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Michael D. Braun (167416) STULL, STULL & BRODY 10940 Wilshire Boulevard Suite 2300 Los Angeles, CA 90024 Tel: (310) 209-2468 Fax: (310) 209-2087 Jules Brody Aaron Brody STULL, STULL & BRODY 6 East 45th Street New York, NY 10017 Tel: (212) 687-7230 Fax: (212) 490-2022 Kevin J. Yourman (147159) WEISS & YOURMAN 10940 Wilshire Boulevard 24th Floor Los Angeles, CA 90024 Tel: (310) 208-2800 Fax: (310) 209-2348 VIRGINIA H. LADDEY, TR, LADDEY LIVING
TRUST U/A 10/2/85, on Behalf of Herself and All CLASS ACTION
Others Similarly Situated,
JURY TRIAL DEMANDED
ALLEN CHAO, JOSEPH PAPA, FRED WILKINSON and MICHAEL BOXER, file://Y:\WYCA Website\www.wyca.com\complnts\wpi-com.htm Weiss & Yourman - Watson Pharmaceuticals Complaint Plaintiff, through her attorneys, brings this action on behalf of herself and all others similarly situated, and on personal knowledge as to herself and her activities, and on information and belief as to all other matters, based on investigation conducted by counsel, hereby alleges as follows: NATURE OF THE ACTION
1. This is a securities class action on behalf of all purchasers of the common stock of Watson Pharmaceuticals, Inc., ("Watson" or the "Company") during the period November 2, 1999 through November 13, 2001 (the "Class Period"), against Watson and certain of its officers for violations of the Securities Exchange Act of 1934 (the "Exchange Act"). JURISDICTION AND VENUE
2. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. §§1331 and 1337, and §27 of the Securities Exchange Act of 1934 (the "Exchange Act") (15 U.S.C. §78aa). 3. This action arises under §§10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated 4. Venue is proper in this district pursuant to §27 of the Exchange Act and 28 U.S.C. 1391(b) because the acts charged herein, including the dissemination of materially false and misleading information, occurred in this district. Defendant Watson also maintains its principal place of business in this district at 311 Bonnie Circle, Corona, California 92880. 5. In connection with the conduct complained of herein, defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including the mails and interstate telephone communications, and the facilities of a national securities exchange. THE PARTIES
6. Plaintiff Virginia H. Laddey, TR, Laddey Living Trust U/A 10/2/85 purchased Watson common stock as described in the attached certification and was damaged thereby. 7. Defendant Watson is organized under the laws of Nevada and maintains its principal executive 8. Defendant Allen Chao ("Chao") was, at all times throughout the Class Period, Watson's Chairman 9. Defendant Joseph Papa ("Papa") was, at all times throughout the Class Period, Watson's President 10. Defendant Fred Wilkinson ("Wilkinson") was, during the Class Period, Watson's Chief Operating Officer. Defendant Wilkinson resigned from the Company ob March 22, 2001. 11. Defendant Michael Boxer ("Boxer") was, at all times throughout the Class Period, Watson's Watson's Executive Vice President and Chief Financial Officer.
file://Y:\WYCA Website\www.wyca.com\complnts\wpi-com.htm Weiss & Yourman - Watson Pharmaceuticals Complaint 12. Defendants Chao, Papa, Wilkinson, and Boxer (collectively the "Individual Defendants") were at all relevant times during the Class Period controlling persons of Watson within the meaning of Section 20(a) of the Exchange Act. By reason of their stock ownership and management positions, the Individual Defendants were controlling persons of Watson and had the power and influence, and exercised the same, to cause it to engage in the illegal conduct complained of herein. The Individual Defendants are liable for the false statements pleaded herein, as those statements were each "group published" information, the result of the collective action of the Individual Defendants. 13. As officers, directors and/or controlling persons of a Company whose common stock is traded on the New York Stock Exchange and governed by the provisions of the federal securities laws, the Individual Defendants each had a duty to disseminate truthful information promptly and accurately with respect to the Company's operations, products, markets, management, earnings and business prospects, to correct any previously issued statements that had become materially misleading or untrue, and to disclose any trends that would materially affect earnings and the financial results of Watson, so that the market price of the Company's publicly traded securities would be based upon truthful and accurate information. 14. Under rules and regulations promulgated by the Securities and Exchange Commission ("SEC") under the Exchange Act, the Individual Defendants also had a duty to report all trends, demands or uncertainties that were likely to influence Watson's net sales, revenues and/or income, and the Individual Defendants' representations during the Class Period violated these specific requirements and obligations. 15. The Individual Defendants, because of their positions with Watson, controlled and/or possessed the power and authority to control the contents of Watson's reports, press releases and presentations to the public. Each defendant was provided with copies of Watson's reports and press releases alleged herein to be misleading prior to or shortly after their issuance and had the ability and opportunity to prevent their issuance or cause them to be corrected. 16. Because of their positions and access to material non-public information available to them but not to the public, each of these defendants knew that the adverse facts specified herein had not been disclosed to, and were being concealed from, the public and that the positive representations which were being made were then materially false and misleading. 17. Defendants are also each liable as individual participants in a fraudulent scheme and course of conduct that operated as a fraud and/or deceit upon the class. Because of their executive, managerial and/or directorial positions with Watson, each of the defendants had access to the adverse, non-public information about the business, finances and future business prospects of Watson as particularized herein and acted to misrepresent, misstate or conceal such information from plaintiff and the investing public. 18. It is also appropriate to treat the defendants as a group for pleading purposes under the federal securities laws and the Federal Rules of Civil Procedure and to presume that the false and misleading information complained of herein was disseminated through the collective actions of the defendants. Defendants were involved in the drafting, producing, reviewing, and/or disseminating of the false and misleading information detailed herein, knew that such materially misleading statements were being issued by Watson, and/or approved or ratified these statements in violation of the federal securities laws. Defendants' false and misleading statements and omissions of fact consequently had the effect of, both on their own and in the aggregate, file://Y:\WYCA Website\www.wyca.com\complnts\wpi-com.htm Weiss & Yourman - Watson Pharmaceuticals Complaint artificially inflating the price of the common stock of Watson at all times during the Class Period. SCIENTER ALLEGATIONS
