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In re Abbott Depakote Shareholder Derivative Litigation

United States District Court, N.D. Illinois, Eastern Division

November 15, 2012


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Justin O. Reliford, Robin Winchester, Kessler Topaz Meltzer & Check, LLP, Radnor, PA, Glenn L. Hara, Matthew Thomas Heffner, Susman Heffner & Hurst LLP, Marvin Alan Miller, Miller Law LLC, Richard A. Saldinger, Shaw Fishman Glantz & Towbin LLC, Chicago, IL, Charles Vincent, Christine Azar, Peter Wood, Labaton Sucharow LLP, Wilmington, DE, for Plaintiffs.

West Virginia Pipe Trades Health and Welfare Fund, pro se.

Daniel E. Reidy, Brian Joseph Murray, Jones Day, Robert J. Kopecky, Sallie Gamble Smylie, Alec Jason Solotorovsky, Sarah Joy Donnell, Kirkland & Ellis LLP, Carrie E. Davenport, Jeffrey L. Widman, Richard A. Saldinger, Shaw Fishman Glantz & Towbin LLC, Matthew Thomas Heffner, Susman Heffner & Hurst LLP, Chicago, IL, Andrew D. Abramowitz, Robert M. Roseman, Spector, Roseman & Kodroff, P.C., Philadelphia, PA, Donald Lewis Sawyer, Michael Jerry Freed, Freed Kanner London & Millen LLC, Bannockburn, IL, Judith S. Scolnick, Thomas Livezey Laughlin, IV, Scott Scott LLP, New York, NY, for Defendants.

Daniel J. Kurowski, Elizabeth A. Fegan, Hagens Berman Sobol Shapiro LLP, Oak Park, IL, Peter E. Borkon, Hagens BermanSobol Shapiro, Berkeley, CA, Steve W. Berman, Hagens Berman Sobol Shapiro LLP, Seattle, WA, for Plaintiffs/Defendants.


VIRGINIA M. KENDALL, District Judge.

Lead Plaintiff Jacksonville Police & Fire Pension Fund, and plaintiffs Louisiana Municipal Police Employees Retirement System and Public School Retirement System of the School District of Kansas City, Missouri (collectively, the Plaintiffs) filed a consolidated shareholder derivative action on behalf of nominal defendant Abbott Laboratories (" Abbott" ) against the individual defendant directors of Abbott (the " Defendants" ) to remedy alleged breaches of their fiduciary duties. Plaintiffs assert that the breaches arise from the Defendants' knowing failure to exercise their oversight responsibility over Abbott's marketing practices with respect to its anticonvulsant drug, Depakote. Defendants moved to dismiss the Consolidated Verified Amended Shareholder Derivative Complaint (the " Complaint" ) for failure to adequately plead demand futility. For the reasons set forth below, this Court grants the Defendants' motion and dismisses Plaintiffs' Complaint without prejudice.

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The following facts are alleged in Plaintiffs' Complaint and are presumed to be true for purposes of analyzing this motion to dismiss. See Murphy v. Walker, 51 F.3d 714, 717 (7th Cir.1995).

I. Abbott and its Business

Abbott Laboratories develops, manufactures and markets a wide range of pharmaceutical products and medical devices for the diagnosis and treatment of human diseases and disorders. (Doc. 179, ¶ 22.) These products are subject to various federal laws and regulations promulgated by the Food & Drug Administration (the " FDA" ). ( Id. at ¶¶ 22, 57.) Before a prescription drug may be marketed to consumers, manufacturers such as Abbot must file a new drug application with the FDA, which includes reports of investigations, studies and other information to establish the safety and effectiveness of the drug for its intended use. ( Id. at ¶ 58.) If the FDA approves a drug, its approved indications are listed on the drug's label. ( Id. at ¶ 59.)

While physicians may prescribe drugs for conditions other than those approved by the FDA, a manufacturer may not market an FDA-approved drug for an " off-label" use. ( Id. at ¶ 61.) Thus, a " drug label" -a term that includes marketing and promotional materials related to a drug-cannot describe intended uses not approved by the FDA. ( Id. at ¶ 60.) A manufacturer who promotes a drug for unapproved uses may be subject to both civil and criminal penalties for " misbranding" under the Food, Drug and Cosmetic Act (" FDCA" ). ( Id. )

II. FDA Approvals of Depakote

In 1983, the FDA approved Depakote for the treatment of epileptic seizures in adults and children over the age of 10. ( Id. at ¶ 2.) Subsequently, the FDA approved Depakote for: (1) manic disorders associated with bipolar disorder; and (2) the prevention of migraines. It also approved a delayed-release formulation of Depakote for these two uses. ( Id. at ¶¶ 69-74.)

