      IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

PHARMATHENE, INC.,                          )
a Delaware corporation,                     )
                                            )
                  Plaintiff,                )
                                            )
      v.                                    )         Civil Action No. 2627-VCP
                                            )
SIGA TECHNOLOGIES, INC.,                    )
a Delaware corporation,                     )
                                            )
                  Defendant.                )


                           MEMORANDUM OPINION

                               Submitted: January 15, 2014
                                Decided: August 8, 2014


A. Richard Winchester, Esq., Christopher A. Selzer, Esq., McCARTER & ENGLISH,
LLP, Wilmington, Delaware; Roger R. Crane, Esq., K&L GATES LLP, New York, New
York; Attorneys for Plaintiff.

Stephen P. Lamb, Esq., Meghan M. Dougherty, Justin A. Shuler, Esq., PAUL, WEISS,
RIFKIND, WHARTON & GARRISON LLP, Wilmington, Delaware; Walter Rieman,
Esq., Jaren Elizabeth Janghorbani, Esq., PAUL, WEISS, RIFKIND, WHARTON &
GARRISON LLP, New York, New York; Harold P. Weinberger, Esq., Seth F. Schinfeld,
Esq., KRAMER LEVIN NAFTALIS & FRANKEL LLP, New York, New York;
Attorneys for Defendant.


PARSONS, Vice Chancellor.
      On May 24, 2013, the Delaware Supreme Court issued its decision (the “Supreme

Court Opinion”)1 in SIGA Technologies, Inc.‟s (“SIGA”) appeal of this Court‟s

September 22, 2011 post-trial opinion (the “Post-Trial Opinion”).2 In its decision, the

Supreme Court upheld my determination that SIGA had breached, in bad faith, its

contractual obligation to negotiate a license agreement for the smallpox antiviral ST-246

with PharmAthene, Inc. (“PharmAthene”) that would incorporate the details of a license

agreement term sheet (the “LATS”) to which SIGA and PharmAthene previously had

agreed. The Supreme Court reversed my conclusion that SIGA also was liable under the

doctrine of promissory estoppel and, in doing so, reversed my damages award to

PharmAthene, which took the form of an equitable payment stream, on the basis that it

was “unclear to what extent the Vice Chancellor based his damages award upon a

promissory estoppel holding rather than upon a contractual theory of liability.” 3 The

Supreme Court remanded the case for the purpose of enabling this Court to reconsider its

damages award in light of the decision on appeal.

      On remand, PharmAthene argues that all potential remedies for SIGA‟s breach,

including those I rejected in the Post-Trial Opinion, are “back on the table.” SIGA

contends that, based on the Supreme Court Opinion, PharmAthene no longer is entitled to


1
      SIGA Techs., Inc. v. PharmAthene, Inc., 67 A.3d 330 (Del. 2013) (hereinafter
      Supreme Court Opinion).
2
      Pharmathene, Inc. v. Siga Techs., Inc., 2011 WL 4390726 (Del. Ch. Sept. 22,
      2011) (hereinafter Post-Trial Opinion).
3
      Supr. Ct. Op., 67 A.3d at 351.

                                           1
any equitable or non-contractual remedy and that it is not entitled to an award of

contractual expectation damages because it failed to prove any such damages with the

requisite certainty.

       This Memorandum Opinion, which addresses the issues presented on remand, is

divided into two sections. In Section I, I provide a brief background of the relevant

history of this dispute and describe this Court‟s understanding of the scope of the

Supreme Court‟s mandate on remand. In Section II, I consider PharmAthene‟s right to

recover contractual damages for SIGA‟s bad faith conduct.

       For the reasons that follow, I conclude that PharmAthene has proven adequately

that it is entitled to an award of a lump sum as expectation damages for SIGA‟s breach of

contract. Specifically, I find that PharmAthene has demonstrated that it is entitled to an

award of expectation damages in the form of a lump sum for lost profits, which are to be

calculated in accordance with the rulings set out in this Memorandum Opinion and the

Order being entered concurrently herewith.

                                I.     BACKGROUND

                           A.        The Post-Trial Opinion

       In January 2011, the Court presided over an eleven-day trial in this action.4 After

extensive post-trial briefing, counsel presented their final arguments on April 29, 2011.

On September 22, 2011, I issued my Post-Trial Opinion in which I found in favor of




4
       Trial was held on January 3–7, 10–12, 18–19, and 21, 2011. Unless otherwise
       noted, the capitalized terms in this Memorandum Opinion are defined as they were
       in the Post-Trial Opinion.
                                             2
SIGA on Counts One through Four and Count Seven of the Complaint. Counts One

through Four were premised on the notion that there was a binding agreement between

the parties that encompassed the terms of the LATS, such that the LATS effectively

constituted a license agreement.5 Based on the evidence presented at trial, I held that the

LATS, viewed either as a stand-alone document or as later incorporated, in turn, into the

merger term sheet, the Bridge Loan Agreement, and the Merger Agreement, was not a

binding license agreement.     PharmAthene, therefore, lacked the requisite underlying

license agreement to prevail on its first four causes of action. As to Count Seven,

PharmAthene‟s claim for unjust enrichment, I rejected that claim because it was

subsumed by both its breach of contract and promissory estoppel claims in Counts Five

and Six, respectively, of the Complaint.

      In Count Five, PharmAthene argued that SIGA had breached its explicit

contractual obligation to negotiate, in good faith, a license agreement with it for ST-246.

In the Post-Trial Opinion, I held that SIGA had a contractual duty to negotiate, in good

faith, a license agreement with PharmAthene with economic terms substantially similar to

those contained in the LATS. I also held that SIGA‟s proposals to PharmAthene in that

regard, namely, the various iterations of the Draft LLC agreement SIGA proposed in

November 2006, reflected a “complete disregard for the economic terms of the LATS”




5
      The most relevant of these counts was Count One, in which PharmAthene sought
      specific performance of a license agreement between it and SIGA in conformity
      with the terms of the LATS.

                                            3
and were made to PharmAthene in bad faith.6 Therefore, I determined that SIGA had

breached its obligation to negotiate the terms of a license agreement with PharmAthene

in good faith.

       In Count Six of the Complaint, PharmAthene alleged it was entitled to damages

based on promissory estoppel because: (1) SIGA promised PharmAthene that either the

parties would merge or it would get a license to ST–246; (2) PharmAthene reasonably

relied on that promise and undertook to assist in the development of ST–246; and (3)

PharmAthene suffered harm as a result.           I found that the evidence supported

PharmAthene‟s arguments in this respect and, accordingly, also held SIGA liable for

promissory estoppel.

       As a remedy for SIGA‟s bad faith breach of its obligation to negotiate a license

agreement in good faith and for its liability for promissory estoppel, I awarded

PharmAthene an “equitable payment stream or equitable lien” based on SIGA‟s future

profits from any successful commercialization of ST-246.7

       On October 4, 2011, SIGA moved for reargument, which I denied in a December

16, 2011 Memorandum Opinion.8 The parties then submitted competing forms of order.

On May 31, 2012, I entered the Final Order and Judgment in this matter along with a




6
       Post-Trial Op., 2011 WL 4390726, at *24–26.
7
       Some specifics of the payment stream are discussed in greater detail infra.
8
       PharmAthene, Inc. v. SIGA Techs., Inc., 2011 WL 6392906 (Del. Ch. Dec. 16,
       2011).

                                            4
Letter Opinion explaining my rationale for the manner in which I resolved over thirty

discrete points of disagreement reflected in the parties‟ competing orders.9 Thereafter,

SIGA appealed, among other things, the Post-Trial Opinion and the Final Order and

Judgment to the Delaware Supreme Court. PharmAthene promptly cross-appealed.

                        B.      The Supreme Court Decision

      On May 24, 2013, the Supreme Court issued its decision. Noting that, among

other things, SIGA “began experiencing „seller‟s remorse‟ during the merger negotiations

with PharmAthene,” the Supreme Court affirmed my conclusion “that SIGA acted in bad

faith when negotiating the license agreement in breach of its contractual obligations

under both the Merger Agreement and the Bridge Loan Agreement.”10 The Court also

upheld my finding that “but for SIGA‟s bad faith negotiations, [SIGA and PharmAthene]

would have consummated a license agreement.”11          Under these circumstances, the




9
      PharmAthene, Inc. v. SIGA Techs., Inc., 2012 WL 2146000 (Del. Ch. May 31,
      2012).
10
      Supr. Ct. Op., 67 A.3d 330, 347 (Del. 2013). Regarding what constitutes “bad
      faith” conduct, the Supreme Court held that “[u]nder Delaware law, „bad faith is
      not simply bad judgment or negligence, but rather it implies the conscious doing
      of a wrong because of dishonest purpose or moral obliquity; it is different from the
      negative idea of negligence in that it contemplates a state of mind affirmatively
      operating with furtive design or ill will.‟” Id. at 346 (quoting CNL–AB LLC v. E.
      Prop. Fund I SPE (MS REF) LLC, 2011 WL 353529, at *9 (Del. Ch. Jan. 28,
      2011)).
11
      Id. at 351.

                                           5
Supreme Court held that SIGA and PharmAthene had reached a “Type II” 12 preliminary

agreement to negotiate in good faith, and that PharmAthene was entitled to recover

contract expectation damages for SIGA‟s bad faith breach of that agreement.13

      The Supreme Court, however, reversed my holding that SIGA also was liable for

promissory estoppel. SIGA‟s promise to negotiate a license agreement in accordance

with the terms of the LATS was included expressly in both the Bridge Loan and Merger

Agreements. Consequently, the Supreme Court held that PharmAthene did not have a

valid promissory estoppel claim because “fully integrated, enforceable, contract[s]

govern[] the promise at issue.”14 Citing the reversal of my holding as to PharmAthene‟s

promissory estoppel claim, the Supreme Court also reversed my damages award because:

(1) the Supreme Court had “not previously addressed whether Delaware recognizes Type

II preliminary agreements and permits a plaintiff to recover expectation damages”; and

(2) it was unclear to what extent my damages award was “based on a promissory estoppel

holding rather than upon a contractual theory of liability predicated on a Type II



12
      See id. at 349 (“Parties create a Type II preliminary agreement when they agree on
      certain major terms, but leave other terms open for further negotiation. [T]he
      parties can bind themselves to a concededly incomplete agreement in the sense
      that they accept a mutual commitment to negotiate together in good faith in an
      effort to reach final agreement within the scope that has been settled in the
      preliminary agreement. A Type II agreement does not commit the parties to their
      ultimate contractual objective but rather to the obligation to negotiate the open
      issues in good faith in an attempt to reach the alternate objective within the agreed
      framework.”) (internal quotation marks and citations omitted).
13
      Id. at 350–51.
14
      Id. at 348.

                                            6
preliminary agreement.”15       The Court, therefore, remanded the case to me for

“reconsideration of the damages award” in light of its decision.

                           C.      The Scope of the Remand

       Before reconsidering my damages award in light of the Supreme Court‟s decision,

I first must determine what portions of the Post-Trial Opinion are subject to

reconsideration and what, if any, relevant portions are not. In addition to SIGA‟s appeal,

PharmAthene cross-appealed certain of my holdings in the Post-Trial Opinion.

