IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

 

:

IN RE VICURON PHARMACEUTICALS, :

INC. SECURITIES LITIGATION : CIVIL ACTION

:

 :

:

This Document Relates to: :

: NO. 04-2627

ALL ACTIONS :

 :

MEMORANDUM

Bartle, C.J. May 31, 2007

Before the court is the motion of the class

representatives to award attorney's fees in the amount of

$3,187,500, that is, 25% of the settlement amount of $12.75

million, and for reimbursement of $203,609.06 in costs and other

expenses. In an Order dated May 17, 2007, we entered final

judgment in this case and approved the settlement agreement

without explaining in detail our reasons for doing so. In

addition to deciding the pending motion, we now set forth that

reasoning behind our earlier decision.

Various plaintiffs brought these cases against

defendants Vicuron Pharmaceuticals Inc. ("Vicuron") and certain

officers and directors in this consolidated putative class action

for violations of the Securities and Exchange Act of 1934, as

amended by the Private Securities Litigation Reform Act of 1995

("PSLRA"), 15 U.S.C. §§ 78j(b) and 78t, and Rule 10b-5

Case 2:04-cv-02627-HB Document 120 Filed 05/31/07 Page 1 of 16
1. Esophageal candidiasis is a serious infection of the

esophagus — the tube that connects the mouth to the stomach. It

is caused by an overgrowth of Candida, a fungus that is normally

found in the mouth, among other parts of the body. Candida is

part of the normal "flora" of bacteria and fungi that live in or

on the human body and only threatens the health of a person when

there is an overgrowth.

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promulgated thereunder, 17 C.F.R. § 240.10b-5. On February 1,

2006, we certified a class comprising all purchasers of the

securities of Vicuron between January 6, 2003 and May 24, 2004

and appointed class representatives and class counsel pursuant to

Rule 23 of the Federal Rules of Civil Procedure. See In Re

Vicuron Pharm, Inc., Sec. Litig., 233 F.R.D. 421 (E.D. Pa. 2006). 

I.

According to the Amended Complaint, in January, 2003,

Vicuron completed the third phase of its trial of anidulafungin,

a drug it designed to treat esophageal candidiasis ("EC"). At 1

that time the two favored drugs for the treatment of EC were

fluconazole and Caspofungin and Vicuron believed anidulafungin

would join or surpass these drugs as the most effective treatment

for EC. Unfortunately, the third phase of the anidulafungin

trial did not produce the results for which Vicuron had hoped. 

Within two weeks of treatment with anidulafungin, more than onethird of patients in the trial relapsed while only one-tenth of

the patients treated with fluconazole and Caspofungin did so. 

Nevertheless, on March 17, 2003, plaintiffs contended that

Vicuron stated that the third phase of the trial demonstrated

that its drug was as effective as fluconazole. Vicuron announced

Case 2:04-cv-02627-HB Document 120 Filed 05/31/07 Page 2 of 16
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on April 28, 2003 that it had submitted a new drug application

("NDA") to the United States Food and Drug Administration ("FDA")

for approval of anidulafungin as a treatment of EC. In an

accompanying press release, Vicuron asserted that its drug was as

effective as fluconazole and that its NDA so stated.

The plaintiffs alleged that misrepresentations by the

defendants during the proposed class period (January 6, 2003 to

May 24, 2004) regarding the efficacy of anidulafungin resulted in

the artificial inflation of the value of Vicuron's common stock

to a high of $23.90 per share. According to the plaintiffs, this

artificial increase allowed Vicuron to complete a merger with

Biosearch Italia in March, 2003 by using 21.4 million shares of

Vicuron stock to support the transaction. Vicuron was also able

to complete a secondary offering of six million shares in July,

2003 for net proceeds of $83 million. 

On May 24, 2004, Vicuron issued a press release

acknowledging that the FDA had found its NDA for anidulafungin

did not support the company's proposed labeling for the product.

While the press release disclosed that the FDA had serious

concerns about how quickly EC reappeared in patients treated with

anidulafungin as compared with fluconazole, it also stated that

Vicuron's NDA might eventually be approved with additional

clinical data or studies. Upon the issuance of the press

release, the value of Vicuron's stock sharply decreased to $13.04

per share, a loss of more than 40 percent from the previous day. 

The stock subsequently dropped to below $10.00 per share.

