In Re: Express Scripts, Inc., Securities Litigation, Class Action

Filing 78

OPINION MEMORANDUM AND ORDER IT IS HEREBY ORDERED that deft.'s mtn. to dismiss pltffs.' consolidated Securities Complaint is granted. IT IS FURTHER ORDERERED that this matter is dismissed. 44 Signed by Honorable Henry E. Autrey on 6/30/10. (CLA)

In Re: Express Scripts, Inc., Securities Litigation, Class Action

Do c. 78

UNITED STATES DISTRICT COURT E A S T E R N DISTRICT OF MISSOURI E A S T E R N DIVISION I N RE: EXPRESS SCRIPTS, INC., SECURITIES LITIGATION, CLASS ACTION ) ) ) ) )

Case No: 4:04CV1009 HEA

OPINION, MEMORANDUM AND ORDER T h is matter is before the Court on Defendants' Motion to Dismiss Plaintiffs' C o n s o lid a te d Securities Complaint, [Doc. No. 44]. Plaintiffs oppose the Motion a n d the parties have filed extensive memoranda on the Motion. The Court has h e a rd oral arguments as well. For the reasons set forth below, the Motion is g ra n te d . In this consolidated securities case, Plaintiffs seek to bring a class action on b e h a lf of all persons who purchased Express Scripts, Inc. common stock between O c to b e r 29, 2003 and August 3, 2004, inclusive (the "Class Period") under the p r o v is io n s of §§ 10(b) and 20(a) of the Securities Act of 1934. Plaintiffs claim that th e action arises out of a fraudulent scheme by defendants to publicly issue false a n d misleading statements to the investment community about the success of E x p r e s s Scripts' new business model, compliance with the applicable healthcare a n d related laws and its earnings and prospects for future growth. Plaintiffs claim

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th a t the information provided by defendants, Express Scripts, Inc. and certain o f fic ers and directors, was knowingly false and misleading when issued and had th e purpose of artificially inflating the market price of Express Scripts common s to c k during the class period. Defendants move to dismiss pursuant to Rule 12(b)(6) of the Federal Rules o f Civil Procedure and the Private Securities Litigation Reform Act. Defendants a rg u e that the Amended Consolidated Complaint fails to demonstrate a causal link b e tw e en the loss for which Plaintiffs seek compensation and any alleged m is s ta te m e n t or omission; none of the statements set out in the Complaint c o n s titu te a material misrepresentation or omission; Plaintiffs fail to make p a rtic u la riz ed allegations giving rise to a strong inference that any defendant acted w ith a wrongful state of mind. Defendants also assert that Plaintiffs' "controlling p e rs o n " claims are deficient as a matter of law. Factual Allegations1 E x p re s s Scripts provides integrated pharmacy benefit management (PBM) s e r v i c e s , including network pharmacy claims processing, mail pharmacy services,

The factual allegations are taken from the Amended Consolidated Securities Complaint, which includes certain SEC filings, press releases and transcripts of conference calls. Furthermore, the Complaint sets out facts of the filing of a lawsuit by the former Attorney General of the State of New York. The Court may take judicial notice of SEC filings and public records in considering the motion to dismiss. -2-

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b e n e fit design consultation, drug utilization review, formulary management, d is ea se management, medical and drug data analysis services, and medical in fo rm a tio n management services. It also provides distribution services for s p e c ia lty pharmaceuticals through its Specialty Distribution subsidiary. Express S c rip ts ' operations are highly regulated by federal and state healthcare laws, rules a n d regulations. P la in tiffs claim that by 2003, Express Scripts' business had begun to slow d o w n and its stock price declined as it struggled to overcome increased c o m p e titio n in the PBM industry. To overcome this situation and continue Express S c rip ts ' growth, in late 2003 defendants embarked upon a public relations c a m p a ig n designed to artificially inflate Express Scripts' common stock price. Plaintiffs further allege that Defendants also caused the Company to engage in a m y r ia d of unlawful business practices, stating that these unlawful practices in c lu d e d , among other things, fraudulently inducing customers to enter into c o n tra cts with Express Scripts by misrepresenting the discount amounts they w o u ld receive for retail drug purchases, diverting to itself millions of dollars in d ru g manufacturer rebates that belonged to its customers, inflating the costs of g e n e ric drugs at the expense of its customers, selling client prescription data to d ru g manufacturers, data collection services and other third parties without the

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p e rm is s io n of its customers and/or the patients, and fraudulently inducing p h y s ic ia n s to switch patients from one prescription drug to another for which the C o m p a n y received money from the drug's manufacturer. T h e Complaint further alleges that as result of, and reflecting the positive im a g e created by defendants of Express Scripts' business and prospects, securities a n a ly s ts repeatedly issued "Strong Buy," "Outperform" and "Overweight" re c o m m e n d a tio n s emphasizing Express Scripts' successful new business model, e x p a n d in g PBM and specialty distribution businesses, and strong earnings and g r o w th prospects. P la in tiffs allege further that the false image of Express Scripts created by d e f e n d a n ts ' statements to investors and securities analysts drove Express Scripts' s to c k price to a Class Period high of $81.20, while Express Scripts insiders sold 1 7 6 ,2 7 4 shares of Express Scripts stock, realizing more than $12,986,277 in " u n la w f u l " proceeds for themselves. Defendant Bascomb, Express Scripts' D ire cto r and Executive Vice President, sold 29.6% of the Express Scripts stock th a t he actually owned, for proceeds of more than $1,296,400; Defendant Ignaczak, E x p re s s Scripts' Senior Vice President-Sales and Account Management, sold 6 8 .2 % of the Express Scripts stock that he actually owned, realizing $1,444,144 in " u n la w f u l " insider trading proceeds; Defendant Logsdon, Express Scripts'

