Connetics Corporation - Securities Class Action

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Copyright (c) 2001
Stanford Law School

Connetics Corporation Summary: The original complaint charges Connetics and certain of its officers and directors with violations of the Securities Exchange Act of 1934. Connetics is a specialty pharmaceutical company that engages in the development and commercialization of products for the medical dermatology market.

Specifically, the complaint alleges that during the Class Period, defendants made false statements about the Company's most important new drug (Velac) concerning findings that would likely prevent FDA approval. Defendants also reported false financial results by failing to properly reserve for rebates. On May 3, 2006, Connetics announced it could not file its quarterly report on time due to a restatement of its financial results. As a result of defendants' false statements, Connetics' stock traded at inflated levels during the Class Period, which allowed defendants to reap millions of dollars in insider trading proceeds. However, after the May 3, 2006 announcement, the Company's shares collapsed 45% from their high. The stock now trades at $10-$11 per share, some 63% below the Class Period high of $29.92.

According to the complaint, the true facts, which were known by the defendants but concealed from the investing public during the Class Period, were as follows: (a) the carcinogenicity study of Velac had indicated that 89 out of 160 mice treated with Velac developed tumors; (b) prior to the Class Period, Connetics had been informed by a panel of toxicology experts that they were unaware of any drug with similar results to Velac ever being approved by the FDA; (c) the Company's new Velac drug would be deemed unsafe by the FDA and would not provide the revenue and income promised by the Company; (d) the Company would not be able to achieve the operating results for 2006-2007 as projected due to its inability to launch Velac; and (e) the Company was falsifying its financials for at least 2005 and likely earlier due to improper accounting for rebates.

According to the Company’s FORM 10-Q For the Quarterly Period Ended September 30, 2006, two complaints have been filed in the United States District Court, Northern District of California: Plumbers & Pipefitters Local #562 Pension Fund vs. Connetics Corporation (N.D. Cal. Case No. 06-5691 PJH) and Almar T. Widiger Living Trust vs. Connetics Corporation (N.D. Cal. Case No. 06-06250 VRW). Two similar class actions were also filed in the United States District Court, Southern District of New York: Fishbury, Limited vs. Connetics Corporation (S.D. N.Y. Case No. 06-CV-11496) and Bruce Gallant vs. Connetics Corporation (S.D. N.Y. Case No. 06-CV-12875).

On November 7, 2006, plaintiff Plumbers' & Pipefitters' Local #562 Pension Fund filed a Notice of Voluntary Dismissal Pursuant to Fed. R. Civ. P. 41(a)(1). On November 9, 2006, the complaint was voluntarily dismissed, and the civil case was terminated. The class action complaint filed by plaintiff Almar T. Widiger Living Trust was also voluntarily dismissed in November 2006. The class action allegations are continuing under the class actions filed against Connetics Corporation in the U.S. District Court for the Southern District of New York. Motions for consolidation, appointment of lead plaintiff and lead counsel are pending.

According to a press release dated December 26, 2006, on December 14, 2006, the court consolidated two related class action complaints asserting that defendant corporation engaged in securities fraud violating §§10(b) and 20 (a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. It concluded that both actions rested on identical public statements and involved common issues of law and fact. The court also appointed the Teachers' Retirement System of Oklahoma (Oklahoma Teachers) as sole lead plaintiff, finding that it met the requirements of 15 USC §78u-4(a)(3)(A), alleged the largest financial interest in the relief sought by the class and, showed that its claims were typical of the class. The court determined that plaintiff Fishbury Limited failed to rebut Oklahoma Teachers' presumptive lead plaintiff status noting, among other things, that Fishbury failed to show a conflict of interest between Oklahoma Teachers -- which bought only defendant's common stock -- and stock option purchasers.

On May 23, 2007 the judge presiding over the case in the Southern District of New York entered an order granting defendants' motion of change of venue. The case has been transferred to the Northern District of California and an Amended Consolidated complaint was filed on June 28, 2007. On September 17, 2007 a number of motions and declarations, in support of and opposition to, were made to dismiss portions of the complaint and the complaint in its entirety.

On January 19, 2008, Judge Susan Illston granted the defendants’ motions to dismiss the complaint, with leave to amend. On March 14, 2008, a Second Amended Consolidated Class Action Complaint. The defendants responded by filing several motions to dismiss the Second Amended Consolidated Class Action Complaint.

According to a press release dated August 15, 2008, Connetics Corp. was unable to sink a number of allegations raised in a proposed securities class action accusing the pharmaceutical firm of concealing information from shareholders about its new acne medication Velac Gel. Judge Susan Illston of the U.S. District Court for the Northern District of California on Thursday dismissed some, but not all, of the claims in the case alleging Connetics kept stock prices artificially high by failing to disclose a 2004 study that showed the drug caused tumors in 55% of mice. Connetics argued that several portions of the plaintiffs’ second amended complaint should be stricken because they were lifted from an insider trading complaint filed by the U.S. Securities and Exchange Commission, but the district court refused to strike them, which helped plaintiffs keep a number of their allegations afloat in the case. “Although plaintiffs continue to rely in part on the SEC complaint, plaintiffs have explained what other sources they rely on to formulate their factual allegations,” Judge Illston said. The judge did dismiss the plaintiffs’ claim alleging that Connetics made fraudulent statements predicting that Velac would gain U.S. Food and Drug Administration approval by June 2005, finding that the forward-looking statements fell under the safe harbor provision of the Private Securities Litigation Reform Act. But the judge found the plaintiffs adequately pled a claim alleging Connetics made false statements about Velac’s safety after June 2004, when the company became aware of the outcome of the pre-clinical mouse study.

