Abbott Board Must Face Depakote Investor Suit, Judge Says

An Abbott Laboratories (ABT) stockholder suit accusing directors of shirking their duty to supervise the marketing of its epilepsy drug Depakote can go forward, a federal judge ruled.

The suburban-Chicago drugmaker agreed to pay $1.6 billion last year to settle federal and state claims its sales force engaged in improper marketing of the medication and downplayed risks associated with it from 1998 to 2006.

U.S. District Judge Virginia Kendall in Chicago required the shareholders to show that any effort they made to get the directors to curb the wrongdoing would have been futile. Today, finding that the investors’ revised complaint satisfied her requirement, she denied a defense request to dismiss the suit.

“The plaintiffs have alleged particularized facts demonstrating that a majority of the relevant board had notice that Abbott was engaging in illegal conduct,” and failed to remedy it, Kendall said.

The ruling is on a complaint that consolidated eight separate suits filed against the directors on Abbott’s behalf, claiming they had breached their fiduciary duty.

“We disagree with the court’s decision,” Scott Stoffel, a spokesman for the Abbott Park, Illinois-based drugmaker, said in an e-mail. “We continue to believe that the suit is without merit.”

Epileptic Seizures

The U.S. Food and Drug Administration approved Depakote for use in treating epileptic seizures in adults and in children over 10 years of age, as well as migraine prevention and for mania associated with bipolar disorder.

Abbott salespeople allegedly promoted the drug in nursing homes for the control of agitation and aggression in elderly dementia patients, without evidence it was safe and effective for that purpose, the Justice Department said in announcing last year’s accord.

Kendall threw out an earlier version of the combined complaint, finding that the institutional investors, led by the Jacksonville, Florida, policemen’s and firemen’s pension fund, hadn’t adequately explained why it would have been fruitless for them to make demands on the directors.

The investors are seeking unspecified money damages for the company from the current board members, including Chairman Miles D. White, audit committee Chairwoman Roxanne S. Austin, former UAL Corp. Chairman Glenn Tilton and former directors such as White’s predecessor as chief executive officer, Duane L. Burnham.

The shareholders are also seeking a court order compelling the company to reform and improve its corporate governance.

The case is In Re Abbott-Depakote Shareholder Derivative Litigation, 11-cv-08114, U.S. District Court, Northern District of Illinois (Chicago).

To contact the reporter on this story: Andrew Harris in the Chicago federal courthouse at

aharris16@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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