The Action arises out of the $1.8 billion merger (the “Merger”) between Emisphere and Novo Nordisk A/S (“Novo Nordisk”) announced by the Company on November 6, 2020, and alleges that the defendants artificially depressed the price of Emisphere common stock during the Class Period in order to ensure that the Merger would be consummated, and defendants Mark H. Rachesky, Michael Weiser and Timothy Rothwell would receive lucrative payouts from the transaction. To implement the scheme, the defendants allegedly made a series of materially false and misleading statements and omissions of material facts in the proxy statement (the “Proxy”) and other public statements issued in connection with the Merger during the Class Period.
The Merger arose from a longstanding business relationship between Emisphere and Novo Nordisk in which Emisphere licensed its patented drug delivery technology to Novo Nordisk under a royalty agreement executed between the companies in 2008 (the “Royalty Agreement”). Under the Royalty Agreement, Novo Nordisk was permitted to use the Company’s patented delivery mechanism for the medication Rybelsus, a “wonder drug” approved by the U.S. Food and Drug Administration for the treatment of type 2 diabetes. In return, Novo Nordisk agreed to make both milestone and royalty payments to Emisphere that were tied to Rybelsus’s net sales.
The Royalty Agreement was amended numerous times over the next several years. Under one such amendment, defendant Rachesky and certain of his investment funds, as Emisphere’s controlling shareholders, obtained the right to receive a direct royalty stream of 0.5% of Novo Nordisk’s net sales of Rybelsus and other products that used Emisphere’s technology (the “MHR Royalties”).
In November 2019, in the midst of an intellectual property dispute between the companies, Novo Nordisk initiated discussions on a potential acquisition of Emisphere. The companies engaged in merger negotiations throughout 2020. Novo Nordisk made several proposals between February and August, which culminated in Novo Nordisk’s “best and final” offer of $1.8 billion on August 24, 2020. After ultimately agreeing on terms, Emisphere and Novo Nordisk executed a merger agreement on November 5, 2020 (the “Merger Agreement”). Under the Merger Agreement, Novo Nordisk agreed to pay $1.35 billion to Emisphere’s shareholders in exchange for their Emisphere common stock. Under a separate agreement, Novo Nordisk agreed to pay defendant Rachesky an additional $450 million to acquire the MHR Royalties. Defendants Rothwell and Weiser were also provided lucrative payouts under the Merger Agreement, including the acceleration of restricted stock unit and unvested stock option packages valued at over $8 million each.
Emisphere announced the Merger in a press release on November 6, 2020, and subsequently issued the Proxy to its shareholders on November 16, 2020. Both the November 6 press release and the Proxy touted the Merger as a positive transaction for Emisphere shareholders. The Merger closed on December 8, 2020; shareholders that sold their Emisphere common stock into the Merger received $7.83 per share (the “Merger Consideration”).
As alleged in the complaint, the defendants’ public statements concerning the Merger were false and misleading when made because they failed to disclose material facts concerning the Merger, including that: (i) defendant Rachesky manipulated the sale process to ensure he received enormous financial benefits from the Merger, including his insistence on a transaction structure that supported significant personal tax savings on his $450 million payment for the MHR Royalties; (ii) defendants Rothwell and Weiser adjusted Emisphere’s financial projections downward to justify the inadequate Merger Consideration; (iii) Emisphere had consistently modeled internal financial projections demonstrating significantly higher valuations for the Company, which supported higher merger consideration for shareholders; and (iv) Emisphere had been engaged in an extensive intellectual property dispute with Novo Nordisk that was integral to the Merger negotiations and implicated significant royalty payments to the Company.