In re Clovis Oncology, Inc. Derivative Litig.
Court of Chancery of Delaware
July 1, 2019, Submitted; October 1, 2019, Decided
CONSOLIDATED C.A. No. 2017-0222-JRS
MEMORANDUM [*2] OPINION
SLIGHTS, Vice Chancellor
Like many upstart biopharmaceutical companies, nominal defendant, Clovis Oncology, Inc. (or the "Company"), had one drug among its drugs under development, Rociletinib (or "Roci"), that was especially promising. Roci, a therapy for the treatment of lung cancer, performed well during the early stages of its clinical trial. But data from later stages of the trial revealed the drug likely would not be approved for market by the Food and Drug Administration ("FDA"). Plaintiffs, Clovis stockholders, allege members of the Clovis board of directors (the "Board") breached their fiduciary duties by failing to oversee the Roci clinical trial and then allowing the Company to mislead the market regarding the drug's efficacy. These breaches, it is alleged, caused Roci to sustain corporate trauma in the form of a sudden and significant depression in market capitalization. Plaintiffs also allege that certain members of the Board and a member of senior management engaged in unlawful stock trades before the market was apprised of Roci's failure.
Defendants have moved to dismiss each of Plaintiffs' derivative claims under Court of Chancery Rules 23.1 and 12(b)(6) for failure to plead demand futility [*3] with particularity and failure to state viable claims. As explained below, Plaintiffs have well-pled that Defendants face a substantial likelihood of liability under Caremark and our Supreme Court's recent explication of Caremark in Marchand v. Barnhill. Clovis conducted its clinical trial of Roci subject to strict protocols and associated FDA regulations. Yet, assuming the pled facts are true, the Board ignored red flags that Clovis was not adhering to the clinical trial protocols, thereby placing FDA approval of the drug in jeopardy. With the trial's skewed results in hand, the Board then allowed the Company to deceive regulators and the market regarding the drug's efficacy.
As explained in Marchand, ] "to satisfy their duty of loyalty, directors must make a good faith effort to implement an oversight system and then monitor it." This is especially so when a monoline company operates in a highly regulated industry. Here, Plaintiffs have well-pled Roci was "intrinsically critical to the [C]ompany's business operation," yet the Board ignored multiple warning signs that management was inaccurately reporting Roci's efficacy before seeking confirmatory scans to corroborate Roci's cancer-fighting [*4] potency—violating both internal clinical trial protocols and associated FDA regulations. In other words, Plaintiffs have well-pled a Caremark claim.Read The Full CaseNot a Lexis Advance subscriber? Try it out for free.
Full case includes Shepard's, Headnotes, Legal Analytics from Lex Machina, and more.
2019 Del. Ch. LEXIS 1293 *; 2019 WL 4850188
IN RE CLOVIS ONCOLOGY, INC. DERIVATIVE LITIGATION
Notice: THIS OPINION HAS NOT BEEN RELEASED FOR PUBLICATION. UNTIL RELEASED, IT IS SUBJECT TO REVISION OR WITHDRAWAL.
Prior History: Medina v. Clovis Oncology, Inc., 2016 U.S. Dist. LEXIS 19784 (D. Colo., Feb. 18, 2016)McKenry v. Atwood, 2017 Del. Ch. LEXIS 567 (Del. Ch., May 2, 2017)
clinical trial, protocol, stock, responses, unconfirmed, confirmed, trades, motion to dismiss, compliance, oversight, reporting, patients, regulations, fiduciary, Plaintiffs', well-pled, reasonable inference, unjust enrichment, allegations, holdings, particularized, Nominating, inception, side effect, enrichment, scienter, monitor, substantial likelihood, member of the board, derivative claim
Business & Corporate Law, Management Duties & Liabilities, Fiduciary Duties, Duty of Loyalty, Actions Against Corporations, Derivative Actions, Procedural Matters, Civil Procedure, Defenses, Demurrers & Objections, Motions to Dismiss, Failure to State Claim, Business Judgment Rule, Standing, Demands, Futility, Claim Presentation, Directors & Officers, Fiduciary Duties, Contracts Law, Remedies, Equitable Relief, Quantum Meruit