Thermo Fisher Scientific PSG Corp. v. Arranta Bio MA, LLC ( 2023 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
THERMO FISHER SCIENTIFIC )
PSG CORPORATION, )
)
Plaintiff and Counterclaim )
Defendant, )
)
v. ) C.A. No. 2022-0608-NAC
)
ARRANTA BIO MA, LLC, )
)
Defendant and Counterclaim )
Plaintiff. )
MEMORANDUM OPINION
Date Submitted: February 10, 2023
Date Decided: April 4, 2023
Philip Trainer, Jr., Marie M. Degnan, ASHBY & GEDDES, Wilmington, Delaware;
Michael Klisch, Joshua Siegel, Georgina Inglis, COOLEY LLP, Washington, DC;
Robert Cahill, David A. Vogel, COOLEY LLP, Reston, VA; Counsel for Plaintiff
and Counterclaim Defendant Thermo Fisher Scientific PSG Corporation.
Michael A. Barlow, ABRAMS & BAYLISS, LLP, Wilmington, Delaware; John B.
Quinn, Jennifer J. Barrett, Rachel E. Epstein, Evan Hess, Michael Linneman, Neil
T. Phillips, Phillip B. Jobe, QUINN EMANUEL URQUHART & SULLIVAN,
LLP, New York, New York; Counsel for Defendant and Counterclaim Plaintiff
Arranta Bio MA, LLC.
COOK, V.C.
This is the first chapter in a dispute among leading contract development and
manufacturing organizations (“CDMOs”) that provide pharmaceutical and
biopharmaceutical services. At issue in this case is an agreement to develop
plasmids. A plasmid is a small circular DNA molecule found in bacterial cells.
Plasmids have at least one gene, such as genes associated with antibiotic resistance
or that provide genetic advantages to the host organism, that can be passed from one
cell to another. Because plasmids can be used as tools to clone, transfer, and
manipulate genes in ways that are beneficial to humans, they are a central component
to a growing number of next generation therapies and vaccines. Plasmids are a
subset of a broader category of drugs referred to as biologics, which are drugs
generally produced using living cells or organisms. This is in contrast to
conventional drugs, which are chemically synthesized and are sometimes referred to
as small-molecule drugs.
While the use of plasmids in drug development is growing rapidly, producing
plasmids that are compliant with Food and Drug Administration regulations is very
difficult and expensive. To develop and manufacture plasmids, a developer typically
starts with a bank of genetically engineered cells that are often proprietary. The
developer then must develop the specific processes to derive the plasmid from those
cells and to manufacture those plasmids on a commercially viable scale.
CDMOs provide products and services related to the development and
manufacturing of drugs. Thermo Fisher Scientific PSG Corporation (“PSG”) and
Recipharm AB (“Recipharm”) are two of the largest CDMOs in the world. Arranta
Bio MA, LLC (“Arranta”) is also a CDMO and specializes in developing and
manufacturing complex biological drugs and advanced therapeutic medicinal
products.
In 2020, PSG and Arranta entered into an agreement under which Arranta
would manufacture plasmids for PSG. Because the manufacture of plasmids
involved the transfer of certain proprietary knowledge from PSG to Arranta, PSG
sought to restrict Arranta from transferring its plasmid development operations to or
being acquired by certain third parties. In such an event, the parties agreed that PSG
would obtain the right to prevent Arranta from engaging in plasmid development
and manufacturing services for 36 months (the “Non-Compete Obligation”), among
other rights. One of the conditions to PSG’s right to trigger the Non-Compete
Obligation was that the counterparty to a transfer of the plasmid operations be a
third-party that derived at least 50% of its revenue from performing contract
“biopharmaceutical” development or commercial manufacturing services.
In April 2022, Arranta’s grandparent entity was acquired by a wholly owned
subsidiary of Recipharm. It is undisputed that while Recipharm derived almost all
its revenue from performing CDMO services for small-molecule drugs, it derived
2
almost no revenue from such services for biologics. Shortly after the acquisition,
PSG sued Arranta in this Court seeking to enforce the Non-Compete Obligation.
The central issue in the parties’ dispute is whether “biopharmaceutical” means
only biologics or if it encompasses both biologics and small-molecule drugs. I
conclude that “biopharmaceutical” unambiguously means only biologics. Thus,
even assuming that Recipharm was the counterparty in the acquisition of Arranta’s
grandparent (a point Arranta contests), PSG had no right to trigger the Non-Compete
Obligation because Recipharm did not derive at least 50% of its revenue from
services associated with biologics.
I. FACTUAL BACKGROUND 1
A. Parties
Arranta is a Delaware limited liability company.2 Arranta is a CDMO
specializing in live biotherapeutic and mRNA products. 3 Mark Bamforth founded
Arranta in 2019.4
1
Joint trial exhibits are cited as “JTX ___,” trial testimony is cited as “TT___ (Name),”
and depositions are cited as “[Name] Dep. ___.”
2
Thermo Fisher Scientific PSG Corp. v. Arranta Bio MA, LLC, C.A. No. 2022-0608-NAC,
Docket (“Dkt.”) 180, Pretrial Stipulation and Proposed Order for Dec. 15–16, 2022 Trial
(“Pretrial Stipulation”) ¶ 20.
3
JTX 208 (“Supply Agreement”), Recitals; JTX 314 at 3; see also TT135:9–138:9
(Bamforth).
4
TT135:9–138:1 (Bamforth).
3
PSG is a Delaware corporation. 5 PSG described itself in the Supply
Agreement as “a leading large and small molecule viral vector [CDMO].”6 PSG is
a part of Thermo Fisher Scientific Inc. (“Thermo”).7
B. Thermo’s Investments In Bamforth’s Companies
Before founding Arranta, Bamforth founded two other companies: Gallus
Pharmaceuticals, LLC and Brammer Bio.8 Gallus was merged into Patheon, Inc.,
which eventually became part of Thermo in 2017. Brammer Bio was acquired
directly by Thermo in 2019 for $1.7 billion. 9
Thermo was also an investor in Arranta Bio Holdings LLC (“Arranta
Holdings”), which is Arranta’s indirect grandparent company. 10 Prior to the merger
at issue, Thermo was the third largest investor in Arranta Holdings.11 Michel
Lagarde, who was President of PSG at the time of Thermo’s investment and is now
Thermo’s Chief Operating Officer, spearheaded Thermo’s investment in Arranta
5
Pretrial Stipulation ¶ 19.
6
Supply Agreement, Recitals.
7
Id.
8
TT130:12–22; TT133:5–11 (Bamforth).
9
JTX 74 at 1; Lagarde Dep. 98:17–101:24; TT134:6–17 (Bamforth).
10
JTX 247, Sch. A.
11
Id.; TT141:16–142:6 (Bamforth).
4
Holdings.12 Lagarde also led Thermo’s acquisitions of Gallus and Brammer Bio.13
Lagarde understood that Bamforth’s general business model was to develop new
ventures using private equity seed money and then sell or transfer the company to
monetize the investment.14
C. Supply Agreement15
Shortly after Thermo invested in Arranta Holdings, PSG and Arranta began
negotiating an agreement whereby Arranta would develop and manufacture
commercial-grade plasmids at Arranta’s Watertown, Massachusetts facility (the
“Watertown Facility”). 16 Plasmids are sometimes a component used to develop
large-molecule drugs derived from living organisms (sometimes referred to as
“biologics”). 17 Biologics are distinguished from traditional, small-molecule drugs
12
Lagarde Dep. 14:7–19, 96:9–103:4; TT142:7–143:21 (Bamforth).
13
Lagarde Dep. 96:9–103:4.
14
Lagarde Dep. 104:2–14.
15
As excerpted below, Sections 16.2.2 and 18.4 both contain capitalized terms that are
defined elsewhere in the Supply Agreement. Except for the term “PSG Competitor,” the
definitions of these capitalized terms are not relevant to this decision.
16
See JTX 112 at 2, § 1.77 (“PSG desires to engage Arranta to [manufacture] and supply
Product,” which is defined as “plasmid DNA [manufactured] using E coli fermentation
production method[.]”).
17
TT535:6–9 (Turck); TT651:17–24 (Lankau). This Memorandum Opinion
interchangeably uses the terms “biologics,” “large molecules,” “large molecule drugs,” and
“large-molecule biologics.” While there may be particular distinctions between these
terms in the relevant industry, these terms mean the same thing for the purpose of this
Memorandum Opinion.
5
derived from chemical synthesis (e.g., aspirin).18 The core purpose of the Supply
Agreement was that Arranta would design and build out the Watertown Facility to
develop and manufacture plasmids exclusively for PSG for an anticipated nine-year
term, and potentially longer.19
In December 2019, PSG and Arranta signed a non-binding letter of intent,
which formed the basis for the Supply Agreement.20 PSG drafted the first version
of the Supply Agreement, which Jesse Boyd sent to Arranta in January 2020.21 Boyd
was the lead negotiator for PSG in connection with the Supply Agreement. 22 At the
time of the parties’ negotiations, Boyd was in a business management and finance
role at PSG.23 He left PSG in April 2022 to become vice president of finance for
cell, gene, and protein therapies at Catalent Pharma Services.24 In negotiating the
18
TT535:2–5 (Turck); TT652:5–10 (Lankau). This Memorandum Opinion
interchangeably uses the terms “small molecules,” “small-molecule drugs,”
“pharmaceuticals,” and “small-molecule pharmaceuticals.” While there may be particular
distinctions between these terms in the relevant industry, these terms mean the same thing
for the purpose of this Memorandum Opinion.
19
See Recitals to Supply Agreement; see also Supply Agreement § 16.1 (“This Agreement
will remain in effect for nine (9) years from January 1, 2021 (‘Initial Term’) and will
automatically renew for additional three (3) year periods[.]”).
20
TT174:1–10 (Bamforth); JTX 102.
21
JTX 112; see also JTX 391 (Nos. 19–21) (PSG admitting in interrogatories that it drafted
the first version of the Supply Agreement).
22
TT11:2–7 (Boyd).
23
TT8:15–20 (Boyd).
24
TT7:8–16 (Boyd).
6
Supply Agreement, Boyd was assisted by two in-house attorneys, Meenu Patel and
Redi Kasollja, and a commercial person with a science background, Darren Leva.25
Bamforth, Steve Favaloro, and Lana Gladstein, were the primary negotiators
for Arranta in connection with the Supply Agreement.26 Favaloro was Arranta’s
chief financial officer at the time of the negotiations and was responsible for
“assessing the different opportunities” and “looking at the financial value.”27
Gladstein was the chief legal officer of Arranta at the time and was primarily
responsible for offering legal advice on the agreement.28
The final version of the Supply Agreement was executed on June 29, 2020,
approximately five months after the first draft was sent by PSG to Arranta.29 Over
the course of those five months, the parties exchanged at least nine drafts, reflecting
the parties’ substantial negotiations of the terms of the Supply Agreement. 30 In
addition to exchanging drafts, the parties had significant in-person and virtual
25
TT11:2–18 (Boyd).
26
TT145:9–146:5 (Bamforth).
27
Id.
28
Id.
29
Supply Agreement at 1.
30
JTX 110 (draft of January 27, 2020); JTX 133 (draft of April 10, 2020); JTX 159 (draft
of May 22, 2020); JTX 167 (draft of June 7, 2020); JTX 188 (draft of June 18, 2020); JTX
191 (draft of June 19, 2020); JTX 195 (draft of June 19, 2020); JTX 197 (draft of June 21,
2020); JTX 199 (draft of June 22, 2020).
7
discussions.31 The drafts reflect that the parties extensively negotiated Sections
16.2.2 and 18.4, which address the parties’ exit and assignment rights and
obligations. Quite notably, the drafts further reflect the absence of significant
negotiation over the definition of PSG Competitor in Section 1.106.
Sections 16.2.2 And 18.4
Both PSG and Arranta agree that Arranta’s termination rights were of central
importance in the negotiations. There are two provisions that deal with these
termination rights: Section 16.2.2, which is labeled “Termination for Convenience
by Arranta,” and Section 18.4, which is labeled “Assignment.” Section 16.2.2 of the
Supply Agreement provides as follows:
16.2.2. Termination for Convenience by Arranta. Arranta may
terminate the Agreement for any reason or no reason at all beginning no earlier
than three (3) years from the date that the Dedicated Space has been
Commissioned and Qualified upon giving prior written notice to PSG. The
termination shall become effective at the earlier of eighteen (18) months from
the date of the notice or such longer period of time that may be mutually
agreed between the Parties. As part of such termination:
(i) Arranta shall continue to perform Services in accordance with
this Agreement until the termination becomes effective and shall
ensure that there will be no interruption to the Manufacture and
supply of Product in accordance with the Agreement during that
time.
(ii) at Arranta’s sole expense and cost, Arranta shall provide
Outgoing Technology Transfer as provided in Section 16.3.3,
unless PSG is being supplied with Product from an Affiliate or a
31
TT29:10–30:18 (Boyd); TT154:2–155:2 (Bamforth).