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E x e cu tiv e Vice President, sold 41.5% of the Express Scripts' shares that she a c tu a lly owned, for proceeds of more than $2,256,714; Defendant Porter, Express S c rip ts ' Senior Vice President-Client Services, sold 35.2% of the Express Scripts s h a re s that he actually owned, for proceeds of more than $428,466; Defendant Z a c h a ry , Express Scripts' Director, sold 66.6% of the shares that he actually o w n e d , for proceeds of more than $2,264,080; Defendant Tenholder, E x p re s s Scripts' Senior Vice President and Chief Administrative Officer, sold 6 1 .5 % of the Express Scripts shares that he actually owned, for proceeds of more th a n $3,511,199; Defendant Waltman, Express Scripts' Director, sold 92.5% of the E x p re ss Scripts shares that he actually owned, for proceeds of more than $ 1 ,7 8 5 ,2 7 5 . P la in tiffs contend Defendants' positive statements, creating the impression th a t Express Scripts was successfully pursuing its business and faithfully serving its clients which would lead to solid and dependable revenue and earning growth, w e re false and misleading when made, because defendants failed to disclose the m a te r ia l adverse facts. In particular, Plaintiffs allege that Express Scripts was, d u rin g the Class Period, cheating its customers and engaging in numerous other u n la w fu l business practices which made it very probable that the Company would n o t continue to achieve strong financial results.

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T h e Complaint alleges that suddenly, on August 4, 2004, the Attorney G e n e ra l of New York filed a lawsuit against Express Scripts, seeking more than $ 1 0 0 million in damages, and alleging that Express Scripts fraudulently induced N e w York to enter into a contract by misrepresenting the discount amount it would re c e iv e for retail drug purchases, improperly changing patient medication, and im p r o p e r ly selling client prescription data to unauthorized third parties. These re v e la tio n s stood in sharp contrast to defendants' Class Period representations that E x p r e s s Scripts' interests were clearly aligned with those of its customers and m e m b e rs , and that Defendants were running Express Scripts' business within the s tr ic tu re s of the applicable health care related laws, rules and regulations. Plaintiffs further allege that as a result of this revelation, Express Scripts' stock c o lla p s e d , falling from $71.85 per share to $62.48 per share on extraordinary heavy v o lu m e . Statements allegedly false and misleading P la in tiffs set out the following statements which they contend are false and m is le a d in g : On October 29, 2003, Express Scripts announced its 3rd Q FY03 re su lts , ended September 30, 2003, reporting a 21% increase in net in c o m e to a "record" $64.5 million, or $.81 per share, on revenue of $ 3 .2 billion. In the Company's earnings release, defendant Toan, with th e approval of the remaining defendants, attributed the Company's " r e c o r d " results to the success of Express Scripts' new business
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m o d e l and aggressive use of generic and low-cost brand-name drugs: " W h ile the PBM competitive landscape continues to evolve, the one th in g that has remained constant is our focus on making prescription d ru g s safer and more affordable. . . . We have revitalized our b u s in e s s model in 2003 to ensure that our clients "understand that our in te re s ts are unequivocally aligned with theirs. This revitalization re su lte d in Express Scripts no longer accepting pharmaceutical m a n u fa c tu re r funding for programs promoting the use of specific d ru g s . This revitalization differentiates our business model in the m a r k e t p l a c e , and positions Express Scripts as a leader with the most v a lu e to offer to plan sponsors and their members." " T h e Express Scripts business model has resulted in reduced gross p r o fit and selling, general and administrative expenses this year a ttrib u ta b le to the elimination of this pharmaceutical manufacturer fu n d in g . However, we believe our business strategy will yield longte rm benefits, clearly differentiating Express Scripts from the c o m p e titio n , which has already allowed us to gain market share. E x p r e s s Scripts' Client Pledge, issued earlier this year, underlines our c o m m itm e n t to aggressively promote the use of generic drugs, s u p p o rt the use of clinically appropriate lower-cost brand-name d r u g s , and never recommend switching a member to a higher cost d r u g ." "In addition to our business model, our industry-leading generic u tiliz a tio n rate, superior formulary management of low-cost brand d r u g s , and highly-efficient, cost-effective mail pharmacy services are a ls o strong competitive differentiators, and reflect the alignment of o u r interests with our plan sponsors and their members." * * * " W e have taken our business model to the specialty drug space to h e lp our clients manage the costs and benefits associated with highc o s t biotech and injectable drugs, with growing results . . . . Our goal is to provide the same type of value in specialty pharmacy that we p ro v id e in the PBM arena". . . . C o m m e n tin g on Express Scripts' FY03 and FY04 earnings outlook,
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d e fe n d a n ts stated: E x p r e s s Scripts is enjoying a strong selling season for 2004. In a d d itio n , 10 of Express Scripts' top 50 clients were up for renewal e ffe c tiv e January 2004, and the Company was successful in renewing 1 0 0 percent of this business. Based on net new business wins to date, a n d the underlying fundamentals of the business, the C o m p a n y expects revenue growth next year to exceed $1.3 billion, e x c lu d in g approximately $0.8 billion of retail drug costs for the DoD T R I C A R E Retail Pharmacy program discussed below. New business w in s have come from all segments including state governments, selffu n d e d employer groups, Blue Cross Blue Shield plans, large health m a in te n a n c e organizations, health insurers, third party administrators, a n d union-sponsored benefit plans. * * * In addition to this growth in membership, the Company's financial p e rf o rm a n c e will continue to benefit from increased mail and generic u tiliz a tio n , improved formulary compliance with low-cost brands, in c re as ed productivity, growth in specialty distribution and capital s tru c tu re improvements. Based on these strong fundamentals, the C o m p a n y believes its 2003 diluted earnings per share, including the $ 0 .0 4 per share charge incurred in the second quarter resulting from th e early retirement of debt, will be between $3.14 and $3.16. While E x p r e s s Scripts has not completed its selling season for 2004, the C o m p a n y believes its 2004 diluted earnings per share will increase 2 0 percent to 25 percent over 2003, excluding any charges associated w ith the early retirement of debt. . . . W ith respect to Express Scripts' stock repurchase program, d e fe n d a n ts further stated that "[d]uring the third quarter, the C o m p a n y repurchased 530,000 shares of common stock for $ 3 3 .8 million and repaid $25.0 million of debt." F o llo w in g the release of the Company's 3rd Q FY03 earnings press re le as e, securities analysts issued reports on Express Scripts which w e re based on and repeated the false information provided by E x p r e s s Scripts' senior management to them. For example, on O c to b e r 30, 2003, Southwest Securities, Inc., issued a report in which
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it recommended the purchase of Express Scripts stock following a c o n f e re n c e call with management. In its report, Southwest Securities, In c ., rated Express Scripts stock a "Strong Buy" based largely upon d e fe n d a n ts ' representations about the C o m p a n y 's strong FY04 earnings growth rate of 20% to 25%: E S R X reported 3Q03 numbers in line with our projections and the c o n s e n s u s estimate; $0.81 versus $0.67. The company reiterated its p rio r FY03 and FY04 guidance during the call. We continue to rate th e shares a Strong Buy and view the pull back in share price today a s a buying opportunity. ESRX has produced consistent 20%-25% e a rn in g s growth over an extended period of time, has had a good s e llin g season for FY04, is still working on signing additional FY04 a c c o u n ts , and has significantly reduced SG&A expenses for the q u a rte r. Our $79 price target is based on 20x our FY04 EPS estimate o f $3.89. In addition, ESRX has approximately $14.72 a share in b o o k value and $3.65 a share in cash. We believe these metrics c o n tin u e to make it an attractive value at these levels. O n October 30, 2003, Express Scripts filed its 3rd Q FY03 Report on F o r m 10-Q with the SEC, containing the information released to the m a r k e t in the October 29, 2003 press release. The Form 10-Q report s ig n e d by defendants Toan and Paz was also certified by defendants T o a n and Paz under §§302 and 906 of the Sarbanes-Oxley Act of 2 0 0 2 . With respect to Express Scripts' 3rd Q FY03 financial s ta te m e n ts , defendants represented: We believe the accompanying unaudited consolidated financial s ta te m e n ts reflect all adjustments (consisting of only normal re cu r rin g adjustments) necessary to present fairly the Unaudited C o n s o lid a te d Balance Sheet at September 30, 2003, the Unaudited C o n s o lid a te d Statements of Operations for the three months and nine m o n th s ended September 30, 2003 and 2002, the Unaudited C o n s o lid a te d Statement of Changes in Stockholders' Equity for the n in e months ended September 30, 2003, and the U n a u d ite d C o n s o lid a te d Statements of Cash Flows for the nine m o n th s ended S e p te m b e r 30, 2003 and 2002.

