connection with the FDA inspection in November
    2019 are described in detail in AbbVie I.
    21
    Stip. ¶ 38.
    22
    Stip. ¶¶ 39, 40; see also AbbVie I, 
    2021 WL 4059793
     at *3.
    23
    JX 1992, at 3.
    24
    Stip. ¶ 43.
    6
    Establishment Inspection Report (the “EIR”) which more comprehensively
    addressed the violations observed as part of the Inspection. 25 That report specifically
    stated that the FDA was “concerned with the number of [c]GMP deficiencies”
    identified at the Hikari Facility in November 2019. 26
    The FDA inspected the Hikari Facility again in July 2021 (the “Follow-Up
    Inspection”).27 Following that investigation, the Hikari Facility remains under
    “Official Action Indicated” status.28
    3. Impact on AbbVie and Takeda
    The manufacturing difficulties and associated delays Takeda has experienced
    as a result of the FDA inspection and its own investigations have caused a disruption
    to the supply line of leuprorelin products, including Lupron. This disruption has in
    turn had myriad effects on AbbVie and Takeda, certain of which are discussed in
    more detail below.
    a. The Allocation Schedule
    The shortage of leuprorelin products impacted AbbVie’s ability to distribute
    Lupron to the market, but also impacted Takeda’s ability to market similar products
    in Asia. To combat the shortage, Takeda produced an allocation schedule in June
    25
    JX 2527, at 22.
    26
    
    Id.
    27
    Oral Arg. Tr. 16:6–9.
    28
    Oral Arg. Tr. 16:13–15.
    7
    2020, which indicated where the leuprorelin products able to be produced would be
    diverted. 29
    AbbVie has continued to submit firm orders to Takeda despite the allocation
    schedule. 30 The allocation schedule produced in June 2020 and the various later
    iterations have allowed for AbbVie to receive some lots of Lupron, but not in
    sufficient numbers to satisfy AbbVie’s firm orders.31
    b. Safety Stock Inventory
    Takeda and AbbVie both generally maintain a “safety stock” of leuprorelin
    and Lupron.32 Safety stock is inventory, separate from firm orders placed, that
    generally acts as a backup in the event of a supply chain disruption or a failure to
    order the sufficient amount of product.33 It essentially acts as a “working inventory”
    to ensure that product is always available should a patient or doctor require it. 34
    One indirect result of Takeda’s supply chain disruption led to AbbVie
    working through all of its safety stock in order to satisfy patient need.35 When supply
    29
    Stip. ¶ 44.
    30
    See, e.g., Exs. A–G to Pl.’s Mot. to Suppl. R., Dkt. No. 178.
    31
    See, e.g., Trial Tr. 20:3–7, Dkt. No. 165; Def.’s Answer and Defenses to Pl.’s Verified Compl.
    ¶ 51, Dkt. No. 38.
    32
    Trial Tr. 49:11–13, Dkt. No. 165 (discussing AbbVie’s safety stock); Stip. ¶ 21 (discussing
    Takeda’s safety stock).
    33
    Trial Tr. 82:11–12, 83:2–6, Dkt. No. 165.
    34
    
    Id.
    35
    Trial Tr. 83:7–17, Dkt. No. 165.
    8
    chain disruptions were first experienced in April 2020, AbbVie used its safety stock
    on hand to supply patients until August 2020.36
    Takeda, too, depleted its safety stock as a result of the supply chain disruption.
    Evidence at trial showed that the available product fell below target as of April 2020
    and was projected to remain below target through March 2021.37 Takeda’s post-trial
    opening brief indicated that the safety stock inventory remained insufficient as of
    June 2021. 38
    c. The Resulting Damages
    As was described briefly in AbbVie I, AbbVie alleges many losses stemming
    from Takeda’s failure to produce sufficient lots of Lupron. These include loss of
    customers, loss of reputation, loss of doctors, loss of market share and loss of overall
    sales.39 I find that AbbVie has experienced injury sufficient to sustain a finding of
    liability under appliable law; 40 the quantum of cognizable damages—if any—
    remains AbbVie’s burden for the upcoming damages portion of the trial.
    36
    
