In a David and Goliath deal, the small bankruptcy auction seller accuses the successful multinational bidder of primary antibiotic assets of sharp dealing.
M&A Stories
July 2, 2023
Introduction:
In this case, a small pharmaceutical company, facing bankruptcy, has accused the winning bidder of engaging in unfair practices while acquiring its primary antibiotic asset. The bankruptcy trustee has filed a claim seeking damages for the bidder’s misconduct.
Background:
The bankrupt seller developed two antibiotics to combat drug-resistant bacterial infections. However, the expected sales volume did not materialize, leading to financial difficulties. To address this, the seller initiated a bankruptcy auction on April 15, 2019, to sell its assets. The successful bidder, a large Indian multinational pharmaceutical company, acquired global rights (excluding China) for the first antibiotic and exclusive worldwide rights for the second antibiotic. A Chinese pharmaceutical company became the successful bidder for the China rights.
Negotiations between the buyer, the seller, and the Chinese rights buyer were initiated to finalize a licensing agreement for the China rights. However, the buyer delayed the process and provided extensive changes to the draft agreement, significantly deviating from the original terms. The Chinese rights buyer eventually decided to withdraw from the negotiations, citing difficulties caused by the buyer’s actions and lack of good faith. The seller then informed the buyer that it must proceed with purchasing the China rights as the backup bidder.
However, on July 31, 2019, the buyer informed the seller that it would not fulfill its obligation to purchase the China rights. The seller alleges that the buyer deliberately delayed negotiations to find another buyer willing to pay a higher amount, intending to make a profit. Nevertheless, the buyer’s efforts failed.
As negotiations continued for the other antibiotic sale, the buyer displayed mixed signals and failed to finalize the agreement. Eventually, the seller sold the China rights for a significantly lower amount than what the buyer or the Chinese rights buyer had offered. Additionally, the seller could not find a buyer for the other antibiotic, decreasing its value.
Lawsuit:
In response to these disappointing outcomes, the seller filed a claim for damages against the buyer in bankruptcy court, accusing them of misconduct. The buyer, in turn, filed a motion to dismiss the claims.
Outcome:
The court determined that if the presented facts were accurate, they could support claims of tortious interference with business relations, interference with prospective economic advantage, promissory estoppel, breach of the implied covenant of good faith and fair dealing, and contempt for willful violation of the bankruptcy court’s bidding procedure and sale orders.
Case Reference:
See In Re Achaogen, Inc., Case No. 19-10844 (BLS) Adv. Proc. No. 21-50479 (BLS), United States Bankruptcy Court, D. Delaware (Signed January 30, 2023).
Comment: The contempt claim includes a demand for punitive damages. It serves as a reminder to larger companies that mistreating smaller sellers can have financial consequences.
By John McCauley: I write about recent legal problems of buyers and sellers of small businesses.
Email: jmccauley@mk-law.com
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