Regarding PharmAthene‟s cross-appeals, the Supreme Court held as follows:

              PharmAthene‟s claims that it is entitled to (1) an alternative
              payment stream based on the LATS‟s terms, (2) specific
              performance granting it a license in accordance with the
              LATS‟s terms because the LATS is an enforceable contract,
              or (3) recover damages under the doctrine of unjust
              enrichment. All those claims are alternative contentions
              advanced in the event we do not affirm the Vice Chancellor‟s
              judgment. Because we affirm the Vice Chancellor‟s finding
              that SIGA is liable for breaching its contractual obligations to
              negotiate in good faith in accordance with the LATS‟s terms,
              we do not reach these arguments. PharmAthene also
              contends that the Vice Chancellor erroneously failed to award
              PharmAthene its lump sum expectation damages on the basis
              that they would be too speculative. We do not reach this
              claim either, because we reverse the Vice Chancellor‟s
              damages award and remand for him to reconsider it in light of
              this opinion.16

       Because the Supreme Court did not need to reach the issues PharmAthene raised

in its cross-appeal, there are two questions I must address: (1) may I reconsider my



15
       Id. at 351.
16
       Id. at 353.

                                             7
conclusions in the Post-Trial Opinion on the issues raised in the cross-appeal;17 and,

assuming I can, (2) is there any basis to change my holdings in these respects?

      The plain language of the Supreme Court‟s decision indicates that I may

reconsider my prior finding that an award of lump sum expectation damages to

PharmAthene would be improper because such a measure of damages is too speculative.

In addition to the language quoted above, the Supreme Court held explicitly that I am free

to “reevaluate the helpfulness of expert testimony” when determining a new damages

award.18 The Court‟s guidance in that respect would be rendered largely superfluous if

the rest of its decision is read as prohibiting me from reconsidering whether

PharmAthene is entitled to lump sum expectation damages for SIGA‟s bad faith breach.

Moreover, SIGA itself recognizes that, based on the Supreme Court Opinion, my holding

in the Post-Trial Opinion as to whether lump sum expectation damages are too


17
      SIGA argues that, as a matter of law, I may not. In support of its argument, SIGA
      cites Focht v. Mut. Ben. Ins. Co., 505 A.2d 452, 1986 WL 16313 (Del. 1986)
      (TABLE), in which the Supreme Court affirmed the decision of the court below
      and, as such, did not address the issues raised in a cross appeal and found them to
      be “moot.” Id. Focht is inapposite to the facts of this case. First, Focht did not
      involve a remand because the Supreme Court affirmed the trial court‟s decision.
      Second, and of greater significance, the Supreme Court affirmed the decision
      below in Focht in its entirety, which it did not do here. In addition to reversing
      one of the grounds upon which I held SIGA liable to PharmAthene, the Supreme
      Court also vacated my damages award and at least implicitly invited me to
      “reconsider” my decision not to grant PharmAthene an award of lump sum
      expectation damages, even though it did not reach that issue. Therefore, unlike in
      Focht, the fact that the Supreme Court did not reach a particular element of
      PharmAthene‟s cross-appeal does not necessarily make that element the law of the
      case to which I am bound and from which I cannot deviate on remand.
18
      Supr. Ct. Op., 67 A.3d at 353.

                                            8
speculative cannot be the “law of the case.”19 Therefore, while I have the authority to

reaffirm my previous decision in that regard, I am not required or bound by it to reach the

same conclusion I did previously.

      Similarly, I consider myself free to determine anew if PharmAthene is entitled to a

payment stream from SIGA based on the terms of the LATS, although I could only do so

in the context of SIGA‟s breach of contract. In the Post-Trial Opinion, I awarded

PharmAthene a payment stream with terms that were significantly less favorable to it

than those set out in the LATS.20        The Supreme Court‟s ruling that “SIGA and

PharmAthene entered into a Type II preliminary agreement and that neither party could

in good faith propose terms inconsistent with that agreement,”21 appears to place greater

weight on the terms specified in the LATS than I afforded those terms in determining my

prior damages award. At a minimum, therefore, if I again determined that PharmAthene

is entitled to a damages award based on a payment stream or otherwise, the Supreme




19
      Remand Arg. Tr. 68–69. SIGA does argue, however, that regardless of whether
      that prior holding is “binding,” nothing in the record would support my reaching
      the opposite conclusion in these remand proceedings. I address that argument in
      Section II.D.1.a, infra.
20
      The damages award included, for example, a $40 million “upfront” payment from
      PharmAthene to SIGA, whereas the LATS only required a $16 million payment.
      In addition, the damages award was based on a 50/50 split between SIGA and
      PharmAthene of all net profits above $40 million, whereas the LATS had a more
      nuanced, revenue-based approach that was significantly more favorable to
      PharmAthene. Post-Trial Op., 2011 WL 4390726, at *40 n.234 & n.235 (Del. Ch.
      Sept. 22, 2011).
21
      Supr. Ct. Op., 67 A.3d 330, 351 (Del. 2013) (emphasis added).

                                            9
Court Opinion requires that I reexamine the role of the terms of the LATS in crafting any

such award.

      The effect of the Supreme Court‟s Opinion on the issue of specific performance is

more complicated. Count One of the Complaint sought specific performance of a license

agreement between SIGA and PharmAthene based on the terms of the LATS. After trial,

I dismissed that claim on the merits, with prejudice. Although the Supreme Court

reversed my conclusion as to Count Six (promissory estoppel) and my damages award, it

did not comment on or disturb my holding as to Count One.22             I also consider it

significant that the Supreme Court reversed my holdings as to Count Six and the

appropriate measure of damages for reasons unrelated to my grounds for finding in

SIGA‟s favor on Count One. Said differently, the Supreme Court did not disturb my

holding that PharmAthene was not entitled to a judgment ordering SIGA to specifically

perform a license agreement for ST-246 on the basis of the LATS because “a reasonable

negotiator in the position of PharmAthene would not have concluded that the LATS, as

attached to the Bridge Loan and Merger Agreements, manifested agreement on all of the

license terms that SIGA and PharmAthene regarded as essential” and, “therefore, such a


22
      PharmAthene asserted a cross-appeal for “specific performance granting it a
      license in accordance with the LATS‟s terms because the LATS is an enforceable
      contract.” Supr. Ct. Op., 67 A.3d at 353. As previously noted, regarding that and
      the other claims subject to PharmAthene‟s cross-appeal, the Supreme Court
      observed that “[a]ll those claims are alternative contentions advanced in the event
      we do not affirm the Vice Chancellor‟s judgment. Because we affirm the Vice
      Chancellor‟s finding that SIGA is liable for breaching its contractual obligations to
      negotiate in good faith in accordance with the LATS‟s terms, we do not reach
      these arguments.” Id.

                                           10
reasonable negotiator would not have believed that the LATS concluded the parties‟

negotiations.”23 In that sense, I agree with SIGA that my conclusions regarding specific

performance are, at this juncture, the “law of the case,” and that this Court lacks the

authority to modify those holdings.24

      Even assuming, however, that I could reconsider my previous decision as to

specific performance, PharmAthene has not presented any persuasive reason that would

cause me to do so.25 At trial, “[t]he primary form of relief PharmAthene s[ought] [wa]s

specific enforcement of a license agreement that strictly conforms to the LATS.”26

Consequently, the Post-Trial Opinion addressed that issue directly and thoroughly.



23
      Post-Trial Op., 2011 WL 4390726, at *18 (Del. Ch. Sept. 22, 2011).
24
      Although the Supreme Court also did not address my conclusion that
      PharmAthene was not entitled to recover damages under the doctrine of unjust
      enrichment, PharmAthene made no serious argument that that decision should be
      reevaluated. I note, however, that as with specific performance, the Supreme
      Court Opinion did not reverse my reasoning for rejecting PharmAthene‟s unjust
      enrichment claim. As a result, I arguably would have been precluded from
      reconsidering that holding had PharmAthene pressed it as an issue in the remand
      proceedings.
25
      In the Post-Trial Opinion, I also denied PharmAthene‟s request for an order of
      specific performance requiring SIGA to continue to negotiate, in good faith, a
      license agreement with PharmAthene in accordance with the LATS. Post-Trial
      Op., 2011 WL 4390726, at *35. In briefing on remand, PharmAthene argued that
      “no further negotiations are necessary” because any remaining terms beyond the
      LATS “are not material and can be supplied by the Court as part of the exercise of
      its equitable authority.” SIGA‟s Remand Reply Br. 49. That argument, however,
      merely recasts PharmAthene‟s request that I revisit my prior decision not to order
      specific performance of the LATS. For the reasons stated in the text above, I
      decline that request.
26
      Post-Trial Op., 2011 WL 4390726, at *11.

                                           11
       The Supreme Court‟s holding that neither SIGA nor PharmAthene could propose

terms that were inconsistent with the LATS does not compel a different conclusion. I

recognized explicitly in the Post-Trial Opinion that the LATS was intended to capture

“the key economic components” of any license agreement to which the two sides would

agree regarding ST-246.     I also held, however, that such agreement as to the key

economic terms was insufficient for purposes of ordering specific performance because

“[t]he issues SIGA and PharmAthene implicitly left for future negotiations [i.e., those

issues beyond the key economic terms] involve[d] far more than simply „unresolved

administrative issues‟” and that “PharmAthene ha[d] not proven that the parties believed

they had reached agreement on all essential terms.”27 Therefore, although the Supreme

Court‟s decision made it more certain that the key economic terms of any ST-246 license

would closely track those set out in the LATS, it did not disturb my post-trial finding that

PharmAthene was not entitled to specific performance of the LATS.

       The same logic applies to PharmAthene‟s assertion that specific performance is an

appropriate remedy because the passage of time has mooted the material omissions in the

LATS that I found rendered it insufficient to serve as a license agreement itself. The

Supreme Court Opinion did not fill any of those gaps. In addition, notwithstanding

PharmAthene‟s assurances to the contrary, I am not persuaded that the LATS contains all

of the elements that the two parties would consider necessary to include in a license

agreement for ST-246 because SIGA unilaterally has resolved some of the open issues


27
       Id. at *18.

                                            12
through its development of ST-246 to date. Moreover, even assuming counterfactually

that with the passage of time there no longer are any “material” terms missing from the

LATS and that, as a result, the LATS now could constitute an enforceable license

agreement between SIGA and PharmAthene, I still consider specific performance

inappropriate because it no longer is feasible to enforce the parties‟ intended bargain.

       Had SIGA and PharmAthene actually consummated a license agreement in

accordance with the LATS, that agreement would have entrusted PharmAthene with the

primary responsibility for developing ST-246. One of the most significant consequences

of SIGA‟s bad faith breach of its obligation to negotiate a license agreement in good faith

is that up until today, SIGA, not PharmAthene, has controlled the development of ST-

246. PharmAthene legitimately can claim to have suffered serious damage from being

deprived wrongfully of the opportunity to control development of a promising drug such

as ST-246. At the same time, as compared to the parties‟ presumed license agreement,

SIGA has expended significantly more time and resources to develop ST-246 than the

two sides had contemplated, and PharmAthene has expended significantly less.