    Id.
    37
    JX 1761, at 28.
    38
    See Def.’s Post Trial Opening Br., Dkt. No. 171. “Historically, if a Lupron lot were delayed by
    Takeda’s quality processes, AbbVie would not necessarily be aware of or impacted by the delay
    because Takeda had the ability to ship product from its existing safety stock inventory . . . . [T]hat
    inventory has been depleted.” Id. at 51.
    39
    AbbVie I, 
    2021 WL 4059793
     at *5.
    40
    The Supply Agreement is subject to the law of Illinois.
    9
    II. ANALYSIS
    As explained above, AbbVie contends that Takeda has breached the Supply
    Agreement in four ways: failure to comply with good manufacturing practices;
    failure to fulfill firm orders; failure to maintain safety stock; and allocation of
    leuprorelin products per an allocation schedule. I find three of these four arguments
    convincing and discuss each in turn.
    A. Takeda has breached the Supply Agreement.
    To prove a breach of contract claim in Illinois, the applicable forum for
    interpreting the Supply Agreement, the following four elements must be satisfied:
    (1) the existence of a valid and enforceable contract; (2) performance by the Plaintiff;
    (3) breach by the Defendant; and (4) resultant injury to the Plaintiff.41 Elements (1)
    and (2) are not disputed. 42 Elements (3) and (4) will be considered in further detail
    with respect to each theory of breach below.
    1. Failure to Operate the Hikari Plant in Compliance with Good
    Manufacturing Practices
    Under Section 16.1(a) of the Supply Agreement, Takeda “shall be exclusively
    responsible for” ensuring compliance of its manufacturing facilities and processes
    associated with manufacturing, packaging, storage and delivery of Lupron with
    41
    See Pepper Constr. Co. v. Palmolive Tower Condos., 
    59 N.E.3d 41
    , 66 (Ill. App. Ct. 2016)
    (citing Coghlan v. Beck, 
    984 N.E.2d 132
     (Ill. App. Ct. 2013)).
    42
    Stip. ¶ 10; Pl.’s Post-Trial Br. 32, Dkt. No. 172.
    10
    applicable laws, “including those . . . of the FDA . . . , including Good
    Manufacturing Practices . . . .” 43
    Takeda argues that the best efforts clause in Section 8.1(a) of the Supply
    Agreement mitigates its obligation to remain in compliance with cGMP. It would
    have me read the Supply Agreement to require solely that Takeda undertake its “best
    efforts” to satisfy the cGMP obligation. The canons of contract construction do not
    allow this result, as, under Illinois law, specific provisions must prevail over more
    general provisions.44 Section 16.1(a) does not require best efforts as written;45 to
    impose this lower standard, one would have to find that Section 8.1(a) should be
    grafted onto Section 16.1(a). But Section 8.1(a), by its own terms, refutes this
    conclusion, as it begins, “Subject to the provisions of this Agreement . . . .”46
    Subjecting Section 8.1(a), regarding best efforts, to Section 16.1(a), requires
    imposition of a higher standard—that of strict compliance rather than best efforts.47
    The Inspection demonstrated that, as of November 2019, Takeda’s operations
    at the Hikari Facility were not in compliance with cGMP. As such, Takeda breached
    43
    Stip. ¶ 23.
    44
    See Am. Fed’n of State, Cty. & Mun. Emps. v. State Labor Relations Bd., 
    653 N.E.2d 1357
    , 1364
    (Ill. App. Ct. 1995) (holding that courts must give effect to specific clauses over general clauses
    as a matter of contract construction).
    45
    See Stip. ¶ 23.
    46
    Stip. ¶ 17.
    47
    I note that nothing in the record indicates that Takeda, which was in sole control of its
    manufacturing facilities, used best efforts to comply with cGMP in the time leading up to the 2019
    FDA inspection; and that the resulting breaches of contract would thus not be saved by a “best
    efforts” standard in any event.
    11
    its obligation under the Supply Agreement to comply with Good Manufacturing
    Practices, and element (3) is satisfied.48
    Was there a resultant injury to AbbVie? I find that there was. Takeda’s
    attempts to remedy the results of the Inspection led to delays—to be sure, delays that
    were occasioned in a sincere attempt to bring the Hikari Facility back into
    compliance with cGMP and to satisfy regulators—but these delays led to an
    unavailability of product that has affected AbbVie’s ability to timely provide Lupron
    to patients. This lack of inventory has harmed AbbVie through loss of customers
    and doctors as well as loss of market share. As such, the breach of Takeda’s
    obligation to maintain the Hikari Facility under cGMP caused injury to AbbVie.
    2. Failure to Fulfill Firm Orders
    Section 9.2 of the Supply Agreement requires AbbVie to provide Takeda with
    firm orders for the first quarter in any eight-calendar-quarter period, and indicates
    that Takeda “shall fulfill all such firm orders (subject to the allocation procedure
    described in Section 9.4).”49 AbbVie is also responsible for providing Takeda with
    48
    The Follow-Up Inspection conducted in July 2021 did not clear Takeda of its Official Action
    Indicated status. Takeda’s counsel posited in post-trial oral argument that Takeda may actually
    now be in compliance with cGMP, as the FDA does not update a company’s status until a letter is
    sent 90 days after inspection. Oral Arg. Tr. 114:23–34, 115:1–11. I need not reach the question
    of whether Takeda remains in breach at this time.
    49
    Stip. ¶ 18.
    12
    a “good faith estimate” for the second and third quarters of that same eight-calendar-
    quarter period.50
    Reference is made in Section 9.2 to an “allocation procedure” contained
    within the Supply Agreement.51 Section 9.4 of the Supply Agreement lays out an
    allocation schedule that must be followed in the event that Takeda is unable, “for
    any reason beyond its reasonable control,” to produce enough leuprorelin products
    to satisfy its own needs, AbbVie’s needs, and the needs of any other third parties
    with whom Takeda has contracted.52 Here, Takeda is unable to produce enough
    leuprorelin products, but the reason for this shortage is manifestly within its
    reasonable control. 53 Takeda’s failure to ameliorate the manufacturing issues thus
    does not activate the allocation schedule outlined in Section 9.4, and this language
    does not alter the analysis of Section 9.2.
    The evidence shown at trial indicates that Takeda did not supply AbbVie with
    enough inventory to fulfill AbbVie’s firm orders from the months of April 2020 until
    at least March 2021.54 Over that time period, 106 lots of Lupron had been ordered,
    with only 41 delivered. 55
    50
    