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O n November 12, 2003, defendants attended the CIBC World M a rk e ts Fourteenth Annual Healthcare Conference. During the c o n f ere n c e held at the Plaza Hotel in New York, defendants gave a v e ry strong and upbeat presentation on Express Scripts' business and p ro je c te d FY04 earnings of $3.14-$3.16. Defendant Toan added: " W e are well positioned for sustainable growth in the future." F o llo w in g the conference, and based on conversations with d e f e n d a n ts , securities analysts and members of the financial press w ro te positive reports on Express Scripts. For example, on November 1 3 , 2004, DowJones Newswire reported: P h a rm a cy - b e n e fits manager Express Scripts Inc. (ESRX) is poised fo r sustainable growth, Chairman and Chief Executive Barrett Toan s a id Wednesday. Another Express Script official, joining Toan at the CIBC World M a r k e t s Healthcare Conference, voiced confidence in the company's 2 0 % to 25% earnings-growth estimate for 2004. * * * E x p r e s s Scripts' offering is differentiated and the company has made a c q u is itio n s that have added to earnings and fostered growth, he said. Membership has grown year over year, and the company has landed a n d continues to pursue large accounts, Toan said. " W e are well positioned for sustainable growth in the future," the C E O said. * * * " W e make money when our client saves money," he said, noting that E x p r e s s Scripts makes more on generics than on branded drugs. "Our in te re s ts are perfectly aligned with our clients and their members." * * * * * * * * * * *

