1 consolidated class action complaint 06/19/2006

GRANT & EISENHOFER P.A. Stuart M. Grant Megan D. McIntyre James R. Banko (JB-9686) Sharan Nirmul Chase Manhattan Centre 1201 N. Market Street Wilmington, DE 19801 Telephone: (302) 622-7000 Facsimile: (302) 622-7100 MURRAY, FRANK & SAILER LLP Brian P. Murray Bradley P. Dyer Scott Levy 275 Madison Avenue 8th Floor New York, NY 10016 Telephone: (212) 682-1818 Facsimile: (212) 682-1892 Co-Lead Counsel for Lead Plaintiffs and the Class

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY

In re ABLE LABORATORIES SECURITIES LITIGATION

Master File No. 05-CV-2681 (JAG) (MCA) JURY TRIAL DEMANDED

CONSOLIDATED CLASS ACTION COMPLAINT

Case 2:05-cv-02681-JAG-MCA Document 66-1 Filed 06/19/2006 of 108

This is a securities class action brought by Lead Plaintiffs Denver Employees Retirement

Plan and Deka International (Ireland) Limited (together, “Lead Plaintiffs”), by and through their

attorneys, Grant & Eisenhofer P.A. and Murray, Frank & Sailer LLP, on behalf of all persons

and entities who purchased or otherwise acquired securities issued by Able Laboratories, Inc.

(“Able” or the “Company”), between October 30, 2002 and May 18, 2005, inclusive (the “Class

Period”). Lead Plaintiffs and the class are collectively referred to herein as “Plaintiffs.”

Plaintiffs allege the following upon information and belief, except as to those allegations

concerning Lead Plaintiffs which are alleged upon personal knowledge. Plaintiffs’ information

and belief is based upon, among other things, their investigation, conducted by and through their

attorneys, into the facts and circumstances alleged herein including, without limitation: (a)

review and analysis of statements made in certain filings by Able with the United States

Securities and Exchange Commission (“SEC”); (b) review and analysis of certain press releases,

public statements, news articles, regulatory reports, and other publications disseminated by or

concerning Able and related parties; (c) review and analysis of statements made at certain Able

press conferences, analyst conference calls and conferences, and on Able’s corporate website; (d)

review and analysis of securities analyst reports concerning Able and its operations; (e) review

and analysis of United States Food and Drug Administration (“FDA”) materials; (f) review and

analysis of certain other information, documents, and materials concerning Able and the

Defendants named herein; and (g) interviews with former Able employees.

Plaintiffs believe that further substantial evidentiary support will exist for the allegations

in this Consolidated Class Action Complaint (the “Complaint”) after a reasonable opportunity for

discovery. Many of the facts supporting the allegations contained herein are known only to the

Defendants or are exclusively within their custody and/or control.


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I. NATURE OF THE ACTION

1. Plaintiffs bring this securities fraud action against former Able officers and/or

directors Dhananjay G. Wadekar, Shashikant C. Shah, Robert J. Mauro, Garth Boehm, and Iva

Klemick (collectively, the “Defendants”) to recover damages sustained in connection with the

Defendants’ fraudulent material misrepresentations, omissions, and conduct regarding Able’s

purported profitability, FDA compliance, adherence to quality control, and ability to manufacture

marketable generic drugs.

2. Throughout the Class Period, Defendants falsely presented Able as a

“turnaround” story reporting triple-digit increases in revenues and earnings. Revenues grew

from less than $20 million in 2001 to over $100 million in 2004. Unbeknownst to investors,

however, the “turnaround” was a fiction sustained through Defendants’ misrepresentations and

non-disclosures concerning Able’s compliance with federal regulations and statutes governing

testing, manufacture, labeling, storage, record keeping, drug approval, and quality control.

Defendants issued false and misleading statements throughout the Class Period proclaiming the

purported success of Able’s product pipeline and its ever-increasing sales and profitability, all

the while concealing from investors and regulators that it had obtained FDA approvals for its

products through falsification and manipulation of test results and submission of incomplete and

inaccurate reports to the FDA, and that the stability and strength of its products were not as

represented. Once the truth was revealed to the public, the Company was forced to withdraw all

of its products from the market and shutdown its operations, and the price of Able’s common

stock plummeted.

3. As a result of the Defendants’ fraud and misrepresentations, Plaintiffs purchased

Able securities at artificially inflated prices during the Class Period. Plaintiffs suffered


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significant losses when the price of these securities collapsed after the Defendants’ fraud was

revealed.

II. JURISDICTION & VENUE

4. This action arises pursuant to Sections 10(b), 18, 20(a), and 20A of the Securities

Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. §§ 78j(b), 78r, 78t(a) and 78t-1; and Rule

10b-5 promulgated pursuant to Section 10(b) by the SEC, 17 C.F.R. § 240.10b-5. The

jurisdiction of this Court is based on Section 27 of the Exchange Act, 15 U.S.C. § 78aa; and on

Sections 1331 and 1337(a) of the Judicial Code, 28 U.S.C. §§ 1331, 1337(a).

5. Venue is proper in this District under Section 27 of the Exchange Act, 15 U.S.C.

§ 78aa, and Section 1391(b) of the Judicial Code, 28 U.S.C. §1391(b). The principal executive

office of the Company is located in this District and many, if not all, of the acts and transactions

complained of herein, including the preparation and dissemination of materially false and

misleading information, and the underlying violations of FDA regulations by the Defendants,

occurred in this District. Further, the majority of the individual defendants are believed to reside

in this District, including Garth Boehm, Shashikant C. Shah, and Iva Klemick.

6. In connection with the acts and conduct alleged herein, Defendants, directly and

indirectly, used the means and instrumentalities of interstate commerce, including the United

States mails and the facilities of the national securities exchanges.

III. PARTIES AND RELEVANT NON-PARTIES

A. Able Laboratories, Inc.

7. During the Class Period, Able was a New Jersey-based company that was

engaged in the development, manufacture, and sale of generic drugs in the form of tablets,

capsules, suppositories, and liquids. It provided products for pain relief, tension headaches,

muscle relaxant, anxiety disorder, anti-diarrhea, hemorrhoids, rheumatoid arthritis, manic-


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depressive illness, attention disorder, bacterial vaginosis, anti-angina, urinary tract analgesic,

obesity, and nausea. The Company was organized in 1988 under the name DynaGen, Inc., and

changed its name to Able Laboratories, Inc. in 2001. In May 2005, the Company suspended

manufacturing and distribution of its entire product line, and recalled all of its products, because

an investigation had uncovered severe laboratory testing and quality control problems. On July

18, 2005, Able filed a petition to reorganize under Chapter 11 of the United States Bankruptcy

Code in the United States Bankruptcy Court for the District of New Jersey, Trenton Division.

Able committed numerous violations of Sections 10(b) and 18 of the Exchange Act, and but for

its bankruptcy, Able would be named as a defendant herein.

B. Lead Plaintiffs 8. Lead Plaintiff Denver Employees Retirement Plan (“DERP”) is a defined benefit

plan which provides retirement benefits to qualified members of the City and County of Denver

and Denver Health and Hospital Authority. DERP has more than 17,000 members and more

than $1.84 billion in assets.

9. Lead Plaintiff Deka International (Ireland) Limited (“Deka”) is a fund

management company which directs and controls investments in various securities around the

world on behalf of about 600 funds it manages and administers. Deka has EUR3.5 billion under

management.

10. Lead Plaintiffs each purchased shares of Able common stock during the Class

Period, as set forth in the Certifications previously filed with the Court, and suffered substantial

damages as a result of the wrongful conduct complained of herein.


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C. Defendants

11. Defendant Dhananjay G. Wadekar (“Wadekar”) was, at the time of Able’s

product recalls in May 2005, the Chairman of the Board of Directors, Chief Executive Officer,

and Secretary of the Company. He had served as Chairman of the Board of Directors since April

2002, CEO since October 2001, and Secretary since November 1998. In addition, Defendant

Wadekar was an Executive Vice President at Able from November 1991 until March 2001,

Treasurer from November 1998 until November 2002, and President from March 2001 until

April 2004. The Company announced Wadekar’s resignation on May 19, 2005, within hours

after announcing the suspension of sales of all of its products. Wadekar signed each of the

Company’s Form 10-K and Form 10-Q filings with the SEC during the Class Period.

12. Defendant Robert J. Mauro (“Mauro”) was President, Chief Operating Officer,

and a Director of Able from April 2004 through the end of the Class Period. Defendant Mauro

assumed the role of Interim CEO after the resignation of Defendant Wadekar on May 19, 2005.

Shortly thereafter, on July 7, 2005, Mauro resigned as President, Interim CEO, and a director of

the Company. Mauro signed the Company’s 2004 Form 10-K, filed on March 15, 2005.

13. Defendant Shashikant C. Shah (“Shah”) joined Able in 1999 and served as Vice

President of Quality Control and Regulatory since February 2000. Defendant Shah’s duties

included ensuring that Able complied with FDA and DEA regulations, filing and receiving FDA

approvals for Able’s Abbreviated New Drug Application (“ANDA”) submissions, and

maintaining high quality products. Defendant Shah resigned from his executive position in

December 2004, but continued to serve as a Quality Control consultant to the Company after that

date, with compensation of $150,000 per year. The Company’s public statements regarding its


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quality controls and regulatory compliance during the Class Period, including statements in its

SEC filings and press releases, were prepared by or under the direction of Shah.

14. Defendant Garth Boehm, Ph.D. (“Boehm”) served as Senior Vice President and

Chief Scientific Officer of Able from April 2004 through the end of the Class Period, a position

placing him in charge of directing all research and development activities. Defendant Boehm

has over 23 years experience as a research and development executive, and he holds a Ph.D. in

Physical & Inorganic Chemistry from the University of Adelaide, Australia.

15. Defendant Iva Klemick (“Klemick”) was Able’s Director of Regulatory Affairs

from January 1, 2000 through April 2005. Previously, from November 1999 until January 2000,

she was the Company’s Director of Quality Affairs and Quality Controls. In April 2005,

Klemick was appointed Vice President of Compliance. in charge of ensuring the Company

followed federal, state and local regulations. As Vice President of Compliance, Ms. Klemick

reported directly to the President and Chief Operating Officer, Defendant Mauro.

16. The Defendants, by reason of their management positions and/or membership on

Able’s Board of Directors, were at all relevant times controlling persons of Able within the

meaning of Section 20(a) of the Exchange Act. The Defendants had the power and influence to

cause Able to engage in the unlawful acts and conduct alleged herein, and did exercise such

power and influence.

17. As a direct result of the positions they held within the Company, the Defendants

had access to the material adverse information that went undisclosed in the Company’s

documents filed with the SEC and published in various press releases throughout the Class

Period. Given their positions, the Defendants had access to internal corporate documents

(including the Company’s operating plans, budgets and forecasts, correspondence with the FDA,


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and reports of actual operations compared thereto), conversations and connections with other

corporate officers and employees, attendance at management and Board of Directors meetings

and committees thereof, and via reports and other information provided to them in connection

therewith.

IV. CONFIDENTIAL WITNESSES

18. Numerous former Able employees have provided Lead Plaintiffs with information

concerning Able’s fraudulent scheme to conceal its grave quality control problems and falsify

quality control results during the Class Period. These witnesses gave information on a

confidential basis, and each is designated herein as “CW__,” as stated below.

19. CW1 is a former Quality Control Laboratory Instrumentation Supervisor who

worked at Able from 2003 through October 2005.

20. CW2 is a former Quality Compliance Auditor and Documentation Control

Analyst who worked at Able from August 2000 through June 2005.

21. CW3 is a former Quality Assurance inspector who was employed at Able in 2001.

22. CW4 is a former Senior Analytical Chemist and Supervisor who was employed

by Able from 1997 through December 2004.

23. CW5 is a former Compliance Supervisor in Quality Control who was employed at

Able’s South Plainfield facility from January 2003 through June 2005.

V. CLASS ALLEGATIONS

24. Plaintiffs bring this action as a class action pursuant to Federal Rules of Civil

Procedure 23(a) and 23(b)(3) on behalf of a Class, consisting of all persons who purchased or

otherwise acquired Able’s publicly traded securities between October 30, 2002 and May 18,

2005, inclusive, and who were damaged thereby. Excluded from the Class are Able and the

Defendants; members of the immediate family of any of the Defendants; all subsidiaries and


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affiliates of Able; the directors, officers and employees of Able and its subsidiaries, affiliates or

insurers; all entities in which any excluded person has a controlling interest; and the legal

representatives, heirs, successors, assigns or insurers of any excluded person.

25. The members of the Class are so numerous that joinder of all members is

impracticable. As of February 15, 2005, there were approximately 18,425,000 shares of Able

common stock outstanding. While the exact number of Class members is unknown to Plaintiffs

at this time and can only be ascertained through appropriate discovery, Able reported in its Form

10-K filed on March 15, 2005, that on February 15, 2005, there were approximately 1,786

holders of record of common stock, and that it believed there to be a substantial number of

additional holders who held their stock in “street name” through brokerage firms. As such,

Plaintiffs believe that the Class members number in the thousands. Record owners and other

members of the Class may be identified from records maintained by Able and/or its transfer

agents and may be notified of the pendency of this action by mail, using a form of notice similar

to that customarily used in securities class actions.

26. Lead Plaintiffs’ claims are typical of the claims of other members of the Class, as

all members of the Class were similarly affected by Defendants’ wrongful conduct in violation of

the Exchange Act as complained of herein.

27. Plaintiffs will fairly and adequately protect the interests of the members of the

Class and have retained counsel competent and experienced in class and securities litigation.

28. Common questions of law and fact exist as to all members of the Class and

predominate over any questions solely affecting individual members of the Class. Among the

questions of law and fact common to the Class are:


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(a) whether the federal securities laws were violated by Defendants’ acts and

omissions as alleged herein;

(b) whether Defendants participated in and pursued the common course of

conduct complained of herein;

(c) whether documents, press releases, and other statements disseminated to

the investing public and the Company’s shareholders during the Class Period misrepresented

material facts or omitted to state material facts;

(d) whether statements made by Defendants to the investing public during the

Class Period misrepresented and/or omitted to disclose material facts;

(e) with respect to Plaintiffs’ Section 10(b) claim, whether Defendants acted

with scienter;

(f) whether the market price of Able’s common stock during the Class Period

was artificially inflated due to the misrepresentations and omissions complained of herein; and

(g) to what extent the members of the Class have sustained damages and the

proper measure of damages.

29. A class action is superior to all other available methods for the fair and efficient

adjudication of this controversy since joinder of all members is impracticable. Furthermore, as

the damages suffered by individual Class members may be relatively small, the expense and

burden of individual litigation make it impossible for members of the Class to individually

redress the wrongs done to them. Plaintiffs foresee no difficulty in the management of this suit

as a class action.


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VI. FACTUAL ALLEGATIONS

A. Historical Background Regarding the Company

30. Able’s predecessor, DynaGen, Inc. (“DynaGen”), was formed in 1988. From

1988 through 1996, DynaGen focused primarily on developing new drugs and licensing the

resulting products and technologies to other companies. Beginning in 1996, however, DynaGen

began to shift its focus to manufacturing and distribution. To this end, DynaGen acquired the

company then known as Able Laboratories, Inc. (“Old Able Labs”), a generic drug development

and manufacturing business which, prior to its acquisition by DynaGen, was a subsidiary of

ALPHARMA, Inc. Then, in 1997 and 1998, respectively, DynaGen acquired Superior

Pharmaceutical Company (“Superior”) and Generic Distributors, Inc. (“GDI”), both of which

were distribution operations. Old Able Labs, Superior, and GDI each became subsidiaries of

DynaGen.

31. DynaGen had trouble competing in both the manufacturing and distribution fora.

As an initial matter, Superior and GDI mainly sold the products of DynaGen’s competitors and

thus were doing little to help DynaGen succeed. Moreover, the combination of Old Able Labs’

manufacturing business and the Superior and GDI distribution businesses did not yield the

strategic advantages that DynaGen had anticipated. On the contrary, DynaGen found that this

combination caused both financial and managerial division.

32. In 2000, DynaGen decided to divest itself of its distribution operations and

continue solely as a developer and manufacturer of generic drugs. To this end, DynaGen sold

GDI and Superior in December 2000 and February 2001, respectively.

33. On May 18, 2001, DynaGen merged with its remaining subsidiary, Old Able

Labs, and the combined company assumed the name Able Laboratories, Inc. Able continued its

business as a manufacturer and developer of generic drugs in tablet, capsule, and suppository


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form. At the time of the merger, Able had received approvals of eight ANDAs from the FDA

and was awaiting FDA approval for twelve additional ANDAs.

34. Armed with a new name, Able tried to shake off the failures of the DynaGen era

and quickly began to portray itself as a corporate turnaround story. The dissolution of a consent

decree under which Old Able Labs had been operating since April 8, 1992 was critical to its

ability to sell that story. The United States District Court for the District of New Jersey had

entered the consent decree against Old Able Labs based on its failure to comply with the FDA’s

“current good manufacturing practices” (“cGMPs”).

35. The cGMPs for finished pharmaceuticals, codified at 21 C.F.R. § 211, et seq., are

FDA regulations setting forth the minimum current good practices for preparation of drug

products for administration to humans. They regulate such matters as the organization and

responsibilities of manufacturers’ quality control units; the qualifications and responsibilities of

personnel involved in the manufacture, processing, packing, or holding of drug products; the

design and construction features of drug manufacturing, processing, packing, and holding

facilities; requirements for control systems to prevent contamination or mix-ups; criteria to be

met by equipment used in the manufacture, processing, packing, and holding of drug products;

control and testing of components and drug product containers and closures; production and

process controls, including testing, to ensure that drug products have the identity, strength,

quality, and purity they are represented to possess; packaging and labeling controls; laboratory

controls; testing of each batch of drug product prior to release for distribution; stability testing;

and the maintenance of records and reports.

36. On March 20, 2002, Able proudly announced the dissolution of the consent

decree. In a press release announcing the dissolution, Able assured the investing public that the


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Company had reformed its operations, and that the events that had led to the entry of the consent

decree would not be repeated. Specifically, the Company stated:

Able has been subject to a consent decree entered by the court on April 8, 1992 in United States v. Able Laboratories, Inc., Civ. No. 91-4916 (D.N.J.) based on the alleged failure to comply with FDA current good manufacturing practices (cGMP). Able has been operating under this consent decree since April 1992. The individuals named in the original court order are no longer employed by Able. Over the past three years, the Company’s management has made substantial commitments, both operationally and financially, to enhance the plant and equipment and, thereby improve its operations. In order to ensure continued cGMP compliance, Able made key management changes, hired individuals who were knowledgeable and committed to cGMP compliance, and instituted operational procedures that enforce cGMP compliance. In addition, the Company initiated and is continuing to provide cGMP training on a regularly scheduled basis to its employees.

“We are extremely pleased to have the consent decree dissolved,” stated Jay Wadekar, President and Chief Executive Officer of Able Laboratories, Inc. “We have added key members to our management team who are committed to cGMP compliance. The dissolution of the consent decree is a recognition of our efforts and continued commitment to maintaining the highest possible quality in our products and operations.”

(Emphasis added).

37. Following the dissolution of the consent decree, Able posted impressive increases

in earnings and revenues and succeeded in bringing a number of new products to market. These

significant changes did not go unnoticed in the financial community. In fact, Able secured a spot

on the NASDAQ SmallCap Market effective November 19, 2002, trading under the symbol

“ABRX.” Soon thereafter, in February 2003, the Company’s stock began trading on the

NASDAQ National Market. Able’s common stock was also listed and traded on the Boston

Stock Exchange (under the symbol “AAB”) from the beginning of the Class Period until


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November 4, 2003, when the Company withdrew it from that exchange due to its listing on the

NASDAQ National Market.

38. On June 30, 2003, the Company announced a private placement of common stock

at $19 per share. This private placement generated $30.4 million in gross proceeds for the

Company.

39. In a further vote of confidence for the Company’s apparent success, the Chicago

Board Options Exchange (“CBOE”) began listing options in the Company’s common stock

under the ticker symbol QAF on August 1, 2003.