8
Third Party independent of Arranta, before the date of Arranta’s
notice of termination pursuant to this Section 16.2.2.
(iii) at Arranta’s sole expense and cost, Arranta shall remove and
transfer all portable Capital Equipment (listed in Exhibit C as of
the Effective Date) and Bespoke Equipment (if any) to another
facility for plasmid manufacturing in accordance with PSG’s
reasonable written instructions;
(iv) Arranta shall (a) issue to PSG as a credit against the Royalty the
remainder (calculated from the effective date of termination
under this Section 16.2.2 through the end of the Term) of the
following payments made by PSG for the Term: (x) the
remaining Capacity Access Fee plus Risk-Free Interest and (y)
the Advanced Deposit; and (b) refund to PSG within thirty (30)
days of the effective date of termination under this Section any
amount set forth in subsections (a)(x) and (a)(y) in excess of the
Royalty that cannot be applied against the Royalty;
(v) PSG shall have the option, at its sole election, to acquire portable
Capital Equipment (which is listed in Exhibit C as of the
Effective Date or added subsequently) with a net book value of
up to two million US Dollars ($2,000,000) as of the effective date
of termination under this Section 16.2.2 for no charge and to
purchase any additional Capital Equipment at net book value;
and
(vi) PSG shall be relieved of the obligation (if any) to maintain
Established Capacity Utilization or make Minimum Payment
pursuant to Section 4.2.4 as of the date of Arranta’s notice of
termination pursuant to this Section 16.2.2 and through the
remainder of the Term.
In the event Arranta exercises its right to terminate the Agreement pursuant to
this Section 16.2.2[], Arranta agrees that it shall not engage in plasmid
development and manufacturing services for a period of thirty-six (36) months
from the date of its notice of termination under this Section 16.2.2 (the “Non-
Compete Obligation”). For the avoidance of doubt, the Non-Compete
Obligation shall only apply to Arranta and shall not apply to any acquiror,
9
transferee or a successor in connection with a Change in Control
Transaction.32
In layman’s terms, Section 16.2.2 imposes various obligations on Arranta if it
terminates the Supply Agreement for convenience, including obligations concerning
(a) continued performance under the Supply Agreement following a notification of
intent to terminate, (b) the return of certain equipment to PSG, and (c) Arranta’s
commitment not to engage in plasmid development and manufacturing services for
thirty-six months (i.e., the Non-Compete Obligation).
Section 18.4 of the Supply Agreement is a complex provision that provides as
follows:
18.4. Assignment. Neither this Agreement, any Work Statement or
Product Addendum, nor any of either Party’s rights or obligations hereunder,
may be assigned, novated or otherwise transferred by either Party without the
prior written consent of the other Party, except that either Party may assign
this Agreement or its rights or obligations hereunder without the other Party’s
consent (a) to an Affiliate (provided that such Affiliate will assume all
obligations of its assignor under this Agreement including accrued obligations
of the assignor); or (b) to an acquiror, transferee or a successor in connection
with a merger, reorganization, consolidation, business combination or sale, or
other transfer to a Third Party (a “Change of Control Transaction”) of all or
substantially all of the assets or business to which this Agreement relates (the
“Plasmid Operations”), by providing at least thirty (30) days advance written
notice to the other Party. In the event that (i) Arranta has not exercised its
right to terminate for convenience pursuant to Section 16.2.2 or the Parties
have not agreed to relocate the Plasmid Operations at another Facility as set
forth in Section 4.6.1, and (ii) the counterparty in the Change of Control
Transaction is a PSG Competitor, then, at PSG’s election; (1) a notice of
termination by Arranta under Section 16.2.2 shall be deemed to have been
32
Supply Agreement § 16.2.2. I refer to the termination under this section as a
“Termination for Convenience.”
10
issued and the Agreement will be terminated pursuant to Section 16.2.2: or
(2) Arranta, its Affiliate, or their respective successors or assigns, as
applicable, shall (x) continue to perform Services in accordance with the
Agreement for the remainder of the Term and (y) implement commercially
reasonable and appropriate physical and informational barriers so as to
prevent the dissemination of information related to this Agreement and the
Services to any Person not directly involved in the performance of Services.33
In short, the first sentence of Section 18.4 generally prohibits either Arranta or PSG
from assigning the Supply Agreement but sets forth two exceptions: an assignment
to an affiliate or in connection with a Change of Control Transaction. The second
sentence of Section 18.4 provides that if the counterparty in the Arranta Change of
Control Transaction is a PSG Competitor, then, subject to certain conditions, PSG
may elect to deem that Arranta provided notice of its intent to terminate the Supply
Agreement for convenience pursuant to Section 16.2.2.
PSG Competitor
Both in the initial draft and final version of the Supply Agreement, PSG
Competitor is defined as a business that “derives at least fifty percent (50%) of its
revenues from performing contract biopharmaceutical development or commercial
manufacturing services.”34 Indeed, over the five months of negotiations concerning
33
Supply Agreement § 18.4.
34
Supply Agreement § 1.106. “Third Party” is defined in the Supply Agreement as “a
Person who is neither a Party nor an Affiliate of a Party.” Id. § 1.128. “Person” is defined
in the Supply Agreement as “an individual, partnership, corporation, limited liability
company, joint stock company, unincorporated organization or association, trust or joint
venture, or a governmental agency or political subdivision thereof.” Id. § 1.94. “Party” is
defined in the Supply Agreement as PSG and Arranta. Id., Preamble. “Affiliate” is defined
11
the Supply Agreement, the only change to the definition of PSG Competitor was the
insertion of a reference to “Third Party,” which Kasollja testified did not change its
meaning.35 The term PSG Competitor is used only once in the Supply Agreement,
in Section 18.4. As described above, pursuant to Section 18.4, if the counterparty to
a Change of Control Transaction is a PSG Competitor, then PSG has certain rights.36
Kasollja, the PSG in-house attorney who was primarily responsible for
drafting the Supply Agreement, did not recall using any particular template in
preparing the first draft of the Supply Agreement. 37 Generally, however, PSG often
relies on a contract template when negotiating affiliate contracts similar to the
Supply Agreement.38 Arranta introduced twenty-five publicly available affiliate
contracts since 2012 that include the term “Patheon Competitor.” Eight of the
in the Supply Agreement as, “with respect to an entity, a separate person, corporation,
partnership or other business entity that directly or indirectly, through one or more
intermediaries, controls or is controlled by or is under common control with such first
entity. For the purposes of this definition, the word “control” (including, with the
correlative meaning, the terms “controlled by” or “under the common control with”) shall
mean the actual power to direct or cause the direction of the general management and
policies or activities of such entity, whether through (a) the ownership of at least fifty
percent (50%) of voting securities or capital stock of such business entity or any other
comparable equity or ownership interest with respect to a business entity other than a
corporation, (b) contract or (c) any other basis of control.” Id. § 1.4.
35
TT151:2–14 (Bamforth); TT443:4–19 (Gladstein); Kasollja Dep. 51:21-52:3, 59:12-
60:20.
36
Id. § 18.4.
37
Kasollja Dep. 99:15–100:14.
38
Conner Dep. 34:11–36:6. The issue of what particular template may have been used to
prepare the original draft of the Supply Agreement was not developed at trial.
12
examples define the term using the phrase “pharmaceutical and
biopharmaceutical.”39 The remainder use just “pharmaceutical” standing alone.40
PSG attributes the varying definitions of the term “Patheon Competitor” (or, in this
case, PSG Competitor) to the different business relationships to which each contract
related. 41
Both Boyd and Kasollja testified that they understood PSG Competitor to
capture any CDMO and was not limited to those involved primarily in biologics.42
During the negotiations of the Supply Agreement, however, PSG’s negotiators never
expressly told Arranta’s negotiators that PSG purportedly viewed the word
“biopharmaceutical” within the term PSG Competitor as encompassing both small-
molecule drugs and biologics. 43
39
JTX 61; JTX 76; JTX 77; JTX 78; JTX 87; JTX 155; JTX 252; JTX 457.
40
JTX 17; JTX 21; JTX 23; JTX 28; JTX 30; JTX 35; JTX 37; JTX 40; JTX 42; JTX 44;
JTX 46; JTX 54; JTX 56; JTX 59; JTX 63; JTX 70; JTX 368.
41
Dkt. 232 (“Pl.’s Post-Trial AB”) at 29 (“[T]he contracts are not ‘similar’ because, unlike
the Supply Agreement, [PSG] was a service provider (not the customer) in those
agreements. . . . [PSG] must capture all ways in which [PSG] customers with mixed
portfolios define themselves, i.e., as biopharmaceutical companies (like Pfizer) or
pharmaceutical companies (like Roche).”).
42
TT28:21–29:4 (Boyd); Kasollja Dep. 17:17–18:13.
43
TT30:19–31:4 (Boyd) (“Q: At any time during the negotiation of the supply agreement,
did you ever have a discussion with anyone at Arranta about the meaning of the term
‘biopharmaceutical’? A: No. Q: And to your knowledge, during the negotiations, did
anyone at PSG ever have a discussion with anyone at Arranta about the meaning of the
term ‘biopharmaceutical?’ A: Not to my knowledge.”).
13
At trial, Bamforth recalled telling PSG’s negotiators that biopharmaceutical
meant biologics only.44 Boyd, however, testified at trial that no one at Arranta told
PSG that it viewed PSG Competitor as applying only to companies with at least 50
percent of revenues from biologics only.45 In addition, during his deposition,
Bamforth stated that he could not recall whether he expressed his view that
“biopharmaceutical” meant biologics only.46 Arranta was also unable to point to
contemporaneous documents or communications from these negotiations indicating
that “biopharmaceutical” meant biologics only. Given Bamforth’s inconsistent
testimony on this point and the absence of any contemporaneous documents, I
ultimately find that neither party explicitly stated their view of the meaning of
“biopharmaceutical” during negotiation of the Supply Agreement.
In April 2020, however, while the parties were still negotiating the Supply
Agreement, Boyd told Arranta’s negotiators that examples of a PSG Competitor
would be “Catalent” or “Lonza.”47 Bamforth and Favaloro also documented this
discussion in contemporaneous notes. For example, Bamforth’s notes of his April
44
TT153:8–23 (Bamforth) (“Q: And did you communicate to Jesse Boyd and potentially
the rest of the team your understanding that the word ‘biopharmaceutical’ means biologics
only? A: Yes.”).
45
TT31:5–13 (Boyd).
46
Bamforth Dep. 46:18–53:12.
TT154:2–12 (Bamforth) (“Q: And what were the examples [of a PSG Competitor] that
47
Mr. Boyd provided? A: He gave two examples. One was Lonza and one was Catalent.”).
14
10, 2020, negotiations with Boyd referred to Section 18.4 of the draft and say,
“Cannot have sale to Competitor (CDMO).” 48 In addition, in an internal May 12,
2020, email, Favaloro wrote that “[PSG] clarified that the basis of the push on
assignability is to ensure the protection of [PSG] clients in the instance a Catalent or
Lonza were to acquire the business.”49
“Lonza” referred to Lonza Group AG, a large multinational CDMO.50
Biologics accounted for 56% of Lonza’s total revenue in 2019, and 58% of Lonza’s
total revenue in 2020.51 “Catalent” referred to Catalent, Inc., another large
multinational CDMO. 52 Biologics accounted for 23% of Catalent’s total revenue in
2019, 53 and 33% of Catalent’s total revenue in 2020. 54 While Catalent’s revenue
from biologics was below 50% at the time of the parties’ negotiations, Catalent had
been aggressively expanding its footprint in the biologics CDMO sector through
multiple acquisitions.55 As Catalent stated in its 2020 annual report, “[i]n large part
48
JTX 399 at 70.
49
JTX 153 at 1.
50
JTX 233.
51
JTX 249 at 108; JTX 233 at 92.
52
JTX 213 at 6–7.
53
JTX 80 at 53.
54
JTX 213 at 50.
55
See id. at 7 (describing numerous acquisitions in the biologics CDMO sector from 2017
to 2020). TT59:22–66:13 (Boyd) (setting forth the timeline of Catalent’s acquisitions and
organic growth in the biologics space between 2017 and 2020).
15
due to our recent acquisitions and their subsequent organic growth, revenue
contributions from our biologics business have grown from approximately 10% in
fiscal 2014 to 33% in fiscal 2020.”56 By June 30, 2022, Catalent derived more than
50% of its revenue from biologics.57
Bamforth had familiarity with both Lonza and Catalent when Boyd offered
the two companies as examples of a PSG Competitor. 58 Concerning Lonza,
Bamforth testified that during the negotiation of the Supply Agreement he was aware
that it was one of the largest CDMOs in the industry, with the majority of its products
being biologics.59 Concerning Catalent, Bamforth testified that during the
negotiation of the Supply Agreement he was aware that Catalent had been making
multiple acquisitions in the biologics sector.60 Both Bamforth and Boyd
acknowledged that they did not look at the revenues of either Lonza or Catalent to
determine whether either met the definition of PSG Competitor.61 Bamforth
56
Id.
57
JTX 378 at 7.