O n this news, Express Scripts common stock increased from $59.00 p e r share to over $65.00 per share, providing the means for Express S c rip ts to make acquisitions. For instance, on December 22, 2003, E x p r e s s Scripts announced a deal to acquire CuraScript, one of the n a tio n 's largest specialty pharmacy services companies for $335
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m illio n . Commenting on the acquisition, defendants stated: C u ra S c rip t will enhance Express Scripts' ability to provide c o m p re h e n s iv e clinical services in many disease states and improve th e quality and affordability of specialty drug therapy for clients and p a tie n ts . The specialty pharmaceutical market is expected to grow 20 to 30 percent or more annually over the next 3 to 5 years as th e re are over 350 products targeting more than 200 diseases in the b io te c h pipeline today. * * * W h e n viewed together, Express Scripts' Specialty Pharmacy Benefit S e rv ic e s ("SPBM"), Specialty Distribution Services ("SDS") and C u ra S c rip t will clearly position Express Scripts among the leading c o m p a n ie s in the specialty pharmacy services market. This will c o m p le m e n t Express Scripts other PBM value-added services in c lu d in g the Company's industry-leading generic utilization rate and s ta n d in g as the nation's second largest mail services pharmacy. B a s e d on the most recent month's results, CuraScript's current a n n u a l run rate of revenue and operating income was approximately $ 4 2 5 million and $21 million, respectively. Revenue and operating in c o m e have historically grown more than 30 percent per year, and a re expected to grow in excess of 35 percent in 2004 due to new c lie n ts under contract, which will be implemented in 2004. After d e d u c tin g merger-related costs, debt service charges, depreciation a n d amortization expenses and taxes, the acquisition is expected to be s lig h tly accretive to earnings in 2004. . . . F o llo w in g the CuraScript announcement, and based on conversations w ith defendants, securities analysts issued positive reports on E x p re s s Scripts. For example, on December 22, 2003, First Analysis S e cu r itie s Corp. issued a report written by Grant Jackson, based o n his discussions with defendants, stating: E x p r e s s Scripts, Inc. ($63.95) today announced the acquisition of C u ra s c rip t, a FL based specialty drug distributor focusing primarily o n oncology (generally through a wholesale model), rheumatoid a rth ritis , multiple sclerosis and Hepatitis C, which also has a small P B M . We view the acquisition positively as it provides ESRX with a m u c h needed boost to its specialty program, through added
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d is tr ib u tio n infrastructure, and operating and clinical experience. . . . S im ila r ly , on December 22, 2003, Anne Barlow of Southwest S e cu r itie s, Inc. wrote: E S R X ACQUIRES CURASCRIPT; REITERATING STRONG BUY R A T IN G * * * A c q u is itio n Accretive to Earnings: ESRX management expects the a c q u is itio n to be accretive to earnings beginning in FY04. ESRX e x p e c ts the acquisition to add $0.02-$0.03 in FY04 and as much as $ 0 .1 0 -$ 0 .1 5 in FY05. . . . * * * T o account for the acquisition, we are increasing our FY04 estimate fo r ESRX from $3.89 to $3.91. We are reiterating our STRONG B U Y rating and $79 price target, which is 20x our new FY04 e s tim a te of $3.91. O n January 12, 2004, defendants attended the JP Morgan 22nd A n n u a l Healthcare Conference. During the conference held at the W e s tin St. Francis Hotel in San Francisco, California, defendants g a v e a very strong and upbeat presentation on Express Scripts' b u s in e s s and projected FY04 earnings of $3.14-$3.16 per share. C o m m e n tin g on Express Scripts' business model, which p u rp o rte d ly aligned Express Scripts' interests with those of its clients a n d members, defendant Paz stated: T h is all comes back to a client pledge. When there was a lot of h e a d lin e s in the Wall Street Journal and other places a year or so b a c k that talked about the interest of PBMs and the way were doing th in g s , we have actually had these business principles and policies th a t we've been talking about since we went public, and even before th e n . But we never really had it in a client pledge, so we were the firs t PBM to just ­ basically, we did not change our contract and we d id not change the way we do business; what we did instead was to e la b o ra te or put into writing our pledge to our clients, and sent it to e v e ry one of our clients. . . .
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B u t I think there are three basic principles here. One is formularies. W e never ever moved someone from a higher priced ­ from a lower p r ic ed drug top [sic] higher priced drug. If there is a lower priced d ru g that is not very efficacious but the doctor prescribes it, we will in fo rm the doctor that that is a very low prescribed drug. But we tell th e m ­ but we don't switch it. It stays with that drug and that's the d ru g that is dispensed. We'll also on a quarterly basis notify the c lie n t of all of those decisions, but we never ever call ­ make an o u tb o u n d call and switch that product. Likewise, if a higher priced d r u g is switched and it is not on formulary, it is third tier, that's w h e r e we switch. So we have switched from higher priced pure A W P priced products to the lower-priced. So, again, we look at e c o n o m ic s but never sacrifice the safety of our patients ­ never. S e co n d a rily , the basic principle here is one of knowing who your b o s s is. We believe we have aligned our interests with that of the p la n sponsors. . . . We believe by aligning with our plan sponsors b e c a u s e its cuts into our economics, no question about that. But it a llo w s us to draw large levels of client participation and trust. And w e believe that that's the recipe for success, is that when we go to a m a n u fa c tu re r to negotiate a discount, we're doing it on behalf of all o f our plan sponsors and we're getting a percentage of the discount th a t the client has negotiated ­ that we have negotiated on their b e h a lf . . . . T h e third piece really is transparency. There's been a lot of noise a b o u t the black box of PBMs. And I'm sure sitting on the outside lo o k in g in, it appears as a black box, but we have always provided for c lie n t audits. Clients can come in and audit our numbers any time th a t they want. We have ­ on average have over 200 audits going on a t any given time, usually to no avail. Things get adjudicated p r o p e rly , they get (indiscernible) the scripts the way they're supposed to . And so basically, we have a very transparent business model. And we welcome our clients to come in and take a look. O n the same date, however, two unions representing management a n d university workers accused Express Scripts of keeping the s a v in g s from drug manufacturers, instead of passing them to clients
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in a lawsuit filed in New York. In response to the lawsuit, Express S crip ts issued a public statement denying the unions' charges. To a lla y investors' concerns over Express Scripts' alleged receipt of k ic k b a c k s from drug makers, defendants also stated that the C o m p a n y "complied with . . . our contract with New York State" and th a t Express Scripts "never recommends switching a m e m b e r to a higher cost drug." Instead, "[w]e align our interests to th o s e of our clients and our m e m b e rs ," defendants' spokesman Steve Littlejohn explained. " T h a t' s how we do business." * * * * * * * * * *

