case 1:14-cv-06637-fb-smg document 17 filed 03/31/15...

Case 1:14-cv-06637-FB-SMG Document 17 Filed 03/31/15 of 29 PageID #: 111

THE ROSEN LAW FIRM, P.A. Phillip Kim, Esq. (PK 9384) Laurence M. Rosen, Esq. (LR 5733) Kevin Chan, Esq. (KC 0228) 275 Madison Ave., 34th Floor New York, New York 10016 Telephone: (212) 686-1060 Fax: (212) 202-3827 Email: [email protected] Email: [email protected] Email: [email protected]

Lead Counsel for Plaintiffs

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

--X JOHN GAUQUIE, INDIVIDUALLY AND

No. 14-CV-6637 (FB) (SMG)

ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, CLASS ACTION

Plaintiff, JURY TRIAL DEMANDED

vs. AMENDED CLASS ACTION COMPLAINT

ALBANY MOLECULAR RESEARCH, INC., WILLIAM MARTH, and MICHAEL NOLAN,

Defendants. --X

Lead Plaintiffs Ramesh Patel and Michael Lowery (“Plaintiffs”), individually and on

behalf of all other persons similarly situated, by their undersigned attorneys, for their amended

complaint (“Complaint”) against Defendants, allege the following based upon personal

knowledge as to themselves and their own acts, and information and belief as to all other matters,

based upon, inter alia, the investigation conducted by and through their attorneys, which include,

among other things, a review of the Defendants’ public documents, United States Securities and

Exchange Commission (“SEC”) filings, and information readily obtainable on the Internet.

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Plaintiffs believe that substantial evidentiary support will exist for the allegations set forth herein

after a reasonable opportunity for discovery.

NATURE OF THE ACTION

1. This is a federal securities class action on behalf of a class consisting of all

persons other than Defendants who purchased the common stock of Albany Molecular Research,

Inc. (“AMRI” or the “Company”) between August 5, 2014 and November 5, 2014 (the “Class

Period”), inclusive, seeking to recover compensable damages caused by Defendants’ violations

of federal securities laws and pursue remedies under the Securities Exchange Act of 1934 (the

“Exchange Act”).

2. AMRI is a contract research manufacturing company. The services provided by

AMRI include the manufacturing and production of injectables, compounds, and biologics for

the pharmaceutical industry.

3. The manufacturing and production of such products must be done in strictly

controlled and sterile environments in order to ensure safety and meet the requirements of

AMRI’s customers and U.S. Food and Drug Administration (“FDA”) rules and regulations.

4. In October 2013, AMRI resolved a long standing FDA warning letter it received

in 2010 for AMRI’s manufacturing facility in Burlington, MA (the “Burlington Facility”), which

concerned contamination found in drug products, particulate contamination, and poor

manufacturing practices.

5. The Burlington Facility focused on the manufacturing and production of

injectables, compounds, and biologics for development stage products.

6. With the FDA warning letter lifted, production at the Burlington Facility could

ramp up and it became even more critical that AMRI have a solution for its customers who

would be commercializing its products, as the Burlington Facility did not have that capability.

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7. In the wake of the resolution of the FDA warning letter, in January 2014, AMRI

replaced its CEO and appointed defendant William Marth as President and CEO.

8. AMRI and defendant Marth’s vision was to expand AMRI through acquisition.

Given the regulatory scrutiny that had plagued the Burlington Facility, Defendants were focused

on acquiring top tier companies, free from any manufacturing issues, that would compliment and

leverage AMRI’s already existing facilities.

9. The largest of these acquisitions was AMRI’s June 2014 acquisition of Oso

Biopharmaceuticals Manufacturing, LLC (“OSO”) for $110 million.

10. OSO, like the Burlington Facility, manufactured injectables, compounds, and

biologics—but focused on late-stage and commercial-scale volumes. With the addition of OSO,

AMRI customers that previously would have to seek another third party manufacturer as it

neared commercialization could now stay with AMRI as it now had the capability to produce at

commercial quantities. The combination of the Burlington Facility and OSO was also very

attractive to AMRI’s potential customers as it provides AMRI’s potential customers with one

integrated solution.

11. Therefore, the OSO acquisition was very material to Defendants and monitored

by Defendants throughout the acquisition process and afterwards. It was also very important to

Defendants that OSO be free of any manufacturing problems that weighed on the Burlington

Facility over the last three years from the FDA warning letter. Therefore, Defendants were

monitoring the production at the OSO facility.

12. In late July 2014, the OSO facility had a power failure, which according to

defendant Marth, led to the malfunction of the PLCs (programmable logic controllers) and

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caused the doors to the aseptic core to remain open for a period of time at Suite 152 within the

OSO facility.

13. Suite 152 was one of three suites at the OSO facility, but Suite 152 accounted for

45-50% of OSO’s sales.

14. Such a failure would have immediately contaminated Suite 152 and delayed

production.

15. Sometime before the third week of August 2014, mold was detected in Suite 152.

The presence of mold in Suite 152 required the suite to be shut down and the mold to be

remediated before production would recommence.

16. Against this backdrop, throughout the Class Period Defendants: (a) falsely and

misleadingly touted the added earnings and manufacturing capability of OSO; (b) issued false

financial guidance as a result of the OSO acquisition; (c) issued false quarterly report on Form

10-Q by failing to disclose known risks and uncertainties relating to the power failure at the OSO

facility and the potential and actual contamination and production delays; and (d) falsely

reiterated the same guidance on September 30, 2014.