Accordingly, ordering SIGA to transfer control of ST-246 to PharmAthene now, and

allowing PharmAthene to enjoy the fruits of SIGA‟s labors in developing ST-246 without

undertaking most of the obligations that were expected of it, would result in the

enforcement of a drastically different agreement than the one SIGA and PharmAthene




                                             13
actually contemplated.28 PharmAthene has cited no authority that supports the use of

specific performance in circumstances such as these.

      Therefore, PharmAthene has two potential remedies available to it in this remand

proceeding: (1) lump sum expectation damages; and (2) an equitable payment stream

based on the terms of the LATS.29 I turn next to an analysis of the merits of those

respective potential damages awards.

                                 II.     ANALYSIS

      Awarding PharmAthene an equitable payment stream that is consistent with the

terms of the LATS conceivably would be appropriate as a contractual remedy only if I

still conclude, on reconsideration, that an award of lump sum expectation damages is too

speculative; that is, only if I find PharmAthene has no adequate remedy at law. As such,

I address the availability of a lump sum expectation damages award first. Because I




28
      There also could be other complications in terms of interested third parties such as
      the Biomedical Advanced Research Development Authority (“BARDA”). For
      example, the relief PharmAthene seeks could include having this Court order the
      transfer of the BARDA contract from SIGA to PharmAthene or, at least, ordering
      SIGA and PharmAthene to execute a license agreement in which PharmAthene
      becomes the controller of ST-246, which also could affect the BARDA contract,
      which represents ST-246‟s best commercialization opportunity to date.
29
      If I find PharmAthene has not shown that it is entitled to either of these potential
      remedies, PharmAthene would be entitled to an award of reliance damages for the
      money it expended attempting to negotiate a license agreement with SIGA in the
      fall and winter of 2006. Ramone v. Lang, 2006 WL 905347, at *16 n.86 (Del. Ch.
      Apr. 3, 2006). Based on the evidence presented at trial, however, PharmAthene‟s
      reliance damages here appear to be in the range of only about $200,000, a nominal
      sum relative to PharmAthene‟s claimed damages of hundreds of millions of
      dollars.

                                           14
ultimately conclude that PharmAthene is entitled to an award of lump sum expectation

damages, I need not, and do not, reach the issue of whether PharmAthene could be

entitled to an award of an equitable payment stream for SIGA‟s breach of contract.

                 A.      Basis for Reconsidering Expert Testimony

      In the Post-Trial Opinion, I held that much of the expert testimony presented with

respect to lump sum expectation damages was unhelpful. Based on the Supreme Court

Opinion, I am persuaded that I should reevaluate my earlier holding in that regard. As

noted supra, in its decision, the Supreme Court explicitly invited me to reconsider my

prior holding that an award of lump sum expectation damages to PharmAthene for

SIGA‟s bad faith breach was unduly speculative.           To be meaningful, any such

reconsideration necessitates a reexamination of the expert testimony that was presented in

support of, and opposition to, an award of expectation damages.

      In that regard, I also am mindful of the Supreme Court‟s comment regarding my

decision in the Post-Trial Opinion to limit my award of expert witness fees to account for

those portions of expert evidence I found unhelpful when determining the initial damages

award. On that point, the Supreme Court stated:

             On remand, the Vice Chancellor shall redetermine his damage
             award in light of this opinion and is free to reevaluate the
             helpfulness of expert testimony. Therefore, we reverse the
             award of attorneys‟ fees and expenses so that the Vice
             Chancellor may determine on remand the proper award
             consistent with this opinion.30



30
      Supr. Ct. Op., 67 A.3d 330, 353 (Del. 2013).

                                           15
The Court‟s statement reinforces my conclusion that it is important on remand to take a

fresh look at the expert testimony relevant to the issue of expectation damages.

       Two other salient factors also favor my reconsidering the merits of the expert

evidence on damages presented at trial. First, since I issued the Post-Trial Opinion,

SIGA has been awarded a contract to sell ST-246 to the United States government via

BARDA. The parties dispute the extent to which I can and should consider an event such

as this, which occurred several years after SIGA‟s bad faith breach. Having considered

the competing arguments and relevant case law, I have decided that this Court should

take note of SIGA‟s success in procuring a contract with BARDA (i.e., its actual

commercialization of ST-246). In particular, that fact mitigates or possibly eliminates

some of the concerns I expressed in the Post-Trial Opinion regarding ST-246‟s future

prospects, including the possibility that the drug might not generate any profits at all.31



31
       See Post-Trial Op., 2011 WL 4390726, at *37 (Del. Ch. Sept. 22, 2011) (“The
       evidence adduced at trial proved that numerous uncertainties exist regarding the
       marketability of ST–246 and that it remains possible that it will not generate any
       profits at all. These uncertainties relate to, among other things, regulatory matters,
       questions of demand, price, competition, and the parties‟ marketing competency.”)
       (emphasis added).

       In that regard, I also note that evidence was presented at the remand hearing that
       the BARDA contract has a dollar value of over $460 million, and, to date, SIGA
       has received over $160 million of that money in payments from BARDA.
       Because the BARDA contract contains certain contingencies related to what, if
       any, formulation of ST-246 eventually will obtain FDA approval, SIGA has
       elected not to recognize as revenue any of the payments it has received from
       BARDA to date. PharmAthene vigorously disputes the propriety of that non-
       recognition as an accounting matter. While I take no position as to the
       appropriateness of SIGA‟s revenue recognition policies, I do find it at least
       tangentially relevant to this dispute that SIGA undoubtedly has started to receive
                                             16
Therefore, I am convinced that in these proceedings on remand a reevaluation of what the

parties‟ reasonable ST-246 commercialization expectations were at the time of SIGA‟s

breach is both appropriate and necessary.

      Another factor that supports reconsideration of the extent to which PharmAthene‟s

claimed lump sum damages are speculative is the Supreme Court‟s clarification of the

relevant law applicable to this case. Before the Supreme Court‟s Opinion, it was an open

question whether, as a matter of law, SIGA‟s bad faith breach of a “Type II” agreement

could support an award of expectation damages. Although I gave serious consideration

to PharmAthene‟s request for a lump sum damages award, and the evidence in support of

and in opposition to that request, the legal uncertainty regarding the availability of

expectation damages was another factor that caused me to focus primarily on crafting an

equitable remedy that would account for SIGA‟s liability for both breach of contract and

promissory estoppel.    In the course of reversing my finding regarding promissory

estoppel and remanding my damages award for reconsideration, the Supreme Court stated

definitively that expectation damages potentially could be awarded for SIGA‟s bad faith

conduct. In the same vein, the Supreme Court also emphasized the central role of the

contract as the source of any remedy I could award for SIGA‟s breach.32 Based on the




      significant sums of money related to ST-246‟s commercialization.               The
      supplemental evidence presented on remand also proves by a preponderance of the
      evidence that it no longer is reasonable or realistic to infer that ST-246 will not
      generate any profits at all.
32
      Supr. Ct. Op., 67 A.3d 330, 348 (Del. 2013) (“[A] Vice Chancellor must look to
      the contract as the source of a remedy on the breach of an obligation to negotiate
                                            17
Supreme Court‟s clarification of the law and its proper application, I consider it necessary

to reexamine the facts and expert reports that pertain to PharmAthene‟s request for an

award of lump sum expectation damages.33

                  B.      Legal Standard for Expectation Damages

       Under Delaware law, the standard remedy for breach of contract is based on the

reasonable expectations of the parties that existed before or at the time of the breach.34




       in good faith.”); id. (“We now turn to the question of what is the proper
       contractual remedy for breach of an agreement to negotiate in good faith where
       the court finds as fact that the parties, had they negotiated in good faith, would
       have reached an agreement.”) (emphasis added).
33
       The Supreme Court‟s clear indication that any remedy to which PharmAthene may
       be entitled is contractual in nature also persuades me that I should be chary about
       pursuing a more amorphous damages award in the form of an equitable payment
       stream. The Supreme Court‟s affirmance of my holding as to SIGA‟s liability for
       breach of contract but reversal of my damages award in the form of an equitable
       payment stream, even though I previously held that lump sum expectation
       damages were too speculative, suggests that the Court is dubious about the
       propriety of a payment stream award, either as contemplated in the Post-Trial
       Opinion or in some modified form, as a remedy in this breach of contract case.
       Moreover, the two cases that PharmAthene relies on to support its assertion that
       expectation damages can be awarded as a payment stream, ID Biomedical Corp. v.
       TM Techs., Inc., 1995 WL 130743 (Del. Ch. Mar. 16, 1995) and Cura Fin. Servs.
       N.V. v. Elec. Payment Exch., Inc., 2001 WL 1334188 (Del. Ch. Oct. 22, 2001), are
       inapposite. In ID Biomedical, the Court imposed a constructive trust over the
       defendant‟s property rights under certain patent applications because the
       defendants had obtained, and transferred, those rights by fraud. 1995 WL 130743,
       at *17. No such equitable basis exists in this case to award a constructive trust for
       SIGA‟s breach, albeit in bad faith, of its contractual obligations to PharmAthene.
       As to Cura Financial Services, it appears that the remedy the Court awarded there
       was not based solely on a breach of contract, but also on tortious interference and,
       to a lesser extent, quantum meruit as well. 2001 WL 1334188, at *23–24. The
       Supreme Court‟s Opinion makes clear that SIGA‟s only remaining basis for
       liability here is breach of contract.

                                            18
“This principle of expectation damages is measured by the amount of money that would

put the promisee in the same position as if the promisor had performed the contract.”35

One measure of expectation damages is a party‟s lost profits. An award of lost profits,

however, like any expectation damages award, “presupposes that the plaintiff can prove

damages with reasonable certainty.”36

      The issue then becomes what does it mean to be able to prove damages with

reasonable certainty?    “Responsible estimates of damages that lack mathematical

certainty are permissible so long as the court has a basis to make such a responsible

estimate.”37 Moreover, this Court has recognized that:

             Proof of the fact of damages in a lost profits case means proof
             that there would have been some profits. If the plaintiff‟s
             proof leaves uncertain whether plaintiff would have made any
             profits at all, there can be no recovery. But once this level of
             causation has been established for the fact of damages, less
             certainty (perhaps none at all) is required in proof of the
             amount of damages. While proof of the fact of damages must




34
      Duncan v. Theratx, Inc., 775 A.2d 1019, 1022 (Del. 2001).
35
      Id.
36
      Supr. Ct. Op., 67 A.3d 330, 351 n.99 (Del. 2013). In that regard, “[i]t is well-
      settled law that „a recovery for lost profits will be allowed only if their loss is
      capable of being proved, with a reasonable degree of certainty. No recovery can
      be had for loss of profits which are determined to be uncertain, contingent,
      conjectural, or speculative.‟” Id. (quoting Callahan v. Rafail, 2001 WL 283012, at
      *1 (Del. Super. Mar. 16, 2001)).
37
      Beard Research, Inc. v. Kates, 8 A.3d 573, 613 (Del. Ch. 2010), aff’d sub nom.
      ASDI, Inc. v. Beard Research, Inc., 11 A.3d 749 (Del. 2010).

