Berman Tabacco recently secured a favorable ruling permitting a shareholder derivative suit to proceed against the directors and officers of pharmaceutical sourcing and distribution company AmerisourceBergen Corporation (“Amerisource” or “the “Company”).
The action alleges that, for nearly thirteen years, Amerisource, through a subsidiary headed by the Company’s current Chairman, President, and Chief Executive Officer, operated an illegal pre-filled syringe program that created, packaged, and shipped millions of single-dose syringes containing cancer medications to oncology centers, hospitals, and physicians, exposing vulnerable cancer patients to potential harm. The Company allegedly profited by creating pre-filled syringes from excess drug product leftover in vials provided by drug manufacturers to help with accurate dosage. By pooling the overfill from multiple drug vials, Amerisource was able to create more doses than it bought from the drug manufacturers. This practice allegedly violated federal and state drug safety laws and regulations. Additionally, the pre-filled syringes of oncology drugs were allegedly prepared under unsterile and unclean conditions, exposing cancer patients with weakened immune systems to hazardous contaminants.
San Antonio Fire & Police Pension Fund, represented by Berman Tabacco, as well as other institutional investors alleged in an action on behalf of the Company’s shareholders that the directors and officers of Amerisource acted in bad faith and breached their fiduciary duties by failing to establish and implement an adequate reporting system to ensure that the Company and its subsidiaries operated in compliance with the law and by failing to act on red flags involving the pre-filled syringes program when they were raised. They allege that the Board’s failure allowed the Company to engage in illegal conduct for years and caused the Company’s subsidiary to enter a criminal guilty plea, pay a $208 million criminal fine, a $52 million criminal forfeiture, and an additional $625 million civil settlement.
On August 24, 2020, Vice Chancellor Glasscock of the Delaware Chancery court denied the Company’s motion to dismiss. Vice Chancellor Glasscock noted in his decision that the alleged facts indicate that Amerisource “operated a criminal enterprise” and that the complaint adequately alleged that the Company’s directors “permitted a woefully inadequate reporting system” with respect to its subsidiary and consciously disregarded evidence of corporate misconduct. He further noted that the allegations brought in the action are a “prime example” of a company “flouting laws meant to ensure the safety and purity of drugs destined for patients suffering from cancer.”
According to Boston Partner Nathaniel L. Orenstein, “We are pleased by this ruling and hope that we can hold individuals accountable for their role in Amerisource’s conduct that led to the guilty plea.”
The case is Teamsters Local 443 Health Services & Insurance Plan, et al. v. John Chou, et al., C.A. No. 2019-0816-SG (Del. Ch.). Berman Tabacco’s litigation team includes Nathaniel Orenstein, and Berna Lee from Berman Tabacco’s Boston office and Nicole Lavallee of the firm’s San Francisco office.