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Akorn's $694 Million Dollar Secret

|Includes: Akorn, Inc. (AKRX)

German healthcare group Fresenius SE & Co KGaA (FWB:FRE) announced on Friday that it was in talks with the generic drugmaker Akorn Inc. (NASDAQ:AKRX) for a potential acquisition.

Akorn confirmed in a press release that it is currently in discussions with Fresenius Kabi, a subsidiary of Fresenius SE & Co. KGaA, concerning the potential acquisition of Akorn.

Fresenius SE is Europe's largest publicly traded health-care provider. Following the report of the discussions, Akorn shares closed up 18 percent. Akorn's shares rose more after Fresenius confirmed the talks, and were up another 9.6 percent after the markets closed.

Akorn makes branded and generic versions of ophthalmic, injectable and non-injectible drugs with manufacturing facilities in the U.S. and outside the country. Last year, Akorn's sales totaled $1.05 billion.

However, Akorn manufacturing operations have had some issues in recent years. In November, Akorn's shares plummeted after Chief Executive Officer Raj Rai said a manufacturing facility in Decatur, Illinois, would need to be re-inspected by the FDA, which found problems at the plant. The reinspection was completed the next month without finding more problems, the company announced in December.

Akorn is also currently facing various lawsuits. Akorn is facing shareholder and derivative lawsuits alleging breaches of fiduciary duty in connection with Akorn's accounting for its acquisition and the restatement of its financials. In 2012, Fera Pharmaceuticals, LLC filed a lawsuit against Akorn alleging that Akorn breached certain terms of a contract manufacturing supply agreement by, among other things, failing to manufacture Fera's products, raising the manufacturing cost, and impermissibly terminating the contract. In addition, Fera alleges that Akorn misappropriated Fera's trade secrets in order to manufacture Erythromycin and Bacitracin for its own benefit. Fera seeks $162 million in compensatory damages plus punitive damage, which could result in compensatory damages being quadrupled to $648 million.

Also, Akorn's Chairman John Kapoor is no stranger to controversy. In January 2017, Kapoor stepped down as Chief Executive Office and Chairman of Insys Therapeutics. The announcement came a month after six former Insys executives (including Kapoor's predecessor as CEO, Michael Babich) were arrested and charged with conspiring to bribe doctors to needlessly prescribe Subsys, a Fentanyl spray approved by the Food & Drug Administration to treat patients with severe cancer pain, according to an indictment filed by the U.S. Attorney's Office of the District of Massachusetts in December.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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