                                           19
             be certain, proof of the amount can be an estimate, uncertain,
             or inexact.38

      The circumstances surrounding a breach also can affect the level of proof required

to sustain an award of expectation damages. For example:

             Doubts [about the extent of damages] are generally resolved
             against the party in breach. A party who has, by his breach,
             forced the injured party to seek compensation in damages
             should not be allowed to profit from his breach where it is
             established that a significant loss has occurred. A court may
             take into account all the circumstances of the breach,
             including willfulness, in deciding whether to require a lesser
             degree of certainty, giving greater discretion to the trier of
             the facts. Damages need not be calculable with mathematical
             accuracy and are often at best approximate.39

      PharmAthene argues that it is entitled to an award of the lost profits it would have

earned from the sale of ST-246 had SIGA not acted in bad faith and breached its

contractual obligations. The relevant inquiry, therefore, is at the time of SIGA‟s breach

in December 2006,40 what were the parties‟ reasonable expectations regarding



38
      Agilent Techs., Inc. v. Kirkland, 2010 WL 610725, at *29 n.271 (Del. Ch. Feb. 18,
      2010) (quoting Robert L. Dunn, Recovery of Damages for Lost Profits § 1.3 at 11
      (6th ed. 2005)). Accord Williston on Contracts § 64:9 (4th ed. 2000) (“Thus, it is
      now well established that the uncertainty that prevents recovery is uncertainty as
      to the fact of damage and not as to its amount.”).
39
      Cura Fin. Servs. N.V. v. Elec. Payment Exch., Inc., 2001 WL 1334188, at *20
      (Del. Ch. Oct. 22, 2001) (quoting Restatement (Second) of Contracts § 352 cmt. a
      (1981)). See also Beard Research, Inc., 8 A.3d at 613 (“Public policy has led
      Delaware courts to show a general willingness to make a wrongdoer „bear the risk
      of uncertainty of a damages calculation where the calculation cannot be
      mathematically proven.‟”) (quoting Great Am. Opportunities, Inc. v. Cherrydale
      Fundraising, LLC, 2010 WL 338219, at *23 (Del. Ch. Jan. 29, 2010)).
40
      There does not appear to be any serious dispute that the date of the breach was in
      December 2006. In briefing during the remand proceedings, SIGA tacitly
                                           20
PharmAthene‟s ability to realize profits from the sale of ST-246 under a license

agreement in accordance with the LATS.41 I address that issue next.

               C.      Appropriate Use of Post-Breach Developments

      Before turning to the substance of PharmAthene‟s expectation damages claim, I

first must resolve the issue of what, if any, consideration should be given to events that

have occurred since SIGA‟s bad faith breach in December 2006, the time as of which

damages must be measured. As SIGA itself recognizes, “the Court is not absolutely

barred from considering post-breach evidence.”42 Furthermore, case law suggests that

the Court can consider post-breach evidence “in order to aid in its determination of the




      recognized that the date of the breach was December 2006. See, e.g., SIGA‟s
      Opening Br. on Remand at 20 (“As an initial matter, the BARDA contract is
      irrelevant. Expectation damages are calculated as of the breach, and the BARDA
      contract was not and could not have been known as of December 2006.”). In
      terms of a more specific date, PharmAthene used December 20, 2006. Because
      SIGA did not contest that date seriously, I have used it in the few instances where
      a specific date was useful.
41
      PharmAthene was and continues to be harmed by SIGA‟s bad faith breach of its
      contractual obligations. That harm includes, but is not limited to, the opportunity
      PharmAthene would have had to develop a successful smallpox antiviral and the
      reputational enhancement and government funding attendant to such development.
      Based on the damages case that it presented at trial, PharmAthene has shown, at a
      minimum, that one of the ways in which it was harmed was that, at the time of
      SIGA‟s breach, PharmAthene was poised to commercialize profitably ST-246 in a
      way that it was reasonably certain would be profitable and that SIGA deprived it
      of that opportunity.
42
      SIGA Answering Br. on PharmAthene‟s Mot. to Reopen the Record 12 (July 30,
      2013).

                                           21
proper expectations as of the date of the breach.”43 Therefore, to the extent that evidence

of any post-breach events in this case are helpful to the Court in assessing the parties‟

reasonable expectations for ST-246‟s commercialization prospects in December 2006, I

can and have considered that evidence. In all other respects, however, post-breach events

are irrelevant to the appropriate measure of PharmAthene‟s expectations damages as of

SIGA‟s breach in December 2006. Accordingly, I have relied only sparingly on post-

breach information in my analysis of PharmAthene‟s damages claim and explicitly have

identified any such evidence I have considered.         Thus, for example, while it is

appropriate to consider the fact that, to date, SIGA has sold “X dollars” worth of ST-246

to evaluate whether at the time of the breach PharmAthene had a reasonable expectation

of commercializing ST-246, it would be inappropriate to use “X dollars” as the basis of a

damages award because it was neither known nor knowable at the time of SIGA‟s breach.

                       D.      PharmAthene’s Damages Model

      To support its claim that it is entitled to an award of expectation damages for

SIGA‟s bad faith breach of its contractual obligations, PharmAthene offered the expert




43
      Comrie v. Enterasys Networks, Inc., 837 A.2d 1, 17 (Del. Ch. 2003). See also
      Cura Fin. Servs. N.V. v. Elec. Payment Exch., Inc., 2001 WL 1334188, at *23
      (determining damages, in part, by “clinging to known facts” including post-breach
      events); Honeywell Int’l, Inc. v. Hamilton Sundstrand Corp., 378 F. Supp. 2d 459,
      465 (D. Del. 2005) (“Indeed, the flexibility offered by the „book of wisdom‟ [i.e.,
      the knowledge that particular events actually occurred after the date of the wrong]
      is as important in the context of patent law as it is in the context of contract law
      because it discourages infringement.”).

                                            22
report and testimony at trial of Jeffrey L. Baliban.44 In his report, Baliban presented

damages calculations for six different scenarios using the discounted future earnings

method.      Of those six, I find most relevant the one in which Baliban calculated

PharmAthene‟s damages according to the terms of the LATS based on facts that

purportedly were known as of December 20, 2006 (the “Basis 1 LATS Scenario”).45

Using that scenario, Baliban calculated PharmAthene‟s expectation damages to be $1.07

billion.46




44
       Baliban currently serves as a Senior Vice President in the Securities & Finance
       practice of National Economic Research Associates, Inc. (“NERA”), a global
       economic and valuation consulting firm, and also is a lead member of the firm‟s
       Complex Commercial Dispute section. For approximately 30 years, Baliban‟s
       practice has focused on forensic accounting and economic valuation. Baliban has
       significant experience serving as a valuation expert in litigation, having testified in
       various federal, state, and municipal jurisdictions, and I found his testimony and
       reports in this litigation to be credible and helpful.
45
       Baliban‟s other calculations use either a different basis of damages than the LATS
       or information that only became available after December 2006, or both. Based
       on the Supreme Court Opinion, which focuses on the LATS, as well as
       longstanding precedent that expectation damages are measured at the time of the
       breach, these other calculations generally are not helpful in my analysis of
       PharmAthene‟s expectation damages at the time of SIGA‟s breach. The one
       limited exception is Baliban‟s scenario that focused on damages according to the
       terms of the LATS based on facts that were known as of November 2009. Baliban
       referred to this scenario as his Basis 2 LATS scenario. As discussed infra, I have
       considered that scenario as it relates to a few of the additional facts known as of
       November 2009 in connection with my damages analysis here.
46
       The same calculations implied that SIGA, through the royalty payments it was to
       receive in accordance with the LATS, would be entitled to earnings of $466
       million. Dr. Keith Ugone, SIGA‟s damages expert, argued that Baliban‟s
       calculations were unreasonable, per se, because his resulting damages number
       varied so significantly from SIGA‟s market capitalization of $139.07 million on
       December 20, 2006, the date of SIGA‟s breach. I give some credence, however,
                                             23
      The starting point for Baliban‟s damages calculation was a financial model

prepared by PharmAthene in early 2006 while the parties still were negotiating a

potential merger (the “PHTN model”). PharmAthene shared this model with SIGA in

2006, and SIGA appears to have used it in some of the parties‟ subsequent negotiations.

The PHTN model projected the quantity and price of ST-246 sales to the U.S.

government and foreign governments over the ten year period from 2008 to 2017. After

reviewing those estimates, Baliban concluded that from 2008 to 2017, PharmAthene

would have sold a total of approximately 91.9 million courses of ST-246,47 at a price of

$100 per course.48 Baliban then subtracted PharmAthene‟s projected costs for ST-246

and used a “probability of success” factor of 84% to risk-adjust PharmAthene‟s projected

earnings to account for the possibility that PharmAthene would not be successful in

commercializing ST-246.      Finally, Baliban applied a discount rate of 23.1% to

PharmAthene‟s risk-adjusted earnings to arrive at a net present value for the profits



      to Baliban‟s explanation that, at the time of the breach, there likely was not an
      efficient market for SIGA‟s thinly traded stock and, as such, SIGA‟s market
      capitalization at the time probably did not reflect accurately and completely
      SIGA‟s future potential earnings from ST-246. JTX 151 at 20-22. Therefore, I do
      not find SIGA‟s market capitalization at the time of the breach to be particularly
      persuasive evidence of what the reasonable commercial value of ST-246 was at
      that time.
47
      As discussed in more detail infra, Baliban projected that roughly an equal number
      of treatments (also referred to as “courses”) that were projected to be sold to the
      U.S. government also would be sold to foreign governments or the rest of the
      world or “ROW”, as the parties sometimes referred to such foreign sales.
48
      In his Basis 1 LATS model, Baliban increased this $100 figure by 3% every year
      from 2008 to 2017 to account for inflation.

                                          24
PharmAthene lost by being deprived of the opportunity to develop and sell ST-246 in

accordance with the LATS.

 1.         The Parties’ commercialization expectations for ST-246 in December 2006

           To determine PharmAthene‟s reasonable profit expectancy from ST-246 at the

time of SIGA‟s bad faith breach, including whether it was reasonable for PharmAthene to

believe it ever would succeed in commercializing ST-246, it is necessary to consider the

parties‟ reasonable expectations at that time regarding several factors. Although there are

many conceivable factors that could have affected the future commercial viability of

ST-246 as of December 2006, based on the testimony and expert reports proffered by

both parties in relation to damages, I conclude that PharmAthene‟s expectations as to

ST-246‟s future prospects were driven primarily by four factors. Those factors were: (1)

the likelihood that ST-246 ever would be sold commercially in meaningful quantities; (2)

the timing of when any such sales would begin; (3) the price at which ST-246 would be

sold; and (4) the quantity of ST-246 that would be sold. I analyze these factors in turn.

      a.        PharmAthene had a reasonable expectancy that ST-246 would be a
                      commercially viable product as of December 2006

           At the time of SIGA‟s contractual breach, ST-246 was still in the development

stage and had never been sold. To demonstrate that it would be entitled to an award of

expectation damages in the form of the lost profits it would have earned from the sale of

ST-246, therefore, PharmAthene must overcome the initial hurdle of proving adequately

that, as of December 2006, it had a reasonable expectation that ST-246, in fact, would be

sold commercially.