O n January 30, 2004, Express Scripts announced the completion of th e CuraScript acquisition. Commenting on the acquisition, d e fe n d a n ts stated: " W e are very pleased to welcome CuraScript into Express Scripts," s a id Barrett Toan, chairman and chief executive officer. "This a c q u is itio n will deliver a number of strategic benefits to both c o m p a n ie s and will enhance Express Scripts' ability to provide c o m p re h e n s iv e clinical services in many disease states and improve th e quality of care. CuraScript shares our client-centric focus for m a n a g in g specialty drugs, and together we will be able to make the u s e of high-cost specialty drugs safer and more affordable for clients a n d patients." A f te r deducting merger-related costs, debt service charges, d e p re c ia tio n and amortization expenses and taxes, the acquisition is e x p e c te d to add $0.02 to $0.03 to 2004 diluted earnings per share, a n d $0.10 to $0.15 to 2005 diluted earnings per share. . . . O n February 24, 2004, Express Scripts announced its 4th Q FY03 a n d year-end FY03 results, ended December 31, 2003, reporting a 1 5 % in net income to $67.4 million, or $.86 per share, on a 4% in c re a s e in revenues to $3.5 billion. Express Scripts' cash flow from o p e ra tio n s also increased 21.2% to a "record" $176.5 million in the 4 th Q FY03. For FY03, Express Scripts reported a 18% increase in
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n e t income to $249.6 million, or $3.16 per share, on a 8% increase in re v e n u e s to $13.3 billion. In the Company's earnings release, d e f e n d a n t Toan, with the approval of the remaining defendants, a ttr ib u te d the Company's strong results to the success of its business m o d e l and the CuraScript acquisition: As we close the books on 2003, we believe we are well-positioned fo r 2004 and beyond," stated Barrett Toan, chairman and chief e x e c u tiv e officer. "Our business model, which aligns our interests w ith those of our clients and members in making prescription drugs m o r e affordable, differentiates us in the marketplace and contributed to strong new sales. . . . T h e recent addition of CuraScript to the Express Scripts' family e n h a n c e s our competitive positioning by increasing our ability to p ro v id e comprehensive clinical services for many diseases and im p ro v in g the quality and affordability of specialty drug therapy for c lie n ts and patients, allowing us to offer our clients a cost-effective, s in g le - s o u r c e solution for drugs. C o m m e n tin g on Express Scripts' FY04 earnings outlook, defendants s ta te d : E x p re s s Scripts expects that its 2004 diluted earnings per share will in c re a s e 20 percent to 25 percent over 2003, excluding charges we e x p e c t to incur in 2004 that are associated with the early retirement o f debt. The Company's financial performance will benefit from in c r e a s e d mail and generic utilization, improved formulary c o m p lia n c e with preferred, lower-cost brands, increased productivity, g ro w th in its specialty PBM offering, capital structure improvements a n d higher membership. E x p r e s s Scripts experienced strong sales for 2004 business, and the n e t new business will begin during the second quarter with the a d d itio n of some large accounts including the TRICARE Retail P h a rm a cy program discussed below. Due to the fact that im p le m e n ta tio n dates for much of this new business will occur after th e first quarter of 2004, but some of the corresponding
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im p le m e n ta tio n costs will be incurred in the first quarter, the C o m p a n y expects that first quarter 2004 diluted earnings per share w ill be in the $0.87 to $0.89 range. Earnings per diluted share g ro w th for the remaining quarters of 2004 is expected to accelerate to a ch ie v e the 20 percent to 25 percent growth for the year as discussed above. W ith respect to Express Scripts' stock repurchase program, d e fe n d a n ts further stated that "[d]uring the fourth quarter, the C o m p a n y repurchased 1.1 million shares of common stock for $ 6 4 .0 million, and to date, Express Scripts has repurchased 8.1 m illio n shares under its 10 million share repurchase program." F o llo w in g the release of the Company's 4th Q FY03 and year-end F Y 0 3 earnings press release, securities analysts issued reports on E x p r e s s Scripts which were based on and repeated the false in fo rm a tio n provided by Express Scripts' senior management to th e m . For example, on February 25, 2004, Wachovia Securities is s u e d a report written by Eric Veiel in which it recommended the p u rc h a s e of Express Scripts stock following a conference call with m a n a g e m e n t. In its report, Wachovia assigned Express Scripts its h ig h e s t investment rating of "Outperfom" based largely upon d e fe n d a n ts ' representations that the Company was profitably e x e c u tin g its business model: E S R X : Upgrading To Outperform, Raising Estimates * * *

