Fed up investors sue KV over Makena projections

KV Pharmaceutical ($KV.A) investors aren't happy. The company's stock has fallen into the toilet, down to $1 per share from $6.50 in mid-February. Some of that decline is no doubt the consequence of its high-profile legal battle with ex-CEO Mark Hermelin, who led the company through a wild-and-crazy manufacturing snafu several years ago. But shareholders are more interested in KV's new leadership--and its sunny projections for the pregnancy drug Makena, which was supposed to fuel a company turnaround.

If you've been following the Makena controversy, you know that the FDA granted its blessing to the hormone drug in early February. Designed to prevent preterm labor, Makena is a standardized version of long-used hormone injections that aren't FDA-approved. KV went through the expense and effort to test its version in a clinical study, so the FDA gave it market exclusivity in return.

KV was optimistic--perhaps too much so. The company set Makena's list price at $1,500 per injection. That's about 100 times the cost of the unapproved hormone shots made by compounding pharmacists, the St. Louis Post-Dispatch reports. Behind the scenes, the company notified compounding pharmacists that they had to stop making their version or risk FDA action.

Patient advocates and politicians jumped all over KV's pricing. The FDA joined in, saying that it wouldn't enforce KV's exclusivity as long as compounded versions were made safely. In response, KV slashed its price to $690 per shot. Meanwhile, the stock went into a tailspin.

Now, three KV investors have sued the company in three separate suits, all seeking class-action status for their claims. They say KV executives made false and misleading statements about Makena's prospects, inducing investors to buy up the stock at "artificially inflated prices."

One of the attorneys involved, who filed the first investor suit, says the investors don't have to prove that KV's executives--including CEO Gregory Divis and marketing exec Scott Goedeke, who are named in the court claim--intended to mislead investors. "We just need to show that they acted recklessly," lawyer Mary Blasy told the Post-Dispatch. We're not securities lawyers, but shareholder suits do seem to be a bit more difficult to win than that. Stay tuned.

- read the Post-Dispatch piece

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