40. On September 24, 2003, Able announced that it had signed a lease for a new

facility at One Able Drive, Cranbury, New Jersey (the “Cranbury Facility”). The Company

stated that it intended to consolidate all of its operations – including manufacturing, quality

control, research & development, and its executive offices – into the Cranbury Facility during the

second half of 2004.

41. By November 2003, Able’s business appeared to be doing so well that it was

added to the NASDAQ Biotechnology Index effective November 24, 2003. To qualify for

inclusion on that index, securities must meet minimum requirements including market value,

average daily trading volume, and among other things, must have been “seasoned” on NASDAQ

or another recognized market for at least 6 months.

42. Also during 2003, Able became interested in entering the market for liquid

pharmaceuticals. To this end, it purchased the assets of LiquiSource, Inc., a privately held

developer and manufacturer of prescription generic liquid pharmaceuticals, on November 18,

2003. Soon thereafter, in December 2003, Able purchased the facility at 6 Hollywood Court,

South Plainfield, New Jersey (the “South Plainfield Facility”), which it had previously leased for


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its manufacturing operations and administrative offices, as the future site for its liquid

pharmaceutical manufacturing operations.

43. Following the LiquiSource acquisition, Able hired a number of executives to

assist in the Company’s continued growth. On April 27, 2004, Able announced the hiring of

defendant Mauro to fill the position of President and Chief Operating Officer, and of defendant

Boehm as Senior Vice President and Chief Scientific Officer. Defendant Wadekar made clear

that Boehm would play a substantial role in the Company’s research and development activities,

stating:

We are delighted to have a person of Garth’s caliber join Able. We are expanding our research and development scope to include modified release solids and liquids. Garth’s experience and knowledge of various drug delivery systems, product development and regulatory strategies will allow us to address more complex formulations . . . Garth will be directing all our research and development activities.

44. On September 7, 2004, Able announced that it had hired Joan Janulis as Vice

President, Regulatory Affairs. Janulis took that position over from defendant Shah, who was

forced to resign effective December 30, 2004.

45. On May 6, 2005, Able announced that it had signed an exclusive Development

Agreement with InvaGen, Inc. for generic pharmaceutical products. The Agreement with

InvaGen related to six products with an estimated market of $10.3 billion. Wadekar touted the

benefits Able could expect to receive from the InvaGen agreement, stating:

The six products with InvaGen represent a substantial market for generic products expected to be launched over the next three to four years. With this collaboration as well as other business development efforts in conjunction with our own internal development portfolio we hope to further strengthen our position in the generic pharmaceutical market.


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46. While the Company seemed unstoppable, its operations would quickly grind to a

halt during the latter half of May 2005. As set forth below, the Company’s seemingly strong

business was a house of cards built upon a shaky foundation of regulatory violations, intentional

misconduct, false statements, and fraudulent omissions.

B. Defendants’ Fraudulent Concealment of Severe Quality Control and Product Testing Deficiencies and of its Non-Compliance With Regulatory Standards

47. To obtain approval to manufacture and market a generic drug, a company must

submit an ANDA to the FDA. Generic drug applications are termed “abbreviated” because they

generally do not require clinical or animal research data to establish their safety and

effectiveness. Instead, generic drug applicants must provide scientific evidence that their

product and the brand name drug are “bioequivalent” (i.e., they perform in the same manner);

contain the same active ingredients; are identical in strength, dosage form, and route of

administration; have the same use indications; and meet the same batch requirements for identity,

strength, purity, and quality. Bioequivalence may be demonstrated by laboratory or human

studies demonstrating that the dissolution rate (i.e., the time it takes for the drug to be absorbed

into the body) falls within acceptable limits as compared to the brand name product. The

applicant must also demonstrate that its product is manufactured in accordance with the FDA’s

strict cGMP regulations.

48. After a drug application is approved, federal regulations require the manufacturer

to continue testing its products, and to submit certain post-approval reports, including reports of

adverse drug experiences and out of specification test results. 21 C.F.R. §§ 314.80, 314.81.

Reports of out-of-specification (OOS) results, known as NDA-Field Alert Reports, must be made

within three working days after the company becomes aware of a problem, even if the problem

has not been confirmed. In addition, the applicant must submit annual reports to the FDA each


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year following approval of an ANDA, containing any test results or other information from the

previous year that might affect the FDA’s previous conclusions about the safety or effectiveness

of the product.

49. Making prescription medicine is a study in precision. The smallest detail -- room

temperature, blending speed, drying time, tablet compression, coating thickness -- can

significantly affect strength or purity. Laboratory testing makes the system work, and it allowed

Able to exploit the system in various ways. Samples taken at each step -- scoops of chemicals

from blending vats and drying ovens, and handfuls of tablets and capsules from batches of

finished product -- are supposed to be tested to ensure their compliance with specifications.

Dozens of people must sign off in log books, reports, and validation statements regarding the

testing process and results. When samples do not meet specifications, chemists and laboratory

technicians are supposed to document the deviation and produce an explanation.

50. As Defendants and Able knew, in light of the number of drug manufacturers in

the United States and the limited resources of the FDA, “it is impossible for [the] FDA to

achieve uniformly intensive CGMP inspectional coverage for all registered drug facilities.” See

“Risk-Based Method for Prioritizing CGMP Inspections of Pharmaceutical Manufacturing Sites

— A Pilot Risk Ranking Model,” p. 4.1 Indeed, since 1980, the number of drug-manufacturing

plants the FDA regulates has increased fourfold, while budget cuts have reduced the number of

cGMP human drug inspections by more than 60 percent. In or around 2004, New Jersey -- the

epicenter of the global drug industry – had only 50 FDA inspectors responsible for more than

4,000 pharmaceutical, cosmetics, medical device, and processed-food plants across the state.

With more than 80 facilities per FDA inspector, the FDA relied heavily on scientists and

1 http://www.fda.gov/cder/gmp/gmp2004/risk_based.pdf


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technicians to submit truthful and accurate reports, while the FDA followed a risk-based

approach to its on-site cGMP inspections, focusing primarily on manufacturers of vital

medicines and those that posed the most risk to consumers.

51. For nearly three years, from mid-2002 until May 2005, the Defendants conspired

to falsify test results, tamper with computer data, forge records, and submit false and incomplete

data to the FDA. In numerous ANDAs submitted during the Class Period, Able fabricated in-

house test data to meet FDA standards. Once the applications were approved, the Company

misrepresented the strength and shelf life of its products in its post-approval reports, with

supervisors manually altering test results in the Company’s computer databases to conceal non-

compliance with specifications. This allowed the Company to continue selling its products, and

to report ever-increasing sales and profits, despite serious and unresolved problems with the

quality of its products.

52. A staple of every drug laboratory is the dissolution test, in which mechanical

paddles stir canisters of liquid to test how fast active ingredients are released. At Able, results of

dissolution tests were routinely manipulated so the Company could report passing results, even

when actual results showed that its products failed the tests miserably. For example, an FDA

report issued after the end of the Class Period revealed that, during the Class Period, the

Company’s dissolution testing of one of its batches of Atenolol 25 mg tablets showed a

dissolution rate of 30.9%, where the FDA standards required the rate to be not less than 85%. In

its FDA reports, the Company had represented the test result as 102.8%.

53. Another standard piece of testing equipment, called a chromatograph, helps

measure a medication’s precise chemical composition and shelf life. Results of Able’s

chromatograph tests were also manipulated to conceal failing test results. For example, FDA


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specifications call for 30-milligram tablets of acetominaphen and codeine phosphate tablets (the

equivalent of Tylenol with codeine) to contain less than 6% codeine phosphate. According to an

FDA report issued after the end of the Class Period, Able’s testing found 8.3%, but the lab

reported the result as 5.5%.

54. In January and February of 2004, an FDA inspector visited the South Plainfield

Facility to determine the Company’s compliance with Postmarketing Adverse Drug Experience

(“PADE”) reporting requirements, and concluded that the Company had failed to comply with

Section 505(k)(1) of the Federal Food, Drug and Cosmetic Act and 21 C.F.R. §314.80. In

particular, the FDA found that:

(a) The Company failed to report to the FDA regarding 27 adverse drug

experience reports the Company received between January 2002 and January 2004; and

(b) The Company had not developed adequate written procedures for the

surveillance, receipt, evaluation, and reporting of PADEs to the FDA.

55. In a warning letter to Able on April 19, 2004 regarding the results of its January-

February 2004 inspection, the FDA stated: “The specific violations noted in this letter are

serious and may be symptomatic of serious underlying problems. You are responsible for

investigating and determining the causes of the violations identified above and preventing

recurrence of similar violations.”

56. The FDA was correct that the problems identified in its early 2004 inspections

were symptomatic of serious underlying problems. In particular, they were symptomatic of a

flagrant disregard for FDA regulations, and for the safety of consumers. However, the Company

did not heed the FDA’s warning and did nothing to address those systemic problems.


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57. The nature and extent of the malfeasance by Defendants and Able is perhaps best

understood by reference to the FDA’s report of “Inspectional Observations on Form 483,” dated

July 1, 2005 and amended on July 6, 2005 (the “Form 483”). The Form 483 was issued six

weeks after the end of the Class Period, after Able had ceased operations and recalled its entire

product line, and after four FDA inspectors had made 29 visits to the Company over eight weeks

in response to reports of quality control problems at Able. During those visits, the FDA

inspectors compared annual reports -- summaries of data about stability, purity, consistency, and

adverse reactions -- against a number of laboratory notebooks and chemical-validation tests.

Ultimately, the FDA issued the Form 483 containing 12 “observations” regarding deficiencies in

Able’s quality control system, reporting, laboratory control system, and production, which had

existed during the Class Period.

58. The FDA’s first observation was that Able’s quality control unit lacked authority

to fully investigate errors that occurred. As a result, the Company released products into the

marketplace that did not meet FDA specifications. As the FDA explained:

The Quality Unit and Senior Management failed to assure all drug products distributed have the safety, identity, quality and purity that they are represented to possess. The Quality Unit failed to: review electronic data as part of batch release, review computer audit trails in the Waters Empower Data Acquisition System and provide adequate training to analytical chemists. These practices led to the Quality Unit releasing batches of drug products which failed to meet in-process, finished product and stability specifications. These practices also led to the submission of erroneous data in Annual Reports and Prior Approval Supplement #004, for ANDA 75-838, which requested discontinuance of Blend Uniformity testing for Propoxyphene Napsylate and Acetaminophen 100mg/650 mg Tablets. The lack of Quality oversight resulted in: the ceasing of manufacturing on [May 19, 2005], the ceasing of distribution of all drug products on [May 13, 2005], the recall of all batches (3,184) of drug products and the withdrawal of at least five Abbreviated New Drug Applications.


21

59. In its second observation, the FDA found that Able failed to reject drug products

which should have been rejected due to failure to meet established standards, specifications, and

quality control criteria. As the FDA explained, these products were instead re-tested until

satisfactory results were obtained, whereupon the Company reported those results and failed to

disclose the earlier testing failures:

Samples of drug products were routinely resampled, and re-injected or reprocessed in the Waters, Empower Data Acquisition System during testing in the QC Laboratory when out of specification (OOS) results were obtained. There were no Laboratory Investigations into OOS results or notebook documentation available to explain the re-injection or retesting of in-process, finished product and stability samples which did not meet specifications. The OOS results were not reported and within specification results from reprocessed or re-injected samples were reported on: In-Process Specification, Product Specification and Stability Study Specification Release Reports and Stability Summary Reports.

60. The Form 483 went on to identify 22 batches of drug products which were

released after receiving out of specification (OOS) test results, most of them with multiple OOS

results:

PRODUCT/BATCH SAMPLE SPECIFICATION ORIGINAL OOS RESULT

REPORTED RESULT

Acetaminophen & Codeine Phosphate Tablet, 300/30mg Batch 502022

In-Process Blend Uniformity Testing

RSD ≤ 5.0% Codeine Phosphate RSD: 5.4%

Codeine Phosphate RSD: 3.8%

Acetaminophen & Codeine Phosphate Tablet, 300/30mg Batch 407148

Finished Product Testing

RSD ≤ 6.0% Codeine Phosphate Content Uniformity: 8.3%

Codeine Phosphate Content Uniformity: 5.5%

Atenolol 25 mg Tablet Validation Batch 408107A

Stability Sample 3 mo RT

Not less than 85% Dissolution, Tablet D5 = 83.7% D6 = 83.8%

Dissolution, Tablet D5 = 98.9% D6 = 98.7%

Atenolol 25 mg Tablet Validation Batch 408107B


Not less than 85% Dissolution Testing Tablet D6 = 30.9%

Dissolution Testing Tablet D6 = 102.8%

Atenolol 25 mg Tablet Test Batch TB-203E


Not less than 85% Dissolution, Tablet D5 = 83.7% D6 = 83.8%

Dissolution, Tablet D5 = 98.9% D6 = 98.7%


22

Bethanechol Chloride 10 mg Tablet Validation Batch 404042A


90% - 115% Assay A1 = 89.6%

Assay A1 = 99.5%

Diphenoxylate HCl and Atropine Sulfate Tablets Batch 404006


85% - 115% Blender Location: BR1 = 128.5% ML2 = 158.3% TL2 = 117.6%

Blender Location: BR1 = 99.5% ML2 = 101.6% TL2 = 108.3%

Diphenoxylate HCl and Atropine Sulfate Tablets Batch 403203


85% - 115% Blender Location: TR1 = 145.9%

Blender Location: TR1 = 96.9%

Diphenoxylate HCl and Atropine Sulfate Tablets Batch 301068A


80% - 120% Assay A1 = 78.4% A2 = 78.7%

Assay A1 = 90.4% A2 = 90.8%

Diphenoxylate HCl and Atropine Sulfate Tablets Batch 301068B


80% - 120% Assay A1 = 77.5% A2 = 77.5%

Assay A1 = 90.11% A2 = 89.8%

Diphenoxylate HCl and Atropine Sulfate Tablets Batch 301068C


80% - 120% Assay A1 = 75.8% A2 = 78.4%

Assay A1 = 89.41% A2 = 90.7%

Dytan Suspension 25mg/5ml Batch L409001


90% - 110% Assay – Beginning A2 = 89.2%

Assay – Beginning A2 = 97.9%

Methylphenidate HCl Tablets, 20 mg Extended Release Batch 303087


25% - 45% (Dissolution, 1 hour)

Tablet: D1 = 48.9% D2 = 49.0% D3 = 48.2%

Tablet: D1 = 43.4% D2 = 43.3% D3 = 42.4%

Methylphenidate HCl Tablets, 5 mg Batch 412184


93% - 107% Assay A1 = 90.0% A2 = 90.0%

Assay A1 = 98.4% A2 = 98.5%

Nitroglycerine 0.4mg Sublingual Tablets Batch 502038


90% - 115% Assay A1 = 75.8%

Assay A1 = 101.5%

Prochlorperazine Suppositories, 2.5 mg Batch 308029A


Not more than 0.2%

Unknown impurities 0.52% 0.73%

Highest unknown impurities 0.04%

Prochlorperazine Suppositories, 5 mg Batch 308030A


Not more than 0.2%

Unknown impurities 0.44% 0.56%

Highest unknown impurities 0.14%

Propoxyphene Napsylate and APAP Tablets, 100/650 mg Batch 303110A


Not less than 80% Dissolution D1 = 72.8% D5 = 73.2%

Dissolution D1 = 98.5% D5 = 96.9%

Propoxyphene Napsylate and APAP Tablets, 100/650 mg


90% - 110% Assay – Propoxyphene A2 = 89.9%

Assay – Propoxyphene A2 = 95.9%


23

Batch 104026B Validation Batch Propoxyphene Napsylate and APAP Tablets, 100/650 mg Batch 201016C


90% - 110% Assay – Propoxyphene A1 = 89.9% Assay – APAP A1 = 88.7%

Assay – Propoxyphene A1 = 100.5% Assay – APAP A1 = 98.9%

Propoxyphene Napsylate and APAP Tablets, 100/650 mg Batch 312015


85% - 115% Content Uniformity Propoxyphene CU5 = 117.8%

Content Uniformity Propoxyphene CU5 = 104.2%

Propoxyphene Napsylate and APAP Tablets, 100/650 mg Batch 310158


90% - 110% Propoxyphene TL1 = 238.5% TR1 = 80.5% APAP TL1 = 218.9%

Propoxyphene TL1 = 103.2% TR1 = 104.0% APAP TL1 = 105.6%

61. The third observation by the FDA concerned Able’s non-disclosure of adverse

information in post-approval reports submitted to the FDA. Specifically, the FDA noted that the

annual reports prepared by Able “did not include reports of investigations involving chemical or

physical properties which, as new information, might affect FDA’s previous conclusions about

the safety or effectiveness of the drug.” The FDA found that, in five annual reports and one prior

approval supplement prepared by Able concerning ANDAs, Able did not include out of

specification results, and instead included only “passing data points.” Because of the erroneous

data submitted by Able, it eventually withdrew the applications for these proposed new drug

products. These included:

a. ANDA #75-838 (Proxyphene Napsylate and APAP tablets, 100/650mg),

for which the annual reports submitted on November 6, 2002 and August 24, 2004 failed to

report OOS results from stability sample testing, and for which the Prior Approval Supplement

#004 submitted on March 16, 2004 failed to report OOS results from finished product content

uniformity and in-process blend uniformity testing;


24

b. ANDA #76-032 (Methylphenidate HCl tablets, 20 mg extended release),

for which the annual report submitted on June 9, 2004 failed to report OOS results from finished

product testing;

c. ANDA #40-407 (Prochlorperazine suppositories, 2.5 mg), for which the

annual report submitted on August 11, 2004 failed to report OOS results from stability sample

testing; and

d. ANDA #40-404 (Methylphenidate HCl tablets, 5 mg), for which the

annual report submitted on May 26, 2005 failed to report OOS results from stability sample

testing.

62. The FDA’s fourth observation was that “[a]n NDA-Field Alert Report was not

submitted within three working days of receipt of information concerning a failure of one or

more distributed batches of a drug to meet the specifications established for it in the application.”

The FDA explained: “Field Alerts were not routinely filed when drug products did not meet the

specifications listed in the Abbreviated New Drug Application (ANDA). There is no SOP

covering the issuance of Field Alerts.” The FDA went on to identify eight instances in which

batches of drug products failed to meet stability specifications and the Company failed to submit

the requisite Field Alerts.

63. The FDA’s fifth observation concerned Able’s failure to include in its laboratory

records complete data derived from all tests necessary to assure compliance with established

specifications and standards:

The QC Laboratory notebooks and binders lacked data from all analytical testing conducted in the QC Laboratory. Laboratory records did not include all data such as out of specification (OOS) results, chromatograms, sample weights, and processing methods. OOS results were substituted with passing results by Analysts and Supervisors. The substitution of data was performed by cutting


25

and pasting of chromatograms, substituting vials, changing sample weights and changing processing methods. For example:

Product/Batch Number Lack of Complete Data Products and batches listed in FDA-483, point #2

OOS results not documented in laboratory records. Unreported OOS results found in electronic data files.

Propoxyphene Napsylate and APAP Tablets, 100/650mg Batch 303110A

Changed chromatogram headers by cutting and pasting, so during review all sample injections would appear to be in sequence, for Dissolution Testing of Tablets D1 and D5

Propoxyphene Napsylate and APAP Tablets, 100/650mg Batch 104026B Validation Batch

Original Sample Weights not recorded in notebook. Sample weights were changed by the analyst until a passing result was obtained for Assay (A2)

Acetaminophen & Codeine Phosphate Tablets, 300/30mg Batch 407148

Processing methods changed by analyst until the processing method resulted in a passing result. Original processing method not recorded in laboratory notebook.

64. In its sixth observation, the FDA found that Able did not check the input and

output from computers and other records for accuracy. Able did not conduct audits of the

instruments used during the analysis of drug products, and “[s]ample injections, processing

methods, and sample weights were not reviewed or verified for the accuracy of reported sample

results during the testing of in-process, finished product and stability samples.”

65. As a seventh observation, the FDA concluded that Able did not make written

records of “investigations into unexplained discrepancies and the failure of a batch or any of its

components to meet specifications.” Although the Company’s Quality Control Procedure SOP #

QC-021-06 required a laboratory investigation to be conducted when out of specification results

were generated, no such investigations were conducted. The FDA cited the OOS results


26

referenced in its second observation as examples of such results that were not investigated by

Able.