19. During the Class Period, each of the Individual Defendants, who were senior executives of Watson, were privy to confidential and proprietary information concerning Watson, its operations' finances, financial condition, products and present and future business prospects. These defendants also had access to and knew of, material adverse non-public information concerning Watson's present and future financial condition. 20. Each of the Individual Defendants was provided with copies of Watson's management reports, and press releases alleged herein to be misleading prior to, or shortly after their issuance. All of the Individual Defendants had the ability and opportunity to prevent their issuance or cause them to be corrected. As a result, each of the Individual Defendants is responsible for the accuracy of the public reports and releases detailed herein as "group published" information and are therefore responsible and liable for the representations contained therein. 21. During the Class Period, defendants directly and indirectly engaged and participated in a continuous course of conduct to misrepresent the results of Watson's operations and to conceal adverse material information regarding the finances, financial condition, and results of operations of Watson as specified herein. Defendants employed devices, schemes, and artifices to defraud, and engaged in acts, practices, and a course of conduct as herein alleged in an effort to increase and maintain an artificially high market prices for the common stock of the Company. This included the formulation, making, and/or participation in the making of untrue statements of material facts, and the omission to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, which operated as a fraud and deceit upon plaintiff and the other members of the Class. 22. The defendants are liable, jointly and severally, as direct participants in the wrongs complained of herein. Defendants had a duty promptly to disseminate accurate and truthful information with respect to Watson's products, operations, financial condition and future business prospects or to cause and direct that such information be disseminated so that the market price of Watson stock would be based on truthful and accurate information. 23. As officers, directors and/or controlling persons of a publicly held company whose common stock is registered with the SEC under the Exchange Act, traded on the New York Stock Exchange, and governed by the provisions of the Exchange Act, defendants had a duty to promptly disseminate accurate and truthful information with respect to the Company's operations, business, products, markets, management, earnings and present and future business prospects, to correct any previously issued statements from any source that had become untrue, and to disclose any trends that would materially affect earnings and the present and future financial operating results of Watson, so that the market price of the Company's publicly traded securities would be based upon truthful and accurate information. SUBSTANTIVE ALLEGATIONS
24. Defendant Watson is a leading specialty pharmaceutical company that develops, manufactures, markets and distributes branded and generic pharmaceutical products. The Company's products include therapeutic and preventative agents generally sold by prescription or over-the-counter for the treatment of human diseases and disorders, and in recent years Watson's revenues have been split almost equally between the generic and branded products. By the beginning of the Class file://Y:\WYCA Website\www.wyca.com\complnts\wpi-com.htm Weiss & Yourman - Watson Pharmaceuticals Complaint Period, Watson was principally engaged in the development, production, marketing and distribution of both generic, off-patent pharmaceutical products and branded, proprietary drugs, the rights for which the Company either developed or acquired. 25. According to the Watson's FY 1999 Form 10-K, filed with the SEC, by the beginning of the Class Period Watson had grown, through synergistic acquisitions and some internal growth, into a diversified specialty pharmaceutical company marketing over 100 branded and generic products. Watson was able to offer this diverse range of products by acquiring drug technologies from third parties, by expanding its traditional generic drug business, and by engaging in development deals with other third parties. 26. Thus, according to the Company, through its strategy of acquisitions and internal growth, by the beginning of the Class Period, Watson stated that it was unique in the field of pharmaceutical companies, and was distinguishable from its peers because the Company was able to rely both on its extensive generic business and its branded drug business segments to drive revenues and earnings, as follows: • Generic Pharmaceuticals: When relevant patents no longer protect a branded product (normally as a result of the patent's expiration), opportunities exist for Watson to introduce generic counterparts to the branded product. Such generic, or off-patent pharmaceutical products, are therapeutically equivalent to their brand-name counterparts and are generally sold at prices significantly less than the branded product. Throughout the Class Period, Watson claimed to be a "lead in the development, manufacture and sale of off-patent pharmaceutical products," and during this time, Watson marketed approximately 90 off-patent drugs in diverse sizes and/or dosage strengths. • Branded Pharmaceuticals: Watson's branded pharmaceutical business operates primarily in three specialty areas: Dermatology, Women's Health, Neurology/Psychiatry and Primary Care. Watson has "strategically focused on these markets due to their anticipated growth opportunities" and provide Watson "with the opportunity to achieve significant market penetration through [its] specialized sales forces." Historically, one of the Company's biggest revenue drivers has been Dilacor XR®, a top drug for Watson, acquired in 1997 for 490 million, which accounted for approximately 19% of total revenues in 1997, 15% in 1998 and 7% in 1999. 27. Watson presented itself to analysts and investors as a pharmaceutical company grounded in a solid revenue base provided through its generic business and a company poised for growth as a result of its successful development of proprietary New Drug Applications pending before the FDA and/or already approved thereby. Moreover, at all relevant times, Watson consistently distinguished itself from its competitors by its twin strengths: its ability to preserve sold and predictable revenues as a result of its generic business, which provided new drug opportunities on a regular basis, and its ability to grow revenues in the future by capitalizing on new revenue opportunities provided by Watson's branded drug business. DEFENDANTS' MATERIALLY FALSE AND
MISLEADING STATEMENTS
28. On November 2, 1999, the inception of Class Period, Watson issued a release published on PR Newswire, which purported to announce strong results for the third quarter and nine-months ended September 30, 1999, as follows: file://Y:\WYCA Website\www.wyca.com\complnts\wpi-com.htm Weiss & Yourman - Watson Pharmaceuticals Complaint The Company's net income for the third quarter was $36.7 million, or $0.38 per diluted share, compared with net income of $36.2 million, or $0.37 per diluted share, in the third quarter of 1998. Revenues for the third quarter of 1999 increased 8% to $171.2 million, as compared to the prior year period, reflecting increased sales of brand products, including core and female healthcare products. The gross margin remained unchanged at approximately 64% in both the 1999 and 1998 third quarter periods. Net income for the nine months ended September 30, 1999 (excluding a special tax benefit recorded in the second quarter of 1999, special merger-related charges in the first quarter of 1999 and in-process research and development charges in the first quarter of 1998) increased 16% to $118.7 million, and diluted earnings per share increased 15% to $1.21, compared to the first nine months of 1998. Including the special items, net income for the nine months ended September 30, 1999 increased 19% to $105.8 million, and diluted earnings per share increased 18% to $1.08, as compared to the prior year period. 29. Commenting on these purported strong financial results, defendants Chao and Wilkinson stated in Chao: Our third quarter performance was driven by the continued strong growth of our branded business and the momentum gained from product acquisitions, despite the impact of the previously announced recall of our nicotine gum product due to copyright issues related to its labeling. Wilkinson: We are pleased with the results from the expansion of our proprietary field sales force, which provides us with enhanced focus on our physician community. 