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While product liability cases against and government investigations into drug manufacturers have garnered much attention lately, securities litigators have had their fair share of work as well. Firms that can handle the variety of cases stemming from alleged misrepresentations of the effects of various drugs have cashed in on their ability to offer a one-stop shop for pharmaceutical clients. Pepper Hamilton, heavily involved in the representation of Eli Lilly & Co. over federal investigations of the manufacturer’s marketing of anti-psychotic Zyprexa, has served clients of its well-known health effects litigation practice out of the firm’s securities litigation group as well. The firm recently secured three dismissals of securities class action suits for three separate biopharmaceutical clients in the span of 10 days across April and May. Partners Robert Hickok and Gay P. Rainville, co-heads of the firm’s securities litigation group, worked on all three cases, often simultaneously. Hickok said he doesn’t think it’s all that common for these pharmaceutical cases to be dismissed, guessing the rate would be below 20 percent. The securities litigation team, he said, has been working pretty steadily on these types of matters since the passage in 1995 of the Private Securities Litigation Reform Act. Hickok said pharmaceutical securities litigation is different than similar cases against other industries because the industry is heavily regulated by the U.S. Food and Drug Administration, which allows for a lot of information to fall into the public arena. There is also a high potential for risk in the industry, with many ideas never making it to the consumer, he said. One of the securities class actions Pepper Hamilton helped get dismissed was against Eli Lilly over the marketing of Zyprexa. Rainville said the firm has two different teams of attorneys working on the two cases, but it was a great help to have the health effects group ensure the litigation team knew of all the public information out there on the case. William K. “Ned” Dodds co-leads Dechert’s white-collar and securities litigation group out of the New York office. He said the firm’s ability to represent a life sciences or pharmaceutical client from start to finish in a variety of different cases stemming from the same incident has resulted in a more frequent combination of those services. “Many of the underlying facts will be the same between the different types of cases, so there’s definitely an economy of scale just in terms of dealing with the massive documents and knowing the players,” Dodds said. The 2nd U.S. Circuit Court of Appeals affirmed a few months ago a dismissal of a securities fraud class action Dechert won for GlaxoSmithKline involving its anti-depressant drug Paxil. Pharmaceutical companies are, and will continue to be, a target because it’s such a highly regulated industry with many third-party investors, Dodds said. The types of cases can include product liability, private lawsuits for personal injury, securities class actions, ERISA claims and government investigations by either the FDA or the U.S. Securities and Exchange Commission. Dechert published this month a survey it did of securities fraud class actions against life sciences companies. According to the survey, 25 different pharmaceutical and biotechnology companies were sued in 2007 for alleged securities fraud as compared to 16 such cases filed in 2006. The survey also found that plaintiffs are increasingly going after companies with the largest market capital – over $10 billion. Dechert’s information was based on data compiled by the Stanford Law School Securities Class Action Clearinghouse in conjunction with Cornerstone Research. The cases against biotechnology and pharmaceutical clients are put into the “consumer non-cyclical” category under the clearinghouse’s definition, which made up the second largest group of filings in 2006 and 2007. The majority of the cases, Dechert said in its survey, alleged claims of misrepresentation or non-disclosure of either the product’s safety, efficacy or likelihood of FDA approval. The survey predicted that the increasing use of, and regulatory concerns over, off-label drug use would lead to a rise in securities class actions against pharmaceutical companies. Pepper Hamilton’s Three Wins Attorneys in pharmaceutical securities class actions focus on the public information available on the drug and determine when it came to light, Hickok said. Gathering that information helped earn a dismissal in In re Eli Lilly and Co. Securities Litigation out of the Eastern District of New York. On April 30, Senior District Judge Jack Weinstein dismissed the case that was filed in March 2007 as barred by the statute of limitations. The plaintiffs had claimed Eli Lilly misrepresented or failed to disclose a link between Zyprexa and a heightened risk for diabetes. Weinstein, who took what Hickok called an unusual step of converting a motion to dismiss to a motion for summary judgment, ruled the claims were time barred under a two-year statute of limitations. The judge cited “a plethora of publicly available information” regarding the possible linkage, saying it was available well before the plaintiffs filed their suit. The stockowners had claimed the linkage wasn’t first made available until The New York Times wrote two articles on the subject in December 2006. Pepper Hamilton was also successful in getting dismissed on May 9 Borochoff v. GlaxoSmithKline, a securities class action suit filed in June 2007 against GlaxoSmithKline over its alleged failure to disclose the increased risk of heart attack for users of the company’s diabetes drug Avandia. Judge Louis Stanton of the Southern District of New York dismissed the case because the plaintiffs did not allege any claims for which relief could be granted. The judge said data regarding the link between Avandia and an increased risk of heart attack were inconclusive and didn’t need to be reported by the company when it promoted the sales potential for Avandia. While it helped that GlaxoSmithKline and Eli Lilly were already firm clients, Rainville said it was the securities litigation team’s prior success in similar cases that helped secure their representation of the two companies in the securities class actions. She said the firm had already won a motion to dismiss in a case involving Discovery Labs when GlaxoSmithKline and Eli Lilly were looking for representation. Pepper Hamilton represented Discovery Labs through two different district court rulings from the Eastern District of Pennsylvania that dismissed the case and an affirmation of those rulings by the 3rd Circuit. The plaintiffs alleged Discovery Labs misled investors when it said its drug Surfactant, used in the prevention and treatment of respiratory distress syndrome, would be approved in Europe. It also misled investors, the suit alleged, into thinking the company would be able to manufacture the drug at facilities that were in compliance with FDA standards. “The mere fact that defendants’ statements turned out to be overly optimistic does not make them fraudulent,” U.S. District Court Judge Stewart Dalzell for the Eastern District of Pennsylvania said in a March 2007 opinion. The 3rd Circuit upheld his ruling in an April 29, 2008, opinion. Having a regulated client can be helpful in that the information gets out to investors quickly, but Rainville said it could also be what causes some confusion in these cases. It’s often when the regulatory body makes a ruling or even opens an inquiry that the stock price would drop, causing investors to worry. Rainville said plaintiffs want to argue that the company must have known this was going to happen, but it’s the defense attorneys’ job to explain to the judges how the FDA works and how it can affect their clients. She said that’s where the firm’s breadth and depth of experience dealing with the FDA and pharmaceutical clients in general comes in handy.

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