Contract – Development rights – Clinical trials

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Where a plaintiff sold its rights to develop and commercialize an immune system compound that was then in Phase I clinical trials, the defendant purchaser’s motion to dismiss the plaintiff’s complaint should be denied because the plaintiff has sufficiently alleged that the defendant breached the parties’ agreement as well as the implied covenant of good faith and fair dealing by failing to disclose to the plaintiff that it did not intend to pursue Phase II trials.

“In 2015, Aramis Holding LLC (‘Aramis’) sold Novartis Institutes for Biomedical Research, Inc. (‘Novartis’) its rights to develop and commercialize an immune system compound known as Interleukin-15 or NIZ985 (‘IL-15′), which was then in Phase I clinical trials. Although it surrendered decision-making and control over the development of IL-15, Aramis now sues Novartis for breach of contract, breach of the implied covenant of good faith and fair dealing, and misrepresentation. …

“In October 2015, Aramis entered into an Interest Purchase Agreement (‘IPA’) with Novartis under which Novartis acquired Aramis’ rights in IL-15 for an upfront payment of $140 million and the promise of hundreds of millions of dollars in additional milestone payments. …

“Novartis had no obligation under the IPA to develop IL-15. …

“The IPA, however, did not divest Aramis of any interest in, or any ability to assess, Novartis’ work or decisions. …

“Aramis’ complaint asserts claims for breach of the implied covenant of good faith and fair dealing (Count I), breach of contract (Count II), and misrepresentation (Count III). It alleges that Novartis breached the IPA and its implied covenant by failing to disclose to Aramis that it did not intend to pursue Phase II trials, breached section 2.7.4 of the IPA by failing to provide the information Aramis requested even after Novartis told Aramis that it did not intend to proceed, and repeatedly misrepresented its intentions for many years to Aramis’ detriment.

“Novartis argues that the IPA does not expressly require Novartis to disclose its intention not to pursue IL-15, does not specify when Novartis should disclose such a decision, and does not entitle Aramis to reacquire the rights to IL-15. …

“Novartis’ arguments appear to be true, but are beside the point. The IPA is not clear about when Novartis must inform Aramis about a decision not to pursue further regulatory approval or development of IL-15, but clearly under the IPA Aramis bargained for the opportunity to reacquire IL-15 if Novartis decided not to pursue developing the compound. The contract plainly envisions some notice to Aramis after that decision is made. Whether Novartis was required to report its decision not to pursue IL-15 in its biannual report on its ‘efforts … to achieve each of the Milestones,’ is a question I cannot answer on the existing record. But actively concealing such a decision, which was material to Aramis and which triggered Aramis’ bargained-for opportunity to negotiate for the reacquisition of Novartis’ rights to IL-15, and actively and falsely stringing Aramis along by suggesting that developing IL-15 was still a high priority for Novartis, allegedly had the effect of depriving Aramis of the benefits of its bargain given the limited duration of patent protections.

“The implied covenant of good faith and fair dealing, which ‘inheres in every contract’ under Delaware law, … ‘ensures that the parties deal honestly and fairly with each other when addressing gaps in their agreement.’ …

“There is a ‘gap’ in the IPA related to disclosure of a decision by Novartis not to pursue IL-15. Novartis was required to act fairly toward Aramis in this regard. I cannot determine that, as a matter of law, there was no obligation on Novartis to provide Aramis timely notice of Novartis’ decision not to pursue IL-15 as part of Novartis’ implied covenant to perform fairly and in good faith under the terms of the IPA. Moreover, Aramis has directly alleged a violation of section 2.7.4 of the IPA even after Novartis disclosed its decision to Aramis, as well as misrepresentation. Aramis has alleged sufficient facts to survive defendant’s Rule 12(b)(6) challenge.”

Aramis Holding LLC v. Novartis Institutes for Biomedical Research, Inc. (Lawyers Weekly No. 09-029-25) (6 pages) (Krupp, J.) (Suffolk Superior Court) (Civil No. 24-1786-BLS1) (Feb. 6, 2025).

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