Portal Instruments, Inc. v. LEO Pharma A/S

Background

Portal Instruments, Inc. and LEO Pharma A/S entered a Collaboration and License Agreement in December 2019 to jointly develop drug-delivery systems. LEO Pharma paid Portal a $12 million upfront amount and agreed to make royalties, milestone payments, and quarterly System Development Fee payments if it elected to develop one of the systems described in the agreement.

LEO Pharma elected to develop the 1x2mL System. The agreement required ten quarterly payments of $1.5 million, and LEO Pharma made the first seven. On September 15, 2021, LEO Pharma sent Portal a notice stating that it was terminating the agreement effective December 22, 2021, and was immediately ceasing development of the 1x2mL System. LEO Pharma did not make the eighth payment, which was due October 1, 2021, and covered October through December 2021. Portal sued, alleging that LEO Pharma breached the contract by failing to make that payment.

Issue and governing standard

LEO Pharma moved under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not state a legally sufficient claim. The court applied New York law because the agreement selected New York substantive law. At this stage, the court could dismiss the contract claim if the agreement’s unambiguous language contradicted Portal’s allegations.

Court’s analysis

The dispute centered on the agreement’s statement that, if LEO Pharma elected to cease development, it would have “no obligation to make any future installment payments” toward the System Development Fee. Portal argued that “future installment payments” meant only payments that would become due after the agreement’s termination, so the payment due during the 90-day termination-notice period remained owed.

The court rejected that interpretation. It held that the obligation to make future installment payments ended when LEO Pharma elected to cease development, not when the agreement later terminated. Any installment payment due beyond the current calendar quarter therefore qualified as a future installment payment. Because LEO Pharma made the election on September 15, 2021, the October 2021 payment was a future installment payment that LEO Pharma no longer had to pay.

The court also rejected Portal’s arguments that this reading made the agreement’s termination provision unnecessary, improperly equated or distinguished contractual terms, or produced a commercially unreasonable result. The termination provision still governed other obligations, and the agreement separately addressed milestone payments, royalties, and other amounts that could accrue during the notice period. The court concluded that “ceasing” development and “terminating” the agreement had different meanings and that enforcing the agreement as written was not commercially unreasonable.

Disposition

Judge Jennifer H. Rearden granted LEO Pharma A/S’s motion to dismiss the first cause of action. The court denied Portal Instruments, Inc.’s motion for oral argument as moot. The opinion does not state that the first cause of action was dismissed with or without prejudice.