    Id.
    51
    Stip. ¶ 18.
    52
    Stip. ¶ 20.
    53
    Causes beyond the reasonable control of a party are delineated in Section 21.3 of the Supply
    Agreement. See Stip. ¶ 24.
    54
    Trial Tr. 19:19–24, 20:3–7, Dkt. No. 165.
    55
    Trial Tr. 20:3–7, Dkt. No. 165.
    13
    Takeda argues, nonetheless, that it has complied with the Supply Agreement.
    It argues that there is no “timeliness” requirement in the contract, and that,
    accordingly, there exists no requirement that firm orders be delivered to Abbvie by
    “dates certain.” Further, Takeda argues that it is only required to use best efforts to
    supply firm orders, in any event, under the Supply Agreement. 56 Therefore, per
    Takeda, so long as Takeda uses its best efforts to make the required deliveries at
    some point in time, Takeda has fulfilled its obligations under the Supply Agreement.
    This theory cannot prevail, for it would lead to absurdity in result. 57 The very nature
    of the firm order obligations in the Supply Agreement is time-based—the orders
    must be placed with respect to calendar quarters.58 AbbVie did not contract for
    medical products that would be delivered at any time convenient to Takeda; the
    contract requires AbbVie to submit both its firm orders and attendant estimates,
    based on projected need in a given quarter. 59 Further, for the reasons set out above
    with respect to the cGMP obligation, the specific mandatory requirement to supply
    firm orders trumps the general “best efforts” language of Section 8.1(a). To the
    56
    Def.’s Answering Post-Trial Br. 5, Dkt. No. 176.
    57
    See Suburban Auto Rebuilders, Inc. v. Associated Tile Dealers Warehouse, Inc., 
    902 N.E.2d 1178
    , 1190 (Ill. App. 2009) (citing Health Prof’ls, Ltd. v. Johnson, 
    791 N.E.2d 1179
     (Ill. App.
    2003)) (“Courts will construe a contract reasonably to avoid absurd results”).
    58
    See Stip. ¶ 18 (“[AbbVie shall provide Takeda] with (i) a firm order for the quantities of Product
    that [AbbVie] will require during the first quarter of such eight (8) quarter period, (ii) a good faith
    estimate of the quantities of Product that [AbbVie] will require during the second and third
    quarters of such eight (8) quarter period . . . .”) (emphasis added).
    59
    