66. In its eighth observation, the FDA found: “Employees are not given training in

current good manufacturing practices and written procedures required by current good

manufacturing practices regulations.” In particular, the FDA found that the Company’s QC

Laboratory analysts were not routinely trained in Quality Control procedures such as those

requiring investigations into OOS results, and that “[t]his lack of training and oversight by

management contributed to the non-reporting of OOS results in the QC Laboratory.”

67. In its ninth observation, the FDA noted that, when Able did prepare written

records of investigations into unexplained discrepancies or OOS results, those reports did not

always include the conclusions and follow-up. The FDA noted as an example the Company’s

incomplete investigation into the failure of Batch 303087A of Methylphenidate HCl extended

release tablets (20 mg) to meet the 18-month stability test. The Company’s investigation

concluded that the original failing results were invalid due to an analyst technique issue, but

provided no documentation to justify the invalidation of the failing results. Nor was there any

documentation to show that corrective measures had been completed, or any review of data

acquired by the same analysts when testing other batches of the same product. Thus, the FDA

found the Company’s investigation to be incomplete.

68. The FDA’s tenth observation was that the responsibilities and procedures

applicable to the quality control unit were not in writing and were not fully followed. In

particular, the FDA noted that:

a. The Laboratory Records SOP #QC-022-04 effective 06/25/04, specified numerically ordered notebooks will be issued and a log maintained. Notebook issuance logs


27

showed large gaps in numbering of notebooks issued, which were not accounted for in the log....

b. SOP Method Number I-037, approved 10/18/00, General Guidelines for sample Logging for Analytical Laboratory using Winsamp software did not include procedures and responsibilities to be followed by personnel authorized to enter samples into the Winsamp database….

c. There was no SOP describing the use of (SP) special samples tested in the Analytical Laboratory…

69. The FDA found in its eleventh observation that Able did not follow established

laboratory control mechanisms. For example, the Company retested samples without first

conducting an investigation as required by SOP # QC-011-03, and then used the results of the

retesting as its reported test results. Additionally, SOP # QC-006-01 required the Company,

prior to initiating testing, to document the number of retests to be performed, so as to establish a

definite limit beyond which no additional testing would be permitted. Able did not document the

number of retests to be performed as required by this procedure. The Company also failed to

follow procedures under the same SOP requiring retests to be conducted by the original chemist

and a second chemist, where the second chemist conducts at least 60% of the tests, or

alternatively by two chemists other than the one producing the original result. Further, the FDA

documented the Company’s failure to complete an investigation within 30 working days as

required by standard operating procedures. Investigation 04-OOS-031, initiated December 8,

2004 and completed February 18, 2005, exceeded 30 working days.

70. In its last observation, the FDA noted that Able had not established control

procedures “which validate the performance of those manufacturing processes that may be

responsible for causing variability in the characteristics of in-process material and the drug

product.” Specifically, the FDA found:


28

a. There is no assurance that results for in-process physical testing are recorded accurately. For example, the Pre-Validation batch record (TB-110) for Hydrocodone Bitartrate and Acetaminophen Tablets, USP 5mg/325mg shows the specification for tablet thickness range as 0.308” to 0.358”; this range was crossed out and the correct range of 0.210” to 0.260” was handwritten in the batch record. The in-process tablet thickness results show all tablets were within the corrected thickness specification of 0.210” – 0.260” during compression on 10/15/01. The Research and Development (R&D) In-Process Data Sheet shows the thickness of 60 tablets to be within a thickness range of 0.330” and 0.334” which corresponds to the tablet thickness specification which was incorrectly written on the Master Batch Record. Retains from this batch were tested on 6/10//05, and the results show the thickness of the tablets were between 0.210” and 0.260”, which was the correct specification that was handwritten on the Master Batch Record.

b. Manufacturing Investigations into rejected batches of drug products did not included an evaluation of the validated manufacturing process. For example, seven of nine batches (78%) of Methylphenidate ER 20 mg Tablets, manufactured between May 2003 and November 2004 were investigated in the laboratory, due to initial OOS results or out of trend results. Two of the seven lab investigations, resulted in the rejection of batches 411021 and 310004. Manufacturing Investigation 04-008, for batch 310004, and Manufacturing Investigation 05-001, for batch 411021 did not include an evaluation of the validated manufacturing process for Methylphenidate ER 20 mg Tablets.

c. There is no assurance that manufacturing processes for drug products are validated in that out of specification (OOS) results were generated, but not reported….

71. Until the truth eventually came out in mid-2005, these catastrophic failures of the

Company’s quality control and manufacturing functions were concealed by Able and the

Defendants, who instead made glowing public statements about the Company’s drug pipeline

and results of operations during the Class Period. This enabled the Company to eclipse Wall

Street’s expectations, while leaving an untold portion of the more than one billion tablets,


29

capsules, and suppositories made by Able too weak, too potent, or lacking the advertised shelf

life. Had the truth been told during the Class Period, investors would have understood that

Able’s past financial results had been achieved through violations of FDA regulations, and that

the Company had severe problems which would prevent it from continuing to realize such

positive results, and would likely lead to the Company’s downfall.

C. Defendants’ Materially False And Misleading Statements Issued During The Class Period

72. The Class Period begins on October 30, 2002. On that date, Able issued a press

release entitled “Able Laboratories Reports 2002 Third Quarter Results.” Therein, the Company,

in relevant part, stated:

ABLE LABORATORIES, INC. (OTC BB: ABLA, BSE: AAB), today announced financial results for the three months ended September 30, 2002. For the third quarter of 2002, the Company reported net sales of $15.0 million, a 20% increase from net sales of $12.5 million reported in the 2002-second quarter, primarily due to higher demand for the Company’s larger product family.

Third quarter 2002 net income was $3.0 million, an increase of 28% over the 2002-second quarter. The Company reported net income applicable to common stockholders of $2.9 million, or $0.25 per basic share, compared with net income of $2.2 million, or $0.19 per basic share, in the second quarter of 2002. Diluted earnings per share increased to $0.19 per share for the 2002 third quarter compared with $0.15 per share for the 2002-second quarter.

The third quarter 2002 cost of sales was $7.7 million, resulting in gross margins of 49%. This compares favorably with cost of sales of $6.6 million, and 47% gross margins reported in the prior quarter. The slight increase in gross margins is due to increased manufacturing efficiencies realized from higher production volumes.

Research and development expenses increased 30% to $2.2 million in the third quarter of 2002 from $1.7 million in the prior quarter. The increase is primarily due to additional research and coinciding biostudies conducted to develop the Company’s product pipeline.


30

In October 2002, the Company received three ANDA approvals and currently has 17 ANDAs pending approval by the FDA.

Selling, general and administrative (SG&A) expenses for the 2002 third quarter decreased to $1,756,000 from $1,803,000 in the prior quarter. SG&A accounted for 12% of net sales, compared with 14% of net sales in the prior quarter. This improvement resulted from increased sales and cost controls.

The Company had cash and cash equivalents of $1.8 million and working capital of $9.0 million as of September 30, 2002.

“We are very pleased with our financial progress as Able Labs continued to increase earnings and execute on our strategy during the third quarter,” commented Jay Wadekar, President and Chief Executive Officer of Able Laboratories. “We are focused on managing our growth, controlling our costs and look forward to finishing off the year on a strong note.”

73. In its October 30, 2002 press release, the Company also set forth several

“corporate highlights” from the third quarter of 2002, including the FDA’s approval of ANDAs

for several drugs including Acetaminophen and Codeine Phosphate Tablets, USP 300mg/30mg,

which are equivalent to Tylenol® with Codeine. As discussed above, these tablets had failed to

meet the requisite specifications in several respects during laboratory testing, but a Company

analyst had changed the processing method until a passing result was achieved, without reporting

the original test results as required by the FDA. The Company failed to disclose this critical fact.

74. On November 13, 2002, Able filed its quarterly report with the SEC on Form 10-

Q for the third quarter of 2002, which was signed by defendant Wadekar. The Form 10-Q

repeated the Company’s previously announced financial results for the quarter. The Form 10-Q

further stated that, during the quarter ended September 30, 2002, the Company had 15 FDA-

approved product families in 25 different strengths available for sale, compared to 12 FDA-

approved product families in 21 different strengths in the prior quarter. Additionally, the Form

10-Q stated that Able had received FDA approval for three new products during the third quarter


31

and three additional products in October 2002, and had 20 new products pending FDA approval.

The Form 10-Q contained a certification signed by Wadekar, stating, inter alia: “Based on my

knowledge, this quarterly report does not contain any untrue statement of a material fact or omit

to state a material fact necessary to make the statements made, in light of the circumstances

under which such statements were made, not misleading with respect to the period covered by

this quarterly report.”

75. The statements regarding Able’s performance in Able’s press release dated

October 30, 2002 and in Able’s Form 10-Q dated November 13, 2002 together with Wadekar’s

certification, were materially false and misleading when made for at least the following reasons:

(a) Defendants failed to disclose that the Company’s positive financial results

for the third quarter 2002 had been achieved through the production and sale of products that did

not comply with FDA specifications;

(b) Defendants failed to disclose that the Company’s positive financial results

and ANDA approvals during the Class Period had been achieved through the use of procedures

which did not comply with cGMPs;

(c) Defendants touted the Company’s success in obtaining ANDA approvals

for new drug products and bringing those products to market, without disclosing its failure to

ensure that those products had the safety, identity, quality, and purity that they were represented

to possess and that they were required to possess in order to warrant FDA approval;

(d) Defendants failed to disclose that the Company’s testing, reporting, and

manufacturing processes violated FDA regulations in numerous respects, as alleged above;


32

(e) Defendants failed to disclose the risk that, if the Company’s violations of

FDA regulations and its products’ non-compliance with FDA specifications were discovered,

they would severely undermine its ability to continue as a going concern; and

(f) Contrary to his certification, Wadekar knew about material false

statements and omissions in the Form 10-Q.

76. On December 10, 2002, defendant Wadekar commented on the Company’s

performance during a CCBN Virtual Healthcare Conference, stating in pertinent part:

In the third quarter 2002, we reported net sales of $15 million and net income of $3 million, This translates into an earnings per share of 25 cents on a basic (ph) and 19 cents fully diluted.

We currently have 275 employees. And our growth has been driven by approximately 22 FDA approvals we received since the year 2001. Almost 18 of these approvals have been received in the last 15 (ph) months, which has really fueled the growth that you see.

We have a robust pipeline, with approximately 12 (ph) ANDA’s under review by the FDA currently. They’re pending approval. And our objective is to continue to be aggressive in R&D.

* * * We have had an excellent track record with the FDA. Our facility is fully compliant with the current good manufacturing practices. And we have been receiving approvals in an average of about nine to 10 months.

* * * We have had about five or six [regulatory] inspections in the last two years. The last three inspections took place within six months - the last six months. All of them were clean. There were no observations that were given to us by the FDA. And no form 483 (ph), which contains those observations, was issued to us.

Our track record with the FDA, as we discussed earlier, is pretty good. We received one approval within five and a half months from the time of filing. Our average is running about nine to 10 months.


33

Able Labs’ main facility used to be under a consent decree (ph) that was entered by previous ownership in going back to 1992. And in February, we were able to have that consent decree (ph) removed. And we’re very proud of the fact that we were able to show the FDA the level of quality that we have in the operation. And the FDA recommended to possess this (ph) department of a fall to (ph) consent decree (ph). And that was removed as well.

(Emphasis added.)

77. Wadekar’s statements were materially false and misleading for at least the

following reasons:

(a) he failed to disclose that the Company’s positive financial results for the

third quarter of 2002 had been achieved through the production and sale of products that did not

comply with FDA specifications;

(b) he failed to disclose that the Company’s positive financial results and

ANDA approvals during the Class Period had been achieved through the use of procedures

which did not comply with cGMPs;

(c) he touted the Company’s success in obtaining ANDA approvals for new

drug products and bringing those products to market, without disclosing its failure to ensure that

those products had the safety, identity, quality, and purity that they were represented to possess,

and that they were required to possess in order to warrant FDA approval;

(d) he failed to disclose that the Company’s testing, reporting, and


(e) he misrepresented that the Company was complying with cGMPs and

proclaimed that its regulatory inspections were all “clean,” when the Company was materially

non-compliant with cGMPs and other FDA requirements and had engaged in wrongful conduct

in connection with the submission and approval of ANDAs, and thus was at risk of incurring

severe penalties; and


34

(f) he failed to disclose the risk that, if the Company’s violations of FDA

regulations and its products’ non-compliance with FDA specifications were discovered, they

would severely undermine its ability to continue as a going concern.

78. Able again reported impressive results for the quarter and year ended December

31, 2002. On March 5, 2003, the Company issued a press release entitled “Able Laboratories

Reports Record Sales of $52.9 million for 2002,” which stated, in relevant part:

ABLE LABORATORIES, INC. (Nasdaq NMS: ABRX, BSE: AAB), today announced financial results for the three months ended December 31, 2002 and for the year ended December 31, 2002. For the year ended December 31, 2002, the Company reported diluted earnings per share of $1.44, which includes the one-time, non-recurring net tax benefit from a net operating loss carryforward. Adjusted for this one-time net tax benefit and other non-recurring items, the Company earned $0.63 per diluted share for 2002.

Fourth Quarter 2002 Financial Results

The Company reported net sales of $16,101,638 for the quarter endded December 31, 2002, a slight increase over net sales reported for the third quarter of 2002 of $15,024,914 and a 127.9% increase from sales of $7,066,599 for the quarter ended December 31, 2001.

Gross margins were $7,999,806, or 49.7% of net sales, versus $7,348,151, or 48.9% of net sales, for the third quarter of 2002 and $3,010,248, or 42.6% of net sales, for the fourth quarter of 2001….

Operating income for the quarter was $3,347,419, or 20.8% of net sales, versus $3,377,255, or 22.5% of net sales, for the third quarter 2002 and operating income of $546,932, or 7.7% of net sales, for the fourth quarter of 2001….

* * *

Fiscal 2002 Financial Results

For the year ended December 31, 2002, the Company reported net sales of $52,930,121, a 170.1% increase from net sales reported for 2001 of $19,594,231. After adjusting for net sales of $3,067,567


35

from our former distribution subsidiary, which was sold in February 2001, net sales at the Able facility increased 220.3%.

Gross margins were $25,568,511, or 48.3% of net sales for 2002, versus $7,060,791, or 36.0% of net sales, for 2001….

Operating income was $10,869,406, or 20.5% of net sales for 2002, versus a reported loss of ($1,201,120) for 2001 and an adjusted loss for 2001, excluding the operations of our former distribution subsidiary, of ($874,669). The increase in operating income resulted from the Company achieving increased net sales and gross margins, which exceeded the greater selling, general and administrative expenses incurred to support continued Company growth.

* * *

R&D expenses increased to $6,944,952, or 13.1% of net sales for 2002, versus $2,355,666, or 12.0% of net sales, for 2001. The increase for the year is primarily due to additional research and coinciding bio-studies conducted to further develop the Company’s product pipeline. During 2002, the Company received 10 ANDA approvals.

* * *

“We are pleased with Able’s financial progress, as we continued to increase net sales and earnings while executing on our strategy during the fourth quarter 2002,” commented Jay Wadekar, President and Chief Executive Officer. “Our 2002 results were driven primarily by our ANDA approvals and market penetration into certain key accounts. Our fundamentals and pipeline are strong as we are awaiting approvals on several promising ANDAs. Additionally, we have an aggressive R&D program and we believe 2003 will be an overall up year for the Company. Our continued growth, especially on a quarter-to-quarter basis, will also depend upon the timing of pending ANDA approvals some of which could be first-to-market opportunities. We continue to focus on managing our growth and controlling our costs and look forward to an exciting 2003.”

79. On March 25, 2003, Able filed its annual report on Form 10-K with the SEC for

2002 (the “2002 Form 10-K”), which was signed by Wadekar. The 2002 Form 10-K reaffirmed

the Company’s previously announced financial results and discussed the process by which the


36

Company obtained FDA approvals for new drugs, stating: “We use biostudies to demonstrate

that the rate and extent of absorption of a generic drug are not significantly different from that

achieved by the corresponding brand-name drug. These biostudies are subject to rigorous

standards set by the FDA.” The Form 10-K further represented that Able was in compliance

with all FDA manufacturing regulations:

… Federal and state regulations impose certain requirements on the testing, manufacture, labeling, storage, recordkeeping, approval, advertising and promotion of our products…. In order to conduct clinical tests and produce and market products for human diagnostic and therapeutic use, we must comply with mandatory procedures and safety standards established by the FDA and comparable state and foreign regulatory agencies….

To obtain an NDA, or FDA, approval for a new drug or generic equivalent, a prospective manufacturer must, among other things, comply with the FDA’s current Good Manufacturing Practices, or cGMP, regulations. The FDA may inspect the manufacturer’s facilities to assure such compliance prior to approval or at any other reasonable time. We must follow cGMP regulations at all times during the manufacture and other processing of drugs. To comply with the requirements set forth in these regulations, we must continue to expend significant time and resources in the areas of development, production, quality control and quality assurance.

We must obtain FDA approval, in the form of an ANDA, before we can market a generic equivalent of a previously approved drug. The process of obtaining an ANDA approval is set by the provisions of the Waxman-Hatch Act of 1984, which established a statutory procedure for the submission and FDA review and approval of ANDAs …

* * *

Penalties for wrongdoing in connection with the development or submission of an ANDA were established by the Generic Drug Enforcement Act of 1992, authorizing the FDA to permanently or temporarily bar companies … from submitting or assisting in the submission of an ANDA. The FDA may also temporarily deny approval and suspend applications to market generic drugs. The FDA may also suspend the distribution of all drugs approved or developed in connection with certain wrongful conduct and, under certain circumstances, also has the authority to withdraw approval


37

of an ANDA and to seek civil penalties. We do not expect the law to have a material impact on the review or approval of our ANDAs.

(Emphasis added.)

80. The 2002 Form 10-K listed the Company’s 25 products, which included six of the

products as to which the FDA would later (in 2005) find that the Company had failed to comply

with cGMPs: Acetaminophen and Codeine Phospate Tablets, USP 300mg/30mg (equivalent to

Tylenol® with Codeine); Diphenoxylate and Atropine Sulfate Tablets (equivalent to Lomotil®);

Methylphenidate HCl Tablets (equivalent to Ritalin®); Methylphenidate HCl Extended Release

Tablets (equivalent to Metadate-SR®); Prochloroperazine Suppositories (equivalent to

Compazine®); and Proproxyphene Napsylate and Acetaminophen Tablets (equivalent to

Darvocet®). Thus, nearly one-quarter of the Company’s products had received ANDA

approvals and/or were being marketed and sold in violation of FDA regulations – a fact which, if

known to the FDA and/or investors, would have called into question the Company’s entire

product line and, thus, its viability as a going concern.

81. The 2002 Form 10-K included a certification signed by Wadekar stating, inter

alia: “Based on my knowledge, this annual report does not contain any untrue statement of a

material fact or omit to state a material fact necessary to make the statements made, in light of

the circumstances under which such statements were made, not misleading with respect to the

period covered by this annual report.”

82. The statements in the Company’s 2002 Form 10-K regarding the Company’s

operating performance, compliance with FDA regulations and cGMPs, and Wadekar’s

certification, were materially false and misleading because, among other reasons:


38

(a) The statements failed to disclose that the Company’s positive financial

results for the fourth quarter and year end 2002 had been achieved through the production and

sale of products that did not comply with FDA specifications;

(b) The statements failed to disclose that the Company’s positive financial

results and ANDA approvals during the fourth quarter and year end 2002 had been achieved

through the use of procedures which did not comply with cGMPs;

(c) The statements touted the Company’s success in obtaining ANDA

approvals for new drug products and bringing those products to market, without disclosing its

failure to ensure that those products had the safety, identity, quality, and purity that they were

represented to possess and that they were required to possess in order to warrant FDA approval;

(d) The statements failed to disclose that the Company’s testing, reporting,

and manufacturing processes violated FDA regulations in numerous respects, as alleged above;

(e) The statements misrepresented that the Company was complying with

FDA requirements and should not be materially affected by the law providing for penalties in the

event of wrongful conduct in the submission of ANDAs, when the Company knew it was

materially non-compliant with FDA requirements and had engaged in wrongful conduct in

connection with the submission and approval of ANDAs, and thus was at risk of incurring severe

penalties;

(f) the statements failed to disclose the risk that if the Company’s violations

of FDA regulations and its products’ non-compliance with FDA specifications were discovered


(g) contrary to his certification, Wadekar knew about material false statements

and omissions in the 2002 Form 10-K.


