McKesson 2006 Annual Report Download - page 88

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
On February 5, 2004, a class action complaint was filed by an individual, Gary Dutton, in the United States District Court for the Eastern
District of Missouri against the Company’s subsidiary, D&K and D&K’s former Chief Executive, Operating and Financial Officers alleging
breach of fiduciary duties and violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5, Gary Dutton v.
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&K Healthcare Resources, Inc. et al. (Case No. 4-04-CV-00147-SNL). The Commercial Workers Union, Local 655, AFL-CIO, Food
Employees Joint Pension Plan (“Lead Plaintiff”) in that action seeks to represent a class consisting of purchasers of D&K’s publicly traded
common stock during the period from August 10, 2000 to September 16, 2002 and seeking compensatory damages, costs, fees and expenses of
suit. On November 15, 2004, Lead Plaintiff filed an Amended Complaint naming additional defendants, Bristol-Myers Squibb Company
(“BMS”) and a non-officer former employee of D&K. The class generally alleges that D&K failed to timely disclose that its sales of branded
drugs during most of the class period were heavily dependent on its ability to purchase drugs from vendor BMS at discounted prices and in
volume, and that defendants knew, but did not disclose, that the effect of losing its attractive purchase terms from BMS would be a material
reduction in sales volume and profit. On February 4, 2005, all defendants filed motions to dismiss the Amended Complaint. Oral argument on
the motions was conducted on May 20, 2005. The Court has not yet ruled on these motions.
On June 2, 2005, a civil class action complaint was filed against the Company in the United States District Court, District of Massachusetts,
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ew England Carpenters Health Benefits Fund et al., v. First DataBank, Inc. and McKesson Corporation, (Civil Action No.05-11148),
alleging that commencing in late 2001 and early 2002 the Company and co-defendant First DataBank agreed to take actions to increase the
“Average Wholesale Price” of certain branded drugs, which alleged conduct resulted in higher drug reimbursement payments by plaintiffs and
others similarly situated. The complaint purports to state claims based on the federal Racketeer Influenced and Corrupt Organizations Act,
violations of the California Business and Professions Code and California Consumers Legal Remedies Act, and for negligent
misrepresentation. The plaintiffs seek injunctive relief, as well as compensatory and punitive damages, attorneys’ fees and costs. The Company
has responded to the complaint and the matter is in the early stages of discovery. No trial date has been set.
The Company, along with two other national pharmaceutical distributors and multiple pharmaceutical manufacturers, has been named as a
defendant in an amended complaint filed in the United States District Court for the Northern District of California in a previously pending class
action brought by The County of Santa Clara, California, on behalf of itself and others similarly situated, The County of Santa Clara vs.
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merisourceBergen Corporation et al. (C-05-03740-WHA). The plaintiff alleges that it was overcharged for certain drugs under a federal
program providing discounted costs for prescription drugs to eligible parties under the Public Health Service Act of 1992, Section 340B. The
action seeks an accounting and purports to state claims under the California Business and Professions Code, Section 17200 et seq., the
California False Claims Act and for unjust enrichment. This action was dismissed “without prejudice” on April 19, 2006.
The health care industry is highly regulated, and government agencies continue to increase their scrutiny over certain practices affecting
government programs. From time to time, the Company receives subpoenas or requests for information from various government agencies. The
Company generally responds to such subpoenas and requests in a cooperative, thorough and timely manner. These responses sometimes require
considerable time and effort, and can result in considerable costs being incurred by the Company. Examples of such requests and subpoenas
that have been previously reported include the following: (1) we have received a subpoena from the U.S. Attorney’s Office in Massachusetts
seeking documents relating to the Company’s business relationship with a long-term care pharmacy organization and we are in the process of
responding to this subpoena; (2) we have responded to a request from the Federal Trade Commission for certain documents as part of a non-
public investigation to determine whether the Company may have engaged in anti-competitive practices with other wholesale pharmaceutical
distributors in order to limit competition for provider customers seeking distribution services; (3) we have received a Civil Investigative
Demand (“CID”) from the Attorney General’s Office of the State of Tennessee apparently in connection with an investigation into possible
violations of the Tennessee Medicaid False Claims Act in connection with repackaged pharmaceuticals and we are in the process of responding
to this subpoena; (4) we have responded to a subpoena from the office of the Attorney General of the State of New York (“NYAG”) requesting
documents and other information concerning our participation in the secondary or “alternative source” market for pharmaceutical products. We
have also recently received a subpoena from the NYAG relating to the pricing on certain drugs, including the First DataBank average
wholesale and average benchmark prices for such drugs, and we intend to respond to this subpoena and otherwise cooperate with the NYAG.
Because these investigations are not concluded, we cannot predict the outcome or impact, if any, of these proceedings on our business.
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