- Akorn Inc.'s stock fell more than 30% after the company and would-be acquirer Fresenius Kabi said they are investigating allegations that Akorn's product development activities breached data integrity requirements set by the Food and Drug Administration.
- Neither company provided many details in separate statements, and both indicated they would keep information about the probe close to the chest. However, during a Tuesday earnings presentation, Fresenius' Chairman of the Management Board Stephan Sturm revealed his company received anonymous tips about the breaches at Akorn, and noted that if the allegations prove to be material enough, Fresenius could pull out of the takeover agreement.
- Meanwhile, others are speculating that Fresenius has been getting cold feet about the deal given Akorn's weak performance in recent quarters — and this investigation gives the German drugmaker a way to secure more favorable deal terms. "[I]t now appears that [Fresenius] has spent time trying to identify a 'material adverse event' that would allow the company to renegotiate or possibly even try to terminate what was perceived to be a 'hell or high water' ironclad agreement by merger experts," Jefferies analyst David Steinberg wrote in a Feb. 27 note.
Akorn has had a rough go since its shares surged last April on reports that Fresenius was considering buying the company. During the second and third quarters, the Illinois-based company experienced nearly 30% year-over-year declines in product revenue, largely due to the loss of exclusivity for one of its key products, ephedrine sulfate injection.
Additionally, John Kapoor, the company's chairman and also a founder of Insys Therapeutics Inc., stepped down late last year after authorities charged him with scheming to bribe doctors and pharmacists to prescribe more of Insys' opioid pain medication Subsys (fentanyl).
The updates may have shaken Fresenius' confidence in the Akorn acquisition, Jefferies' Steinberg contends. Under terms of the agreement, Fresenius agreed to shell out $34 per Akorn share. The offer therefore would result in a deal worth about $4.3 billion, or one of the largest biopharma transactions of 2017.
"Obviously, given [Akorn’s] disappointing recent results, one could see why [Fresenius] would want to reprice the $4.75B EV ($34/share) transaction," Steinberg wrote.
Fresenius maintains it is still interested in Akorn, but Sturm said it's too early to say how the investigation will pan out.
"The task that lies before us now is the following: we now have to review these representations and warranties in order to see whether they really are accurate and true," Sturm said of the deal.
"And that is why during the course of our investigation, in the interest of our shareholders, we are going to have to look at the situation very deeply to see whether there really has been any possible contractual breaches."
Sturm also noted that, if the allegations prove to be false, the transaction will go through as planned. "The strategic sense of expanding our product range through liquid generic medicines continues to be without a doubt an important strategic element."