|
Page 799
182 F.3d 799 (11th Cir. 1999) 
Alan M. HARRIS, Yitzchok Wolpin,
Fausto Pombar, Plaintiffs-Appellants,
v.
IVAX CORPORATION, Phillip Frost, Michael W.
Fipps, Defendants-Appellees. No. 98-4818. United States Court of Appeals,
Eleventh Circuit. July 27, 1999.
Page 800
[Copyrighted Material Omitted]
Page 801
Appeal from the United States
District Court for the Southern District of
Florida. (No. 97-559-CIV-FAM), Federico A.
Moreno, Judge.
Before COX and HULL, Circuit
Judges, and COHILL*,
Senior District Judge.
COX, Circuit Judge:
This appeal invites application
of the safe harbor for forward-looking
statements added to the Securities Exchange
Act of 19341
by the Private Securities Litigation Reform
Act of 1995, Pub.L. 104-67, 109 Stat. 737
(1995) (PSLRA). We affirm the
Page 802
district court's dismissal of the
complaint under Fed.R.Civ.P. 12(b)(6).
I. BACKGROUND
According to the complaint-our
only source of the facts-the defendant Ivax
Corporation is a manufacturer of generic
drugs, a highly volatile business. Ivax was
profitable in 1995, but lost money in the
second quarter of 1996. On August 2, 1996
Ivax issued a press release that, while
acknowledging business problems, also showed
some optimism.2
Ivax stock rose. On September 30, the last
day of the quarter, Ivax announced in
another press release that it anticipated a
$43 million loss.3
On November 11, Ivax announced a $179
million loss for the third quarter, $104
million of which was a reduction in the
carrying value of the goodwill ascribed to
certain of Ivax's businesses. Neither of the
earlier press releases had mentioned the
possibility of this goodwill writedown based
on third-quarter results. The price of Ivax
stock plummeted.
Investors hoping to represent a
class of purchasers of Ivax Corporation
stock between August 2, 1996 and November
11, 1996 sued Ivax, its chairman and chief
executive officer, and its chief financial
officer. They claimed that the defendants
had committed fraud under the Securities
Exchange Act 10(b), 15 U.S.C. 78j, and
Securities and Exchange Commission Rule
10b-5, 17 C.F.R. 240.10b-5, as well as
common-law negligent misrepresentation.
There are two theories of liability: first,
that Ivax's economic projections were
fraudulent, and second, that Ivax's
disclosure of factors affecting its
projections misled by omitting the
possibility of a goodwill writedown. The
defendants moved to dismiss based on the
safe-harbor provision4
and heightened pleading requirements5
added to the Securities and Exchange Act of
1934 by the PSLRA.
In a thoughtful opinion, the
district court dismissed the complaint under
Fed.R.Civ.P. 12(b)(6).
Harris v. IVAX Corp.,
998 F.Supp. 1449
(S.D.Fla.1998).6
The plaintiffs appeal and challenge the
district court's dismissal on several
grounds. We review the dismissal of a
complaint under Fed.R.Civ.P. 12(b)(6) de
novo.
Davis v. Monroe County Bd. of Educ., 120
F.3d 1390, 1393 (11th Cir.1997) (en
banc). In addition, the plaintiffs argue
that the district court should have granted
them leave to amend the complaint. We review
the district court's refusal to do so for
abuse of discretion, although we review de
novo the underlying legal conclusion of
whether a particular amendment to the
complaint would be futile. See Motorcity of
Jacksonville, Ltd. v. Southeast Bank
Page 803
N.A., 83 F.3d 1317, 1323 (11th Cir.1996)
(en banc), summarily vacated and remanded on
other grounds sub nom.
Hess v. FDIC, 519 U.S. 1087, 117 S.Ct. 760,
136 L.Ed.2d 708, reinstated, 120 F.3d
1140, 1145 (11th Cir.1997).
II. DISCUSSION
A. Overview
The PSLRA made two
changes to the Securities Exchange Act of
1934 that potentially affect the complaint
here. First, the Act provides a safe harbor
from liability for certain "forward-looking
statements." See PSLRA 102(b), 109 Stat. at
754, codified at 15 U.S.C. 78u-5(c)(1). In
that safe harbor, corporations and
individual defendants may avoid liability
for forward-looking statements that prove
false if the statement is "accompanied by
meaningful cautionary statements identifying
important factors that could cause actual
results to differ materially from those in
the forward-looking statement." Id.,
codified at 15 U.S.C. 78u-5(c)(1)(A)(i).
Even if the forward-looking statement has no
accompanying cautionary language, the
plaintiff must prove that the defendant made
the statement with "actual knowledge" that
it was "false or misleading." Id., codified
at 15 U.S.C. 78u-5(c)(1)(B). Second, the Act
has introduced a heightened pleading
requirement. Now a complaint seeking
recovery for securities fraud must allege
specific facts that raise a "strong
inference" of "the required state of mind"
on the part of officers responsible for an
allegedly fraudulent statement. Id. 101(b),
codified at 15 U.S.C. 78u-4(b)(2).
The district court concluded that
all of the statements alleged in the
complaint to be fraudulent were
forward-looking, and that the statements'
"cautionary language" was "meaningful."
