AKRX/Fresenius: Dispute Will Center on Materiality of Alleged FDA Data Integrity Issues

Event Driven Takeaways

  • The dispute between Akorn and Fresenius over whether the Delaware Chancery should order the parties to complete the merger will focus on how significant any FDA data integrity issues are to Akorn’s overall business.
  • Specifically, the parties disagree over the extent of the FDA data integrity issues and whether any such issues will have a materially adverse effect on Akorn’s business as a whole.
  • Based on Akorn’s 2017 earnings call, while the company’s pipeline portfolio contains a mix of high- and low-value products, on average, the company expects to bring in roughly $6M to $10M in annualized net revenues per product. It remains to be seen whether the revenue impact from azithromycin and five other drugs would be in the ballpark of the relatively onerous “materiality” standard that Fresenius must meet.
  • Fresenius also argues that Akorn’s conduct violates certain covenants in the merger agreement. This could be a mostly fallback argument from Fresenius based on recently decided Delaware Chancery Court cases.
  • Delaware courts have not directly permitted a party to walk away from a merger based on a claimed material adverse effect. However, the case law is fact-specific and may give Fresenius an avenue to succeed on this claim.

The central dispute in Akorn’s lawsuit against Fresenius will be whether any FDA data integrity issues that Fresenius claims to have uncovered in its investigation of Akorn are significant enough to have a material adverse effect on Akorn’s business. Vice Chancellor Travis Laster, the presiding judge in the Delaware Chancery Court where the action is pending, has ordered trial for the week of July 9. This is a relatively tight turnaround time for what will likely be a fact-intensive dispute. A material adverse effect is defined in the