The original complaint charges the Defendants with violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, Sections 10(b), 14(a), 18, and 20(a) of the Securities Exchange Act of 1934, and Rules 10b-5 and 14a-9 there under, as well as with breaches of common law and statutory duties owed to Biosurgery shareholders, in connection with the establishment and termination of Biosurgery stock
Specifically, the complaint alleges that Defendants persuaded plaintiffs and the members of the class to acquire Biosurgery stock during the Class Period by misrepresenting that Genzyme would attempt to operate Biosurgery as a self-sustaining entity. The Defendants operated Biosurgery in order to create an opportunity to force a sale of Biosurgery stock at a convenient time. The Defendants forced the sale of Biosurgery stock only after deliberately manipulating the Biosurgery stock price. The complaint further alleges that Defendants deliberately withheld from the market or delayed disclosing information material to the value of Biosurgery and its products. Genzyme did not disclose until 16 Apr 2003, near the end of the Mar-Apr 2003 trading period used to set the exchange price, that sales of Synvisc, a device for the treatment of osteoarthritis and Biosurgery's leading product, were up 32% for 1Q 2003, compared to 1Q 2002. It also did not disclose that it expected to obtain FDA approval during 2003 for US clinical trials of Syn visc hip applications. It did not disclose until 8 May 2003 that it expected to divest itself of Biosurgery's unprofitable cardiothoracic business, which would have immediately made Biosurgery profitable. It did not disclose until 29 May 2003 that a third-generation Synvisc product would "actually modify the disease" of osteoarthritis itself.
According to the complaint, on June On 8 May 2003, Genzyme announced that it would eliminate this tracking stock structure, via a provision in its charter permitting a forced sale of Genzyme Bio surgery (Biosurgery) and Genzyme Molecular Oncology shares for shares in Genzyme General. As a result, Biosurgery shareholders received 0.04914 shares of Genzyme General for each Biosurgery share owned, or $1.36/share. This forced sale price corresponded to the lowest share prices in the history of Biosurgery, and the complaint alleges that the fair market value of Biosurgery stock, as of the date of the exchange, was between $20-$40/share. All of the Defendants owned disproportionately large amounts of stock in Genzyme General and each reaped a substantial windfall from the forced sale.
NOTE: Until 30 Jun 2003 Genzyme was composed of three, separately operated divisions, Genzyme General, Genzyme Biosurgery (Biosurgery), and Genzyme Molecular Oncology, each of which was associated with a separate series of Genzyme Corp common stock.
As summarized by the Company’s FORM 10-Q for the quarterly period ended June 30, 2006, four lawsuits have been filed against the Company regarding the exchange of all of the outstanding shares of Biosurgery Stock for shares of Genzyme Stock in connection with the elimination of the Company’s tracking stocks in July 2003. Each of the lawsuits is a purported class action on behalf of holders of Biosurgery Stock. The first case was filed in Massachusetts Superior Court in May 2003, and two substantially similar cases were filed in Massachusetts Superior Court in August and October 2003. These cases were consolidated in January 2004, and in July 2004, the consolidated case was stayed pending disposition of a fourth case, which was filed in the U.S. District Court for the Southern District of New York in June 2003. The complaint initially alleged violations of federal securities laws, common law fraud, and a breach of the merger agreement with Biomatrix, in addition to the state law claims contained in the other cases. The plaintiffs initially sought an adjustment to the exchange ratio, the rescission of the acquisition of Biomatrix, and unspecified compensatory damages. In December 2005, the plaintiffs in this case filed an amended complaint in which they dropped all of the claims alleged in the initial complaint relating to the initial issuance of Biosurgery Stock and the acquisition of Biomatrix, and narrowed the putative class to include only those individuals who held Biosurgery Stock on May 8, 2003. The Company has filed a motion to dismiss the amended complaint and to oppose the class certification, and is awaiting a decision from the Court. Discovery in this case has been put on hold pending resolution of these motions
According to a Decision of Interest dated August 21, 2006, the motion to dismiss claims one through six of the fourth amended complaint is denied. The motion to dismiss claim seven of the fourth amended complaint is granted without prejudice.
On September 7, 2006, the Court entered the Order granting the motion to certify class. On October 17, 2006, the plaintiffs filed a Fourth Amended Complaint.
On June 26, 2007, the defendants filed a motion for an order for Summary Judgment in favor of defendants dismissing with prejudice Counts I, II, and III of plaintiffs' fourth Amended Class Action Complaint. On August 7, 2007, the Court entered a Memorandum Endorsement signed by U.S. District Judge Louis L. Stanton denying the motion for Summary Judgment.
According to a press release dated August 9, 2007, Genzyme Corp. today announced that it has reached an agreement in principle to settle a class action lawsuit brought by a group of shareholders following the consolidation of Genzyme's tracking stock structure in 2003. Under the terms of the settlement, Genzyme will pay a total of $64 million to a class of shareholders who held Genzyme Biosurgery stock on May 8, 2003. This settlement will result in the dismissal of the case in U.S. District Court for the Southern District of New York, which, in turn, Genzyme believes will result in the dismissal of a related case currently pending in the Massachusetts Superior Court. The terms of the settlement are subject to court approval.
On October 29, 2007, the Court entered the Final Judgment and Order Approving Settlement and Disbursements signed by Judge Louis L. Stanton settling and dismissing the action with prejudice.