Ieradi v. Mylan Laboratories

Argued: July 20, 2000 OPINION OF THE COURT In this time of rapidly escalating prices of branded and generic drugs, the primary question on this appeal pertains to the adverse impact of such prices not on the consumer public, but rather on potential stockholders of a leading drug manufacturer. Plaintiff Frank P. Ieradi purchased common stock in defendant Mylan Laboratories, Inc. (Mylan), in the face of a price investigation being conducted by the Federal Trade Commission (FTC). The investigation, which focused on Mylan's recent increases in the prices of fourteen of its drugs, ultimately resulted in the FTC filing a complaint in federal district court alleging that Mylan had engaged in practices in restraint of trade in violation of the Sherman Act. The plaintiff alleges that initiation of the action by the FTC, in turn, caused Mylan's stock price to drop over three points. Following this drop in stock price, Ieradi filed a complaint in the United States District Court for the Western District of Pennsylvania claiming that Mylan violated section 10(b) of the Securities and Exchange Act of 1934 (the 1934 Act) and Securities and Exchange Commission Rule 10b-5 by concealing, in both its press releases and filings with the Securities and Exchange Commission (SEC), the existence of two supply contracts which gave Mylan exclusive access to raw materials necessary to produce two of its generic anti-anxiety medications. These exclusive contracts enabled Mylan to obtain higher prices for drugs and presumably greater profits for its stockholders. The complaint also charges that the individual officers and directors of Mylan are liable for its misconduct because they are control persons within the meaning of section 20 of the 1934 Act. The District Court dismissed Ieradi's complaint, holding that disclosure of the exclusive supply contracts would not have significantly altered the total mix of information available to the reasonable investor, and that therefore the failure to disclose specifically those contracts was not material. Ieradi timely appealed and we affirm. 1