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staff reporter In an era when commercial litigation often drags on for years, a dispute between Elan Corp., an Irish pharmaceutical maker, and U.S.-based King Pharmaceuticals Inc. seemed to be over in the blink of an eye. An $850 million deal between the two companies came unravelled when the Federal Trade Commission announced on March 13 that it was investigating possible anti-competitive practices by Elan. When King expressed reservations about proceeding with the deal just days before the scheduled March 18 closing, Elan almost immediately filed suit in New York State Supreme Court for New York County. Elan Corp. v. King Pharmaceuticals Inc., No. 600827. Responding to Elan’s plea for a quick trial, Judge Charles E. Ramos set a blistering schedule of discovery and ordered a trial date of May 15, just two months after Elan filed suit. On the eve of trial, the two companies agreed to discuss settlement and announced on May 20 that the deal would go through on amended terms. Under the new agreement, King will make $750 million in payments in the near term and royalty payments of an unknown amount over time. Lawyers for Elan credit Ramos for recognizing the need for speed. King and its attorneys declined to comment for this article. One needn’t go far to find Elan’s motive for seeking a speedy resolution. Once the biggest company on the Dublin, Ireland, stock exchange, Elan lost more than 90% of its market capitalization last year following concerns about its accounting practices, according to Reuters reports. Saddled with $2.6 billion in debt, the company entered into the agreement with King to raise cash toward a bond payment of more than $800 million due at the end of this year. The deal On Jan. 30 of this year, the two companies signed an agreement under which King was to pay $850 million for the U.S. rights to two Elan medications, the muscle-relaxant Skelaxin and the anti-insomnia drug Sonata, provided Elan met certain closing conditions. The agreement explicitly said that money damages would not be a sufficient remedy for breach and that either party could hold the other to specific performance. The FTC letter that derailed the closing said that the agency was looking into allegations that Elan had used illegal means to delay the entry of generic substitutes for Skelaxin into the market. Elan’s March 17 complaint alleged that King was going through “buyer’s regret” and was using the FTC letter as a pretext to void the deal. Elan claimed that King had conducted an extensive review of Elan’s records before signing the January agreement, during which King’s lawyers looked carefully at Skelaxin’s vulnerability to a patent challenge. Elan also asserted that it had informed King in February that generic-drug manufacturer Eon Labs Inc., which had a generic version of Skelaxin waiting in the wings, had filed complaints about Elan with both the Food and Drug Administration and the FTC. Elan asked for specific performance or, in the alternative, damages in excess of $850 million. King’s reply was missing from the court file, but according to one of Elan’s lawyers, Charles A. Gilman of New York’s Cahill Gordon & Reindel, King counterclaimed that Elan had withheld important information from King. King also argued that the FTC investigation constituted a “material adverse effect” that gave King the right to back out under the terms of the agreement. In other documents filed with the court, King argued that Elan had jumped the gun by filing its lawsuit so quickly. King alleged that it simply wanted time to satisfy its concerns about the deal and that the agreement allowed closing to be delayed until July 31. (In later press releases, however, King said it would not proceed with the deal.) Gilman said that while the agreement did set July 31 as the outside date for one party to nullify the deal if the other was in breach, it mandated that the closing take place within five days after Elan’s shareholders approved the deal. Elan shareholders gave their approval at a pre-scheduled meeting on March 18, one day after Elan filed suit. Gilman also said that discovery proved that King was aware of some of the information that it alleged had been withheld. Nonetheless, Gilman and another attorney for Elan, Paul H. Friedman of Dechert’s Washington office, were eager to put the discord behind them. Both said Elan and King worked together, sometimes around the clock, to complete discovery within the time imposed by Ramos. The court record tells a slightly different story, revealing a few complaints by Elan of alleged foot-dragging by King. Young’s e-mail address is [email protected].

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