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Apax Sues Endo Over $1.2B Qualitest Deal

Endo Pharmaceuticals was hit Monday with a suit from Apax Partners, which claims Endo is requesting coverage for "phantom" third-party claims under a 2010 $1.2 billion agreement to buy generic drug company Qualitest Pharmaceuticals from the private equity group.

In a suit filed in New York state court, Apax Quartz (Cayman) LP, which agreed in the deal to indemnify losses and claims incurred prior to March 31, 2012, said it does not have to indemnify the two potential last-minute claims submitted by Endo on March 30.

"Endo's phantom claims are motivated by one thing: money," Apax said. "In this instance, Endo has no indemnification claims and, accordingly, Endo should not be allowed to unlawfully delay the release of escrow funds."

In the deal, announced September 2010, Chadds Ford, Pa.-based Endo acquired 100 percent of Qualitest, the sixth-largest generics maker in the U.S. by prescriptions filled, from Apax for $1.2 billion in cash.

Under the stock purchase agreement, Apax agreed to indemnify both direct and third-party claims, as well as losses, stemming from a breach of, or inaccuracy in, the representations and warranties made by Apax, according to the suit.

But Apax said it shouldn't have to indemnify the potential claims identified by Endo, which has not been able to demonstrate that it has suffered any losses from these future claims, according to the suit.

In its March 30 notice, Endo identified potential future claims by the attorneys general of Texas and Florida, according to the complaint. The company also identified claims stemming from potential manufacturing breaches and said it is currently investigating whether Qualitest's manufacturing processes and practices during the period before the deal's closing complied with the law, according to the suit.

Apax is asking the court for a judgment that the claims don't have to be indemnified under the stock purchase agreement and for attorneys' fees and costs.

A representative for Endo could not immediately be reached for comment Monday.

When it announced the deal in 2010, Endo said it expected the transaction to add $400 million in annualized revenue.

Endo said the addition of Qualitest’s generics portfolio would significantly boost the company’s revenue and earnings growth.

Qualitest, which derives 40 percent of its revenue from pain products, has a total of 175 product families, and 32 of its products are listed among the top 250 generics according to total prescription volume, according to Endo.

Apax is represented by Yosef J. Riemer, Matthew Solum and Adam T. Humann of Kirkland & Ellis LLP.

Counsel information for Endo was unavailable.

The case is Apax Quartz (Cayman) LP v. Endo Pharmaceuticals Inc., case number 652635/2012, in the Supreme Court for the State of New York, County of New York.