                                             25
       Unsurprisingly, the parties have proffered vastly divergent perspectives regarding

what reasonably could have been expected as to ST-246‟s chances for commercial

success in December 2006. SIGA argues that it was both unknown and unknowable in

December 2006 whether ST-246 ever would be sold commercially, let alone with any

meaningful success. According to SIGA, the uncertainty in this regard stemmed largely

from the fact that ST-246 is a pharmaceutical drug. As a pharmaceutical drug, ST-246

requires United States Food and Drug Administration (“FDA”) approval before it can be

sold to the public. SIGA avers that at the time of the breach it was entirely speculative

whether ST-246 would receive FDA approval, as evidenced by, among other things, the

fact that now, nearly eight years later, it is still unknown when or if the FDA will approve

it.49 SIGA also notes that the economic model created by PharmAthene‟s damages

expert, Baliban, to calculate PharmAthene‟s damages is highly sensitive to changes in the

probability that ST-246 would be commercialized. According to SIGA, therefore, the

high degree of uncertainty surrounding whether ST-246 actually could be launched

commercially rendered Baliban‟s damages calculation impermissibly speculative.

       PharmAthene responds that SIGA overemphasizes the significance of FDA

approval to ST-246‟s prospects for successful commercialization.         As PharmAthene



49
       In addition, because ST-246 is a potential antidote for smallpox, SIGA had to
       attempt to obtain FDA approval of it by relying on the so-called “Animal Rule”
       under which certain studies are conducted using animals, rather than people,
       because it is not feasible to use human beings in the studies. Use of this
       acceptable, but relatively uncommon, path to FDA approval arguably added an
       extra layer of uncertainty to FDA approval of ST-246 in December 2006.

                                            26
observes, at the time of SIGA‟s bad faith conduct, both parties understood that, at least

initially, the U.S. government would be the most likely and significant purchaser of

ST-246 based on its desire to bolster its defenses against potential bioterrorism attacks,

including attacks involving smallpox.     PharmAthene avers further that both parties

believed and understood that the U.S. government‟s criteria for purchasing such

bioterrorism countermeasures were less stringent than those required for FDA approval,

and that ST-246 was well positioned to meet those lesser criteria when SIGA committed

its breach. PharmAthene further asserts that SIGA‟s contention that it was speculative in

December 2006 whether ST-246 would meet the requisite criteria for purchase by the

U.S. government (or any other entity) was belied by the facts established at trial and

upheld by the Supreme Court on appeal. These facts include, but are not limited to,

SIGA‟s own confidence in ST-246‟s prospects, which caused it internally to value

ST-246 at the time of the breach at between three and five billion dollars, and SIGA‟s

development of “seller‟s remorse” which ultimately motivated its bad faith conduct.

      Based on the evidence presented at trial, I conclude that PharmAthene has

established by a preponderance of the evidence that, at the time of SIGA‟s breach, the

parties reasonably had expected that ST-246 would be commercialized in the near future.

Although    officially   BARDA     did   not    come    into   existence   until   roughly

contemporaneously with SIGA‟s bad faith conduct, the record supports a reasonable

inference that both SIGA and PharmAthene knew of BARDA‟s imminent establishment.

Equally significant is the fact that, as of the date of the breach, the U.S. government

already had outlined criteria for procuring pharmaceuticals for the Strategic National

                                           27
Stockpile (“SNS”), the target market for ST-246.50 These requirements did not include

FDA approval of the drug being considered for acquisition.51

      In that regard, SIGA‟s criticisms of the “probability of success” figure Baliban

used in his damages model largely miss the mark. Baliban used 84% as the probability

that ST-246 would meet the necessary U.S. regulatory approvals.52 This number was

derived from a report prepared by PharmAthene‟s pharmaceutical expert, Dr. Carl Peck.

Dr. Peck opined that, at the time of SIGA‟s breach, the likelihood that ST-246 would

receive FDA approval was between 84% and 95%.53 Dr. Peck also stated, however, that

the probability that ST-246 would meet the BARDA criteria for purchase into the SNS

was over 95%.54 According to SIGA, Dr. Peck had no reasonable basis to project the

probability of ST-246‟s FDA approval, an inherently uncertain process, and by

incorporating Dr. Peck‟s conclusion into his model, Baliban rendered his damages

calculation unreasonably speculative. This argument is without merit because Baliban‟s

damages model was premised on BARDA‟s acquisition of ST-246, not FDA approval of



50
      JTX 140 at 15–23.
51
      Id. The evidence shows that the U.S. government has procured both FDA and
      non-FDA approved pharmaceuticals for use in the SNS.
52
      JTX 150 at 24.
53
      JTX 140 at 5.
54
      Id. at 23–24. The basis for this conclusion was that the criteria for procurement
      into the SNS were, and evidently continue to be, significantly less onerous than
      the criteria for FDA approval. The evidence presented at trial supports Dr. Peck‟s
      conclusion in this regard.

                                           28
the drug. Baliban also used the low end of Dr. Peck‟s FDA approval probabilities, rather

than Dr. Peck‟s 95% SNS acquisition probability, so as to present a “conservative”

estimate of PharmAthene‟s damages. Therefore, even assuming that SIGA is correct that

projecting the probability of FDA approval for a drug in development is inherently

speculative, that fact does not compel the conclusion that Baliban‟s calculations, based on

the probability of ST-246 meeting the U.S. government‟s SNS acquisition criteria, also

are inherently speculative.55

       The key issue then was whether Baliban‟s use of an 84% “probability of success”

factor was reasonable or unduly speculative. Based on the evidence presented at trial, I

find that PharmAthene had a reasonable expectation at the time of the breach that the

U.S. government soon would begin acquiring ST-246 for use in the SNS. At the time of

the breach, ST-246 apparently had been developed sufficiently to be eligible for

acquisition for the SNS under the guidelines set out in The Project Bioshield Act of 2004

passed by the U.S. Congress.56 By December 2006, ST-246 not only had achieved a

number of material developmental milestones, but also had received millions of dollars in

U.S. government funding based on both its potential and its achievement of tangible




55
       Accordingly, I find SIGA‟s citation to Militrano v. Lederle Laboratories, 3 Misc.
       3d 523, 540 (N.Y. Sup. Ct. 2003) for the proposition that an expert cannot predict
       FDA approval of a drug without “engaging in rank speculation” unavailing here.
56
       JTX 140 at 15–23.

                                            29
milestones.57 Since BARDA was established in late 2006 and entrusted with determining

the criteria for drugs to be eligible for the SNS, those criteria actually have been

lowered.58 The use of criteria considerably less demanding than those for FDA approval

to determine eligibility for purchase by the U.S. essentially confirms PharmAthene‟s

expectations at the time of SIGA‟s breach that ST-246 would satisfy the SNS criteria.59

       It also is significant that, more recently, BARDA, has agreed to procure at least

1.7 million courses of ST-246 for the SNS despite the fact that ST-246 still has not

obtained FDA approval. Although the ST-246 sale to BARDA happened several years

after the breach occurred, the fact that ST-246 actually was sold to its intended purchaser

further persuades me that, as of December 2006, PharmAthene did have a reasonable

expectation that the U.S. government would become a buyer of ST-246 in the relatively

near future.




57
       JTX 150 at 8–10. These milestones included ST-246 becoming the first drug to
       demonstrate 100% protection against the human smallpox virus in a primate trial
       conducted at the Center for Disease Control in October 2006, and ST-246
       demonstrating protection against the monkeypox virus in two primate trials in
       November 2006. Id. at 9.
58
       JTX 140 at 18.
59
       SIGA argues that because BARDA did not exist when the breach occurred, it was
       impossible to know what eligibility requirements it would institute for SNS
       pharmaceuticals. Nothing in the evidence of what was known at the time of the
       breach, however, suggests that BARDA was likely to make SNS eligibility more
       difficult. To the contrary, it appears that since its establishment, BARDA
       consistently has reduced the eligibility criteria for SNS drugs.

                                            30
       All of those facts are in addition to SIGA‟s own conduct and beliefs in late 2006

that ultimately contributed to its breach in December 2006. By late 2005, SIGA valued

ST-246 conservatively at approximately $1 billion.60 In mid-to-late 2006, as ST-246

began to look “more and more like a multi-billion dollar drug,” SIGA began experiencing

“seller‟s remorse,” which was the primary impetus for its bad faith conduct later.61 Thus,

at the time of SIGA‟s breach, PharmAthene was not alone in reasonably believing that

ST-246 imminently would be commercialized (with great success). SIGA, the company

that then was in control of the drug and had unique insights into its development and

prospects, had a similar, if not identical, outlook for the drug. I conclude, therefore, that,

as of December 2006, ST-246 objectively had a very high likelihood of being

commercialized in the near future via sales to the SNS, and that Baliban‟s use of an 84%

“probability of success” factor was both reasonable and supported by the evidence.

 b.      PharmAthene had a reasonable expectation at the time of the breach that
                    ST-246 sales would begin by 2010 at the latest

       The second significant factor relating to PharmAthene‟s claim for lump sum

expectation damages is the timing of when sales of ST-246 would begin. SIGA asserts


60
       Supr. Ct. Op., 67 A.3d 330, 334 (Del. 2013).
61
       Id. at 347. See also Post-Trial Op., 2011 WL 4390726, at *24 (Del. Ch. Sept. 22,
       2011) (“Indeed, by the end of September 2006, SIGA had secured independent
       government funding to support the remaining development of ST–246, which it
       believed made PharmAthene‟s continued involvement unnecessary.”); id. at *25
       (“By the end of September 2006, the tables had turned. It then appeared that ST–
       246 would be a fantastic success and that SIGA could obtain all the capital it
       might need in the future from sources independent of PharmAthene. Predictably,
       Hruby quickly claimed that SIGA deserved all the credit for ST–246‟s good
       fortune and determined that SIGA had no need for PharmAthene whatsoever.”).
                                             31
that, even assuming ST-246 met the U.S. government‟s criteria for purchase in December

2006, there was no way of knowing at that time when the government would begin

purchasing the drug. In this regard, SIGA also relies on the fact that while Baliban

assumed that ST-246 sales would begin in 2008, the first courses of ST-246 actually were

not delivered until the first quarter of 2013.

       PharmAthene defends Baliban‟s use of a 2008 start date for sales as reasonable

because he based it on what the parties themselves had used as a start date during their

negotiations over the license agreement. Relying on its expert, Dr. Peck, PharmAthene

also contends that, to the extent there has been a delay in the sale of ST-246 relative to

Baliban‟s projections, the delay is a function of SIGA‟s failure to develop the drug

efficiently or properly due to its lack of experience in commercializing pharmaceuticals.

But for SIGA‟s breach, PharmAthene would have controlled ST-246‟s development.

According to PharmAthene, it would have used its experience to develop the drug more

expeditiously.