17. On November 5, 2014, AMRI announced disappointing results for the third

quarter and lowered its fiscal 2014 guidance because of the July 2014 power failure and

contamination at the OSO facility. AMRI stated that Suite 152 would remain shut down until

mid-November.

18. This news shocked the market causing AMRI’s shares to fall $6.08/share or 35%

to $16.59/share on November 5, 2014.

19. In reaction to this news, on November 5, 2014, JP Morgan issued a research note

lowering its price target on AMRI and publicly questioning AMRI’s failure to warn investors of

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this known shortfall: “it remains unclear why this was not communicated to the Street and the

quarter not-preannounced.”

JURISDICTION AND VENUE

20. The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of

the Exchange Act, (15 U.S.C. §78j (b) and 78t (a)), and Rule 10b-5 promulgated thereunder (17

C.F.R. §240.10b-5).

21. This Court has jurisdiction over the subject matter of this action pursuant to §27

of the Exchange Act (15 U.S.C. §78aa) and 28 U.S.C. § 1331.

22. Venue is proper in this Judicial District pursuant to §27 of the Exchange Act, 15

U.S.C. § 78aa and 28 U.S.C. § 1391(b) as the alleged misleading public filings and press releases

entered this district.

23. In connection with the acts, conduct and other wrongs alleged in this Complaint,

Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,

including but not limited to, the United States mails, interstate telephone communications and

the facilities of the national securities exchange.

PARTIES

24. Lead Plaintiffs Ramesh Patel and Michael Lowery, as set forth in their

certifications on file with the Court, which are incorporated by reference herein, purchased

AMRI common stock at artificially inflated prices during the Class Period and has been damaged

thereby.

25. Defendant AMRI is a Delaware Corporation headquartered in Albany, New York

that provides integrated drug discovery, development, and manufacturing services primarily in

the United States, Europe, and Asia. During the Class Period, the Company’s stock was traded

on the NASDAQ Stock Market under the symbol “AMRI.”

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26. Defendant William Marth (“Marth”) has been AMRI’s President and Chief

Executive Officer since January 2014 and one of its directors since May 2012.

27. Defendant Michael Nolan (“Nolan”) has been the Company’s Vice President,

Chief Financial Officer and Treasurer since 2012, until his sudden departure effective February

4, 2015. Upon information and belief, Nolan was forced out of AMRI due to alleged fraud

herein.

28. Defendants Marth and Nolan are collectively referred to hereinafter as the

“Individual Defendants.”

SUBSTANTIVE ALLEGATIONS

OSO Acquisition Was Very Material to AMRI and Closely Monitored by Defendants

29. OSO is a contract manufacturer of complex injectables, which is focused on late-

stage and commercial-scale volumes. OSO specializes in the manufacture of difficult

compounds, including biologics, cytotoxic compounds, and DEA controlled substances.

30. On June 2, 2014, the Company announced that it signed a definitive agreement to

acquire OSO, located in Albuquerque, New Mexico, for $110 million in cash.

31. The OSO acquisition was extremely material to AMRI and core to its business

plan. Thus, the acquisition and subsequent operation and integration with AMRI’s operations

were closely monitored by defendants AMRI, Marth, and Nolan.

32. The OSO acquisition was the centerpiece of defendant Marth’s vision for AMRI

and the largest acquisition since taking the reins as CEO in January 2014. Thus, defendant

Marth closely monitored OSO during and after the acquisition phase to justify his vision and

plan for AMRI.

33. The June 2, 2014 announcement touted that, with the acquisition of OSO, AMRI

now had a vertical solution to pharmaceutical companies. Prior to the OSO acquisition, AMRI’s

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capability for manufacturing injectables was limited to early stage and pre-commercial products

at the Burlington Facility. With OSO, AMRI customers who previously sought to transfer their

late-stage products to other third-party manufacturers now have one source that can take their

development stage product from Phase I through commercial launch.

34. The June 2, 2014 announcement states in relevant part:

The acquisition of OsoBio is highly complementary to our finished dose manufacturing business, and is consistent with our strategy to be the preeminent supplier of custom and complex drug development services and products to the pharmaceutical industry,” said William S. Marth, AMRI”s president and chief executive officer. “OsoBio adds significantly to our sterile manufacturing capabilities, extending our industry-leading position in early stage contract manufacturing to now include OsoBio’s preeminent large-scale commercial production. In addition, we expect to realize savings in capital costs associated with the previously planned facility expansion.

“We are very excited about the synergies that our Albuquerque operations will bring to AMRI as part of their organization,” said Milton Boyer, OsoBio’s President. “The addition of AMRI”s experience and capabilities in early phase development greatly increases the value proposition for our customers, providing a single source to address all sterile fill/finish needs from phase 1 development complete to commercial supply.”

Located in Albuquerque, New Mexico, OsoBio is a trusted, long-time partner to many of the industry’s leading pharmaceutical companies and is well respected for its expertise in manufacturing complex injectables, its reliability of supply and superior track record of quality. OsoBio’s core capabilities include liquid fill and lyophilized products, highly potent compounds, cytotoxics, proteins and peptides, monoclonal antibodies, vaccines, liposomal suspensions and controlled substances. OsoBio has provided manufacturing support for more than 250 unique products and their attractive development pipeline, which includes multiple late-stage products, is expected to be important contributor for future growth.

