In re Theragenics Corp. Securities Litigation

205 F.R.D. 687, 2002 U.S. Dist. LEXIS 5718, 2002 WL 463260
District Court, N.D. Georgia·Decided March 26, 2002·No. Civil Action No. 1:99-CV-141-TWT·Published·Cited by 20 cases

Opinion

ORDER

THRASH, District Judge.

This is a complex private securities fraud class action brought on behalf of shareholder’s of Theragenics Corporation. It is before the Court on Plaintiffs’ Motion for Class Certification [Doc. 41], For the reasons set forth below the Court grants Plaintiffs’ Motion.

I. BACKGROUND

Plaintiffs are members of a potential class of purchasers of Theragenics Corporation common stock during the period January 29, 1998, to January 11,1999. Defendant Thera-genics Corporation is a Delaware corporation with its principal place of business in Nor-cross, Georgia. It is engaged in the business of producing and selling radioactive seed implants to treat cancer. Defendant Christine Jacobs is President, Chief Executive Officer and Chairperson of Theragenics. Defendant Bruce Smith serves as Chief Financial Officer, Treasurer and Secretary of the company. Both individuals held their respective positions at all times material to the claims Plaintiffs set forth in their Second Amended Complaint.

[691] Theragenics manufactures Palladium-103, also known as TheraSeed®. A competitor, Nycomed Amersham PLC (formerly Amers-ham International PLC) [hereinafter “Am-ersham”], is the primary supplier of Iodine-125, a similar product used to treat prostate cancer.1 For both products, medical professionals implant into the prostate between 40 and 100 rice-size radioactive .seeds that emit radiation to destroy prostate cancer tumors. Iodine-125 seed implants began to be used to treat prostate cancer in the 1970’s, but this treatment of prostate cancer was largely abandoned because of unsatisfactory results. By the late 1980’s, however, new technology led to a resurgence in Iodine-125 seed treatment for prostate cancer. Thereafter, Ther-agenics entered the field with its own Palladium-103 TheraSeed®, which it previously had developed to treat other types of tumors. Theragenics’ success in the field of prostate cancer treatment was tempered by the fact that TheraSeed®’s short half-life makes it less efficacious than Iodine-125 for treating slow-growing prostate cancer. For this reason, according to the Amended Complaint, Iodine-125 has remained the preferred radioactive seed to treat prostate cancer.

In May, 1997, in an attempt to bolster its earnings, Theragenics granted Indigo Medical, Inc., a subsidiary of Johnson & Johnson Development Corporation, the exclusive worldwide right to market and sell Thera-Seed®. This agreement with Indigo purportedly enabled Theragenics to focus on manufacturing instead of developing and maintaining its own sales force. By 1998, substantially all of Theragenics’ sales occurred through Indigo. In early 1998, competitor Amersham began to encounter severe manufacturing shortages of Iodine-125. The waiting period for doctors who requested Iodine-125 increased from one month near the end of 1997 to more than four months by January 1998. This backlog became so great that in March 1998 Amersham notified its customers that it could not accept any new orders for Iodine-125 until further notice. As a result of this Iodine-125 shortage, doctors substituted TheraSeed® in their implant procedures and Theragenics revenues consequently increased. Theragenics became concerned that this increased demand — when coupled with Indigo’s aggressive marketing efforts — could result in shortages of Thera-Seed®, thus placing the company in the same position as Amersham. For that reason, Theragenics asked Indigo to temporarily reduce its TheraSeed® marketing efforts.

During the period that TheraSeed® enjoyed strong sales (allegedly because of Am-ersham’s Iodine-125 shortage) Theragenics, in its public statements, said that doctors and patients increasingly considered TheraSeed® the prostate cancer treatment of choice, and that Indigo’s marketing efforts were contributing to the acceleration in sales. Theragen-ics did not include cautionary statements that the increased sales were the temporary result of Amersham’s Iodine-125 shortage, nor did it notify investors that it had asked Indigo to curb its sales efforts.

By August, 1998, Amersham had remedied the Iodine-125 shortage and doctors thereafter returned to Iodine-125 as their preferred radioactive seed for treating prostate cancer. As a result, Theragenics’ fourth quarter 1998 earnings were below its earnings in previous quarters. In announcing its disappointing fourth quarter results in January, 1999, Theragenics did not disclose to investors that its decreased earnings resulted in any way from the renewed availability of Amersham’s Iodine-125 seeds or that it had directed Indigo to curb sales efforts. Instead, Theragen-ics blamed the earnings decrease on Indigo’s inexperience in marketing the product. Theragenics’ share price dropped 33.8% in one day, from $15.3125 to $10.125.

Plaintiffs have filed this suit alleging that Defendants knew or recklessly disregarded knowledge that the increase in Theragenics revenues in the first three quarters of 1998 resulted directly from Iodine-125 shortages, and that revenues would decline once Iodine-125 became readily available again. Furthermore, Plaintiffs allege that Defendants falsely attributed the early 1998 increase in [692] revenues to both increased acceptance of TheraSeed® and Indigo’s marketing efforts, which Theragenics actually had curtailed. Specifically, Plaintiffs have identified ten statements2 that they contend were false or misleading:

(1) A January, 1998, statement that new cyclotrons would “supply anticipated increases in TheraSeed® demand generated by ... Indigo Medical” and that “[t]he acceptance of the Company’s non-invasive treatment for prostate cancer by the public and the medical community has been outstanding.” (Plaintiffs’ Second Amended Complaint, at K 34.) [Doc. 24]

(2) A February, 1998, statement that “[i]n urology and prostate cancer treatment, there has never been a presence with a marketing prowess like Johnson & Johnson.” (Plaintiffs’ Second Amended Complaint, at 1135.) [Doc. 24]

(3) A statement in Theragenics’ 1997 10-K that management “believefd]” that Thera-Seed® enjoyed a competitive advantage over Iodine-125 seeds. (Plaintiffs’ Second Amended Complaint, at 1136.) [Doc. 24]

(4) An April, 1998, Company press release announcing record first quarter revenues and earnings and stating: “[acceptance of Thera-Seed® as a treatment of choice for prostate cancer by both doctors and patients continues to escalate.” (Plaintiffs’ Second Amended Complaint, at H 37.) [Doc. 24]

(5) A statement in Theragenics’ 10-Q for the first quarter of 1998 that: “Marketing-efforts along with increased awareness of prostate cancer treatment options have contributed to the continued sales acceleration.” (Plaintiffs’ Second Amended Complaint, at 1138. ) [Doc.24]

(6) A June, 1998, Company press release that stated: “Receiving our CE Mark and shipping our first order to Europe is another step forward in the evolution of Theragenics. This is just one example of why the Company’s agreement with Indigo is so powerful.” (Plaintiffs’ Second Amended Complaint, at 1139. ) [Doc.24]

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In re Theragenics Corp. Securities Litigation, 205 F.R.D. 687, 2002 U.S. Dist. LEXIS 5718, 2002 WL 463260 (N.D. Ga. 2002).

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