On January 9 and 29, 2009, certain individual defendants filed motions to dismiss the Second Amended Consolidated Class Action Complaint. On February 21, 2009, those motions were granted with prejudice. On March 16, 2009, the lead plaintiff filed a motion to certify the class, and on May 12, 2009, the motion was granted. On July 10, 2009, the lead plaintiff filed a motion for preliminary approval of the settlement. The proposed settlement is in the amount of $12.75 million. On July 20, 2009, Judge Illston preliminarily approved the settlement. On October 9, 2009, Judge Illston gave final approval to the settlement and also approved the plan of allocation. On November 10, 2009, lead counsel was awarded in attorney fees in the amount of 25% of the settlement fund and reimbursement of expenses in the amount of $398,689.23.

INDUSTRY CLASSIFICATION:
SIC Code: 2834
Sector: Healthcare
Industry: Biotechnology & Drugs

COMPANY/ISSUER NAME:	Connetics Corporation
COMPANY/ISSUER TICKER:	CNCT
COMPANY WEBSITE:	http://www.connetics.com

FIRST IDENTIFIED COMPLAINT IN THE DATABASE

Plumbers' and Pipefitters' Local #562 Pension Fund, et al. v. Connetics Corporation, et al.

COURT: N.D. California	DOCKET NUMBER: 06-CV-05691
JUDGE NAME: Hon. Phyllis J. Hamilton
DATE FILED: 09/18/2006	SOURCE: Notice of Filing
CLASS PERIOD START: 06/28/2004	CLASS PERIOD END: 05/03/2006
TYPE OF COMPLAINT: Complaint (Unamended and Unconsolidated)
PLAINTIFF FIRMS NAMED IN COMPLAINT:
Brower Piven (Baltimore) The World Trade Center-Baltimore. 401 East Pratt Street, Suite 2525 , Baltimore, MD, (voice) 410.332.0030, (fax) 410.685.1300, info@browerpiven.com Cohen, Milstein, Hausfeld & Toll, P.L.L.C. (Washington, DC) 1100 New York Avenue, N.W., Suite 500, West Tower, Washington, DC, 20005 (voice) 202.408.4600, (fax) 202.408.4699, lawinfo@cmht.com Federman & Sherwood (Oklahoma City) 120 North Robinson, Suite 2720, Oklahoma City, OK, 73102 (voice) 405-235-1560, (fax) , wfederman@aol.com Lerach Coughlin Stoia Geller Rudman & Robbins LLP (San Diego) 655 West Broadway, Suite 1900, San Diego, CA, 92101 (voice) 619.231.1058, (fax) 619.231.7423, Schatz & Nobel, P.C. 330 Main Street, Hartford, CT, 06106 (voice) 800.797.5499, (fax) 860.493.6290, sn06106@AOL.com Schiffrin & Barroway LLP 3 Bala Plaza E, Bala Cynwyd, PA, 19004 (voice) 610.667.7706, (fax) 610.667.7056, info@sbclasslaw.com Zimmerman, Levi & Korsinsky, LLP 39 Broadway, Suite 1440, New York, NY, 10006 (voice) 212.363.7500, (fax) 212.363.7171, _____________________________________________ TOTAL NUMBER OF PLAINTIFF FIRMS: 7

DOCUMENTS FOR THE FIRST IDENTIFIED COMPLAINT
Class Action Complaint for Violation of the Federal Securities Laws - Demand for Jury Trial
Type: Complaint		Date on the document: 09/18/2006
Notice Of Voluntary Dismissal Pursuant To Fed. R. Civ. P. 41(a)(1) And Order
Type: Complaint		Date on the document: 11/09/2006
US District Court Civil Docket
Type: Docket		Date on the document: 11/9/2006

REFERENCE COMPLAINT

In re Connetics Securities Litigation

COURT: N.D. California	DOCKET NUMBER: 07-CV-02940
JUDGE NAME: Hon. Susan Illston
DATE FILED: 03/14/2008	SOURCE: Docket
CLASS PERIOD START: 01/27/2004	CLASS PERIOD END: 07/09/2006
TYPE OF COMPLAINT: Second Amended and Consolidated
PLAINTIFF FIRMS NAMED IN COMPLAINT:
Bernstein Litowitz Berger & Grossmann LLP (New York, NY) 1285 Avenue of the Americas, 33rd Floor, New York, NY, 10019 (voice) 212.554.1400, (fax) 212.554.1444, blbg@blbglaw.com _____________________________________________ TOTAL NUMBER OF PLAINTIFF FIRMS: 1