58
TT155:3–160:18 (Bamforth).
59
TT155:3–22 (Bamforth). Bamforth stated that his familiarity with Lonza at the time of
negotiation was because he had been in competition with Lonza in his prior two businesses
and because it was one of the largest CDMOs in his industry. TT155:18–22 (Bamforth).
60
TT156:8–160:18 (Bamforth). Bamforth attributed his familiarity with Catalent at the
time of negotiation to certain conversations with Catalent’s CEO and his general familiarity
with the biopharmaceutical industry. Id.
61
TT58:20–59:4 (Boyd); TT155:3–160:1 (Bamforth).
16
provided the following reason for not doing so: “I didn’t feel this was something
where we were trying to be precise. Plus, it was also a condition related to a future
transaction of Arranta, not a present day check.”62
D. Arranta’s Potential Sale To AMRI
The relationship between Arranta and PSG was strained almost from the
beginning. In August 2020, shortly after the parties signed the Supply Agreement,
PSG contracted with a vaccine maker to develop a plasmid-based COVID-19
vaccine. 63 PSG asked Arranta to perform a “study” to determine whether Arranta
could develop plasmids for the vaccine, and Arranta confirmed it was able to do so.64
In response, PSG proposed that Arranta produce a significantly higher volume of
plasmids at a significantly lower royalty rate. 65 Arranta attempted to negotiate for a
higher royalty rate but was rebuffed by PSG, which decided to pursue alternative
options.66
62
TT156:4–7 (Bamforth).
63
TT73:5–24 (Boyd); TT413:11–21 (Wyszkowski); TT188:4–8 (Bamforth).
64
TT183:20–184:9 (Bamforth).
65
TT184:16–185:11 (Bamforth) (“Q: Do you recall what the delta was, what the actual
royalty rates would be under [the proposed amendment to the Supply Agreement]? A: Yes,
it would drop the royalty rate from 27.5% in our contract to the equivalent of about 6% at
full output for that demand.”).
66
TT185:12–187:21 (Bamforth).
17
Bamforth stated that Arranta was “feeling a little bruised” from PSG’s
attempts to renegotiate the Supply Agreement and began considering exit options.67
Beginning in September 2020, the Arranta team looked into various strategic options
for the Watertown Facility, including a potential sale.68 Arranta considered three
options: continue to operate the facility, limit the use of the facility to manufacturing
COVID-19 vaccines, or pursue a sale of the facility. In connection with the last
option, the Arranta team discussed internally the implications of the PSG Competitor
definition in the Supply Agreement.69 In addition, in a slide deck apparently
prepared by Favaloro, a bullet point was included stating that Arranta would
“[i]deally . . . avoid sale to any CDMO to avoid ‘PSG Competitor’ entanglement on
sale.” 70
Arranta engaged Morgan Stanley to assist with preparing a list of potential
buyers.71 The list prepared by Arranta and Morgan Stanley categorized potential
67
TT187:22–189:3 (Bamforth).
68
TT188:9–189:3 (Bamforth); JTX 216.
69
See JTX 215 at 2 (email from Favaloro to Shailesh Maingi stating that “we can’t sell to
another CDMO due to the restrictions in the plasmid contract – we are prevented from
selling to a ‘PSG Competitor’”); id. (response from Maingi to Favaloro stating “I spoke to
Mark [Bamforth] yesterday about this [and] we can’t sell to someone who has >50% of
revenue from biopharmaceutical development/manufacturing . . . but we can sell to an
organization other than that”); id. at 1 (Favaloro stating “Shailesh agree there is some
nuance to it…we can look at the language together tomorrow and I can share the legal
opinions we’ve gotten on it”).
70
JTX 216 at 11.
71
TT189:23–190:16 (Bamforth).
18
buyers by type (“CDMO/Other,” “Financial,” or “Product Company”). 72 The list
also included a column identifying whether a potential buyer might be a PSG
Competitor based on “the collective knowledge of the team . . . who were very
familiar with many of these companies.”73 In addition, the list contained a column
titled “Fit,” which included certain comments as to potential issues with a transaction
with the relevant buyer.74
Consistent with the Supply Agreement negotiations, both Lonza and Catalent
were identified as PSG Competitors.75 Albany Molecular Research Inc. (“AMRI”)
was included on this list and identified as not a PSG Competitor.76 In the “Fit”
column for AMRI, the following comment was included: “Confirm
biomanufacturing less than 50%.”77 Recipharm was also included on this list and
identified as not a PSG Competitor.78 Both AMRI and Recipharm were listed as
“CDMO/Other” in the “Buyer Type” column. 79
72
JTX 219.
73
Id.; TT190:17–192:18 (Bamforth).
74
JTX 219.
75
Id.
Id. AMRI has since changed its name to Curia. This decision refers to the company as
76
AMRI for sake of consistency.
77
Id.
78
Id.
79
Id.
19
On October 27, 2020, Bamforth spoke to Lagarde to discuss a potential sale
of the Watertown Facility.80 Soon thereafter, AMRI made a non-binding offer to
acquire the Watertown Facility. 81 On December 16, 2020, Arranta notified PSG that
AMRI was a potential buyer of the Watertown Facility. 82 Both Arranta and PSG
were aware that AMRI did not derive more than 50% of its revenues from
biologics.83
In disclosing AMRI as a potential buyer in December 2020, Bamforth testified
that his contemporaneous notes reflect that he informed Shafer that AMRI was “not
a PSG [C]ompetitor because they had very little activity in biopharmaceuticals.”84
Shafer, however, testified that he did not recall Bamforth ever telling him that AMRI
was not a PSG Competitor.85 And, on cross-examination, Bamforth modified his
testimony to say that he could not be certain that he in fact told Shafer that AMRI
was not a PSG Competitor. 86
80
TT199:2–7 (Bamforth); JTX 399 at 12.
81
TT202:22–203:15 (Bamforth).
82
Id.; TT82:6–83:8 (Shafer); JTX 399 at 8.
83
See TT84:12–16 (Shafer) (“Q: Did you know at the time whether it derived any of its
revenues from biologics? A: My impression was at the time that it was more small
molecule, but I didn’t know specifics on it.”).
84
TT203:21–204:9 (Bamforth); JTX 399 at 8.
85
TT85:12–23 (Shafer).
86
TT257:11–21 (Bamforth) (“Q: Do you swear under oath that you told Mr. Shafer that
when you talked about AMRI that you believed it was not a PSG competitor? A: So this
was a very important point to us, and we knew it was a very important point to PSG. My
20
Bamforth set up a call between Shafer and a representative of AMRI to discuss
a potential partnership between PSG and AMRI following an acquisition of the
Watertown Facility. 87 During that call, Shafer told AMRI that “it would be kind of
awkward to partner with a competitor, a CDMO competitor, but I would be open to
the discussion.”88 AMRI did not take the call with Shafer well. Afterwards, a
representative of AMRI reached out to one of Arranta’s executives and informed
him of Shafer’s comments. 89 AMRI subsequently decided not to pursue an
acquisition of the Watertown Facility.90
PSG never explicitly told Arranta that it viewed AMRI as a PSG Competitor
under the Supply Agreement, either before or after Shafer’s call with AMRI.91
Indeed, Shafer testified that at the time of his discussion with AMRI he “wasn’t
notes, where I had notes, I take those at face value, but I didn’t try to write everything
down. So I believe I told him, but I cannot swear to you that there is no doubt that I told
him, but this was the essence of it.”).
87
TT82:22–86:18 (Shafer).
88
TT83:15–21 (Shafer).
89
TT211:10–212:9 (Bamforth).
90
See JTX 2041 (“AMRI’s view of [the call with Shafer] was that they were scared away
and they decided not to bid. They felt there was ambiguity about [PSG’s] intentions and
did not see a desire from [PSG] to partner.”).
91
TT90:17–91:5 (Shafer).
21
aware of the details of the supply agreement” and did not know what the term PSG
Competitor meant because he “didn’t read the supply agreement.” 92
Similarly, no one at Arranta reached out to PSG after the call between AMRI
and Shafer to convey the view that AMRI was not a PSG Competitor. 93 Bamforth
attributed this to the fact that he viewed the deal as already dead and did not see any
reason to pursue the point since AMRI had already pulled out of the bidding
process.94
E. Merger With Recipharm
In November 2021, approximately one year after Arranta’s discussions with
AMRI, Arranta Holdings received an unsolicited purchase offer from Recipharm,
which “is a leading global pharmaceutical [CDMO].”95 The events that followed
were a major subject of trial, due in particular to the insertion of equitable defenses
into the scope of trial.
92
TT90:9–91:5 (Shafer). I note that, during trial, Shafer testified that he at least told
Bamforth that AMRI was a “competitor.” TT86:2–18; 91:15–92:18 (Shafer). There was
some dispute during trial whether Shafer’s testimony at trial on this point conflicted with
his deposition testimony. TT91:15–95:21 (Shafer). Such disputes were not limited to
Shafer. Bamforth submitted not one, but two errata sheets before trial in this matter. The
second errata sheet adds the word “not” to a response, reversing the answer that appears on
the deposition transcript to a question concerning whether PSG told Bamforth “at some
point in time” that it believed AMRI was a PSG Competitor. See Pl.’s Post-Trial OB at 20
(citing Bamforth Dep. 161:14-22); TT212:17-214:12 (Bamforth).
93
TT258:22–259:1 (Bamforth).
94
TT259:2–22 (Bamforth).
95
TT226:3–227:3 (Bamforth); JTX 262 at 4.
22
Arranta Holdings Notifies Thermo Of Purchase Offer
On December 13, 2021, Arranta Holdings provided Thermo with a
“Transaction Notice” informing Thermo that Arranta Holdings had received a bona
fide offer to buy the company.96 This notice was provided to Thermo because it was
an investor in Arranta Holdings.97 Arranta Holdings did not disclose that Recipharm
was the offeror.98 The notice did state that “Arranta [Holdings] can confirm that the
offeror is not a PSG Competitor as defined in the [Supply Agreement].” 99 Pursuant
to Section 7.6(b) of the Arranta Holding’s LLC agreement, Thermo had the right to
make an offer to acquire Arranta Holdings within 45 days after receipt of the notice,
and Arranta Holdings was required under the LLC agreement to consider the offer
in good faith.100 Thermo did not make any offer to acquire Arranta Holdings during
that period.
Bamforth called Shafer the same day that Arranta Holdings sent the
“Transaction Notice” to Thermo.101 During that call, Shafer stated that Thermo
“would need to think carefully about whether or not to make an offer to buy the
96
JTX 263 at 2.
97
JTX 247 § 7.6.
98
TT235:1–12 (Bamforth).
99
JTX 263 at 2.
100
Id.
101
TT236:13–19 (Bamforth).
23
company” because Thermo “had not budgeted the potential acquisition of
Arranta[.]”102 Bamforth informed Shafer that the buyer was a CDMO and
“emphasized to [Shafer] that . . . we were deliberate in avoiding the PSG Competitor
in thinking about whether to move ahead with this or not.” 103 Shafer did not
reference the PSG Competitor term or express concern that the potential buyer was
a CDMO. 104 Nonetheless, he began to “prep to divest” from Arranta Holdings two
days later. 105
The Arranta/PSG Relationship Deteriorates
On January 13, 2022, Thermo’s designated Arranta Holdings board observer
and Vice President of Strategy, Lorraine Mercurio, requested “identification of the
offeror” to assist Thermo in its “decision-making process” for an offer.106
Separately, four days later, PSG sent Arranta a letter requesting a “for cause” audit
of Arranta based on certain alleged defects with products produced by Arranta.107
102
TT236:20–237:1 (Bamforth).
103
TT237:9–238:7 (Bamforth).
104
TT237:9–238:14 (Bamforth) (“Q: When you told him it was a CDMO, did Mr. Shafer
say that PSG believed any CDMO would be a PSG Competitor under the Supply
Agreement? A: No. Q: Did he say anything at all about the offeror potentially being a
PSG Competitor? A: No.”).
105
JTX 266 at 120.
106
JTX 277.
107
JTX 396. PSG’s Complaint included claims that Arranta breached the Supply
Agreement based on the alleged product quality issues that in part formed the basis for
PSG’s “for cause” audit. Dkt. 1 (“Compl.”) ¶¶ 69–73, 87–98. These issues will be the
subject of a follow-on trial in this matter, which is currently scheduled for September 2023.
24
Lawrence Pitcher, the head of PSG’s plasmid operations, was the individual that
recommended that PSG initiate a “for cause” audit, and Leon Wyszkowski, Pitcher’s
boss, approved the recommendation.108 At the time he emailed Wyszkowski
recommending a “for cause” audit, Pitcher was not aware of the potential acquisition
of Arranta Holdings.109 Wyszkowski, who approved sending the letter, was aware
of the potential acquisition. 110
Arranta Holdings viewed Mercurio’s request and the “for cause” audit letter
as a concerted effort by PSG to try to disrupt the sale to Recipharm. 111 In response
to Mercurio’s letter, Bamforth sent her a letter, which was drafted by Gladstein and
the law firm Goodwin Procter. 112 The letter stated that the board of Arranta Holdings
concluded that it had no obligation to, and elected not to, disclose the identity of the
potential buyer to Thermo or Mercurio, in her capacity as a board observer.113 In
the letter, Bamforth insinuated that Mercurio may have breached her fiduciary duties
108
JTX 1001 at 1; TT595:18–596:20 (Pitcher).
