Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_04-cv-04293/USCOURTS-cand-3_04-cv-04293-13/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:78m(a) Securities Exchange Act

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

IN RE CHIRON CORPORATION

SECURITIES LITIGATION

 /

No C 04-4293 VRW

PROPOSED NOTICE OF

PROPOSED SETTLEMENT

To whom it may concern:

You are receiving this letter because you or an entity in

which you have an interest or an entity or person for which you

have responsibility may have purchased or otherwise acquired shares

of Chiron common stock between July 23, 2003 and October 5, 2004. 

As such, you may be a member of a proposed class of shareholders in

a class action lawsuit currently pending before Chief Judge Vaughn

R Walker in the United States District Court for the Northern

District of California. The lead plaintiff in the lawsuit,

International Union of Operating Engineers Local No. 825 Pension

Fund, has agreed to terms of a settlement with the defendants,

Novartis Vaccines and Diagnostics, Inc, and certain Chiron

executives (Novartis acquired Chiron in 2006). 

Case 3:04-cv-04293-VRW Document 155 Filed 05/10/08 Page 1 of 10
United States District Court

For the Northern District of California

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The court must determine whether the proposed settlement

is fair, and it is seeking your help in doing so. If the court

approves the settlement and certifies the proposed class, all class

members who do not opt out of the class will be bound by the

settlement terms and unable to seek other recourse against the

defendants for the claims alleged in this lawsuit. 

Please read the information below and the enclosed

notice. If you have any comments about the proposed settlement,

please email the court at XXXXXX@cand.uscourts.gov. Please include

your name, the purchase and sale dates of any Chiron stock you

acquired between July 23, 2003 and October 5, 2004, and the number

of shares you acquired or sold on each date.

ABOUT THE CASE

Chiron is a California-based pharmaceuticals company

focused on developing products for cancer and infectious diseases. 

One of its products is a flu vaccine marketed under the name

Fluvirin. Chiron manufactures Fluvirin in a plant near Liverpool,

England.

The plaintiffs in this lawsuit allege that on July 23,

2003, Chiron issued a press release reporting strong growth in

income and revenues for the second quarter of 2003. Plaintiffs

allege that, following the press release, Chiron executives

conducted a conference call with analysts favorably representing

the Liverpool plant’s ability to satisfy the US market for Fluvirin

for the 2004-2005 flu season.

On August 26, 2004, Chiron announced that it would delay

shipment of Fluvirin pending an investigation after internal

Case 3:04-cv-04293-VRW Document 155 Filed 05/10/08 Page 2 of 10
United States District Court

For the Northern District of California

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testing identified a number of lots with sterility problems. 

Chiron announced that the investigation would delay Fluvirin

shipments until early October and would prevent the company from

recognizing Fluvirin revenue in the third quarter of 2004. The

closing price of Chiron’s common stock dropped from $47.49 per

share on August 26, 2004 to $43.41 per share on August 27.

On October 5, 2004, Chiron announced that British

pharmaceutical regulators had temporarily suspended the company’s

license to manufacture Fluvirin in the Liverpool plant, preventing

the company from releasing any Fluvirin during the 2004-2005 flu

season. Chiron’s common stock price dropped from $45.42 per share

on October 4, 2004 to $37.98 per share on October 5.

Plaintiffs allege that Chiron and its executives misled

investors by intentionally overstating their ability to manufacture

Fluvirin. The lawsuit seeks money damages from the defendants for

violations of federal securities laws. The lead plaintiffs

estimate the total losses incurred by purchasers of Chiron common

stock between July 23, 2003 and October 5, 2004 to be $279.9

million.

The lead plaintiff and Novartis agreed to terms of a

proposed settlement on March 29, 2007. This settlement was reached

at an early stage in the litigation, before substantial discovery

was conducted into the merits of plaintiffs’ allegations. A copy

of the proposed settlement agreement (Doc #100) and the proposed

notice to potential class members (Doc #100-3) can be found, along

with a complete record of this litigation, at www.XXXXX.com. 

On November 30, 2007, the court denied preliminary

approval of that proposed settlement; the reasons for the denial

Case 3:04-cv-04293-VRW Document 155 Filed 05/10/08 Page 3 of 10
United States District Court

For the Northern District of California

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are set forth in a written order (Doc #130) available at

www.XXXXX.com.