       Initially, I note that although I credit Dr. Peck‟s testimony regarding the likelihood

that ST-246 would be procured for use in the SNS, Dr. Peck did not offer any persuasive

and direct insight as to when that procurement would occur. Stated differently, the fact

that at the time of the breach the U.S. government reasonably appeared to be a likely

purchaser of ST-246 does not provide much insight into when the U.S. government

actually would begin making those purchases.

       Beyond the expectations of the parties themselves, there is no persuasive evidence

that sales of ST-246 to the U.S. government were going to begin in 2008. Although the

                                                 32
parties knew in December 2006 that the establishment of BARDA was imminent and that

ST-246 likely was going to be eligible for BARDA acquisition almost immediately, it

was unclear how long it would take BARDA to officially implement its standards for

SNS acquisition, solicit proposals from drug makers for a smallpox pharmaceutical, and

actually choose which smallpox drug or drugs it wished to acquire. In fact, it now

appears that SIGA was not awarded the BARDA contract for ST-246 until after the

January 2011 trial in this action. Therefore, although PharmAthene has established that

at the time of SIGA‟s breach it had a reasonable expectation that it soon would begin

selling ST-246 to the U.S. government, it has not demonstrated that it reasonably

expected those sales would begin in 2008.

      The question then becomes whether, at the time of the breach, there was sufficient

information available to support a responsible and realistic estimate as to when sales of

ST-246 to the U.S. government would begin. I conclude that there was, but that the

evidence was not adequate to support Baliban‟s assumption that PharmAthene would

have enjoyed sales as early as 2008. What was known at the time of the breach included

that ST-246 had shown tremendous promise in preliminary studies, enabled SIGA to

raise over $20 million in development funding, and had been granted “orphan drug” and

“fast track” status by the FDA. These facts, among others, persuade me that, at the time

of the breach, PharmAthene had a reasonable expectation that the U.S. government




                                            33
would begin purchasing ST-246 for the SNS62 within four years, i.e., by 2010, at the

latest. I adopt, therefore, 2010 as the year in which ST-246 sales to the U.S. government

reasonably would have been expected to begin as of December 2006. Consequently,

Baliban should have used 2010 as the commencement date for sales of ST-246 to the

U.S. government rather than the more aggressive, and largely unjustified, 2008 start date

he used in his model.

 c.     PharmAthene has established a reasonable expectancy of selling ST-246 to
                      the U.S. government for $100 per course

      Turning to the issue of price, in calculating PharmAthene‟s expectation damages,

Baliban assumed that PharmAthene would sell ST-246 for $100 per course of

treatment.63 SIGA criticizes this assumption as lacking a sufficient factual basis. In

response, PharmAthene argues that, at the time of the breach, SIGA and PharmAthene

were negotiating with one another based on being able to sell ST-246 at $100 per course

and that that amount was comparable to what the U.S. government had paid for other

bioterrorism-related countermeasures.




62
      I note again that FDA approval is not, nor does it appear ever to have been,
      required for a drug that is being considered by the U.S. government for SNS
      procurement. As of December 2006, it appears that for SNS acquisition it was
      required that the product in question “will be approved or licensed within 8 years.”
      Whether a product met that requirement was dependent on “a judgment based on
      developmental status,” including data regarding toxicology, animal studies of
      efficacy, and manufacturing capability. JTX 140 at 23. The evidence shows that
      it was more likely than not that as of December 2006, ST-246 would have passed
      muster under this judgment requirement.
63
      JTX 150 at 21–22.

                                           34
      I find that PharmAthene has proven by a preponderance of the evidence that

Baliban‟s assumption that PharmAthene could expect to sell ST-246 for $100 per course

to the U.S. government was reasonable at the time of the breach.64 Baliban made an

independent assessment of the parties‟ assumption of a $100 per course price in their

license agreement negotiations by analyzing examples of the U.S. government‟s purchase

of pharmaceutical countermeasures.65 This assessment revealed that the $100 per course

figure comported with the government‟s prior purchases. It also is significant that the

contract BARDA entered into with SIGA in 2011 to purchase ST-246 requires the

government to pay significantly more than $100 per course.66 Therefore, I conclude that

PharmAthene has met its burden of demonstrating that, at the time of SIGA‟s breach, it




64
      Baliban also assumed that the price would increase 3% annually after the initial
      sales of ST-246 to account for inflation. For example, if sales of ST-246 began in
      2010, the price per course would be $100 in 2010, $103 in 2011, $106.09 in 2012,
      and so forth. I also conclude that, as of December 2006, this is a reasonable
      assumption. According to the Federal Reserve, changes in the Consumer Price
      Index (i.e., the rate of inflation) from 2000-2006 averaged 2.77%, and was 2.7% in
      2004, 3.4% in 2005, and 3.2% in 2006. The Federal Reserve Bank of
      Minneapolis,
      http://www.minneapolisfed.org/community_education/teacher/calc/hist1913.cfm
      (last visited Aug. 7, 2014). I may take judicial notice of this information because
      it is capable of accurate and ready determination by resort to sources whose
      accuracy cannot reasonably be questioned and is not subject to reasonable dispute.
      D.R.E. 201(d).
65
      JTX 150 at 21, Ex. 7.
66
      Under the BARDA contract, SIGA is eligible to receive at least $180 per course of
      ST-246.

                                          35
had a reasonable expectation that it would be able to commercialize ST-246 for $100 per

course.

d.        PharmAthene has established with sufficient certainty the number of courses
          of ST-246 it reasonably expected to sell to the U.S. government at the time of
                                          the breach

Finally, I turn to an analysis of the sales quantity that Baliban projected in his damages

model.67 As stated supra, based on the record presented at trial it is more likely than not



67
       SIGA also has questioned the reasonableness of several other aspects of Baliban‟s
       damages model, including his cost projections (i.e., cost of goods sold, general
       expenses, and research and development costs) and his discount rate. Having
       reviewed carefully the competing expert reports and the evidence presented at
       trial, I conclude that Baliban‟s estimates in these respects all were reasonable.
       Moreover, at least with respect to Baliban‟s cost projections, to the extent
       PharmAthene could not project those figures with certainty, such uncertainty was
       caused by SIGA‟s bad faith breach of its contractual obligations. Had SIGA
       negotiated in good faith, SIGA and PharmAthene would have reached a license
       agreement in which PharmAthene would have controlled ST-246‟s development
       and would have been in a position to know the exact amount of such cost figures.
       Additionally, there is no persuasive record evidence that, had PharmAthene been
       given control of ST-246, it would not have been able to secure funding or
       government grants at least at the same rate or amount as SIGA has done in
       developing ST-246 to date. In that regard, I already have determined that, as of
       December 2006, PharmAthene had greater experience and more trained personnel
       in the areas of drug development and drug regulatory matters than did SIGA. See
       Post-Trial Op., 2011 WL 4390726, at *2 (Del. Ch. Sept. 22, 2011) (finding that
       SIGA sought to partner with PharmAthene because “SIGA also had never taken a
       drug to market and lacked much of the administrative infrastructure necessary to
       do so, including employees with expertise in areas such as regulatory or
       government affairs, quality assurance, quality control, clinical trials,
       manufacturing, and business development.”).

       Regarding the discount rate, SIGA, through Dr. Ugone, did not propose an
       alternative rate, but instead merely attempted to “poke holes” in Baliban‟s
       assumptions. The thrust of Dr. Ugone‟s criticisms in this respect is that Baliban
       purportedly failed to account for a proverbial laundry list of company, industry,
       and ST-246 specific risks. JTX 154 at 51–57. I find, however, that Baliban‟s
                                            36
that, at the time of SIGA‟s breach in December 2006, PharmAthene had a reasonable

expectation that it would be able to commercialize ST-246 in the relatively near future.

The actual extent to which PharmAthene would have commercialized ST-246 (i.e., the

quantity of ST-246 it would have sold) is a key element of PharmAthene‟s damages

claim based on lost profits.       Baliban estimated that between 2008 and 2012,

PharmAthene would have sold a total of 29,806,490 courses of ST-246.68 This figure

was comprised of three components: sales to the SNS (14,778,000 courses), sales to the

U.S. Department of Defense (“DoD”) for the military (250,490 courses), and sales to the

“rest of the world,” (“ROW”) meaning foreign governments for use in their own strategic

biodefense stockpiles (14,778,000 courses).69 I analyze, in turn, the reasonableness of

Baliban‟s assumptions as to each of these components.



      methodology for determining the discount rate was reasonable and accounts fairly
      for the risks PharmAthene would have faced in commercializing ST-246 at the
      time of the breach. Moreover, to the extent Baliban‟s discount rate does not
      adequately reflect the relevant risks at the time of the breach, the several limiting
      adjustments I have ordered to Baliban‟s model (discussed in more detail infra),
      including a reduction in ST-246 sales quantities, declining to recognize the
      projected stock replenishments based on a limited shelf life, and delaying the start
      of ST-246 sales to 2010, would offset more than adequately the consequences of
      such a deficiency.
68
      JTX 150 at 16. More precisely, Baliban estimated that approximately 29 million
      courses would be sold in 2008, and delivered evenly over a four year period.
      Because ST-246 has a finite shelf life, Baliban assumed further that the SNS,
      DoD, and ROW would renew their purchases every four years to replace the
      expired ST-246 in their possession. In this section, I focus on the estimated size of
      PharmAthene‟s initial sale, and address the issue of renewed sales in Section
      II.D.1.d.4 infra.
69
      Id.

                                           37
                                1.      Sales to the SNS

       Baliban‟s estimate that 14,778,000 courses would be purchased for the SNS

represents a nearly 4.5 million course increase over the 10,300,000 SNS procurement

projections used in the PHTN model. The PHTN figure was derived by multiplying the

size of the SNS smallpox vaccine stockpile at the time (estimated by PharmAthene to be

206 million) by the percentage of the United States population that was contraindicated

for vaccination (five percent).70 According to Baliban‟s research, both this figure and the

contraindication rate were significantly understated. While the PHTN model assumed a

five percent contraindication rate for smallpox, Baliban concluded the actual

contraindication rate was four to six times higher (twenty to thirty percent).71 Regarding

the size of the stockpile, in 2002, the size of the SNS smallpox stockpile was roughly

equal the size of the U.S. population.72 Baliban used that relative relationship to estimate

the size of the stockpile in 2006, by equating the size of the smallpox stockpile with the

U.S. population as of July 1, 2005, the last date before December 2006 when that figure

was updated by the U.S. Census Bureau. Consequently, Baliban concluded that a more



70
       JTX 150 at 17. Contraindication refers to the fact that, for any number of reasons,
       a vaccine will not be effective at preventing or curing a disease for some particular
       individuals.
71
       Id. Baliban‟s analysis was based on at least one academic article, a U.S.
       government publication, and SIGA‟s publicly disclosed financial information.
72
       Id. According to Baliban‟s report, in 2002, the stockpile actually contained 286
       million doses, compared with a U.S. population of approximately 287.7 million.
       Id. at 17. Thus, the estimated stockpile used in the PHTN model appears to have
       understated the size of the stockpile by approximately 80 million doses.

