Aceto claims Aurobindo scheme led Rising Pharma to insolvency

By Caroline Salls

Pittsburgh, May 31 – Aceto Corp. and subsidiary Rising Pharmaceuticals filed a lawsuit Friday in the U.S. Bankruptcy Court for the District of New Jersey, alleging that Aurobindo Pharma Ltd., Aurolife Pharma LLC and P.V. Ramprasad Reddy orchestrated a scheme that led to Aceto’s bankruptcy.

“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: Aurobindo succeeded in crippling plaintiffs and substantially contributing to their bankruptcy filing,” the adversary proceeding said.

Aceto said the scheme was “spearheaded by” Aurobindo founder, substantial equityholder and board member Reddy.

According to the lawsuit, in 2016 Aurobindo allegedly induced Aceto into paying $270 million in cash and other consideration for rights owned by Citron Pharma LLC and affiliate Lucid Pharma LLC in products manufactured by Aurobindo.

As part of this transaction, Aceto said Reddy made a series of claims about Aurobindo’s capabilities, capacity and good faith as a potential manufacturing partner. Specifically, Aceto said Reddy represented that Aurobindo would supply all of Rising Pharmaceuticals’ manufacturing needs for the purchased products, that Aurobindo had ample manufacturing capacity and capabilities to meet those needs and that Aurobindo would act in good faith and not abuse its control over the supply of product to secure undue competitive advantage.

“Reddy’s representations were unequivocally false and misleading,” the lawsuit said. “Aurobindo had no intention of partnering with Rising Pharmaceuticals or supplying Rising Pharmaceuticals’ needs once the deal between Aceto and Citron/Lucid closed, and Mr. Reddy knew that.

“Reddy knew that Aurobindo would become a competitor of Aceto in selling the same products to the same customers, and that Aurobindo would have every incentive to strangle Rising Pharmaceuticals and force it out of the generic pharmaceutical market.”

As a result, Aceto alleged that Rising Pharmaceuticals lost a significant amount of business and incurred failure-to-supply liabilities when it was unable fulfill customer orders.

“Stuck with a manufacturing partner bent on sabotaging its business, Rising Pharmaceuticals experienced a cash-flow crisis and was ultimately driven to insolvency,” according to the lawsuit.

Just 15 months after closing the Aurobindo transaction, Aceto said it was forced to write off the $270 million purchase price. The Aceto debtors were forced to file bankruptcy in February.

Through the lawsuit, the plaintiffs are seeking damages caused by the defendants’ alleged fraud and multiple breaches of the parties’ supply agreements.

Aceto is a Port Washington, N.Y.-based developer, marketer, seller and distributor of human health products, pharmaceutical ingredients and performance chemicals. The company filed bankruptcy on Feb. 19 under Chapter 11 case number 19-13448.

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