TERMS OF PROPOSED SETTLEMENT

The lead plaintiff and Novartis have submitted a new

settlement agreement and class notice to the court. The class

notice is enclosed, and the settlement agreement is available

online as Doc #XX at www.XXXXX.com.

Under the proposed settlement, Novartis will pay $30

million plus interest from June 30, 2006. Of this amount, 17

percent ($5.1 million) will be paid to lead plaintiff’s attorneys

and approximately $200,000 will go toward attorney expenses. Thus,

approximately $24.7 million (excluding interest) will be

distributed among class members who do not opt out of the

settlement. Lead plaintiffs estimate that the proposed class

includes approximately 36 million shares of Chiron stock;

therefore, the average recovery per share will be approximately

$0.69. 

The amount actually recovered for each share will depend

on when the share was purchased, when, if at all, it was sold, and

the purchase and sale prices. The plan of allocation under the

proposed settlement is detailed in the enclosed class notice at

page XX.

If 1.4 million or more shares opt out of the proposed

settlement, Novartis will have the right to terminate the

settlement.

Case 3:04-cv-04293-VRW Document 155 Filed 05/10/08 Page 4 of 10
United States District Court

For the Northern District of California

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THE COURT’S CONCERNS

Although the new proposed settlement and class notice

address some of the court’s concerns regarding the first proposed

settlement and notice, the court has several remaining concerns: 

Quality of the Settlement

The $30 million settlement represents 10.7 percent of the

$279.9 in losses that lead plaintiff estimates class members

suffered during the class period. Lead plaintiff notes that the

provable damages in this case might be far less than $279.9 million

because the declines in the Chiron stock price following the August

26 and October 5, 2004 disclosures may not be fully attributable to

the alleged concealment by Chiron and its executives. It is also

true that continuing this litigation may result in no recovery at

all. Lead plaintiff argues that a settlement of 10.7 percent of

estimated damages compares very favorably to settlements in other

securities class actions, noting that in 2006, the median

settlement in securities class actions was 2.2 percent of estimated

losses. See Todd Foster, et al, “Recent Trends in Shareholder

Class Action Litigation: Filings Plummet, Settlements Soar,”

available at www.nera.com.

It is difficult for the court to say whether the lead

plaintiff’s favorable characterization of the settlement is

accurate. Another method of evaluating securities class action

settlements compares the amount of the settlement with the one-day

drop in the defendant company’s market value at the end of the

class period. The court estimates that Chiron’s market value

declined $1.39 billion between October 4 and October 5, 2004. The

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United States District Court

For the Northern District of California

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proposed $30 million settlement represents approximately 2.16

percent of Chiron’s one-day market value decline; in 2006, the

median securities class action settlement was 3.5 percent of the

market value drop in cases where the one-day market value drop was

over $500 million. See Laura E Lyons & Ellen M Ryan, “Securities

Class Action Settlements: 2006 Review and Analysis,” available at

www.cornerstone.com. By this measure, the proposed settlement does

not compare favorably to the average securities class action

settlement in 2006. 

The court does not suggest that the latter measure is a

more accurate method for evaluating the quality of the proposed

settlement. The court merely offers this as an illustration of

another way of evaluating the proposed settlement by comparison to

published statistics. The court suggested appointing a neutral

expert to evaluate the settlement, but the lead plaintiff objected. 

See Doc ##145, 146 and 147 at www.XXXXX.com. Consequently, class

members are encouraged to make their own evaluation.

Attorney Fees

The court is also concerned that lead plaintiff’s

attorney fee request may be unreasonably high. Lead plaintiff’s

counsel request 17 percent of the class recovery, or $5.1 million;

this is a reduction from the $7.5 million requested in the first

proposed settlement. Although courts often award attorney fees of

25 percent of the class recovery, it is appropriate to compare the

fee request with the amount of work performed by lead plaintiff’s

attorneys. Lead plaintiff’s attorneys spent 2017.5 hours working

on this case before the submission to the court of the first

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United States District Court

For the Northern District of California

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proposed settlement. At hourly rates used by the court, lead

plaintiff’s counsel could bill $718,236.81 for this work. Thus,

the requested award of $5.1 million is 7.1 times higher than what

lead plaintiff’s counsel might reasonably have received had they

billed hourly rates for their work. 

