Teldar Paper

Wall Street Jumped the Gun: The Big Overread in Nektar v. Lilly On Tuesday, when the jury asked Judge Donato to clarify the difference between finding a breach with $1 in nominal damages versus finding no breach at all, Wall Street treated a single note as the verdict. Nektar ($NKTR) stock came under pressure on the headline: the Jury is letting Lilly ($LLY) walk. Treating one note from an 8-person panel as the unanimous voice of the jury is a massive overread - especially in San Francisco. Wall Street assumed a jury will take the simplest path. A San Francisco jury hasn’t appeared to do that. The Jury pool is drawn from a sophisticated Bay Area demographic with an unusually high understanding of data integrity issues. They understand the difference between a typo and a systemic review failure. The two notes this jury sent show that sophistication. Tuesday's note at the roughly 13-hour mark confirms the $0-to-$1 outcome is being discussed, but it doesn't dictate direction. Instructions 13 and 15 create a fork: Instruction 13 says Nektar must prove Lilly failed to use Commercially Reasonable Efforts and that it sustained damages, while Instruction 15 says damages must be reasonably certain. A jury that believes Lilly breached CRE but is divided on whether Nektar proved its full damages with reasonable certainty naturally asks: does that uncertainty force us to flip to no breach? Donato's answer gave them permission to keep liability intact - breach with nominal is a finding of liability, no breach is not. That clarification is most useful to a panel that is coalescing around breach and is trying to preserve that finding while it works through damages. The sentence the market ignored One potential reason the jury may have spent another 10-plus hours after that instead of going home is in Instruction 15 itself: "It is for you to determine what damages, if any, have been proved... When the existence of damage is certain and the only uncertainty is as to its amount, Nektar may not be denied recovery as long as it shows a stable foundation for a reasonable estimate of damages." That is the opposite of a $1 trap. It instructs the jury they are forbidden from denying recovery if there is a stable foundation, even if they reject the exact expert number. The sushi test: why Jury’s other questions matters so much Late Wednesday, at roughly the 24 hours of deliberations mark, the jury asked (paraphrased): “If a business works with a company that you know is at a higher risk of inaccurate data, is that business' normal data-review efforts reasonable with the known risks?" Think of it like a sushi restaurant. You normally trust your fish delivery and do a quick smell test. Then you learn your supplier just had two FDA warnings for spoilage. Is it still "reasonable" to do the same quick smell test? No. A reasonable owner starts opening boxes, checking temps, may even consider switching suppliers. Doing "what you usually do" when you know risk is higher is the definition of unreasonable. That is exactly what is at issue under CRE. Under the Agreement, Lilly is liable for PRA's acts and omissions, including the miscalculation that reported Rezpeg's efficacy at 66% at EADV 2022 when the corrected data showed 83%. Lilly's defense has been "we did what we normally do for comparable products." This jury - a Bay Area jury that lives with QA - is asking whether normal is still reasonable when you are on notice that your data source is high-risk. If they believed standard oversight was sufficient to satisfy CRE, they would have returned a defense verdict. Instead, they are testing whether Lilly's failure to add safeguards when it knew risk was elevated.