109
TT600:18–601:3 (Pitcher).
110
TT371:4–7 (Wyszkowski).
111
TT238:18–239:10 (Bamforth).
112
TT321:3–17 (Bamforth).
113
JTX 281 at 1.
25
as a board observer by acting in the interests of Thermo rather than Arranta
Holdings.114 The letter also took aim at Thermo:
We also note that since [Arranta Holdings] delivered the Transaction Notice
to Thermo Fisher on December 13, Thermo Fisher has engaged in a series of
steps that are not in keeping with the collaborative relationship between
Arranta [Holdings] and Thermo Fisher to date, and appear to be calculated to
attempt to interfere with the Potential Transaction described in the Thermo
Fisher Notice. These include the purported “for cause” audit notice that
Thermo Fisher sent on January 19, 2022, as well as Thermo Fisher’s
subsequent communication purporting to escalate the audit request to a
Commercial Dispute[.] Thermo Fisher should cease these attempts to
interfere with the Potential Transaction.115
PSG and Arranta ultimately agreed to refer to the “for cause” audit as an “operational
summit,” which occurred in early February 2022.116
Recipharm’s Due Diligence Of Arranta Holdings
While Arranta Holdings and Thermo sparred over the potential acquisition,
Arranta Holdings continued to move full speed toward signing and closing its
transaction with Recipharm. After receiving the offer, Arranta Holdings and
Recipharm each conducted additional due diligence. According to Recipharm’s
114
Id. at 2 (“[T]he Board notes that certain portions of the Observer Letter . . . appear to
have been delivered on behalf of, or in the interests of, Thermo Fisher rather than by you,
in your individual capacity as the Observer. In light of the foregoing, the Board reminds
you that, in your capacity as Observer, you have certain fiduciary and other duties to the
Company pursuant to the express terms of the Operating Agreement, including a duty of
loyalty. The Board is confident that you will comply with those duties moving forward.”).
115
Id.
116
TT602:7–20 (Pitcher).
26
2020 annual report, the company’s revenues from biologics were “well under”
50%.117 It is not disputed that, both prior to and after the merger, Recipharm derived
nearly all its revenue from CDMO services and virtually none of that revenue was
related to biologics. 118
Arranta Holdings retained Goodwin Procter as legal counsel and Morgan
Stanley as its financial adviser for purposes of the proposed transaction. 119 Gladstein
was intimately involved in the due diligence process on Arranta’s side and “the
person in charge at Arranta” of providing information to Goodwin. 120 Recipharm
retained Kirkland & Ellis as legal counsel and Centerview as its financial adviser.121
Among the action items included in the due diligence process, Kirkland
requested information about the Supply Agreement negotiations.122 In addition, a
draft timeline of the merger prepared by Recipharm’s advisers included as a gating
item the receipt of a waiver from PSG of the Supply Agreement’s change-of-control
provisions. 123
117
TT227:13–21, 229:6–233:8 (Bamforth); JTX 262 at 6–7.
118
Dkt. 220 (“Pl.’s Post-Trial OB”) at 22–23.
119
TT447:16–448:11 (Gladstein).
120
TT501:20–24, TT509:17–23 (Gladstein).
121
TT447:16–448:11 (Gladstein).
122
JTX 291; TT449:23–450:23 (Gladstein).
123
JTX 271 at 3.
27
In light of the prior experience with AMRI, Bamforth and other individuals at
Arranta Holdings were concerned about any perception by Recipharm that it might
be a PSG Competitor under the Supply Agreement. Indeed, Bamforth spoke directly
with Recipharm’s CEO and “told him that there would be consequences if we were
to try to sell the company to somebody who is a PSG Competitor; and, therefore, it
was important to establish that Recipharm would not fall into that category.”124
Upon reviewing the proposed merger timeline, Favaloro sent an email to Morgan
Stanley and Bamforth that was more explicit in his concerns regarding PSG:
[W]e’ve seen with [PSG’s] behavior in [AMRI] that they are likely not going
to play nice here. We need your help messaging that to Centerview and
Reci—we must hammer home that it is our opinion Reci is not a PSG
competitor and therefore they can take the contract over without waiver or
consent. 125
To allay any concerns held by Recipharm that it might be a PSG Competitor
under the Supply Agreement, the executive team of Arranta Holdings took a two-
prong approach. First, Bamforth informed Recipharm’s CEO that the term
“biopharmaceutical” in the PSG Competitor definition meant only biologics and did
not encompass small molecule drugs.126 Bamforth, however, did not apprise
124
TT228:5–14 (Bamforth).
125
JTX 272 at 1.
126
TT228:16–229:5 (Bamforth) (“Q: How did you describe the definition [of PSG
Competitor]? A: As more than 50 percent of their revenue coming from biopharmaceutical
development or commercial supply. Q: And did you have an understanding as to why
[Recipharm’s CEO] believed Recipharm was clearly not a PSG [C]ompetitor? A: Yes,
28
Recipharm’s CEO of the prior discussions with AMRI that fell apart following the
discussion between Shafer and AMRI’s representatives. 127 Bamforth also did not
tell Recipharm’s CEO that Boyd had used Catalent and Lonza as examples of a PSG
Competitor. 128
Second, Gladstein, Goodwin Procter, and Morgan Stanley addressed concerns
raised by Kirkland and Centerview. Kirkland emailed the Arranta Holdings’ team
and advisers on January 31, 2022, asking “to see if you have been able to find any
additional emails/info in your files on how the PSG Competitor definition was
agreed at the time of negotiation the Thermo agreement.”129 After discussing
internally, Goodwin Procter sent an email on February 2, 2022, based on information
provided by Gladstein. 130 The email stated the following in relevant part:
We’ve received some additional context from our client that there were not
extensive contract negotiations with [PSG] on the “PSG Competitor”
provision in Section 18.4 (Assignment) or the definition of “PSG Competitor”
itself. However, as described in greater detail below, [PSG] does appear to
correlate “biopharmaceutical” with pharmaceuticals derived from biological
sources or large molecules and “pharmaceuticals” with small molecules and
not biologics. Moreover, in the contract negotiations, the [Arranta Holdings]
from having looked at the annual report, it was very clear that the vast majority of their
activities were not associated with biopharmaceuticals.”).
127
TT323:4–6 (Bamforth).
128
TT323:7–324:1 (Bamforth).
129
JTX 291 at 3.
130
Id.; TT510:11–18 (Gladstein) (“Q: Did you play any role in drafting the Goodwin email
that appears at the bottom of the page? A: I did not. . . . Let me qualify. We provided the
information to Goodwin. I did not have any role in drafting the information—the email.
The email was based on that information.”).
29
team reports that they perceived that [PSG] did seem focused on restricting
[Arranta Holdings’] ability to sell to a biopharmaceutical competitor.131
Notably, the evidence indicates that Gladstein did not provide Goodwin with
information concerning Arranta’s prior experience with AMRI or Bamforth’s notes
describing when Boyd offered Catalent and Lonza as examples of a PSG
Competitor. 132 In determining what to disclose, Gladstein apparently viewed it
important to provide information that substantiated Arranta’s understanding of the
PSG Competitor definition rather than all relevant information that may have given
Recipharm more context.133
Merger Publicly Announced
On February 17, 2022, the day before the merger was publicly announced,
Bamforth emailed Lagarde and Shafer informing them that “Arranta Bio Holdings,
LLC . . . entered into an Agreement and Plan of Merger . . . with a wholly owned
131
JTX 291 at 1.
132
Id.; TT503:5–504:6, TT509:6–510:18. Gladstein was notably evasive on this topic at
trial.
133
JTX 521:5–23 (“Q: [G]iven your view of how clear you believe the term [PSG
Competitor] is, did you believe it was necessary to provide what has been referenced here
as ‘public statements’? A: I believe it was helpful. Q: And was it helpful because it
provided more context? A: No, because it substantiated our understanding. Q: So your
goal was to provide information that substantiated your understanding. Agreed? A: Not
mine personally, but the understanding of the definition of the term ‘PSG Competitor.’”).
30
subsidiary of Recipharm AB[.]”134 The email enclosed the executed Agreement and
Plan of Merger, which was dated February 17, 2022.135
In his email to Lagarde and Shafer, Bamforth also requested Thermo’s
“approval for [him] to join the Board of Recipharm.” 136 Thermo’s consent was
required based on a restrictive covenant agreement that Bamforth entered in
connection with the prior sale of Brammer Bio to Thermo. 137 Under that agreement,
Bamforth was prohibited from working in a “Competing Business” for five years
following the sale of Brammer Bio in 2019. 138 On March 4, the general counsel of
Thermo, Claudia Harrington, informed Bamforth that Thermo would not consent to
Bamforth joining the board of Recipharm. In that email, Harrington stated that
Thermo had “grave concerns with [Bamforth] advising a competing business,
particularly in this case, an entity that is competitive with [PSG] across so many
134
JTX 296 at 1–2; TT242:8–17 (Bamforth).
135
JTX 296 at 11; TT242:18–243:1 (Bamforth).
136
JTX 296 at 2; TT242:8–17 (Bamforth).
137
JTX 71.
138
Id. “Competing Business” is defined in the agreement as a “Person that engages in or
owns, operates, manages, controls, invests in or participates in, any business engaged in
the provision of services related to developing or manufacturing gene therapy drug
substances or drug products.” Id. at 2.
31
relevant areas.” 139 As a result, Bamforth did not join Recipharm’s board of
directors. 140
At the time of the Merger, Arranta Bio Midco LLC (“Arranta Parent”) owned
100% of the membership interests of Arranta.141 Arranta Parent was wholly owned
by Arranta Holdings, which had thirteen shareholders, including Thermo. 142 Arranta
Holdco Inc., an indirect wholly owned subsidiary of Recipharm, acquired Arranta
Holdings in a reverse triangular merger where a subsidiary of Arranta Holdco Inc.,
Anatolia Merger Sub, LLC, was merged into Arranta Holdings (the “Merger”).143
Arranta Holdings was the surviving company of the Merger.144
139
JTX 323 at 2.
140
Id. at 1.
141
Dkt. 221 (“Def.’s Post-Trial OB”) at 27.
142
Id.
143
See JTX 296 at 17–20, § 1.3.
144
JTX 296 § 1.3.
32
The pre-Merger structure was as follows:
33
The post-Merger structure was as follows:
As described and set forth above, Arranta continued to be wholly owned by Arranta
Parent, which also continued to be wholly owned by Arranta Holdings. Only the
ownership of Arranta Holdings changed.
After learning the identity of the counterparty to the merger, the PSG team
began considering potential options, including terminating the Supply Agreement.
The PSG team focused in on the definition of PSG Competitor and sought to “think
broadly” in determining whether Recipharm was a PSG Competitor.145 Over the
145
JTX 306 at 2 (“The immediate needs are to evaluate the investor/shareholder agreements
and the ‘PSG Competitor’ definition in the Dedicated Supply Agreement. It will inform
what are our options. . . . The Supply Agreement is with PSG . . . so we should think
34
course of one month following the announcement of the Merger, the PSG team
began modelling various scenarios on how to pursue an exit from the Arranta
relationship.146 Around that same time, PSG and Arranta continued to represent to
customers that “[t]he strategic partnership remains intact” and “[w]e have a long
term agreement and don’t foresee any changes to the relationship.” 147
The Merger Closes And PSG Purports To Terminate The
Supply Agreement
The Merger closed on April 8, 2022.148 As a result of the Merger, Thermo
received approximately $105 million. 149 Bamforth received approximately $240
million. 150 Gladstein and Favaloro each received approximately $3 million. 151
On April 15, 2022, Wyszkowski sent a termination letter purporting to
terminate the Supply Agreement. 152 The letter was drafted by lawyers of PSG and
asserted two bases for termination.153
broadly, but be mindful that the Agreement describes PSG as ‘a leading large and small
molecule and viral vector contract development and manufacturing organization.’”).
146
TT612:17–621:24 (Pitcher); JTX 326.
147
JTX 349 at 3.
148
JTX 331.
149
JTX 296; TT144:15–16 (Bamforth).
150
TT261:19–262:9 (Bamforth).
151
TT502:1–19 (Gladstein); Favaloro Dep. 13:23–14:9.
152
JTX 339.
153
TT397:9–15 (Wyszkowski).
