Diplomat Pharmacy, Inc.
- Company Name
- Diplomat Pharmacy, Inc.
- Stock Symbol
- Class Period
- February 26, 2018 to February 21, 2019
- Motion Deadline
- April 25, 2019
- Central District of California
The complaint charges Diplomat and certain of its current and former officers with violations of the Securities Exchange Act of 1934. Diplomat operates as an independent specialty pharmacy in the United States. In late 2017, Diplomat entered the pharmacy benefit management (“PBM”) business through the acquisition of LDI Holding Company, LLC, doing business as LDI Integrated Pharmacy Services (“LDI”), in December 2017, and Pharmaceutical Technologies, Inc., doing business as National Pharmaceutical Services (“NPS”), in November 2017.
The complaint alleges that during the Class Period, defendants made false and misleading statements and/or failed to disclose adverse information regarding the Company’s business and operations. Specifically, defendants misrepresented the Company’s success in integrating and growing its PBM business, which included LDI and NPS, the two companies Diplomat had acquired in late 2017 and had rebranded as CastiaRx. In addition, defendants failed to disclose that Diplomat’s PBM business was significantly impaired and was experiencing material customer losses, that Diplomat would need to record a massive non-cash impairment charge relating to its PBM business and the LDI and NPS acquisitions, estimated to be upwards of $630 million, and that Diplomat’s preliminary 2019 full-year outlook, issued less than seven weeks prior to being withdrawn, was not accurate and could not be achieved. As a result of defendants’ false statements and omissions, Diplomat securities traded at artificially inflated prices during the Class Period, reaching a high of more than $26 per share.
On November 6, 2018, defendants claimed that, despite disappointing third quarter 2018 results, the Company was enjoying “‘solid’” results driven by the Company’s ability to “‘successfully execute on [its] growth plan’” through its “‘strong . . . PBM performance.’” Defendants also began to reveal the Company’s mounting problems in its PBM unit, explaining that the Company expected to lose $200 million in revenue, or roughly 4% of enterprise revenue, this year in its PBM business because of client losses. On this news, the price of Diplomat shares fell 27%. On January 7, 2019, Diplomat disclosed that two senior executives would immediately be departing from the Company. Both executives had been involved with the merger, integration and operation of the Company’s CastiaRx PBM unit. The Company also warned that 2018 revenue would be at the lower end of its guidance and that 2019 revenue could fall short of consensus. Diplomat shares dropped more than 10% on this news.
Then, on February 22, 2019, Diplomat announced that it would record a massive non-cash impairment charge of upwards of $630 million relating to its PBM business and the 2017 acquisitions of LDI and NPS. Diplomat also withdrew its preliminary 2019 full-year outlook issued less than seven weeks earlier. On this news, the price of Diplomat shares fell $7.59 per share, or over 56%, to close at $5.87 per share on February 22, 2019. In all, Diplomat shares fell over 71% as the market learned of the scope and magnitude of Diplomat’s integration and impairment problems.