30. The statements referenced above were each materially false and misleading for the following 1. Watson was materially overstating its financial results by failing to write down the value of its inventories and the value of certain of the Company's assets; 2. Watson was experiencing significantly increased competition for generic drugs and was also experiencing manufacturing difficulties; and| 3. based on the foregoing, defendants' positive statements about the Company were lacking in a reasonable basis at all times and were therefore materially false and misleading. 31. On February 14, 2000, Watson issued a release on PR Newswire which again purported to announce strong quarterly results for the fourth quarter and full year 1999, the period ended December 31, 1999, as follows: For the fourth quarter of 1999, net revenues increased 24% to $188.5 million, as compared to the prior year period, reflecting increased sales in all brand product lines. The gross margin on product sales was unchanged at 64% in both the 1999 and 1998 fourth quarter periods. Net income for the fourth quarter of 1999 (before the gain from the sale of Andrx common stock), increased 51% to $44.6 million, as compared with $29.5 million in the fourth quarter of 1998. Earnings per share for the fourth file://Y:\WYCA Website\www.wyca.com\complnts\wpi-com.htm Weiss & Yourman - Watson Pharmaceuticals Complaint quarter of 1999 (before the Andrx gain), increased 52% to $0.46 per diluted share, compared with $0.30 per diluted share in the fourth quarter of 1998. For the year ended December 31, 1999, net revenues increased 16% to $689.2 million, as compared to the prior year period, primarily due to increased sales of brand products. The gross margin on product sales for the year ended December 31, 1999 increased to 65% from 63% for 1998, reflecting an increase in branded product sales as a percentage of total sales during the period. Diluted earnings per share for the year ended December 31, 1999 increased 24% to $1.67 (excluding the special items), compared to the year ended December 31, 1998 (excluding the special items). Including the special items, net income for the year ended December 31, 1999 increased 51% to $178.9 million, and diluted earnings per share increased 50% to $1.83, as compared to the prior year period. 32. Commenting on these purported strong financial results, defendants Chao and Wilkinson stated in Chao: Our results for the fourth quarter and full year continue to demonstrate the consistently strong fundamentals of our business," began Allen Chao, Ph.D., Watson's Chairman and Chief Executive Officer. "Going forward, we intend to continue our growth strategy of pursuing acquisitions of products and technologies complementary to our existing business as well as continuing our own product development activities. We continue to move forward with our proprietary product development as evidenced by our recently announced NDA filing for the estradiol/progestin combination patch. As to our generic pipeline, although we have 19 ANDAs pending with the FDA, the timing of approval of these submissions is greatly dependent upon the FDA and its response to our quality improvement initiatives. We cannot predict the timing of the Agency's actions. As a result, our current plans do not anticipate product approvals in the first half of this year. We intend to reassess this assumption throughout the year as appropriate. In the meantime, our quality improvement program continues on track and has become an integral part of the way we do business. Wilkinson: The continued growth in our branded product lines was a key contributing factor in achieving our quarter and year end results," he began. "Looking forward, we have built a strategically diversified product line, which, when combined with a committed team of employees and customers, affords us numerous opportunities to capitalize on the core strengths Watson has to offer. We have been -- and will continue to be -- an opportunistic organization, aggressively targeting products and technologies that strategically fit with our long-term growth plan. 33. At this time, in one-on-one conversations with analysts and/or during the Company's quarterly conference-call, Watson forecast company-wide revenue growth of between 18% and 22% during 2000, with a 20% earnings per share growth during the same period. At this time, defendant Boxer also stated that earnings and revenue growth would be driven by generic drug introductions, which were expected to accelerate during 2H:00 and into 2001. At this time, defendants also indicated that the Company would not be harmed by any delay in the launch of new generic drugs file://Y:\WYCA Website\www.wyca.com\complnts\wpi-com.htm Weiss & Yourman - Watson Pharmaceuticals Complaint as a result of the FDA's warning letters relating to conditions at the Corona manufacturing facility.
34. The statements made by defendants and contained in the Company's February 14, 2000 release and in follow-up statements made by defendants in the Company's quarterly conference call were each materially false and misleading for the following reasons: 1. Watson was materially overstating its financial results by failing to write down the value of its inventories and the value of certain of the Company's assets; 2. Watson was experiencing significantly increased competition for generic drugs and was also experiencing manufacturing difficulties; and 3. based on the foregoing, defendants' positive statements about the Company were lacking in a reasonable basis at all times and were therefore materially false and misleading. 35. On May 8, 2000, the Company issued a release which again announced strong results for the first For the first quarter of 2000, net revenues increased 13% to $179.6 million, as compared to net revenues of $159.2 million in the prior year period. This increase is primarily attributable to increased sales in all branded product lines, partially offset by lower generic product sales. The gross margin on product sales for the quarter ended March 31, 2000 decreased to 63% from 68% in the prior year period. This decrease was attributable to increased price competition on generic products and a lack of new generic product introductions. Exclusive of a non-recurring gain from sales of Andrx Corporation common stock in the first quarter of 2000 and a special merger-related charge recorded in the same 1999 period, net income for the first quarter of 2000 was unchanged from the prior year period at $40 million. Diluted earnings per share in the first quarter of 2000 (before the non-recurring Andrx gain and merger-related charge) were unchanged from the prior year period at $0.41 per share. During the first quarter of 2000, the Company sold 4.2 million shares of Andrx common stock (adjusted for Andrx' two-for-one stock split in March 2000) and recorded a pre-tax gain of $166.9 million. As of March 31, 2000, the Company owned approximately 5.8 million shares of Andrx common stock, representing approximately 9% of Andrx' total shares outstanding 36. Commenting on these purported strong financial results, defendant Chao stated in relevant part: Strong sales performance in our branded business continues, reaffirming our long-term growth strategy as well as our commitment to diversified product lines. We're delighted by the favorable Appellate Court ruling regarding our nicotine polacrilex gum product. Relaunch activities commenced immediately and sales to date have been as planned. Our early results indicate that the smoking cessation consumer was eager to have a generic gum alternative available to them. This is now possible, thanks to the efforts of our various Watson teams and our partnerships with key private label retail customers.