Harris v. IVAX Corp., 998 F.Supp. 1449,
1453-54 (S.D.Fla.1998). The court thus
concluded that Ivax's statements were
anchored within the statutory safe harbor,
and that the cautionary language shielded
Ivax from liability. The court went further
to conclude in the alternative that the
complaint stumbled on the new pleading
standards by failing to allege adequate
facts to support a "strong inference," as
the statute requires, that the defendants
made the forward-looking statements with
actual knowledge of their falsity. See id.
at 1454-55.
The plaintiffs make two central
legal arguments against the district court's
holdings. First, they argue that the
statements they allege to be fraudulent were
either not forward-looking or were
unaccompanied by sufficient cautionary
language. For this reason, they contend that
the district court should not have dismissed
the current complaint. Second, they argue
that the current amended complaint
sufficiently alleges scienter, which they
believe to be reckless indifference to the
falsity of the statements, not actual
knowledge. Even if the current complaint
does not adequately allege scienter, the
plaintiffs argue in the alternative that the
district court should have permitted them to
amend their complaint, since their proposed
second amended complaint adequately pleads
scienter.
For the more detailed reasons
that follow, we reject the plaintiffs'
arguments. All of the statements that the
plaintiffs claim to be false or misleading
are forward-looking. They were accompanied,
moreover, by "meaningful cautionary
language." Because we reach this conclusion,
we need not in this case enter the thicket
of the PSLRA's new pleading requirements for
scienter; if a statement is accompanied by
"meaningful cautionary language," the
defendants' state of mind is irrelevant. See
H.R. Conf. Rep. 104-369, at 44 (1995),
reprinted in 1995 U.S.C.C.A.N. 730, 743
("The first prong of the safe harbor
requires courts to examine only the
cautionary statement accompanying the
forward-looking statement. Courts should not
examine the state of mind of the person
making the statement.").
Page 804
We do not address, therefore, the
question of what exactly a "strong
inference" of the appropriate scienter is,
an issue that has vexed the courts since the
PSLRA's enactment. See, e.g.,
In re Silicon Graphics Secs. Litig., No.
97-16204, --- F.3d ---- (9th Cir. July
2, 1999);
In re Advanta Secs. Litig., No. 98-1846, ---
F.3d ---- (3d Cir. June 17, 1999);
In re Physicians Corp. Securities Litig.,
--- F.Supp.2d ---- (S.D.Fla. Feb. 18,
1999);
In re Aetna Inc. Securities Litig., 34
F.Supp.2d 935, 951 (E.D.Pa.1999).
B. Were the August 2 and
September 30 Statements in the Safe Harbor
for Forward-Looking Statements?
Settling on a level of
specificity for the forward-looking analysis
is the first problem here. In the argument
section of their brief, the plaintiffs have
specifically mentioned only one of the
fraudulent statements alleged in the
complaint. From that, we gather that they
urge us to treat the August 2 and September
30 press releases with a broad brush, in
effect concluding that the releases as a
whole were either forward-looking or not.
Such an approach would not, however, comport
with the Act's demand of articulate
pleading: The PSLRA closes the universe of
supposedly false statements under scrutiny
to those "specif[ied]" in the complaint.
PSLRA 101(b), codified at 15 U.S.C.
78u-4(b)(1). While the legislative history
does not explain this particular pleading
requirement, it implies piecemeal
examination of the statements found in a
company communication.
The complaint quotes,
with added emphasis apparently meant to
indicate the misleading statements, seven
passages from these two press releases. Two
of those passages are, however, outside the
sphere of the plaintiffs' allegations of
falsehood. First, there is a statement in
the August 2, 1996 press release that "we
have taken a hard look at our generic drug
business," and that "[w]e have instituted
actions to enhance the profitability of our
U.S. generics business." (R.2-36 37.) (The
press release goes on to describe
restructuring meant to increase efficiency.)
Second, there is a statement in the
September 30, 1996 press release that "we
have scrutinized our generic drug business"
and that "we created a task force ... to
rapidly identify and implement strategies to
reduce costs and improve efficiencies in our
U.S. generic drug business." (Id. 49.) As
far as we can tell from the complaint, the
plaintiffs believe it to be true that Ivax
management reevaluated its generic drug
business, and the plaintiffs do not allege
that Ivax failed in fact to plan to
restructure the business to improve
efficiency. The plaintiffs' core theories
appear rather to be two: first, that Ivax's
hopeful outlooks concealed an intent to
write down goodwill by $104 million in the
third quarter of 1996, and second, that a
limited list of clouds on the horizon
deliberately omitted the risk of a goodwill
writedown. In judging whether the statements
on which alleged liability rests are
forward-looking, our focus is accordingly on
the remaining five excerpts from the press
releases, discussed below, that contain
those outlooks and that list.
1. Improving reorders.
The August 2, 1996 press release
contained the following sentence: "Reorders
are expected to improve as customer
inventories are depleted." (R.2-36 35.) This
statement falls squarely in the middle of
one of the categories of "forward-looking
statements," as Congress has defined them:
it is "a statement of the assumptions
underlying" "a statement of future economic
performance." 15 U.S.C. 78u-5(i )(1)(D),
(C).7
The text that follows in
Page 805
the press release (which we discuss
below) is a general outlook for the third
quarter. The arrangement of the text makes
clear that an expected increase in reorders
was one of the bases of the optimism. This
was therefore a forward-looking statement
within the statutory safe harbor.