35. The June 2, 2014 announcement also touted OSO’s financial performance:

On a stand-alone basis, OsoBio’s forecasted full year 2014 revenue is between $58 million and $60 million, with adjusted EBITDA of between $9 million and $10 million, implying a purchase price multiple of 11 times 2014 adjusted EBITDA at the top end of the range. Adjusted EBITDA excludes any deal related costs or purchase accounting impacts.

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36. The importance of the OSO acquisition is also reflected in the premium AMRI

paid. During a conference call with investors on June 2, 2014, defendant Marth acknowledged

that the purchase price of OSO represented a 10-11 multiple of earnings, which was above the 7

multiple represented by AMRI’s acquisition of Cedarburg Pharmaceuticals, Inc. announced on

March 24, 2014.

37. During the same conference call, defendant Marth said a premium for OSO was

appropriate given that “sterile fill” companies like OSO, with clean regulatory records, were in

short supply. Defendant Marth said in relevant part:

The sterile fill and finish for the U.S. right now is in short supply. There aren’t a whole lot of players today that haven’t been impacted by warning letters and if you want to manufacture here in the U.S. the number of choices you have are few and far between. And so I think that’s one of the reasons that the multiple went up. Also I think the exciting part about this transaction is we’ve talked a lot about the fact that we’re now able to take our customers from Phase I over at Burlington and take them right through to complete full-scale commercial in Oso. Oso had a similar problem in the sense that they did a great job Phase III and commercial, but really struggled when it came to the small scale Phase I, Phase II, it wasn’t really their bailiwick. So, we’ll be able to pick up their customers as well. So we see this as a real exciting transaction and because of the complex nature and the, I think, robust synergies that will be on the sale synergies side between the two facilities, and its growth rate, 20% for the last two years, that’s what commanded a little bit higher EBITDA. And we thought that was the right EBITDA.

38. AMRI was very focused on ensuring its manufacturing capabilities complied with

regulations—particularly OSO, during and after its acquisition. AMRI’s Burlington facility

recently had its FDA warning letter resolved in October 2013. The warning letter, issued in

2010, concerned contamination found in drug products, particulate contamination, and poor

manufacturing practices at the Burlington Facility. Now that the FDA warning letter was lifted,

production at the Burlington Facility could ramp up and it became even more critical that AMRI

have a solution for its customers who would be commercializing its products, as the Burlington

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Facility did not have that capability. Defendant Marth, during the June 2, 2014 conference call

with investors, said in relevant part:

... when I came in and looked at Burlington, we immediately saw that – we knew that once we got the warning letter lifted, the sales in that facility were going to go up substantially and sure enough we got the warning letter lifted and they did, right? I mean, the demand for the service was really there. But as we looked at our business, we saw how much we were losing when it got to Phase III, right. Things would get to Phase III or want to go to commercial scale and customers just really hated the idea of moving the product because as a manufacturer what you don’t want is too many hand-offs from different companies, we have to coordinate, just increases your chances for issues.

39. The materiality of the June 2, 2014 news is demonstrated by the fact it caused

AMRI’s stock to rise $1.05/share or 6.2% on June 2, 2104, and an additional $0.44/share or 2.6%

on June 3, 2014.

40. The OSO facility is AMRI’s second largest facility, at 226,000 square feet, behind

the Company’s Rensselaer, NY facility at 276,000 square feet.

41. On July 1, 2014, AMRI announced that it completed the acquisition of OSO. In

the announcement, AMRI stated that OSO’s acquisition would be accretive to AMRI’s adjusted

diluted earnings per share, and that AMRI would be issuing updated guidance for the combined

company on August 5, 2014.

The OSO Facility Has Major Failure in July 2010

42. On November 5, 2014, the AMRI announced that “a weather-related power

interruption took [OSO] offline for a period of time, contributing to the loss of finished product

and the need to remediate one of the suites at [OSO].”

43. During a November 5, 2015 conference call with investors, defendant Marth

claimed that in “late July 2010” the OSO facility experienced a power failure that led to the

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PLCs (programmable logic controllers) to malfunction, and caused the doors to the aseptic core

to remain open for a period of time. Defendant Marth said in relevant part:

In late July, the OsoBio facility experienced a power failure that caused a PLC malfunction. That’s a programmable logic controller. This allowed the doors to the aseptic core to remain open for a period of time. Backup power was available and after some remediation work, the facility was brought back online and production resumed. In early September, data monitoring signaled environmental deviations in one of the primary filling suites. And we determined that it was triggered by the power interruption and subsequent conditions.

44. Defendant Marth’s explanation was materially false and misleading to the extent

he suggests that it was not until September—nearly a two months after the event—that

environmental deviations were detected. A power failure coupled with the doors of the aseptic

core remaining open would have contaminated the suite and been known by AMRI.

45. According to CW1, who was a Process Validation Specialist for OSO from

February 2002 until August 2014:

a. When a facility, like OSO, is tasked with filling injectables, maintaining an

aseptic core/environment and protecting that environment from microbial

organisms is “very critical.” “You have to have a sterile environment.”

b. A power failure/outage could cause a disruption in the sterilized environment.

