Sunday, September 17, 2006

The "Scary Defense Counsel" Press Release

We're back and ready to dive right in.

According to a press release issued last week by Isolagen, Inc. (AMEX: ILE), a pair of derivative lawsuits against the company and certain of its current and former officers and directors were recently dismissed.

The dismissal of those two complaints does not end the litigation looming over Isolagen, nor does it even end the derivative litigation facing the company, as a federal derivative action is still pending as part of a consolidated MDL proceeding.

But that's getting ahead of ourselves a bit, as these cases have some history.

The various complaints stem from the August 1, 2005 revelation by the company that the preliminary results from a clinical trial involving the "Isolagen Process" had not met all of the primary end points and that one of the two separate dermal studies had failed to demonstrate statistical significance. Accordingly, FDA approval would not be achieved as promised.

The Isolagen Process utilizes a patient's own cells to reduce the normal effects of aging on skin, such as wrinkles and creases.

The first derivative complaint was filed in the 55th Judicial District Court of Harris County, Texas on September 28, 2005. On December 2, 2005, the company filed an answer and special exceptions pursuant to Rule 91 of the Texas Rules of Civil Procedure. On February 6, 2006, the Court granted the special exceptions, and an amended complaint was then filed on February 15, 2006. Defendants then renewed their special exceptions, which were upheld by the Court and the complaint was dismissed on September 6, 2006.

The second derivative complaint was filed in the Court of Common Pleas of Chester County, Pennsylvania on October 31, 2005. On January 20, 2006, Isolagen filed its preliminary objections to the complaint. The complaint was dismissed with prejudice on August 31, 2006.

There is a third derivative complaint (the federal one), but we'll get to that in a minute.

In August and September, 2005 a number of class action lawsuits were filed against Isolagen and certain of its current and former officers and directors in the United States District Court for the Southern District of Texas and in the United States District Court for the Eastern District of Pennsylvania.

Shortly thereafter, Isolagen filed a motion with the Judicial Panel on Multidistrict Litigation to transfer the federal securities class actions and the pending federal derivative action to the Eastern District of Pennsylvania. On February 23, 2006, the JPML granted Isolagen's motion and the actions were transferred.

On April 4, 2006, Senior Judge Ronald L. Buckwalter appointed Silverback Asset Management, LLC, Silverback Master, Ltd., Silverback Life Sciences Master Fund, Ltd., Context Capital Management, LLC and Michael F. McNulty as lead plaintiffs, and Bernstein Litowitz Berger & Grossman LLP and Kirby McInerney & Squire LLP as co-lead counsel.

A copy of the consolidated class action complaint, filed on July 14, 2006, is available here.

In addition to claims against Isolagen and certain of its current and former officers and directors, the consolidated complaint also asserts claims against CIBC World Markets Corp., Legg Mason Wood Walker, Inc., Canaccord Adams, Inc. and UBS Securities LLC as underwriters in connection with an April 2004 public offering of Isolagen common stock and a 2005 sale of convertible notes.

Which finally leads us to the title of this post. After the initial complaints were filed, Isolagen announced that the company had retained Skadden, Arps, Slate, Meagher & Flom, LLP to defend it.

The announcement of the specific counsel engaged to represent a corporation in securities litigation appears to be a very rare announcement, and thus merits addition to our burgeoning list of press release permutations.

Now to wrap up that loose end - the federal derivative complaint alluded to above.

On October 8, 2005 a derivative complaint was filed in the United States District Court for the Southern District of Texas. Isolagen sought to transfer that action to the Eastern District of Pennsylvania along with the federal class actions.

On February 23, 2006, the action was transferred. Thereafter, the plaintiff filed an amended complaint, and the defendants moved to dismiss the amended complaint. Briefing on that motion is complete, but no decision has yet been rendered.

Daily Trivia: For the sixth straight year, Skadden was named "The Best Corporate Law Firm" in the United States by Corporate Board Member Magazine. The survey asks directors and general counsel of publicly traded companies to identify the law firms they most admire.

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