On September 2, 2014, the Ninth Circuit Court of Appeals held that the U.S. District Court for the Central District of California erred in dismissing a shareholder derivative case against Allergan. The plaintiffs in the case allege that Allergan Board of Directors ("Board") allowed for the illegal marketing of Botox by promoting "off-label" uses of the product. The plaintiffs complain that the Allergan Board members participated in organizing programs to promote the off-label uses and encouraging the sales team to market Botox for off-label uses.1
Specifically, it is alleged that the Board advocated non-FDA-approved uses of Botox to treat issues such as headache conditions and a semi-rare condition called Cervical Dystonia. The plaintiffs argue that the Board instituted plans to increase the sale of Botox by marketing it for off-label uses. The plaintiffs allege that a 1997 slide deck from the Board claimed that "maximizing Botox sales for spasticity, pain, and migraine, all off-label uses, was a 'top corporate priority.'" Additionally plaintiffs claim that Allergan held seminars with medical experts to promote the off-label use of the product, and spent resources to convince doctors that symptoms of certain diseases could be mitigated by the off-label uses.2
The District Court held that the plaintiffs did not allege sufficiently that the Board knew that its internal controls were inadequate or that it failed to exercise valid business judgment.3 The Ninth Circuit disagreed holding, "it would be surprising, to say the least, if such significant, continuing, and diverse breaches of FDA regulations in relation to a star product at Allergan passed unnoticed by the Board for so long."4 The Court ruled that while it is too early in the case to determine the truthfulness of the factual allegations by the plaintiffs, "the plaintiffs have satisfied their obligation to show that demand on Allergan's board of directors is excused."5
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