In a recent post, I noted that plaintiffs’ lawyers had recently launched a series of securities class action lawsuits against several poultry producers in the wake of news that companies in that industry were the target of antitrust enforcement action. Now news has emerged that antitrust regulators may be targeting companies in a different sector, the generic drug manufacturing industry. Within days of the news, plaintiffs’ lawyers have filed several securities class action lawsuits against several generic drug companies — the latest companies to be hit with follow-on securities suits following news of antitrust enforcement actions.
Antitrust enforcement authorities reportedly have been investigating the generic drug industry for at least two years, but last week, there were several news reports that the authorities are nearing filing criminal charges for price-collusion in the generic-drug industry, with charges expected to be filed before year end. As many as 12 companies are said to be under investigation. While the specific companies likely to face charges are not yet known, the U.S. Department of Justice has sent subpoenas to several manufacturers of generic drugs and to some individual executives, seeking information about product pricing and “communications with competitors” over the last two years. On these news reports, the shares of the companies that have acknowledged in their SEC filings that they have received subpoenas declined sharply. Among the generic drug companies experiencing this share price decline were Allergan, Teva Pharmaceuticals, and Endo Pharmaceuticals.
In the wake of these developments, plaintiffs’ class action securities attorneys have begun to target several of the companies caught up on these developments.
First, on November 4, plaintiffs’ lawyers filed a securities class action lawsuit in the Central District of California against Allergan plc, Allergan’s predecessor company Actavis plc, and certain of its Allergan’s directors and officers. Actavis acquired Allergan, Inc. in June 2015 and the merged company took Allergan’s name. According to the plaintiffs’ attorneys’ November 4, 2016 press release (here), the complaint (a copy of which can be found here), alleges that
Defendants made false and/or misleading statements and/or failed to disclose that: (1) Allergan and Actavis were engaging and/or had engaged in conduct that would result in an antitrust investigation by the U.S. Department of Justice; (2) the DOJ investigation and the underlying conduct could cause U.S. prosecutors to file criminal charges against Allergan and Actavis by the end of 2016 for suspected price collusion; (3) in turn, Allergan and Actavis lacked effective internal controls; and (4) as a result, Allergan plc’s and Actavis plc’s public statements were materially false and misleading at all relevant times.
A second securities class action lawsuit was filed against Allergan in the Southern District of New York on November 8, 2016 (here).
Next, on November 6, 2016, plaintiffs’ lawyers’ filed a securities class action lawsuit in the Central District of California against Teva Pharmaceuticals Industries Ltd. and certain of its directors and officers. The allegations against Teva are very similar to those raised against Allergan (which arguably is unsurprising, as the same lawyers filed both complaints). According to the plaintiffs’ lawyers November 6, 2016 press release (here), the plaintiff’s complaint (a copy of which can be found here) alleges:
Defendants made false and/or misleading statements and/or failed to disclose that: (1) Teva was engaging and/or had engaged in conduct that would result in an antitrust investigation by the U.S. Department of Justice (“DOJ”) and the State of Connecticut Office of the Attorney General; (2) the DOJ investigation and the underlying conduct could cause U.S. prosecutors to file criminal charges against Teva by the end of 2016 for suspected price collusion; (3) in turn, Teva lacked effective internal controls over financial reporting; and (4) as a result, Teva’s public statements were materially false and misleading at all relevant times.
The third of the three generic drug companies to be sued in a follow-on securities class action lawsuit was Endo International plc. On November 7, 2016, plaintiffs’ lawyers filed a securities class action lawsuit in the Southern District of New York against Endo and certain of its directors and officers. According to the plaintiffs’ lawyers’ November 7, 2016 press release (here), the complaint (a copy of which can be found here) alleges that
Defendants made materially false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects. Specifically, Defendants made false and/or misleading statements and/or failed to disclose that: (i) Endo’s subsidiary, Par Pharmaceutical, had colluded with several of its industry peers to fix generic drug prices; (ii) the foregoing conduct constituted a violation of federal antitrust laws; (iii) consequently, Endo’s revenues during the Class Period were in part the result of illegal conduct; and (iv) as a result of the foregoing, Endo’s public statements were materially false and misleading at all relevant times.
These three lawsuits may not be the end of the filing of follow on securities suits against generic drug companies caught up in the antitrust investigation. Others of the companies whose names have been mentioned in the press also have securities listed on U.S. securities exchange, so there could be more lawsuits to come.
With the filing of these three securities suits against the generic drug companies and with the three lawsuits filed against the poultry producers that I noted in the last week’s blog post, we now have at least six securities class action lawsuits filed just in the last few weeks as follow-on lawsuits to antitrust enforcement actions (and there may be more lawsuits to come against companies in the generic drug industry). At this point we can say that the phenomenon of follow-on securities suits filed in the wake of antitrust enforcement action is already a factor in the number of securities suits filed so far this year.
As I noted in my prior post about the follow on suits filed against the poultry producers, the risk of antitrust litigation and enforcement activity includes the risk of follow-on corporate and securities litigation, as the cases above illustrate. These securities suit following the disclosure of antitrust litigation or antitrust enforcement activity fit a larger pattern (which I discussed here) in which follow-on corporate or securities litigation follows after the announcement of regulatory enforcement litigation or private civil litigation based on alleged regulatory violations.
At least certain of the plaintiffs securities class action firms seem eager to file these follow on lawsuits, although it should be said that at this point in connection with the poultry producers and the generic drug companies that have been hit with this suits, not only has none of these companies been found liable for antitrust violations, but in fact no specific companies have even been named by the authorities for alleged antitrust violations.
The latest suits against the generic drug companies also reflect some longer term securities class action filing patterns. For starters, all of the generic drug companies that have been sued in follow on securities suits are headquartered outside of the U.S. (Allergan and Endo are headquartered in Ireland, Teva is headquartered in Israel). As I noted in my analysis of 2015 securities class action lawsuits, not only were non-U.S. companies frequent securities class action targets last year, but they were sued at a greater rate than their representation on the U.S. securities exchanges would suggest. Non-U.S. companies remain disproportionately represented amount U.S. securities hit with securities lawsuits on an annual basis.
The three generic drug companies hit with securities suits are also all in the 2834 SIC Code category (Pharmaceutical Preparations). As I also noted in my year-end review of the 2015 securities suits, the 2834 SIC Code category last year experienced more securities class action lawsuit than any other SIC Code category, a filing pattern that has been consistent for years.