Case 2:04-cv-02627-HB Document 120 Filed 05/31/07 Page 3 of 16
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Plaintiff Perry Paragamian filed a complaint in this

court on June 15, 2004 and several other plaintiffs initiated

actions as well. Plaintiffs filed motions for consolidation that

we granted in an Order dated August 23, 2004. In a Memorandum

and Order dated October 7, 2004 we appointed the "Institutional

Investor Group," consisting of the Massachusetts State Guaranteed

Annuity Fund, Massachusetts State Carpenters Pension Fund, and

Greater Pennsylvania Carpenters Pension Fund, as lead plaintiff. 

See In re Vicuron Pharm., Inc., Sec. Litig., 225 F.R.D. 508 (E.D.

Pa. 2004). After further investigation, the lead plaintiff filed

an amended complaint on behalf of a proposed class of plaintiffs.

On January 20, 2005 the defendants filed a motion to

dismiss the amended class action complaint. They maintained that

any misrepresentations made were not material or were protected

by the safe harbor provisions of the PSLRA regarding forwardlooking statements. Defendants further argued that the lead

plaintiff had not alleged facts to permit an inference that the

plaintiffs had acted with the scienter required by the PSLRA or

that the statements caused the losses claimed by all the

plaintiffs. After further briefing and argument, we denied the

motion to dismiss in a Memorandum and Order dated July 1, 2005.

Counsel for lead plaintiff and counsel for defendants

then conducted extensive fact discovery over many months that

included numerous third parties, motions, and phone conferences

with the court. Although defendants and the lead plaintiff were

often able to resolve disputes, several motions to compel were

Case 2:04-cv-02627-HB Document 120 Filed 05/31/07 Page 4 of 16
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filed. One of these motions sought production of an enormous

quantity of electronic documents from defendants which the

parties eventually resolved without a ruling from the court. The

plaintiffs filed for class certification on October 14, 2005. In

a Memorandum and Order dated February 1, 2006 we granted the

motion of the lead plaintiff and certified the following class:

All persons who purchased the securities of

Vicuron during the period January 6, 2003

through May 24, 2004, inclusive. Excluded

from the Class are the defendants herein,

members of the immediate families of the

Individual Defendants, any entity in which

any defendant has a controlling interest, and

the legal affiliates, representatives, heirs,

controlling persons, successors, and

predecessors in interest or assigns of any

such party.

Vicuron, 233 F.R.D. at 429. We appointed the entities that

comprised the lead plaintiff to be class representatives and

named lead counsel to be counsel for the class. 

In 2006, the class representatives negotiated a

settlement with the defendants with the assistance of a mediator,

a retired California state judge. Under the settlement agreement

the defendants agreed to pay the class $12.75 million and

reimburse the expenses and costs of class counsel of up to

$350,000, a sum that is greater than the $203,609.06 actually

being requested here.

II.

In an Order dated May 17, 2007, we entered final

judgment in this case and approved the settlement agreement. 

Case 2:04-cv-02627-HB Document 120 Filed 05/31/07 Page 5 of 16
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Although we did not set out our reasons for approving the

settlement at that time, we do so now. 

A district court may only approve a settlement of class

action litigation if it is "fair, reasonable, and adequate." 

Fed. R. Civ. P. 23(e)(1)(C). Our Court of Appeals has identified

nine factors to guide the district courts in approving proposed

class action settlements. See Girsh v. Jepson, 521 F.2d 153, 157

(3d Cir. 1975). These factors are: (1) The complexity, expense,

and likely duration of the litigation; (2) the reaction of the

class to the settlement; (3) the stage of the proceedings and the

amount of discovery completed; (4) the risks of establishing

liability; (5) the risks of establishing damages; (6) the risks

of maintaining the class action through the trial; (7) the

ability of the defendants to withstand a greater judgment; (8)

the range of reasonableness of the settlement fund in light of

the best possible recovery; and (9) the range of reasonableness

of the settlement fund to a possible recovery in light of all the

attendant risks of litigation. In re Warfarin Sodium Antitrust

Litig., 391 F.3d 516, 534-35 (3d Cir. 2004) (citing Girsh, 521

F.2d at 156-57). The court has further held that a presumption

of fairness attaches to agreements if the district court finds: 

(1) the negotiations occurred at arms length; (2) there was

sufficient discovery; (3) the proponents of the settlement are

experienced in similar litigation; and (4) only a small fraction

of the class objected. In re Cendant Corp. Litig., 264 F.3d 201,

233 n.18 (3d Cir. 2001) (citation omitted).

Case 2:04-cv-02627-HB Document 120 Filed 05/31/07 Page 6 of 16
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In evaluating the proposed settlement in this case, we

note that "there is an overriding public interest in settling

class action litigation, and it should therefore be encouraged." 