    Id.
    14
    extent there is ambiguity in this regard, Takeda’s own witness stated in his
    deposition that the firm orders were “binding.” 60 Thus, I find that breach has
    occurred under Section 9.2 of the Supply Agreement.
    It is clear here as well that AbbVie has experienced injury as a result of the
    breach of Section 9.2. The lack of inventory prevented AbbVie from distributing
    the Lupron and directly impacted AbbVie’s sales. As a result, I find that elements
    (3) and (4) are satisfied, and that Takeda breached the Supply Agreement by failing
    to fulfill AbbVie’s firm orders.
    3. Failure to Maintain a Safety Stock of Leuprorelin 61
    The Supply Agreement also contains a requirement that Takeda keep a “safety
    stock” of three months’ worth of Lupron, to be maintained “at all times” and “solely
    dedicated to and for use by [AbbVie].”62 At trial, the evidence demonstrated that
    Takeda did not have adequate reserves of safety stock to satisfy its contractual
    obligations.63 In particular, the “Apr 2020 update” to the “AbbVie US Finished
    60
    Oral Arg. Tr. 24:8–24.
    61
    Takeda argues that, because this claim was not alleged in AbbVie’s complaint, any breach under
    Supply Agreement Section 9.6(a) could not suffice as a basis for recovery. See Def.’s Answering
    Post-Trial Br. 5, Dkt. No. 176. However, Court of Chancery Rule 15(b) allows issues not raised
    by the pleadings to be tried by the express or implied consent of the parties, and to thus be treated
    “in all respects as if they had been raised in the pleadings.” Ct. Ch. R. 15(b). AbbVie included in
    the Pre-Trial Order, stipulated to by Takeda, AbbVie’s intent to demonstrate Takeda’s breach of
    Section 9.6(a) of the Supply Agreement. See Stip. ¶ 53. Evidence with respect to the same was
    presented at trial. As such, AbbVie may seek relief on the safety stock theory, despite its lack of
    inclusion in the complaint.
    62
    Stip. ¶ 20.
    63
    JX 1761, at 28.
    15
    Goods Safety Stock Plan” produced by Takeda showed a deficiency in the amount
    of safety stock available beginning in April 2020 and projected to continue through
    March 2021.64 Because the amount of safety stock Takeda reserved for AbbVie fell
    below required parameters, I conclude that there was a breach.
    The resultant injury here is part and parcel of the same injury caused by the
    failure to fulfill firm orders. If Takeda had safety stock on hand, it could provide
    product to AbbVie and mitigate some of the delays associated with firm orders.
    Because no safety stock is available, delays in production result in an immediate
    shortage of Lupron available to AbbVie, which again has caused loss of sales,
    customers, doctors and market share. Thus, a resultant injury does exist, which
    occurred when the safety stock was required to satisfy AbbVie’s firm orders.
    Element (4) is thus satisfied, and Takeda is liable for breach of contract.
    4. Use of an Allocation Schedule
    AbbVie’s final contention is that Takeda’s allocation schedule also constitutes
    a breach of the Supply Agreement under Sections 9.4 (as above) and 21.3 (a force
    majeure clause). On this front I am unable to agree.
    The Supply Agreement does not, by its terms, prohibit the creation and use of
    an allocation schedule. 65 In fact, the Supply Agreement expressly contemplates the
    64
    
    Id.
    65
    See generally JX 1849.
    16
    possibility of allocation of leuprorelin products in Section 9.4.66 Takeda would be
    required to implement an allocation schedule under Section 9.4 if it was unable, due
    to any reason beyond its reasonable control (generally itemized in Section 21.3), to
    supply sufficient quantities of leuprorelin products to each of AbbVie and its
    affiliates, third party orders, and Takeda itself. 67 As AbbVie’s counsel argues, this
    section is inapplicable, because the reasons for insufficient production are within
    Takeda’s control. 68 That is, Takeda controls its production facilities, and it is its
    own failure to comply with cGMP at that facility, together with its attempts to
    remediate the failure and satisfy the regulators, that have caused a shortage of
    product. Thus, while Section 9.4 is not triggered, its existence is instructive.
    In other words, nothing in the contract prohibits an allocation schedule, per
    se. However, imposition of an allocation schedule may cause breach of a duty under
    the Supply Agreement, leaving Takeda liable for breach of that provision. Here,
    Takeda is allocating production because it is unable, due to reasons under its
    reasonable control, to supply enough leuprorelin products. The current allocation
    schedule merely aggravates the existing breaches in the failures to fulfill firm orders
    and to maintain enough safety stock; it is not itself a breach. Thus, element (3)
    66
    Stip. ¶ 20.
    67
    
    Id.
    68
    Oral Arg. Tr. 28:3–20.
    17
    cannot be satisfied, and I decline to find that Takeda breached the Supply Agreement
    by use of an allocation schedule.
    III. CONCLUSION
    Takeda has breached the Supply Agreement and is liable for breach of
    contract. The parties should confer and inform me as to a schedule for the remaining
    matters for trial, and whether a form of order at this stage is desirable.
    18
    

Document Info

Docket Number: CA No. 2020-0953-SG

Judges: Glasscock, V.C.

Filed Date: 9/22/2021

Precedential Status: Precedential

Modified Date: 9/22/2021