2. The "unique challenges."
The August 2, 1996 press
release also announced optimistically that
"the challenges unique to this period in our
history are now behind us." (R.2-36 36.)
Taken in context, this statement is
forward-looking. The two paragraphs of the
press release preceding this statement
describe two problems that contributed to a
loss in the second quarter: excessive
customer inventories, which reduced new
orders, and a technical default in a
revolving credit facility. Both problems,
the statement said, were being resolved;
inventories were becoming depleted, and the
bank syndicate was expected to waive the
default. Thus, the chairman and CEO
announced that things were looking up.
"Forward-looking
statement[s]" include "statements of future
economic performance." 15 U.S.C. 78u-5(i
)(1)(C). The chairman and CEO's hopeful
conclusion that conditions are better
because of two anticipated improvements in
business conditions is a prediction of
economic performance, however couched. The
plaintiffs' purely grammatical argument to
the contrary-that a present-tense statement
cannot predict the future-is unpersuasive; a
statement about the state of a company whose
truth or falsity is discernible only after
it is made necessarily refers only to future
performance. Whether the worst of Ivax's
challenges were behind it was a matter
verifiable only after the chairman so
declared. This statement was thus
forward-looking and in the safe harbor.
3. Intact strategies.
The August 2, 1996 press
release continued with another hopeful
outlook from Ivax's chairman and CEO,
Phillip Frost, that "[o]ur fundamental
business and its underlying strategies
remain intact.... Only a limited number of
companies are positioned to meaningfully
participate in this rapidly growing market
and, among them, IVAX is certainly very well
positioned." (R.2-36 38.) Like the previous
statement, this one is a prediction "of
future economic performance." 15 U.S.C.
78u-5(i )(1)(C). While it is true that the
state of Ivax's "fundamental business" and
"underlying strategies" is a question of
present condition, whether they are intact
is a fact only verifiable by seeing how they
hold up in the future. Likewise, whether
Ivax is "well positioned" is a statement
whose truth can only be known after seeing
how Ivax's future plays out. That puts this
statement in the safe harbor, as well.
4. The laundry list.
The September 30, 1996 press
release, which predicted third quarter
results, contained a list of factors
"relating to [Ivax's] generic drug business
[that] will influence [Ivax's] third quarter
results." (R.2-36 47.) Those five factors
included high customer inventory levels and
low
Page 806
orders; declining prices; "shelf stock
adjustments" for existing customers8;
higher reserves for returns; and the
bankruptcy of a major customer who owed Ivax
$16 million. The list is a mixed bag, with
some sentences that are forward-looking and
some that are not. The statement's choice of
language suggests that three of the factors
had already been observed: "customer
re-orders remain depressed"; "prices have
continued to decline"; and "a wholesaler
customer who owed us approximately $16
million filed a Chapter 11 bankruptcy
petition." (Id.) Observed facts of this kind
are not "assumptions,"9
and they are not any kind of prediction,
either, that would put them within the
definition of a forwardlooking statement.
These sentences are not, therefore,
forward-looking. Two other factors, however,
are worded as assumptions about future
events: "we expect reserves for returns and
inventory writeoffs to be well above typical
quarters" and "lower prices ... will
increase shelf stock adjustments." (Id.) As
"assumptions underlying" the predictions
elsewhere in the press release, these
sentences are forward-looking. 15 U.S.C.
78u-5(i )(1)(D).
The mixed nature of this
statement raises the question whether the
safe harbor benefits the entire statement or
only parts of it. Of course, if any of the
individual sentences describing known facts
(such as the customer's bankruptcy) were
allegedly false, we could easily conclude
that that smaller, non-forward-looking
statement falls outside the safe harbor. But
the allegation here is that the list as a
whole misleads anyone reading it for an
explanation of Ivax's projections, because
the list omits the expectation of a goodwill
writedown. If the allegation is that the
whole list is misleading, then it makes no
sense to slice the list into separate
sentences. Rather, the list becomes a
"statement" in the statutory sense, and a
basis of liability, as a unit. It must
therefore be either forward-looking or not
forward-looking in its entirety. The next
issue is what the character of the list is
as a whole-forward-looking or not.
We conclude that the entire list
is due forward-looking treatment. To begin
with, there is no question under the statute
that a material and misleading omission can
fall within the forward-looking safe harbor.
See 15 U.S.C. 78u-5(c)(1) ("[I]n any private
action arising under this chapter that is
based on an untrue statement of material
fact or omission of a material fact
necessary to make the statement not
misleading, a person referred to in
subsection (a) of this section shall not be
liable ....") (emphasis added). And while
the statute does not tell us exactly what to
do with a mixed statement, extrinsic sources
of congressional intent point strongly
toward treating the entire list as
forward-looking. Congress enacted the
safe-harbor provision in order to loosen the
"muzzling effect" of potential liability for
forward-looking statements, which often kept
investors in the dark about what management
foresaw for the company. See H.R. Conf. Rep.
