Akorn CEO Says Fresenius Is Using Smear Campaign to Cancel Deal

(Bloomberg) -- Akorn Inc.’s top executive complained Fresenius SE officials are unfairly smearing his firm’s reputation as the German company tries to pull out of $4.3 billion deal to to buy the generic drugmaker.

Raj Rai, Akorn’s chief executive officer since 2010, told a judge Tuesday Fresenius’s claims that flaws in the company’s computer system led to fraudulent test results aren’t true. Akorn says that Fresenius is using minor mistakes to create a pretext for backing out of the the $34-per-share buyout.

Hurting Akorn’s reputation with false claims “is not right,” Rai told Delaware Chancery Court Judge Travis Laster. “Customers are sensitive to what is happening to us.”

Earlier Tuesday, a lawyer for Fresenius said a review of Akorn’s computer system found its security was so lax any employee or vendor could review or change the firm’s drug-testing data.

Lax Drugmaker Computer Security Linked to Deal Cancellation

Laster must decide whether Fresenius properly walked away from the Akorn deal in April or whether the German company must finalize the buyout. Some analysts have predicted the deal could still close at a lower price.

Fresenius officials say Akorn’s testing miscues, along with a history of operational problems that drew warnings from the U.S. Food and Drug Administration, justify canceling the deal. They point to what they allege are phony drug-test results included in U.S. Food and Drug Administration submissions to back up their allegations of fraud. Akorn was forced to withdraw one of the submissions.

Under cross-examination, Rai acknowledged Akorn hasn’t lost any customers as a result of Fresenius’ fraud claims and the generic drugmaker, once run by billionaire John Kapoor, wouldn’t collapse if the deal fell through. Kapoor, now under indictment for racketeering, is Akorn’s largest shareholder.

Fresenius’ lawyers also presented Laster with the results of a consultant’s review of Akorn’s computer system that found its security was so lax any employee or vendor could review or change the firm’s drug-testing data.

John Avellanet, a consultant Akorn hired in 2016 after regulators questioned its operational procedures, discovered executives had little security control over the pharma company’s computer system and that raised doubts about the integrity of its record-keeping, Lewis Clayton, one of Fresenius’ lawyers, said Monday.

Akorn fell as much as 4.6 percent, the most intraday since May 3. The shares had climbed 2.8 percent Monday. Fresenius fell 0.4 percent.

The case is Akorn Inc. v. Fresenius Kabi AG, 2018-0300, Delaware Chancery Court (Wilmington).

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