Shares of Akorn (AKRX) fell more than 57% today after a judge ruled that Fresenius has the right to abandon a $4.75 billion merger agreement inked in early 2017 and rejected the generic drug manufacturer's argument that the agreement was set in stone.
The news isn't all that surprising. Fresenius announced in April 2018 that it was terminating the acquisition after uncovering evidence that the generic drug manufacturer had submitted fraudulent data to the U.S. Food and Drug Administration for multiple drugs over the years. The judge wrote that "the magnitude of inaccuracies would reasonably be expected to result in a material adverse effect," according to Reuters.
As of 11:34 a.m. EDT, the stock had settled to a 54.5% loss.
Today's news confirms what many investors and analysts had already feared to be true: that the acquisition was rightfully terminated and Akorn was going to have a long road ahead. The company's last hope was that a judge would rule that the merger agreement was final no matter what, but that was always a long shot. The generic drug manufacturer said it plans to appeal today's decision.
However, Mr. Market isn't putting much faith in that outcome shaking out favorably for Akorn, valuing the business at just $750 million -- roughly equivalent to book value at the end of June. Shares have now fallen more than 80% since the beginning of the year.
This is pretty straightforward for investors: Akorn has way too many red flags right now. The abandoned merger is bad news, the reason the agreement was terminated is even worse, and there are still many question marks surrounding the business. In the first half of 2018, revenue sank compared to the prior-year period and operating loss swelled to $116 million. It's possible for the business to rebuild, rebrand, and earn back the trust of shareholders and the broader market, but those efforts will take years and are likely to be expensive.