104-369, at 42 (1995), reprinted in 1995
U.S.C.C.A.N. 730, 741. Forward-looking
conclusions often rest both on historical
observations and assumptions about future
events. Thus, were we to banish from the
safe harbor lists that contain both factual
and forward-looking factors, we would
inhibit corporate officers from fully
explaining their outlooks. Indeed,
liability-conscious officers would be
relegated to citing only the factors that
could individually be called
forward-looking. That would hamper
Page 807
the communication that Congress sought to
foster.
Treating mixed lists as
forward-looking may open a loophole for
misleading omissions, but there are two
circumstances that should put investors on
guard, anyway. First, a list or explanation
will only qualify for this treatment if it
contains assumptions underlying a
forward-looking statement. Investors should
know, under the current statutory scheme,
that relying on assumptions is dangerous;
there will often be no legal recourse even
if the assumption is false. Second, a
defendant can fully benefit from the safe
harbor's shelter only when it has disclosed
risk factors in a warning accompanying the
forward-looking statement. This disclosure
as well should warn investors against blind
reliance on mixed lists.
For these reasons, we
hold that when the factors underlying a
projection or economic forecast include both
assumptions and statements of known fact,
and a plaintiff alleges that a material
factor is missing, the entire list of
factors is treated as a forward-looking
statement. This list is therefore in the
safe harbor.
C. Cautionary Language
The district court was
correct that adequate cautionary language
accompanies the forward-looking statements
here. The italicized warning that Ivax
appended to both press releases is detailed
and informative; it tells the reader in
detail what kind of misfortunes could befall
the company and what the effect could be.
See Appendix I; Appendix II. We can reject
out of hand, therefore, the plaintiffs'
arguments that the cautionary statements are
"mere boilerplate." That leaves, however,
another question: the plaintiffs here allege
fraud by material omission. Neither of the
statements mentions the possibility of a
large goodwill writedown. To be
"meaningful," 15 U.S.C. 78u-5(c)(1)(A)(i),
must the cautionary language explicitly
mention the factor that ultimately belies a
forward-looking statement?
We think not. The
statute requires the warning only to mention
"important factors that could cause actual
results to differ materially from those in
the forward-looking statement." 15 U.S.C.
78u-5(c)(1)(A)(i). It does not require a
listing of all factors. The conference
report, moreover, that accompanied the PSLRA
specified that "[f]ailure to include the
particular factor that ultimately causes the
forward-looking statement not to come true
will not mean that the statement is not
protected by the safe harbor." H.R. Conf.
Rep. 104-369, at 44 (1995), reprinted at
1995 U.S.C.C.A.N. 730, 743. In short, when
an investor has been warned of risks of a
significance similar to that actually
realized, she is sufficiently on notice of
the danger of the investment to make an
intelligent decision about it according to
her own preferences for risk and reward.
This statement satisfies Ivax's burden to
warn under the statute, and it excuses Ivax
from liability.
D. Should the Plaintiffs Have
Been Given Leave to Amend Their Complaint?
The plaintiffs, stung by the
district court's conclusion that they did
not plead scienter with the precision the
statute demands, requested leave to amend
their complaint, which the court denied.
While the plaintiffs argue that the proposed
amended complaint properly alleges scienter,
they do not contend that it blows Ivax out
of the safe harbor. Nor could they, since
the only significant additions are
references to public filings that
purportedly show that the defendants knew in
September 1996 that a goodwill writedown
would be needed.10
We therefore agree
Page 808
with the district court that the
amendment would be futile and affirm the
denial of leave to amend.
III. CONCLUSION
For the foregoing
reasons, we affirm the district court's
dismissal of the complaint.
AFFIRMED.
APPENDIX I (AUGUST 2,
1996 PRESS RELEASE)
FOR IMMEDIATE RELEASE
IVAX ANNOUNCES 1996
SECOND QUARTER RESULTS
Miami, Florida-August 2,
1996-IVAX Corporation (AMEX:IVX) today
announced a net loss for the 1996 second
quarter of $16.0 million, or $.13 per common
share, compared to a net income of $28.1
million, or $.24 per common share, for the
second quarter of 1995. IVAX' results for
the three months ended June 30, 1996 are
significantly below the $.04 to $.06 cents
per share ($.06 to $.08 per share before
extraordinary items) forecast by IVAX in a
June 27, 1996 news release, primarily due to
higher than anticipated levels of customer
inventory credits and the establishment of
additional reserves for customer inventory
returns. Included in IVAX' earnings for the
second quarter and first half of 1996 is a
one-time tax benefit of $.06 per share, and
an extraordinary charge of $.02 per share.
Net revenues for the 1996
second quarter were $273.9 million, compared
to $306.7 million for the 1995 second
quarter. Gross profit for the second quarter
of 1996 was $82.8 million, compared to
$129.8 million for the second quarter of
1995. Loss before income taxes, minority
interest and extraordinary items in the 1996
second quarter was $31.7 million, compared
to income before income taxes, minority
interest and extraordinary items of $37.8
million for the 1995 second quarter.
Primary net earnings per
share for the first half of 1996 were $.16,
compared to $.44 for the first half of 1995.
Fully diluted net earnings per share for the
first six months of 1996 were $.16, compared
to $.43 for the first six months of 1995.
Net income for the first six months of 1996
was $19.9 million, compared to $51.5 million
for the same period in 1995.