39

.

83. On May 6, 2003, Able issued a press release entitled “Able Laboratories Reports

First Quarter 2003 Results,” which stated in relevant part:

ABLE LABORATORIES, INC. (Nasdaq NMS: ABRX, BSE: AAB), today announced financial results for the three months ended March 31, 2003. For the first quarter of 2003, the Company reported net sales of $15.0 million, a 61.2% increase from net sales of $9.3 million in the first quarter of 2002, primarily due to higher demand for the Company’s expanded product family. The Company also reported operating income of $2.0 million for the first quarter of 2003, a 16.4% increase from the first quarter of 2002 of $1.7 million. Research and development expenses (“R&D”) were $2.1 million for the first quarter of 2003, a 108.5% increase, compared with $1.0 million for the first quarter of 2002.

Gross profit was $6.5 million for the quarter, an increase of 52.7%, versus $4.3 million for the first quarter of 2002.

* * *

R&D expenses increased substantially to $2.1 million from $1.0 million for the first quarter of 2002, or 108.5%. The increase results from additional research and coinciding bio-studies conducted to further develop the Company’s product pipeline…. The Company received 4 [ANDA] approvals during the first quarter of 2003 (and an additional 2 ANDA approvals in April 2003 …) and currently has 13 ANDAs pending approval by the [FDA] representing approximately $500 million in total market size. In addition, the Company has 23 projects currently under development addressing a total market of approximately $2.9 billion.

* * *

“We are pleased with Able’s progress during the first quarter of 2003 as we are investing in our future by building the Company’s R&D pipeline,” commented Jay Wadekar, President and Chief Executive Officer. “Our first quarter 2003 reduced gross margins resulted primarily from unabsorbed direct manufacturing costs incurred while the Company underwent expansion of its manufacturing capacity to support future anticipated growth. Our fundamentals and pipeline continue to be strong as we are awaiting approvals on several additional promising ANDAs.”


40

84. On May 14, 2003, Able filed its quarterly report with the SEC on Form 10-Q for

the first quarter of 2003, which was approved by Company’s Board of Directors and signed by

defendant Wadekar. The Form 10-Q repeated and reaffirmed the Company’s previously

announced quarterly financial results, and stated that the Company received FDA approvals for

four new products during the quarter and two additional products in April 2003, and had thirteen

more products pending FDA approval. The Form 10-Q also contained a certification signed by

Wadekar stating, inter alia: “Based on my knowledge, this quarterly report does not contain any

untrue statement of a material fact or omit to state a material fact necessary to make the

statements made, in light of the circumstances under which such statements were made, not

misleading with respect to the period covered by this quarterly report.”

85. The statements in Able’s Form 10-Q for the first quarter 2003 (including

Wadekar’s certification) and those contained in Able’s press release reporting Able’s first quarter

2003 results were materially false and misleading for at least the following reasons:


results for the third quarter 2003 had been achieved through the production and sale of products

that did not comply with FDA specifications;


results and ANDA approvals during the Class Period had been achieved through the use of

procedures which did not comply with cGMPs;




represented to possess, and that they were required to possess in order to warrant FDA approval;


41



(e) The statements failed to disclose the risk that, if the Company’s violations

of FDA regulations and its products’ non-compliance with FDA specifications were discovered,




86. On July 28, 2003, Able issued a press release entitled “Able Laboratories Reports

Record Second Quarter 2003 Results,” which stated in relevant part:

ABLE LABORATORIES, INC. (Nasdaq NMS: ABRX, BSE: AAB), today announced financial results for the three months ended June 30, 2003. For the second quarter of 2003, the Company reported net sales of $18.9 million, a 51.6% increase compared to net sales of $12.5 million for the second quarter of 2002, primarily due to higher demand for the Company’s expanded product family and new product approvals. The Company also reported operating income of $4.5 million for the second quarter of 2003, an 83.9% increase compared to operating income for the second quarter of 2002 of $2.4 million.

Gross profit was $9.0 million for the quarter, an increase of 51.7%, versus $5.9 million for the second quarter of 2002….

… The Company received 5 [ANDA] approvals during the second quarter of 2003 and currently has 11 ANDAs pending approval by the [FDA] representing approximately $300 million in total market size. In addition, the Company has 23 projects currently under development addressing a total market of approximately $2.9 billion.

* * *

Excluding the provision for income taxes, the Company earned $4.0 million for the second quarter of 2003 versus second quarter of 2002 pre-tax income of $2.3 million. This represents a 72.0% increase in pre-tax income when compared to the second quarter of 2002.


42

* * *

“We are pleased with Able’s progress during the second quarter of 2003 as we continued to invest in our future by building our R&D pipeline,” commented Jay Wadekar, President and Chief Executive Officer. “After focusing on the Company’s manufacturing expansion during the first quarter of 2003, our second quarter reflected improved operating efficiency. Our fundamentals and pipeline continue to be strong as we are pursuing approval of several additional ANDAs.”

87. Also on July 28, 2003, during a conference call with analysts, Defendant Wadekar

commented on the Company’s performance stating in part:

. . . I’m going to talk about our capacity and the Company’s expansion plans. This is a question I routinely receive now, when we talk to you investors. We completed our last phase of construction at the end of first quarter, which increased our manufacturing, R&D, as well as quality control capacity. We expect that at the current location, we will be able to manufacture and meet the demand of our potential growth for the next three quarters. Beyond that we’ll need to add additional manufacturing capacity. We believe that operating out of the current four - and actually does not to come five [sic], as again temporarily taking some space. Locations will take away operating efficiencies and margins. Therefore, we’re actively pursuing the option of leasing a single location, where we can consolidate all the Company’s operations. Based upon discussions with the FDA and our own experience in building out manufacturing space, we believe we’ll be able to consolidate most of the operations within twelve months from entering into the new lease space.

88. This statement was materially false and misleading at the time it was made

because Defendants knew “quality control” capacity had not been increased but rather remained

virtually non-existent.

89. On August 14, 2003, Able filed its quarterly report with the SEC on Form 10-Q

for the second quarter of 2003, which was approved by Company’s Board of Directors and

signed by defendant Wadekar. The Form 10-Q repeated and reaffirmed the Company’s

previously announced quarterly financial results and stated that the Company received FDA


43

approval for seven new products during the quarter and had 15 new products pending FDA

approval. The Form 10-Q also contained a certification signed by Wadekar stating, inter alia:

“Based on my knowledge, this report does not contain any untrue statement of a material fact or

omit to state a material fact necessary to make the statements made, in light of the circumstances


this report.”

90. The statements in Able’s Form 10-Q for the second quarter 2003 (including

Wadekar’s certification) and those contained in Able’s press release reporting Able’s second

quarter 2003 results were materially false and misleading for at least the following reasons:














44

(e) The statements failed to disclose the risk that if the Company’s violations





91. On November 4, 2003, Able issued a press release entitled “Able Laboratories

Reports Third Quarter 2003 Results,” which stated in relevant part:

ABLE LABORATORIES, INC. (Nasdaq NMS: ABRX, BSE: AAB), today announced financial results for the three months ended September 30, 2003. For the third quarter of 2003, the Company reported net sales of $20.9 million, a 38.9% increase compared to net sales of $15.0 million for the third quarter of 2002. This increase is primarily due to higher demand for the Company’s expanded product family and new product launches. The Company also reported operating income of $4.2 million for the third quarter of 2003, a 24.7% increase compared to operating income for the third quarter of 2002 of $3.4 million.

Gross profit was $10.0 million for the quarter, an increase of 35.8%, versus $7.3 million for the third quarter of 2002. The increase in gross profit is attributable to increased product net sales.

. . . The Company received 2 [ANDA] approvals, during the third quarter of 2003, and currently has 17 ANDAs pending approval by the [FDA] representing approximately $400 million in total market opportunity. In addition, the Company has over 20 projects currently under development addressing a total generic and branded market of approximately $1 billion.

* * *

Operating income for the quarter was $4.2 million, or 20.2% of net sales, versus $3.4 million, or 22.5% of net sales, for the third quarter of 2002. This dollar increase was primarily attributable to increased sales partially offset by increased SG&A and R&D expenses.

Net income for the third quarter of 2003 was $2.5 million, or $0.13 per diluted share….


45

Excluding the provision for income taxes, the Company earned $4.2 million for the third quarter of 2003 versus third quarter of 2002 pretax income of $3.0 million. This represents a 41.1% increase in pre-tax income when compared to the third quarter of 2002.

“We are proud of Able’s progress during the third quarter of 2003 as we continued to invest in our future by building our product pipeline through an increasing commitment to R&D. This is exhibited by the growth in ANDA’s pending with the FDA from 11 last quarter at this time to 17 currently,” commented Jay Wadekar, President and Chief Executive Officer. “Our strong balance sheet and new leased facility position the Company well for fixture growth.”

92. On November 14, 2003, Able filed its quarterly report with the SEC on Form 10-

Q for the third quarter of 2003, which was approved by Company’s Board of Directors and

signed by defendant Wadekar. The Form 10-Q repeated and reaffirmed the Company’s

previously announced financial results for the third quarter, and stated that the Company had

received FDA approval for three new products during the quarter and has 17 ANDAs still

pending approval. The Form 10-Q also contained a certification signed by Wadekar stating,

inter alia: “Based on my knowledge, this report does not contain any untrue statement of a



period covered by this report.”

93. The statements in Able’s Form 10-Q for the third quarter 2003 (including

Wadekar’s certification) and those contained in Able’s press release reporting Able’s third

quarter 2003 results were materially false and misleading for at least the following reasons:





46










(e) The statements failed to disclose the risk that if the Company’s violations





94. On February 26, 2004, Able issued a press release entitled “Able Laboratories

Reports Record Sales and Operating Income For 2003,” wherein it announced its financial

results for the quarter and year ended December 31, 2003. The press release stated in relevant

part:


The Company reported net sales of $22,752,442 for the quarter ended December 31, 2003, a 41.3% increase over net sales reported for the fourth quarter of 2002 of $16,101,638. This increase is primarily due to higher demand for the Company’s expanded product family and to new product launches.

Gross profit was $10,678,888 for the quarter, an increase of 33.5% over $7,999,806 for the fourth quarter of 2002…. The dollar


47

increase in gross profit is directly related to the increase in net sales …

Operating income for the quarter was $3,628,352, an increase of 8.4% over $3,347,419 for the fourth quarter of 2002. Increased sales contributed most significantly to the improvement in operating income….

* * *

Net income applicable to common stockholders for the fourth quarter of 2003 was $2,388,220, or $0.14 per basic share, and $0.13 per diluted share.


For the year ended December 31, 2003, the Company reported net sales of $77,561,115, a 46.5% increase over net sales of $52,930,121 reported for 2002.

Gross profit was $36,205,923 for 2003, an increase of 41.6% over $25,568,511 for 2002. As a percent of net sales, the Company’s gross margin for 2003 was 46.7% versus 48.3% for 2002. The increase in gross profits is directly related to the increase in net sales, while the decrease in gross margin was due to changes in product mix and expenses incurred in connection with the new Cranbury, New Jersey facility.

Operating income for 2003 was $14,296,641, an increase of 31.5%, over $10,869,406 for 2002. This dollar increase was primarily attributable to increased sales, partially offset by increased SG&A and significantly increased R&D expenses….

* * *

R&D increased 61.4% to $11,212,418 for 2003 from $6,944,952 for 2002. The increase over the prior year primarily results from additional research and related bio-studies conducted to further develop the Company’s product pipeline…. The Company received 13 ANDA approvals during 2003 versus 10 for 2002 and filed 13 new ANDAs in 2003.

* * *

For the year ended December 31, 2003, the Company reported net income applicable to common stockholders of $8,212,989, or $0.46 per diluted share.


48

* * *

“We are pleased with Able’s financial progress, as we continued to increase net sales and earnings while executing on our strategy during the fourth quarter of 2003,” commented Jay Wadekar, President and Chief Executive Officer. “Our 2003 results were driven primarily by our 13 ANDA approvals and market penetration into certain key accounts.”

“This year, the Company crossed another significant milestone by producing over 1 billion total tablets, capsules and suppositories. Our expansion into the new 225,000 square foot Cranbury facility, beginning in late 2004, will allow us to increase production capacity substantially, which we believe is necessary both to meet our current manufacturing needs and to support the Company’s aggressive current and future R&D pipeline. Also, our entry into the prescription liquid products market allows us to expand our product portfolio and improve overall operating margins,” concluded Mr. Wadekar.

95. During an earnings conference call on February 26, 2004, defendant Wadekar

commented on Able’s earnings guidance for 2004, stating:

As we’ve stated earlier, we’re expecting about 10 to 12 ANDAs in 2004. Starting with the Metamflomine that we received, we’re looking at about two to four in the first half of this year and the remainder coming in the latter part. The growth in sales is expected to come from the approval as we anticipate steady core business with flat to slightly declining pricing for the existing products. These expected approvals represent $462 million in market sales as per the recent IMS data, and is expected to provide the topline revenue growth for the year of approximately 30 to 35 percent or between $100 to $105 million of net sales for 2004.

Our move to the Cranbury facility is expected to provide operating efficiencies and allow us to leverage our, fixed overhead, lowering our costs and potentially increasing gross margin. Further, our first to market strategy provides us with better than average margin and both these factors are expected to come into play throughout the year, but more prominently in the second half of the year. Also, for 2004, we estimate R&D expenses to be approximately $15 to $17 million and an estimated effective income tax rate of 39 percent.


49

96. On March 15, 2004, Able filed its annual report on Form 10-K with the SEC for

the year ended December 31, 2003 (the “2003 Form 10-K”), which was signed by Wadekar. The

2003 Form 10-K repeated and reaffirmed the Company’s previously announced financial results

for 2003, contained a similar description of the Company’s FDA approval process as the 2002

Form 10-K. Further, the 2003 Form 10-K stated “we believe that we are currently in compliance

with all applicable FDA requirements” and “[w]e do not expect the law [providing for penalties

for wrongdoing in connection with the development or submission of an ANDA] to have a

material impact on the review or approval of our ANDAs.”

97. Of the 33 FDA-approved drugs identified in Able’s 2003 Form 10-K, seven

(21%) would later be found by the FDA to have been approved through violations of cGMPs:

Acetaminophen and Codeine Phospate Tablets, USP 300mg/30mg; Diphenoxylate and Atropine

Sulfate Tablets; Methylphenidate HCl Tablets; Methylphenidate HCl Extended Release Tablets;

Nitroglycerin Sublingual Tablets; Prochloroperazine Suppositories; and Proproxyphene

Napsylate and Acetaminophen Tablets.

98. The 2003 Form 10-K contained a certification signed by Wadekar stating, inter

alia: “Based on my knowledge, this annual report does not contain any untrue statement of a



period covered by this annual report.”

99. The statements in Able’s 2003 Form 10-K (including Wadekar’s certification) and

in Able’s February 26, 2004 press release announcing the results for the fourth quarter of 2004

were materially false and misleading when made because, among other reasons, they:


50

(a) Failed to disclose that the Company’s positive financial results during the

Class Period had been achieved through the production and sale of products that did not comply

with FDA specifications;

(b) Failed to disclose that the Company’s positive financial results and ANDA

approvals during the Class Period had been achieved through the use of procedures which did

not comply with cGMPs;

(c) Touted the Company’s success in obtaining ANDA approvals for new


those products had the safety, identity, quality, and purity that they were represented to possess


(d) Failed to disclose that the Company’s testing, reporting, and


(e) Misrepresented that the Company was complying with FDA requirements

and should not be materially affected by the law providing for penalties in the event of wrongful

conduct in the submission of ANDAs, when the Company knew it was materially non-compliant

with FDA requirements and had engaged in wrongful conduct in connection with the submission

and approval of ANDAs and thus was at risk of incurring severe penalties;

(f) Failed to disclose the risk that if the Company’s violations of FDA

regulations and its products’ non-compliance with FDA specifications were discovered they

would severely undermine its ability to continue as a going concern; and

(g) Contrary to his certification, Wadekar knew about material false

statements and omissions in the 2003 Form 10-K.


51

100. On April 26, 2004, Able issued a press release entitled “Able Laboratories

Reports First Quarter 2004 Results,” which stated in relevant part:

For the first quarter of 2004, the Company reported net sales of $21.5 million, a 43.0% increase from net sales of $15.0 million in the first quarter of 2003, primarily due to the Company’s expanded product family. The Company also reported operating income of $3.0 million for the first quarter of 2004, a 48.9% increase from the first quarter of 2003 of $2.0 million. Research and development expenses (“R&D”) were $3.5 million for the first quarter of 2004, a 66.8% increase, compared with $2.1 million for the first quarter of 2003.

Gross profit was $9.5 million for the quarter, an increase of 45.6%, versus $6.5 million for the first quarter of 2003….

R&D expenses increased substantially as noted above. The increase results from additional research and development conducted to further develop the Company’s product pipeline and costs associated with strategic alliances. R&D accounted for 16.5% of net sales for the first quarter of 2004 versus 14.2% of net sales for the first quarter of 2003. The Company received one [ANDA] approval during the first quarter of 2004 and currently has 18 ANDAs pending approval by the [FDA] addressing a total market size of approximately $630 million. In addition, the Company has 25 solid dose and six liquids projects currently under development addressing a total market size of approximately $850 million.

* * *

Operating income for the quarter was $3.0 million, or 13.9% of net sales, versus $2.0 million, or 13.4% of net sales, for the first quarter of 2003. This percentage increase was primarily attributable to increased net sales partially offset by increased R&D and SG&A expenses.

Net income applicable to common stockholders for the quarter was $1.8 million versus $1.0 million for the first quarter of 2003. Fully diluted earnings per share for the quarter was $0.10 versus $0.06 for the first quarter of 2003.

Jay Wadekar, President and Chief Executive Officer commented: “We are pleased with Able’s progress during the first quarter of 2004 as we continue investing in our future by building the Company’s R&D pipeline and constructing our new manufacturing


52

facility in Cranbury, NJ. We anticipate several product approvals over the next 4-6 months, one of which could be a first-to-market product. We currently have 18 ANDAs on file with the FDA and anticipate filing additional ANDAs, for solid dose and liquids products, throughout the year. Also, we intend to continue our commitment to R&D by increasing the number of new products entering development, both utilizing our internal expertise and leverage our expertise by collaborating with our technology licensing partner.”

101. On April 27, 2004, during a conference call, defendant Wadekar reiterated Able’s

earlier 2004 guidance of a 30% to 35% increase over 2003 sales, or between $100 million and

$105 million net sales for the year 2004.




announced financial results for the quarter and stated that the Company had received FDA

approval for one new product during the quarter and had 18 ANDAs pending approval. The

Form 10-Q further stated that its research and development costs had increased during the

quarter due, in part, to “increased activity in supporting a higher number of research projects,”

and that “[t]hese support activities include[d] quality assurance, stability testing and regulatory

support.” The Form 10-Q stated that the Company had “approximately 40 quality and regulatory

employees … providing support function for the primary research and development activity.”

These statements created the false impression that the Company’s quality assurance, stability

testing, and regulatory functions were performing properly, when in fact there were numerous

deficiencies in those areas.

103. The Form 10-Q for the first quarter of 2004 disclosed that the FDA had initiated

an inspection of the South Plainfield Facility in January 2004, and had “issued to [the Company]

a Form 483 notice concerning our compliance with cGMP, including certain observations by the


53

inspectors related to our failure to report adverse drug events in accordance with applicable rules

and regulations.” The Form 10-Q reported that the Company was reviewing those observations,

that it expected to be able to address them in a timely and effective manner, and that “we believe

that the warning letter may not materially affect our operations,” pointing out that the Company

had received four ANDA approvals since receiving the letter. These statements gave the false

impression that any violations of FDA regulations would be promptly resolved, when in reality

there were numerous other undisclosed and ongoing cGMP violations at Able. The Form 10-Q

contained a certification signed by Wadekar stating, inter alia: “Based on my knowledge, this

report does not contain any untrue statement of a material fact or omit to state a material fact

necessary to make the statements made, in light of the circumstances under which such

statements were made, not misleading with respect to the period covered by this report.”