35
First, PSG stated that Recipharm was a PSG Competitor because Recipharm
“derives its revenue from performing biopharmaceutical (i.e., biologics and
pharmaceutical) services.”154 PSG further claimed such an interpretation “is the only
meaning that gives effect to the intent of this provision” because
PSG is defined in the Agreement as engaged in both biologics and
pharmaceuticals (see first Whereas clause), PSG in fact provides CDMO
services in both the biologics and pharmaceutical space (which is why this
word was selected to define the competitive space), and the intent of the
provision is to protect PSG in the event Arranta is acquired by a competitor
of PSG. 155
PSG asserted in the letter that the acquisition constituted a Change of Control
Transaction with a PSG Competitor. 156 Pursuant to Section 18.4(b)(ii)(1) of the
Supply Agreement, PSG purported to elect to deem Arranta to have issued a notice
of termination under Section 16.2.2 of the Supply Agreement. 157
Second, PSG claimed in the letter that “Arranta has faced significant and
material performance issues, which are continuing under the Agreement.” 158 PSG
asserted that it had given Arranta formal notice of such material performance issues
on January 17, 2022, when PSG sent the letter to Arranta requesting a “for cause”
154
JTX 339 at 3.
155
Id.
156
Id. at 2.
157
Id.
158
Id. at 3.
36
audit. 159 PSG claimed that “Arranta has failed to remedy the Cause noticed on
January 17, 2022, and such failure constitutes a Termination for Cause by PSG
pursuant to Section 16.2.3 of the Agreement.”160
On April 25, Arranta responded to the letter claiming that “the purported
termination of the Agreement by PSG violates the unambiguous terms of the
Agreement, constitutes a material breach, and amounts to a clear repudiation of the
Agreement by PSG.”161 Arranta argued in the letter that “PSG improperly seeks to
define ‘biopharmaceutical’ services as extending to both biologics and
pharmaceuticals – an interpretation plainly at odds with both the language of the
Agreement and the intentions of the parties.” 162 On this basis, Arranta argued that
Recipharm is not a PSG Competitor because “it does not derive at least 50% of its
revenues from biopharmaceutical development or at least 50% of its revenues from
biopharmaceutical commercial manufacturing services.”163 Arranta also disputed
PSG’s purported “Termination for Cause.”164
The parties exchanged additional letters on May 2, May 12, and May 25.165
159
Id.
160
Id.
161
JTX 346 at 1.
162
Id.
163
Id.
164
Id. at 2–3.
165
JTX 348; JTX 351; JTX 362.
37
F. The Experts
PSG presented an expert to support its case-in-chief, and Arranta presented a
rebuttal expert. PSG’s expert, Dr. Roland Turck, is a physician with decades of
experience as an executive and consultant working in a variety of companies ranging
from Bayer Healthcare to a startup firm focused on oncological biologics. 166 In
rendering his opinion in this case, Turck relied upon annual reports filed with the
Securities and Exchange Commission (“SEC”), regulatory filings with the Food and
Drug Administration, and his professional experience. 167 Turck testified that it was
his expert opinion that over the past few decades, there has been increasing overlap
between pharmaceutical companies and biotech companies. Per Turck, given this
increasing overlap, “the word ‘biopharmaceutical’ is gradually replacing
‘pharmaceutical’ as an all-encompassing word describing the small molecule and
biologics industry, companies, and elements of the value chain.” 168 Turck testified
that “biopharmaceutical” is usually used by sophisticated industry participants to
mean both biologics and small-molecule drugs.169 Turck stated that
“biopharmaceutical” can sometimes be used to mean only biologics but, if it was
166
TT524:9–531:20 (Turck).
167
Id.
168
Id.
169
TT534:17–535:1 (Turck).
38
intended to have this narrower meaning, then that would be indicated by context
(e.g., putting an explanation in parentheses). 170
Arranta’s rebuttal expert, Peter Lankau, has held senior executive roles in a
number of companies ranging from a specialty pharmaceutical company focused on
pain management and neurology to an early-stage company that developed agents
for inflammatory diseases. 171 In rebutting Turck’s opinion in this case, Lankau
primarily relied on dictionary definitions and reviewed the documents relied upon
by Turck.172 Lankau testified that the meaning of “biopharmaceutical” set forth in
various dictionaries is that the term means biologics only, and this is consistent with
how sophisticated industry participants use the word.173 Lankau criticized Turck’s
reliance on filings with the SEC because, per Lankau, companies often use
“biopharmaceutical” “as a branding exercise, a marketing term” as it connotes a
more exciting business than “pharmaceutical.”174 Lankau acknowledged that he
himself had used the term to mean both biologics and small-molecule drugs for
marketing purposes.175
170
TT536:2–19 (Turck).
171
TT644:12–648:14 (Lankau).
172
JTX 384; JTX 386.
173
JTX 384; TT651:2–652:23 (Lankau).
174
JTX 384; TT651:5–16 (Lankau).
175
TT665:18–667:10, TT682:20–683:3, TT687:20–688:2 (Lankau).
39
G. Procedural History
PSG filed its verified complaint (the “Complaint”) in this Court on July 8,
2022. The Complaint includes five counts.176 Count I alleges that Arranta materially
breached the Supply Agreement by failing to produce compliant products and that
Arranta failed to cure its material breaches after receiving written notice of such
breaches from PSG. 177
Count II seeks declaratory judgment that the Merger constituted a
Termination for Convenience by Arranta under Sections 16.2.2 and 18.4 of the
Supply Agreement. 178
Count III seeks specific performance (a) requiring that Arranta perform the
Non-Compete Obligation and not engage in plasmid development and
manufacturing services until April 14, 2025, and/or (b) permitting PSG to elect to
purchase the Portable Capital Equipment at net book value after applying a $2
million credit and to ship the purchase equipment to PSG’s site of choice at Arranta’s
sole expense.179
176
Compl. ¶¶ 69–98.
177
Id. ¶¶ 69–73.
178
Id. ¶¶ 74–79.
179
Id. ¶¶ 80–86.
40
Count IV seeks declaratory judgment that PSG was permitted to elect, and on
April 14, 2022, did so elect, to declare a termination for cause. 180
Finally, Count V seeks declaratory judgment that the termination notice PSG
sent on April 14, 2022, did not anticipatorily repudiate the Supply Agreement. 181
On July 29, 2022, Arranta filed its answer and verified counterclaims.182
Arranta asserted six counterclaims. Count I seeks declaratory judgment that PSG
did not validly terminate the Supply Agreement pursuant to Sections 16.2.2 and
18.4. 183 Count II seeks declaratory judgment that PSG did not validly terminate the
Supply Agreement for cause pursuant to Section 16.2.3. 184 Count III seeks
declaratory judgment that PSG repudiated and materially breached the Supply
Agreement. 185 Count IV seeks an order that PSG cease misinforming third parties
that Arranta is subject to any limitation regarding plasmid manufacturing. 186 In the
alternative, Count IV seeks damages.187 Count V seeks a judicial order that PSG
return and delete certain confidential information that Arranta alleges was stolen by
180
Id. ¶¶ 87–92.
181
Id. ¶¶ 93–98.
182
Dkt. 12 (“Answer and Counterclaims”).
183
Answer and Counterclaims ¶¶ 120–124.
184
Id. ¶¶ 125–129.
185
Id. ¶¶ 130–135.
186
Id. ¶¶ 136–140.
187
Id.
41
PSG.188 In the alternative, Count V seeks damages for alleged improper theft.189
Finally, Count VI seeks damages for PSG’s alleged material breach of the Supply
Agreement. 190
In connection with its Complaint, PSG also filed a motion to expedite and
requested that I set trial on all of PSG’s claims in April 2023. 191 In contrast, Arranta
argued that only the claims concerning the Non-Compete Obligation should be
expedited and that these claims could be resolved in one day on a largely paper
record.192 On August 8, 2022, I granted the motion to expedite as to the claims
concerning the Non-Compete Obligation.193 Based in part on Arranta’s
representations concerning the narrowness of the issues for decision, I scheduled the
trial in December 2022 for two days.194 Arranta subsequently sought to present
equitable defenses at trial that seemed beyond the scope of the narrow and discrete
Non-Compete Obligation on which Arranta premised its request for bifurcation.195
188
Id. ¶¶ 141–146.
189
Id.
190
Id. ¶¶ 147–154.
191
Dkt. 1; Dkt. 22 ¶ 18.
192
See Dkt. 11 at 2 (“Whether the non-compete applies is a matter of contractual
interpretation. It can be resolved by a one-day trial.”); id. ¶ 40 (“Whether Arrant ais subject
to the Non-Compete Obligation is a discrete issue of [] contract interpretation. The Court
can resolve it largely on a paper record, with minimal trial testimony.”).
193
Dkt. 35; Dkt. 37.
194
Dkt. 35.
195
Dkt. 139.
42
I permitted Arranta to address these equitable defenses at trial but allowed PSG to
request additional trial time to ensure that PSG had a fair opportunity to respond.196
PSG did not request additional time.
Trial was held on the expedited claims, counterclaims, and defenses on
December 15 and 16, 2022. Post-trial argument was held on February 10, 2023.
II. ANALYSIS
The fundamental dispute before this Court is whether PSG had the right to
deem the Merger a Termination for Convenience by Arranta. The parties tangle over
the preconditions to trigger a Termination for Convenience by Arranta. PSG’s right
to deem the Merger a Termination for Convenience by Arranta is partly conditional
on the counterparty to the Merger being a PSG Competitor. I begin my analysis by
addressing the meaning of “PSG Competitor.” The analysis proceeds in this manner
since the primary focus of the two-day trial and much of the parties’ briefing was on
whether Recipharm was a PSG Competitor.
As explained below, I conclude that “biopharmaceutical” is unambiguous and
encompasses large-molecule biologics only. The term “biopharmaceutical” does not
include small-molecule pharmaceuticals. Thus, a PSG Competitor is a “third Party
whose business derives at least fifty percent (50%) of its revenues from performing
196
Dkt. 116.
43
contract [biologics] development or commercial manufacturing services.” It is
undisputed that Recipharm did not derive at least 50% of its revenues from biologic
CDMO services. Therefore, Recipharm is not a PSG Competitor, and PSG had no
right to trigger a Termination for Convenience by Arranta.
Based on this, Counts II and III of PSG’s Complaint must be dismissed and
judgment must be entered for Arranta on Count I of its counterclaims.
A. Meaning Of The Term “PSG Competitor”
PSG Competitor is defined in the Supply Agreement as “a Third Party whose
business derives at least fifty percent (50%) of its revenues from performing contract
biopharmaceutical development or commercial manufacturing services.” 197 The
crux of the parties’ dispute is whether “biopharmaceutical” means only large-
molecule biologics or means both large-molecule biologics and small-molecule
drugs. 198
197
Supply Agreement § 1.106.
198
PSG has argued at certain points that the term “PSG Competitor” is itself ambiguous.
See, e.g., Dkt. 182 (“Pl.’s Pretrial Br.”) at 33–34. However, PSG did not meaningfully
develop this point and instead focused its argument on the meaning of
“biopharmaceutical.” Thus, I do not address it except to note that, even if PSG had
meaningfully developed this argument, I would likely not find it compelling because PSG
Competitor is a defined term within the Supply Agreement and therefore has an explicitly
given meaning. “[A]mbiguity exists only ‘[w]hen words of an agreement are . . . subject
to different interpretations and when the words . . . otherwise create ambiguity when
viewed in light of other contractual provisions[.]’” Sassano v. CIBC World Mkts. Corp.,
948 A.2d 453, 468 n.86 (Del. Ch. 2008) (quoting Cincinnati SMSA Ltd. P’ship v.
Cincinnati Bell Cellular Sys. Co., 1997 WL 525873, *4 (Del. Ch. Aug. 13, 1997)). The
term PSG Competitor is defined, and I look to the definition given to PSG Competitor by
44
“Unless there is ambiguity, Delaware courts interpret contract terms
according to their plain, ordinary meaning.” 199 The “contract’s construction should
be that which would be understood by an objective, reasonable third
party.”200 “Absent some ambiguity, Delaware courts will not destroy or twist
[contract] language under the guise of construing it.”201 “Contract language is not
ambiguous merely because the parties dispute what it means. To be ambiguous, a
disputed contract term must be fairly or reasonably susceptible to more than one
meaning.”202
“Under well-settled case law, Delaware courts look to dictionaries for
assistance in determining the plain meaning of terms which are not defined in a
contract.”203 “When a term’s definition is not altered or has ‘no ‘gloss’ in the
[relevant] industry it should be construed in accordance with its ordinary dictionary
the parties in the Supply Agreement to determine whether that definition is subject to
different interpretations. For the reasons set out herein, I conclude that it is not.
199
Alta Berkeley VI C.V. v. Omneon, Inc., 41 A.3d 381, 385 (Del. 2012).
200
Salamone v. Gorman, 106 A.3d 354, 367–68 (Del. 2014) (internal citation omitted).
Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1195 (Del.
201
1992).
202
Alta Berkeley, 41 A.3d at 385 (footnote omitted).
203
Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 738 (Del. 2006). Accord
In re Solera Ins. Coverage Appeals, 240 A.3d 1121, 1132 n.67 (Del. 2020) (“Delaware
case law is settled that undefined words are given their plain meaning based upon the
definition provided by a dictionary.”) (quoting Del. DNREC v. McGinnis Auto & Mobile
Home Salvage, LLC, 225 A.3d 1251, 1260–61 (Del. 2020) (Valihura, J., dissenting)).