Net revenues for the
first half of 1996 were $607.9 million,
compared to $587.8 million reported for the
first half of 1995. Gross profit for the
first six months was $227.3 million,
compared to $249.6 million for the same
period in 1995. Income before taxes,
minority interest and extraordinary items
was $12.5 million in the first half of 1996,
compared to $70.3 million for the same
period in 1995.
IVAX' consolidated 1996
second quarter tax benefit reflects the
recognition of a deferred tax asset of $7.1
million by McGraw following an adjustment
resulting from an Internal Revenue Service
examination.
IVAX' second quarter
results include an extraordinary charge of
$2.1 million (net of tax) relating to the
redemption of McGraw's 10-3/8% Senior Notes,
which increased the second quarter net loss
per share by $.02.
In its June news release, IVAX
stated that significant customer inventories
of important U.S. generic drugs, price
declines for certain generic drugs, and
related credits provided to customers would
adversely affect its second quarter
financial results. Since its June forecast,
IVAX identified significantly higher than
estimated inventory levels for certain
customers, largely relating to the
introduction of an unusually large number of
U.S. generic drugs in 1995 and 1996.
Accordingly, inventory
Page 809
credits and reserves for returns were
higher than originally estimated. In total,
inventory credits, return reserves, and
other allowances relating to the U.S.
generic drug business were approximately
$43.6 million higher than the average levels
IVAX has experienced in recent prior
quarters.
During the 1996 second
quarter, price declines in the U.S. generic
drug business reduced margins, and
significant customer inventories resulted in
lower reorders from certain key accounts.
Although IVAX operates in a highly
competitive environment and price declines
were significant during the second quarter,
prices for IVAX' important generic products,
in general, have not materially declined
since IVAX' June 27 forecast. Reorders are
expected to improve as customer inventories
are depleted.
IVAX is a party to a
revolving credit facility with a syndicate
of banks. As a result of IVAX' second
quarter results, IVAX is presently out of
compliance with the facility's fixed charge
ratio covenant, which constitutes a
technical default under the facility.
Accordingly, the $281.8 million outstanding
under the facility as of June 30, 1996,
ordinarily classified as long term debt on
IVAX' balance sheet, has been classified as
short term debt. IVAX is seeking a waiver of
this default, and is hopeful that a waiver
will be granted shortly. IVAX believes that
it has a strong balance sheet, with a debt
to total capital ratio of less than 32% and,
if the waiver is granted and the amounts
outstanding under the facility are
reclassified as long term debt, a current
ratio of 3.7.
Phillip Frost, M.D.,
IVAX' Chairman and Chief Executive Officer,
said "Clearly, we have experienced a very
disappointing quarter. We believe, however,
that the challenges unique to this period in
our history are now behind us. The broader
challenges of the generic drug industry as a
whole, and its tremendous opportunities,
remain. We will meet these challenges with
strategies honed and improved as a result of
this most difficult quarter. More
significantly, we will continue to exploit
the industry's opportunities with a science
team that has led the industry in U.S.
generic drug approvals, and with a
distribution network that is among the most
extensive in the industry."
"In evaluating our
strategies, we have taken a hard look at our
U.S. generic drug business. We have
determined that, although we will not be
blind to opportunities outside our
organization to improve shareholder value,
we must focus our resources on improving
value from within. We have instituted
actions to enhance the profitability of our
U.S. generics business. We will also be
expanding our management team and
consolidating manufacturing facilities."
"In addition, we have
begun to moderate those selling initiatives
in our U.S. generics business which can
create high levels of inventory in the
distributions channels, and to develop a
base on long term customer contracts and
arrangements. We believe this will permit us
to distribute sales more evenly over the
quarter and, accordingly, reduce heavy
end-of-quarter selling."
Dr. Frost concluded "Our
fundamental business and its underlying
strategies remain intact: the U.S. market
for generic drugs doubled over the last
three years to more than $6 billion, and
industry experts generally expect it to
double yet again over the next three to five
years. Only a limited number of companies
are positioned to meaningfully participate
in this rapidly growing market and, among
them, IVAX is certainly very well
positioned."
IVAX Corporation, headquartered
in Miami, Florida, is a holding company with
subsidiaries engaged primarily in the
research, development, manufacture and
marketing of health care products, including
generic and branded pharmaceuticals,
Page 810
intravenous solutions and related
products, and in vitro diagnostics.
Statements made in this
press release, including those relating to
expectations of increased reorders, receipt
of a credit facility waiver, earnings
distribution, and the generic drug industry,
are forward looking and are made pursuant to
the safe harbor provisions of the Securities
Litigation Reform Act of 1995. Such
statements involve risks and uncertainties
which may cause results to differ materially
from those set forth in these statements.
Among other things, additional competition
from existing and new competitors will
impact reorders; the credit facility waiver
is subject to the discretion of the bank
syndicate; and IVAX' ability to distribute
earnings more evenly over future quarters is
subject to industry practices and purchasing
decisions by existing and potential
customers. In addition, the U.S. generic
drug industry is highly price competitive,
with pricing determined by many factors,
including the number and timing of product
introductions. Although the price of a
generic product generally declines over time
as competitors introduce additional versions
of the product, the actual degree and timing
of price competition is not predictable. In
addition to the factors set forth elsewhere
in this release, the economic, competitive,
governmental, technological and other
factors identified in IVAX' filing with the
Securities and Exchange Commission, could
affect the forward looking statements
contained in this press release.
