A group representing former shareholders of Angiotech Pharmaceuticals Inc. (NSDQ:ANPI) subsidiary Quill Medical Inc. are suing both companies.
QSR Holdings Inc. alleges that Angiotech concealed damaging information about the sales performance of a Quill product prior to Angiotech’s acquisition of the company. It also alleges that Angiotech acted to deliberately reduce future milestone-related payments to QSR. The shareholder group is seeking compensation and punitive damages together with legal fees from the Vancouver-based company through both federal litigation and arbitration proceedings with the American Arbitration Assn. The federal complaint charges include fraudulent inducement, breach of contract and tortious interference.
Angiotech said it plans to vigorously defend itself against the claims.
"Given the nascent stages of these proceedings, it is not possible at this time to predict the outcome of the Federal Litigation or of any arbitration or other proceeding that may result from the arbitration demand," according to a press release.
QSR contends that Quill would not have inked the 2006 merger agreement with Angiotech if it had known about $2.4 million worth of returned Quill wound closure products, according to court documents.
At the time of the merger, Angiotech subsidiary Surgical Specialties Corp. had a distribution agreement with Quill, and allegedly hid the returned product in a warehouse.
The merger agreement included an up-front payment of $40 million and future payments of up to $160 million to be made based on future product sales. Those included earn-out period payments, a milestone payment of $10 million for the sale of a Quill wound closure product and $10 million upon receipt of Food & Drug Administration clearance of a tendon repair indication for that product, according to the documents.
QSR contends that the Quill product returns and "other undisclosed factors" affected the earn-out payments and virtually assured "that QSR would never realize the value of the negotiated bargain."
Angiotech deliberately abandoned plans to obtain FDA clearance for the Quill product’s tendon repair indication or directed that such plans be abandoned in order to avoid the related milestone payment, according to the lawsuit.
Angiotech’s acquisitions were an attempt to diversify its product offerings. The company co-developed and produces coatings for Natick, Mass.-based Boston Scientific Corp.’s (NYSE:BSX) Taxus drug-eluting stents, sales of which have been falling in recent years. Royalty revenues derived from sales of the Taxus stent dropped by 50 percent during Angiotech’s last fiscal quarter. The company reported $8.9 million in Taxus royalties during the quarter, compared to $16.9 million during the same period the previous year.
The company’s shares, which face a possible de-listing from the NASDAQ stock exchange, were trading at 47 cents this morning. The company also deferred $9.7 million in interest payments on debt that were due Oct. 1, looking to “effectuate a transaction that would materially reduce the company’s existing debt levels.”