104. The statements in Able’s April 24, 2004 press release, the statements made by

Defendant Wadekar in the April 27, 2004 conference call, and the statements contained in Able’s

Form 10-Q for the first quarter 2004 (including Wadekar’s certification) were materially false

and misleading because, among other reasons, they:










54





(e) Downplayed the impact of the Company’s product recalls and FDA

warning letter, without disclosing the existence of numerous other ongoing violations of FDA

regulations which, if discovered, would necessitate additional product recalls;






105. On July 27, 2004, Able issued a press release entitled “Able Laboratories Reports

Second Quarter 2004 Results,” which stated in relevant part:

For the second quarter of 2004, the Company reported net sales of $23.0 million, a 21.4% increase from net sales of $18.9 million in the second quarter of 2003, primarily due to the Company’s expanded product family. The Company also reported operating income of $3.7 million for the second quarter of 2004, compared to operating income of $4.5 million for the second quarter of 2003 Operating income for the second quarter was affected by a 53.5% increase in research and development (R&D) expenses, which were $3.5 million for the quarter compared to $2.3 million for the second quarter of 2003, as well as increased selling, general and administrative (SG&A) expenses and approximately $810,000 of expenses related to the Company’s new facility and certain one-time expenses ...

Gross profit was $10.8 million for the quarter, an increase of 20.1%, compared to $9.0 million for the second quarter of 2003….

R&D expenses increased substantially, as noted above. The increase results from additional research and development


55

conducted to further develop the Company’s product pipeline and costs associated with development partnering arrangements…. The Company received five [ANDA] approvals during the second quarter, with one approval received during the first quarter and four additional approvals during July 2004. The Company currently has nine ANDAs pending approval by the [FDA] addressing a total market size of approximately $400 million. In addition, the Company has 25 solid dose and 6 liquid projects currently under development addressing a total market size of approximately $850 million.

* * *

Jay Wadekar, Able’s Chief Executive Officer, commented: “We are pleased with Able’s progress during the second quarter of 2004 as we continue investing in our future by building the Company’s R&D pipeline and continue to make good progress building out our new manufacturing facility in Cranbury, New Jersey. We are in the process of moving several departments into the Cranbury location. Shortly, we will have the vast majority of our staff located there.”

“We anticipate several additional product approvals over the next few months in addition to the 10 approvals received to date in 2004. We currently have nine ANDAs on file with the FDA and anticipate filing additional ANDAs, for solid dose and liquids products, throughout the remainder of the year. Also, we plan to continue our commitment to R&D by increasing the number of new products entering development, both utilizing our internal expertise and continuing to leverage our expertise by collaborating with technology partners.”

106. On August 6, 2004, Able filed its quarterly report with the SEC on Form 10-Q for

the second quarter of 2004, which was approved by Company’s Board of Directors and signed

by defendant Wadekar. The Form 10-Q repeated and reaffirmed the Company’s previously

announced quarterly financial results, and repeated the statements from the Form 10-Q for the

previous quarter regarding the Company’s quality assurance, stability testing, and regulatory

support functions. It also stated that the Company had received FDA approval for six new

products during the quarter and thirteen more in July 2004, and that it had four ANDAs still

pending approval. Additionally, the Company again made reference to the FDA’s January 2004


56

inspection, and stated: “We expect to be able to address the FDA’s observations in a timely and

effective manner, and we believe the warning letter may not materially affect our operations.

Since receiving the warning letter, we have received 14 new ANDA approvals.” The Form 10-Q

contained a certification signed by Wadekar stating, inter alia: “Based on my knowledge, this



statements were made, not misleading with respect to the period covered by this report.”

107. The statements contained in Able’s Form 10-Q for the second quarter of 2004

(including Wadekar’s certification) and in Able’s press release announcing Able’s second

quarter 2004 results were materially false and misleading because, among other reasons, they:














57









108. On August 2, 2004, the Company issued a press release announcing that it had

received FDA approval of its ANDA for “Atenolol Tablets, USP 25mg, 50mg and 100mg, which

are therapeutically equivalent to Tenormin Tablets, USP 25mg, 50mg and 100mg of Astra

Zeneca Pharmaceuticals LP.” The Company further stated that the total sales for the Atenolol

Tablets were estimated to be approximately $100 million according to recent market data. The

Company failed to disclose that its 25mg Atenolol Tablets had repeatedly received out-of-

specification results during the Company’s dissolution testing, including one batch that showed a

30.9% rate of dissolution when the FDA standard required a rate of no less than 85%. Nor did

the Company disclose that these failing results had been concealed from the FDA.

109. On November 2, 2004, Able issued a press release entitled “Able Laboratories

Reports Third Quarter 2004 Results, Able Achieves Record Sales, Operating Income and

Earnings Per Share.” The press release stated, in relevant part:

For the third quarter of 2004, the Company reported net sales of $27.3 million, a 30.8% increase from net sales of $20.9 million in the third quarter of 2003, primarily due to the Company’s expanded product family. The Company also reported operating income of $7.3 million for the third quarter of 2004, a 73.3% increase as compared to operating income of $4.2 million for the


58

third quarter of 2003. This included an increase in Research & Development (R&D) expenses of $1.0 million, or 31.7%, for the third quarter, of 2004 versus the third quarter of 2003. Diluted earnings per share (EPS) increased to $0.23 for the third quarter 2004 as compared to diluted EPS of $0.13 for the third quarter of 2003.

Gross profit was $14.9 million for the quarter, an increase of 49.3%, compared to $10.0 million for the third quarter of 2003….

R&D expenses increased subsantially, as noted above. The increase results from additional research and development conducted to further develop the Company’s product pipeline and costs associated with development partnering arrangements…. The Company received 10 [ANDA] approvals during the third quarter. The Company currently has five ANDAs pending approval by the [FDA] addressing a total market size of approximately $300 million. In addition, the Company has over 25 projects currently under development addressing a total market size of over $3 billion.

* * *

Jay Wadekar, Able’s Chief Executive Officer, commented: “We had a very good quarter in which we achieved record results. We are pleased with Able’s progress during the quarter as we received several ANDA approvals and launched new products as a result. We continue investing in our future by building the Company’s R&D pipeline.

“To date, we have moved approximately one-half of our staff into the Cranbury facility. In addition, during the third quarter, we installed a new Oracle Enterprise Resource Planning system. The Oracle system will provide us with increased capabilities and assist the Company in handling anticipated growth while also better enabling management to maintain stringent controls over the business.

“We anticipate additional product approvals over the next few months in addition to the 16 approvals received to date in 2004. We currently have five ANDAs on file with the FDA and anticipate filing between 15 and 20 additional ANDAs during the remainder of the year and through the first half of 2005. These products represent a total market size of approximately $1.5 to $2.0 billion. Of these products to be filed, five to seven could be first to market based on exclusive API sourcing. Finally, we plan to continue our commitment to R&D by increasing the number of


59

new products entering development, both by utilizing our expanded internal capabilities and through collaboration agreements with others.”

110. On November 9, 2004, Able filed its quarterly report with the SEC on Form 10-Q

for the third quarter of 2004, which was approved by Company’s Board of Directors and signed

by defendant Wadekar. The Form 10-Q repeated and reaffirmed the Company’s previously

announced quarterly financial results and stated that, as of September 30, 2004, the Company

had 28 FDA-approved product families, in 73 different strengths, compared to 21 product

families in 47 different strengths as of September 30, 2003. It stated: “In 2004, we expect to

continue to increase our sales of generic drug products by attempting to increase sales of our

existing products and by obtaining [ANDA] approvals from the FDA for new products,” and

noted that the Company had five ANDAs pending approval and expected to file 15-20 more

ANDAs over the next several months. The Company again stated that its research and

development costs had increased due, in part, to increased activity in support functions such as

quality assurance, stability testing, and regulatory support, and that the Company was up to

approximately 59 quality and regulatory employees. Further, the Company repeated its prior

assurances regarding the FDA’s warning letter stemming from its January 2004 inspection. The

Form 10-Q contained a certification signed by Wadekar stating, inter alia: “Based on my

knowledge, this report does not contain any untrue statement of a material fact or omit to state a

material fact necessary to make the statements made, in light of the circumstances under which

such statements were made, not misleading with respect to the period covered by this report.”

111. The statements contained in Able’s Form 10-Q for the third quarter of 2004

(including Wadekar’s certification) and in Able’s press release announcing the results for the

third quarter of 2004 were materially false and misleading because, among other reasons, they:


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regulations which, if discovered, would necessitate additional product recalls; and

(f) Failed to disclose the risk that, if the Company’s violations of FDA





112. On March 7, 2005, Able issued a press release entitled “Able Laboratories

Reports Financial Results for 2004, Fourth Quarter and Full Year,” which stated in relevant part:


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For the fourth quarter of 2004, the Company reported net sales of $31.4 million, a 38.2% increase from net sales of $22.8 million in the fourth quarter of 2003, primarily due to the Company’s expanded product family. The Company also reported operating income of $8.5 million for the fourth quarter of 2004, a 135.6% increase compared to operating income of $3.6 million for the fourth quarter of 2003…. Diluted earnings per share increased to $0.32 for the fourth quarter of 2004 compared to diluted earnings per share of $0.13 for the fourth quarter of 2003.

Gross profit was $16.5 million for the quarter, an increase of 54.7%, compared to $10.7 million for the fourth quarter of 2003….

… The Company currently has six ANDAs pending approval by the [FDA] addressing a total market size of approximately $500 million. In addition, the Company has 18 projects currently under development addressing a total market size of approximately $2.6 billion.

* * *


For the year ended December 31, 2004, the Company reported net sales of $103.2 million, a 33.0% increase from net sales of $77.6 million for the year ended December 31, 2003.

Gross profit was $51.8 million for 2004, an increase of 43.0%, compared to $36.2 million for 2003. The Company’s gross profit margin was 50.2% for 2004, compared to 46.7% for 2003. Gross margin increased as a percentage of net sales primarily as a result of selling newly-approved products at higher gross margins.

Research and development expenses increased by $4.0 million, or 35.8%, to $15.2 million for 2004 compared to $11.2 million for 2003. Research and development expenses were 14.8% of net sales for 2004 versus 14.5% of net sales for 2003. The Company received FDA approval for 16 new products during 2004.

* * *

Operating income for 2004 was $22.5 million, or 21.8% of net sales, versus $14.3 million, or 18.4% of net sales, for 2003. The operating income increase is attributable to increased sales and higher gross profit margins partially offset by the $7.3 million increase in operating expenses… Net income applicable to


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common stockholders for 2004 was $14.6 million compared to $8.2 million for 2003. Fully diluted earnings per, share increased 63.0% to $0.75 for 2004 versus the $0.46 reported for 2003.

At December 31, 2004, the Company had cash and cash equivalents of $11.7 million and working capital of $52.0 million compared to cash and cash equivalents of $20.1 million and working capital of $47.1 million at December 31, 2003. During 2004, we invested approximately $24.3 million in new property and equipment.

113. In the same March 7, 2005 Press Release, Defendant Wadekar commented on the

Company’s performance:

We achieved record sales and earnings in the fourth quarter and for the year. Supported by our 16 ANDA approvals in 2004, we have also seen increased acceptance of our products by several key customers as a result of the efforts of our sales management team.

Last year was a transition year for us as we began relocating to the new facility. We also enhanced our growth prospects by making several key additions to our management team. We are excited about our R&D plans and partnership agreements, which we believe, will provide us with opportunities for significant long term growth.

114. On March 15, 2005, Able filed its annual report for 2004 on Form 10-K (the

“2004 Form 10-K”), which was signed by defendants Wadekar and Mauro. The 2004 Form 10-

K repeated and reaffirmed the Company’s previously announced financial results for 2004, and

stated that the Company had 16 new products pending approval by the FDA. It explained that

research and development costs had increased, in part, because of “increased activity in

supporting a higher number of research projects,” including “quality assurance, stability testing

and regulatory support,” and that the Company had 40 quality and regulatory employees devoted

to providing support for the primary research and development activity.

115. The 2004 Form 10-K described Able’s testing and FDA approval process as

follows:


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… Federal and state regulations impose certain requirements on the testing, manufacture, labeling, storage, recordkeeping, approval, advertising and promotion of our products…. In order to conduct clinical tests and produce and market products for human therapeutic use, we must comply with mandatory procedures and safety standards established by the FDA and comparable state regulatory agencies. Typically, standards require that products be approved by the FDA as safe and effective for their intended indications prior to being marketed for human use. We believe we are currently in compliance with all applicable FDA requirements.

We must obtain FDA approval before we make or sell a generic equivalent of an existing reference listed drug. We obtain such approvals by submitting abbreviated new drug applications, or ANDAs…. Each of our proposed generic drug products must be therapeutically equivalent to the corresponding referenced listed drug. Generic drug products are considered therapeutically equivalent if they are pharmaceutical equivalents, and meet the requirements for bioequivalence, when required, and stability throughout the proposed shelf life.

***

To obtain approval of ANDAs, we must also comply with the FDA’s current Good Manufacturing Practices, or cGMP regulations …

Penalties for failure to comply with cGMP standards can include suspension of manufacturing approval, the seizure of drug products or the FDA’s refusal to approve additional applications…. The FDA can also significantly delay the approval of a pending ANDA under its “Fraud, Untrue Statements of Material Fact, Bribery, and Illegal Gratuities Policy.” The FDA may also suspend the distribution of all drugs approved or developed in connection with certain wrongful conduct and, under certain circumstances, also has the authority to withdraw approval of a new drug application and to seek civil penalties. We do not expect the law to have a material impact on the review or approval of our ANDAs.

(Emphasis added.)

116. With regard to the FDA’s April 2004 warning letter, the 2004 Form 10-K stated:

“We believe that we have responded to the FDA’s observations in a timely and effective manner

and do not expect this event to materially affect our operations.”


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117. Of the 44 FDA-approved drugs identified in Able’s 2004 Form 10-K, nine (over

20%) would later be found by the FDA to have been approved through violations of cGMPs:

Acetaminophen and Codeine Phospate Tablets, USP 300mg/30mg; Atenolol Tablets;

Bethanechol Chloride Tablets; Diphenoxylate and Atropine Sulfate Tablets; Methylphenidate

HCl Tablets; Methylphenidate HCl Extended Release Tablets; Nitroglycerine Sublingual

Tablets; Prochloroperazine Suppositories; and Proproxyphene Napsylate and Acetaminophen

Tablets.

118. The 2004 Form 10-K contained a certification signed by Wadekar stating, inter

alia: “Based on my knowledge, this report does not contain any untrue statement of a material

fact or omit to state a material fact necessary to make the statements made, in light of the

circumstances under which such statements were made, not misleading with respect to the period

covered by this report.”

119. The statements contained in the March 7, 2005 Press Release and in Able’s 2004

Form 10-K (including Wadekar’s certification) were materially false and misleading when made

because, among other reasons, they:










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(e) Misrepresented that the Company was complying with FDA requirements

and should not be materially affected by the law providing for penalties in the event of wrongful

conduct in the submission of ANDAs, when the Company knew it was materially non-compliant

with FDA requirements and had engaged in wrongful conduct in connection with the submission

and approval of ANDAs, and thus was at risk of incurring severe penalties;

(f) Downplayed the impact of the Company’s product recalls and FDA



(g) Failed to disclose the risk that, if the Company’s violations of FDA


would severely undermine its ability to continue as a going concern;

(h) Failed to disclose that the Company had forced Defendant Shah into

retirement and hired new staff to oversee quality controls because of a “mess” in the Company’s

management and oversight of quality controls;

(i) Failed to disclose that the Company had been forced to recall certain

products in January and February 2005 because of breakdowns in quality controls stemming

from the Company’s poor oversight of quality controls and lack of cGMP compliance; and

(j) Contrary to his certification, Wadekar knew about material false

statements and omissions in the 2004 Form 10-K.


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120. On May 5, 2005, the Company announced its financial results for the first quarter

of 2005. Again, the Company reported strong results, most notably a 43.1% increase in net

sales, a 75.2% increase in net profit, and a 140% increase in diluted earnings per share. In a

press release entitled “Able Laboratories Reports Financial Results for First Quarter 2005,” the

Company stated, in relevant part:

For the first quarter of 2005, the Company reported net sales of $30.7 million, a 43.1 % increase from net sales of $21.5 million in the first quarter of 2004 due to the Company’s expanded product family. The Company also reported operating income of $7.5 million for the first quarter of 2005, a 151.2% increase compared to operating income of $3.0 million for the first quarter of 2004 These results included an increase in research and development expenses of $1.2 million, or 33.1%, compared to the first quarter of 2004. Diluted earnings per share increased to $0.24 for the first quarter of 2005 compared to diluted earnings per share of $0.10 for the first quarter of 2004.

Gross profit was $16.7 million for the first quarter of 2005, an increase of 75.2%, compared to $9.5 million for the first quarter of 2004….

… The Company currently has six ANDAs pending approval by the [FDA] addressing a total market size of approximately $500 million. In addition, the Company has approximately 15 projects currently under development addressing a total market size of approximately $2.5 billion.

* * *

“In the first quarter, we continued to expand our, base business with our current customers while selectively exploring opportunities for increasing our market penetration” said Jay Wadekar, Chairman and Chief Executive Officer of Able Laboratories, Inc. “As we look to the second half of the year and expected approvals of our pending ANDAs, we anticipate continued growth. Our sales and marketing team has created a solid foundation for our future growth based on our internal pipeline and our partnership agreements.”

121. In the earnings conference call on May 6, 2005, Jay Wadekar assured the public

of the Company’s continuing success. Wadekar reported that the Company had six ANDAs


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pending with the FDA with a market size of approximately $500 million, and that the Company

expected to file 15 ANDAs in 2005 with total sales of $2.5 billion. He stated that the Company’s

“future growth will come primarily from new approvals” and that the Company was maintaining

its earlier projection of 25 to 30% growth in its top line or $125 to $130 million in net sales for

2005.

122. During the call, an analyst asked Wadekar to comment on what impact the recall

of Promethazine suppositories, which had occurred in February of that year, had on Able’s

business. Wadekar assured the listeners that “the impact was fairly contained” and that the recall

would have no impact on the second quarter. Tim Bishop, an analyst at BI Research who was on

the call, recalled feeling reassured and that the recall was “no big deal” after hearing Wadekar’s

response.

123. On May 6, 2005, Able closed at $25.59, or 6.2% higher than its previous day

close of $24.09. By Monday, May 9, 2005, Able’s stock price reach an all-time high closing

price of $25.65.




announced quarterly financial results. Additionally, the Form 10-Q contained the following

discussion of product recalls:

Product Recalls and Creation of New Officer Position

During the quarter ended March 31, 2005, we conducted voluntary product recalls affecting three product families: metronidazole capsules, 375 mg, for noncompliance with labeling requirements for antibacterial drug products, promethazine hydrochloride suppositories, 12.5mg and 25mg, for stability failure, and prochlorperazine suppositories, USP, 2.5mg and 5mg, for stability failure. Recently we also decided to recall one batch of


68

methylphenidate ER 20 mg tablets, for improper laboratory practices and noncompliance with standard operating procedures. As a result of our internal review of these events, and as part of our ongoing efforts to maintain our regulatory compliance and the quality and integrity of our operations, we have initiated a thorough internal evaluation of our operating practices with the knowledge of the FDA. To aid us in achieving this objective we have created a new executive officer position, Vice President, Compliance, and promoted Iva Klemick, our former Director of Regulatory Affairs, to serve in this position, reporting directly to our President and Chief Operating Officer. We have also retained the services of a highly reputable outside consulting firm to assist us in this initiative. Our consultants will review current practices and historical data and make recommendations for improvements and/or corrective action, and will also train employees in our new Compliance Group to perform these activities in the future. Over the next several months we expect to continue this effort to assess our practices and identify and address any issues, working proactively with our internal management resources, our outside consultants and the FDA.