* * * * * *
CONTACTS:
Michael W. Fipps -or- Joseph C. Jones
Senior Vice Vice President and Chief
President-Finance Financial Officer Investor
Relations
305-575-6123 305-575-604209
APPENDIX II (SEPTEMBER
30, 1996 PRESS RELEASE)
FOR IMMEDIATE RELEASE
IVAX ANNOUNCES
RESTRUCTURING; OFFERS THIRD QUARTER OUTLOOK
Expects Annualized Cost
Savings
Forecasts Loss for 1996
Third Quarter
Receives FDA Approval for
Proprietary Drug Elmiron(r)
Miami, Florida, September
30, 1996 --- IVAX Corporation (AMEX:IVX)
announced today that it is restructuring its
U.S. generic pharmaceutical business to
enhance operating efficiencies and reduce
costs. The restructuring includes work force
reductions, facility consolidations and
other cost saving measures. When fully
implemented, IVAX expects the restructuring
ultimately to reduce costs on an annualized
basis by approximately $13 million pre-tax
charge to be recorded in the 1996 third
quarter.
"As we indicated in our
1996 second quarter earnings release, we
have scrutinized our generic drug business
and, with today's announcement, we take the
first steps of an ongoing, company-wide
commitment to improve our competitive edge
through cost reductions and improved
efficiencies," said Phillip Frost, M.D.,
IVAX' Chairman and Chief Executive Officer.
"In August, we created a task force
comprised of IVAX' senior management to
rapidly identify and implement strategies to
reduce costs and improve efficiencies in our
U.S. generic drug business without
compromising product quality, customer
satisfaction or future growth prospects. The
task force's initial emphasis is on facility
consolidation and work force reductions."
"A linchpin of our plan to
consolidate manufacturing facilities will
take place
Page 811
shortly. In August 1996, we agreed to
acquire from Glaxo Wellcome Inc. a
highly-efficient, 275,000 square foot
facility located in Kirkland, Canada. The
acquisition is scheduled to close in the
first quarter of 1997. The Kirkland facility
has the capacity to manufacture a wide range
of pharmaceutical products, including
injectable pharmaceuticals, which is an
important manufacturing capability that we
do not presently possess. The facility comes
staffed with approximately 165
highly-trained employees and is fully
equipped. Following the acquisition, we will
manufacture certain products for Glaxo
Wellcome, and expect to contract manufacture
products for other third parties on an
ongoing basis. The facility's advanced,
efficient equipment and design should
ultimately lower the overall manufacturing
costs of our products to be manufactured
there."
"IVAX' Shreveport,
Louisiana facility, which manufactures a
variety of generic and branded
pharmaceuticals, is expect to be closed by
year-end 1996. IVAX' Syosset, New York
facility, which manufactures topical
pharmaceutical products, and a related R & D
facility, are expected to be closed by the
end of the 1997 first quarter. Production
from these facilities will be transferred to
the Kirkland facility."
"We also expect to close
our facility located in Fort Lauderdale,
Florida. Administrative and related
functions presently located there will be
transferred to our facilities in Miami late
this year or in early 1997. Product
packaging operations presently located in
Fort Lauderdale will be transferred to the
Kirkland facility during the 1997 first
quarter."
"Our generic drug
distribution facility in Northvale, New
Jersey is expected to be closed during the
1996 fourth quarter. Our Mason, Ohio generic
drug distribution facility, and McGaw's
distribution operations in Fairfield, Ohio,
will be closed early in the 1997 second
quarter. Distribution from those facilities
ultimately will be transferred to an
advanced, strategically-centralized
distribution center to be leased in Kenton
County, Kentucky. The Kentucky facility is
being built by the owner to our
specifications."
"In addition to workforce
reductions associated with these facility
closings and consolidations, other workforce
reductions are underway. We will continue
the process of substantially streamlining
our generic pharmaceutical selling,
marketing, manufacturing, administrative and
product development teams located at our two
Miami facilities, at our St. Croix, Virgin
Islands facility, and elsewhere. Not
including employee positions arising from
the Kirkland acquisition, the restructuring
ultimately will result in the elimination of
approximately 450 employee positions, which
is over a quarter of the present employee
positions at Zenith Goldline."
"Many of the foregoing
initiatives will begin to offer cost saving
in the fourth quarter of 1996, and
substantially all of them will be fully
implemented and offering cost savings by
early in the 1997 second quarter. Once the
restructuring is fully implemented, we
should see annualized cost savings of
approximately $20 million before taxes, or
$12 million after taxes."
Dr. Frost commented on
future initiatives: "Today's restructuring
marks just the beginning of our commitment
to improve shareholder value through
improved efficiencies and cost reductions.
We are targeting a number of other areas in
our generic drug and other businesses for
additional savings. For example, we are
conducting an extensive evaluation of our
U.S. pharmaceutical manufacturing operations
to better utilize our remaining facilities.
To assist us, we have retained a consulting
firm that is well-recognized in strategic
planning and engineering for the
pharmaceutical industry."