In re General Motors Corp. Pick-Up Truck Fuel Tank Prod. Liab.

Litig., 55 F.3d 768, 784 (3d Cir. 1995). Settlement of complex

class action litigation conserves valuable judicial resources,

avoids the expense of formal litigation, and resolves disputes

that otherwise could linger for years. See id.; In re Sch.

Asbestos Litig., 921 F.2d 1330, 1333 (3d Cir. 1990).

The class representatives submit that the proposed

settlement is presumptively fair. The settlement before us is

the product of prolonged negotiations at-arms-length over many

months between the class representatives and the defendants that

required the mediation efforts of a retired California state

judge. The negotiations and eventual agreement took place with

the benefit of voluminous fact discovery described above. No

member of the class has objected to the proposed settlement

despite being provided notice and ample time to do so. We also

observe that the class representatives who seek approval are both

sophisticated and experienced. The settlement before the court

satisfies the factors set forth by our Court of Appeals in GM

Trucks and Cendant. We find, therefore, that the settlement is

presumptively reasonable, fair, and adequate.

Even so, we nevertheless evaluate it in light of the

factors first enunciated by the Court of Appeals in Girsh, some

Case 2:04-cv-02627-HB Document 120 Filed 05/31/07 Page 7 of 16
2. The second Girsh factor also suggests we approve the

settlement. As noted in greater detail below, not one of the

more than 26,000 members of the class has objected to the award,

attorney's fee percentage, or costs.

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of which overlap with the those that establish the presumption of

fairness. See Warfarin, 391 F.3d at 534-35.

The litigation has been ongoing for more than two years

and had progressed through discovery before the parties reached

the agreement now before this court for approval. This case is

more complicated than an average securities fraud class action

due to the scientific nature of the facts underlying the claim. 

Defendants allegedly made false or misleading statements about a

drug they were testing that artificially boosted the price of the

stock of the defendant corporation. The subject matter of these

statements necessitated prolonged discovery. There would also be

expert testimony, were the case to go to trial, on the science of

drugs efficacy, relapse rates, clinical studies, and EC. Both

sides devoted considerable time and money in extensive paper and

electronic document discovery as well as expert testimony on the

scientific topics above and the legal subjects of causation and

damages. The expense, duration, and complexity of this case

weigh in favor of approving a settlement brokered after

protracted negotiations and informed by voluminous discovery.2

The class faced significant risk that it would not be

able to establish either liability or damages, or both, had the

case proceeded to trial. Despite the strength of its evidence,

certain weaknesses in the class' case as well as its heightened

Case 2:04-cv-02627-HB Document 120 Filed 05/31/07 Page 8 of 16
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burden under PSLRA presented a significant possibility that the

defendants would prevail at trial. For example, it is possible

that a jury would not have found that the statements made by the

defendants were false, misleading, or material. In addition,

several of the statements that the class alleges to be misleading

in certain contexts may have been found to be technically

accurate standing alone and, therefore, not misleading. It is

also possible that the class would not have been able to prove at

trial that the defendants acted with recklessness. This risk was

heightened by the fact that, as the class did not uncover any

evidence of insider trading, it would be more difficult to prove

scienter. If the defendants could successfully persuade a jury

that the statements they made related to the prospects of FDA

approval, the PSLRA safeguards regarding forward-looking

statements would have required the class to prove that the

defendants knew the statements were false at the time they made

them. In such an event it would have been very difficult for the

class to prevail. Finally, had the case proceeded to trial, the

technical nature of the subject matter would undoubtedly have

reduced the case to a battle of experts. Each side would have

offered extensive testimony from expert witnesses on the efficacy

of drugs, relapse rates, clinical studies, EC, causation, and

damages. Compelled to choose between experts, it is far from

certain that a jury would have found for the class, much less

awarded it damages on the order of the settlement agreement.

Case 2:04-cv-02627-HB Document 120 Filed 05/31/07 Page 9 of 16
3. Of course, had the defendants prevailed at trial, the class

would not recover any damages. To reverse this outcome, the

class would have been forced to file post-trial motions and

perhaps try the case a second time at significant expense. 

Failing that, it would have had to seek relief from our Court of

Appeals.

4. Even if we were to assume that the seventh Girsh factor--the

defendant's ability to withstand a greater judgment--suggests we

reject the settlement, this factor alone does not outweigh all

the others. In our view, the remaining Girsh factors

(continued...)