file://Y:\WYCA Website\www.wyca.com\complnts\wpi-com.htm Weiss & Yourman - Watson Pharmaceuticals Complaint 37. The statements made by defendants and contained in the Company's May 8, 2000 release and in follow-up statements made by defendants in the Company's quarterly conference call were each materially false and misleading for the following reasons: 1. Watson was materially overstating its financial results by failing to write down the value of its inventories and the value of certain of the Company's assets; 2. Watson was experiencing significantly increased competition for generic drugs and was also experiencing manufacturing difficulties; and 3. based on the foregoing, defendants' positive statements about the Company were lacking in a reasonable basis at all times and were therefore materially false and misleading. 38. On May 25, 2000, Watson announced that it would acquire Schein Pharmaceutical, in a two-step, cash and stock merger then potentially valued at over $700 million, as follows: Watson Pharmaceuticals, Inc. (NYSE: WPI) and Schein Pharmaceutical, Inc. (NYSE: SHP) announced today that the companies have entered into a definitive agreement under which Watson will acquire all of the outstanding stock of Schein through a two-step transaction comprised of a cash tender followed by a taxable stock merger. The cash tender offer will be at $19.50 per share of Schein common stock while pursuant to the merger, each Schein share will be converted into $23.00 of Watson common stock, subject to adjustment as described below. Under the terms of the definitive agreement, Watson will make a cash tender offer for all of Schein's outstanding stock at a price of $19.50 per share. Bayer Corporation and certain members of the Schein family, who collectively own approximately 74% of the outstanding shares of common stock of Schein, have entered into stockholder agreements with Watson and it is contemplated that these stockholders will tender all of their shares of Schein common stock to Watson pursuant to its tender offer. Assuming such stockholders tender all of their shares, the minimum condition of the tender offer will be satisfied. . . . Upon the closing of the merger, each then outstanding share of Schein's common stock will be converted into the right to receive a fraction of a share of Watson common stock valued at $23.00, based upon the average closing price of a share of Watson common stock on the New York Stock Exchange for the ten-day trading period ending on the trading day, two trading days prior to the date of either (i) the special meeting of Schein's stockholders called to approve the merger or (ii) if no such meeting is required under applicable law, the effective date of the merger (the "Average Closing Price"). 39. Commenting on this acquisition, defendant Chao stated: Our current business model pursues a strategy of generating revenue through established proprietary and off-patent businesses. This transaction builds upon that existing strategy to expand our brand and generic product offerings . . . Schein's strength in the nephrology marketplace is an excellent example of capitalizing on a niche, specialty branded pharmaceutical program. This specialty focus is a core element to our current brand product strategy. . . We believe the addition of Schein's file://Y:\WYCA Website\www.wyca.com\complnts\wpi-com.htm Weiss & Yourman - Watson Pharmaceuticals Complaint generic product portfolio, including its healthy pipeline, will better enable us to further satisfy our customers by providing them with an expanded line of generic pharmaceutical products -- both now and in the future. 40. The statements made by defendants and contained in the Company's May 25, 2000 release, were each materially false and misleading for the following reasons: 1. Watson was materially overstating its financial results by failing to write down the value of its inventories and the value of certain of the Company's assets; 2. Watson was experiencing significantly increased competition for generic drugs and was also experiencing manufacturing difficulties; and 3. based on the foregoing, defendants' positive statements about the Company were lacking in a reasonable basis at all times and were therefore materially false and misleading. 41. While investors still did not know the true financial condition of the Company or the real reasons why defendants were attempting to consummate the Schein acquisition, investors reacted negatively to the news of this acquisition and, on May 25, 2000, following the announcement of the Schein acquisition, share of Watson fell over 14%, or $7.19 per share, to close trading at $41.56. Defendants assured investors that they would be able to manage the integration of Schein and simultaneously resolve any problems they were having internally. 42. On July 31, 2000, the Company issued a release announcing strong results for the second quarter For the second quarter of 2000, net revenues increased to $189.9 million, as compared to net revenues of $170.2 million in the prior year period. Exclusive of a gain from sales of Andrx Corporation common stock in the second quarter of 2000 and a non-recurring tax benefit in the second quarter of 1999, net income for the second quarter increased to $44.1 million from $42.1 million in the prior year period. Diluted earnings per share in the second quarter of 2000 (before the non-recurring items noted above) was $0.45 compared to $0.43 in the prior year period. 43. Commenting on these purported strong financial results, defendants Chao and Wilkinson stated: We are pleased to see the increases we expected in sales for both our brand and generic products in this quarter. We are also very excited about the addition of Schein to the Watson organization. To that end, we look forward to the completion of this transaction during the third quarter and are anxious to continue with our integration plans. 44. The statements made by defendants and contained in the Company's July 31, 2000 release were also each materially false and misleading for the following reasons: 1. Watson was materially overstating its financial results by failing to write down the value of its inventories and the value of certain of the Company's assets; file://Y:\WYCA Website\www.wyca.com\complnts\wpi-com.htm Weiss & Yourman - Watson Pharmaceuticals Complaint 2. Watson was experiencing significantly increased competition for generic drugs and was also experiencing manufacturing difficulties; and 3. based on the foregoing, defendants' positive statements about the Company were lacking in a reasonable basis at all times and were therefore materially false and misleading. 45. On August 28, 2000, Watson issued a release announcing that the Company issued at least 5.3 million shares of stock in connection with the completion of the acquisition of Schein: Watson Pharmaceuticals, Inc. (NYSE: WPI) announced today the completion of its acquisition of Schein Pharmaceutical, Inc. (NYSE: SHP). Under the terms of its merger agreement with Schein, Watson acquired all of the outstanding stock of Schein through a two-step transaction comprised of a cash tender offer followed by a taxable stock merger. The cash tender offer was at $19.50 per share of Schein common stock while, pursuant to the merger, each Schein share not tendered was converted into the right to receive 0.42187 of a share of Watson common stock. In exchange for the remaining outstanding Schein shares, Watson will issue, pursuant to the merger, approximately 5.3 million common shares of Watson stock. As a result of the merger, Schein is now a wholly owned subsidiary of Watson. 46. On September 12, 2000, the Company issued a release announcing preliminary results for the third quarter 2000 and a revised "Outlook for Fourth Quarter 2000 and Fiscal 2001:" Watson Pharmaceuticals, Inc. (NYSE: WPI) today announced that, based upon a preliminary review of recent operating results, it expects to report (exclusive of non-recurring items) CASH earnings per diluted share of approximately $0.12 to $0.14 and GAAP earnings per diluted share of approximately $0.03 to $0.05 for the third quarter ending September 30, 2000. These preliminary results compare to the current First Call GAAP earnings consensus estimate (exclusive of non-recurring items) of $0.48 per diluted share. Final results for the third quarter 2000 are scheduled to be reported on or about November 7, 2000. The expected shortfall in earnings is primarily attributable to lower-than-anticipated product sales related to the recently completed acquisition of Schein Pharmaceutical, Inc. In addition, during the third quarter, Watson has experienced unanticipated, aggressive generic pricing competition in its branded dermatology line. Higher-than-anticipated goodwill and operating expenses associated with the Schein acquisition also will contribute to the expected earnings shortfall. 