"Along similar lines, after
receiving FDA approval to do so, we will
transfer
Page 812
production of our verapamil HCI ER
product from Miami to Ireland. The transfer
will permit us to close one of our Miami
facilities and to better utilize our Irish
facility, and will lower our effective tax
rate by subjecting a portion of our
verapamil profits to Ireland's favorable tax
rates. Looking outside our U.S. generic drug
business, as previously indicated, we are
examining non-core businesses for
opportunities to improve shareholder value."
Dr. Frost provided a
preliminary outlook for IVAX' 1996 third
quarter results: "The restructuring is
estimated to result in a 1996 third quarter
charge of approximately $13 million before
taxes, or about $8 million after taxes. As
part of our ongoing efforts to streamline
our operations, we may incur additional
charges. In addition to the restructuring
charge, several factors relating to our U.S.
generic drug business will influence our
third quarter results. First, our customer
inventory levels continue to be high, so
customer re-orders remain depressed. Second,
prices have continued to decline for generic
drug products. Third, lower prices at a time
of elevated inventories will increase shelf
stock adjustments paid to customers to
levels well above more typical quarters as
well. Lastly, a wholesaler customer who owed
us approximately $16 million filed a Chapter
11 bankruptcy petition during the third
quarter. Accordingly, in the 1996 third
quarter, we supplemented our existing second
quarter reserve of approximately $6 million
relating to this account with additional
reserves of approximately $17 million."
"As a result, I regret to
say that we forecast a loss of approximately
$35 million for the 1996 third quarter,
before taking into account the restructuring
charge. Because certain of the factors
affecting the quarter are subject to
estimation and cannot be precisely
quantified at this time, the actual loss for
the quarter ultimately may be greater or
less than our forecasted loss by as much as
several million dollars. We continue to work
through our present challenges, and expect
to see substantial improvement in our
consolidated operating results for the 1996
fourth quarter."
IVAX expects to issue a
new release reporting its definitive 1996
third quarter earnings in late October or
early November. The estimated restructuring
charge, combined with the anticipated loss
for the third quarter, is expected to result
in IVAX being out of compliance with the
provisions of its revolving line of credit
agreement. IVAX is working with the
participating banks to obtain a waiver of
any default and to amend the credit
agreement.
"U.S. generic drug sales
are poised to double over the next three to
five years," said Dr. Frost. "With today's
initiatives, we are committed to building a
leaner, stronger generic drug business to
capture a greater share of this market. At
the same time, we are increasing our
commitment to our proprietary drug
development programs, for therein lies the
key to sustained future growth."
"Affirming our resolve in
this regard, we were pleased to announce
today that we received clearance from the
FDA to begin marketing our patented
prescription medication Elmiron(r).
Elmiron(r) is our medication for the pain or
discomfort associated with interstitial
cystitis (IC), a chronic, progressive and
debilitating urinary bladder disease
afflicting primarily women. IC is a disease
characterized by severe bladder and pelvic
pain, and urinary frequency. Other than
Elmiron(r), there is no effective
orally-administered treatment for the
symptoms of this incapacitating disease. We
continue to study Elmiron(r) for other
indications as well, and have entered into a
Collaborative Research and Development
Agreement with the National Institutes of
Health to study Elmiron(r)'s activity in the
reversal of certain forms of advanced kidney
disease."
Page 813
"Elmiron(r) is IVAX'
first innovative new drug approved by the
FDA for marketing in the U.S. In addition to
being important news for IC sufferers across
the country, our Elmiron(r) approval is a
major step towards our goal of offsetting
the inherent volatility of earnings derived
from our generic drug business with a range
of proprietary new drugs to provide for more
balanced future growth."
"Other innovative drug
projects in our portfolio include Cervene(r)
for the mitigation of central nervous system
damage following is ischemic stroke, and
PaxeneTM for the treatment of breast,
ovarian and other cancers. Both projects are
in Phase III Clinical Trials, and New Drug
Applications for these compounds are
expected to be submitted to the FDA during
1997. IVAX is also developing innovative
products for the treatment of asthma,
including products which feature our
patented breath-activated metered dose
inhaler called Easi-BreatheTM. These
innovative products, if approved, will be of
tremendous therapeutic and commercial
significance, and should combine with our
greater efficiencies to significantly
enhance IVAX' growth prospects in the
intermediate and long term."
Statements made in this press
release, including those relating to the
estimated cost reductions, the amount of the
restructuring charge expected in the third
quarter, the purchase of the Kirkland
facility, the time frames for closing and
consolidating facilities and eliminating
employee positions, the expected
manufacturing costs of products made at the
Kirkland facility, the expected transfer of
verapamil production from Miami to Ireland,
the amount of the write-off expected in the
third quarter relating to the wholesaler
customer's receivable, the expected loss for
the third quarter, expectations for the
fourth quarter, the prospects of the generic
drug industry, and the expected submissions
of NDAs for Cervene(r) and PaxeneTM are
forward looking and are made pursuant to the
safe harbor provisions of the Securities
Litigation Reform Act of 1995. Such
statements involve risks and uncertainties
which may cause results to differ materially
from those set forth in these statements.
