J&J must face suit over $3.4 billion Auris deal

Johnson & Johnson must face a lawsuit alleging that it defrauded shareholders of Auris Health Inc when it failed to make certain payments as part of a $3.4 billion deal to acquire the robotic surgery company, a Delaware judge ruled. 

In ruling on a partial motion to dismiss on Monday, Vice Chancellor Lori Will said that shareholder advisory firm Fortis Advisors LLC, on behalf of the Auris shareholders, could pursue claims that J&J and a subsidiary breached the merger agreement by failing to make up to $2.35 billion in post-deal payments as Auris hit certain milestones.

Will dismissed claims against J&J's board members because their statements weren't made in Delaware.

In its motion to dismiss the suit, the pharmaceutical giant denied wrongdoing and said that other factors, including the pandemic, caused Auris to miss its milestones.

The case stemmed from J&J medical device unit Ethicon Inc's 2019 acquisition of California-based Auris for $3.4 billion. Under the deal, Auris shareholders could have received up to $2.35 billion more if Auris products received regulatory approval and hit certain performance targets.

Fortis sued Johnson & Johnson, its board and Ethicon in October 2020 after the pharmaceutical giant signalled in a public announcement that it was no longer setting aside money to make the milestone payments.

Fortis alleged that the Johnson & Johnson board tricked Auris shareholders into completing the deal by saying that the acquired company would be able to operate independently of J&J's existing robotic surgery venture.

The shareholder representative also said that Ethicon prevented Auris from meeting its milestones by omitting information and delaying regulatory submissions.

The case is Fortis Advisors LLC v. Johnson & Johnson, Delaware Court of Chancery, No. 2020-0881.