Securities Regulation Daily Three classes certified in Perrigo pharmaceutical company fraud action
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Monday, November 18, 2019

Three classes certified in Perrigo pharmaceutical company fraud action

By Lene Powell, J.D.

An investor action cleared a significant hurdle in getting three classes certified, allowing claims to proceed that a pharmaceutical company concealed price-fixing and overstated the integration of an acquired company.

The District of New Jersey certified three classes in a fraud action brought by investors in Perrigo Company plc alleging that the company made misrepresentations to falsely inflate Perrigo’s stock value in the face of a hostile tender offer from a competitor. It did not undermine class certification that some members of the lead plaintiff group met privately with officers of the competitor company or that about 40 percent of Perrigo shareholders tendered their shares in response to the offer, nor that some members bought Perrigo stock after the alleged fraud was revealed (Roofer’s Pension Fund v. Papa, November 14, 2019, Arleo, M.).

Alleged misrepresentations. A group of investors alleged that Perrigo and several executives made material misrepresentations and omissions that overvalued Perrigo with the aim of preventing shareholders from accepting an offer to be acquired by Mylan, a pharmaceutical conglomerate. The investors alleged that Perrigo concealed its involvement in a price-fixing scheme with other generic drug manufacturers and overstated its success in post-acquisition integration of Omega, one of the largest over-the-counter healthcare companies in Europe.

Typicality. The court found that the classes together met Rule 23(a)’s requirement for typicality. The court did not agree that the lead plaintiff was subject to the atypical defense that it had potentially relied on information other than the misrepresentations alleged in the amended complaint. Although several plaintiff members did admit they had "closed-door" meetings with Mylan corporate officers in which the officers tried to convince them to tender, there was no evidence that the officers provided non-public information during those communications. Therefore, the unique-defense argument was merely speculative and did not bar a finding of typicality.

Adequacy. The court next found that the classes together met Rule 23(a)’s requirement for adequacy. First, although some members of the lead plaintiff group purchased Perrigo stock after the alleged fraud was revealed, there was not a bright-line rule in the Southern District of New York that this precluded a finding of adequacy. The court followed the tailored reasoning in Merck and Moody’s, which considers whether post-disclosure purchases defeat an investor’s reliance on fraudulent statements at the time of the initial purchases. Here, multiple plaintiff members testified that they purchased stock to take advantage of lower prices for Perrigo shares following the disclosures. This is considered a common investment strategy, and the post-disclosure purchases did not negate or even undermine the lead plaintiff’s allegations that its members relied on the relevant misrepresentations.

Second, the court found that the lead plaintiff group demonstrated an appropriate level of familiarity with the litigation and was not just a "mouthpiece," as contended by the defendants. Several plaintiff members appeared for depositions, corresponded with counsel, and testified that they had reviewed and discussed relevant pleadings and discovery.

Predominance. Taking each of the three proposed classes in turn, the court found that the classes met the predominance requirement. First, the U.S. Purchaser Class established the Basic presumption of reliance, and it was not rebutted by statements of two plaintiff members that they considered factors other than Perrigo’s misrepresentations in deciding whether to reject Mylan’s tender offer. Any decision-making process involves a consideration and weighing of various factors. Aside from the cherry-picked statements of two individual class members, the defendants presented no evidence indicating that the class would be overwhelmed with similar issues of individual reliance.

The court next rejected the argument that the lead plaintiff could not invoke the Basic presumption for the TASE Purchaser Class because it was not demonstrated that the TASE is an efficient market for Perrigo shares. Examining dueling expert analyses, the Court found that the majority of the Cammer factors—two through five—tipped the balance in favor of finding market efficiency.

Next, the court concluded that the Tender Offer Class was entitled to a presumption of reliance. Although approximately 40 percent of Perrigo shareholders rejected Perrigo’s recommendations and tendered their shares in response to Mylan’s offer, this was not categorical proof that they did not rely on the company’s disclosures in making their decision, especially since the defendants did not produce any other evidence showing that Perrigo’s tendering shareholders did not rely on the company’s alleged misstatements.

Finally, the court found that the lead plaintiff’s expert’s proposed methodologies were sufficient to satisfy Rule 23(b)(3)’s predominance requirement. Although the defendants urged that the methodology was inadequate under the Supreme Court’s decision in Comcast, the Third Circuit has explicitly cautioned that Comcast’s damages predominance analysis was specific to the antitrust claim at issue. Even if Comcast did apply, the proposed damage models were not inconsistent with the lead plaintiff’s theories of liability, and precise damage calculations are not required for class certification.

Class certified. Accordingly, the lead plaintiff met all required elements and the motion for class certification was granted. The court also declined to modify the class period, as the pleadings provided sufficient evidence to support an allegation that formed the basis for a class period start date, and that was all that was required at the class certification stage.

The case is No. 16-2805.

Attorneys: Jonathan David Lindenfeld (Pomerantz LLP) and Michael Thomas Gray Long (Lowenstein Sandler LLP) for Perrigo Institutional Investor Group. Daniel Sommers (Cohen Milstein Sellers & Toll PLLC) for Roofer’s Pension Fund. Marshall R. King (Gibson, Dunn & Crutcher LLP) for Joseph Papa.

Companies: Perrigo Institutional Investor Group; Roofer’s Pension Fund

MainStory: TopStory FedTracker Securities FraudManipulation NewJerseyNews

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