47. Commenting on these results, and on the Company's future outlook, defendant Chao stated: We remain confident in the long-term benefits the Schein acquisition will bring to Watson and its stockholders. However, in the short term, we did not fully appreciate the high inventory levels of Schein product (both brand and generic) currently with customers. Rather than allow customer inventory levels to remain high, we have elected to reduce product sales to provide our customers the opportunity to moderate their inventory levels. We believe this situation should correct itself by first quarter 2001. In addition to lower product sales, higher-than-anticipated goodwill and operating expenses associated with the Schein acquisition will also contribute to an expected earnings shortfall. Total goodwill from the Schein acquisition is expected to file://Y:\WYCA Website\www.wyca.com\complnts\wpi-com.htm Weiss & Yourman - Watson Pharmaceuticals Complaint be $800 million to $820 million (amortized over a 20-year period). Operating expenses associated with Schein were also higher than expected. We intend to bring these Schein expenses in line during the balance of this year as part of our Schein integration plan. In this regard, we believe we will realize approximately $50 million in acquisition synergies for 2001. Realization of these synergies should allow additional investment in opportunities for long-term growth. I believe the fundamentals of our business remain solid. We plan to continue to focus on opportunities to expand our product lines for sustainable long-term growth. In this regard, we have 24 ANDAs pending with the FDA representing approximately $12 billion in annual branded sales. In addition to these 24 ANDAs, 5 additional ANDAs have received tentative approval from the FDA and represent approximately $1.5 billion in annual branded sales. We have had some recent setbacks that we will need to work through. As a result, the remainder of 2000 will be transitional. For the fourth quarter 2000, we expect (exclusive of non-recurring items) that CASH earnings per diluted share will be approximately $0.48 to $0.51 per share and GAAP earnings per diluted share will be approximately $0.39 to $0.41 per share. For fiscal 2001, we expect (exclusive of non-recurring items) that CASH earnings per diluted share will be approximately $2.78 to $2.82 per share and GAAP earnings per diluted share will be approximately $2.38 to $2.42 per share. 48. While defendants purported to provide a moderate earnings and revenue outlook revision, what investors did not and could not know, however, was that defendants continued to fail to disclose the true adverse conditions which were then already affecting the Company. In fact, as investors would ultimately learn, the statements made by defendants and contained in the Company's September 12, 2000 release, were each materially false and misleading for the following reasons: 1. Watson was materially overstating its financial results by failing to write down the value of its inventories and the value of certain of the Company's assets; 2. Watson was experiencing significantly increased competition for generic drugs and was also experiencing manufacturing difficulties; and 3. based on the foregoing, defendants' positive statements about the Company were lacking in a reasonable basis at all times and were therefore materially false and misleading. 49. Despite the fact that defendants portrayed 3rd Quarter events revealed as one time occurrences that were not expected to significantly impact earnings going forward (with only a foreseeable $0.05 per share impact on 2001 profits), the $0.03 to 40.05 Watson expected to earn in 3Q:00 was well below the prior guidance sponsored and/or endorsed by defendants, as well as analysts' consensus estimates of $0.48 per share. While shares of Watson had almost doubled since the beginning of the year, trading as high as, $71.50 per share on September 8, 2000, immediately following the publication of this revision, shares of Watson traded to $52 per share, down over $16 per share from the prior day's trading high of $68.56 per share -- a single day trading decline of approximately 25%. At this time, analysts were very critical of Watson management's apparent lack of due diligence in connection with the Schein acquisition, considering that the Company was now blaming Schein for the majority of its problems. 50. While the price of Watson stock declined substantially following the publication of the Company's revised outlook, the decline in the price of Watson stock would have been much more severe had file://Y:\WYCA Website\www.wyca.com\complnts\wpi-com.htm Weiss & Yourman - Watson Pharmaceuticals Complaint defendants not reassured investors, at that time, that the Company would not be materially adversely affected in the long-term. 51. On October 6, 2000, with shares of Watson trading well over $65 per share, the Company issued a release announcing that it had entered into a definitive merger agreement to acquire Makoff R&D Laboratories, Inc. ("Makoff") in a stock transaction valued at over $180: Watson Pharmaceuticals to Acquire Makoff R&D Laboratories; Acquisition Consolidates Ferrlecit(R) Rights and Strengthens Watson's Presence In the Nephrology Market; Transaction Expected to Be Non-Dilutive in 2001. Watson Pharmaceuticals, Inc. (NYSE: WPI) today announced that it has entered into a definitive agreement to acquire Makoff R&D Laboratories, Inc. (R&D), the NDA sponsor for Ferrlecit(R) (sodium ferric gluconate complex in sucrose injection). Ferrlecit(R) is used for the treatment of iron deficiency anemia in patients undergoing chronic hemodialysis. Under the terms of the definitive merger agreement, each share of R&D will be converted into 1.9555 shares of Watson. Based on Watson's closing stock price of $65.81 on October 5, 2000, the acquisition would be valued at approximately $184 million on a fully diluted basis. An aggregate of 2.8 million shares of Watson will be issued in connection with the acquisition. Makoff R&D Laboratories, Inc., headquartered in Marina del Rey, California, develops, licenses and markets medical foods and pharmaceutical products utilized in the management of kidney disease. R&D participates in clinical research studies at major U.S. universities. 52. On November 1, 2000 Watson issued a release announcing that the FDA's rejection of its New Drug Application for its recently acquired TheraTech, a menopause drug patch, would not have a material impact on near or long term earnings or revenues. Despite the fact that the FDA highlighted a "lack of sufficient evidence to support the safety and efficacy" of its menopause patch, defendants continued to claim that the Company maintained adequate systems of internal control to assure that this rejection would not be a major setback for Watson and that the Company's internal processes were generating reasonable and foreseeable forecasts about Watson: The Non-Approval Letter cited lack of sufficient evidence to support the safety and efficacy of the product for the prevention of hyperplasia and required that an additional endometrial protection trial be submitted Pharmaceuticals (P&G) and TheraTech. TheraTech was acquired by Watson in January 1999 and renamed Watson Laboratories, Inc -- Utah. As part of Watson's reacquisition of the Alora(R) estradiol patch from P&G in October 1999, Watson reacquired rights to the combination patch and assumed responsibility for submitting the NDA. file://Y:\WYCA Website\www.wyca.com\complnts\wpi-com.htm Weiss & Yourman - Watson Pharmaceuticals Complaint 53. Commenting on these events, defendant Chao stated in relevant part: If the FDA reacts favorably to our amendment, we would not anticipate approval on this product now until 2002. We do not believe that this setback will have a significant impact on our financial results for remainder of this year or 2001. In this regard, our forecast for this product did not include any meaningful profitability during the first twelve to eighteen months after launch. The combination patch is only one of several products in our pipeline that we hope will fuel the expansion of our Women's Health Group, not only in the area of Hormone Replacement Therapy (HRT), but also in the rapidly growing Urinary Incontinence field. For instance, we currently have in development an oral dosage estrogen/progesterone capsule that we plan to conduct Phase III trials beginning in the second half of 2001. 