K e y Points * 4Q03 RESULTS IMPROVED OVER 3Q AND 2Q. The company p o s te d 4Q03 EPS of $0.86, one cent above our estimate and c o n s e n s u s . Higher gross profit was offset by higher than expected SG & A. * STRONG MAIL VOLUMES. Mail-order claims were 8.6 million, 5 % better than expected and 21% growth over 4Q02. Adjusted claims v o lu m e was 5% higher than in 4Q02. * PERFORMANCE TO IMPROVE IN 2004. We believe that the n e w TRICARE retail contract and the addition of BCBS of Louisiana
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c o m b in e d with the acquisition of CuraScript will drive improvements in 2004 performance, especially in the second h a lf of the year. * WE HAVE UPGRADED SHARES OF ESRX TO O U T P E R F O R M . We base our upgrade on an improved outlook for m a il order growth, lower volatility in quarterly EPS due to improved g u id a n c e , easier comps thanks to anniversary of manufacturer a g re e m e n t reductions, and the addition of CuraScript. * RAISED 2004 AND 2005 ESTIMATES. We raised our 2004 EPS e s tim a te to $3.95 from $3.86 and raised our 2005 EPS estimate to $ 4 .6 5 from $4.52. S im ila r ly , after discussions with defendants, Southwest Securities, I n c ., on February 25, 2004, recommended the purchase of Express S c r ip ts stock as a "Strong Buy," based largely upon the Company's re p re s e n ta tio n that it business enjoyed strong demand and rapid g ro w th . T h e report written, by Anne Barlow, stated: E S R X REPORTS 4Q03 RESULTS; REITERATING STRONG BUY R A T IN G * * * E S R X reported 4Q03 EPS of $0.86, beating the consensus estimate o f $0.85 and our estimate of $0.84. During the quarter the company s a w strong mail script growth and improved upon its industry-leading g e n e ric utilization rate (generic scripts currently represent 48% of the c o m p a n y 's total script volume). The company reiterated its D e c e m b e r 2003 guidance of an EPS growth rate of 20%-25%. . . . * * * W e are reiterating our STRONG BUY rating and $79 price target, b a s ed on 20x our FY04 estimate of $3.91. Reasons to buy the shares in c lu d e : Attractive Relative Value: We believe ESRX stock continues to re p re s e n t a relative value at its current level. Even after a strong p e rfo rm a n c e today, the stock is trading at approximately 18x our F Y 0 4 estimate of $3.91, a significant 20% discount to its peers.

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R e v e n u e Visibility and Client Retention: For FY05, none of the c o m p a n y 's top ten clients are up for contract renewal. Only eight of th e next 25 largest clients, representing less than 3% of gross profit, a r e up for contract renewal in FY05, making FY05 revenues very v is ib le at this time. L ik e w is e , on February 26, 2004, First Analysis Securities Corp. is s u e d an report on Express Scripts in which it assigned Express S c rip ts common stock its highest investment rating of "Overweight": W e maintain our overweight rating on Express Scripts due to strong Q 4 claims volume and gross profitability, coupled with excellent re te n tio n prospects for 2004 and 2005. In our view, there is upside to E x p re ss Scripts' 2004 earnings guidance and our estimates, based p rim a rily on continued improvements in generic and mail conversion ra te s, the latter of which grew by 276 basis points year-over-year in Q4. . . . Accordingly, we continue to believe Express Scripts re m a in s attractive at its current price, which is approximately 14.8x o u r 2005 ESP estimate of $4.81. . . . On February 25, 2004, Express Scripts filed its 2003 Report on Form 1 0 -K with the SEC, for the period ending December 31, 2003, c o n ta in in g the information released to the market in the February 24, 2 0 0 4 press release. The Form 10-K signed by defendants Paz, Toan, W a ltm a n , Weinrich and Zachary was also certified by defendants T o a n and Paz under §§302 and 906 of the Sarbanes-Oxley Act of 2 0 0 2 . The auditors' report integrated into Express Scripts' Form 10K also represented that the financial information contained in the re p o rt complied with GAAP, stating: In our opinion, the consolidated financial statements listed in the in d e x appearing under Item 15(a)(1) present fairly, in all material re s p e c ts , the financial position of Express Scripts, Inc. and its s u b s id ia rie s at December 31, 2003 and 2002, and the results of their o p e ra tio n s and their cash flows for each of the three years in the p e rio d ended December 31, 2003 in conformity with accounting p r in c ip le s generally accepted in the United States of America. In a d d itio n , in our opinion, the financial statement schedule listed in the
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in d e x appearing under Item 15(a)(2) presents fairly, in all material re s p e c ts , the information set forth therein when read in conjunction w ith the related consolidated financial statements. W ith respect to Express Scripts' business practices and compliance w ith the federal and state healthcare and related laws governing the C o m p a n y 's business, defendants stated: M a n y aspects of our businesses are regulated by federal and state la w s and regulations. Since sanctions may be imposed for violations o f these laws, compliance is a significant operational requirement. W e believe we are operating our business in substantial compliance w ith all existing legal requirements material to the operation of our b u s in e s s e s . . . . * * * * * * * * * *

