In re Orexigen Therapeutics, Inc.

Orexigen Therapeutics, Inc. (Orexigen) (defendant) was a pharmaceutical manufacturer that produced a weight-management drug named Contrave. McKesson Corporation, Inc. (McKesson) (plaintiff) distributed Contrave for Orexigen under the terms of a distribution agreement entered into in June 2016. Pursuant to the terms of the agreement, Orexigen sold Contrave to McKesson, and McKesson then sold the drug to pharmacies. The distribution agreement included a setoff provision that provided that McKesson and its affiliates could set off, recoup, and apply any amount owed by them to Orexigen by any corresponding debt owed to them by Orexigen. In July 2016, after McKesson and Orexigen entered into the distribution agreement, Orexigen entered into a separate agreement with McKesson Patient Relationship Solutions (MPRS), a subsidiary of McKesson, whereby MPRS would assist Orexigen with a consumer-discount program. Under this arrangement, MPRS would advance cash to pharmacies and Orexigen would later reimburse MPRS for doing so. Orexigen’s agreements with McKesson and MPRS did not cross-reference or incorporate each other. On March 12, 2018, Orexigen filed for bankruptcy. At the time of filing, McKesson owed Orexigen approximately $6.9 million, and Orexigen owed MPRS approximately $9.1 million. McKesson sought to have its debt set off by Orexigen’s debt to MPRS such that Orexigen would owe MPRS $2.2 million and McKesson would owe Orexigen nothing. McKesson argued that New York law allowed for a right of setoff based on debts owed to an affiliate company and, therefore, the right to setoff should apply under the setoff provision in § 553 of the Bankruptcy Code. In response, Orexigen argued that Orexigen’s debt owed to MPRS did not satisfy the mutuality requirement under § 553. The bankruptcy court and the district court both rejected McKesson’s request to set off its debt, and McKesson appealed.