                                            38
appropriate estimate of the size of the SNS smallpox stockpile at the time of SIGA‟s

breach was approximately 295.5 million, which equaled the U.S. population as of July 1,

2005.73

      Baliban adjusted his damages model to account for a portion of these

underestimates. Although Baliban used the PHTN model‟s conservative five percent

contraindication rate, he adopted 295.5 million, rather than 206 million, as a reasonable

estimate of the proper size of the SNS smallpox stockpile, to derive an estimated sales

quantity of ST-246 of 14.778 million courses.

      Having considered the evidence presented at trial, I conclude that Baliban‟s model

incorporates a reasonable estimate of PharmAthene‟s projected ST-246 sales at the time

of SIGA‟s bad faith breach. The evidence supports a reasonable inference that the PHTN

model understated significantly the size of the SNS smallpox vaccine stockpile. Based

on the U.S. government‟s increased focus on combating bioterrorism between 2002 and

2006,74 it is reasonable to conclude that the size of the stockpile continued roughly to

track the U.S. population during that time period as Baliban assumed, rather than decline

precipitously to 206 million as was assumed in the PHTN model.           In that regard,




73
      Id.
74
      See id. at 3–6.

                                           39
Baliban‟s 295.5 million estimate of the size of the SNS smallpox vaccine stockpile was

reasonable and supported adequately by record evidence.75

       I reach the same conclusion with respect to Baliban‟s assumption of a five percent

contraindication rate. Importantly, both PharmAthene and SIGA appeared to incorporate

this five percent number in their projections, which served as the basis for their

negotiations. Moreover, Baliban confirmed independently that the likely contraindication

rate for the smallpox vaccine stockpile actually was four to six times higher than that.

Baliban‟s use of a conservative contraindication estimate of five percent also indirectly

accounts for two of Dr. Ugone‟s criticisms of his model: (a) the failure to account for the

emergence of competitive pharmaceuticals; and (b) the failure to account for the seven-

year duration of the orphan drug status for which ST-246 had been designated.

       According to Dr. Ugone, had Baliban accounted for either or both of those facts,

his damages calculations would have been reduced materially because PharmAthene

would have sold less ST-246 to the government and PharmAthene would not have sold



75
       Dr. Ugone criticized this adjustment because it was higher than what was included
       in the PHTN model, and, thus, did not reflect PharmAthene‟s reasonable
       expectations at the time of the breach, even though such an adjustment was
       knowable as of December 2006. I find this criticism unpersuasive. The
       underlying logic of the quantity assumption in the PHTN model was that the U.S.
       government would purchase enough ST-246 to account for the percentage of the
       smallpox vaccine stockpile that would be ineffective. That was PharmAthene‟s
       expectation at the time of the breach. The fact that PharmAthene evidently did not
       use the most accurate estimate of the size of the stockpile in the PHTN model (i.e.,
       206 million versus 295.5 million) does not compel the conclusion that it lacked a
       reasonable expectancy of procuring anything more than five percent of the
       mistaken 206 million stockpile estimate.

                                            40
ST-246 to the government for the entire 10 year damages calculation period. I consider

the merits of these criticisms to be dubious. At the time of the breach, ST-246 appears to

have been 8,000 times more effective than its closest competing product, 76 and SIGA

points to no evidence that suggests that either the PHTN or Baliban‟s model included an

assumption, explicit or implicit, that ST-246‟s orphan drug status was the driving force

behind the selection of a ten year model.77      Even assuming, however, that Baliban

overstated PharmAthene‟s damages by failing to account for the effects of competition

and only having a seven year exclusivity period to market ST-246, I conclude that it is

more likely than not that any such overstatement was offset by the use of a conservative

contraindication rate.78




76
       JTX 151 at 14–16. In addition to the fact that it was known publicly at the time of
       the breach that ST-246 had shown signs of being significantly more effective than
       potentially competing products, since SIGA‟s breach, it repeatedly has touted the
       superiority of ST-246 to alternative pharmaceuticals, even stating its belief in
       December 2009 that ST-246 had “at least a three-year lead compared to any other
       potential product candidate in regard to non-human primate efficacy testing.” Id.
77
       Stated differently, the evidence does not support a reasonable inference that the
       PHTN model used a ten year period because of the seven year exclusivity period
       that is attendant to an orphan drug status designation.
78
       In addition, I find that the risks Dr. Ugone expressed concern about also are
       accounted for in a meaningful way by the high discount rate (23.31%) that Baliban
       used in his model. See JTX 151 at 18–20. I also note that, in a general sense, Dr.
       Ugone‟s credibility was undermined by the fact that at trial he merely attempted to
       discredit Baliban‟s analysis without providing an alternative calculation of his
       own. This Court has been critical of such an approach in the past. Agilent Techs.,
       Inc. v. Kirkland, 2010 WL 610725, at *29 (Del. Ch. Feb. 18, 2010). At a
       minimum, the fact that Dr. Ugone failed to offer any damages model of his own
       and confined his opinions to criticisms of PharmAthene‟s damages case, limits the
       usefulness of his testimony. If the Court were to credit completely the testimony
                                           41
       In sum, I conclude that PharmAthene has carried its burden of proving with

reasonable certainty that, at the time of SIGA‟s breach, it had a reasonable expectation

that its first sale to the SNS would be of 14.778 million courses. Based on the evidence

presented, however, I would allocate delivery over five years, instead of four years, as

Baliban did. I next address Baliban‟s estimate regarding sales to the U.S. Department of

Defense.

                                2.       Sales to the DoD

       Relative to the PHTN model, Baliban estimated that the DoD would purchase

approximately 19,000 more courses of ST-246 over the first four years, for a total of

approximately 250,000 courses of treatment over that period. The difference between the

PHTN and Baliban estimates is due entirely to different estimates of the size of the U.S.

military population.    Baliban based his estimate on U.S. Census Bureau data as of

September 30, 2006.79

       Unlike the estimates for SNS purchases, the estimates for DoD purchases assumed

a ten percent, rather than five percent, contraindication rate. In his expert report, Baliban

acknowledged that he had no explanation as to why the PHTN model utilized different




       of Dr. Ugone, it would never be possible to award expectation damages in a case
       such as this one, no matter how much the underlying breach of contract could be
       attributed to the breaching party‟s bad faith. I find that the use of such an
       approach in this case largely was unpersuasive.
79
       JTX 150 at 17–18. It is unclear what the PHTN model relied on to estimate the
       size of the relevant U.S. military population.

                                             42
contraindication rates for the SNS and DoD purchase estimates.80 Absent evidence, or

even a proffered explanation, PharmAthene has not carried its burden of demonstrating

the appropriateness of using differing contraindication rates in this context. Therefore, I

conclude that Baliban should have applied the five percent contraindication rate utilized

in the SNS purchase estimates to the DoD purchase estimates as well.

       In all other respects, however, PharmAthene has demonstrated sufficiently that, at

the time of the breach, it had a reasonable expectancy of selling ST-246 to the DoD. The

record shows that during the course of their negotiations regarding the LATS and related

documents and, later, the license and LLC agreements, both SIGA and PharmAthene

projected that the DoD would purchase ST-246, even if their respective projections of

such sales differed significantly. As discussed supra, the evidence presented at trial

convinces me that a fair estimate of future ST-246 sales at the time of SIGA‟s breach

could be calculated by multiplying the size of a relevant population by a reasonable

contraindication percentage. Here, Baliban has devised a reasonable estimate of the size

of the U.S. military population at the time of SIGA‟s breach based on U.S. Census

Bureau data, and I have concluded that it was reasonable to assume a five percent

contraindication rate at that time. Moreover, there is no evidence that, at the time of the

breach, ST-246 did not meet the criteria for DoD procurement. Therefore, I conclude

that PharmAthene has proven with the requisite certainty that it had a reasonable




80
       Id.

                                            43
expectation of selling approximately half of the quantities of ST-246 to the DoD that

Baliban projected in his model.81

                               3.     Sales to the ROW

      The final element of Baliban‟s quantity estimate for the first four years of sales

and later periods consisted of sales to governments outside of the United States (“ROW

sales”). While the PHTN model assumed that ROW sales would equal fifty percent of

SNS sales, Baliban assumed that such sales to the rest of the world would be equal to

SNS sales. In determining to make that assumption, Baliban analyzed the population of

other developed countries, such as the G-8 and the World Bank High Income OECD

Member Countries, and assumed a contraindication rate of two-and-a-half percent, or half

of the contraindication rate assumed for the U.S. population.82 Based on that analysis,

Baliban found that if he assumed ROW sales of 14.778 million (i.e., equal to U.S. SNS

sales), that number fell well within the range of potential sales implied by multiplying

two-and-a-half percent by the populations of various groups of developed economies that

he examined.83

      Although I find that Baliban‟s approach of using contraindication percentages of

relevant populations to estimate foreign demand was reasonable, his estimate suffers



81
      In his “Basis 1” model based on the terms of the LATS, Baliban assumed initial
      DOD sales of 250,490. Based on my review of the evidence, that figure should
      have been 125,245, or half of what Baliban assumed.
82
      JTX 150 at 18–20.
83
      Id.

                                          44
from the inherent flaw that PharmAthene has failed to make an adequate showing that, at

the time of the breach, it had a reasonable expectation of enjoying foreign sales of ST-

246 within the relevant damages window. Stated differently, had PharmAthene proven it

had a reasonable expectancy of foreign ST-246 sales, Baliban‟s approach would have

been proper, but PharmAthene did not carry its burden of showing that it would have

been reasonable to assume in December 2006 that there would have been material

numbers of ROW sales of ST-246 during the relevant damages period. The record is

replete with evidence that the U.S. government had undertaken and executed a definitive

plan to bolster its preparedness to respond to bioterrorism, including the establishment

and initial stocking of the SNS and the creation of BARDA. It is unclear, however, to

what extent, if any, other countries had followed suit in that regard. Moreover, based on

the evidence presented at trial, it is at best unclear what criteria other countries would use

when procuring pharmaceuticals for their own national stockpiles, even assuming they

have something analogous to the SNS.              I also recognize that both SIGA and

PharmAthene assumed foreign sales in their respective internal valuations. Nevertheless,

the bases for those assumptions were not explained adequately through record evidence.84



84
       An additional source of uncertainty is the timing of any sales to foreign
       governments. Other than the fact that PharmAthene and SIGA apparently both
       assumed for negotiating purposes that non-U.S. sales would begin in 2008, the
       record is devoid of evidence that corroborates the reasonableness of those
       assumptions. The fact that there is insufficient record evidence to permit the Court
       to make a responsible estimate as to when non-U.S. sales of ST-246 would occur,
       assuming such sales actually came to fruition, further supports my conclusion that
       it is inappropriate to award lost profits on foreign sales because those sales were
       too speculative as of December 2006.

                                             45
Therefore, I conclude that PharmAthene has not shown by a preponderance of the

evidence that at the time of SIGA‟s breach, it had a reasonable expectation of

commercializing ST-246 to foreign governments within the ten year damages window.

Thus, I reject the ROW sales component of Baliban‟s ST-246 sales quantity estimate in

its entirety and will not award PharmAthene any lost profits for foreign sales of ST-246.

