Calistoga Investors Lose $50M Post-Merger Claim Against Gilead

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By Michael Greene

Gilead Sciences Inc. avoided a $50 million payment to former Calistoga Pharmaceuticals Inc. shareholders after the Delaware Chancery Court ruled March 15 that a post-merger milestone related to the development of a leukemia drug hadn’t been met ( S’holder Representative Servs. LLC v. Gilead Scis. Inc. , Del. Ch., No. 10537-CB, 3/15/17 ).

A representative of former Calistoga shareholders filed a lawsuit claiming that the milestone payment had been triggered when the European Commission approved Zydelig as a treatment for chronic lymphocytic leukemia. However, the approval was limited to a subpopulation of patients suffering from the disease.

Chancellor Andre G. Bouchard said that under the parties’ merger agreement, the milestone could only be triggered by a “disease-level regulatory approval.” The European Commission hadn’t given such an approval, he said.

A Gilead representative declined to comment. The plaintiff’s attorney—Bradley Sorrels, a Wilmington, Del.-based partner at Wilson Sonsini Goodrich & Rosati—didn’t immediately respond to a request for comment

Gilead acquired Seattle-based biotechnology company Calistoga in 2011 for $375 million. Under the merger agreement, Gilead had to pay an additional $225 million to former Calistoga shareholders if Calistoga’s CAL-101 compound—now sold by Gilead under the name “Zydelig"—achieved three milestones.

Gilead paid the former shareholders $175 million in 2014, after U.S. Food and Drug Administration approvals for Zydelig satisfied the first two milestones.

Ambiguous Term

The parties’ dispute revolved around the interpretation of the word “indication” in the merger agreement.

According to the agreement, the third milestone was triggered if Gilead received regulatory approval of CAL-101 “as a first-line drug treatment (i.e., a treatment for patients that have not previously undergone systemic drug therapy therefor) for a Hematologic Cancer Indication.”

After finding that “indication” was ambiguous, the court said the parties’ merger negotiations and other extrinsic evidence supported the conclusion that the word, as used in the agreement, means “disease.”

“In sum, the drafting history of the Merger Agreement shows that the parties always were talking about regulatory approval of CAL-101 for a disease when they were negotiating over the milestone payments,” Bouchard wrote. “By contrast, the drafting history does not reflect that the parties were discussing regulatory labels when negotiating the triggers for the milestone payments.”

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To contact the editor responsible for this story: Yin Wilczek at

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