O n March 5, 2004, defendants attended the Lehman Brothers Seventh A n n u a l Healthcare Conference. During the conference held at the L o e w s Hotel in Miami Beach, Florida, Express Scripts gave a very s tro n g and upbeat presentation on the Company's business and p ro je c te d FY04 earnings growth of 20% to 25%, or approximately $ 3 .1 4 -$ 3 .1 6 per share. Following the conference, and based on c o n v e rs a tio n s with defendants, securities analysts and members of th e financial press wrote positive reports on Express Scripts. For e x a m p le , on March 5, 2004, DowJones Newswire reported: T h e engines that will drive Express Scripts, Inc.'s (ESRX) top and b o tto m lines this year include new clients and increased use of g e n e ric drugs, the company's vice president of investor relations said. S p e a k in g Friday at the Lehman Brothers Global Healthcare C o n f e re n c e in South Beach, Fla., which was Webcast, David Myers re ite ra te d that the pharmacy benefits manager also expects the in c re as ed use of mail to fill prescription orders, increased p ro d u c tiv ity , capital structure improvements and other factors will a ls o give a boost to revenue and earnings.

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T h o s e factors will help Express Scripts have earnings in 2004 that are 2 0 % to 25% higher than last year, excluding charges from the early re tire m e n t of debt, Myers reiterated. O n April 28, 2004, Express Scripts announced its 1st Q FY04 results, e n d e d March 31, 2004, reporting a 20% in net income to $70 million, o r $.89 per share, on a 13% increase in revenues to $3.6 billion. E x p r e s s Scripts' mail pharmacy prescriptions also increased 25% to a " r e c o r d " 9.3 million during the 1st Q FY04. In the Company's e a rn in g s release, defendant Toan, with the approval of the remaining d e fe n d a n ts , attributed the Company's strong results to the success of its business model and aggressive use of generic drugs and mail order p r e s c rip tio n s : " W e are pleased by our strong start in 2004, and our outlook for the f u t u r e ," stated Barrett Toan, chairman and chief executive officer. " T h e record level of mail and generic utilization this quarter d e m o n s tra te s the increased demand for our PBM tools, which help c lie n ts reduce their drug trend. Members covered by step therapy p ro g ra m s have more than doubled from last year to over 10 million, a n d clients implementing these programs experience, on average, a tw o percent increase in generic utilization. Our business model aligns o u r interests with our clients and members, and we benefit when our m e m b e rs use more generics, choose preferred lower-cost brand drugs a n d take advantage of our cost-effective mail services." C o m m e n tin g on Express Scripts' FY04 earnings outlook, defendants s ta te d : T h e Company believes its financial performance will continue to b e n e fit from increased membership, growth in mail and retail p re s c rip tio n s beginning in the second quarter, further increases in g e n e ric utilization, improved formulary compliance with preferred, lo w e r-c o s t brands, growth in its specialty PBM offering, increased p r o d u c tiv ity , and capital structure improvements. Based on these s tro n g fundamentals, Express Scripts believes that its 2004 diluted e a rn in g s per share will increase 20 percent to 25 percent over 2003, e x c lu d in g charges the Company incurred in the first quarter and a n tic ip a te s incurring in the second quarter for the early retirement of
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d e b t, and the termination payment discussed above. F o llo w in g the release of the Company's 1st Q FY04 earnings press re le as e, securities analysts issued reports on Express Scripts which w e re based on and repeated the false information provided by E x p re s s Scripts' senior management to them. For example, on April 2 8 , 2004, Wachovia Securities issued a report written by Eric Veiel in which it recommended the purchase of Express Scripts stock. In its re p o rt, Wachovia rated Express Scripts common stock "Outperform" b a s e d largely upon defendants' representations that the Company's e a rn in g s growth would accelerate during the second half of FY04: * WE HAVE MAINTAINED 2004 AND 2005 EPS ESTIMATES. E x p re s s Scripts reiterated its 2004 EPS guidance for 20-25% growth o v e r 2003. V a lu a tio n Range: $79 to $88 W e believe that Express Scripts shares could trade in the range of $ 7 9 -8 8 over the next 6-12 months, based on a 17-19x multiple of our 2 0 0 5 EPS estimate of $4.65. This compares to the company's three y e a r average forward P/E multiple of 19.5x and the PBM industry a v e ra g e of 19.6x. The shares currently trade at a discount to both one y e a r and three year averages. Primary risks to our valuation are c o n tin u e d government scrutiny and litigation, and the threat of in c re a s e d competition in the PBM industry. * * * W e continue to believe that ESRX's 2004 EPS growth will accelerate in the second half of the year as the company realizes benefits from th e TRICARE retail business, the BlueCross and Blue Shield of L o u is ia n a contract, and from the CuraScript's acquisition. A d d itio n a lly , we believe that ESRX could see some benefit in H2 2 0 0 4 from the Medicare discount drug card although our expectations a re relatively modest. Additionally, we believe that ESRX has good v is ib ility on 2005 earnings because none of its top 25 accounts re n e w s in 2004 or January 2005, and only 8 of its top 50 accounts re n e w between now and January 1, 2005.
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W e have raised our valuation range to a range of $79-88 from $7484. . . . S im ila r ly , after discussions with defendants, Southwest Securities, In c . recommended the purchase of Express Scripts stock with a " S tro n g Buy" rating, based largely upon defendants' representation th a t Express Scripts enjoyed strong revenue growth. The report, w ritte n by Anne Barlow, stated: E S R X reported 1Q04 EPS of $0.89 (including a $0.04 gain in c o n ju n c tio n with an early termination fee and a $0.03 charge due to th e refinancing of the company's credit facility). Excluding the gain a n d the charge, the results were in line with the consensus estimate a n d our estimate of $0.88. Revenues for 1Q04 were $3.6 billion. Mail p r es crip tio n s grew to 9.3 million, an impressive 25% increase over la s t year. Additionally, the generic utilization rate grew to 49%. We b e lie v e that the increase in branded mail volume put some pressure o n the gross profit margin, however gross profit per script was still u p at $1.82 versus last year's $1.75. The company produced cash flo w s from operations of $97.8 million. ESRX reiterated its g u id a n c e of EPS growth of 20%-25% over FY03. . . . We are re ite ra tin g our Strong Buy rating. . . . L ik e w is e , following Express Scripts' 1st Q FY04 earnings a n n o u n c em e n t, First Analysis Securities Corp. issued a report written b y Grant Jackson and raised its price target for Express Scripts from $ 8 0 .0 0 per share to $84.00 per share based on the Company's strong p ro s p e c ts for future earnings growth. In the report, First Analysis S e cu ritie s Corp., after discussions with defendants, stated: E S R X : In-line Q1 helped by strong mail growth; maintain o v e rw e ig h t * * * * Raising price target to $84 from $80 based on strong earnings v is ib ility into 2005 with no top-25 clients up for renewal. Valuation m o d e s t at less than 18x our 2005 EPS estimate, approximately in line w ith our five-year growth expectations.
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* * * W e maintain our overweight rating on Express Scripts after the c o m p a n y reported an in-line first quarter with EPS (ex-charges) of $ 0 .8 8 . We believe the company has strong earnings visibility into 2 0 0 4 and 2005, considering no top-25 clients are up for renewal for J a n u a r y 2005 and the company has always maintained strong cost d is c ip li n e . . . . * * * * Management reported that the CuraScript (specialty) acquisition h a s gone faster and better than hoped, and instead of expecting u p s id e in 2005, the company now believes upside in earnings from C u ra S c rip t is possible in 2004 due to significant interest from e x is tin g clients. O n April 28, 2004, Express Scripts filed its 1st Q FY04 Report on F o r m 10-Q with the SEC, containing the information released to the m a r k e t in the April 28, 2004 press release. The Form 10-Q report s ig n e d by defendants Toan and Stiften was also certified by d e f e n d a n ts Toan and Stiften under §§302 and 906 of the SarbanesO x le y Act of 2002. With respect to Express Scripts' 1st Q FY04 fin a n c ia l statements, defendants represented: W e believe the accompanying unaudited consolidated financial s ta te m e n ts reflect all adjustments (consisting of only normal re cu r rin g adjustments) necessary to present fairly the Unaudited C o n s o lid a te d Balance Sheet at March 31, 2004, the Unaudited C o n s o lid a te d Statements of Operations for the three months ended M a rc h 31, 2004 and 2003, the Unaudited Consolidated Statement of C h a n g e s in Stockholders' Equity for the three months ended March 3 1 , 2004, and the Unaudited Consolidated Statements of Cash Flows fo r the three months ended March 31, 2004 and 2003. W ith respect to Express Scripts business practices and compliance w ith the federal and state healthcare laws governing the Company's b u s in e s s , as well as ongoing governmental investigations into the P B M industry, defendants continued to reassure investors that they w e re conducting Express Scripts' business in a lawful manner: "We
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b e lie v e that our services and business practices are in compliance w ith all applicable laws, rules and regulations in all material respects, a n d we will cooperate fully with the government in these in v e s ti g a ti o n s ." * * * * * * * * * *

