An investor in Innoviva Inc. has finally won its fight to appoint two directors to the drug developer's board, after the Chancery Court on Dec. 8 ruled that the company was bound to honor a last-minute deal to resolve a dramatic proxy fight.

Vice Chancellor Joseph R. Slights III ruled that Innoviva and shareholder Sarissa Capital Domestic Fund had reached a valid verbal agreement to expand the Innoviva board by two seats just ahead of what it thought would be certain defeat at the company's annual meeting in April.

Though Innoviva, which primarily collects royalties on drugs it licenses for GlaxoSmithKline, was eventually able to lock up the eleventh-hour support of a key investor, Slights said that the company could not escape the deal it had struck only hours earlier to install two new Sarissa-backed directors to the board.

“When [Innoviva] sensed that a loss would be announced at any moment, it did what it thought it had to do to manage the risk and keep its incumbents on the board—it deliberately struck a deal with Sarissa at the 59th minute,” Slights wrote in a 72-page memorandum opinion. “Its efforts to walk away from that deal, after discovering that the risk it thought it perceived was not real, will not be countenanced.”

Sarissa, which had challenged the compensation of Innoviva's directors in light of lagging stock performance, sued to enforce the settlement on April 20, the same day Innoviva investors voted narrowly to keep the company's seven-member board in place.

“To date, Innoviva has not explained to Sarissa, or as far as the plaintiffs know, anyone else, why it contends that the agreement is not binding,” attorneys for the fund said in a 16-page complaint. “The plaintiffs assume that failure to explain or even respond is because the Innoviva spin machine has not figured out how to spin its behavior in a way that is credible under well-established law.”

Innoviva later responded that the sides never agreed in writing to all the material terms of the agreement before the company abruptly changed course after securing deciding votes from BlackRock Inc.

Up until then, Innoviva had feared that investors would shoot down its slate of incumbents, and acquiesced on April 19 to Sarissa's demands, which included scrapping a standstill provision that would have prevented the dissident shareholder from acquiring any more stock in the company or soliciting voting proxies.

Sarissa said in court documents that discussions between negotiators from each side had produced a valid and enforceable contract. Innoviva's sudden reversal, it alleged, had constituted a clear breach of a binding settlement.

In his opinion, Slights said that evidence presented at a one-day trial in July provided “vivid color to a picture that leaves little doubt” that Sarissa and Innoviva had reached an agreement on the essential terms to end the proxy contest the day before the vote.

According to Slights' opinion, much of the negotiation had centered on the standstill, and not on the execution of a written contract or public announcement. Still, attorneys for both sides had finalized a draft letter confirming the agreement, a clear indication, he said, that Sarissa and Innoviva had already reached a deal.

It was only when BlackRock finally came around to Innoviva's side later in the afternoon that the company shut down all settlement-related talks with Sarissa. By that point, however, Innoviva had already established clear contractual obligations that it couldn't, in good conscience, walk away from, Slights said.

“Given that the Sarissa-Innoviva settlement agreement was (and is) a valid, binding contract between Sarissa and Innoviva, Innoviva was not entitled to abandon that agreement merely on account of BlackRock's vote,” he wrote. “With all of this said, on the scale that balances the equities here, Innoviva has nothing but misguided opportunism to place in its weighing pan.”

Robert S. Saunders, an attorney with Skadden, Arps, Slate, Meagher & Flom who represented Innoviva, declined to comment Monday on the ruling, and the company did not respond to to a request for comment.

An attorney for Sarissa was not immediately able to comment.

Sarissa was represented by Martin L. Seidel and Sameer Advani from Willkie Farr & Gallagher and Stephen E. Jenkins, Richard D. Heins and Peter H. Kyle of Ashby & Geddes.

Innoviva was represented by Saunders, Sarah Runnells Martin, Alyssa S. O'Connell and Matthew P. Majarian, all from Skadden.

The case was captioned Sarissa Capital Domestic Fund v. Innoviva.