Abbott sponsored studies regarding the use of Depakote for treatment of mania and agitation in elderly patients with dementia. ( Id. at ¶¶ 124-25, 135.) It sponsored studies regarding the use of Depakote and Depakote DR for the treatment of schizophrenia. ( Id. at ¶¶ 216-17.) The FDA expressed reservations about relying on these studies to approve the expanded use of Depakote. ( Id. at ¶ 125.) These studies were terminated in 1999. ( Id. at ¶ 129.) Depakote, like many drugs, had a number of potentially serious side effects. ( Id. at ¶ 75.) However, physicians widely prescribed the drug. Sales of Depakote accounted for between 8-11% of Abbott's total sales between 2005 and 2008. ( Id. at ¶ 84.)

III. The Qui Tam Complaints, the DOJ Investigation, and the Plea Agreement

Beginning in 2007, former Abbott sales representatives filed four qui tam complaints alleging that Abbot had engaged in a widespread, and centralized scheme to engage in off-label marketing of Depakote between 1998 and 2009. [1] ( Id. at ¶ 88.) Those complaints were filed under seal. The qui tam complaints alleged that Abbott

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sales representatives promoted Depakote for unapproved uses, misleadingly downplayed the side effects of Depakote, and provide healthcare professions with information designed to promote their prescription of Depakote for off-label applications. ( Id. at ¶¶ 90-94.)

On November 6, 2009, Abbott disclosed that the Department of Justice had opened an investigation into the sales and marketing of Depakote. ( Id. at ¶ 323.) On February 4, 2011, the DOJ elected to intervene in the qui tam actions and unsealed a redacted version of its complaint against Abbott. ( Id. at ¶ 327.) On November 4, 2011, Abbott announced that it had recorded a charge of $1.5 billion in connection with the probable resolution of potential civil and criminal claims arising out of the investigation. ( Id. at ¶ 329.)

On May 7, 2012, Abbott announced that it had agreed to plead guilty to a misdemeanor criminal charge and enter into a settlement with the United States and 49 state authorities to settle civil claims against the company. ( Id. at ¶ 330.) Pursuant to this global settlement, Abbott agreed to pay $700 million in connection with the criminal plea; $800 million to resolve federal and state civil claims; and $100 million to resolve state consumer-protection claims by 46 states. ( Id. ) Abbott also agreed to enter into a Corporate Integrity Agreement with the Office of the Inspector General of the Department of Health and Human Services. ( Id. at ¶ 334.)

As part of its plea agreement, Abbott entered into an Agreed Statement of Facts setting forth the conduct on which the plea was based. (Doc. 199-1.) [2] In that statement, Abbott conceded that it had introduced misbranded Depakote products into interstate commerce between January 1998 and December 2006, in violation of the FDCA. ( Id. ) The Agreed Statement does not include any facts relating to conduct that occurred after December 2006. ( Id. ) There is no allegation or admission in the Plea Agreement or the Statement of Facts that members of Abbott's board of directors had engaged in or approved any unlawful conduct by the company.

IV. Communications from the FDA regarding Abbott's Marketing of Depakote

Between 1997 and 2009, Abbott received thirteen Warning Letters from the FDA regarding off-label marketing practices. Two of these letters specifically related to Depakote. First, the FDA's Division of Drug Marketing, Advertising and Communications (" DDAMC" ) sent a warning letter to Abbott's former CEO, Duane Burnham, on June 26, 1998. (Doc. 179 at ¶ 290.) This letter asserted that Abbott was promoting Depakote for unapproved purposes. ( Id. at ¶ 291.) Second, the DDAMC sent a letter to Abbott's regulatory manager, Rick Leber, on January 22, 2009. ( Id. at ¶ 292.) This letter notified Leber that a " Pharmacy Formulary Flashcard" used by sales representatives was misleading because it omitted material information about Depakote. ( Id. ) The DDMAC requested that Abbott " immediately cease" the dissemination of this marketing material. ( Id. )

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V. Abbot's Compliance Policies and Controls

Unfortunately, the plea agreement that Abbott entered into with the federal government in 2012 is not the first time that Abbott has pled guilty to illegal marketing charges. In July 2003, Abbott agreed to pay $600 million to settle civil and criminal charges relating to its marketing of another product. [3] As part of the settlement, Abbott entered into a five-year corporate integrity agreement. The corporate integrity agreement caused Abbott to implement a number of compliance policies and internal controls in addition to the ones that already existed. ( Id. at ¶¶ 12, 47, 265-269.) These policies and controls include: (1) the Corporate Governance Guidelines; (2) a Code of Business Conduct; (3) an Ethics Compliance Program; and (4) a Public Policy Committee of the Board. ( Id. at ¶ 248.) These controls are designed to prevent Abbott from violating federal and state laws in the operation of its business. ( Id. at ¶ 277.)

VI. Abbott's Board of Directors

When the Plaintiffs filed their lawsuits in November 2011, Abbott's board of directors was composed often directors (the " 2011 Board" ). ( Id. at ¶¶ 24-31, 37-38.) Six of these directors joined the board in April 2007 or later. ( Id. ) These directors are: Samuel Scott, Glen ...

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