Each suite at the OSO facility has a specific pressure gradient. Higher pressure

gradients are designated for each clean/sterile suite. If there is a power outage,

the positive air pressure that was initially blowing air out of the clean/sterile suite

will equalize and/or reverse, leaving an unsterile environment. Without power,

the sterile environment cannot be maintained. Power failure will also affect the

monitoring of particulate in the suite. A power outage “has the potential to cost

the company a lot of money” because the discontinuation of a lot in production

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could equate to $5 million in losses. Without power, the sterile environment

cannot be maintained. Power failure will also affect the monitoring of particulate

in the room.

c. Power “outages happen from time to time” at the OSO facility.

d. When a power outage occurs, maintenance would get involved and the

Manufacturing Assurance Group at OSO would review the batch records to see if

any anomalies occurred during the power failure.

e. After each fill in the suite, grid monitoring is done in the filling suite. Grid

monitoring involved plating certain areas of the room to gather samples for later

incubation and monitoring for any bacterial or mold growth. A plate would be

prepped with a growth promotion gel, and the plate would be applied to a certain

area of the ceiling in the room, sealing it. The plate would then be monitored by

OSO Microbiology Department Technicians. The plates would then be placed in

an incubator and monitored for growth.

46. In addition to examining batch data, when a sterile environment has been

compromised, the air handling records would also be evaluated and the air handling systems

would be shut down, environmental monitoring (swabbing exposed surfaces in the

manufacturing suite and testing the swabs for microbiological contamination and monitoring for

air particulates) would be done to evaluate environmental deviations. Thus, OSO would know in

a matter of hours to a few days, whether there was any contamination.

47. The power failure in “late July” and the failure of the PLC in exposing the aseptic

core would have caused a drastic interruption to production as AMRI and required the Company

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to conduct microbial testing and analyze data from sensors in the affected suite before

recommencing production under Current Good Manufacturing Practices.

48. There were mold issues known to AMRI no later than the third week of August

2014 in Suite 152—the suite that defendant Marth said was affected during the November 5,

2014 conference call. According to CW1:

a. Before CW1 left OSO in August 2014 (CW1 left OSO the third week of August

2014), “They had an issue with mold in the interstitial filling suite downstairs,”

that affected Suite 152. In response to the this, AMRI was trying to address the

mold issue by shutting down that suite to decontaminate the area and plate the

ceilings to assess further mold growth.

b. Suite 152 was the busiest suite in the OSO facility. Filling of various sizes of

vials occurred in Suite 152, including liquids and freeze dried products. While

the OSO facility had three suites, only two suites were running at OSO the facility

as staffing was not sufficient enough to run all three at the same time.

49. The issues at Suite 152 were extremely material and closely monitored by AMRI.

Suite 152 was only one of three suites at the OSO facility and accounted for about 45% to 50%

of OSO’s business. In fact, AMRI recruited the assistance a couple of its key customers to help

address the issues in Suite 152. Defendant Marth said during the November 5, 2014 conference

call with investors:

Customers have been very supportive of us, especially with respect to OsoBio. A couple of our key customers came out to the facility and helped us work with it. Again, the whole facility wasn’t down. There are three different suites. The one suite that was affected is the largest part of the business. About 45% to 50% of the business happens to be in that suite number 152 and so – that was a lot of it. But our customers were very supportive. They were out there to help us and are committed to take product as soon as we can get it out the door. So there’s been a lot of support there.

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50. As to Suite 152, defendant Marth said during the November 5, 2014 conference

call that “[w]ork being done at the affected site is near complete and we expect the unit to be

back up in mid-November.”

Defendants Issue Materially False and Misleading Statements to Investors

August 5, 2014 Statements

51. The Class Period starts on August 5, 2014, when the Company issued a materially

false and misleading press release touting the added capacity and revenue resulting from the

addition of OSO. The press release states in relevant part:

AMRI Announces Second Quarter 2014 Results

Total Revenue of $68.2 million, including Contract Revenue of $61.5 Million, up 15% Adjusted Diluted EPS of $0.22, up 100% Company Increases 2014 Adjusted EPS Guidance to $0.87 - $0.92 to Reflect Addition of OsoBio and Strengthening Contract Business

*****

Highlights:

• Second quarter contract revenue of $61.5 million, up 21% from 2013

• Second quarter adjusted diluted EPS of $0.22 vs. $0.11 in 2013 • Expanded second quarter contract margins to 27% from 16% in

2013 • Acquired Oso Biopharmaceuticals Manufacturing in July 2014,

expanding contract manufacturing capabilities to include commercial scale, complex injectable drug product

52. The statements about the added earnings and manufacturing capability of OSO

was materially false and misleading as AMRI failed to disclose that: (a) a power outage event at

the OSO facility in late July was materially and negatively impacting OSO’s production; (b) the

OSO facility was not fully operational due to contamination of its main suite responsible for 45-

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50% of OSO’s sale; and (c) as a result, the addition to earnings and manufacturing capability

would be delayed.

53. In the same press release, Defendant Marth falsely touted the acquisition of

OsoBio in raising the financial guidance for 2014, stating in relevant parts:

Updated Financial Guidance 2014:

• Full year contract revenue guidance increased to between $275 and $283 million, an increase of 33% at the midpoint

• Royalty revenue guidance of $25 million • Adjusted EBITDA between $59 and $63 million, up 24% at the

midpoint • Adjusted diluted EPS range between $0.87 and $0.92,

compared to $0.70 in 2013, an increase of 28% at the midpoint, despite a $10 to $12 million decrease in estimated royalties from Allegra

• Operating cash flow of $27 to $30 million

Based on anticipated continued growth of our business and the recent addition of OsoBio, we are raising our outlook for 2014 with contract revenue growth of 33% and adjusted diluted EPS growth of 29% at the midpoint.

