Class Action Complaint Filed Against Emisphere Technologies, Inc.

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Entwistle & Cappucci LLP (Entwistle & Cappucci) has initiated a class action complaint against Emisphere Technologies, Inc. (Emisphere) and certain of the Company’s officers and directors on behalf of a class (the Class). This lawsuit, titled “S/M Merger Arbitrage, L.P. v. Emisphere Technologies, Inc., No. 23-cv-20898 (D.N.J.),” follows an ongoing investigation by Entwistle & Cappucci. The Class comprises all individuals and entities that sold shares of Emisphere common stock (OTCBB: EMIS) from November 6, 2020, through December 8, 2020, which is the Class Period.

Allegations of Artificial Stock Price Depression

The basis of this lawsuit stems from the $1.8 billion merger (the Merger) announced by Emisphere on November 6, 2020, with Novo Nordisk A/S (Novo Nordisk). The complaint alleges that the defendants intentionally depressed the price of Emisphere common stock during the Class Period to ensure the consummation of the Merger. This alleged manipulation aimed at securing substantial payouts for defendants Mark H. Rachesky, Michael Weiser, and Timothy Rothwell as a result of the merger. To execute this scheme, the defendants are accused of making numerous materially false and misleading statements and omissions of material facts in the proxy statement (the Proxy) and other public information related to the Merger.

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The Origins of the Merger

The Merger was rooted in a longstanding business relationship between Emisphere and Novo Nordisk. Emisphere had licensed its patented drug delivery technology to Novo Nordisk under a 2008 royalty agreement (the Royalty Agreement). This agreement allowed Novo Nordisk to use Emisphere’s patented delivery mechanism for Rybelsus, a highly regarded drug approved by the U.S. Food and Drug Administration for treating type 2 diabetes. In return, Novo Nordisk was obligated to make milestone and royalty payments to Emisphere based on Rybelsus’s net sales.

Over the years, the Royalty Agreement underwent multiple amendments. Under one such modification, defendant Rachesky and his investment funds, as Emisphere’s controlling shareholders, gained the right to receive a direct royalty stream of 0.5% of Novo Nordisk’s net sales of Rybelsus and other products utilizing Emisphere’s technology, referred to as the MHR Royalties.

Merger Negotiations and Agreements

In November 2019, amid an intellectual property dispute between the two companies, Novo Nordisk began discussing acquiring Emisphere. Merger negotiations continued throughout 2020, with Novo Nordisk making several proposals. These discussions culminated in Novo Nordisk’s “best and final” offer of $1.8 billion on August 24, 2020. Subsequently, Emisphere and Novo Nordisk executed a merger agreement on November 5, 2020, which set forth the terms of the Merger. Under this agreement, Novo Nordisk agreed to pay $1.35 billion to Emisphere’s shareholders in exchange for their Emisphere common stock. Additionally, a separate agreement was made for Novo Nordisk to pay defendant Rachesky an extra $450 million to acquire the MHR Royalties. Defendants Rothwell and Weiser also received substantial payouts under the Merger Agreement.

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Emisphere publicly announced the Merger on November 6, 2020, through a press release and later issued the Proxy to its shareholders on November 16, 2020. The press release and the Proxy portrayed the Merger as a positive development for Emisphere shareholders. The Merger was successfully concluded on December 8, 2020, with shareholders who sold their Emisphere common stock receiving $7.83 per share as the Merger Consideration.

Allegations of False and Misleading Statements

According to the complaint, the defendants’ public statements regarding the Merger were false and misleading. These statements failed to disclose crucial facts, including:

1. Defendant Rachesky manipulated the sale process to secure substantial financial benefits from the Merger, particularly his insistence on a transaction structure that offered significant personal tax savings on his $450 million payment for the MHR Royalties.
2. Defendants Rothwell and Weiser adjusted Emisphere’s financial projections downward, justifying the inadequate Merger Consideration.
3. Emisphere’s consistent modeling of internal financial projections indicates significantly higher valuations, supporting a better merger consideration for shareholders.
4. Emisphere’s involvement in an extensive intellectual property dispute with Novo Nordisk is a critical aspect of the Merger negotiations with implications for substantial royalty payments to the Company.

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