King Pharmaceuticals Inc. Case 10/24/2003
According to a press release dated August 28, 2008, King Pharmaceuticals Inc. has agreed to pay $13.5 million in legal fees and make changes to its corporate governance to settle a shareholder derivative lawsuit that accused the company of breaching its fiduciary duty by underpaying commitments to Medicaid. The company revealed the settlement in a U.S. Securities and Exchange Commission filing on Wednesday.
On January 9, 2007, the Court entered the Order from the Final Settlement Conference proceedings held before Judge Thomas W. Phillips and Judge Dennis H. Inman. The Court entered the Order granting the Motion for Settlement and Plan of Allocation. The Court also entered the Order granting the Motion for Attorney Fees and Reimbursement of Litigation Expenses. Lastly, the Court entered the Final Judgment and Order of Dismissal with Prejudice.
According to a press release dated August 7, 2006, King Pharma has paid $38.25 million in class-action lawsuit settlement. The lawsuit alleged King broke federal securities laws. The firm said the amount, which is pending approval by the court, is likely to be paid by its insurance carriers.
As previously disclosed by the Company’s Form 10-Q for the quarterly period ended March 31, 2006, in November 2005, the parties agreed to submit the matter to non-binding mediation. After an extensive mediation process, an agreement in principle to settle the litigation was reached on April 26, 2006. The parties have not yet completed the negotiation and execution of a definitive settlement agreement, and no assurance can be given that such an agreement will be reached. Further, any such agreement will be subject to approval by the court.
Beginning in March 2003, 22 purported class action complaints were filed by holders of the Company’s securities against the Company, its directors, former directors, executive officers, former executive officers, a Company subsidiary, and a former director of the subsidiary in the United States District Court for the Eastern District of Tennessee, alleging violations of the Securities Act of 1933 and/or the Securities Exchange Act of 1934, in connection with the Company’s underpayment of rebates owed to Medicaid and other governmental pricing programs, and certain transactions between the Company and the Benevolent Fund. These 22 complaints have been consolidated in the United States District Court for the Eastern District of Tennessee. In addition, holders of the Company’s securities filed two class action complaints alleging violations of the Securities Act of 1933 in Tennessee state court. The Company removed these two cases to the United States District Court for the Eastern District of Tennessee, where these two cases were consolidated with the other class actions. The district court has appointed lead plaintiffs in the consolidated action, and those lead plaintiffs filed a consolidated amended complaint on October 21, 2003 alleging that King, through some of its executive officers, former executive officers, directors, and former directors, made false or misleading statements concerning its business, financial condition, and results of operations during periods beginning February 16, 1999 and continuing until March 10, 2003. Plaintiffs in the consolidated action have also named the underwriters of King’s November 2001 public offering as defendants. The Company and other defendants filed motions to dismiss the consolidated amended complaint. On August 12, 2004, the United States District Court for the Eastern District of Tennessee ruled on defendants’ motions to dismiss. The Court dismissed all claims as to Jones and as to defendants Dennis Jones and Henry Richards. The Court also dismissed certain claims as to five other individual defendants. The Court denied the motions to dismiss in all other respects. Following the Court’s ruling, on September 20, 2004, the Company and the other remaining defendants filed answers to plaintiffs’ consolidated amended complaint. Discovery in this action has commenced. The Court has set a trial date of April 10, 2007.
The original Complaint charges King Pharmaceuticals and certain of its officers with violations of federal securities laws. Among other things, plaintiff claims that defendants’ material omissions and the dissemination of materially false and misleading statements concerning King Pharmaceuticals’ business operations and earnings caused King Pharmaceuticals’ stock price to become artificially inflated, inflicting damages on investors. King Pharmaceuticals manufactures, markets and sells primarily branded prescription pharmaceutical products to general and family practitioners and internal medicine physicians and hospitals across the United States. The Complaint alleges that during the Class Period Defendants misrepresented that the prices paid by governmental Medicaid agencies were the “best price” - i.e., the cheapest price offered to distributors and other purchasers - for a particular drug, resulting in government overpayment for drugs purchased through the Medicaid program. The complaint further alleges that the Company recognized revenue subject to “pharmaceutical rebate” payments provided by King Pharmaceuticals to distributors to stock up on the Company’s blood-pressure drug, Altace(R). On March 11, 2003, defendants disclosed that the Securities and Exchange Commission is investigating King Pharmaceuticals and has subpoenaed, among other things, the Company’s “best price” lists and all documents related to the pricing of the Company’s pharmaceutical products to any governmental Medicaid agency during 1999 and the accrual and payment of rebates on Altace. News of the SEC investigation caused a 23% drop in the price of King Pharmaceuticals’ stock on the day the investigation was disclosed.