54. During the conference call with investors on August 5, 2014, defendant Nolan

repeated the same false guidance and revealed that the Company’s guidance reflects the addition

of OSO’s financial results as of July 2, 2012. Therefore in creating AMRI’s guidance, defendant

Nolan knew and/or recklessly disregarded the power outage and contamination at the OSO

facility that occurred in late July.

55. The financial guidance is materially false and misleading because Defendants

failed to disclose that, as discussed above: (a) there was a power failure at the OSO facility in

July 2014, which caused the doors to the aseptic core to be open, contaminating Suite 152; (b)

Suite 152’s production would be adversely impacted and delayed; (c) Suite 152 represented 45-

50% of OSO’s sales; (d) mold was detected no later than the third week of August 2014 in Suite

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152; and (e) there were material risks of contamination in Suite 152 that could (and did) stop

production in Suite 152 for an extended period of time.

56. During the August 5, 2015 conference call, defendant Marth misleadingly stated

that OSO was free of any manufacturing issue and that OSO would “immediately” feed new

business to AMRI”s other units. Defendant Marth stated in relevant part:

In a recent report on this market, PharmSource characterized these companies as Tier 1, based on their ability to handle biologics and provide a consistent supply of high-value small molecules. Most recently in the U.S., M&A activity and compliance issues have further decreased the companies in this Tier 1 category to less than 10. OsoBio is one of those.

Coupled with recent manufacturing and compliance issues with CMOs in India, we believe this new business unit is well positioned in the CMO injectable market. Like our Discovery Services, we anticipate continued adoption of outsourcing strategies for API and finished dose manufacturing. This is based on the industry’s interest in reducing time to market in an efficient, cost effective manner, the expanding virtual pharma model, and growing pressures as well on Big Pharma to shift away from large, capital intensive manufacturing activities. Also the future trend of producing smaller scale personalized medicines is less suited to large in-house facilities.

With pipelines shifting toward more complex and specialized medicines, the combination of OsoBio together with our API and development capabilities, AMRI now offers complete pipeline support from development through commercial scale for both API and finished dose. This makes AMRI one of only a small handful of contract manufacturers providing end-to-end services for both drug substance and drug products.

We are excited about the synergistic power of the combination our businesses brings and the opportunities that could result. Similar to the Cedarburg acquisition, we now have an expanded customer base and an expanded service offering that will create significant cross-selling opportunities across all our business units. Within this new parenteral drug business unit, Burlington and Albuquerque will immediately become a feeder of projects to the other. This is further complemented by the fact that both sides have recently successfully navigated their annual GMP inspections from the FDA.

57. Defendant Marth’s statements suggesting that OSO was free of any

manufacturing issue and that OSO would “immediately” feed new business to AMRI’s other

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units was materially false and misleading because he failed to disclose that: (a) there was a

power failure at the OSO facility in July 2014, which caused the doors to the aseptic core to be

open, contaminating Suite 152; (b) Suite 152’s production would be adversely impacted and

delayed; (c) Suite 152 represented 45-50% of OSO’s sales; (d) mold was detected no later than

the third week of August 2014 in Suite 152; and (e) there were material risks of contamination in

Suite 152 that could (and did) stop production in Suite 152 for an extended period of time.

August 11, 2014 10-Q

58. On August 11, 2014, AMRI filed its Form 10-Q for the second quarter of 2014

with the SEC (the “2Q 2014 10-Q”). The 2Q 2014 10-Q was signed by defendant Nolan.

Defendants Nolan and Marth executed Sarbanes Oxley Act of 2002 certifications falsely

attesting to the accuracy of the 2Q 2014 10-Q.

59. The 2Q 2014 10-Q was materially false and misleading because Defendants failed

to disclose known trends and uncertainties that would have (and did have) a material unfavorable

impact on revenues and income. Defendants failed to disclose the material risk and uncertainties

relating to: (a) the power outage and failure at the OSO facility; (b) the potential and actual

contamination of Suite 152—a suite representing 45-50% of OSO’s sales; and (c) the delays and

shut-down of Suite 152 due to the potential and actual contamination of Suite 152.

60. SEC Regulation S-K (27 CFR 229.10) requires that every registration statement,

annual report or quarterly report include “Management’s Discussion and Analysis of Financial

Condition and Results of Operations” (“MD&A”), drafted in compliance with Item 303 of

Regulation S-K. The MD&A requirements are intended to provide material historical and

prospective textual disclosures, which enable investors and other users to assess the financial

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condition and results of operations of the company, with particular emphasis on the company’s

prospects for the future.

61. Item 303 of SEC Regulation S-K (17 C.F.R. 229.303) together with SEC Staff

Accounting Bulletin No. 101 require defendants to disclose in the MD&A section of its

registration statement, quarterly reports, and annual reports “unusual or infrequent transactions,

known trends, or uncertainties that have had, or might reasonably be expected to have, a[n] . . .

unfavorable material effect on revenue, operating income or net income and the relationship

between revenue and the costs of the revenue.”

