Watson Investors Come Out Losers in CEO Subpoena

| About: Allergan plc (AGN)

For the past year, Watson Pharmaceutical (WPI) CEO Paul Bisaro has argued the Federal Trade Commission abused its power in attempting to stop a pay-for-delay deal. And he giddily thumbed his nose at the agency by refusing to comply with a subpoena that sought to compel him to testify in connection with an investigation into the deal. Late last week, however, a federal judge burst his bubble by ruling that he failed to demonstrate the subpoena “would be burdensome at all, let alone unduly so.”

Here’s the background: in court papers, Bisaro claimed the FTC harassed Watson and used confidential FDA info to force Watson into a deal with Apotex, another generic drugmaker, to sell a version of Cephalon’s (NASDAQ:CEPH) Provigil, a sleep-disorder drug. Bisaro asserted the FTC initiated its investigation “to pressure Watson” to relinquish its ‘first filer’ rights and also harassed the drugmaker when it refused to cooperate.

Watson, you see, has an exclusive right to produce a generic version of Provigil, and retains that right even if the company chooses not to market one. The FTC maintains Watson refused to say whether it agreed with Cephalon not to relinquish any exclusivity rights that it might have for a generic Provigil. In July, a different federal judge decided there was a “strong possibility” that Watson did, indeed, abuse its power, dealing a momentary, if embarassing setback to the agency.

The FTC, of course, vigorously denied any such notion (you can read more here and here). And US District Court Judge Colleen Kollar-Kotelly agreed, writing that the subpoena “is relevant to a valid investigation, not unreasonably duplicative, and not issued for an improper purpose” (read the ruling here).

Bisaro may have thought he was correct, but shareholders were the losers here. How so? The legal bill to fight a valid subpoena was likely substantial. He may yet win his argument based on the merits, but the cost of fighting the process, rather than facts, did not come out of his own pocket.

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