Facts

Impax Laboratories, Inc. was a technology-based, specialty pharmaceutical company that was acquired by Amneal Pharmaceuticals LLC on May 7, 2018. The company focused on the development and commercialization of bioequivalent and brand-name pharmaceuticals. On May 11, 2015, Impax reported declines in gross margins attributed to, in large part, a decline in sales of one drug, digoxin. That same day, Impax announced that the Antitrust Division of the Department of Justice had issued a grand jury subpoena to Impax relating to price fixing of four generic drugs, including digoxin. Following the May 11 disclosures, Impax's stock price declined $1.10 per share at closing on May 12, 2015. On August 10, 2015, Impax announced a reduction in gross margin guidance from mid-50 percent to low-50 percent, causing Impax's stock price to decline $2.07 per share. Certain of Impax's competitors were charged by the DOJ's Antitrust Division for price-fixing, but Impax was not. When news of these investigations came to light, the stock prices of companies in this generic pharmaceuticals space (including Impax) declined precipitously. Various securities litigation plaintiffs' firms have sued a host of generics companies based on these facts.
On June 21, 2016, Impax updated its guidance and revealed it expected greater competition for generic products, resulting in lower revenues and gross margins. That day, Impax common stock declined $3.53 per share, and its 2 percent Convertible Senior Notes declined $40 per $1,000 par value. On August 9, 2016, Impax announced quarterly results and provided updated guidance that reduced forecasted revenues by $49 to $89 million. Digoxin revenues also declined, contributing an estimated 15 percent to the revenue shortfall. Impax's stock price declined $7.29 per share, and its 2 percent Convertible Senior Notes declined $78 per $1,000 par value. Impax shareholder Greg Fleming brought a class action against Impax, George Wilkinson, Dr. Larry Hsu, Dr. Carole Ben-Maimon, and Bryan Reasons. The class included all persons that purchased or acquired Impax common stock or 2 percent Convertible Senior Notes during the class period.

PLAINTIFFS' CONTENTIONS: Plaintiffs asserted claims for violation of Sections 10(b) and 20(a) of the Federal Securities Law. Plaintiffs contended that defendants made materially false and misleading statements about Impax's business performance and conditions. More specifically, Plaintiffs alleged that during the class period, Defendants misled investors regarding Impax's collusion with pharmaceutical industry peers to fix generic drug prices and the impact of competition and price erosion on its sales of certain key products in its generics portfolio. Plaintiffs claimed that defendants knew or recklessly disregarded that Impax's profits were inflated by collusive agreements with the company's peers to fix the prices of digoxin and another drug, pyridostigmine bromide. Plaintiffs further alleged that, pursuant to the industrywide conspiracy's "rules of the road," Impax was required to, and did, cede market share to manufacturers as they entered the market in order to maintain supracompetitive pricing. As a result, Impax reported declines in gross margins attributed to, in large part, a decline in digoxin sales on May 11, 2015 after the market closed. Plaintiffs contended that defendants partially offset the diminishing returns on its digoxin scheme by giving investors false information about the true cause, extent, and impact of revenue declines on Impax's generic drug portfolio, particularly for the drug diclofenac, and falsely reaffirmed guidance relating to Impax's drug portfolio that they knew they could not meet. Finally, Plaintiffs contended that Impax concealed the negative financial implications that would result from acquiring a basket of drugs, notably budesonide, from a competitor.

DEFENDANTS' CONTENTIONS: Defendants denied all contentions. Defendants' position, which was adopted by the district court in two orders granting their motions to dismiss, was that none of the challenged statements were false, made with scienter, or caused any investors' losses. On the price-fixing claims, defendants' primary argument was that plaintiffs failed to plead loss causation because a stock price decline following the disclosure of an investigation, without more, does not reveal any underlying fraud. In response to the diclofenac price-erosion claims, defendants argued that Impax's annual revenue guidance for 2016 fell within the PSLRA safe harbor, as it was a forward-looking statement containing cautionary language, and the other statements were non-actionable puffery, accurate representations of past performance, or non-actionable opinions. Defendants also contested plaintiffs' scienter allegations.

Settlement Discussions

The settling parties engaged the mediation services of the Hon. Layn Phillips (Ret.). The parties ultimately accepted the mediator's proposal to settle the litigation.

Result

The case settled for $33 million.

Other Information

The Ninth Circuit largely affirmed the district court, dismissing most of the "collusion" statements on loss causation grounds, all but two of the diclofenac "price erosion" statements on falsity grounds, and all of the challenged statements regarding the budesonide acquisition. Following the Ninth Circuit's order, the parties settled within Impax's insurance limits.