45
meaning.”204 “In addition to relying on dictionary definitions, a court may look to
how a term or phrase is used in a particular legal context. Put another way, ‘[u]nless
a different intention is manifested’ in the contract, ‘where language has a generally
prevailing meaning, it is interpreted in accordance with that meaning,’ and ‘technical
terms and words of art are given their technical meaning when used in a transaction
within their technical field.’”205
I conclude that “biopharmaceutical” is unambiguous and encompasses only
large-molecule biologics. Even if I were to find that “biopharmaceutical” is
ambiguous, much of the extrinsic evidence put forth at trial would ultimately not be
relevant to my analysis. And even the limited amount that would be is either neutral
or tends to support the conclusion that “biopharmaceutical” includes only large-
molecule biologics, not small-molecule drugs. Thus, PSG has failed to establish by
a preponderance of the evidence that Recipharm was a PSG Competitor because
Recipharm did not derive more than 50% of its revenue from “biopharmaceutical”
CDMO services.
I pause to highlight that this case arguably exemplifies why our courts have
long held that extrinsic evidence may not be used to create ambiguity or to vary the
204
Lorillard Tobacco, 903 A.2d at 740 (quoting USA Cable v. World Wrestling Fed’n
Entm’t, Inc., 766 A.2d 462, 474 (Del. 2000)).
205
In re P3 Health Gp. Hldgs., LLC, 282 A.3d 1054, 1067 (Del. Ch. 2022) (quoting
RESTATEMENT (SECOND) OF CONTRACTS § 202(3) (Am. L. Inst. 1981)).
46
meaning of an unambiguous term. After sitting through the two-day trial and
devoting considerable time and attention to the parties’ briefing, transcripts, and
exhibits, I can quite confidently say that none of the negotiators gave much thought
to the definition of PSG Competitor or, more particularly, the meaning of
“biopharmaceutical” when they negotiated the Supply Agreement. This is entirely
understandable because the numerous dictionary definitions and expert testimony
establish that “biopharmaceutical” is unambiguous. But where one party tries to
resist this conclusion and search for ambiguity, it is unsurprising to be confronted
with a record like the one here—tea leaf facts and cherrypicked communications that
simply do not support the weight placed upon them. Even so, the Court must
interpret contracts “as written and not as hoped for by litigation-driven
arguments.”206 Accordingly, and despite PSG’s efforts, the only reasonable
interpretation of “biopharmaceutical” is that it is an unambiguous term
encompassing only drugs derived from biologics.
“Biopharmaceutical” Is Unambiguous
The clear and unambiguous meaning of “biopharmaceutical”—as established
by every dictionary definition presented in this matter—is a drug derived from
biologics. Despite failing to introduce a single contrary dictionary definition, PSG
tries to avoid this conclusion and create ambiguity through expert testimony and
206
Urdan v. WR Cap. P’rs, LLC, 244 A.3d 668, 675 (Del. 2020).
47
reliance on caselaw that is distinguishable from the present dispute. As set forth
below, PSG’s efforts fail.
a. Numerous Dictionaries Establish That
“Biopharmaceutical” Is Unambiguous
Arranta argues that, under its plain meaning, “biopharmaceutical” refers only
to large-molecule biologics derived from living organisms and does not include
small-molecule drugs. 207 In support of this argument, Arranta points to multiple
dictionary definitions of the term “biopharmaceutical.” While each of these
dictionaries define “biopharmaceutical” in a slightly different manner, every single
dictionary provides that such term connotes a drug either derived from biological
sources or living organisms or otherwise consisting of large, complex molecules like
proteins:
• Merriam Webster: “a pharmaceutical derived from biological sources and
especially one produced by biotechnology.” 208
• American Heritage Dictionary: “[a] drug produced by means of
biotechnology, consisting of a large, complex molecule such as a protein
rather than a small molecule.”209
207
Def.’s Post-Trial OB at 43–48.
208
Biopharmaceutical, MERRIAM-WEBSTER, https://www.merriam-
webster.com/dictionary/biopharmaceutical (last visited Apr. 4, 2023).
209
Biopharmaceutical, AM. HERITAGE DICTIONARY,
https://www.ahdictionary.com/word/search.html?q=biopharmaceutical (last visited Apr. 4,
2023).
48
• Oxford English Dictionary: “[a] pharmaceutical agent, typically a protein or
peptide, produced by biotechnology.” 210
• Cambridge Dictionary: “medicine and drugs that are produced using
biotechnology (= the use of living things, especially cells and bacteria, in
industrial processes).” 211
• Dictionary of Pharmaceutical Medicine: “[t]herapeutic product involving
biotechnology, e.g. genetic engineering; product of biotechnological origin
such as antisense, genetic engineering, transgenics, involving manipulation of
living organisms.”212
Furthermore, all dictionaries referenced by Arranta define “biopharmaceutical” to
mean a pharmaceutical or drug that is produced by or involving biotechnology.213
The definition of “biotechnology” from these same dictionaries further supports the
meaning of “biopharmaceutical” as a drug derived from living organisms.214
210
Biopharmaceutical, OXFORD ENG. DICTIONARY, https://www.oed.com/view/Entry/
261445? (last visited Apr. 4, 2023).
211
Biopharmaceutical, CAMBRIDGE DICTIONARY,
https://dictionary.cambridge.org/us/dictionary/english/
biopharmaceuticals?q=biopharmaceutical (last visited Apr. 4, 2023).
212
Biopharmaceutical, DICTIONARY OF PHARM. MED.,
https://link.springer.com/chapter/10.1007/978-3-211-89836-9_127 (last visited Apr. 4,
2023).
213
See id.214
See, e.g., Biotechnology, MERRIAM-WEBSTER, https://www.merriam-
webster.com/dictionary/biotechnology (last visited Apr. 4, 2023) (“the manipulation (as
through genetic engineering) of living organisms or their components to produce useful
usually commercial products (such as pest resistant crops, new bacterial strains, or novel
pharmaceuticals)”); Biotechnology, AM. HERITAGE DICTIONARY,
https://www.ahdictionary.com/word/search.html?q=biotechnology (last visited Apr. 4,
2023) (“The use of living organisms or biological processes for the purpose of developing
useful agricultural, industrial, or medical products, especially by means of techniques, such
as genetic engineering, that involve the modification of genes”); Biotechnology, OXFORD
ENG. DICTIONARY, https://www.oed.com/view/Entry/19255 (last visited Apr. 4, 2023)
49
b. The Expert Testimony Does Not Establish That
“Biopharmaceutical” Is Ambiguous
PSG did not offer any contrary dictionary definitions in support of its
interpretation of “biopharmaceutical” as encompassing both large-molecule
biologics and small-molecule pharmaceuticals. Rather, PSG argues that
“biopharmaceutical has an industry meaning not portrayed in dictionaries.” 215 To
(“the application of science and technology to the utilization and improvement of living
organisms for industrial and agricultural production and (in later use) other biomedical
applications”); Biotechnology, CAMBRIDGE DICTIONARY,
https://dictionary.cambridge.org/us/dictionary/english/biotechnology (last visited Apr. 4,
2023) (“the use of living things, especially cells and bacteria, in industrial processes”);
Biotechnology, DICTIONARY OF PHARM. MED.,
https://link.springer.com/chapter/10.1007/978-3-211-89836-9_129 (last visited Apr. 4,
2023) (“Development of products by a biological process. Production may be carried out
by using intact organisms, such as yeasts and bacteria, or by using natural substances (e.g.
enzymes) from organisms; techniques involving manipulation of living organisms or
substances made by living organisms, particularly at the molecular genetic level; according
to the U.S. Office of Science and Technology Policy, the term covers also ‘recently
developed and newly emerging genetic manipulation techniques, such as recombinant
DNA (rDNA), recombinant RNA (rRNA), and cell fusion, that are sometimes referred to
as genetic engineering’”).
215
Pl.’s Post-Trial AB at 8; see also Turck Dep. 125:9–125:16 (“Q: As part of your
research, did you review any dictionaries? A: I think we talked about that before. I did
note the definition in the dictionaries but, as I mentioned before, believe that dictionaries
tend to lag behind the—the common usage of words, not only in this case but in other
cases.”). In its pretrial brief, PSG cited to a portion of the Lorillard opinion in support of
the proposition that this Court may reject dictionary definitions. It dropped this argument
in its post-trial briefing. Pl.’s Pretrial Br. at 37. I highlight this point because the portion
of Lorillard cited to by PSG does not stand for the proposition for which PSG asserts it
does in its pre-trial briefing. Rather, in that section of Lorillard, our Supreme Court simply
discussed how the Court of Chancery expressly declined to consider dictionary definitions.
Lorillard, 903 A.2d at 736. The Supreme Court later held in that opinion that “the Vice
Chancellor’s abandonment of all dictionaries . . . [was] not supported by precedent.” Id. at
738.
50
that end, PSG contends that I must look to extrinsic evidence in the form of its
expert’s testimony to find a meaning of “biopharmaceutical” that contradicts the
numerous dictionary definitions.216
PSG’s argument seems to be that the expert testimony in this matter
constitutes a special form of extrinsic evidence that is not subject to the well-settled
rule (discussed below) that extrinsic evidence may not be used to manufacture
ambiguity. PSG’s position would seem to invite mischief in commercial litigation.
If I were to adopt its approach, then I risk “creating an ambiguity where none exists”
and imposing rights and obligations on parties to which they did not agree.217 “By
such judicial action, the reliability of written contracts is undermined, thus
diminishing the wealth-creating potential of voluntary agreements.” 218 In any event,
I need not resolve this question because I find that PSG’s expert has failed to
demonstrate why anything other than the apparently unanimous dictionary definition
of biopharmaceutical should apply in the context of the Supply Agreement.
216
Pl.’s Post-Trial AB at 3–15. I note that, while the numerous dictionaries that Arranta
presented include a technical dictionary that defines “biopharmaceutical” consistent with
the understanding that it references only biologics, PSG failed to identify even a single
technical dictionary definition in support of its position.
Allied Cap. Corp. v. GC-Sun Hldgs., L.P., 910 A.2d 1020, 1030 (Del. Ch. 2006) (citation
217
omitted).
218
Id. (citation omitted).
51
Turck, PSG’s expert, testified that sophisticated industry participants do not
use dictionaries to determine the meaning of technical words like
“biopharmaceutical” when negotiating contracts.219 Turck highlighted that
“[biopharmaceutical] is a relatively recent term that has been used more frequently
in the last maybe ten, fifteen years.”220 Per Turck, given that it is a relatively recent
term, one must look to how sophisticated industry participants use
“biopharmaceutical” since these participants, not dictionaries, are responsible for
shaping its meaning.221 Turck testified that sophisticated industry participants may
use “biopharmaceutical” to mean just large-molecule biologics in some
circumstances or to mean both biologics and small-molecule drugs in other
circumstances.222
219
TT550:19–552:9 (Turck). Turck testified that his “default assumption” is that
“biopharmaceutical” is used to mean both large-molecule biologics and small-molecule
drugs but sometimes may be used to mean only large-molecule biologics if indicated by
the context. TT536:2–8 (Turck). Per Turck, “the context can be indicated by putting an
explanation in parentheses after biopharmaceutical, for instance, or it can be a pairing, so
that you would pair ‘biopharmaceuticals’ with another word, or then you would have, in
the same paragraph, an indication that the narrower sense is intended . . . that the general
assumption, the default assumption, doesn’t apply.” TT536:12–19 (Turck).
220
TT536:20–537:1 (Turck). See also TT:537:2–17 (Turck) (stating in response to a
question about why the term “biopharmaceutical” has emerged to mean both biologics and
small molecules that “[i]t’s a term that became necessary because the portfolio of
companies changed” because “over time, large pharma acquired biotech companies or they
acquired the capabilities to develop biologics, and their portfolio became a mixed portfolio
between small molecules and biologics”).
221
TT552:10–557:14 (Turck).
222
Id.52
While Turck stated that he reviewed regulatory filings and industry
association publications, Turck pointed primarily to 10-K filings from 2020 and
2021 for a variety of drug manufacturers during his testimony.223 Of the eleven 10-K
filings Turck reviewed, only two of those filings were from CDMOs.224 Notably,
those two CDMOs were Lonza and Catalent. As counsel for Arranta highlighted
during Turck’s cross-examination, both Lonza and Catalent distinguish their revenue
between biologics and small molecules.225 In addition, Turck acknowledged that
10-K filings from other drug manufacturers at times distinguish between
pharmaceuticals and biologics.226
223
TT537:18–538:2; 552:10–557:14 (Turck). At trial, Turck focused primarily on 10-K
filings by certain drug manufacturers, including “Pfizer, AbbVie, Merck, BMS, Biogen, a
few others.” TT539:4–540:8 (Turck). Per Turck, these large drug manufacturers “shape
how words have been used” in the pharmaceutical industry. TT540:9–16 (Turck). Turck
highlighted that these drug manufacturers use “biopharmaceutical” in their 10-K filings “as
an all-encompassing term, including small molecules as well as biologics, reflecting their
mixed portfolio.” TT541:3–8 (Turck).
