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Bankrupt US drug firm Aceto accuses Aurobindo of sabotage, seeks damages

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Mumbai: Aceto Corporation, a US generic drug distributor, has accused Aurobindo Pharma and its founder PV Ramprasad Reddy of sabotaging and systemically destroying the company’s business in a case filed in a New Jersey district court. Aceto, which had filed for bankruptcy in February, sought damages from Aurobindo on charges of fraud, negligent misrepresentation, breach of contract, breach of duty of good faith and fair dealing.

It asked for compensation and punitive damages from Aurobindo. The case was filed on May 31 and pertains to a drug purchase agreement between Aceto and the Hyderabad-based Aurobindo Pharma. “This action arises out of Aurobindo’s calculated and systematic scheme to destroy Aceto’s generic pharmaceutical business operated through Rising Pharmaceuticals, which ultimately worked,” Aceto wrote in its petition. “Aurobindo vigorously denies the allegations in the complaint and looks forward to addressing the matter in due course,” the company said in response to an email seeking comment on the matter. Aurobindo shares fell 0.5 per cent to end at Rs 654.10 on the BSE on Tuesday. Aceto had signed a definitive product purchase agreement to acquire generic products and related assets of Citron Pharma LLC and Lucid Pharma LLC for a total consideration, prior to a potential earn-out payment, of approximately $412 million in 2016.

Citron and Lucid were two companies for which Aurobindo was manufacturing drugs. The acquisitions were made through Rising Pharmaceuticals, an Aceto subsidiary. Subsequently, the company suffered losses, which were allegedly triggered by Aurobindo’s deliberate attempts to sabotage Aceto’s business, according to the court documents that ET has reviewed. Aceto claims Reddy provided assurances that Aurobindo wouldn’t abuse its control over the supply chain to gain a competitive advantage over Aceto’s Rising Health and Rising Pharmaceuticals subsidiaries, which ultimately would rely on Aurobindo for supplying more than half of their products. Aceto said that between 2017 and 2018, Rising Pharmaceuticals incurred at least $13 million in a failure-to-supply liability caused by Aurobindo’s calculated efforts to sabotage its supply chain.

Aurobindo apparently also failed to supply multiple orders of crucial drugs. Aceto also alleged that Reddy’s wife in the US had a large stake in Citron and once its assets had been sold, she sold her shares in the company and Aurobindo had no further interest in seeing Aceto succeed.

“There was no excuse for Aurobindo’s failure to supply these drugs,” Aceto alleged. The failure to supply the key drugs led to Rising Pharmaceuticals to pay a penalty to its largest customer, Walgreens, which subsequently led to a loss in revenue and profit and ultimately forced it to file for bankruptcy. Aceto, according to its website, was founded in 1947 and is involved in distribution of pharma products in 10 countries, supplying formulation and active pharma ingredients.




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