125. This innocuous disclosure that the product recalls of earlier in the quarter were

being addressed through a rigorous review of Able’s quality controls affirmed investors’

confidence in Able’s ability to achieve management’s lofty expectations for the Company. For

the next several days, the Company’s stock price hovered at its all time high.

126. The Form 10-Q contained a certification signed by Wadekar, stating, inter alia:

“Based on my knowledge, this report does not contain any untrue statement of a material fact or

omit to state a material fact necessary to make the statements made, in light of the circumstances


this report.”

127. The statements contained in Able’s May 5, 2005 press release, in Wadekar’s

statements in the May 6, 2005 conference call, and in the Form 10-Q for the first quarter of 2005

(including Wadekar’s certification) were materially false and misleading when made because,

among other reasons, they:


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(f) Failed to disclose the risk that, if the Company’s violations of FDA


would severely undermine its ability to continue as a going concern;

(g) With respect to Wadekar’s claim that the recalls of Promethezine

suppositories would have no effect going forward, failed to disclose that the Company’s inquiry

into serious discrepancies in its quality controls would have a material impact on the Company’s

operations going forward; and


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(h) Contrary to his certification, Wadekar knew about material false


D. The Truth Begins To Emerge And The Company Collapses

128. On December 31, 2004, Shah formally resigned as Vice President of Quality and

Regulatory at Able. The Company spun his termination as a transition from Vice President of

Quality and Regulatory to “Quality Control Consultant.” According to a January 3, 2005 Form

8-K:

On December 30, 2004, Able Laboratories, Inc. entered into an amendment to the employment agreement between the Company and Shashikant C. Shah, the Company's Vice President of Quality and Regulatory, in connection with Mr. Shah's transition to the position of Quality Control Consultant. Under the terms of the amendment, Mr. Shah will continue to be employed by the company through June 2006 at a salary of $150,000 per year and will continue to receive employment benefits in accordance with the terms of the agreement. The amendment also provides for severance pay if his employment is terminated under certain circumstances without cause.

129. In fact, undisclosed to the public, but known to Able’s employees, Shah’s

resignation came amidst a widely acknowledged “mess” with Able’s quality controls and

regulatory reporting. According to CW1, soon after Shah’s departure, David Chesbro, Associate

Director of Quality Control (“Chesbro”), reported to Boehm widespread discrepancies between

the actual data maintained on Able’s computer records and the quality control notebooks

disclosed to the FDA.

130. On January 17, 2005, less than three weeks after Shah’s resignation, and

following Chesbro’s reporting of discrepancies in Able’s quality control records, Michael

Solimene was hired as Quality Control Manager and assumed full oversight of Able’s quality

controls. David Chesbro remained Associate Director of Quality Control. Solimene’s resume


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reveals that he was “[h]ired on 1/17/05 to improve the overall quality and cGMP compliance of

laboratory personnel in the QC Laboratory.”

131. Within a week of Solimene’s hiring and a month after Shah’s resignation, Able

initiated its first recall since 2001. The January 2005 recall involved 75,000 bottles of

Metronidazole capsules and tablets—an anti-bacterial drug used to treat infections—recalled

because of Able’s failure to properly label the drugs in accordance with FDA regulations that

govern the disclosures required for anti-bacterial drug products. The recall, however, was not

disclosed to investors.

132. By February 2005, Able’s senior managers had determined that drugs in Able’s

stable that had been approved by the Company’s bench chemists under the leadership of Shah

could not be trusted and that the Company’s quality control problems were endemic. Less than

two weeks after the Metronidazole recall, on February 11, 2005, Able initiated a nationwide

recall of over 2 million units of Promethazine Hydrochloride suppositories—an antihistamine

used for the treatment of allergies--because of “stability failure.” Again, this recall was not

disclosed to investors.

133. According to CW2, by March 2005, Able’s management had distributed a letter to

all staff announcing that outside auditors from Lachman Consultants had been retained to review

the Company’s quality control records.

134. On April 5, 2005, Able initiated a nationwide recall of approximately 29,000

packages of Prochroloperazine suppositories—an anti-nausea medication used for cancer

patients and also used for the treatment of certain psychotic symptoms--due to “impurity

failures.” On the same day, Able initiated a Florida and Ohio recall of 3,034 packages of


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Atenolol tablets—a beta-blocker used to treat high blood pressure and heart attack—due to the

product being “subpotent” and having insufficient stability.

135. On May 2, 2005, the FDA began an inspection of Able’s quality controls and

found numerous instances of egregious misconduct, as would ultimately be reflected in its Form

483.

136. The foregoing events of early 2005 relating to quality control problems at the

Company were not disclosed to the public until May 19, 2005. Instead, the Company issued a

press release on May 5, 2005 which presented glowing report of the Company’s financial results,

and during a conference call the following day, Wadekar downplayed a product recall earlier in

the quarter. In the Company’s May 10, 2005 Form 10-Q, the Company simply indicated that it

was undertaking an internal evaluation of its operating practices, with the knowledge of the

FDA, as part of the Company’s ongoing efforts to maintain regulatory compliance and the

quality and integrity of its operations. No indication was given that there were problems of such

a nature or magnitude as would have a material impact on the Company’s operations. As a

result, the Company’s stock price did not falter, and reached an all-time trading high of $26.49

on May 18, 2005, before closing at $24.63.

137. On May 19, 2005, however, Able dropped a bombshell when it disclosed that it

was suspending the sales of all its products. The Company’s May 19, 2005 press release titled

“Able Laboratories, Inc. Updates Status of Internal Review, Withdraws Guidance,” stated:

Through [the internal evaluation announced in the May 10, 2005 Form 10-Q], the Company has identified apparent departures from standard operating procedures with respect to certain laboratory testing practices. As a result of these observations, the Company will be recalling additional products in the future.

… [T]he Company has thus far been unable to confirm the extent to which testing of its products adhered to or departed from standard operating procedures and good manufacturing practices.


73

As a precaution, the Company has decided temporarily to suspend shipment of each of its products until such time as it can assure itself that the product has been manufactured and tested in compliance with standard operating procedures and current good manufacturing practices. The Company does not, at this time, know what further actions it may have to take or what actions the FDA may undertake.

This disruption in shipment, even if temporary, is expected to have a material effect on the Company’s ability to meet its sales goals and operating objectives. Therefore, the Company is withdrawing its prior guidance as to its financial performance.

138. As devastating as this press release was, it was only the first of two blows

delivered to investors that day. Just two hours later, the Company announced the resignation of

Wadekar, who had steered Able through its seemingly meteoric rise as its CEO and Chairman,

and that Mauro, Able’s President and COO, would assume the role of Interim Chief Executive

Officer. Although not expressly stated in the press release, Wadekar’s resignation was clearly a

result of the revelation of quality control problems at Able. In response to these announcements,

Able’s share price collapsed 75% from its previous day close of $24.63 to close at $6.26, on

volume of 31.6 million shares, or 98 times average trading volume. Thus, in the span of only 24

hours, the Company had lost $340 million of its $455 million in market capitalization.

139. Things got even worse. Four days later, on May 23, 2005, in a press release titled

“Able Laboratories, Inc. Suspends Manufacturing Operations, Announces Product Recall -- To

Withdraw Certain Abbreviated New Drug Applications,” the Company announced that the

quality control problems with its products were so severe that it was recalling all of its products

and that it would withdraw previously approved ANDAs in light of data upon which the

Company was no longer willing to rely:

After announcing several product recalls earlier this year due to various improper laboratory practices and noncompliance with standard operating procedures, Able notified the FDA and began conducting an internal review of its operating practices, as initially


74

announced in its quarterly report on Form 10-Q for the quarter ended March 31, 2005. Working with internal management resources, outside consultants and the FDA, the Company identified apparent departures from standard operating procedures with respect to certain laboratory testing practices. As a result of these observations, the Company recently suspended shipment of its products.

As an additional precaution while its investigation proceeds, the Company has now decided to take to take [sic] the further step of suspending the manufacture and distribution of its products until such time as it can assure itself that its products are manufactured and tested in compliance with standard operating procedures and current good manufacturing practices. The Company has also notified the FDA that it is initiating a recall of all of its products.

The Company also intends to withdraw seven of its approved Abbreviated New Drug Applications filed with the FDA for various reasons, including commercial reasons and the identification, in certain applications, of data upon which the Company is no longer willing to rely. As part of its ongoing investigation, Able will continue to review its entire ANDA portfolio and will withdraw other previously approved and pending ANDA applications if it identifies further data upon which the Company is not willing to rely.

The Company does not, at this time, know what further actions it may have to take or what actions the FDA and other government officials may undertake. This disruption in business is expected to have a material adverse effect on the Company’s business and results of operations.

140. The Company’s stock price fell further in response to this news, closing at $5.05

on May 23, 2005. Meanwhile, analysts covering the Company’s debt put their ratings under

review, and on May 25, 2005, the Company’s primary bank lender, Citizens Bank, shut down

Able’s revolving $20 million credit facility. By the close of trading on May 25, the stock was

trading at $4.24.

141. On May 27, 2005, Able announced that it was laying off 200 people, or half of its

workforce, because of its suspension of manufacturing activities. The Company stated that it

could “give no assurance as to when it will be able to resume manufacturing operations.”


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Further, the Company said in a tape-recorded message on a special recall hot line that laboratory

testing problems raised the possibility that some of its products may be “sub or super potent.”

The FDA issued an announcement recommending that persons placed on any of Able’s drugs

seek replacement products from their pharmacists or physicians.

142. By June 10, 2005, what would have seem impossible a month earlier was now

reality. As one health care analyst noted: “Their pipeline is gone. They laid off most of their

staff. They are essentially out of business.”

143. On July 7, 2005, the day after the amended Form 483 was issued but before its

public disclosure, the Company announced Mauro’s resignation as the Company’s President,

interim Chief Executive Officer and director.

144. On July 8, 2005, the Company announced that it had received the Form 483 from

the FDA, although the contents of the Form 483 were not disclosed until the document was

posted on the Company’s website on July 11, 2005. The Company’s stock price dropped to

$2.88 on July 8, and to $1.48 on July 11.

145. Ray H. Abrahams, New Jersey’s FDA compliance director, has said that the Form

483 paints a shocking picture of fraud. Indeed, the Form 483 documents the Company’s

persistent retesting of drug batches that failed the initial testing procedures, without complying

with requirements to disclose the initial test results and investigate the reasons for those testing

failures. The Form 483 also reflects blatant alteration and falsification of testing data by analysts

and supervisors, including “cutting and pasting of chromatograms, substituting vials, changing

sample weights and changing processing methods” until passing results were obtained.


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146. The FDA’s findings were not limited to problems with quality control,

production, compliance, and regulatory issues. The FDA specifically singled out failures by

Able’s management, including but not limited to the following:

(a) Management failed to provide the quality control unit with the authority to fully investigate errors (Observation 1);

(b) Senior Management failed to assure that all drug products had the safety, identity, quality and purity that they were represented to possess (Observation 1);

(c) No standard operating procedure was in place covering the issuance of Field Alerts – alerts that drug manufacturers are required to submit when one or more batches of drugs that fail to meet specifications established for them in ANDAs are distributed to the consuming public (Observation 4);

(d) Management failed to train laboratory employees in cGMPs, contributing to the non-reporting of out-of-specification results (Observation 8);

(e) Management failed to document procedures for issuance of laboratory notebooks in which logs relating to the testing of unfinished and finished products were supposed to be kept (Observation 10); and

(f) Management failed to ensure that procedures regarding who could enter data regarding laboratory sampling were followed (Observation 10).

147. By July 15, 2005, Able was down to 104 full-time employees, from 444 full-time

employees as of May 24, 2005.

148. On July 18, 2005, Able filed a petition to reorganize under Chapter 11 of the

Bankruptcy Code.

149. On July 22, 2005, Able announced that it had received notice that the Company’s

securities would be delisted from the NASDAQ National Market, effective as of the opening of

business on July 28, 2005. At the time of the announcement, Able’s stock, which had traded as

high as $26.49 per share in May 2005, was trading at less than $2 per share. All in all, more than

$450 million in shareholder value had been wiped out.


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150. On August 7, 2005, The Star-Ledger published a news article by George E.

Jordan entitled “The drug company and the bogus data - Able put out bad pills in front of FDA

for years,” (the “August 7, 2005 Article”), which was written after a 2-month investigation

including interviews with two dozen people familiar with the Company. The August 7, 2005

article paints a vivid picture of Defendants’ fraud:

• As far back as July 2002, Able falsely claimed in drug applications and annual reports the ability to make certain medications to FDA standards. As a generic manufacturer, Able was supposed to reproduce chemical compounds in brand-name drugs and mass-produce cheap copies. In at least six drug applications, Able simply fabricated in-house test data to meet FDA standards.

• The fudging continued once drugs hit the company’s assembly line. To do this, Able relied on a group of inexperienced and improperly trained chemists recruited from Asia and employed on work visas. The scientists misrepresented the strength and shelf life of products because they were motivated to keep the plant humming. Working was the only way they could stay in the United States.

• Certain supervisors duped FDA inspectors. If a batch of pills didn’t meet standards and a scientist noted that in paper logs, supervisors often simply changed the numbers when entering results into computerized databases.

• Five FDA inspections since 2002, the most recent in February [2005], validated quality-control practices the Company later confessed were corrupt. Those on-site visits, and six others related to new drug approvals, failed to detect that computer data and other records had been fabricated.

(Emphasis added).

151. On August 15, 2005, the Company issued a press release stating:

… Able now believes that as a practical matter it will not be able to return any of its products to market, and therefore produce any revenue or cash flow, for a significant period of time…. Able has determined that the best course of action to preserve value for its creditors and others would be to immediately reduce overhead and expenses as much as possible and to initiate the process of selling the company’s business and assets to one or more third-party purchasers rather than attempting to obtain financing to permit it to


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resume manufacturing and marketing on its own. While it is possible for shareholders of the company’s common stock to receive proceeds from such a sale or sales, there can be no guarantee that this will occur and, in fact, Able believes it is unlikely to occur, because the aggregate sale proceeds would, in Able’s view, be insufficient to pay all of the liabilities owned to secured and unsecured creditors of the company. Accordingly, in Able’s view, it is not likely that the common stock has any value.

(Emphasis added).

152. On November 1, 2005, Able entered into an Asset Purchase Agreement with Sun

Pharmaceutical Industries, Inc., a subsidiary of Sun Pharmaceutical Industries Limited (“SPIL”),

whereby SPIL agreed to purchase substantially all of the assets of Able for $23,145,000. The

sale price was less than could have been recovered but for Defendants’ fraud. By way of

example, in 2005, Teva Pharmaceuticals, an Israeli generic drug maker, paid more than $7.4

billion to acquire U.S. generic drug maker and rival Ivax. The purchase price equated to

approximately 22.5 times Ivax’s annual earnings before interest, taxes, depreciation and

amortization (“EBITDA”). By way of comparison, 22.5 times Able’s EBITDA for fiscal year

2004 is approximately $500 million – many times greater than the $23 million Able received in

the sale of its assets to SPIL.

153. On November 10, 2005, the Bankruptcy Court issued an Order approving the sale

subject to certain modifications.

154. On March 3, 2006, the Company announced that it had filed a proposed Plan of

Reorganization and Disclosure Statement with the United States Bankruptcy Court. The Plan

and Disclosure Statement stated that the Company’s equityholders will not receive any

distributions unless all general unsecured claims and subordinated claims are paid in full, which

is extremely unlikely, and that the equity of the Company has no value.


79

155. On May 14, 2006, an article in The Star-Ledger quoted Nicholas Buhay, acting

director of the FDA’s Division of Manufacturing and Product Quality which oversees the drug

industry’s compliance with cGMPs, as stating that Able “meant to deceive and they did.” The

FDA’s investigation into the Able debacle remains ongoing.

VII. ADDITIONAL ALLEGATIONS OF DEFENDANTS’ SCIENTER

156. Each of Defendants Wadekar, Mauro, and Shah occupied supervisory roles and

had direct knowledge of and responsibility over the Company’s quality controls, quality

assurance, and regulatory reporting. Able had a history of quality control failures during the

tenure of each of these defendants, and the Company was warned by the FDA a year before the

truth about Able’s fraudulent quality control practices were revealed, that there was grave

problems with Able’s controls.

157. Defendants Wadekar, Mauro, and Shah were active, culpable, and primary

participants in Able’s fraudulent scheme alleged herein, by virtue of their receipt of information

concerning Able’s quality control problems and/or their failure to review information they had a

duty to monitor, their issuance and control over Able’s false and misleading statements, and their

association with the Company which made them privy to confidential information concerning the

Company. Able’s fraudulent scheme could not have been perpetrated over a substantial period

of time, as it was, without the knowledge and complicity of the personnel at the highest level of

the Company, including Defendants Wadekar, Mauro, and Shah.

158. Defendants Wadekar, Mauro, and Shah knew or recklessly disregarded that the

Company’s quality controls, quality assurance, and regulatory reporting were seriously deficient,

that the concealment of that information would adversely affect the integrity of the market for

the Company’s securities and would cause the price of the Company’s securities to be artificially


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inflated, and that disclosure of the truth would cause the value of the Company’s securities to

fall.

159. In addition to the foregoing and other acts alleged herein, the following facts

provide evidence that Defendants Wadekar, Mauro, and Shah acted with actual knowledge or, at

a minimum, with extreme recklessness, in connection with the fraudulent practices alleged

herein.

A. Wadekar, Mauro, and Shah Occupied Direct Supervisory Responsibility Over the Company’s Quality Controls and Regulatory Reporting

160. Wadekar was Chairman of the Board of Directors, Chief Executive Officer, and

Secretary of the Company. He was intimately aware of Able’s inability to effectively meet

quality controls and regulatory standards. He personally recruited employees from India on

work visas, many of whom were inadequately trained and worked with minimal supervision once

they were hired. Wadekar met frequently with Shah, Mauro, Boehm, Klemick, and other

members of the Company’s management to discuss the status of Able’s regulatory compliance,

testing, and quality controls. Wadekar was forced to resign within hours of the Company

announcing that the FDA was forcing the suspension of sales of all of Able’s products.

161. Shah was Vice President of Quality and Regulatory, with responsibility over the

personnel and functions of the Company’s Quality Control Lab (the “QC Lab”). His specific

duties were to ensure Able’s compliance with FDA and DEA regulations, to file and receive

FDA approvals for Able’s ANDA submissions, and to maintain quality controls. He met

frequently with the heads of regulatory, quality control, and quality assurance. Because of his

failure to properly manage these departments, he was forced into retirement in December 2004.

Both Shah and Wadekar were intimately involved in the personnel decisions and running of the

Quality Control, Quality Assurance, and Regulatory departments.


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162. Mauro was Chief Operating Officer and presided over Able’s regulatory

compliance. He was also the President and a Director. Evidencing his wholesale knowledge of

the Company’s operations, Mauro assumed the role of Interim CEO after the resignation of

Defendant Wadekar on May 19, 2005. Mauro himself was forced to resign on July 7, 2005,

shortly after the FDA issued its scathing Form 483 which rebuked Able’s “senior management”

for failing to employ or implement proper quality controls.

B. Able’s History Of Quality Control Problems And Specific Warnings By The FDA Put The Individual Defendants On Notice Of The Problems With Quality Control

163. Quality control and quality assurance had historically been a problem at Able and

had mired the Company in long-standing regulatory and legal problems. In April 1992, the

FDA secured a court order placing Old Able Labs under a Consent Decree in a case titled United

States v. Able Laboratories, Inc., Civ. No. 91-4916 (D.N.J.), due to its wholesale failure to

comply with cGMPs. Old Able Labs, and then Able, operated under court supervision for ten

years until 2002 when it petitioned the FDA to dissolve the Consent Decree.

164. In seeking dissolution of the Consent Decree, Able represented to the FDA and to

the public that it had made substantial operational and financial commitments to improve the

Company’s plant, personnel, and equipment in order to effect an improvement in Able’s quality

controls. Indeed, Able’s Form 10-K for fiscal year ending December 31, 2000, signed by

Wadekar, declared that the Company had “made key management changes to retain individuals

who have knowledge of and commitment to compliance with cGMP in order to ensure continued

cGMP compliance” and had “provided cGMP training on a regularly scheduled basis to Able

employees.”