DOCUMENTS FOR THE REFERENCE COMPLAINT
Amended Consolidated Class Action Complaint For Violations Of The Federal Securities Laws
Type: Complaint		Date on the document: 6/28/2007
Declaration Of David R. Stickney In Support Of Lead Plaintiff's Opposition To The Motion To Dismiss Filed By Defendants Connetics Corp., John L. Higgins, Lincoln Krochmal, C. Gregory Vontz, And Thomas G. Wiggans
Type: Declaration		Date on the document: 9/17/2007
Lead Plaintiff's Opposition To Defendants Yaroshinsky's And Zak's Motions To Dismiss Plaintiff's Amended Consolidated Class Action Complaint
Type: Other		Date on the document: 9/17/2007
Lead Plaintiff's Opposition To Defendants Yaroshinsky's And Zak's Motions to Strike Portions Of The Amended Class Action Complaint
Type: Other		Date on the document: 9/17/2007
Lead Plaintiff's Opposition To The Motion To Dismiss Filed By Defendants Connetics Corp., John L. Higgins, Lincoln Krochmal, C. Gregory Vontz, And Thomas G. Wiggans
Type: Other		Date on the document: 9/17/2007
Lead Plaintiff's Response And Opposition To Request For Judicial Notice By Defendants Connetics Corp, John L. Higgins, Lincoln Krochmal, C. Gregory Vontz, and Thomas G. Wiggans
Type: Other		Date on the document: 9/17/2007
Lead Plaintiff's Certification Of Interested Entities Or Persons Pursuant To Civil Local Rule 3-16
Type: Other		Date on the document: 10/1/2007
Lead Plaintiff's Notice Of Supplemental Authority
Type: Notice		Date on the document: 10/1/2007
Order Granting Defendants' Motion To Dismiss And Defendants' Motion To Strike
Type: Order		Date on the document: 1/29/2008
Second Amended Consolidated Class Action Complaint For Violations Of The Federal Securities Laws
Type: Complaint		Date on the document: 3/14/2008
Order Granting In Part And Denying In Part Defendants’ Motions To Dismiss And Denying Defendants’ Motions To Strike
Type: Order		Date on the document: 8/14/2008
Order Dismissing Complaint As To Defendants Yaroshinsky And Zak
Type: Order		Date on the document: 02/27/2009
Order Granting Lead Plaintiff’s Motion For Class Certification
Type: Order		Date on the document: 05/12/2009
US District Court Civil Docket
Type: Docket		Date on the document: 05/15/2009
Stipulation and Agreement of Settlement
Type: Settlement		Date on the document: 07/10/2009
Order Preliminarily Approving Settlement And Providing For Notice
Type: Order		Date on the document: 07/17/2009
Notice Of Pendency Of Class Action And Proposed Settlement, Final Approval Hearing, And Motion For Attorneys’ Fees And Reimbursement Of Litigation Expenses
Type: Notice		Date on the document: 07/31/2009
Proof of Claim and Release
Type: Other		Date on the document: 07/31/2009
Declaration Of David R. Stickney In Support Of Motion For Final Approval Of Settlement And Plan Of Allocation, And Motion For Approval Of Attorneys’ Fees And Expenses
Type: Declaration		Date on the document: 09/18/2009
Notice Of Motion And Motion For Approval Of Settlement And Plan Of Allocation; Memorandum Of Points And Authorities In Support Thereof
Type: Motion		Date on the document: 09/18/2009
Notice Of Motion And Motion For Final Approval Of Settlement And Plan Of Allocation; Memorandum Of Points And Authorities In Support Thereof
Type: Motion		Date on the document: 09/18/2009
[Proposed] Final Judgment And Order Of Dismissal With Prejudice
Type: Order		Date on the document: 09/18/2009
[Proposed] Order Awarding Attorneys’ Fees And Reimbursement Of Expenses
Type: Order		Date on the document: 09/18/2009
[Proposed] Order Approving Plan Of Allocation
Type: Order		Date on the document: 09/19/2009
Final Judgment And Order Of Dismissal With Prejudice
Type: Order		Date on the document: 10/09/2009
Order Awarding Attorneys' Fees And Reimbursement Of Expenses
Type: Order Approving AF&E		Date on the document: 11/10/2009
U.S. District Court Civil Docket
Type: Docket		Date on the document: 11/10/2009

OTHER DOCUMENTS
Class Action Complaint - Jury Trial Demanded
Case Name and/or Number: Almar T. Widiger Living Trust, et al. v. Connetics Corporation, et al.
Type: Complaint		Date on the document: 10/03/2006
Class Action Complaint for Violation of the Federal Securities Laws - Demand for Jury Trial
Case Name and/or Number: Marcus H. Seigle, et al. v. Connetics Corporation, et al.
Type: Complaint		Date on the document: 11/09/2006
U.S. District Court Civil Docket
Case Name and/or Number: Gallant, et al. v. Connetics Corporation, et al.
Type: Docket		Date on the document: 12/07/2006
U.S. District Court Civil Docket
Case Name and/or Number: Fishbury, Limited, et al. v. Connetics Corporation, et al.
Type: Docket		Date on the document: 09/07/2007

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