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Kaye Scholer Wins Complete Dismissal of $1.28 Billion of Claims in Commercial Litigation for…

August 16, 2010

Kaye Scholer Wins Complete Dismissal of $1.28 Billion of Claims in Commercial Litigation for AstraZeneca AB

On August 16, 2010, District Judge Barbara Jones of the U.S. District Court for the Southern District of New York granted AstraZeneca’s motion to dismiss all nine counts of a complaint filed by specialty pharmaceutical company Verus Pharmaceuticals, Inc. The allegations against AstraZeneca included breach of contract, fraud, and other quasi-contract claims, with a demand for more than $1.28 billion in compensatory and punitive damages. In granting Kaye Scholer’s motion to dismiss the complaint, Judge Jones rejected all of plaintiff’s legal theories and vindicated AstraZeneca’s contention that it honored its obligations under a joint drug development program.

The dispute centered around a complex, interlocking trio of contracts under which Verus sold development rights to a prospective pediatric asthma treatment to a subsidiary of AstraZeneca. Verus alleged that those contracts required AstraZeneca to reach certain developmental milestones before it could decide whether to make a $280 million earnout payment to Verus and retain the asthma assets or alternatively give Verus the option to repurchase them for one dollar. When safety test results showed that the product was unsuitable for further development, AstraZeneca elected not to make earnout payment but Verus failed to exercise its one-dollar option, choosing instead to litigate.

Kaye Scholer moved to dismiss all of Verus’s claims, arguing that AstraZeneca’s conduct complied with all of its contractual obligations and that Verus’s fraud and other claims were unsupportable. Judge Jones’s decision embraced AstraZeneca’s position on the interpretation of the interlocking contracts and on the core fact that AstraZeneca acted entirely properly in terminating the collaboration in light of serious safety concerns about the drug treatment. The Court agreed that AstraZeneca had the right to discontinue development because “[t]here is simply no unequivocal command in [the contracts] that Defendants reach a [developmental milestone] with the FDA. As long as it exercised its Diligent Efforts, AstraZeneca had the contractual right to decide to cease product development before reaching [such a milestone]. . . . [I]t is undisputed that, in exercising its Diligent Efforts, AstraZeneca concluded that further product development . . . was not safe or practical.” The Court further concluded that the fraud and quasi-contract claims were duplicative of the dismissed breach of contract claims, and were otherwise fatally flawed.

The Kaye Scholer team representing AstraZeneca included litigation partners Aaron Rubinstein and Phillip A. Geraci, and associates Michael Bullerman, Aaron Miner and Amanda Croushore. The in-house litigation team at AstraZeneca was instrumental in developing the strategy for this victory and its implementation.

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