62. To determine if a transaction, known trend, or uncertainty must be included in the

MD&A, the SEC has stated that companies should determine whether a trend, demand,

commitment, event, or uncertainty is presently known to management, and whether it is

reasonably likely to have a material effect on the registrant’s financial condition or results of

operations.

63. The SEC describes the purposes of MD&A in Financial Reporting Release 36

(“FRR 36”):

The Commission has long recognized the need for a narrative explanation of the financial statements, because a numerical presentation and brief accompanying footnotes alone may be insufficient for an investor to judge the quality of earnings and the likelihood that past performance is indicative of future performance. MD&A is intended to give investors an opportunity to look at the registrant through the eyes of management by providing a historical and prospective analysis of the registrant’s financial condition and results of operations, with a particular emphasis on the registrant’s prospects for the future.

This requirement was reaffirmed in SEC Staff Accounting Bulletin No. 101, Revenue

Recognition in Financial Statements, Dec. 1999.

Defendants Marth and Nolan Reiterate Financial Guidance On September 30, 2014

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64. On September 30, 2014, defendants Marth and Nolan falsely reiterated the

guidance that was issued on August 5, 2014.

65. Defendants Marth and Nolan’s reiteration of guidance was materially false and

misleading because by September 30, 2014: (a) there was a power failure at the OSO facility in

July 2014, which caused the doors to the aseptic core to be open, contaminating Suite 152; (b)

Suite 152’s production would be adversely impacted and delayed; (c) Suite 152 represented 45-

50% of OSO’s sales; (d) mold was detected no later than the third week of August 2014 in Suite

152; and (e) there were material risks of contamination in Suite 152 that could (and did) stop

production in Suite 152 for an extended period of time.

Misstatements and Omissions Caused Investor Losses

66. On November 5, 2014, Company issued a press release and filed a Form 8-K with

the SEC revealing for the first time a business interruption at its OSO facility, which led to

disappointing financial results for the third quarter of 2014 and lowered financial outlook for

2014. The press release stated, in relevant parts:

AMRI Announces Third Quarter 2014 Results

- Third quarter contract revenue of $57.5 million, up 8% from 2013 - Lower Discovery and API revenue is offset by addition of OsoBio - OsoBio business interruption contributes to third quarter adjusted loss per share of $(0.02) - Full year 2014 contract revenue expected to be between $253 and $261 million, an increase of 22% at the midpoint - Full year adjusted diluted EPS range between $0.67 and $0.73, compared to $0.70 in 2013 - Company provides initial 2015 outlook - Company creates new Drug Product reporting segment to reflect addition of OsoBio

*****

Financial Outlook

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AMRI”s estimates for the full year 2014 and 2015 are based on actual results for the first nine months of 2014 and management’s expectations for the balance of 2014 and its outlook for 2015.

AMRI estimates the following for full year 2014:

• Full year contract revenue is expected to be between $253 and $261 million, an increase of 22.4% at the midpoint

• Royalty revenue of $25 million remains unchanged • Adjusted EBITDA between $50 and $52 million, up 7% at the midpoint • Adjusted diluted EPS is expected to be between $0.67 and $0.73,

compared to $0.70 in 2013, based on an average fully diluted share count of approximately 32.6 million shares

• Operating cash between $12 and $16 million and capital expenditures of approximately $16 million

67. In the same press release, defendant Marth expounded on the failure at the OSO

facility:

...a weather-related power interruption at our OsoBio facility in Albuquerque took the facility offline for a period of time, contributing to the loss of finished product and the need to remediate one of the suites at the facility. Costs associated with this activity - together with facility downtime - increased our operating costs and contributed to the quarterly earnings loss. We have been working closely with our customers to not only provide a continued supply of product during this disruption, but have also taken steps to upgrade the facility to ensure we can supply our customers” growing needs longer term. We anticipate the affected suite at our Albuquerque facility to be back online in mid-November.

68. On that same day, the Company held an earnings conference call with securities

analysts. During that call, defendant Marth discussed the business interruption at the OsoBio

facility in great detail, stating in relevant parts:

Drug products, with regard to drug product let me briefly discuss the business disruption at OsoBio and the steps we have taken to get the affected manufacturing suite back online.

In late July, the OsoBio facility experienced a power failure that caused a PLC malfunction that is a programmable logic controller. This allowed the doors to the aseptic core to remain open for a period of time. Backup power was available and after some remediation work the facility was brought back online and production resumed. In early September, data monitoring signaled environmental deviations

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in one of the primary filling suite, and we determined that it was triggered by the power interruption and subsequent conditions.

To ensure safety of product, we made the decision to not distribute lots potentially impacted by this incident, and remediated the air handling system taking the unit offline for a longer period of time. This underutilized capacity contributed to drug products” higher cost in the third quarter. Work being done at the affected site is near complete and we expect the unit to be back up in mid-November. Despite the setback at OsoBio, we continue to see a strong book of business for drug product and the development pipeline continues to expand.

69. As a result of the adverse news, shares of AMRI fell $6.08, or over 35%, to close

at $16.59 per share on November 5, 2014 on unusually heavy volume, damaging investors.

PLAINTIFFS” CLASS ACTION ALLEGATIONS

70. Plaintiffs brings this action as a class action pursuant to Federal Rules of Civil

Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all persons who purchased the

common stock of AMRI during the Class Period and who were damaged thereby. Excluded

from the Class are Defendants, the officers and directors of the Company at all relevant times,

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.

