The U.S. Court of Appeals for the Third Circuit recently issued a precedential decision involving a matter of first impression that likely will modify how pharmaceutical and other distributors and their related entities structure their business dealings with manufacturers and others with analogous arrangements. In In re Orexigen Therapeutics, 990 F.3d 748 (3d Cir. 2021), the court affirmed the U.S. District Court for the District of Delaware and the U.S. Bankruptcy Court for the District of Delaware decisions that held that Bankruptcy Code Section 533 does not permit triangular setoffs because they lack mutuality.
Prior to its bankruptcy filing, Orexigen Therapeutics Inc., a publicly traded pharmaceutical company that produced the weight management drug Contrave, entered into two agreements with two distinct but affiliated entities. The first was a distribution agreement (distribution agreement) with McKesson Corporation Inc., wherein McKesson distributed products for Orexigen. The distribution agreement contained a provision that McKesson could set off amounts owed to Orexigen by any amount Orexigen owed to McKesson or any McKesson subsidiary (the setoff provision). The second agreement, for a consumer discount program administered through retail pharmacies (services agreement), was between Orexigen and McKesson Patient Relationship Solutions (MPRS), a McKesson subsidiary. Under the services agreement, MPRS advanced funds to pharmacies that sold Orexigen products, and Orexigen was obligated to reimburse MPRS for these services.