Investment Firm OrbiMed Wins Dismissal of Adversary Proceeding

Paul, Weiss won a significant victory for healthcare-focused investment firm OrbiMed Advisors LLC and two of its partners when a federal bankruptcy court granted our motion to dismiss an adversary proceeding brought by the liquidating trustee in former OrbiMed portfolio company Tricida, Inc.’s, chapter 11 case. 

The lawsuit in the U.S. Bankruptcy Court for the District of Delaware arises from events that took place in late 2022 after pharmaceutical company Tricida learned that its drug to treat kidney disease had failed clinical trials and would not receive FDA approval. In the aftermath of the drug trial failure, Tricida’s board of directors—which included two of OrbiMed’s partners, Klaus Veitinger and David Bonita—voted to approve retention payments to key officers in order to retain them as the company, now left without a viable business model, determined its path forward. The trustee, Jackson Square Advisors, LLC, alleges that this decision was part of a quid pro quo, made to induce Tricida’s officers to open the company’s trading window, allowing OrbiMed to immediately liquidate its holdings in Tricida and leading to the loss of the company’s sole remaining asset, potential tax benefits in the form of net operating losses. The trustee asserted that these decisions were motivated by self-interest rather than the interest of Tricida, and brought claims of breach of fiduciary duty, insider trading, corporate waste, unjust enrichment, and aiding and abetting.

In our motion to dismiss, we argued that the trustee failed to state a claim because, among other things, it did not plausibly allege a quid pro quo, did not plausibly allege that our clients possessed material non-public information, did not meet the demanding standard to state a claim of corporate waste under Delaware law, and did not plausibly allege that OrbiMed knowingly participated in any underlying breach.

Following oral argument on June 2, U.S. Bankruptcy Judge Craig Goldblatt issued an opinion in which he dismissed the complaint in full, as to all defendants, without prejudice. Judge Goldblatt’s decision focused on the fact that the decision to open the trading window was made shortly after Tricida made key public disclosures in an 8-K filing to the SEC—a fact that the trustee does not even mention in its complaint. “That failure is fatal to the complaint’s core allegation of improper manipulation of that trading window for the benefit of OrbiMed,” the judge wrote in his opinion. The trustee has 30 days to amend its complaint.

The Paul, Weiss team includes litigation partners Gregory Laufer, who argued the motion, and Audra Soloway and Matthew Stachel.