Among other things, thecost reductions are
estimated based on preliminary information
as well as certain assumptions which
management believes to be reasonable at this
time and are subject to the successful
completion of the actions described in this
press release; the expected restructuring
charge is an estimate based on certain
assumptions which management believes to be
reasonable at this time; the purchase of the
Kirkland facility is subject to a number of
contractual conditions, including
governmental approvals; the timing of the
closing and consolidating of facilities and
the elimination of employee positions are
subject to the acquisition of the Kirkland
facility, the construction and leasing of
the Kentucky distribution center, and FDA
approval to transfer manufacturing of
certain products; the amount of the
write-off of the wholesaler customer's
receivable is subject to developments in the
related reorganization which could impact
the value of the receivable; the transfer of
verapamil production is subject to FDA
approval; and the expected submissions of
NDAs for Cervene(r) and PaxeneTM are subject
to the successful completion of clinical
trials and the development of additional
data required for the NDAs. The waiver of,
and amendment to, the credit agreement is
subject to the discretion of the
participating banks. Expectations concerning
financial results for the 1996 third and
fourth quarters are not actual results and
are based on preliminary estimates as well
as certain assumptions which management
believes to be reasonable at this time,
including estimates and assumptions
concerning the price and number of
competitors for IVAX' generic drugs, the
volume and product mix of sales, and the
levels of required reserves for returns,
Page 814
shelf stock adjustments, and other items.
The U.S. generic drug industry is extremely
competitive, with pricing determined by many
factors, including the number and timing of
products introductions. Although the price
of a generic drug product generally declines
over time as competitors introduce
additional versions of the product, the
actual degree and timing of price
competition is not predictable. In addition
to the factors set forth elsewhere in this
release, the economic, competitive,
governmental, technological and other
factors identified in IVAX' filings with the
Securities and Exchange Commission could
affect the forward looking statements
contained in this press release.
CONTACT:
Joseph C. Jones
Vice President-Investor Relations
IVAX Corporation
305-575-6042
Notes:
*.
Honorable Maurice B. Cohill, Jr., Senior
U.S. District Judge for the Western District
of Pennsylvania, sitting by designation.
1.
Codified as amended at 15 U.S.C. 77a-78lll.
2. The
full text of the release is found in
Appendix I to this opinion. Ordinarily, the
full text of such a release would not be
part of the record under review for a
dismissal under Fed.R.Civ.P. 12(b)(6) unless
it was attached to the complaint. See 5A
Charles A. Wright & Arthur R. Miller,
Federal Practice and Procedure 1357, at 299
(2d ed.1990). But a document central to the
complaint that the defense appends to its
motion to dismiss is also properly
considered, provided that its contents are
not in dispute. See, e.g.,
Brooks v. Blue Cross & Blue Shield of Fla.,
Inc., 116 F.3d 1364, 1369 (11th Cir.1997).
The PSLRA, moreover, contains a provision
that directs the district court to consider
not only "any statement cited in the
complaint" but also "any cautionary
statement accompanying the forward-looking
statement, which are [sic ] not subject to
material dispute, cited by the defendant."
PSLRA 102(b), codified at 15 U.S.C.
78u-5(e). The usual rules for considering
12(b)(6) motions are thus bent to permit
consideration of an allegedly fraudulent
statement in its context.
3.
Appendix II contains the full text of this
release.
4. 15 U.S.C. 78u-5(c).
5. 15 U.S.C. 78u-4(b).
6. Both
the defendants' motion to dismiss, which
requested complete dismissal of the
complaint, and the district court's opinion
ignored the state-law negligent
misrepresentation claim. The plaintiffs do
not, however, argue on appeal that they
stated a claim for negligent
misrepresentation. We thus take the claim to
be abandoned and spill no ink addressing it.
7. The
complete definition of "forward-looking
statement" is
(A) a statement containing a projection
of revenues, income (including income loss),
earnings (including earnings loss) per
share, capital expenditures, dividends,
capital structure, or other financial items;
(B) a statement of the plans and
objectives of management for future
operations, including plans or objectives
relating to the products or services of the
issuer;
(C) a statement of future economic
performance, including any such statement
contained in a discussion and analysis of
financial condition by the management or in
the results of operations included pursuant
to the rules and regulations of the
Commission;
(D) any statement of the assumptions
underlying or relating to any statement
described in subparagraph (A), (B), or (C);
(E) any report issued by an outside
reviewer retained by an issuer, to the
extent that the report assesses a
forward-looking statement made by the
issuer; or
(F) a statement containing a projection
or estimate of such other items as may be
specified by rule or regulation of the
Commission.
15 U.S.C. 78u-5(i )(1).
8. Ivax
had a policy of reimbursing customers who
had inventories of Ivax products the
difference between the price of the products
when the customers bought them and the
current, lower price. This policy encouraged
customers to buy larger amounts at once
because the customers did not need to worry
about losing the benefit of subsequent price
declines.
9. An
"assumption" is "the act of taking for
granted or supposing that a thing is true."
Webster's Third New International Dictionary
133 (1981).
10.
The plaintiffs do make a wholly unpersuasive
argument that the defendants' knowledge of
the need to reduce goodwill robs the
projections of their forward-looking status.
The statutory definition of "forward-looking
statement" does not refer at all to the
defendants' knowledge of the truth or
falsity of the statement, however; such
knowledge is relevant only to liability in
the safe harbor, and even there only when
there is inadequate cautionary language. See
15 U.S.C. 78u-5(c), (i ).
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