Proposed shareholder class action claim filed against Salix Pharmaceuticals, Ltd.

A proposed shareholder class action claim was recently filed against Salix Pharmaceuticals, Ltd.

Salix Pharmaceuticals is a publicly-traded specialty pharmaceutical company that develops drugs and devices to treat gastrointestinal disorders.

Lawsuit filing
The Rosen Law Firm announced on Nov. 25, 2014, that it had brought forth the legal action to represent individuals and organizations that bought company shares between Nov. 8, 2013, and Nov. 6, 2014. In filing the suit, the law firm was making an effort to recover damages for eligible investors under existing federal securities law.

Legal inquiry
The lawsuit involved allegations Salix Pharmaceuticals provided investors with materially false and misleading financial information. Before the shareholder class action claim was filed, The Rosen Law Firm announced on Nov. 7, 2014, that it was looking into potential securities claims against the specialty pharmaceutical company.

More specifically, the law firm spoke of allegations the company may have supplied the investing public with misleading business information.

Major developments
On Nov. 6, 2014, Salix Pharmaceuticals announced sales forecasts and third-quarter earnings that fell short of expectations. The resignation of chief financial officer Adam Derbyshire was also announced by the specialty pharmaceutical company.

In addition, CEO Carolyn Logan revealed to analysts on a conference call that Salix Pharmaceuticals' audit committee was probing the company's statements pertaining to inventory levels. The shareholder class action claim brought forth by The Rosen Law Firm alleged company shares fell sharply as a result of this news, which damaged investors.

Lawsuit allegations
While the suit brought forth by The Rosen Law Firm involved allegations the company provided materially false and misleading information, a separate legal action filed by Labaton Sucharow LLP, which involved the same class period between Nov. 8, 2013, and Nov. 6, 2014, provided further detail.

According to the Labaton Sucharow suit, the company, as well as certain former and current officers, breached U.S. Securities and Exchange Commission Rule 10b-5, as well as Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.

This particular lawsuit claimed the company understated figures for reserves for outstanding inventory. Because of this situation, its reported earnings per share and net revenue – both on a quarterly and annual basis – were overstated.

In addition, the legal claim alleged that while demand for both Xifaxan and other Salix drugs was falling, and the inventory of these items was higher than investors thought and was rising more quickly than they knew, the company did not reveal these issues.

Finally, the Labaton Sucharow suit alleged that the company did not reveal that its internal controls over financial reporting and accounting, as well as its disclosure controls and procedures, suffered from materially weakness.

The aforementioned suit alleged that between Nov. 6 and Nov. 7, investors became aware of Derbyshire's departure, that full-year revenue levels for 2014 needed to be cut 12.5 percent because they would not be attained, that company inventories were three times more than previously reported and that the company's audit committee had hired outside counsel as part of an investigation into the firm's reporting of wholesale inventory of company drugs.

What shareholders should know
Investor that are interested in serving as lead plaintiff in the shareholder class action proposed by The Rosen Law Firm have until Jan. 6, 2015, to move the court. At the time the law firm announced the legal action on Nov. 25, 2014, a class had not yet been certified for the lawsuit.

The Rosen Law Firm reminded investors that until a class is certified, they will need to obtain any counsel they wish to have. In addition, they have the ability to forego legal representation in the proposed shareholder class action claim.

Alternatively, the Labaton Sucharow suit is not pending class action status, and eligible shareholders have been advised they have until Jan. 6, 2015, to move the court if they with to serve as lead plaintiff.