No. 20-1136 _____________

IN RE: OREXIGEN THERAPEUTICS, INC., Debtor MCKESSON CORPORATION; RXC ACQUISITION COMPANY, Appellants _______________

On Appeal from the United States District Court for the District of Delaware (D.C. No.1-18-cv-01873) District Judge: Hon. Colm F. Connolly _____________

Argued November 17, 2020 Before: JORDAN, KRAUSE, and RESTREPO, Circuit Judges

(Filed: March 19, 2021) _______________ Jeffrey K. Garfinkle [ARGUED] Daniel H. Slate BUCHALTER 3131 Princeton Pike 18400 Von Karman Avenue, Suite 800 Irvine, CA 92612-0514 Kurt F. Gwynne Jason D. Angelo REED SMITH LLP 1201 North Market Street, Suite 1500 Wilmington, DE 19801 Counsel for Appellants Eric Winston Bennett Murphy [ARGUED] Razmig Izakelian QUINN EMANUEL URQUHART & SULLIVAN LLP 865 S. Figueroa Street, 10th Floor Los Angeles, CA, 90017 Christopher M. Samis L. Katherine Good POTTER ANDERSON & CORROON LLP Christopher M. Samis The Renaissance Centre 405 North King Street, Suite 500 Wilmington, DE 19801 Counsel for Appellees _______________

OPINION OF THE COURT _______________

2 JORDAN, Circuit Judge.

This dispute turns on the meaning of the word “mutual” in the provision of the Bankruptcy Code that allows parties to invoke setoff rights when the debts they owe one another are mutual. See 11 U.S.C. § 553.

McKesson Corporation, Inc. (“McKesson”) and Orexigen Therapeutics, Inc. (“Orexigen”) agreed to a pharmaceutical distribution deal and included a provision in their contract whereby McKesson, as distributor of the drug, could reduce what it owed to Orexigen, the drug manufacturer, by any amount that Orexigen owed to McKesson or any McKesson subsidiary. Shortly thereafter, one of those subsidiaries, McKesson Patient Relationship Solutions (“MPRS”),1 separately agreed to help Orexigen with a consumer discount program by advancing cash to pharmacies, with Orexigen then obligated to reimburse MPRS. Later, when Orexigen filed for bankruptcy, it owed MPRS approximately $9 million, and McKesson owed Orexigen approximately $7 million. The Bankruptcy Court and the District Court rejected McKesson’s request to set off its debt by the amount Orexigen owed MPRS, which would have reduced MPRS’s claim to approximately $2 million and McKesson’s debt to zero. Both courts held that what McKesson wanted was a triangular setoff, not a mutual one, and thus was not the kind allowable under § 553 of the Bankruptcy Code. We agree and will affirm.

1 MPRS later merged into RxC Acquisition Company, a named Appellant, which is also a subsidiary of McKesson.

3 I. BACKGROUND

Orexigen was a publicly traded pharmaceutical company whose only commercial product was a weight management drug called Contrave. On June 9, 2016, Orexigen entered into a “Distribution Agreement” with McKesson, whereby Orexigen sold Contrave to McKesson, and McKesson in turn provided the drug to pharmacies. Included in the Distribution Agreement was a “Setoff Provision” that permitted “each of [McKesson] and its affiliates … to set-off, recoup and apply any amounts owed by it to [Orexigen’s] affiliates against any [and] all amounts owed by [Orexigen] or its affiliates to any of [McKesson] or its affiliates.” (App. at 13.)

Separate from the Distribution Agreement, MPRS and Orexigen entered into a “Services Agreement” on July 5, 2016. Under the Services Agreement, MPRS managed a customer loyalty program for Orexigen, pursuant to which patients would receive price discounts from pharmacies. MPRS would advance funds to pharmacies selling Contrave, with reimbursement arriving later fr