From a lawsuit against suburban-based drugmaker Akorn, a settlement has grown in Chicago federal court, which could hand $8 million to lawyers for pursuing the class action suit against Akorn Pharmaceuticals, alleging the company misled investors.
On Nov. 20 in U.S. District Court for the Northern District of Illinois, lawyers handling the suit against Lake Forest-based Akorn presented arguments to Judge Gary Feinerman urging acceptance of a proposed $24 million settlement.
Akorn produces generic prescription and over-the-counter drugs, as well as veterinary drugs. In 2014, the company acquired Hi-Tech Pharmacal Co. for $640 million and VPI Holdings Corp. for $440 million.
However, a number of investors filed suit in March 2015, alleging Akorn made “misrepresentations” from spring 2014 to spring 2015 about the company's finances. These alleged misrepresentations were made in financial statements, filings with the U.S. Securities and Exchange Commission, press releases and conferences with investors. During this period, Akorn overstated its revenue by $38 million, according to court documents.
Akorn said the overstatements were not intentional, but rather the result of innocent accounting errors, for which the company has taken corrective measures.
Akorn has denied wrongdoing, but the company and its insurers have agreed to fork over $24 million as part of a proposed settlement, the suit said. Retired U.S. District Court Judge Layn Phillips mediated negotiations.
Of the $24 million, each of the three named plaintiffs will receive no more than $10,000 each, with their attorneys intending to ask the court in a separate motion to give them one third of the settlement, or about $8 million. The attorneys will also be reimbursed for expenses – up to $450,000 – they incurred advancing the suit.
Another $250,000 will be sliced from the pie to pay to administer the settlement fund.
The number of potential class members was not listed in the proposed settlement. At any rate, settlement arrangements include a formula for allocating payouts to each member based on their Akorn stock transactions. Class members will be able to object to the settlement.
Plaintiffs' attorneys noted the full amount of damages at stake were $147 million, of which the $24 million settlement represents 16 percent.
In urging acceptance of the settlement, plaintiff attorneys contended the settlement was a good outcome for plaintiffs and class members, because the case was not a sure thing for them, in light of the “highly complicated nature of the accounting matters at issue.”
The next hearing in the case is Nov. 28. Finalization of the proposed settlement would not take place until at least next year.
The suit has been spearheaded by the Los Angeles firm of Glancy, Prongay & Murray, with involvement from a number of other firms, including Pomerantz LLP and Lawrence, Kamin, Saunders & Uhlenhop, both of Chicago.
Akorn has been defended by Kirkland & Ellis, of Chicago and Cravath, Swaine & Moore, of New York City.
Besides the investor class action, Akorn has other legal troubles this year.
On Oct. 26 in Arizona federal district court, Akorn's board chairman, John Kapoor, was charged with conspiring to bribe doctors and druggists across the country to prescribe an addictive opioid pain killer, which was made by another company he founded, Insys Therapeutics. The 74-year-old Kapoor, who lives in Phoenix, has been Akorn's chairman since 1990.
On May 2 in Cook County Circuit Court, an Akorn investor filed for a class-action against the company, alleging the pending purchase of Akorn for $4.3 billion by the German drug firm Fresenius SE, will benefit Akorn's top brass, but do little for shareholders. The sale has not yet closed. Fresenius' operations in the U.S. are based in suburban Lake Zurich.