71. The members of the Class are so numerous that joinder of all members is

impracticable. Throughout the Class Period, AMRIs common stock was actively traded on

NASDAQ. While the exact number of Class members is unknown to Plaintiffs at this time and

can only be ascertained through appropriate discovery, Plaintiffs believe that there are at least

hundreds of members in the proposed Class. Members of the Class may be identified from

records maintained by AMRI or its transfer agent and may be notified of the pendency of this

action by mail, using a form of notice customarily used in securities class actions.

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72. Plaintiffs’ 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.

73. Plaintiffs 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.

74. Common questions of law and fact exist as to all members of the Class and

predominate over any questions solely affecting individual members of the Class. Among the

questions of law and fact common to the Class are:

a. whether the federal securities laws were violated by Defendants’ acts as

alleged herein;

b. whether the misstatements and omissions alleged herein were made with

scienter;

c. whether statements made by Defendants to the investing public during the

Class Period misrepresented material facts about the business and operations of AMRI;

and

d. to what extent the members of the Class have sustained damages, and the

proper measure of damages.

75. A class action is superior to all other available methods for the fair and efficient

adjudication of this controversy since joinder of all members is impracticable. Furthermore, as

the damages suffered by individual Class members may be relatively small, the expense and

burden of individual litigation make it impossible for members of the Class to redress

individually the wrongs done to them. There will be no difficulty in the management of this

action as a class action.

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Applicability of Presumption of Reliance: Fraud on the Market Doctrine

76. At all relevant times, the market for Albany Molecular Research common stock

was an efficient market for the following reasons, among others:

a. AMRI’s stock met the requirements for listing, and was listed and actively

traded on NASDAQ, a highly efficient and automated market;

b. During the class period, on average, over 2.06 million shares of AMRI

shares were traded on a weekly basis, representing 11.5% of the total float of 17.86

million shares or 6.5% of the 31.7 million shares outstanding, demonstrating a very active

and broad market for AMRI stock and permitting a very strong presumption of an

efficient market;

c. AMRI regularly communicated with public investors via established

market communication mechanisms, including through regular disseminations of press

releases on the national circuits of major newswire services and through other wide-

ranging public disclosures, such as communications with the financial press and other

similar reporting services;

d. AMRI was followed by several securities analysts employed by a major

brokerage firm who wrote reports that were distributed to the sales force and certain

customers of his/her brokerage firm during the Class Period. Each of these reports was

publicly available and entered the public marketplace;

e. During the Class Period AMRI was eligible to file short form registration

statement on Form S-3;

f. Numerous FINRA member firms were active market-makers in AMRI

stock at all times during the Class Period; and

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g. Unexpected material news about AMRI was rapidly reflected and

incorporated into the Company’s stock price during the Class Period.

77. As a result of the foregoing, the market for AMRI’s common stock promptly

digested current information regarding AMRI from all publicly available sources and reflected

such information in AMRI’s stock price. Under these circumstances, all purchasers of AMRI’s

common stock during the Class Period suffered similar injury through their purchase of AMRI’s

common stock at artificially inflated prices, and a presumption of reliance applies.

Applicability of Presumption of Reliance: Affiliated Ute

78. Because this case is one primarily involving omissions relating to the OSO

facility, the impact of the power failure, the material uncertainties and risk at the OSO facility,

and the conditions at that facility existing at the time defendants issued their Class Period

statements, neither Plaintiffs nor the Class need to prove reliance – either individually or as a

class because under the circumstances of this case, positive proof of reliance is not a prerequisite

to recovery, pursuant to ruling of the United States Supreme Court in Affiliated Ute Citizens of

Utah v. United States , 406 U.S. 128 (1972). All that is necessary is that the facts withheld be

material in the sense that a reasonable investor might have considered the omitted information

important in deciding whether to buy or sell the subject security.

FIRST CLAIM

Violation of Section 10(b) of The Exchange Act and Rule 10b-5

Promulgated Thereunder Against All Defendants

79. Plaintiffs repeat and reallege each and every allegation contained above as if fully

set forth herein.

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80. 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 that

operated as a fraud and deceit upon the purchasers of the Company’s securities in an effort to

maintain artificially high market prices for AMRI’s securities in violation of Section 10(b) of the

Exchange Act and Rule 10b-5 promulgated thereunder.

81. Defendants, individually and in concert, directly and indirectly, by the use, means

or instrumentalities of interstate commerce and/or of the mails, engaged and participated in a

continuous course of conduct to conceal adverse material information about the business,

operations and future prospects of AMRI as specified herein.

82. Each of the Individual Defendants’ primary liability, and controlling person

liability, arises from the following facts: (a) the Individual Defendants were high-level

executives, directors, and/or agents at the Company during the Class Period and members of the

Company’s management team or had control thereof; (b) each of these Defendants, by virtue of

his responsibilities and activities as a senior officer and/or director of the Company, was privy to

and participated in the creation, development and reporting of the Company’s financial

condition; (c) each of these Defendants enjoyed significant personal contact and familiarity with

the other Defendants and was advised of and had access to other members of the Company’s

management team, internal reports and other data and information about the Company’s

finances, operations, and sales at all relevant times; and (d) each of these Defendants was aware

of the Company’s dissemination of information to the investing public which they knew or

recklessly disregarded was materially false and misleading.