224
TT570:2–8 (Turck) (“Q: You cited to two CDMOs in your report as indicative of how
CDMOs use the term in the industry? A: Yes, as I said, I focused on the drug
manufacturers. And if I remember correctly, I also focused very much on this – on Lonza
and Catalent during the last few years.”).
225
TT572:16–573:1 (Turck) (“Q: And so the two CDMOs that you relied on classify their
revenue between biologics and small molecules. Right? A: Right. And as we’ve seen
before, Lonza characterizes or includes small molecules in their definition of
biopharmaceutical. Q: When they use the term ‘biopharmaceuticals,’ but not when they
split out their revenue between biologics. Correct? A: Right.”).
226
See, e.g., TT581:20–582:12 (Turck) (“THE COURT: Dr. Turck, can you turn back to .
. . the Catalent 10-K. . . . The first line under revenue. It says, ‘we sell products and
services directly to our pharmaceutical, biopharmaceutical, and consumer health
customers.’ How do you interpret the use of ‘pharmaceutical’ and ‘biopharmaceutical’
there? THE WITNESS: That could be redundant. It could be also in the narrow sense. I
53
Arranta’s rebuttal expert, Lankau, testified that the industry operates in two
segments: “the biologic segment that constitutes large-molecule products used for
very distinct diseases” and “the larger pharmaceutical or small-molecule market,
where products are typically developed and commercialized for large patient
populations.” 227 Per Lankau, there are very substantial differences between
biologics and small-molecule pharmaceuticals in how these products are
manufactured, the patient populations they serve, how they are regulated, and how
they are marketed.
For example, the manufacturing process for biologics is substantially different
from the process for small-molecule drugs. Lankau testified that small-molecule
drugs are derived from chemical synthesis and are milled, granulated, and dried to
create, for example, an oral medication. 228 Manufacturers of small-molecule drugs
use agitators, blenders, and tablet presses to create the drugs.229 In contrast, biologics
start with a cell line, which may be derived from bacteria or mammalian cells that,
once adjusted, and are placed into a fermenter to enhance their growth potential to
mean, that would be kind of the pairing. In general, Catalent distinguishes between, if I
remember correctly, between biopharmaceuticals versus over-the-counter medicines.”).
227
TT654:17–655:4 (Lankau).
228
TT655:5–17 (Lankau).
229
TT655:18–656:5 (Lankau).
54
increase the volume of cells. 230 Ultimately, these cells go through an extraction
process to separate out the active ingredient from the cell mass itself. 231
In addition, pharmaceuticals are typically used to treat diseases and conditions
like diabetes and hypertension that involve large patient populations and are
marketed to a wide variety of physicians. 232 In contrast, biologics are typically used
to treat diseases that involve smaller patient populations (e.g., certain cancers and
autoimmune diseases) and are marketed primarily to specialists associated with such
conditions. 233 Based on this testimony, Lankau stated that the dictionary definitions
offered by Arranta are consistent with industry usage.234
Lankau was critical of Turck’s reliance on 10-K filings. Lankau testified that
a company that primarily derives its revenue from small-molecule drugs might
describe itself as a “biopharmaceutical company” to convey a positive image to its
230
TT656:9–18 (Lankau).
231
TT656:19–22 (Lankau). Indeed, the raison d’être for the Supply Agreement itself, the
Watertown Facility, this dispute and the matter to be tried in September is the distinct
character of—and great difficultly associated with—commercial manufacturing of
biologics. Having considered the evidence in this matter, the numerous distinctions
between biologic and small-molecule manufacturing are clearly something that
sophisticated industry participants—like the parties here—would readily know and
appreciate.
232
TT658:5–659:6 (Lankau).
233
TT659:7–660:8 (Lankau).
234
TT653:15–654:14 (Lankau).
55
investors, which are the audience for 10-K filings. 235 The term “biopharmaceutical”
“suggests that the company is involved in innovation, in new technology, whether
it’s for small molecules or not.”236 Lankau testified that the “branding” that one
might see in a 10-K must be distinguished from how these companies describe
themselves when negotiating agreements, where companies are far more precise.237
Lankau testified that “when companies are sitting down across the table from each
other looking to negotiate an agreement, they’re very precise in the language they
use” and “will look at phrases like ‘biopharmaceutical’ as being very explicit to their
[meaning as] a drug derived from living organisms.” 238
During his direct testimony and on cross-examination, Lankau acknowledged
that “biopharmaceutical” may be used by industry participants to encompass both
large-molecule biologics and small-molecule pharmaceuticals in certain contexts.239
Indeed, Lankau acknowledged that he himself has used “biopharmaceutical” to
235
TT663:16–664:10 (Lankau).
236
TT664:11–18 (Lankau).
237
TT66419:665:17 (Lankau).
238
TT665:10–17 (Lankau).
239
See, e.g., TT682:20–683:3 (Lankau) (“Q: And I apologize for doing this, and I’m going
to continue to do it. Your use of the term ‘biopharmaceutical’ [in Lankau’s own website]
includes both small molecule and biologics; isn’t that right? A: As it relates to pharma and
biotech services, that’s correct. Q: So that’s yes? A: That’s a yes.”); TT687:20–688:2
(Lankau) (“Q: So in your testimony earlier, when you—when you affirmatively stated that
the term ‘biopharmaceutical’ means biologics in all uses of the term, that was incorrect?
A: That would have been incorrect as it relates to the use of the term within the industry,
as opposed to a marketing context.”).
56
encompass biologics and small-molecule pharmaceuticals in his own CV, website,
and to describe the company where he previously served as CEO. 240 While PSG
made significant hay over Lankau’s use of “biopharmaceutical” in this manner, I
find this fact wholly consistent with his expert testimony. That some participants in
the industry may use a term broadly for marketing purposes—here, to foster the
notion in the market that a business is dynamic and cutting edge—does not change
the fact that “biopharmaceutical” has an unambiguous meaning in a non-marketing
contractual context. 241 That unambiguous meaning is consistent with all dictionary
definitions entered in this case.
c. The Caselaw Cited By PSG Is Distinguishable
Furthermore, the two cases on which PSG relies in arguing that I ignore
dictionary definitions are distinguishable from this dispute. PSG cites to
Pharmaceutical Product Development, Inc. v. TVM Life Science Ventures VI, L.P.
for the proposition that this Court may look to extrinsic evidence to find
ambiguity. 242 PSG also cites to this Court’s opinion in In re P3 Health Group
240
TT665:18–667:10, 680:19–689:8 (Lankau); JTX 385 at 1; JTX 402 at 1; JTX 403 at 1.
241
See TT664:11–18 (Lankau) (stating that a company that is primarily involved in the
small-molecule drug industry may nonetheless market itself as a “biopharmaceutical”
company because “it suggests that the company is involved in innovation, in new
technology, whether it’s for small molecules or not.”).
242
Pl.’s Post-Trial OB at 46–47; Pl.’s Post-Trial AB at 9–10.
57
Holdings, LLC for the proposition that dictionary definitions “are not the only source
of plain meaning.”
In Pharmaceutical Product Development, Inc., the parties disputed the
meaning of the word “efficacy” in the context of a drug compound used to treat
psoriasis. 243 The defendants argued that “efficacy” meant only a drug’s ability to
achieve a desired therapeutic or physiological response. 244 The plaintiff argued that
a drug’s potency (i.e., “the relative amount of drug needed to produce a given
response”) is related to its efficacy.245 In rejecting the defendants’ narrow
construction at the pleadings stage, this Court highlighted that while some
dictionaries defined “efficacy” in the more narrow sense advocated by the
defendants, other pharmacology textbooks broadly considered potency alongside
efficacy.246 Based on these competing sources, this Court concluded that it was
reasonably conceivable that a drug compound’s potency was related to its
efficacy.247
243
2011 WL 549163, at *2 (Del. Ch. Feb. 16, 2011).
244
Id.245
Id. (quoting Gary C. Rosenfeld & David S. Loose, PHARMACOLOGY 5 (4th ed.
Lippincott Williams & Wilkins 2007)).
246
Id. at *3–4.
247
Id. at *2, 6.
58
In In re P3 Health, this Court addressed whether it had personal jurisdiction
over the general counsel of a Delaware limited liability company. 248 To resolve the
dispute over personal jurisdiction at the pleadings stage, this Court had to determine
the meaning of “material participation,” as that term is used in the Delaware LLC
Act. 249 The Court first looked to dictionaries to determine the meaning of “material
participation.”250 The Court also noted that the concept of “material participation”
had a long history in federal tax law and looked to that history in determining the
meaning of “material participation.” 251 Notably, while this Court did look to other
non-dictionary sources in determining the meaning of “material participation,” its
review of federal tax law sources was not used to contradict the dictionaries used but
to reinforce its analysis of dictionary definitions.252
Both cases are distinguishable from this dispute. In Pharmaceutical Product
Development, Inc., this Court weighed dictionaries and pharmacology textbooks in
determining whether it was reasonably conceivable that “efficacy” was ambiguous.
In contrast, PSG has not cited a single dictionary or textbook that defines
“biopharmaceutical” as including both biologics and small-molecule drugs.
248
282 A.3d 1054, 1058 (Del. Ch. 2022).
249
Id. at 1065.
250
Id. at 1065–66.
251
Id. at 1067–69.
252
Id. at 1068.
59
Concerning In re P3 Health, PSG asks that I look to extrinsic evidence to contradict
the numerous dictionary definitions that run contrary to its asserted meaning of
“biopharmaceutical.” This is inconsistent with the approach taken in that case,
where this Court used extrinsic evidence to reinforce its interpretation of dictionary
definitions.
Finally, PSG asks that I find ambiguity in the Supply Agreement by looking
to the recitals, which describe PSG as “a leading large and small molecule and viral
vector [CDMO].” 253 This argument fails. To begin, “recitals are not substantive
provisions of an agreement.”254 PSG is correct that recitals can “be used to explain
some apparent doubt with respect to the intended meaning of the” Supply
Agreement. 255 However, there is no apparent doubt as to the unambiguous meaning
of “biopharmaceutical.” Furthermore, the recital PSG points to does not even use
the term “biopharmaceutical.”
d. “Biopharmaceutical” Unambiguously Means Biologics
Only
In light of these considerations, I conclude that the meaning of
“biopharmaceutical” is unambiguous in the context of the parties’ negotiations. To
253
Supply Agreement, Recitals.
Urdan v. WR Cap. P’rs, LLC, 2019 WL 3891720, at *13 (Del. Ch. Aug. 19, 2019), aff’d,
254
244 A.3d 668 (Del. 2020).
255
Id. (quoting New Castle Cty. v. Crescenzo, 1985 WL 21130, at *3 (Del. Ch. Feb. 11,
1985)).
60
begin, numerous dictionaries define “biopharmaceutical” as a drug derived from
living organisms, which is consistent with meaning biologics only. While there are
instances where deviation from dictionary definitions is appropriate, it is notable that
PSG was unable to point to a single dictionary that supported its interpretation of
“biopharmaceutical.” Furthermore, even if it was appropriate to look to Turck’s
testimony and the 10-Ks he discussed, this extrinsic evidence was rebutted by
Lankau. In any event, Turck’s expert testimony is insufficient to overcome the
mountain of authoritative sources that define “biopharmaceutical” as encompassing
biologics only.
I conclude that the unambiguous meaning of “biopharmaceutical” is biologics
only. Therefore, PSG Competitor means a “third party whose business derives at
least 50% of its revenues from performing [biologics] development or commercial
manufacturing services.” Because it is undisputed that Recipharm did not derive at
least 50% of its revenue from biologics, Recipharm is not a PSG Competitor.
Though Irrelevant Given The Lack Of Ambiguity, Extrinsic
Evidence From The Negotiation Of The Supply Agreement
Is Consistent With Arranta’s Interpretation
Where the “contract is unambiguous, extrinsic evidence may not be used to
interpret the intent of the parties, to vary the terms of the contract or to create an
ambiguity.”256 Thus, as I have already concluded that “biopharmaceutical” is
256
Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del. 1997).
61
unambiguous, it would be appropriate to conclude my analysis here and go no
further. Because most of the trial focused on extrinsic evidence relating to the
meaning of “biopharmaceutical,” however, I nonetheless briefly address the limited
relevant extrinsic evidence presented at trial to confirm that its consideration would
not change the outcome here.
If I were to consider extrinsic evidence, “[s]uch extrinsic evidence [could]
include overt statements and acts of the parties, the business context, prior dealings
between the parties, [and] business custom and usage in the industry.” 257 With that
said, “relevant extrinsic evidence is that which reveals the parties’ intent at the time
they entered into the contract” and “backward-looking evidence gathered after the
time of contract is usually not helpful.”258
The parties presented two categories of extrinsic evidence in support of their
competing interpretations of the term PSG Competitor: (1) communications between
or among the parties at the time of drafting the Supply Agreement; and (2)
subsequent conduct of the parties after executing the Supply Agreement. Having
considered the parties’ testimony, the only sufficiently reliable evidence from the
time the parties negotiated the Supply Agreement are Boyd’s comment that Catalent
257
In re Mobilactive Media, LLC, 2013 WL 297950, at *15 (Del. Ch. Jan. 25, 2013)
(quoting United Rentals, Inc. v. RAM Hldgs, Inc., 937 A.2d 810, 834–35 (Del. Ch. 2007)).
