- Akorn reached an agreement in principle to settle a shareholder lawsuit that alleged the company knowingly disregarded data problems at its manufacturing facilities and then failed to appropriately inform investors.
- As a result, the generic drug manufacturer recorded a $74 million charge to account for the non-binding agreement, which would give plaintiffs up to $30 million in proceeds from Akorn's corporate insurance policies.
- The deal in principle also would have Akorn issue new stock as well as five-year contingent value rights that would entitle plaintiffs to cash payments, provided Akorn clears certain profitability thresholds.
The deal in principle is the latest in fall-out from Akorn's collapsed deal with Fresenius Kabi, which pulled back its $4.3 billion takeover offer upon finding concerning evidence of data quality problems.
Since then, Akorn received two formal warnings from the Food and Drug Administration regarding its operations at manufacturing plants in Decatur, Illinois and Somerset, New Jersey. Shares in Akorn have declined by more than 80% in response to the series of setbacks.
In their suit, which also named the company's former CEO and current chief financial officer, shareholders accused the company of "recklessly disregarded widespread institutional data integrity problems at Akorn's manufacturing and research and development facilities."
The suit states that the company issued information correcting previous misleading statements on two occasions, leading to shareholder losses of $1.07 billion and $613 million.
Akorn expects to record a net loss this year of between $258 and $273 million, more than $100 million more than the company originally estimated due to the effects of the $74 million charge.
The company continues to deny the claims made against it in the consolidated lawsuit, which is being considered by the U.S. District Court for the Northern District of Illinois. Akorn and the plaintiffs still need to agree to a definitive settlement.
Under CEO Douglas Boothe, who was named last December, the company says it is moving past its troubles, suggesting to analysts in May that remediation work at its Decatur and Somerset plants is more than 85% complete.
On that front, Akorn said Thursday it had responded to the FDA's letter regarding its Somerset facility.
Still, "with two of its key manufacturing facilities still under warning letters, we see heightened risk on this front given the potential of significant manufacturing disruptions if further issues are cited by the agency," wrote Jefferies analyst David Steinberg in a Aug. 1 note to clients.