Case 3:17-cv-06436-DEA Document 101 Filed 08/25/20 Page 1 of 41 PageID: 2679 UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY IN RE: DR. REDDY’S LABORATORIES Case No. 3:17-cv-06436-PGS-DEA LIMITED SECURITIES LITIGATION DECLARATION OF MICHAEL H. ROGERS IN SUPPORT OF (I) LEAD PLAINTIFF’S MOTION FOR FINAL APPROVAL OF CLASS ACTION SETTLEMENT AND PLAN OF ALLOCATION AND (II) LEAD COUNSEL’S MOTION FOR AN AWARD OF ATTORNEYS’ FEES AND PAYMENT OF EXPENSES Case 3:17-cv-06436-DEA Document 101 Filed 08/25/20 Page 2 of 41 PageID: 2680 I, MICHAEL H. ROGERS, declare as follows pursuant to 28 U.S.C. §1746: 1. I am a partner of the law firm of Labaton Sucharow LLP (“Labaton Sucharow”). Labaton Sucharow serves as Court-appointed Lead Counsel for Lead Plaintiff the Public Employees’ Retirement System of Mississippi (“Mississippi PERS”) and the Settlement Class in the Action. I have been actively involved in prosecuting and resolving the Action, am familiar with its proceedings, and have personal knowledge of the matters set forth herein based upon my supervision and participation in all material aspects of the Action.1 2. Pursuant to Rule 23 of the Federal Rules of Civil Procedure, I submit this declaration in support of Lead Plaintiff’s Motion for Final Approval of Class Action Settlement and Plan of Allocation. I also submit this declaration in support of Lead Counsel’s Motion for an Award of Attorneys’ Fees and Payment of Litigation Expenses. Both motions have the full support of Lead Plaintiff. See Declaration of Ta’Shia S. Gordon, dated August 19, 2020, attached hereto as Exhibit 1.2 I. PRELIMINARY STATEMENT 3. The proposed Settlement now before the Court provides for the resolution of all claims in the Action, and related claims, in exchange for a cash payment of $9,000,000. As 1 All capitalized terms used herein that are not otherwise defined shall have the meanings provided in the Stipulation and Agreement of Settlement, dated as of May 12, 2020 (ECF No. 95-1) (the “Stipulation”), which was entered into by and among Lead Plaintiff, on behalf of itself and the Settlement Class and Dr. Reddy’s Laboratories Ltd. (“Dr. Reddy’s” or the “Company”); Dr. Reddy’s Laboratories, Inc.; Abhijit Mukherjee; G.V. Prasad; Saumen Chakraborty; and Satish Reddy (collectively, “Defendants”). 2 Citations to “Exhibit” or “Ex.___” herein refer to exhibits to this Declaration. For clarity, citations to exhibits that have attached exhibits will be referenced as “Ex. __-__.” The first numerical reference is to the designation of the entire exhibit attached hereto and the second alphabetical reference is to the exhibit designation within the exhibit itself. 1 Case 3:17-cv-06436-DEA Document 101 Filed 08/25/20 Page 3 of 41 PageID: 2681 detailed herein, Lead Plaintiff and Lead Counsel respectfully submit that the Settlement represents a very favorable result for the Settlement Class in light of the significant risks of continuing to litigate the Action. 4. This case has been vigorously litigated from its commencement in August 2017 through the execution of the Stipulation. The Settlement was achieved only after Lead Counsel, inter alia, as detailed herein: (i) conducted a thorough and wide-ranging investigation concerning the allegedly fraudulent misrepresentations made by Defendants, which included a review and analysis of publicly available information, interviews with 10 confidential witnesses who were former Dr. Reddy’s employees that were familiar with the Company’s Indian manufacturing operations and other potentially relevant information, and consultation with experts on pharmaceutical manufacturing and FDA regulatory compliance, as well as market efficiency, loss causation, and damages; (ii) prepared and filed a detailed Amended Consolidated Class Action Complaint (ECF No. 36); (iii) researched and drafted an opposition (ECF No. 48) to Defendants’ comprehensive motion to dismiss the Complaint (ECF No. 47), which the Court granted in part and denied in part; (iv) moved for class certification (ECF Nos. 65-66); (v) engaged in fact discovery efforts, which led to the analysis of approximately 132,244 pages of documents produced by Defendants; (vi) defended the depositions of Lead Plaintiff’s representatives, Lead Plaintiff’s relevant investment manager, and Lead Plaintiff’s economic expert; and (vii) engaged in extensive mediation efforts overseen by Robert Meyer, which included the preparation of mediation briefs, a full-day mediation session, and extensive subsequent negotiations. 