54. Unbeknownst to investors, the statements made by defendants and contained in the Company's November 1, 2000 release were each materially false and misleading for the following reasons: 1. Watson was materially overstating its financial results by failing to write down the value of its inventories and the value of certain of the Company's assets; 2. Watson was experiencing significantly increased competition for generic drugs and was also experiencing manufacturing difficulties; and 3. based on the foregoing, defendants' positive statements about the Company were lacking in a reasonable basis at all times and were therefore materially false and misleading. 55. On November 13, 2000, Watson issued a release announcing results for the third quarter 2000, the period ended September 30, 2000, which were consistent with preliminary results previously announced on September 12, 2000: GAAP diluted earnings per share in the third quarter of 2000 (before the non-recurring items noted above) were $0.03, compared to $0.38 in the prior year period. Inclusive of the non-recurring items, the Company recorded a net loss for the three months ended September 30, 2000 of $54.9 million, or $0.56 per diluted share, compared to net income of $36.7 million, or $0.38 per diluted share, for the prior year period. Outlook for fourth quarter 2000 and fiscal 2001: For the fourth quarter 2000, Watson estimates (exclusive of non-recurring items) that cash earnings per diluted share will be approximately $0.48 to $0.50 per share and GAAP earnings per diluted share will be approximately $0.38 to $0.40 per share. For fiscal 2001, Watson estimates (exclusive of non-recurring items) that cash earnings pre diluted share will be approximately $2.78 to $2.80 per share and GAAP earnings per diluted share will be approximately $2.38 to $2.40 per share. 56. Defendant Chao also used this release to condition investors to believe that Watson's inventory issues were already resolved and that Watson was operating according to guidance previously file://Y:\WYCA Website\www.wyca.com\complnts\wpi-com.htm Weiss & Yourman - Watson Pharmaceuticals Complaint Strategically, we have always been an opportunistic company, employing a three-pronged strategy that has built us to where we are today. First, internal product development. . . . Second, product licensing and collaborative arrangements. . . . Third, corporate acquisitions. . . . These three growth strategies are the fuel for our future growth as we move into 2001. 57. Believing that defendants had made a full and complete disclosure of all of the adverse conditions which were then affecting the Company, on November 16, 2000, Makoff R&D Laboratories, Inc. agreed to the completion of the merger and accepted shares of Watson as consideration in the transaction. Thus, pursuant to the merger agreement, approximately 2.8 million shares of Watson stock was issued for all of the outstanding shares of Makoff -- representing an exchange ration of 1.9555 shares of Watson for each Makoff share tendered. By January 8, 2001, however, the former shareholders of Makoff, acting pursuant to their rights under the acquisition agreement, required Watson to register all 2.8 million shares issued in connection with the acquisition, which shares were immediately sold by these shareholders. 58. On January 10, 2001, the Company issued a press release which reaffirmed the outlook for the Watson Reaffirms Outlook for Fourth Quarter 2000 and Calendar Year Watson Pharmaceuticals, Inc. (NYSE: WPI) today announced that it remains comfortable with its previously announced earnings estimates for fourth quarter 2000 and calendar year 2001. Watson reaffirmed that it anticipates reporting (exclusive of non-recurring items) GAAP earnings per diluted share of between $0.26 to $0.28 for the fourth quarter 2000 and $2.21 to $2.23 for calendar year 2001 59. The statements made by defendants and contained in the Company's January 10, 2001 release were each materially false and misleading for the following reasons: 1. Watson was materially overstating its financial results by failing to write down the value of its inventories and the value of certain of the Company's assets; 2. Watson was experiencing significantly increased competition for generic drugs and was also experiencing manufacturing difficulties; and 3. based on the foregoing, defendants' positive statements about the Company were lacking in a reasonable basis at all times and were therefore materially false and misleading. 60. On February 15, 2001, Watson issued a release announcing results for the fourth quarter and full year 2000 which stressed the contribution of the Company's generic business and which stated in relevant part: For the fourth quarter of 2000, net revenues increased by 32% to $255 million, compared to net revenues of $193 million in the prior year's fourth quarter. The increase was primarily attributable to sales of generic products, including the products acquired as a result of the Schein acquisition, and certain brand product launches during the fourth quarter of 2000. Product revenue mix for the fourth quarter of 2000 was approximately 50% brand and 50% generic, with $126 million and $126 million file://Y:\WYCA Website\www.wyca.com\complnts\wpi-com.htm Weiss & Yourman - Watson Pharmaceuticals Complaint Net income for the fourth quarter of 2000 was $32.4 million, excluding certain non-recurring charges and gains discussed below, compared to $43.8 million in the prior year's fourth quarter. Cash earnings per diluted share were $0.42 in the fourth quarter of 2000 (excluding the non-recurring items), compared to $0.44 in the fourth quarter of 1999. Earnings per diluted share in the fourth quarter of 2000 (excluding the non-recurring items) were $0.31, compared to $0.44 in the prior year period. Inclusive of the non-recurring items, Watson recorded a net loss for the three months ended December 31, 2000 of $1.9 million, or $0.02 per diluted share, compared to net income of $73.5 million, or $0.73 per diluted share, for the prior year period. For the first quarter of 2001, Watson estimates that total net revenues will be approximately $270-290 million. Exclusive of non-recurring items, Watson estimates that for the first quarter of 2001, cash earnings per diluted share will be approximately $0.50 to $0.52 and earnings per diluted share will be approximately $0.39 to $0.41. For fiscal 2001, Watson estimates that total net revenues will be approximately $1.2 billion. Exclusive of non-recurring items, Watson estimates that for fiscal 2001, cash earnings per diluted share will be approximately $2.64 to $2.66 and earnings per diluted share will be approximately $2.21 to $2.23. 61. Commenting on these results, defendant Chao stated the following: Our three-pronged growth strategy of internal research and development, strategic alliances and key acquisitions helped us achieve a year of extraordinary brand and generic product growth. The continued efforts of our teams have enabled us to expand our brand presence with additional, compelling products in the marketplace, while at the same time, continuing to build on the strengths of our generic origins. 62. On May 7, 2001, Watson issued a release announcing results for the first quarter 2001 which For the first quarter of 2001, net revenues increased by 67% to $296.8 million, compared to net revenues of $177.2 million in the prior year's first quarter. The increase was primarily attributable to sales in Watson's branded divisions, particularly in the Nephrology and Women's Health product lines as well as increased generic product sales following the Schein acquisition. Product revenue mix for the first quarter of 2001 was approximately 51% brand and 49% generic, with approximately $151 million and $145 million in product sales, respectively. Excluding non-operating gains from the sale of securities, net income for the first quarter of 2001 was $43.0 million compared to $37.2 million in the prior year's first quarter. Excluding these gains, cash earnings per diluted share were $0.51 in the first quarter of 2001 compared to $0.38 in the first quarter of 2000; and diluted earnings per share were $0.40 in the first quarter of 2001, compared to $0.37 in the prior year period. Inclusive of the gains, Watson recorded net income for the three months ended March 31, 2001 of $62.5 million, or $0.58 per diluted share, compared to net file://Y:\WYCA Website\www.wyca.com\complnts\wpi-com.htm Weiss & Yourman - Watson Pharmaceuticals Complaint income of $130.1 million, or $1.29 per diluted share, for the first quarter of 2000.