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83. Defendants had actual knowledge of the misrepresentations and omissions of

material facts set forth herein, or acted with reckless disregard for the truth in that they failed to

ascertain and to disclose such facts, even though such facts were available to them. Such

Defendants’ material misrepresentations and/or omissions were done knowingly or recklessly

and for the purpose and effect of concealing AMRI’s operating condition and future business

prospects from the investing public and supporting the artificially inflated price of its securities.

As demonstrated by Defendants’ overstatements and misstatements of the Company’s financial

condition throughout the Class Period, Defendants, if they did not have actual knowledge of the

misrepresentations and omissions alleged, were reckless in failing to obtain such knowledge by

deliberately refraining from taking those steps necessary to discover whether those statements

were false or misleading.

84. As a result of the dissemination of the materially false and misleading information

and failure to disclose material facts, as set forth above, the market price of AMRI securities was

artificially inflated during the Class Period. In ignorance of the fact that market prices of

AMRI’s were artificially inflated, and relying directly or indirectly on the false and misleading

statements made by Defendants, or upon the integrity of the market in which the common stock

trades, and/or on the absence of material adverse information that was known to or recklessly

disregarded by Defendants but not disclosed in public statements by Defendants during the Class

Period, Plaintiffs and the other members of the Class acquired AMRI securities during the Class

Period at artificially high prices and were or will be damaged thereby. Had Plaintiffs and the

other members of the Class and the marketplace known the truth regarding AMRI”s financial

results, which was not disclosed by Defendants, Plaintiffs and other members of the Class would

not have purchased or otherwise acquired their AMRI securities, or, if they had acquired such

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securities during the Class Period, they would not have done so at the artificially inflated prices

that they paid.

85. By virtue of the foregoing, Defendants have violated Section 10(b) of the

Exchange Act, and Rule 10b-5 promulgated thereunder.

86. As a direct and proximate result of Defendants’ wrongful conduct, Plaintiffs and

the other members of the Class suffered damages in connection with their respective purchases

and sales of the Company’s securities during the Class Period.

87. This action was filed within two years of discovery of the fraud and within five

years of Plaintiffs’ purchases of securities giving rise to the cause of action.

SECOND CLAIM

Violation of Section 20(a) of The Exchange Act Against the Individual Defendants

88. Plaintiffs repeat and reallege each and every allegation contained above as if fully

set forth herein.

89. The Individual Defendants acted as controlling persons of AMRI within the

meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level

positions, agency, ownership and contractual rights, and participation in and/or awareness of the

Company’s operations and/or intimate knowledge of the false financial statements filed by the

Company with the SEC and disseminated to the investing public, the Individual Defendants had

the power to influence and control, and did influence and control, directly or indirectly, the

decision-making of the Company, including the content and dissemination of the various

statements that Plaintiff contends are false and misleading. The Individual Defendants were

provided with or had unlimited access to copies of the Company’s reports, press releases, public

filings and other statements alleged by Plaintiffs to have been misleading prior to and/or shortly

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after these statements were issued and had the ability to prevent the issuance of the statements or

to cause the statements to be corrected.

90. In particular, each of these Defendants had direct and supervisory involvement in

the day-to-day operations of the Company and, therefore, is presumed to have had the power to

control or influence the particular transactions giving rise to the securities violations as alleged

herein, and exercised the same.

91. As set forth above, AMRI and the Individual Defendants each violated Section

10(b), and Rule 10b-5 promulgated thereunder, by their acts and omissions as alleged in this

Complaint.

92. By virtue of their positions as controlling persons, the Individual Defendants are

liable pursuant to Section 20(a) of the Exchange Act. As a direct and proximate result of

Defendants’ wrongful conduct, Plaintiffs and other members of the Class suffered damages in

connection with their purchases of the Company’s securities during the Class Period.

93. This action was filed within two years of discovery of the fraud and within five

years of each Plaintiffs’ purchases of securities giving rise to the cause of action.

WHEREFORE , Plaintiffs pray for relief and judgment, as follows:

a. Determining that this action is a proper class action, certifying Plaintiffs as class

representatives under Rule 23 of the Federal Rules of Civil Procedure, and appointing Plaintiffs’

counsel as Class Counsel;

b. Awarding compensatory damages in favor of Plaintiffs 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;

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c. Awarding Plaintiffs and the Class their reasonable costs and expenses incurred in

this action, including counsel fees and expert fees; and

d. Such other and further relief as the Court may deem just and proper.

JURY TRIAL DEMANDED

Plaintiffs hereby demand a trial by jury.

Dated: March 31, 2015 Respectfully submitted,

THE ROSEN LAW FIRM, P.A.

/s/ Phillip Kim Phillip Kim, Esq. (PK 9384) Laurence M. Rosen, Esq. (LR 5733) Kevin Chan, Esq. (KC 0228) 275 Madison Ave, 34th Floor New York, NY 10016 Phone: (212) 686-1060 Fax: (212) 202-3827

Lead Counsel for Plaintiffs

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CERTIFICATE OF SERVICE

T hereby certify that on this on the 31st day of March, 2015, a true and correct copy of the foregoing document was served by CM/ECF to the parties registered to the Court’s CM/ECF system.

/s/ Phillip Kim

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case 1:14-cv-06637-fb-smg document 17 filed 03/31/15...

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