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FUJISAWA USA FILES $805.6 MIL. LAWSUIT AGAINST EX-LYPHOMED CHIEF KAPOOR

Executive Summary

FUJISAWA USA FILES $805.6 MIL. LAWSUIT AGAINST EX-LYPHOMED CHIEF KAPOOR, alleging that John Kapoor, PhD, defrauded the Japanese pharmaceutical firm by submitting false Lyphomed ANDA data to FDA from 1980 to 1986. The civil suit, filed in Chicago federal court on Aug. 17, claims that Lyphomed, under the ex- chairman and CEO's direction, knowingly submitted false data from tests which were "normalized," failed to report certain adverse test results to FDA and failed to record or destroyed the records of certain tests. As a direct result of that fraud, Fujisawa subsequently had to recall products and withdraw ANDAs, the company maintained. Fujisawa said it was induced to purchase Lyphomed under the assurance from Kapoor that Lyphomed had performed all the necessary tests on its products and submitted scrupulous data to FDA within agency ANDA regulations. "Kapoor and Lyphomed constantly advertised the speed, and in particular the quality, of their research and development department," the court document states. "Kapoor's representations regarding the quality and speed of the department's efforts were 'material' to Fujisawa's later decision to purchase Lyphomed." In response to Fujisawa's lawsuit, Kapoor said in an Aug. 19 press release that "for five years prior to the 1989 sale to Fujisawa, top Japanese personnel, including Takashi Aoki, the current president of Fujisawa USA, were intimately familiar with every phase of our operation." Kapoor said it "is therefore both surprising and shocking that Fujisawa would resort to this measure." He blamed Fujisawa USA's problems on "mismanagement and bad judgment." Commencing in 1984 and culminating in 1990, Fujisawa purchased Lyphomed stock for a total of more than $800 mil., of which Kapoor received about $150 mil. in proceeds. Lyphomed was officially acquired and merged into Fujisawa USA in April 1990. Fujisawa's suit contains 10 claims for relief against Kapoor of the losses incurred in Fujisawa's purchase of Lyphomed. Eight of the counts seek $100 mil. each, one count seeks $5.6 mil. and one count claims trust relief from businesses started by Kapoor with monies he made from the sale of Lyphomed stock. The first three counts allege violations of the Securities and Exchange Acts, which assert that Kapoor submitted false data or omitted pertinent information that would have kept Fujisawa from purchasing Lyphomed. The second three counts accuse Kapoor of racketeering based on mail and wire fraud that aided him in selling securities, the money from which enabled him to acquire or establish five businesses: Financial Enterprises, Akorn, Option Care, Unimed and the John N. Kapoor Trust. The seventh claim states that Kapoor's businesses were acquired with funds that were fraudulently obtained from Fujisawa and count eight alleges a common law fraud. The ninth alleges a breach of fiduciary duties and the tenth asserts a breach of warranty. "By March 1988, Fujisawa owned approximately 28% of the issued and outstanding stock of Lyphomed, but had no knowledge or reason to suspect that certain of Lyphomed's ANDA filings contained false data and, as a result, had artificially boosted the value of Lyphomed's generic business," the lawsuit states. Securities & Exchange Commission documents "which Kapoor executed, omitted to disclose the filing of certain ANDAs containing false data and thereby misled Fujisawa and other stockholders into believing that each product's documentation had been reverified and audited," the suit says. In November 1991, Fujisawa was notified in an FD-483 inspection report that the agency "had found 'false or misleading' information in 12 ANDA filings submitted by Lyphomed during the period from 1980 through 1986," the lawsuit notes. "The Form 483 cited examples of false or misleading information, normalized data, incomplete or incorrect data, adverse test results which were not reported and tests results which were not recorded or were destroyed." As a result, Fujisawa was placed on FDA's "alert list" and has withdrawn or intends to withdraw ANDAs for furosemide, haloperidol, ritodrine, nalbuphine, zinc sulfate for injection, methylprednisolone sodium succinate and multi-vitamin concentrate 9 + 4 pediatric. Assigned to the case is Chicago federal court Judge Paul Plunkett. Fujisawa has requested a jury trial. Fujisawa is represented in the matter by attorney Jonathan Zavin (Richards & O'Neil, New York City) and Robert Kepecky (Kirkland & Ellis, Chicago).
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