On October 15, 2004, the Court entered the Opinion and Order signed by U.S. District Judge William G. Bassler granting the motion to dismiss the plaintiffs' consolidated amended class action complaint. The civil case was terminated.
The original complaint alleges that prior to the beginning of the Class Period there were reports of 40 cases of pure red cell aplasia ("PRCA") in chronic renal failure in patients taking EPREX, which is manufactured at Johnson & Johnson's Puerto Rico facility and sold in Europe. PRCA is a condition in which the body loses its ability to produce red blood cells, leaving the patient dependent on blood transfusions for survival.
The Class Period begins on April 16, 2002 when defendants released Johnson & Johnson's first quarter results. In the Company's press release and during the earnings conference call held that day, defendants repeatedly attributed the Company's financial performance to the success of EPREX, stating, for example, that "This amazing product has delivered consistent double-digit growth over the past five years. And in the first quarter of this year, we hit a record sales level of a billion dollars." Moreover, defendants discussed the reported incidences of PRCA and assured investors that EPREX "continues to be a trusted brand that people are using, "and that Johnson & Johnson was "working very closely with ... the experts, as well as health authorities in understanding (PRCA), why it occurs. And we're doing whatever we can to understand the risk and mitigate it."
Then, the complaint alleges that defendants' statements during the Class Period, however, were materially false and misleading because defendants knew but failed to disclose that by April 2002, the U.S. Food and Drug Administration's Office of Criminal Investigation, spurred on by the increasing number of cases of PRCA in EPREX patients, sought a stay of a qui tam (whistleblower) action in order to investigate the allegations regarding the Company's EPREX manufacturing facility located in Puerto Rico. The whistleblower action was filed in March 2000 by Hector Arce, a former employee at the Company's EPREX factory. Mr. Arce contends in the lawsuit that he was pressured to falsify data to cover up manufacturing lapses at the EPREX manufacturing facility, and then was suspended a few days before an expected interview with FDA inspectors. This information, which defendants failed to disclose, was information a reasonable investor would have wanted to know - especially as the reported incidences of PRCA continued to climb during the Class Period - considering EPREX, and its U.S. version, PROCRIT, accounted for over 10% of the Company's revenues in 2001 and was projected to account for 11% of revenues in 2002. The true facts concerning the existence of the criminal investigation of Johnson & Johnson and the allegations of the qui tam action were first revealed in The New York Times on July 19, 2002. That same day, Johnson & Johnson admitted that it was aware of the criminal investigation since April 2002. Once the foregoing information was revealed, Johnson & Johnson shares fell $7.88 per share to close on July 19, 2002, at $41.85, a fall of 16%.