- Shares of specialty generics maker Akorn were more than halved Monday morning on news that a Delaware judge ruled Fresenius Kabi was valid in its decision to exit a takeover deal between the two companies.
- Fresenius, which also manufactures generics, agreed to pick up Akorn for $4.3 billion in April 2017. But a year later, the German pharma said it would be backing out of the acquisition because investigations into Akorn's data quality and product development raised serious concerns.
- Akorn pushed back against those claims, filing an action with Delaware's Court of Chancery against Fresenius and its rationale for terminating the deal. But the action didn't go in Akorn's favor, as Judge Travis Laster, vice chancellor of the court, concluded that "[a]ny second thoughts that Fresenius had about the Merger Agreement were justified by unexpected events at Akorn."
Rumors about the Fresenius-Akorn deal falling apart started to swirl earlier this year, when the companies announced the probes into Akorn's business practices. At the time, it wasn't clear if there was a real issue with the target's data integrity, or if Fresenius was just looking for an out because of other problems at Akorn — namely lower revenue and the departure of chairman John Kapoor.
While there was some evidence supporting the Akorn counsel's argument that this was a "tale of buyer's remorse," Laster found Fresenius had reasonable cause for withdrawing from the acquisition.
"In prior cases, this court has correctly criticized buyers who agreed to acquisitions, only to have second thoughts after cyclical trends or industry-wide effects negatively impacted their own businesses, and who then filed litigation in an effort to escape their agreements without consulting with the sellers," he wrote in an opinion filed on Oct. 1.
"This case is markedly different. Fresenius responded to a dramatic, unexpected, and company-specific downturn in Akorn’s business that began in the quarter after signing."
The probe into Akorn's data integrity also identified several red flags.
Mark Silverberg, Akorn's former head of quality function, fostered a culture that pushed employees to "just get things done and get products out [the] door," in the 10 years leading up to his recent firing, according to court documents.
In fact, Laster said Silverberg OK'd a response to a Complete Response Letter (CRL) on an Abbreviated New Drug Application (ANDA) knowing it would result in the submission of false data to the Food and Drug Administration.
"In my judgment, Silverberg submitted the false CRL in an effort to avoid inviting any scrutiny of Akorn’s data integrity deficiencies until after the Merger closed, when it would be Fresenius’s problem," Laster wrote.
"Akorn ultimately withdrew the ANDA in March 2018. But for an investigation that Fresenius was conducting into two whistleblower letters it received, Akorn would not have withdrawn the ANDA or taken any action against Silverberg."
Akorn intends to appeal Laster's ruling. Still, the details of its business that have come to light through court filings and company investigations will make it difficult to recoup its reputation. Investor optimism appears to already be faltering, with Akorn shares down 51% to $6.35 apiece at Monday's market open.
"We are disappointed by the ruling by the Delaware Chancery Court determining not to force Fresenius to close and we continue to believe Fresenius’ attempt to terminate the transaction is in breach of our binding merger agreement," Akorn said in an Oct. 1 statement.