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Finally, in addition to the risks inherent in trying a

securities fraud case that arises from complicated medical facts,

it is not certain that the class would have ultimately recovered

even if it had prevailed at trial. Had the class prevailed at 3

trial, the defendants would likely have filed any number of posttrial motions and, if necessary, appealed the decision to the

Court of Appeals for the Third Circuit. In such a situation, the

defendants, setting aside the considerable expense and delay

inherent to post-trial motions and appeal, might prevail as a

matter of law or win a retrial. The potential pitfalls further

support approval of the settlement.

After careful consideration of the risks to the class

of proceeding to trial including the weaknesses in the class'

case, resources expended in this litigation, the lack of

objection to the settlement, and the manner in which the

settlement agreement was created, we conclude that the decision

of the class representatives on behalf of the class to settle

this case for the amount of $12.75 million is "fair, reasonable,

and adequate." Fed. R. Civ. P. 23(e)(1)(C). 4

Case 2:04-cv-02627-HB Document 120 Filed 05/31/07 Page 10 of 16
4. (...continued)

overwhelmingly support the approval of the settlement agreement.

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III.

The PSLRA provides that the attorneys for the class are

not to be paid any more than "a reasonable percentage of the

amount of any damages and prejudgement interest actually paid to

the class." 15 U.S.C. § 78u-4(a)(6). For many years, both the

Supreme Court and our Court of Appeals have favored calculating

attorney's fees as a percentage of the class recovery. See

Boeing Co. v. Van Gemert, 444 U.S. 472, 478-79 (1980); In re AT&T

Corp., 455 F.3d 160, 164 (3d Cir. 2006); In re Prudential Ins.

Co. America Sales Practice Litig. Agent, 148 F.3d 283, 333 (3d

Cir. 1998); Court Awarded Attorney Fees, Report of Third Circuit

Task Force, 108 F.R.D. 237 (1985). While it the duty of the

court to ensure that the statute's command is carried out, our

Court of Appeals has explained that in a case like this one, a

fee is presumptively reasonable if it has been fixed in an

agreement between a properly selected class representative and

properly appointed class counsel. Cendant, 264 F.3d at 282-83. 

This presumption may be rebutted if the awarded fee is shown to

be prima facie "clearly excessive." Id. at 283; AT&T, 455 F.3d

at 167-68.

Our Court of Appeals has set forth the standards by

which we measure and evaluate the reasonableness of proposed

counsel fees. See Gunter v. Ridgewood Energy Corp., 223 F.3d 190

(3d Cir. 2000). Those factors include: (1) the size of the fund

Case 2:04-cv-02627-HB Document 120 Filed 05/31/07 Page 11 of 16
5. While our Court of Appeals noted in Cendant that in prior

cases it had "recommended" that district courts weigh both the

Gunter factors and conduct a lodestar analysis, we are not

required to do the latter. Rather, the Court of Appeals has

explained that we "can consider" a lodestar analysis "if

necessary." Cendant, 264 F.3d at 221, 284-85 (citations

omitted). Nevertheless, we conduct such an analysis to confirm

our conclusion based on the Gunter factors.

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created and the number of persons benefitted; (2) the presence or

absence of substantial objections by members of the class to the

settlement terms and/or fees requested by counsel; (3) the skill

and efficiency of the attorneys involved; (4) the complexity and

duration of the litigation; (5) the risk of nonpayment; (6) the

amount of time devoted to the case by plaintiffs' counsel; and

(7) the awards in similar cases. Gunter, 223 F.3d 195 n.1. 

These factors are not to be applied in a rigid, formulaic manner,

but rather a court must weigh them in light of the facts and

circumstances of each case. Finally, if we do not reach a

conclusion considering the Gunter factors, we may conduct a

lodestar cross-check. Cendant, 264 F.3d at 284-85. 5

Class counsel seeks approval of 25% of the settlement

amount, that is, approximately $3,187,500, and costs in the

amount of $203,609.06. The class representatives approved the

fee percentage after reviewing the award obtained by class

counsel and, in addition, approved up to $350,000 in expenses. 

We apply the factors set out by our Court of Appeals in Gunter.

We first consider the results obtained by class counsel

for the benefit of the class. Specifically, we look to the size

of the recovery in relation to the size of the class. Class

Case 2:04-cv-02627-HB Document 120 Filed 05/31/07 Page 12 of 16
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counsel obtained a settlement of $12.75 million dollars for a

class estimated to number 26,000. Because the precise size of

the class is not certain, the precise benefit per share or per

class member cannot be determined. Nevertheless, the size of the

settlement is substantial considering the defendants denied, and

continue to deny, liability and litigated this case before the

court for two years before they settled.

