Wednesday, August 5, 2009

Still Open and Outstanding: Securities Fraud, RICO, and ERISA Class Actions -- As well as SEC, DoJ and Congressional Investigations

[UPDATED 08.06.09 @ 10 AM EDT -- news posts, on this topic, here, here, here and here; and that kind gentleman across the pond, The Insider, at PharmaGossip, has linked this! Thanks!]

As it did in mid-July (and as I speculated it might, due to a hastily dumped judicial tele-conference(!), related to the matter on July 2, 2009), Schering-Plough has once again announced the settlement of a small part ($41.5 million worth) of the pending litigation against it involving the matters related to ENHANCE and SEAS, but has neglected to tell Wall Street "the rest of the story".

Open and unsettled are the securities fraud (Manson, et al. v. Schering-Plough Corp. et al.), and the ERISA (Cain v. Hassan) putative federal class actions. Actually, Schering-Plough has today asked Judge Cavanaugh for permission to settle only the weakest of the claims against it. Recall that the 2001 era securities fraud claims against Schering-Plough (again, a significantly-weaker set of claims), settled in March of 2009 for $165 million.

So, as ever, what today's trumpeting does not say is almost more important than what it does.

Recall that the pricing settlement announced July 15, 2009 -- with 36 states -- contained some rather onerous terms, restricting television advertising, and forcing approval by FDA, of any future TV ads for any Schering or Merck prescription medicine.

I need not remind regular readers (again!) that there are at least three pending federal investigations, and at least two Congressional committees actively probing the matter, from various perspectives, as well as DoJ and SEC, and various States Attorneys General -- to boot. These remain open, active and unresolved.

Many many other suits and actions remain -- on many other theories, but even within this small subset, both the State of New York, and Suffolk County (which county includes the Hamptons), are apparently not parties to today's settlement.

Recall that in July of 2008, Suffolk County made civil RICO claims (imaged at above, right -- click to enlarge). Finally, let's refresh just one of the still-pending securities fraud putative class action claims:

211. Based on interviews with former Schering employees conducted by counsel for Lead Plaintiffs, Exchange Act Defendants Hassan and Cox were closely involved with ENHANCE and regularly briefed on its details. As discussed above, CW 1 interacted with Schering’s Brand Team on a daily basis regarding ZETIA and VYTORIN, and updates regarding ENHANCE were shared in quarterly Brand Review Meetings that CW 1 attended, which were conducted by Defendant Cox. According to CW 1, there was a quality control assessment of ENHANCE data done in late 2005 to early 2006, and by the Summer of 2006, CW 1’s team “knew that they were not going to get any good news from” ENHANCE.

212. CW 1’s statements are corroborated by CW 3. According to CW 3, throughout the Class Period, Cox attended a monthly meeting with the cholesterol franchise Brand Team and the individuals in charge of ENHANCE, Drs. Veltri and Strony. CW 3 was personally involved in the preparation of certain materials for these meetings. According to CW 3, the Company’s other senior executives, including Hassan, also attended certain of these meetings. According to CW 3, ENHANCE, its progress, and results, were regularly discussed by Drs. Veltri and Strony with Cox and the other senior executives in attendance. At the meetings, discussions and detailed PowerPoint presentations updated the participants on developments with VYTORIN and ZETIA, involving not only the marketing and commercial aspects of the drugs, but also the status of ongoing research. As CW 3 has stated: “Nobody keeps this kind of stuff from management when it is going to have a huge impact on the product.” When CW 3 asked Drs. Veltri and Strony how ENHANCE was going, “years ago,” “they always seemed a bit worried.” They told CW 3 that “they did not like the kind of results they were seeing and that they had to take another look at something.”

213. According to CW 3, Schering’s marketing department for the drugs, headed by Ray Russo, “wanted to control the science; it was very much marketing driven and not science driven,” and Schering is “not concerned with the data as much as they are selling the drug”. . . . [Emphasis supplied.]

[And this, from another Court Opinion:]

. . . .the Complaint’s reference to: (1) anonymous postings on the CafePharma Web site; and (2) statements from six anonymous former Schering-Plough employees. Because the Court finds that these statements are neither immaterial, impertinent, nor scandalous, however, Defendant’s motion to strike is denied. . . .

Defendants argue that the Complaint’s references to anonymous postings on the CafePharma Web site and to statements by confidential witnesses should be stricken from the record as impertinent and scandalous. The Court disagrees. The CafePharma postings and confidential witness statements are relevant to the ultimate issue of scienter in that they purport to show the timing within which Defendants became aware of the ENHANCE study’s results.

Arguments over the statements’ admissibility are unpersuasive because such considerations are improper at this stage of the litigation. See Biovail Corp. Int’l v. Hoechst Aktiengesellschaft, 49 F. Supp. 2d 750, 771–72 (D.N.J. 1999). Nor is the Court persuaded by Defendants’ arguments under Tellabs, Chubb, and Avaya that Plaintiffs’ anonymous source allegations should be stricken from the record. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007); Cal. Pub. Emp. Ret. Sys. v. Chubb Corp., 394 F.3d 126 (3d Cir. 2004); Inst. Inv. Group v. Avaya, Inc., 2009 WL 1151943 (3d Cir. Apr. 30, 2009). These cases deal primarily with the proper weight to be accorded to evidence of scienter at the motion to dismiss stage, and say nothing about taking the "drastic step" of striking materials from the record.

Finally, the Court rejects Defendants’ argument that the contested statements are “scandalous” because all of the statements appear relevant to scienter and the Court sees no evidence suggesting that they "improperly cast[] a derogatory light" on Defendants. See 5C Charles Alan Wright & Arthur R. Miller, Fed. Prac. & Proc. § 1382 (3d ed. 2008). Accordingly, because the Court finds that the contested citations to the CafePharma Web site and confidential witnesses are relevant to the issue of scienter, and because it appears that Defendants will not be unfairly prejudiced by their remaining in the record. . . .

As ever, much more to come.


Anonymous said...

As you so correctly point out again what's not said is often more important than what is.

It's the same in regulatory agency submissions. It's the missing information that is often what's most important.


Condor said...

Thanks, Salmon -- It looks like The Wall Street Journal got my memo, of this morning!

Heh -- Namaste