$800 Million Pharma Merger Contested

WILMINGTON, Del. (CN) — In a federal class action, a shareholder of orphan drug-maker Raptor Pharmaceutical Corp. claims its directors are selling it on the cheap to Horizon Pharma, on unreasonable terms that stifle competing offers.

Jesse Jordan claims that Horizon's offer of $9 per share resulted from a flawed and inadequate process that "fails to adequately compensate Raptor shareholders for their stake in the Company, despite its strategic positioning as a leader in an expanding marketplace."

He cites Raptor's "strong growth over the last few months," which is expected to continue, but says if the merger goes through, "stockholders will have no participation in the success of the future combined companies."

Raptor makes the orphan drugs Quinsair and Procysbi.

Orphan drugs are drugs targeted at diseases so rare there is no financial incentive for a company to do the research and development on it. To encourage the research, the federal Orphan Drug Act of 1983 gave drug-makers opportunities for tax credits, extended patent protection, research and development grants, and waived FDA fees to develop drugs and vaccines for diseases that affect fewer than 200,000 Americans. The Rare Diseases Act of 2002 strengthened the Orphan Drug Act.

Procysbi is used to treat a rare metabolic disorder known as nephropathic cystinosis in the United States.

Quinsair is used to manage pulmonary infections in cystic fibrosis patients in the European Union and Canada.

Analysts of the deal say the Raptor deal will provide an immediate revenue boost to Horizon.

Jordan claims: "The sale of the company is being timed in an effort to curb any future increase in the share price of Raptor common stock, thus ensuring that Horizon can effectuate its takeover on the cheap."

Among the onerous deal protection devices that preclude other bidders from topping Horizon's offer are strict nonsolicitation and "last look" provisions, Jordan says. "Defendants agreed to certain onerous and preclusive deal protection devices that operate conjunctively to make the tender offer a fait accompli and ensure that no competing offers will emerge for the company."

He says the merger agreement forbids Raptor from seeking superior bids without giving Horizon "unfettered access to confidential, nonpublic information about competing proposals from third parties" to top the bid. It also gives Horizon four days to come up with a counteroffer "that only matches the superior third-party offer."

And in the unlikely event that the company decides to pursue an alternative offer, Raptor has to pay Horizon a termination fee of $30 million.

Jordan says Raptor's SEC filings to solicit stockholders to tender their Raptor shares in the proposed $800 million deal are "materially deficient." He criticizes Raptor's financial advisers for the deal, Centerview Partners LLC and Leerink Partners LLC. He says their financial projections omit pertinent information shareholders need to determine whether the tender offer is fair.

"Centerview and Leerink's fairness opinion and analyses fails to include key inputs and assumptions underlying these analyses," Jordan says, and without this information, "Raptor's public stockholders are unable to fully understand these analyses."

Jordan wants the merger enjoined for violating the Securities Exchange Act, and because of its "material misstatements and omissions."

He is represented by Brian Long with Rigrodsky & Long in Wilmington, and by Shane Rowley with Levi & Korsinsky in Stamford, Conn.

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