BOSTON (Legal Newsline) - New executives at Alere Inc. are named as defendants in an ongoing securities fraud lawsuit involving a proposed merger in which Abbott Laboratories Inc. planned to acquire the Massachusetts-based diagnostics company for $5.8 billion.
Last month, a consolidated class action complaint for violations of federal securities laws was filed in the U.S. District Court for the District of Massachusetts.
Lead plaintiffs the Glazer Funds (Glazer Capital Management LP, Glazer Enhanced Fund LP, Glazer Enhanced Offshore Fund Ltd., Glazer Offshore Fund Ltd. and Highmark Limited) and plaintiffs OFI Asset Management and NECA-IBEW Pension Trust Fund joined the class action.
In a complaint originally filed in April, plaintiff Judith Godinez claims she purchased Alere common stock during the class period and suffered damages as a result of the company’s alleged federal securities law violations and false and/or misleading statements and/or material omissions.
Former Alere Chief Executive Officer, President and Director Ron Zwanziger and former Chief Financial Officer David Teitel had been named in the original complaint. However, they were not included in the Sept. 23 consolidated complaint.
Glazer, OFI and NECA-IBEW claim they acquired Alere publicly-traded common stock during the class period -- May 28, 2015 through July 27, 2016 -- and, like Godinez, were damaged.
The 95-page consolidated complaint names as defendants Namal Nawana, Alere’s current CEO; James F. Hinrichs, the company’s current CFO; and Carla R. Flakne, its former chief accounting officer. Flakne was Alere’s CAO until March 31, 2016, when she was replaced by Jonathan Wygant.
“The Individual Defendants, because of their positions with the Company, possessed the power and authority to control the contents of Alere’s reports to the market, including in Alere public filings filed with the SEC, and in press releases and presentations to securities analysts, money and portfolio managers and institutional investors,” according to the consolidated complaint.
Alere provides diagnostic testing for diseases and toxicology. The company’s diagnostic products include point-of-care and laboratory tests within the infectious disease, cardiometabolic disease and toxicology markets, as well as patient self-testing services.
It has manufacturing facilities in the United States, Canada, China, Germany, Japan, Norway, South Korea and the United Kingdom, and the distribution network supporting its professional diagnostics business includes offices in 32 countries. The company also has its own sales force in many countries, including most major markets.
During 2015, Alere reported that it generated about 56 percent of its net revenue from continuing operations from the U.S., about 18 percent from Europe and about 26 percent from other locations, including Africa and India.
In February, Alere and Abbott announced a definitive agreement for Abbott to acquire Alere. Under the terms of the agreement, Abbott said it would pay $56 per common share at a total expected equity value of $5.8 billion.
Once completed, the deal would have made Abbott the leading diagnostics provider of point-of-care testing.
“Today’s announcement marks an exciting and transformative milestone for Alere and one that provides an immediate benefit for our stockholders,” Nawana said in a Feb. 1 statement. “Our leading platforms and global presence in point-of-care diagnostics, combined with Abbott’s broad portfolio of market-leading products, will accelerate our shared goal of improving patient care.”
The securities class action brought against Alere and the individual defendants arises out of their alleged violations of federal securities laws through allegedly “material false and misleading” statements and omissions concerning its business, finances and operations.
The plaintiffs contend the alleged misrepresentations and omissions occurred when the individual defendants were actively seeking to sell Alere and, to that end, “creating the illusion” that the company was thriving and had adequate financial and internal controls.
“The Defendants’ strategy proved successful when, on February 1, 2016, Abbott Laboratories entered into a merger agreement to acquire Alere for $56.00 per share, which represented a substantial and highly lucrative premium to Alere’s then-current trading price of $37.20 per share,” according to the consolidated complaint.
The merger, the plaintiffs point out, also would result in special one-time payments to Nawana and Hinrichs totaling more than $29 million. Nawana stood to gain $20.5 million, while Hinrichs stood to gain $8.7 million.
“Nawana and Hinrichs were thus highly motivated to, and did, misrepresent the apparent financial and operational condition of Alere through a series of materially false and misleading statements, which artificially inflated Alere’s stock price,” the plaintiffs allege.
They continued, “Despite the contemporaneous existence and partial disclosure of material weaknesses in Alere’s internal controls, Defendants, Nawana, Hinrichs and Flakne, signed the Company’s materially false and misleading Class Period SEC filings, and Defendants Nawana and Hinrichs signed the accompanying SOX certifications, falsely attesting that the financial information contained in the Company’s SEC filings were true, did not omit material facts, and that the Company’s internal controls and disclosure controls were effective.”
In these certifications, the individual defendants specifically represented that they personally designed and implemented “adequate” internal controls over financial reporting.
But not so, the plaintiffs argue.
“Either the Defendants who signed the certifications made knowingly false statements in the certifications, or they acted in reckless disregard of the truth -- that Alere had massive undisclosed material weaknesses in its internal controls,” the consolidated complaint states.
The plaintiffs contend the defendants’ “scheme” began to unravel less than a month after the merger agreement was signed. They disclosed, for the first time, in late February that the company would be unable to timely file its 2015 annual report on Form 10-K, as required by the Securities Exchange Act.
The form, required by the U.S. Securities and Exchange Commission, gives a comprehensive summary of a company’s financial performance.
This was followed by Alere’s disclosure in March that it received a grand jury subpoena from the U.S. Department of Justice concerning, among other things, matters related to the U.S. Foreign Corrupt Practices Act, or FCPA.
Then, in April, Abbott’s CEO refused to comment publicly on the likelihood that Abbott would complete the pending merger. Later that month, it was disclosed by Alere that Abbott wished to cancel the merger agreement and offered to pay Alere $30 million to $50 million for its expenses if it agreed to do so.
And the hits kept coming in July, with Alere saying it, along with the U.S. Food and Drug Administration, would be initiating a voluntary withdrawal of the company’s blood testing INRation products from the market. That same month, Alere said it received a criminal subpoena from the DOJ regarding its toxicology unit, requesting Medicare, Medicaid and Tricare billing records.
The plaintiffs allege that all of these disclosures caused the price of Alere’s common stock to decline “significantly.”
The company’s stock went from closing at $49.32 per share on March 15, 2016 to $31.47 per share on July 27, 2016.
“Collectively, the price of Alere common stock fell by more than 43 percent lower than the $55.39 per share Class Period high closing price and to approximately the same price at which it had traded before the Merger Agreement was announced,” according to the consolidated complaint.
“In total, these disclosures resulted in a market capitalization loss of approximately $1.9 billion.”
The plaintiffs are seeking class action certification, compensatory damages, and costs and expenses, including counsel fees and expert fees.
Judge Patti B. Saris is presiding over the case. Saris set a motion hearing for March 23, 2017, and a defense motion to dismiss for April 5, 2017.
Boston law firm Shapiro Haber & Urmy LLP is serving as the plaintiffs’ liaison counsel, New York firm Abraham Fruchter & Twersky LLP is plaintiffs’ lead counsel, and New York firms Bernstein Litowitz Berger & Grossmann LLP and Entwistle & Cappucci LLP are members of the plaintiffs’ executive committee.