258
Eagle Indus., Inc., 702 A.2d at 1233 n.11 (citation omitted) (emphasis in original).
62
and Lonza were examples of PSG Competitors and a handful of internal Arranta
notes and emails. 259 I conclude that, even if I could consider this extrinsic evidence,
this sparse evidence is either neutral or consistent with Arranta’s interpretation. The
remaining evidence presented at trial concerned communications and events arising
after the parties negotiated and signed the Supply Agreement. I conclude that such
evidence, even if I could consider it, would ultimately be irrelevant to my analysis.
a. Communications During Supply Agreement
Negotiations Either Support Or Are Consistent With
Arranta’s Interpretation
The primary piece of extrinsic evidence from the parties’ negotiation of the
Supply Agreement is Boyd’s statement that PSG did not want Arranta selling itself
to a company like Lonza or Catalent. At the time Boyd made this statement, Lonza
derived more than 50% of its revenue from biologic CDMO services. 260 In contrast,
259
The record in this matter also includes vague testimony about what is, at this point,
perhaps best described as the witnesses’ recollections of the “atmospherics” of the
negotiations. In the heat of this litigation, I do not find this sort of testimony particularly
reliable or helpful. Instead, my sense is that such testimony is, perhaps unintentionally,
informed by the litigation and the outsize importance these matters now have. In any event,
I find that the parties did not actually express the views about “biopharmaceutical” that
they now suggest could have been gleaned from the overall context of the discussions. See
United Rentals, Inc. v. RAM Hldgs., Inc., 937 A.2d 810, 835 (Del. Ch. 2007) (“[T]he
private, subjective feelings of the negotiators are irrelevant and unhelpful to the Court’s
consideration of a contract’s meaning, because the meaning of a properly formed contract
must be shared or common.”) (cleaned up). Indeed, the lack of such discussions is
consistent with the understanding that “biopharmaceutical” was, and is, unambiguous.
260
JTX 249 at 108; JTX 233 at 92. For purposes of this Memorandum Opinion, “revenue
from biologics” encompasses Lonza’s revenues from both the “Biologics” and “Cell &
Gene” segments identified in Lonza’s business segment reporting within its annual reports.
63
Catalent derived 29% of its revenue from biologics in June 2019 and 33% of its
revenue from biologics in June 2020. 261 Boyd, PSG’s lead negotiator, testified that
he understood PSG Competitor to mean “anyone that derives 50 percent of their
revenue as a CDMO” and used Catalent and Lonza as examples to convey this
understanding.262
At first blush, this evidence could support interpreting “biopharmaceutical”
as meaning both biologics and small-molecule drugs since Catalent derived less than
50% of its revenue from biologic CDMO services. However, this initial impression
261
JTX 080 at 53; JTX 213 at 50. For purposes of this Memorandum Opinion, “revenue
from biologics” encompasses Catalent’s revenues from the “Biologics and Specialty Drug
Delivery” segment identified in Catalent’s business segment reporting within its annual
reports.
262
TT27:16–28:1 (Boyd). I note that PSG makes much of the fact in its briefing that Boyd
is no longer employed with PSG. Pl.’s AB at 16 (stating that Boyd “stand[s] to gain nothing
from the outcome of this litigation” because he “now works for Catalent, a prime
competitor of [PSG]”). Boyd, however, was the key negotiator for PSG and is still a high-
level employee in the industry. TT7:8–16 (Boyd) (testifying that he is currently the vice
president of finance for cell, gene, and protein therapies at Catalent). PSG’s suggestion
that Boyd does not care about the outcome of this dispute is unreasonable, if for
reputational purposes alone. This may explain why Boyd’s testimony came across as
stilted at trial. In any event, based on Boyd’s and Bamforth’s testimony at trial, it does not
appear that anyone at either PSG or Arranta actually assessed the exact percentage of
revenue each of Catalent and Lonza derived from biologics. Instead, it appears that all
parties relied on their general industry knowledge. See TT58:20–59:4 (Boyd) (“Q: So –
and you testified, I believe, that you thought Catalent had roughly 25 percent of its revenue
derived from biologics? A: Correct. Q: That’s from your memory; right? A: That is. Q:
You didn’t do an analysis to show what that number is; correct? A: I did not.”); TT155:23–
156:2 (Bamforth) (“Q: Did you look at Lonza’s revenues to confirm that it met the
definition of ‘PSG Competitor’ when Mr. Boyd raised it during the negotiations? A: I did
not.”); TT157:6–10 (Bamforth) (“Q: When Mr. Boyd raised Catalent as an example of a
potential PSG Competitor, did you look at Catalent’s revenues to confirm whether or not
it met the definition? A: No.”).
64
fades under scrutiny. Around the time the parties negotiated the Supply Agreement,
Catalent was aggressively growing its biologics business. 263 Indeed, as of June 30,
2022—just two years after signing—Catalent derived more than 50% of its revenue
from biologics. 264 Both Boyd and Bamforth knew of Catalent’s aggressive
expansion in biologics and that it could be a potential acquiror of Arranta during the
nine-year term of the Supply Agreement. 265
To the extent Boyd was trying to convey his subjective belief that
“biopharmaceutical” meant both small-molecule drugs and biologics, Catalent was
an odd example to use given the general awareness of Bamforth and Boyd as to its
aggressive acquisition strategy.266 This is particularly the case considering the nine-
263
Catalent stated in its 2020 10-K that “[i]n large part due to our recent acquisitions and
their subsequent organic growth, revenue contributions from our biologics business have
grown from approximately 10% in fiscal 2014 to 33% in fiscal 2020.” JTX 213 at 7. That
10-K further states that “[w]e believe our own internal innovation, supplemented by current
and future external partnerships and acquisitions, will continue to strengthen and extend
our leadership positions in the delivery and development of drugs, biologics, cell and gene
therapies, and consumer health products.” Id.264
JTX 378 at 7.
265
See TT59:22–66:13 (Boyd) (PSG’s lead negotiator acknowledging his awareness at the
time the Supply Agreement was negotiated that Catalent had spent billions of dollars since
2017 to acquire biologics businesses and expand into the biologics market); TT156:11–
157:5 (Bamforth) (Arranta’s lead negotiator stating that, while he was not aware of
Catalent’s percentage of revenue from biologics during negotiations, he was aware that
Catalent was very active in the biologics CDMO sector and had prior conversations with
Catalent’s CEO, who described the company’s intention to expand rapidly in the biologics
area).
266
Instead, one would expect Boyd to have used an example of a CDMO that had no or
very little biopharmaceutical activity (like Recipharm)—or to have simply and
straightforwardly said any CDMO.
65
year term of the Supply Agreement—practically speaking, and considering the
business context of the negotiations, it was not as relevant who was a PSG
Competitor at the time of signing but who might be a PSG Competitor in the near-
to intermediate-future when a sale transaction might more reasonably be expected to
occur. 267 Lonza already derived over 50% of its revenue from biologics. Catalent
was trending in that direction, and, within two years from the date of the Supply
Agreement—indeed, at approximately the time of the Merger—it derived over 50%
of its revenue from biologics.
In addition to these examples, PSG points to two other pieces of extrinsic
evidence from the time of negotiation to support its asserted meaning of
“biopharmaceutical.” First, in contemporaneous notes from April 2020 that refer to
Section 18.4, Bamforth wrote, “Cannot have sale to Competitor (CDMO).”268
Second, on May 12, 2020, Favaloro sent an email to certain Arranta investors where
he wrote that “the basis of the push on assignability [ ] is to ensure the protection of
[PSG] clients in the instance a Catalent or Lonza were to acquire the business.”269
In a subsequent email to these same investors on May 26, 2020, Bamforth stated that
267
For example, Lagarde testified at his deposition that he understood that Bamforth’s
business model was to develop new ventures with private equity seed money with the goal
of selling the company a few years later to monetize the private equity investors’
investment. Lagarde Dep. 104:2–11.
268
JTX 399 at 70.
269
JTX 153.
66
PSG “wanted the right to block a sale to a Competitor,” and wrote that “Competitor”
meant “>50% CDMO business.”270
I ultimately conclude that these notes and emails support neither Arranta nor
PSG. Favaloro’s email on May 12, 2020, is consistent with the conclusion that Boyd
told Arranta’s negotiators that Catalent and Lonza were examples of PSG
Competitors but never explained that those examples stood in for “any CDMO.”
Concerning Bamforth’s handwritten notes and email, Bamforth testified that he was
using shorthand.271 This seems entirely reasonable. Having observed Bamforth’s
testimony, I am in no way surprised that he did not take the time to write a short note
or email with the lawyerly precision that PSG suggests is now fatal to Arranta’s case.
These tea leaf facts are ultimately too thin a reed to support the weight that PSG
requires them to bear.
Thus, though extrinsic evidence is ultimately irrelevant to my analysis since
“biopharmaceutical” is unambiguous, the communications from the time of
negotiation either tend to support or at least are consistent with the conclusion that
“biopharmaceutical” means drugs derived from biologics only.
270
JTX 161.
271
TT163:20–164:21 (Bamforth).
67
b. The Remaining Extrinsic Evidence Is Irrelevant
The parties focused much of the trial on three other categories of extrinsic
evidence: evidence surrounding the potential acquisition of the Watertown Facility
by AMRI, evidence surrounding the Merger, and other agreements involving PSG
and third parties. As already noted, extrinsic evidence unrelated to the time of
contract is generally not relevant in determining the parties’ intended meaning of an
ambiguous term.272 This is doubly the case considering “biopharmaceutical” is not
ambiguous. Therefore, I expressly do not address this remaining extrinsic evidence
considering it is irrelevant to my analysis.
B. Additional Arguments Not Addressed In This Memorandum
Opinion
Arranta argues that PSG’s claims fail for additional reasons. First, Arranta
argues that Section 18.4 requires that Arranta assign the Supply Agreement before
PSG’s right to deem a Termination for Convenience is triggered.273 Second, Arranta
argues that a reverse triangular merger involving its grandparent, Arranta Holdings,
did not constitute a Change of Control Transaction.274 Per Arranta, this is because a
condition to any Change of Control Transaction under the Supply Agreement is that
272
See, e.g., supra Section II.A.2.
273
Def.’s Post-Trial OB at 33–36; Def.’s Post-Trial AB at 5–10.
274
Def.’s Post-Trial OB at 36–42; Def.’s Post-Trial AB at 10–13.
68
Arranta be a party to the applicable transaction. 275 Third, Arranta argues that the
“counterparty” to Arranta Holdings’ in the Merger was Arranta Holdco Inc. (not
Recipharm) because it was the “Buyer” of Arranta Holdings. 276 Per Arranta, because
Arranta Holdco Inc. did not derive any revenue from CDMO services, it would not
be a PSG Competitor. 277 Finally, Arranta raised certain equitable defenses.
Because I have concluded that Recipharm is not a PSG Competitor, which is
a condition to PSG’s right to trigger a Termination for Convenience by Arranta, I
need not reach these other arguments. It is quite notable, however, that with respect
to which entity was the counterparty to the Merger, PSG’s arguments resort to
assertions that I apply the step-transactions doctrine and ignore corporate
formalities. PSG’s reliance on these theories suggests further problems in its
position concerning Section 18.4.
In summary, “biopharmaceutical” unambiguously means drugs derived from
living organisms (i.e., biologics) and does not include small-molecule
pharmaceuticals. Thus, a PSG Competitor is a “Third Party whose business derives
275
Def.’s Post-Trial OB at 36–42; Def.’s Post-Trial AB at 10–13.
276
Def.’s Post-Trial OB at 42–43; Def.’s Post-Trial AB at 13–14. See also JTX 296 at 17
(“This Agreement and Plan of Merger . . . is by and among Arranta Holdco Inc., a Delaware
corporation (“Buyer”) . . . Recipharm AB (publ), a corporation incorporated under the laws
of Sweden (“Recipharm”), solely with respect to Section 10.19 of this Agreement . . . [and]
Arranta Bio Holdings, LLC, a Delaware limited liability company (the “Company”)[.]”).
277
Def.’s OB at 43; Def.’s Post-Trial AB at 14.
69
at least fifty percent (50%) of its revenues from performing contract [biologics]
development or commercial manufacturing services.” It is undisputed that
Recipharm did not derive at least 50% of its revenues from biologic CDMO services.
Therefore, PSG had no right to deem the Merger a Termination for Convenience by
Arranta.
III. CONCLUSION
For the foregoing reasons, Counts II and III of PSG’s Complaint must be
dismissed, and Arranta is entitled to judgment in its favor on Count I of its
counterclaims. The parties are directed to confer and submit a proposed form of
order within three business days.
70