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In re Abbott Depakote Shareholder Derivative Litigation

United States District Court, Seventh Circuit

June 5, 2013



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 second amended 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 Second Consolidated Verified Amended Shareholder Derivative Complaint for failure to adequately plead demand futility under Federal Rule of Civil Procedure 23.1. For the reasons set forth below, this Court denies Defendants' motion.


The following facts are alleged in Plaintiffs' Second Amended Complaint and are presumed to be true for purposes of analyzing this motion to dismiss. See Voelker v. Porsche Cars North America, Inc., 353 F.3d 516, 520 (7th Cir. 2003); 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. 220, ¶ 30.) These products are subject to various federal laws and regulations promulgated by the Food & Drug Administration (the "FDA"). ( Id. ) Before a prescription drug may be marketed to consumers, manufacturers such as Abbott 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 ¶ 67.) If the FDA approves a drug, its approved indications are listed on the drug's label. ( Id. at ¶ 68.)

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 ¶ 69.) 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 ¶ 78.) 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. ) However, Depakote was never approved by the FDA as a safe and effective treatment for the control of agitation and aggression in patients with dementia or for the treatment of schizophrenia. ( Id. at ¶ 79.) Depakote, like many drugs, had a number of potentially serious side effects. ( Id. at ¶ 84.) 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 ¶ 93.)

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

Beginning in 2007, former Abbott sales representatives filed four qui tam complaints alleging that Abbott had engaged in a widespread and centralized scheme to engage in off-label marketing of Depakote between 1998 and 2009.[1] ( Id. at ¶ 97.). The qui tam complaints alleged that Abbott sales representatives promoted Depakote for unapproved uses, misleadingly downplayed the side effects of Depakote, and provided healthcare professionals with information designed to promote their prescription of Depakote for off-label applications. ( Id. at ¶¶ 98-105.)

On November 6, 2009, Abbott disclosed that the Department of Justice had opened an investigation into the sales and marketing of Depakote. ( Id. at ¶ 367.) 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 ¶ 371.) 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 ¶ 373.)

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 ¶ 374.) 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 ¶ 378.)

As part of its plea agreement, Abbott entered into an Agreed Statement of Facts setting forth the conduct on which the plea was based. ( E.g., Doc. 219 at 4.) In that statement, Abbott conceded that it 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. )

However, the Civil Settlement Agreement does not limit the allegations of wrongful conduct to the same period. (Doc. 226-5.)[2] Instead, the Government alleges that Abbott marketed Depakote in an off-label manner and paid illegal kickbacks to health care professionals and long-term care pharmacy providers to induce them to promote or prescribe Depakote between January 1998 and December 31, 2008. (Doc. 220 at ¶ 374.) Abbott denies these allegations in a separate recital in the agreement. (Doc. 226-4.) Instead, Abbott contends that it ...

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