Johnson & Johnson paid $3.4 billion upfront for the surgical robotics company Auris Health in 2019, with the potential for $2.35 billion more in commercial and regulatory milestones. But a Delaware court said Wednesday that J&J breached its contractual obligations and now must pay $1 billion to Auris.
The acquisition gave J&J, which was developing its own surgical robot known as Verb, a venture-backed startup that had quickly developed two novel surgical robots, known as iPlatform and Monarch, for laparoscopic and endoscopic procedures and to diagnose and treat lung cancer.
Delaware’s Court of Chancery, which is where M&A spats are often fought, noted Wednesday that J&J did not exactly help Auris achieve those milestones, particularly as J&J was developing a competitor to iPlatform and forcing them to compete, meaning J&J would either combine the robots or select one to move forward.
“J&J’s promise to Auris was broken almost immediately after closing,” wrote Lori Will, vice chancellor of the Delaware Court of Chancery. “J&J’s efforts might have been beneficial to its broader robotics program, its profit margins, or its commercialization strategy. But they were wholly inconsistent with J&J’s promises to Auris.”
Eventually, J&J wrote off the iPlatform milestones because the Auris robots ended up requiring a regulatory clearance that was different from what was agreed to in the merger agreement.
Will wrote that Auris is entitled to damages for J&J’s breaches of contract and unfair dealings as they relate to the iPlatform and Monarch regulatory milestones.
“Damages with interest exceed $1 billion, which compensates Auris’s former stockholders for the earnout payment they would have received absent J&J’s failed efforts and fraud,” she wrote. “What remains irretrievably lost is the transformative potential of Auris’s robots.”
A J&J spokesperson said in an emailed statement, ““We respectfully disagree with the court’s decision regarding our development of the iPlatform and communications with Auris regarding soft tissue ablation. Fundamentally, the court viewed our commercially reasonable contract as imposing a commercially unreasonable obligation inconsistent with our values of developing safe, effective, and competitive products. We are reviewing the decision and assessing our options for appeal.”