Pursuant to this court's Order of February 1, 2007,

copies of the proposed settlement and notice were mailed to more

than 26,000 members of the class along with notice of the

opportunity to object to the attorney's fee and cost

reimbursement provisions. Class counsel supplemented their

mailed notice by publicizing the settlement in various financial

publications. Despite this notice, not one member of the class

objected within the time allotted, that is, before April 20,

2007. In addition, no class members objected to any part of the

settlement at the hearing conducted on May 17, 2007, and as of

that date neither the court nor class counsel had received any

objection from a member of the class.

We also observe that the settlement obtained by class

counsel was achieved after it alone conducted the investigation

and prosecuted the case against opponents represented by highly

skilled counsel. No agency of the United States, including the

Securities and Exchange Commission, conducted any investigation

of this matter and so class counsel had to perform all the work. 

Class counsel successfully litigated defendants' motion to

Case 2:04-cv-02627-HB Document 120 Filed 05/31/07 Page 13 of 16
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dismiss, engaged in extensive discovery, and obtained class

certification. The defendants opposed class counsel each step of

the way. Class counsel nevertheless engaged in this litigation

for two years on a contingent basis. At the fairness hearing, we

requested that class counsel submit a detailed breakdown of the

hours it billed. Counsel has now done so and, after carefully

reviewing that material, we are satisfied that the hours devoted

to this case by class counsel were reasonable. Furthermore, we

note that in similar cases our Court of Appeals has approved

awards of counsel fees that range from 19% to 45%. See GM

Trucks, 55 F.3d at 822. The 25% fee in this case is less than

the average fee in the low 30% range that is customary in this

circuit.

In sum, the facts and circumstances of this case in

addition to the efforts of counsel evaluated pursuant to the

Court of Appeals' command in Gunter weigh in favor of approving

the counsel fee agreement between class counsel and the class

representatives.

Although not required to do so by our Court of Appeals,

we check our conclusion under Gunter with the lodestar method. 

See Lindy Bros. Builders, Inc., et al. v. American Radiator &

Standard Sanitary Corp., et al., 487 F.2d 161, 167-68 (3d Cir.

1973). We are first required to determine the number of hours

expended by the class counsel in this action. Counsel submits

that they have expended 3,352 hours in the prosecution of this

matter. Adjusted for the various rates charged, the cumulative

Case 2:04-cv-02627-HB Document 120 Filed 05/31/07 Page 14 of 16
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lodestar for counsel fees is $1,423,680. This suggests a

lodestar multiplier of 2.23 which is lower than in numerous other

cases where multipliers between 2.5 and 4 have been approved. 

The lodestar confirms our conclusion that the fee agreement is

reasonable under Gunter. 

Finally, at the hearing we asked class counsel to

submit to the court further information explaining the specifics

of the expenses for which it seeks reimbursement. Counsel has

provided this information and, after careful review of the

materials submitted, we are confident that class counsel's

request for reimbursement of expenses in the amount of

$203,609.06 is reasonable and fair both to counsel and the class.

IV.

In conclusion, pursuant to Rule 23(e), we have found

that the settlement amount of $12.75 million is reasonable and

fair to the members of the class. In addition, counsel fees of

25% of the award amount, or $3,187,500, are also reasonable in

light of the governing law and the factual circumstances of this

case. Finally, counsel's request for reimbursement of costs in

the amount of $203,609.06 is likewise appropriate. Accordingly,

we will grant the motion of the class representatives for the

award of attorney's fees and reimbursement of expenses.

Case 2:04-cv-02627-HB Document 120 Filed 05/31/07 Page 15 of 16
IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

 

:

IN RE VICURON PHARMACEUTICALS, :

INC. SECURITIES LITIGATION : CIVIL ACTION

:

 :

:

This Document Relates to: :

: NO. 04-2627

ALL ACTIONS :

 :

ORDER

AND NOW, this 31st day of May, 2007, for the reasons

set forth in the accompanying Memorandum, it is hereby ORDERED

that:

(1) the motion of the class representatives for award

of attorneys' fees and reimbursement of expenses is GRANTED; and

(2) class counsel is awarded attorney's fees in the

amount of $3,187,500, as well as costs and expenses in the amount

of $203,609.06.

BY THE COURT:

/s/ Harvey Bartle III 

 C.J.

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