2 Case 3:17-cv-06436-DEA Document 101 Filed 08/25/20 Page 4 of 41 PageID: 2682 5. Lead Plaintiff and Lead Counsel believe that the Settlement is in the best interests of the Settlement Class. Due to their efforts, Lead Plaintiff and Lead Counsel are well-informed about the strengths and weaknesses of the claims and defenses in the Action. As discussed in detail below, the Settlement was achieved in the face of vigorous opposition by Defendants who would have, had the Settlement not been reached, continued to raise numerous challenging defenses. For example, Defendants would have continued to raise serious arguments concerning scienter and the falsity of the alleged misstatements. Additionally, Defendants would likely argue that damages are not significant given that the Court dramatically reduced the scope of the case and the length of the class period. Issues relating to damages would likely have come down to an inherently unpredictable and hotly disputed “battle of the experts,” with Defendants’ experts focusing on, among other things, that there were no statistically significant price movements in Dr. Reddy’s ADS on the dates of certain of the remaining alleged misstatements, and that the ADS price declines on the alleged corrective disclosures were explained by non-fraud related factors. In the absence of a settlement, there was a very real risk that the class could have recovered nothing or an amount significantly less than the negotiated Settlement. 6. With respect to the proposed Plan of Allocation for the Settlement proceeds governing the calculation of claims, as discussed below, the proposed plan was developed with the assistance of Lead Plaintiff’s damages expert, and provides for the distribution of the Net Settlement Fund to Settlement Class Members who submit Claim Forms that are approved for payment on a pro rata basis based on their losses attributable to the alleged fraud. 7. With respect to the Fee and Expense Application, as discussed in Lead Counsel’s Memorandum of Law in Support of Motion for an Award of Attorneys’ Fees and Payment of 3 Case 3:17-cv-06436-DEA Document 101 Filed 08/25/20 Page 5 of 41 PageID: 2683 Litigation Expenses (“Fee Brief”), the requested fee of 25% of the Settlement Amount would be fair both to the Settlement Class and to Lead Counsel, and warrants the Court’s approval. This fee request is within the range of fee percentages frequently awarded in this type of contingent litigation and, under the facts of this case, is justified in light of the substantial benefits that Lead Counsel has conferred on the Settlement Class, the risks they undertook, the quality of their representation, the nature and extent of the legal services, and the fact that Lead Counsel pursued the case at their financial risk. Lead Counsel also seek $314,531.64 in litigation expenses, plus a request of $27,500 to reimburse Lead Plaintiff for its reasonable costs and expenses, including lost wages, pursuant to the PSLRA. II. FACTUAL BACKGROUND A. Summary of Claims 8. As set forth in the Complaint, Dr. Reddy’s is an Indian pharmaceutical manufacturing company that produces drugs and active pharmaceutical ingredients (“APIs”) and has operations throughout the world, including the United States. Complaint at ¶¶ 50, 65, 71. Dr. Reddy’s ADS securities have traded on the New York Stock Exchange under the ticker “RDY” since 2001. Id. at ¶ 50. The Action arises out of Defendants’ allegedly false and misleading representations concerning Dr. Reddy’s compliance with mandatory manufacturing quality standards known as current good manufacturing practice (“cGMP”), which are enforced by the United States Food and Drug Administration (“FDA”). Id. at ¶¶ 1, 2. The Complaint alleges that starting in November 2014, FDA inspectors cited Dr. Reddy’s for potential violations of cGMP at three of the Company’s Indian manufacturing facilities. Id. at ¶¶ 120, 140, 144. One year later, on November 5, 2015, the FDA issued Dr. Reddy’s a Warning Letter 4 Case 3:17-cv-06436-DEA Document 101 Filed 08/25/20 Page 6 of 41 PageID: 2684 for failing to adequately address the potential violations and ordered the Company to conduct an investigation and remediation of its facilities to correct the problems. Id. at ¶¶ 164, 194-195. When the FDA returned to inspect Defendants’ facilities in March and September of 2017, it once again found potential violations of cGMP despite the Company’s remediation efforts, which the Complaint alleges were inadequate. Id. at ¶¶ 210-211. 9. The Complaint sets forth 22 alleged misstatements during the class period concerning: (i) the scope and severity of the FDA’s observations of potential violation of cGMP, (ii) Dr. Reddy’s compliance with cGMP and other industry standards, (iii) Dr. Reddy’s remediation efforts to address the FDA’s observations, and (iv) the extent to which Dr. Reddy’s remediation efforts slowed down the Company’s manufacturing capabilities. Id. at ¶¶ 214-289. The Complaint further alleges that investors were injured when the market learned through a series of disclosures that the FDA and other regulators uncovered additional potential violations of cGMP at Dr. Reddy’s facilities, and that Dr. Reddy’s had produced fewer APIs and received less revenue as a result of the remediation.