A Delaware judge has ordered Johnson & Johnson to pay more than $1 billion in damages for breaching its acquisition agreement with Auris Health Inc., and failing to prioritize the development of potentially transformative surgical robots.
Vice Chancellor Lori W. Will ruled on Sept. 4 that J&J had breached its promise to pursue regulatory approvals for two surgical robots, the iPlatform and the Monarch, which were developed by Auris before its $3.4 billion acquisition by J&J in 2019.
The lawsuit was filed by Auris’s former shareholders, who alleged that J&J did not meet its contractual obligations regarding milestone payments tied to the regulatory approvals of the robots, both considered breakthrough medical technologies at the time of the acquisition.
While the judge found that the regulatory milestones were “ambitious,” she determined that they corresponded to approvals that the Auris robots were on track to complete and that J&J’s promise to Auris to prioritize the development of the robots “was broken almost immediately” after the acquisition deal was finalized.
She wrote in her 145-page opinion that J&J’s actions “put the first iPlatform milestone out of reach, [and] the other milestones fell like dominos.”
A key issue in the case was the earnout provision in the merger agreement, a common feature of acquisitions. This provision allowed Auris shareholders to receive an additional $2.35 billion if the company’s products hit certain regulatory targets.
However, instead of providing efforts and resources for the Auris robots to achieve the regulatory milestones, J&J “thrust iPlatform into a head-to-head faceoff” against one of its robots, called Verb, shortly after the acquisition, the judge found. The internal competition, known as “Project Manhattan,” diverted resources from Auris’s iPlatform and delayed its progress toward regulatory objectives.
Even though iPlatform emerged victorious from the competition, “winning Project Manhattan was losing,” Will wrote. She noted that J&J’s decision to later combine iPlatform with components from Verb essentially turned iPlatform into a “parts shop” for Verb, further hindering the achievement of regulatory goals.
J&J’s defense rested on the argument that the merger agreement granted it broad discretion to integrate Auris’ products into its overall robotics strategy, without being bound to the milestones set out in the regulatory approval process. The company also contended that the delays in achieving the milestones were due to iPlatform’s technical difficulties, which it claimed were unforeseen and beyond its control.
However, the court found this defense “dubious” and “concocted after J&J was sued.” The judge determined that the technical issues were anticipated and solvable, and that J&J’s decision to pit iPlatform against its own robot hindered progress and ultimately served J&J’s interests by allowing it to avoid paying the earnout.
The judge ruled in favor of J&J on some matters, rejecting most contract claims involving Auris’s Monarch device and dismissing fraud allegations against J&J, which focused on the allegation that the company deliberately misled Auris about its intentions to meet the regulatory milestones so that it wouldn’t have to make the payments.
J&J did not respond to a request for comment on the ruling.
From The Epoch Times