(CN) - Concordia International Corp. lost a bid to dismiss a class action launched by investors in New York's Southern District.
Canadian-based Concordia was sued by investors in a December 2016 class action over the drug donnatal, used for irritable bowel syndrome, which Concordia bought the rights to for $200 million in cash and 4.6 million in shares from PBM Pharmaceuticals Inc. in March 2014.
Investors alleged that Concordia executives caused 75-80 salespeople, roughly half of their salesforce hired to sell donnatal, to be fired without any explanation, and failed to inform them that several insurance companies terminated or decreased their formulary coverage of donnatal. Investors also accused the execs of touting the company's financial performance in an Aug. 3, 2016 press release, claiming that they "knew very well that the company would be facing a serious cash crunch." Concordia moved to dismiss the claims on Feb. 20, 2017.
In his ruling, U.S. District Judge Richard M. Berman agreed with investors that terminating a portion of its salesforce that accounted for over 10% of Concordia's revenue was cause for concern and should have been divulged. Berman found that the Concordia defendants were "unpersuasive" in their efforts to demonstrate that the salesforce terminations were not material to investors. In addition, he ruled that investors should have been properly informed about terminations and changes made to formulary coverage by third-party insurance providers despite the defendants' assertions that the changes were public knowledge.
However, the judge rejected investors' claims that the defendants made fraudulent statements in a press release boasting the company's financial strength, finding they were not actionable and were "too general to cause a reasonable investor to rely upon them."
The motion to dismiss by the Concordia defendants was granted in part and denied in part. A settlement conference is scheduled for Sept. 13, 2017.