Checkpoint Therapeutics Faces Legal Hurdles in $355 Million Sun Pharma Merger

Checkpoint Therapeutics’ proposed acquisition by Sun Pharmaceutical Industries has encountered significant legal challenges as shareholders file suit in Delaware’s Court of Chancery. The litigation alleges inadequate disclosure of insider benefits and conflicts of interest involving controlling stakeholder Fortress Biotech, while simultaneously revealing complex corporate governance questions about controlling shareholder transactions[9][10]. With the special shareholder vote scheduled for May 28, 2025, this dispute highlights growing scrutiny of pharmaceutical M&A deals involving contingent value rights and third-party manufacturing controls[5][7].

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Legal Challenges and Document Demands

Stockholder Allegations of Procedural Deficiencies

Plaintiff Gary Fell’s lawsuit seeks internal communications and board materials related to the merger’s approval process, arguing that Checkpoint’s seven-member board contains two Fortress executives whose unvested shares would automatically vest upon deal closure[9][14]. The complaint references Delaware’s Section 220 inspection rights, recently narrowed by 2025 statutory amendments that now require stockholders to demonstrate “clear and convincing evidence” of record necessity[16]. This legal action follows Checkpoint’s rejection of initial document requests as overly broad, though the company remains open to negotiated disclosures[9][18].

Structural Concerns in Contingent Consideration

The merger’s financial architecture includes a $4.10/share cash payment and $0.70/share contingent value right (CVR) tied to UNLOXCYT commercialization milestones[4][14]. Legal experts note this structure creates asymmetric risk exposure, as CVR holders lack traditional securityholder rights under the merger agreement’s terms[14]. The deal’s 66% premium to Checkpoint’s pre-announcement price contrasts sharply with the company’s operational reality – $27.3 million net loss on $40,000 revenue through September 2024[4][5].

Corporate Governance Under Scrutiny

Kahn v. M&F Worldwide Precedent Application

Plaintiffs invoke the landmark 2014 Delaware Supreme Court decision requiring dual protections – special committee approval and majority-of-minority votes – for controlling shareholder transactions[19][20]. Checkpoint’s structure fails both tests: No independent committee reviewed the Sun Pharma offer, and Fortress’ 54% stake effectively controls the shareholder vote[9][14]. This vulnerability exposes the transaction to entire fairness review rather than business judgment rule protection[19][20].

Manufacturing Control Disclosures Resurface

The lawsuit revives concerns from 2024 class actions about Checkpoint’s third-party manufacturing controls, previously cited in the FDA’s December 2023 complete response letter for UNLOXCYT[6][15]. While a Southern District of New York dismissal on May 19, 2025, removed one legal overhang, Delaware Chancery scrutiny now focuses on whether manufacturing risks were adequately disclosed in merger materials[10][15].

Regulatory and Timing Considerations

HSR Clearance and Closing Timeline

The Federal Trade Commission allowed the Hart-Scott-Rodino waiting period to expire on May 21, 2025, removing antitrust barriers to the transaction[7][10]. Parties anticipate closing by May 30 pending shareholder approval, creating a compressed 48-hour window between the vote and planned consummation[7][10]. This accelerated timeline limits opponents’ ability to seek injunctive relief post-vote.

Royalty Arrangements and Future Liability

Buried in merger documents, Fortress secures ongoing royalties from UNLOXCYT sales alongside its $58 million upfront payout[4][9]. This dual compensation structure – combining immediate liquidity with long-term participation rights – may violate Delaware’s prohibition on conflicted controller transactions without proper safeguards[19][20]. The arrangement remains unprotected by MFW procedural protections due to the lack of independent committee review[14][19].

Implications for Biopharma M&A

This confrontation highlights evolving challenges in life sciences acquisitions, particularly around:

1. Third-Party Manufacturing Due Diligence: Post-COVID scrutiny of CMO relationships now directly impacts M&A valuations, with buyers demanding stronger indemnification for regulatory risks[6][15].

2. Contingent Value Right Structures: The SEC’s 2024 guidance on CVR accounting forces acquirers to model multiple payout scenarios, complicating deal math for development-stage assets[4][14].

3. Controlling Shareholder Protocols: Delaware’s evolving jurisprudence pressures boards to implement MFW protections even in non-freezeout deals, as seen in recent In re Match Group decisions[19][20].

Industry-Wide Ramifications

The outcome could reshape dealmaking practices for the 43% of public biotechs with controlling institutional investors. Acquiring companies may demand stronger rep & warranty insurance for manufacturing compliance, while targets face pressure to establish independent transaction committees regardless of deal size[16][19]. For CVR recipients, enhanced disclosure requirements around milestone probabilities appear inevitable[14][20].