Outlook for Second Quarter 2001 and Fiscal 2001: For the second quarter of 2001, Watson estimates that total net revenues will be in the range of approximately $300 to $320 million. Exclusive of non-recurring items, Watson estimates that for the second quarter of 2001, cash earnings per diluted share will be approximately $0.61 to $0.64 and diluted earnings per share will be approximately $0.50 to $0.53. For fiscal 2001, Watson estimates that total net revenues will be approximately $1.25 to $1.275 billion. Exclusive of non-recurring items, Watson estimates that for fiscal 2001, cash earnings per diluted share will be approximately $2.68 to $2.70 and diluted earnings per share will be approximately $2.23 to $2.25. We are pleased by our strong first quarter results and remain confident in the continued execution of our growth strategies. Our Watson teams have excelled at expanding our diversified branded franchise, while at the same time, strengthening our generic platform. This well-balanced sales and marketing approach, combined with support from our quality and operations teams, allows Watson to create a balanced foundation for future growth and performance. 64. The statements made by defendants and contained in the Company's May 7, 2001 release were each materially false and misleading for the following reasons: 1. Watson was materially overstating its financial results by failing to write down the value of its inventories and the value of certain of the Company's assets; 2. Watson was experiencing significantly increased competition for generic drugs and was also experiencing manufacturing difficulties; and 3. based on the foregoing, defendants' positive statements about the Company were lacking in a reasonable basis at all times and were therefore materially false and misleading. 65. During this time, defendants collected tens of millions of dollars in unearned compensation stock 66. On August 14, 2001, Watson issued a release announcing results for the second quarter and first half of 2001, the period ended June 30, 2001 which stated in relevant part: For the second quarter, net revenues increased to $ 299 million, up 49% compared to $ 200 million reported in the second quarter of 2000. This revenue growth was attributable to increased generic product sales during the quarter as a result of the launch of buspirone and sales of generic products relating to the Schein acquisition. Watson launched buspirone, the generic equivalent to Bristol-Myers Squibb's anti-anxiety drug BuSpar(R), in April 2001 and has exclusivity on sales of the 5mg and 10mg dosage strengths through the end of the third quarter of 2001. file://Y:\WYCA Website\www.wyca.com\complnts\wpi-com.htm Weiss & Yourman - Watson Pharmaceuticals Complaint Excluding the non-operating gain from sales of securities, net income for the second quarter of 2001 was $ 56 million compared to $ 46 million in the prior year's second quarter. Excluding this gain, diluted cash earnings per share increased 37% to $ 0.63 in the second quarter of 2001 compared to $ 0.46 in the second quarter of 2000; and diluted earnings per share increased 16% to $ 0.52 in the second quarter of 2001, compared to $ 0.45 in the prior year period. Inclusive of the gain from sales of securities, Watson recorded net income for the three months ended June 30, 2001 of $ 66.2 million, or $ 0.61 per diluted share, compared to net income of $ 96.8 million, or $ 0.96 per diluted share, for the second quarter of 2000. We are pleased with the quarter's financial results. Our branded Research & Development pipeline is making significant progress, as evidenced by today's announcement on Phase III study results on Oxytrol(R), our oxybutynin transdermal patch. We are looking forward to the approval and launch of this product in mid-2002. 68. Unbeknownst to investors, the statements made by defendants and contained in the Company's August 14, 2001 release were each materially false and misleading for the following reasons: 1. Watson was materially overstating its financial results by failing to write down the value of its inventories and the value of certain of the Company's assets; 2. Watson was experiencing significantly increased competition for generic drugs and was also experiencing manufacturing difficulties; and 3. based on the foregoing, defendants' positive statements about the Company were lacking in a reasonable basis at all times and were therefore materially false and misleading. REVELATION OF THE TRUTH
69. On November 13, 2001, defendants shocked the market by announcing results for third quarter 2001 which were well below expectations and which missed guidance previously sponsored and/or endorsed by defendants demonstrating that the Company's inventory problems had not been resolved in prior quarters and that the forecasts repeatedly sponsored and/or endorsed by defendants lacked a reasonable basis at all relevant times. The Company's release stated in relevant part: Inclusive of the non-recurring items, Watson recorded a net loss for the three months ended September 30, 2001 of $58.6 million, or $0.55 loss per share, compared to a net loss of $67.5 million, or $0.66 loss per share, for the third quarter of 2000. Watson recorded a number of non-recurring charges in the third quarter of 2001. The company recorded asset impairment charges and inventory write-offs of approximately $219.3 million in the third quarter 2001 ($137.1 million net of tax, or $1.29 per share), including $147.6 million for asset impairment related to Dilacor XR(R) product rights, $50.7 million associated with the planned disposition of its Steris manufacturing facility, and $21.0 million related to product inventory dating and obsolescence issues, primarily in the General Products Division. In addition, the company recorded non-operating gains of approximately $65.0 million ($40.6 million file://Y:\WYCA Website\www.wyca.com\complnts\wpi-com.htm Weiss & Yourman - Watson Pharmaceuticals Complaint net of tax, or $0.38 per share), including a $60.5 million gain related to the settlement of litigation with Aventis Pharma AG and a $4.5 million gain from sales of securities. 70. Commenting on these results, defendant Chao stated: In conjunction with these results today we are announcing new initiatives designed to improve our long-term profitability by emphasizing our higher margin branded business. Today, we unveiled the most significant investment program in Watson's history, designed to maximize the potential of our product portfolio and generate enhanced long-term shareholder value. While the program will result in some dilution of our 2002 earnings, we believe the result will be solid earnings growth beginning in 2003 and will be carried forward into the future. We believe our increased emphasis on our branded business will lead, over the long term, to more consistent earnings growth. Specifically, the program calls for an investment of approximately $135 million in sales and marketing initiatives and research and development for 2002 71. Defendants used this release to announce that they were abandoning the Company's prior business plan, and that a new, radically altered business plan and organization was suddenly being substituted. Defendants now provided a dire outlook -- very different from that previously offered: Outlook for Fourth Quarter 2001 and Fiscal 2002: In a separate press release today, Watson announced several initiatives designed to maximize its brand business opportunities. Through these initiatives, Watson plans to invest approximately $135 million in sales and marketing and branded research and development programs through the end of 2002. The investment program will begin in the fourth quarter 2001 and is designed to enhance the Company's profitability beginning in 2003 and beyond. Watson estimates that total net revenues for the fourth quarter ending December 31, 2001 will be approximately $260 to $275 million and cash earnings per diluted share are expected to be approximately $0.46 to $0.49 and earnings per diluted share will be approximately $0.35 to $0.38. For fiscal 2002, Watson estimates that total net revenues will be approximately $1.25 - $1.275 billion. Watson currently estimates that for fiscal 2002, cash earnings per diluted share will be approximately $1.80 to $1.85 and earnings per diluted share will be approximately $1.55 to $1.60, adjusting for the change in accounting for goodwill amortization effective 2002. 72. Following the publication of the Company's release, and the announcement that the Company was writing off almost all of its investment in Dilacor XR and that the Company was writing off over $20 million in additional impaired inventory, shares of Watson plummeted, trading down almost $20 per share, to close trading at $28.54 per share, compared to the prior day's close of $47.15 per share, on tremendous volume of over 15.3 million shares traded -- almost 20 times the average trading volume for Watson shares. PLAINTIFF'S CLASS ACTION ALLEGATIONS
file://Y:\WYCA Website\www.wyca.com\complnts\wpi-com.htm Weiss & Yourman - Watson Pharmaceuticals Complaint 73. Plaintiff brings this action as a class action pursuant to Rule 23(a) and (b)(3) of the Federal Rules of Civil Procedure on behalf of a Class consisting of all persons and entities who purchased or otherwise acquired Watson common stock from November 2, 1999 through November 13, 2001, inclusive, and who were damaged thereby. Excluded from the Class are defendants, officers and directors of the Company, members of their immediate families, and their legal representatives, heirs, successors or assigns and any entity in which defendants have or had a controlling interest.