Lead plaintiff’s counsel argues that the court’s

calculation of reasonable hourly rates is too low. See Doc #151,

pages 4-7, at www.XXXXX.com. Using the hourly rates proposed by

lead plaintiff’s counsel, lead plaintiff’s counsel could bill

approximately $993,969.27 for their work. The requested fees of

$5.1 million using this measure would be approximately 5.13 times

more than lead plaintiff’s counsel would receive if they had billed

their time at their proposed rate. 

Class counsel are entitled to receive a reasonable fee

for any recovery they obtain for the class. You should consider

counsel’s proposed fee request in deciding whether you wish to

accept the settlement.

It is appropriate for lead plaintiff’s attorneys – who

represent lead plaintiffs on a contingent basis – to receive some

multiple of their hourly rate; this compensates them for the risk

of no compensation at all when they undertake litigation such as

this. It also may be appropriate to increase the multiplier

further if the settlement achieved for the class is particularly

valuable or the work performed by lead plaintiff’s counsel

particularly difficult. Plaintiff’s counsel often receive two to

four times their reasonably hourly rates for work on securities

class action settlements. A fuller discussion of reasonable

attorney fees can be found at Doc #130, pages 9-21, at

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www.XXXXX.com.

Novartis Counsel’s Representation of Attorneys from Lead

Plaintiff’s Law Firm

It has come to the court’s attention that Novartis’s law

firm in this litigation, Skadden, Arps, Slate, Meagher & Flom LLP

(“Skadden”), employs two attorneys who represented clients in

connection with a criminal investigation of employees of the law

firm of Milberg, Weiss, Bershad, Hynes & Lerach LLP (“Milberg

Weiss”) beginning in October 2003. The Milberg Weiss attorneys

represented by Skadden left the Milberg Weiss firm in May 2004,

when the Milberg Weiss firm split into Lerach, Coughlin, Stoia,

Geller, Rudman, Robbins LLP (“Lerach Coughlin”) and what became

Milberg LLP. The Milberg Weiss attorneys represented by Skadden

joined Lerach Coughlin; lead plaintiff is now represented by

Milberg LLP. Novartis’s attorneys represent to the court that the

two Skadden attorneys who represented the Milberg Weiss employees

joined Skadden in January 2006 and that they have not been involved

in this litigation in any way. They further represent that the

Milberg Weiss employees who were represented by Skadden did not

participate in any way in this litigation.

While it does not appear to the court that there is

evidence of misconduct between Novartis’s counsel and lead

plaintiff’s law firm or any other impropriety, the existence of the

connection between lead plaintiff’s law firm and Skadden may be

relevant to your evaluation of the settlement. For a fuller

discussion of this issue, including a declaration by the Skadden

attorney involved, see Doc #130 at 29-35 and Doc #152, Exh 2 and 3,

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United States District Court

For the Northern District of California

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at www.XXXXX.com.

HOW TO PROVIDE FEEDBACK

Before deciding whether to approve the proposed

settlement, the court wishes to receive comments from potential

class members. The court is particularly interested in your

thoughts on whether the settlement itself is fair and whether the

requested attorney fees are reasonable. 

If you have any comments about the proposed settlement,

please email the court at XXXXXX@cand.uscourts.gov. Please include

your name, the purchase and sale dates of any Chiron stock you

acquired between July 23, 2003 and October 5, 2004, and the number

of shares you acquired. COMMENTS WILL BE ACCEPTED UNTIL THIRTY

DAYS AFTER THE DATE OF THIS MAILING.

WHAT HAPPENS NEXT

After reviewing the comments it receives, the court will

decide whether to approve the proposed settlement. If the proposed

settlement is approved, you will receive a claim form and

instructions on its submission. You must submit a claim form to

receive any recovery from this settlement. If the court approves

the settlement, but it is not satisfactory to you, you may opt out

of the settlement. In that event, you will receive nothing from

this settlement but may bring your own action to obtain a recovery. 

If the court does not approve the settlement, the

litigation will continue, but the lead plaintiff and class counsel

may decide to abandon it, in which case class members would receive

nothing unless they brought their own lawsuits or a new class

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action were filed. Furthermore, if class members holding more than

1.4 million shares opt out of the settlement, Novartis may withdraw

from the settlement.

Case 3:04-cv-04293-VRW Document 155 Filed 05/10/08 Page 10 of 10