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165. In fact, however, at the time these representations were made, and at all times

thereafter, Able’s quality control and quality assurance practices were critically lacking. CW3

described the utter failure by managers in the Quality Assurance division to follow up on quality

assurance problems detected by line workers. According to CW3, when she reported variances

in the thickness of pills that she was in charge of inspecting, she was told to change the reported

result to reflect an in-range measurement. CW3 also indicated that when Able’s label generating

machines produced inaccurate label production numbers—which were reportable incidents—she

was told by managers to alter her report to reflect the normal label quantity count.

166. Indeed, within two years after Able had assured the public that its quality control

problems were a thing of the past, the FDA once again was forced to warn Able about

deficiencies in quality controls. On April 19, 2004, following an FDA inspection of the

Company’s South Plainfield facility, the FDA wrote to Wadekar informing him that Able’s

protocols for reporting adverse drug experiences (“ADE”) by users of its drugs were seriously

lacking. According to the FDA’s inspection, between January 1, 2002 and January 15, 2004,

Able had failed to properly record and report 27 ADEs.

167. The FDA warning letter specifically noted that all of the deviations unearthed in

the FDA’s inspection had been presented to and discussed with Wadekar. In addition, the letter

noted that the FDA inspector had discussed the deficiencies in the Company’s quality controls

with Shah. The letter informed Wadekar that “the specific violations noted in this letter are

serious and may be symptomatic of serious underlying problems. You are responsible for

investigating and determining the causes of the violations identified above and preventing the

recurrence of similar problems.” Yet, the FDA’s warnings were ignored and Able’s quality

control and regulatory deficiencies were left unaddressed.


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C. It Was Widely Acknowledged Within the Company That Chemists in the Quality Control Lab Were Under-Trained and Overworked

168. Able’s quality and regulatory controls were the linchpin to ensure that the

Company could continue manufacturing generic drugs. By March 2003, 35% of Able’s

employees, or 100 out of 288, worked in the areas of quality and regulatory control. By

February 2004, Able had assigned 155 of its 407 employees to quality and regulatory control, or

38%.

169. With the Company’s increasing manufacturing workload, however, its QC Lab

faced ever-increasing demands. According to CW4, beginning in 2003, Able ratcheted up its

production to meet growing demand for its products. Because of the tremendous production

increases, the QC Lab was running “more and more batches” resulting in chemists being

overworked and stressed. To address the strain on the Company’s quality control resources,

Wadekar personally recruited new, young chemists from India, but as Wadekar, Shah, and the

other Defendants knew from their observations of these chemists, these new hires lacked

adequate training and frequently made errors.

170. According to CW5, the QC Lab managers who were charged with reviewing all

bench chemist test results and conducting random reviews seldom, if ever, performed these

supervisory tasks. Thus, final reports emanating from the QC Lab were approved without

independent testing or verification. Shah was ultimately demoted in December 2004 due to the

widely acknowledged “mess” in the departments that he managed, including Quality Control.

171. Rather than address the problems in the number and quality of personnel in

Able’s Quality Control Lab, the Defendants reduced the staff in the QC Lab. By February 15,

2005, the proportion of employees dedicated to quality and regulatory control had fallen from

38% of employees to less than 27% (113 of Able’s 421 full-time employees).


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D. A “Culture of Dishonesty” Fostered by Shah

172. During Shah’s tenure as the Vice President of Quality and Regulatory, he fostered

a “culture of dishonesty” according to CW1.

173. Under Shah’s tutelage, bench chemists willfully misreported adverse quality

control results and doctored lab notebooks. Shah himself openly flouted established rules,

admitting to the FDA in 2004, as evidenced by the warning letter, that he never, during his tenure

as the Quality Control director, reported Adverse Drug Events as the FDA policies required.

174. Despite Shah’s deficient and dishonest management of the QC Lab, he was

allowed to remain in control over the Lab’s operation. Even after David Chesbro assumed the

role of Director of the QC Lab in March 2003, Shah continued to actively manage the laboratory.

According to CW1, until December 2004, “Shah was in charge of everything.”

175. Shortly after Shah was divested of his control over the QC Lab in December

2004, Able’s fraudulent scheme began to unravel.

E. The Scope of Able’s Problems and Small Size of Its Operations Creates A Strong Inference of the Individual Defendants’ Scienter

176. The massive fraud committed by Able’s quality control department in masking

the results of quality control tests for an entire stable of products over an extended period of

time, combined with the small size of Able’s operations, creates a strong inference that Wadekar,

Mauro, and Shah knew about or recklessly disregarded the undisclosed quality control problems

within the Company.

177. Until the summer of 2004, all of Able’s operations were situated in a single

facility in South Plainfield, New Jersey. Thereafter, Able began operations out of its new

Cranbury, New Jersey factory. At the start of 2004, the total number of employees in the entire

Company was approximately 400. The total staff managed by Shah, as head of the Quality


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Control, Regulatory, and Quality Assurance departments was approximately 100 employees.

Many of the quality control bench chemists staffing the QC Lab were personally recruited by

Wadekar.

178. Moreover, defendants Mauro, Boehm, and Klemick were familiar with the

personnel staffing the QC Lab and the procedures for testing batches of drugs. According to

CW2, prior to the opening of the new facility in Cranbury, all of Able’s quality control,

regulatory, and research and development chemists worked together in a single laboratory.

F. The FDA’s Inspection Demonstrates that Able’s Quality Control Problems Were the Result of the Failures of Senior Management to Develop Testing Protocols or Follow Established Procedures

179. The problems with Able’s quality controls were a direct result of reckless

managers who failed to ensure that protocols were followed, or in some cases, even adopted.

180. The FDA Form 483 specifically identifies Able’s senior managers as the culpable

parties in causing the quality control problems at the Company:

• According to Observation 1, “the Quality Unit and Senior Management failed to

assure that all drug products distributed have the safety, identify, quality, and

purity that they are represented to possess.”

• According to Observation 8, employees were not given training in cGMPs and

written procedures required by cGMP regulations. The report concludes: “This

lack of training and oversight by management contributed to the non-reporting of

[out of specification] results in the QC Laboratory.”

181. Indeed, many of the failures identified by the FDA were the result of there not

being any procedure whatsoever for certain quality controls. According to the Form 483:


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• “There is no [Standard Operating Procedure] governing the issuance of Field

Alerts.” Field Alerts were required when the managers received information that

drug products did not meet the specifications that were listed in the ANDA.

• “There was no SOP describing the use of (SP) special samples tested in the

Analytical Laboratory.”

182. Other methods of altering test data were so blatant and systemic that it would

have been impossible for senior managers reviewing QC Laboratory notebooks, absent

recklessness, to not detect the manipulation of results. For example, according to Form 483, out

of specification results obtained in the QC Lab “were substituted with passing results by

Analysts and Supervisors The substitution of data was performed by cutting and pasting of

chromatographs, substituting vials, changing sample weights and changing process methods.”

(emphasis added).

183. In addition, the Form 483 concluded that “established laboratory control

mechanisms were not followed,” suggesting that any approvals given by senior managers over

the results of tests were perfunctory at best. For example, Observation 11 of the Form 483 noted

that while the number of retests was required to be documented prior to initiating retesting to

establish a definite limit beyond which no additional testing would be permitted, Able’s

documentation of testing revealed that “there was no documentation of the number of retests to

be performed as required by the SOP.” Likewise, procedures that required documented testing

by more than one chemist were not followed. Absent severe recklessness or intentional fraud,

these departures from the Company’s standard operating procedures would have been recorded

and corrected by the Defendants.


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G. The Company Secured Non-Disclosure Agreements by All Employees Involved in the Investigation of the Company’s Fraud

184. Lead Plaintiffs’ investigation into the facts and circumstances of Able’s implosion

have been impeded by non-disclosure agreements that the Company executed with senior

employees who were involved in the internal investigation leading up to Able’s complete recall

of its products from the market. According to a Quality Control Manager hired in January 2005

to address deficiencies in Able’s quality controls, all employees who survived the first layoffs in

July 2005 were required to sign a non-disclosure agreement preventing them from revealing to

anyone “the internal happenings” at Able Labs. These employees have been informed that the

non-disclosure agreements are binding even though Able Labs has since discharged them and the

Company is in bankruptcy.

H. Defendants’ Insider Trading 185. The Defendants’ motive to commit fraud included their ability to profit from the

sales of Able’s stock at artificially inflated prices. While Able’s stock price was inflated as a

result of the Defendants’ fraud, the Company’s insiders exercised tens of thousands of options to

purchase shares at prices ranging from $0.15 to $3.75, and immediately sold the shares for

substantial profits at prices between $18.12 and $24.01. Defendants Wadekar and Shah sold a

total of 148,000 shares of Company stock during the Class Period for proceeds exceeding $2.9

million and profits exceeding $2.5 million:

Defendant Date # Sold Sale Price Proceeds Profits

Pre-Trans.

Holdings

Post Trans.

Holdings

% Holdings

Sold

Wadekar 12/1/04 15,000 21.63 324,450.00 296,325.00 19,800 4,800 75.76

9/1/04 15,000 21.73 325,950.00 297,825.00 19,800 4,800 75.76 6/2/04 4,088 18.40 75,219.20 67,554.20 8,888 4,800 45.99


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Pre-Trans.

Holdings

Post Trans.

Holdings

% Holdings

Sold

6/1/04 5,912 18.42 108,899.04 97,814.04 14,800 8,888 39.95 4/1/04 10,000 19.38 193,800.00 175,050.00 15,600 5,600 64.10 2/2/04 10,000 18.12 181,200.00 162,450.00 15,600 5,600 64.10 12/1/03 10,000 18.61 186,100.00 178,850.58 15,600 5,600 64.10 10/2/03 10,000 18.24 182,400.00 180,900.00 15,600 5,600 64.10 333 21.55 7,176.15 7,126.20 403 22.05 8,886.15 8,825.70 268 22.00 5,896.00 5,855.80 403 22.10 8,906.30 8,845.85

8/8/03

570 22.17 12,636.90 12,551.40

7,577 5,600 26.09

683 21.20 14,479.60 14,377.15 1,365 21.25 29,006.25 28,801.50 682 21.30 14,526.60 14,424.30

8/7/03

682 21.35 14,560.70 14,458.40

10,989 7,577 31.05

1,357 22.25 30,193.25 29,989.70

8/6/03 1,017 21.70 22,068.90 21,916.35

13,363 10,989 17.77

724 24.01 17,383.24 17,274.64 855 23.30 19,921.50 19,793.25

8/4/03

658 23.05 15,166.90 15,068.20

15,600 13,363 14.34

Total 90,000 1,798,826.68 1,676,077.26 Shah 12/1/04 5,000 21.63 108,150.00 89,400.00 5,000 0 100.00 9/1/04 5,000 21.73 108,650.00 89,900.00 5,000 0 100.00 6/2/04 4,088 18.40 75,219.20 59,889.20 4,088 0 100.00 6/1/04 5,912 18.42 108,899.04 86,729.04 10,000 4,088 59.12 4/1/04 10,000 19.38 193,800.00 156,300.00 10,000 0 100.00 2/2/04 10,000 18.12 181,200.00 143,700.00 10,000 0 100.00 12/1/03 6,000 18.61 111,660.00 89,160.00 6,000 0 100.00 10/2/03 6,000 18.24 109,440.00 86,940.00 6,000 0 100.00 200 21.55 4,310.00 3,560.00 242 22.05 5,336.10 4,428.60 161 22.00 3,542.00 2,938.25 241 22.10 5,326.10 4,422.35

8/8/03

342 22.17 7,582.14 6,299.64

1,186 0 100.00

410 21.20 8,692.00 7,154.50

8/7/03 819 21.25 17,403.75 14,332.50

2,048

1,186 40.85


89


Pre-Trans.

Holdings

Post Trans.

Holdings

% Holdings

Sold

410 21.30 8,733.00 7,195.50 409 21.35 8,732.15 7,198.40 814 22.25 18,111.50 15,059.00

8/6/03 610 21.70 13,237.00 10,949.50

4,658 3,234 30.57

434 24.01 10,420.34 8,792.84 513 23.30 11,952.90 10,029.15

8/4/03

395 23.05 9,104.75 7,623.50

6,000 4,658 22.37

Total 58,000 1,129,501.97 912,001.97

186. In contrast to these substantial insider sales during the Class Period, in the year

before the Class Period only Defendant Wadekar sold stock, and he sold only 15,000 shares.

187. The insider trading profits realized by Wadekar and Shah far exceeded their other

compensation from the Company. Wadekar’s total annual compensation from Able was

approximately $280,000 in 2003 and $600,000 in 2004, while his insider trading profits were

nearly $1.7 million for only the 15-month period from August 2003 through December 2004.

Shah’s total annual compensation was approximately $200,000 in 2003 and $218,000 in 2004,

while his insider trading profits exceeded $912,000 for the 15-month period from August 2003

through December 2004.

VIII. APPLICABILITY OF PRESUMPTION OF RELIANCE UNDER THE FRAUD-ON-THE-MARKET DOCTRINE

188. In connection with Plaintiffs’ claims under Section 10(b) of the Exchange Act and

Rule 10b-5 promulgated thereunder, Plaintiffs will rely, in part, upon the presumption of reliance

established by the fraud-on-the-market doctrine, in that:

a. Defendants made public misrepresentations and failed to disclose material facts during the Class Period;

b. the omissions and misrepresentations were material;


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c. the misrepresentations and omissions would tend to induce a reasonable investor to misjudge the value of the Company’s securities;

d. Able’s securities traded in an open and efficient market; and

e. Plaintiffs and the members of the Class purchased Able’s securities between the time Defendants failed to disclose or misrepresented material facts and the time the true facts were disclosed, without knowledge of the omitted or misrepresented facts.

189. At all relevant times, the market for Able’s stock was an efficient market for the

following reasons, among others:

a. Able’s stock, until it was delisted after the end of the Class Period, met the requirements for listing, and was listed and actively traded on the NASDAQ National Market System, a highly efficient and automated market;

b. As a regulated issuer, Able filed periodic public reports with the SEC and NASDAQ;

c. Able regularly communicated with public investors via established market communication mechanisms, including through regular disseminations of press releases on the national circuits of major newswire services and through other wide-ranging public disclosures, such as communications with the financial press and other similar reporting services;

d. Able was followed by several securities analysts employed by major brokerage firms who wrote reports which were distributed to the sales force and certain customers of their respective brokerage firms. At least 72 research reports were written on Able during the Class Period. Each of these reports was publicly available and entered the public marketplace;

e. The average weekly trading volume of Able’s stock during the Class Period was in excess of 1,000,000 shares, or more than 5% of the total outstanding shares; and

f. At least as of November 2003, Able met the minimum requirements for listing on the NASDAQ Biotechnology Index, including market value, average daily trading volume, and seasoning as a public company.


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190. As a result of the foregoing, the market for Able securities promptly digested

current information regarding Able from all publicly-available sources and reflected such

information in the Company’s stock price.

191. Under these circumstances, all purchasers of Able’s securities during the Class

Period suffered similar injury through their purchase of Able’s securities at artificially inflated

prices, and a presumption of reliance applies.

192. Additionally, throughout the Class Period, Plaintiffs and the Class justifiably

expected the Defendants to disclose material information in connection with the Company’s

securities. Plaintiffs and the members of the Class would not have purchased the Company’s

securities at artificially inflated prices if Defendants had disclosed all material information,

including Able’s lack of FDA compliance, lack of adherence to quality control, and lack of

ability to manufacture marketable generic drugs. Thus, reliance by Plaintiffs and the Class

should be presumed with respect to Defendants’ omissions and material misrepresentations.

IX. LOSS CAUSATION

193. During the Class Period, as detailed herein, Defendants engaged in a scheme to

deceive the market and a course of conduct that artificially inflated Able’s stock price.

Defendants’ conduct operated as a fraud and deceit on Class Period purchasers of Able stock

because it misrepresented the Company’s business success and future business prospects.

Defendants achieved this facade of growth and strong future business prospects by

misrepresenting, and failing to disclose material adverse facts regarding, the efficacy of its core

products and its compliance with FDA regulations.

194. Defendants’ false and misleading statements had the intended effect and caused

Able’s stock to trade at artificially inflated levels throughout the Class Period. For example:

• The day following Able’s October 30, 2002 press release announcing its third


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quarter 2002 results (which was released after the close of the market), Able’s

stock closed at $6.37, up from the previous day’s close of $6.25. The next day,

on November 1, 2001, Able’s stock closed at $6.75. By November 7, 2001, the

stock price closed at $8.10.

• On February 24, 2003, following Able’s press release announcing the expansion

of its credit facilities by $5.7 million, the Company’s stock price closed at $14.00,

up from the previous trading day’s close of $13.85. By February 28, 2003, the

stock closed at $14.80.

• On July 28, 2003, following Able’s press release announcing its second quarter

2003 results, the stock price closed at $24.19, up from the previous trading day’s

close of $23. On August 1, 2003, the stock closed at a high of $24.69.

• On February 26, 2004, following Able’s press release announcing fourth quarter

and year-end results for 2003, its stock price closed at $18.93, up from the

previous day’s close of $18.17.

• The day following Able’s July 27, 2004 press release announcing its second

quarter 2004 results (which was released after the close of the market), Able’s

stock price closed at $18.58, up from the previous day’s close of $18.15. By July

30, 2004, the stock closed at $20.60.

• The day following Able’s May 5, 2005 press release announcing its first quarter

2005 results (which was released after the close of the market), Able’s stock price

closed at $25.59, up from the previous day’s close of $24.09.

195. Later, when these problems were revealed, the Company’s stock price fell

precipitously as the prior artificial inflation came out of the price. On May 19, 2005 (the day


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after the end of the Class Period), when Able issued a press release disclosing its problems with

FDA compliance and that it was suspending the sales of all of its products as a result of those

problems, the Company’s stock sunk to close at $6.26, down from the previous day’s close of

$24.63. The loss to investors was enormous -- the stock lost almost three-quarters of its value

that day. As additional information came out regarding Able’s previously undisclosed problems

with FDA compliance and with the trustworthiness of its products, the stock price continued to

decline.

196. The decline in Able’s stock price after the end of the Class Period was a direct

result of the nature and extent of Defendants’ fraud finally being revealed to investors and the

market. This drop removed the artificial inflation from Able’s stock price, causing substantial

economic losses, i.e., damages, to investors who purchased the stock during the Class Period.

197. The damages suffered by Lead Plaintiffs and other members of the Class were a

direct result of Defendants’ fraudulent scheme to artificially inflate Able’s stock price, and the

subsequent significant decline in the value of the stock when Defendants’ prior

misrepresentations and other fraudulent conduct were revealed.

X. CAUSES OF ACTION

COUNT I

For Violations of Section 10(b) of the Exchange Act and Rule 10b-5(b) Promulgated Thereunder,

Against Defendants Wadekar, Mauro and Shah (the “Rule 10b-5(b) Defendants”)

198. Plaintiffs repeat and reallege each of the allegations set forth above as if fully set

forth herein.

199. This Claim is brought pursuant to Section 10(b) of the Exchange Act and Rule

10b-5(b) promulgated thereunder, on behalf of Plaintiffs and all other members of the Class,

against the Rule 10b-5(b) Defendants.


94

200. As alleged herein, throughout the Class Period, the Company and the Rule 10b-

5(b) Defendants, individually and in concert, directly and indirectly, by the use of the means or

instrumentalities of interstate commerce, the mails and/or the facilities of a national securities

exchange, made untrue statements of material fact and/or omitted to state material facts

necessary to make the statements made not misleading, in connection with the purchase or sale

of the Company’s securities.

