Derivative Action Against Depomed as Senate Investigates Opioid Industry Practices

(CN) – A shareholder of Depomed, one of the top manufacturers of prescription opioids in the United States, has launched a derivative action over the company’s alleged role in fuelling the opioid epidemic.

Plaintiff Gerald Ross' suit, filed in California's northern district, names numerous directors and executives as defendants for alleged breaches of fiduciary duty, waste of corporate assets and violations of the Exchange Act.

According to the lawsuit, California-based Depomed acquired the company’s flagship product, “a powerful opioid pain reliever known as NUCYNTA,” in April 2015 and aggressively promoted the drug from the offset. The defendants allegedly added extra manpower to Nucynta’s sales force and recommended greater dosages to doctors who prescribe the drug. Depomed reported record financial results quarter after quarter as a result, the suit says.

Meanwhile, opioid addiction trended upward at the time when Depomed bought Nucynta and defendants, many of whom are medical professionals, allegedly knew the risks associated with the drug but allowed the company to over-promote the product.

Things took a turn by March 2017 when U.S. Senator Claire McCaskill announced an investigation into the country’s five leading prescription opioid makers related to their marketing and sales practices. From Depomed, specifically, the senator requested information including internal estimates of the risks of addiction or death, compliance audit reports of sales and marketing policies, and quotas for sales reps dedicated to opioid products.

“This epidemic is a direct result of a calculated sales and marketing strategy opioid manufacturers have allegedly pursued to expand their market share and to increase dependency on powerful and often deadly painkillers,” McCaskill stated in a letter to Depomed.

The lawsuit alleges that the defendants waited until five months later, on Aug. 7, 2017, to tell shareholders about the investigation and subpoenas the company received from the Maryland Attorney General and the U.S Department of Justice related to the same issue. Depomed stock fell $3.09 per share to close at $6.15 the next day.

Prior to that, between November 2016 and June 2017, defendant senior executives R. Scott Shivel, James A. Schoeneck, and Srinivas G. Rao all resigned, cashing out with “lucrative severance packages,” the suit alleges.

Shareholders are represented by Benjamin Heikali of Faruqi & Faruqi LLP in Los Angeles, Stuart J. Guber in Jenkintown, Pa., and Nina M. Varindani in New York

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