74. During the Class Period, thousands of shares of common stock of Watson were traded on an efficient and developed securities market. Thousands of brokers nationwide have access to trading information about Watson. 75. The members of the Class are so numerous that joinder of all members is impracticable. While the exact number of Class members is unknown to plaintiff at this time and can only be ascertained through appropriate discovery, plaintiff believes that there are hundreds of members of the Class. Watson has hundreds of thousands of shares of common stock outstanding and actively traded on the NYSE, an efficient market, under the ticker symbol "WPI". 76. Plaintiff's claims are typical of the claims of the members of the Class as all members of the Class are similarly affected by defendants' wrongful conduct in violation of federal law that is complained of herein. 77. Plaintiff will fairly and adequately protect the interests of the members of the Class and has retained counsel competent and experienced in class and securities litigation. Plaintiff has no interests that are adverse or antagonistic to those of the Class. 78. A class action is superior to other available methods for the fair and efficient adjudication of this controversy. Because the damages suffered by many individual Class members may be relatively small, the expense and burden of individual litigation make it virtually impossible for the Class members to individually seek redress for the wrongful conduct alleged herein. 79. Common questions of law and fact exist as to all members of the Class and predominate over any questions affecting solely individual members of the Class. Among the questions of law and fact common to the Class are: 1. Whether the federal securities laws were violated by defendants' acts as alleged 2. Whether defendants participated in and pursued the common course of conduct 3. Whether documents, press releases and other statements disseminated to the investing public and the Company's shareholders during the Class Period misrepresented the business condition of Watson; 4. Whether defendants failed to correct prior statements when subsequent events rendered those prior statements untrue or inaccurate; 5. Whether defendants acted willfully or recklessly in misrepresenting and/or omitting 6. Whether the market price of Watson's common stock during the Class Period was file://Y:\WYCA Website\www.wyca.com\complnts\wpi-com.htm Weiss & Yourman - Watson Pharmaceuticals Complaint artificially inflated due to the misrepresentations and/or non-disclosures complained of herein; and 7. Whether the members of the Class have sustained damages, and, if so, what is the 80. Plaintiff will rely, in part, upon the presumption of reliance established by the fraud-on-the-market 1. Defendants made public misrepresentations or omitted material facts during the Class 2. The misrepresentations and/or omissions were material; 3. Watson's common stock was traded in an efficient market; 4. The misrepresentations and/or omissions alleged tended to induce reasonable investors to misjudge the value of Watson shares; and 5. Plaintiff and members of the Class acquired their shares between the time defendants made the misrepresentations and/or omissions and the time the truth was revealed, without knowledge of the falsity of the misrepresentations. (Violations of Section 10(b) of the Exchange Act
and Rule 10-5 Promulgated Thereunder Against all Defendants)
81. Plaintiff repeats and realleges the allegations above as though fully set forth herein. 82. During the Class Period, the defendants, and each of them, carried out a plan, scheme and course of conduct which was intended to and, throughout the Class Period, did: (i) deceive the investing public, including plaintiff and the other class members, as alleged herein; (ii) artificially inflate and maintain the market price of Watson; and (iii) cause plaintiff and other members of the Class to purchase Watson securities at inflated prices. In furtherance of this unlawful scheme, plan and course of conduct, defendants, and each of them, took the actions set forth herein. 83. Defendants (a) employed devices, schemes, and artifices to defraud; (b) made untrue statements of material fact and/or omitted to state material facts necessary to make the statements not misleading; and (c) engaged in acts, practices, and a course of business which operated as a fraud and deceit upon the purchasers of the Company's stock in an effort to maintain artificially high market prices for Watson securities in violation of section 10(b) of the Exchange Act and Rule 10b-5. 84. The statements made by defendants during the Class Period were materially false and misleading because at the time they were made, the Company and persons acting as corporate officers knew or recklessly ignored, but failed to disclose the matters set forth herein. 85. In ignorance of the artificially high market prices of Watson's publicly traded securities, and relying directly on defendants or indirectly on the false and misleading statements made by defendants, upon the integrity of the market in which the securities trade, on the integrity of the file://Y:\WYCA Website\www.wyca.com\complnts\wpi-com.htm Weiss & Yourman - Watson Pharmaceuticals Complaint regulatory process and the truth of representations made to appropriate agencies throughout the Class Period and/or on the absence of material adverse information that was known to defendants but not disclosed in public statements by defendants during the Class Period, plaintiff and the other members of the Class acquired Watson securities during the Class Period at artificially high prices and were damaged thereby. 86. Had plaintiff and the other members of the Class and the marketplace known of the true financial condition, business prospects and character of leadership of Watson which were not disclosed by defendants, plaintiff and other members of the Class would not have purchased or otherwise acquired their Watson securities during the Class Period, or would have not done so at the artificially inflated prices which they paid. Hence, plaintiff and the Class were damaged by defendants' violations of Section 10(b) and Rule 10b-5. (Violation of Section 20(a) of the Exchange Act
Against the Individual Defendants)
87. Plaintiff incorporates by reference the above paragraphs above as if set forth fully herein. This Count is asserted against the Individual Defendants. 88. The Individual Defendants acted as controlling persons of Watson within the meaning of Section 20 of the Exchange Act as alleged herein. By reasons of their executive, managerial positions with Watson, defendants Chao, Papa, Wilkinson and Boxer had the power and authority to cause the Company to engage in the wrongful conduct complained of herein. 89. By reasons of the aforementioned wrongful conduct, defendants Chao, Papa, Wilkinson and Boxer are liable pursuant to Section 20(a) of the Exchange Act. As a direct and proximate result of their wrongful conduct, plaintiff and the other members of the Class suffered damages in connection with purchasing the Company's securities during the Class Period. WHEREFORE, plaintiff prays for relief and judgment, as follows:
1. Determining that this action is a proper class action, certifying plaintiff as class representative under Rule 23 of the Federal Rules of Civil Procedure and her counsel as class counsel; 2. Awarding compensatory damages in favor of plaintiff and the other class members against all defendants, jointly and severally, for all damages sustained as a result of defendants' wrongdoing, in an amount to be proven at trial, including interest thereon; 3. Awarding plaintiff and the Class their reasonable costs and expenses incurred in this action, including counsel fees and expert fees; and 4. Such other and further relief as the Court may deem just and proper. JURY DEMAND
Plaintiff hereby demands a trial by jury. file://Y:\WYCA Website\www.wyca.com\complnts\wpi-com.htm Weiss & Yourman - Watson Pharmaceuticals Complaint Michael D. Braun STULL, STULL & BRODY By: __________________________ Michael D. Braun 10940 Wilshire Boulevard Suite 2300 Los Angeles, CA 90024 Tel: (310) 209-2468 Fax: (310) 209-2087 Jules Brody Aaron Brody STULL, STULL & BRODY 6 East 45th Street New York, NY 10017 Tel: (212) 687-7230 Fax: (212) 490-2022 Kevin J. Yourman WEISS & YOURMAN 10940 Wilshire Boulevard 24th Floor Los Angeles, CA 90024 Tel: (310) 208-2800 Fax: (310) 209-2348 Please click here to return to previous page. This is an electronic approximation of the actual document. We apologize for any
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