201. The false and misleading statements and omissions by the Company and the Rule

10b-5(b) Defendants included, inter alia:

a. verbal statements by Wadekar during quarterly earnings conference calls

and at the CCBN Virtual Healthcare Conference, as alleged herein;

b. statements and omissions in the Company’s 2002 Form 10-K, which were

prepared by or under the direction of (among others) Wadekar and Shah, and were approved and

signed by (among others) Wadekar;

c. statements and omissions in the Company’s 2003 Form 10-K, which were

prepared by or under the direction of (among others) Wadekar and Shah, and were approved and

signed by (among others) Wadekar;

d. statements and omissions in the Company’s 2004 Form 10-K, which were

prepared by or under the direction of, and signed by, Wadekar and Mauro (among others);

e. statements and omissions in the Company’s Form 10-Q filings during the

Class Period, all of which were prepared by or under the direction of (among others) Wadekar

and Shah, signed by Wadekar, and approved by the Company’s Board of Directors, which

included Wadekar throughout the Class Period and Mauro from April 2004 through the end of

the Class Period;


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f. statements in the certifications signed by Wadekar with respect to the

Company’s Form 10-K and Form 10-Q filings during the Class Period;

g. statements in the Company’s press releases, which were prepared under

the direction of, and approved by, Wadekar and Shah (and Mauro during and after April 2004),

and which contain direct quotes from Wadekar; and

h. Defendants’ failure to inform investors about recalls in early 2005 which

were due to the discovery of discrepancies in the reporting of Able’s quality control results.

202. The Rule 10b-5(b) Defendants were individually and collectively responsible for

making the false and misleading statements and omissions in the documents alleged herein to be

materially false or misleading, by virtue of having approved, signed, and/or overseen the

preparation of those documents.

203. As described above, the Rule 10b-5(b) Defendants’ false and misleading

statements and omissions were made knowingly and intentionally, or in such an extremely

reckless manner as to constitute willful deceit and fraud upon Plaintiffs and other members of the

Class who purchased Able securities during the Class Period.

204. The Company’s and the Rule 10b-5(b) Defendants’ false and misleading

statements and omissions were intended to and did, as alleged herein, (i) deceive the investing

public, including Plaintiffs and the other members of the Class; (ii) artificially create, inflate and

maintain the market for and market price of the Company’s securities; and (iii) cause Plaintiffs

and the other members of the Class to purchase the Company’s securities at inflated prices.

205. The Company’s and the Rule 10b-5(b) Defendants’ conduct violated Section

10(b) of the Exchange Act and Rule 10b-5(b) promulgated thereunder.


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206. In ignorance of the false and misleading nature of the Company’s and the Rule

10b-5(b) Defendants’ false and misleading statements and omissions, and relying directly or

indirectly on those statements and/or upon the integrity of the market price for Able’s securities,

Plaintiffs and the other members of the Class purchased Able securities at artificially inflated

prices during the Class Period. But for the fraud, they would not have purchased the securities at

artificially inflated prices.

207. The market price of Able’s securities declined materially upon the public

disclosure of the facts that had previously been misrepresented or omitted by the Company and

the Rule 10b-5(b) Defendants, as described above.

208. Plaintiffs and the other members of the Class were substantially damaged as a

direct and proximate result of their purchases of Able securities at artificially inflated prices and

the subsequent decline in the price of those securities when the truth was disclosed.

COUNT II

For Violations of Section 10(b) of the Exchange Act and Rule 10b-5(a) and (c) Promulgated Thereunder,

Against Defendants Wadekar and Shah (the “Rule 10b-5(a) and (c) Defendants”)


forth herein.

210. This Claim is brought pursuant to Section 10(b) of the Exchange Act and Rule

10b-5(a) and (c) promulgated thereunder, on behalf of Plaintiffs and all other members of the

Class, against the Rule 10b-5(a) and (c) Defendants.

211. As alleged herein, throughout the Class Period, Able and the Rule 10b-5(a) and

(c) Defendants, individually and in concert, directly and indirectly, by the use of the means or


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instrumentalities of interstate commerce, the mails and/or the facilities of a national securities

exchange:

a. employed devices, schemes, and artifices to defraud; and

b. engaged in acts, practices, and a course of conduct that operated as a fraud

or deceit upon Plaintiffs and other members of the Class.

212. The Company’s and the Rule 10b-5(a) and (c) Defendants’ devices, schemes, and

artifices to defraud, and other conduct that operated as a fraud or deceit upon Plaintiffs and the

Class, included, inter alia:

a. Defendant Shah’s ensuring that the Company met regulatory reporting

requirements and increased its revenues by falsifying quality control data and by issuing false

regulatory reports to the FDA;

b. Defendant Shah’s orchestrating the misreporting of quality control data to

the FDA by instructing bench chemists under his direct supervision to falsify the results of

quality control tests;

c. Defendant Shah’s failing to report adverse drug events to the FDA

throughout his tenure at the Company;

d. Defendants Shah and Wadekar’s hiring inexperienced and poorly trained

bench chemists and fostering a culture of dishonesty to conceal adverse quality control results;

e. Defendant Wadekar’s complicity with Shah to conceal adverse quality

control results from the FDA even after the FDA warned of grave problems in Able’s quality

controls; and


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i. Defendants Wadekar’s and Shah’s sales of the Company’s stock at

inflated prices knowing that the stock price was inflated because the Company was able to

improve sales by selling products that failed to meet minimum FDA quality control standards.

213. The Company’s and the Rule 10b-5(a) and (c) Defendants’ devices, schemes and

artifices to defraud, and their acts, practices and course of conduct that operated as a fraud and

deceit upon Plaintiffs and the Class, were in connection with the purchase or sale of the

Company’s securities.

214. The Company’s and the Rule 10b-5(a) and (c) Defendants’ conduct was intended

to and did, as alleged herein, (i) deceive the investing public, including Plaintiffs and the other

members of the Class; (ii) artificially create, inflate, and maintain the market for and market

price of the Company’s securities; and (iii) cause Plaintiffs and the other members of the Class to

purchase the Company’s securities at inflated prices.

215. As described above, the Rule 10b-5(a) and (c) Defendants’ conduct was

undertaken knowingly and intentionally, or in such an extremely reckless manner as to constitute

willful deceit and fraud upon Plaintiffs and other members of the Class who purchased Able

securities during the Class Period.

216. The Company’s and the Rule 10b-5(a) and (c) Defendants’ conduct violated

Section 10(b) of the Exchange Act and Rule 10b-5(a) and (c) promulgated thereunder.

217. In ignorance of the Company’s and the Rule 10b-5(a) and (c) Defendants’

fraudulent conduct, and relying directly or indirectly on the integrity of the market price for

Able’s securities, Plaintiffs and the other members of the Class purchased Able securities at

artificially inflated prices during the Class Period. But for the Company’s and the Rule 10b-5(a)


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and (c) Defendants’ fraudulent conduct, Plaintiffs and the Class would not have purchased the

securities at artificially inflated prices.

218. The market price for Able’s securities declined materially upon the public

disclosure of the Company’s and the Rule 10b-5(a) and (c) Defendants’ fraudulent conduct, as

described above.

219. Plaintiffs and the other members of the Class were substantially damaged as a

direct and proximate result of their purchases of Able securities at artificially inflated prices and

the subsequent decline in the price of those securities when the truth was disclosed.

COUNT III

Violation of Section 20A of the Securities Exchange Act Against Wadekar and Shah

(the “Insider Trading Defendants”)

220. Plaintiffs repeat and reallege each and every allegation contained above as if fully

set forth herein.

221. This Claim is brought pursuant to Section 20A of the Exchange Act, 15 U.S.C. §

78t-1, against the Insider Trading Defendants, on behalf of Plaintiff Deka and all members of the

Class who purchased Able stock contemporaneously with the Insider Trading Defendants’ sale

of Able stock during the Class Period.

222. Each of the Insider Trading Defendants sold substantial numbers of shares of

Able common stock during the Class Period, representing significant proportions of their

holdings, while in possession of material, adverse, non-public information. This conduct

violated Section 10(b) and 20A of the Exchange Act.

223. Defendant Wadekar received almost $1.8 million in proceeds from the sale of

90,000 shares of Able common stock during the Class Period. Between August 4, 2003 and

August 8, 2003, he sold 64.1% of his holdings. He again sold 64.1% of his holdings on each of


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October 2, 2003, December 1, 2003, February 2, 2004, and April 1, 2004, followed by 67.57%

on June 1-2, 2004. On each of September 1, 2004 and December 1, 2004, Wadekar sold in

excess of 75% of his holdings in Able stock. In 2003, Wadekar sold all of the 30,000 of the

shares he acquired upon the exercise of his stock options that year, and in 2004 he sold all of the

60,000 shares he received through the exercise of stock options that year.

224. Defendant Shah received almost $1.13 million in proceeds from the sale of 58,000

shares of Able common stock during the Class Period. Between August 4, 2003 and August 8,

2003, he sold 100% of his holdings. He thereafter acquired additional shares through the

exercise of stock options and promptly sold those shares, resulting in sales of 100% of his

holdings on each of October 2, 2003, December 1, 2003, February 2, 2004, April 1, 2004, June

1-2, 2004, September 1, 2004, and December 1, 2004. In 2003, Shah sold all of the 18,000

shares he acquired upon the exercise of stock options that year, and in 2004 he sold all of the

40,000 shares he received through the exercise of stock options that year.

225. The Insider Trading Defendants’ sales of stock during the Class Period were

unusual in amount because, inter alia, they represented significant proportions of the Insider

Trading Defendants’ holdings. These sales also netted the Insider Trading Defendants profits

which were substantial in comparison to their overall compensation from the Company, and

represented significant deviations from pre-Class Period behavior. These defendants were

repeatedly exercising stock options and immediately selling all of the shares obtained therefrom.

These sales indicate that the Insider Trading Defendants knew the Company’s stock price was

artificially inflated during the Class Period as a result of material adverse information known to

the Insider Trading Defendants but not to the investing public, and that rather than hold their

shares in anticipation of future success of the Company and resulting increases in the stock price,


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they repeatedly sold off their holdings in order to profit from the artificially inflated price before

the adverse information became public.

226. As set forth in its Certification previously filed with the Court, Deka purchased

61,076 shares of Able common stock on October 2, 2003.

227. Defendant Wadekar, while in possession of material, adverse, nonpublic

information, sold 10,000 shares of Able common stock on October 2, 2003.

228. Defendant Shah, while in possession of material, adverse, nonpublic information,

sold 6,000 shares of Able common stock on October 2, 2003.

229. Numerous other Class members also purchased Able common stock

contemporaneously with the Insider Trading Defendants’ sales of stock during the Class Period

based on material, adverse, non-public information.

230. Under Section 20A of the Exchange Act, the Insider Trading Defendants are

liable to Plaintiffs and the Class for all profits gained and losses avoided by them as a result of

these contemporaneous transactions.

COUNT IV

Violation of Section 18 of the Securities Exchange Act Against Wadekar

231. Plaintiffs repeat and reallege each and every allegation contained above as if fully

set forth herein.

232. This Claim is brought pursuant to Section 18 of the Exchange Act against

Wadekar, on behalf of Plaintiff DERP and all members of the Class.

233. As set forth above, Able and Wadekar made or caused to be made statements

which were, at the time and in light of the circumstances under which they were made, false or


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misleading with respect to material facts, in Able’s 2003 Form 10-K. As a signatory of the 2003

Form 10-K, Wadekar is responsible for making the statements contained therein.

234. In connection with the purchase of the Company’s securities, DERP and other

members of the Class specifically read and relied upon false statements in the Company’s 2003

Form 10-K, including the statements alleged herein to be materially false or misleading.

235. Among other false statements, DERP and other members of the Class read and

relied upon the following false statements from Able’s 2003 Form 10-K:

(a) The statement that “we believe that we are currently in compliance with

all applicable FDA requirements” and “[w]e do not expect the law [providing for penalties for

wrongdoing in connection with the development or submission of an ANDA] to have a material

impact on the review or approval of our ANDAs;”

(b) The assertion that the following ANDAs had been approved by the FDA

in accordance with sound cGMPs: Acetaminophen and Codeine Phospate Tablets, USP

300mg/30mg; Diphenoxylate and Atropine Sulfate Tablets; Methylphenidate Hydrochloride

Tablets; Methylphenidate Hydrochloride Extended Release Tablets; Nitroglycerine Sublingual

Tablets; Prochloroperazine Suppositories; and Proproxyphene Napsylate and Acetaminophen

Tablets;

(c) The certification by Wadekar that “Based on my knowledge, this annual



statements were made, not misleading with respect to the period covered by this annual report;”

and


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(d) Able’s reported financial results, including but not limited to its net sales

and net income figures.

236. DERP and the other members of the Class reasonably relied on the foregoing

statements, not knowing that they were false or misleading. DERP and other members of the

Class also relied on the Company’s statements in the 2003 Form 10-K as being materially

complete, and as not omitting material information.

237. When the truth began to emerge about the false and misleading statements and

omissions that were contained in the 2003 Form 10-K, Plaintiffs and all other members of the

Class were significantly damaged by the resulting drop in the value of the Company’s stock.

238. As a direct and proximate result of Able’s and Wadekar’s wrongful conduct,

DERP and the other members of the Class suffered damage in connection with their purchases of

the Company’s stock.

239. By virtue of the foregoing, Able and Wadekar have violated Section 18 of the

Exchange Act.

COUNT V

Control Person Liability Pursuant to Section 20(a) of the Exchange Act, Against Wadekar, Mauro, Shah, Boehm, and Klemick (the “Section 20(a) Defendants”)


forth herein.

241. This Claim is brought pursuant to Section 20(a) of the Exchange Act against the

Section 20(a) Defendants, on behalf of Plaintiffs and all members of the Class.

242. As alleged herein, Able violated Section 18 of the Exchange Act by filing the

2002 Form 10-K, the 2003 Form 10-K, and the 2004 Form 10-K with the SEC, all of which


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contained materially false and misleading statements. Plaintiffs and other Class members read

and relied on those false and misleading statements when purchasing Able securities.

243. As further alleged herein, Able violated Section 10(b) of the Exchange Act and

Rule 10b-5(a), (b), and (c) promulgated thereunder by making false and misleading statements in

connection with the purchase or sale of securities and by participating in a fraudulent scheme and

course of business or conduct in connection with falsification of quality control data to

improperly pass FDA inspections and thereby to maintain the Company’s artificially inflated

stock price. This fraudulent conduct was undertaken with scienter, because Able is charged with

the knowledge and scienter of its employees and managers who knew of or recklessly

disregarded the falsity of the Company’s statements and the fraudulent nature of its scheme.

244. Plaintiffs and the other members of the Class who purchased Able securities

during the Class Period suffered damages in connection with their purchases of those securities,

as a direct and proximate result of Able’s primary violations of Section 18, Section 10(b), and

Rule 10b-5.

245. Defendant Wadekar was a controlling person of Able during the Class Period due

to his position as the Company’s Chairman of the Board and Chief Executive Officer, his

signatures on and approvals of Able’s false and misleading statements, his position as the

Company’s primary spokesperson for purposes of press releases and conference calls, and his

supervision and control over all of the Company’s employees and functions, including but not

limited to the quality assurance and quality control functions and the FDA and SEC reporting

functions.

246. Defendant Mauro was a controlling person of Able from April 2004 through the

end of the Class Period due to his positions as a director of the Company and as its President and


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Chief Operating Officer, his signatures on and/or approvals of Able’s false and misleading

statements, and his supervision and control over all of the Company’s employees and functions,

including but not limited to the quality assurance and quality control functions and the FDA and

SEC reporting functions.

247. Defendant Shah was a controlling person of Able at all relevant times through the

end of 2004 due to his position as Vice President of Quality and Regulatory. As such, he was

responsible for, inter alia, ensuring Able’s compliance with FDA regulations; filing ANDAs;

ensuring the quality of Able’s products; and supervising the employees within the Company’s

Quality Control group.

248. Defendant Boehm was a controlling person of Able from April 2004 through the

end of the Class Period due to his position as the Company’s Chief Science Officer. As such, he

was in charge of directing all of the Company’s research and development activities, and had

responsibility for, inter alia, overseeing the Company’s product testing to ensure compliance

with FDA specifications; communicating with the FDA regarding the Company’s ANDAs; and

the Company’s submission of reports to the FDA.

249. Defendant Klemick was a controlling person of Able during the Class Period due

to her positions as Director of Regulatory Affairs until April 2005, and as Vice President of

Compliance thereafter. In both positions, Klemick was responsible for ensuring the Company’s

compliance with FDA regulations.

250. By virtue of the foregoing, each of the Section 20(a) Defendants had the power to

influence and control, and did influence and control, directly or indirectly, the decision-making

of Able, including its quality control function and/or the content and dissemination of the false or

misleading statements complained of herein.


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251. Each of the Section 20(a) Defendants was a culpable participant in Able’s primary

violations of Section 18, Section 10(b), and Rule 10b-5. As set forth in detail above, Wadekar,

Shah, and Mauro acted with scienter in knowingly issuing false and misleading statements to the

public and were, therefore, culpable participants in Able’s fraudulent conduct.

252. During Klemick’s tenure at Able, the Company was wholly deficient in its

compliance with FDA requirements for cGMP and Klemick was alerted to these problems no

later than April 2004 with the issuance of the FDA’s warning letter. Under Klemick’s watch,

however, the Company continued to violate FDA regulations, failed to address the deficiencies

in quality controls that the FDA identified, and concealed known quality control problems from

investors. In December 2004, when Shah, Klemick’s immediate supervisor, was forced to

resign from his position as Vice President of Quality and Regulatory, Able’s quality control

failures were made even more evident to Klemick. Yet, she permitted Able to continue to

misleading investors about its compliance with FDA regulations. As such, Klemick was a

culpable participant in Able’s fraudulent conduct.

253. During Boehm’s tenure as Able’s Senior Vice President and Chief Scientific

Officer from April 2004 through the end of the Class Period, he oversaw Able’s development of

new drugs and the submission of ANDAs to the FDA. In this capacity, Boehm was responsible

for ensuring that Able conformed with FDA regulations and cGMPs in developing new drugs

and submitting them to the FDA for approval. Yet, throughout his tenure, as evident from the

FDA’s warning in April 2004 of Able’s grave quality control problems, and Able’s failure to

remediate them during Boehm’s tenure, Boehm was a culpable participant in Able’s fraudulent

conduct.


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254. By virtue of their positions as controlling persons of Able, the Section 20(a)

Defendants are each jointly and severally liable pursuant to Section 20(a) of the Exchange Act,

with and to the same extent as Able, for Able’s primary violations of Section 18, Section 10(b),

and Rule 10b-5.

XI. PRAYER FOR RELIEF

WHEREFORE, Plaintiffs pray for relief and judgment, as follows:

A. Declaring this action to be a proper Class action and certifying Plaintiffs

as class representatives pursuant to Fed. R. Civ. P. 23;

B. Awarding compensatory damages against all of the Defendants, jointly

and severally, in favor of Plaintiffs for all losses and damages suffered as a result of the

Defendants’ wrongdoing alleged herein, in an amount to be determined at trial, together with

interest thereon;

C. Awarding Plaintiffs their reasonable costs and expenses incurred in this

action, including a reasonable allowance of fees for Plaintiffs’ attorneys and experts; and

D. Awarding Plaintiffs such other and further relief as the Court may deem

just and proper.

XII. JURY DEMAND

Plaintiffs demand a trial by jury as to all issues so triable.


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Dated: June 19, 2006

GRANT & EISENHOFER, P.A. By: s/ James R. Banko Stuart Grant Megan D. McIntyre James R. Banko (JB-9686) Sharan Nirmul Chase Manhattan Centre 1201 N. Market Street Wilmington, DE 19081 Telephone: (302) 622-7000 Facsimile: (302) 622-7100 MURRAY, FRANK & SAILER LLP Brian P. Murray Bradley P. Dyer Scott Levy 275 Madison Avenue, 8th Floor New York, New York 10016 Telephone: (212) 682-1818 Facsimile: (212) 682-1892 Co-Lead Counsel for Plaintiffs and the Class


CERTIFICATE OF SERVICE I, James R. Banko, hereby certify that:

On June 19, 2006, I caused the Consolidated Class Action Complaint to be electronically

filed with the United States District Court for the District of New Jersey using the USDC

CM/ECF system which will send notification of such filing to the following counsel:

Samuel Kadet: [email protected] Daniel Winters: [email protected] Glenn Kerner: [email protected]

I hereby certify that the foregoing statements made by me are true. I am aware that if any

of the foregoing statements made by me are willfully false, I am subject to punishment.

Dated: June 19, 2006 s/ James R. Banko_______ James R. Banko (JB-96896)

Case 2:05-cv-02681-JAG-MCA Document 66-2 Filed 06/19/2006 Page 1 of 1

1 consolidated class action complaint 06/19/2006

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