                                4. Sales quantity summary

      In sum, I have determined that PharmAthene has proven sufficiently the quantity

of ST-246 sales it reasonably expected to enjoy as its initial sale at the time of SIGA‟s

breach. That quantity is 14,903,245 courses, which consists of 14,778,000 in sales to the

U.S. SNS and 125,245 courses in sales to the DoD.

      Baliban assumed that ST-246 had a shelf life of three to five years and further

assumed that, as a result, replacement purchases to replace courses that expired would

occur every four years in his initial models. In his supplemental report, Baliban used a

five-year repurchase period based on information that SIGA later provided to BARDA in

its bid for a contract to provide the SNS with ST-246.85 Dr. Ugone criticized this

replacement purchase aspect of Baliban‟s analysis for several reasons. First, according to

Dr. Ugone, at the time of the breach, there were too many uncertainties as to the U.S.

government‟s future plans for bioterrorism countermeasure purchases.                These

uncertainties ranged from a possible shift towards purchasing pharmaceuticals that were

effective against a range of bioterrorism threats rather than specific ones to budget cuts


85
      JTX 159 at 3–4.

                                            46
and changes in political priorities more generally.     Second, Dr. Ugone restated his

position that the farther in time away from the breach one gets, the more likely a viable

competitive product would emerge that would, at a minimum, reduce the level of future

ST-246 sales. I find these criticisms to be persuasive in the context of an estimate as of

2006 regarding sales that would not occur until 2015.

      The record supports a reasonable inference that, at the time of the breach, ST-246

was an appreciably superior product relative to its potential competitors, and I find this

evidence further supports the conclusion that, at the time of the breach, PharmAthene had

a reasonable expectation of selling ST-246 to the U.S. government within the next four

years. The record does not contain sufficient evidence, however, to establish that at the

time of the breach PharmAthene had a reasonable expectation that the U.S. government

would continue to purchase large quantities of ST-246 nine or more years later. There

simply was not enough known at the time of the breach regarding future competition or

future U.S. government policy to support a responsible estimate as of that time of what, if

any, ST-246 renewal purchases the U.S. government would make.                   Moreover,

PharmAthene has not produced evidence regarding what, if any, propensity the U.S.

government historically has had in terms of repurchasing products for the SNS or that

would support a reasonable inference that the U.S. government was likely to view ST-

246 specifically as a product that it would repurchase within Baliban‟s damages window.

Therefore, I reject the repurchase aspect of Baliban‟s model and conclude that

PharmAthene‟s reasonable expectations at the time of the breach was a single sale of



                                            47
14,903,245 ST-246 courses to the U.S. government in 2010, which would be delivered in

equal installments over a five-year period.

                     E.       Attorneys’ and Expert Witness Fees

                             1.       Relevant background

       I turn next to the issue of attorneys‟ fees and expert witness fees. In the Post-Trial

Opinion, I awarded PharmAthene one-third of its reasonable attorneys‟ fees based on

contractual grounds, the bad faith exception to the “American Rule” on awarding

attorneys‟ fees, and equitable considerations pursuant to 10 Del. C. § 5106.86 In my

discretion, I also awarded PharmAthene one-third of the expert fees it incurred.87

       On appeal, the Supreme Court affirmed the propriety of awarding PharmAthene its

reasonable attorneys‟ fees and expenses based on one of the contracts at issue in this

dispute.88 Nevertheless, because the Court also determined that I had to redetermine my

damages award in light of its opinion and invited me to reevaluate the helpfulness of

expert testimony to do so, it reversed my award of attorneys‟ fees and expenses so that I

could reconsider that award based on my conclusions on remand.89 Having determined

that PharmAthene is entitled to expectation damages for SIGA‟s bad faith breach of


86
       Post-Trial Op., 2011 WL 4390726, at *43–44 (Del. Ch. Sept. 22, 2011).
87
       Id. at *45.
88
       Supr. Ct. Op., 67 A.3d 330, 352 (Del. 2013). Consequently, the Court did not
       reach the issue of whether the bad faith exception to the American Rule was
       applicable. The Court ruled, however, that my invocation of 10 Del. C. § 5106
       was improper. Id.
89
       Id. at 353.

                                              48
contract, as well as the proper measure of those damages, I now must consider the

appropriate award of attorneys‟ fees and expert witness expenses that PharmAthene is

entitled to for its expenditures at the trial and during the remand proceedings.

                                 2.      Attorneys’ fees

       In the Post-Trial Opinion, I concluded that PharmAthene was entitled to an award

of one-third of the reasonable attorneys‟ fees it incurred in this action. Both parties have

sought a revision of that award based on the Supreme Court‟s decision, and I am

persuaded that a modest increase of my prior award is appropriate.            Although the

Supreme Court reversed my finding as to promissory estoppel, the proof and arguments

for that claim were sufficiently interrelated with and subsumed within the proofs and

arguments presented on PharmAthene‟s claim for breach of an obligation to negotiate in

good faith that I do not consider PharmAthene‟s ultimate failure to prevail on its

promissory estoppel claim to warrant any appreciable reduction in my award of

reasonable attorneys‟ fees. Similarly, although the Supreme Court placed more emphasis

on the terms of the LATS than I did in the Post-Trial Opinion, the Court did not hold that

the LATS was, itself, a binding and enforceable agreement. Therefore, it remains true

that PharmAthene did not prevail on any of the first four counts in its Complaint. In

contrast, PharmAthene devoted significantly more time at trial and in its post-trial

briefing to arguing that it was entitled to an award of expectation damages than it did to

arguing it was entitled to an award of an equitable payment stream. Because on remand

PharmAthene has prevailed, in part, on the expectation damages issue, I conclude that it

is appropriate to adjust my prior award of attorneys‟ fees to account for PharmAthene‟s

                                             49
efforts toward that end. Therefore, I will increase the award to PharmAthene from one-

third to 40% of the reasonable attorneys‟ fees and expenses it incurred through post-trial

argument in this litigation.

       The next relevant inquiry is what, if any, award of attorneys‟ fees is PharmAthene

entitled to for the fees and expenses it has incurred in connection with these remand

proceedings.    As PharmAthene notes in its briefing, the remand proceedings relate

exclusively to the issue of the appropriate measure of damages for SIGA‟s bad faith

breach of its contractual obligations to negotiate in good faith. Although the question of

damages necessarily flows from the claims PharmAthene prevailed on at trial, that does

not necessarily entitle PharmAthene to an award of all of the reasonable attorneys‟ fees

and expenses it incurred in connection with these remand proceedings.              This is

particularly true in light of the fact that PharmAthene expended a great amount of time

and resources supplementing the record with additional documentary and expert evidence

that was largely unhelpful in determining an appropriate damages award. Moreover,

PharmAthene devoted significant time to arguing for remedies, such as specific

performance or a new equitable payment stream, as to which it ultimately did not prevail.

Therefore, in my discretion, I conclude that PharmAthene is entitled to one-third of the

reasonable attorneys‟ fees and expenses it incurred in these remand proceedings.




                                           50
                               3.       Expert witness fees90

       As instructed by the Supreme Court, I also have reevaluated the helpfulness of the

expert testimony that PharmAthene presented at trial. Having done so, and based on the

guidance provided in the Supreme Court‟s Opinion, I conclude that the expert reports and

testimony PharmAthene presented from its experts Baliban and Dr. Peck were both

credible and helpful in determining the parameters of my award of lost profits to

PharmAthene.      Admittedly, some of PharmAthene‟s expert testimony and evidence

strayed into areas that ultimately were not particularly relevant to the issue of proving its

lump sum expectation damages, such as, for example, Dr. Peck‟s testimony regarding

FDA approval of ST-246 and Baliban‟s models that were not based on the LATS.

Generally, however, Baliban and Dr. Peck provided important evidence addressing the

question of PharmAthene‟s damages, even if I ultimately did not rely on some of their

specific opinions. Taking all of these factors into consideration, I award PharmAthene, in

my discretion, 60 percent of the expenses PharmAthene incurred for Baliban and Dr.

Peck in the pretrial and trial phases of this action.91




90
       To the extent SIGA‟s pre-trial motion in limine regarding Baliban, Dr. Peck, and
       Edwards remains outstanding, I deny that motion insofar as it relates to any
       information or evidence from those experts that I have relied on in reaching my
       conclusions in this Memorandum Opinion.
91
       As to PharmAthene‟s licensing expert, Marc Edwards, I award PharmAthene 40%
       of expenses incurred in connection with his pretrial and trial activity. Unlike
       Baliban and Dr. Peck, only a relatively small amount of Edwards‟s evidence
       appeared more relevant based on my reconsideration on remand of the helpfulness
       of PharmAthene‟s experts.

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      Regarding the expert fees that PharmAthene incurred in connection with the

remand proceedings, I found the large majority of the expert evidence presented by both

sides during the remand stage to be largely irrelevant to the issue of PharmAthene‟s

expectation damages at the time of SIGA‟s bad faith breach. Accordingly, the costs

taxed to SIGA also shall include only one-tenth of the expert witness fees incurred by

PharmAthene during the remand proceedings.

                              III.     CONCLUSION

      For the reasons stated in this Memorandum Opinion, I reach the following

conclusions.

      After reconsidering the expert testimony presented at trial, I have determined that

PharmAthene has carried its burden of demonstrating its entitlement to lump sum

expectation damages for its lost profits related to ST-246 by a preponderance of the

evidence. As detailed in this Memorandum Opinion and in the Order being entered

concurrently with it, calculating PharmAthene‟s lost profits at the time of SIGA‟s bad

faith breach of contract requires making several modifications to the NERA valuation

model presented by Baliban. First, the timing of the period of projected revenue and

income must be altered such that the first sales of ST-246 occur in 2010, rather than

2008. Second, the quantity of ST-246 sold must be reduced to account for Baliban‟s

overestimation in varying degrees of sales to the U.S. government, DoD, and the ROW.

PharmAthene is entitled to the value of NERA‟s revised calculations, plus pre and post-

judgment interest at the legal rate, compounded quarterly. Pre-judgment interest on the



                                          52
lump sum expectation damages award shall begin to accrue from December 20, 2006.92

Third, PharmAthene‟s projected recognition of certain milestone payment obligations

under the LATS must be amended to reflect the new timing of ST-246 sales. Finally,

new COGS figures shall be calculated to reflect the decrease in projected ST-246 sales.93

       I also deny and will dismiss with prejudice PharmAthene‟s claims that it is entitled

to specific performance of a license agreement that comports with the LATS or an

equitable payment stream whose terms are in accordance with the LATS on the grounds

that it is limited to a contractual remedy and has an adequate remedy at law in the

circumstances of this case.

       The parties shall cooperate in implementing the procedure set forth in the

accompanying Order to prepare and submit promptly an appropriate form of final

judgment and order.




92
       The legal rate shall vary in accordance with changes to the Federal Reserve
       discount rate from December 20, 2006 to the present.
93
       In addition, the model will run from 2006 to 2014, the year of PharmAthene‟s last
       projected sales. For the same reasons I declined to award PharmAthene profits
       based on ST-246 sales after that year, I similarly decline to make any projections
       about PharmAthene‟s business or costs.

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