Stay up-to-date with the latest developments in securities law through access to both news and all statutes and regulations. Find relevant corporate filings through a searchable EDGAR database. And...
April 22 — Salix Pharmaceuticals Ltd., maker of products to treat gastroenterology disorders, lost its bid April 22 to dislodge would-be class securities claims it pumped up its stock price by increasing inventory levels of certain products far beyond demand.
The plaintiff pension funds adequately alleged that Salix and its top executives misleadingly suggested that inventory levels were lower than they actually were, Judge Kimba Wood of the U.S. District Court for the Southern District of New York held.
She also said the alleged misstatements, many of which encompassed representations of current fact, weren't protected by the Private Securities Litigation Reform Act's safe harbor for forward looking statements.
A little over a year ago, Salix reported that it was being investigated by U.S. regulators for possible securities law violations related to its inventory accounting (42 SLD, 3/4/15). Shortly thereafter, it was acquired by Valeant Pharmaceuticals International, Inc., which also reportedly is under Securities and Exchange Commission investigation (40 SLD, 3/1/16).
According to the plaintiffs, sometime before the start of the class period in late 2013, the defendants launched a plan to “stuff the channel” with the company's key products—i.e., increase inventory levels “vastly beyond prescription demand”—to make Salix appear financially stronger than it actually was.
After two potential acquirers discovered the inventory problem and withdrew their bids, in November 2014, the defendants disclosed the concern's elevated inventory levels and updated its revenue guidance. The move prompted Salix' stock price to plummet from $138.55 to $91.47, a decline of approximately 34 percent in a single day, the district court recapped.
In allowing the lawsuit to proceed, it said the plaintiffs adequately alleged that the defendants made actionable misstatements and omissions, and did so with scienter—culpable intent. As evidence of their scienter, the court noted how easily potential buyers were able to determine Salix's actual inventory levels, the fact that the two individual defendants resigned from the company, the magnitude of the alleged fraud and the fact that it involved Salix's core operations.
The court also said the defendants didn't provide any non-fraudulent inference that was more compelling than the inference of fraud alleged by the plaintiffs.
To contact the reporter on this story: Phyllis Diamond in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Susan Jenkins at email@example.com
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)