O n July 28, 2004, Express Scripts announced its 2nd Q FY04 results, e n d e d June 30, 2004, reporting a 9% in net income to $65.4 million, o r $0.83, on a 13% increase in revenues to $3.8 billion. Express S c rip ts ' cash flow from operations also increased 52% to $55.5 m illio n . In the Company's earnings release, defendant Toan, with the a p p r o v a l of the remaining defendants, attributed the Company's s tr o n g results to the success of its business model, the aggressive use o f generic drugs and mail order prescriptions: " O u r results for the quarter reflect outstanding efforts throughout our o rg a n iz a tio n ," stated Barrett Toan, chairman and chief executive o f fic e r . "We implemented a significant amount of new business, in c lu d in g the TRICARE program, launched the Pharmacy Care A llia n c e ("PCA") Medicare discount card, and achieved record levels o f mail and generic utilization. The increased utilization o f generics and mail pharmacy services, including specialty in je c ta b le s , reflects the trend for greater management of the p h a rm a c y benefit, which will translate into lower costs for our clients a n d improved profitability for Express Scripts." C o m m e n tin g on Express Scripts' FY04 earnings, defendants stated: T h e Company believes its financial performance will continue to b e n e fit from increased membership, growth in mail and retail p r es crip tio n s , further increases in generic utilization, improved fo rm u la ry compliance with preferred, lower-cost brands, growth in its specialty PBM offering, increased productivity, and capital s tr u c t u r e improvements. B a s e d on current circumstances, Express Scripts believes that its 2 0 0 4 diluted earnings per share will increase in the lower half of the
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2 0 percent to 25 percent range over 2003, excluding non-recurring ite m s . The non-recurring items on a diluted per share basis include $ 0 .1 3 for charges the Company incurred in the first half of 2004 for th e early retirement of debt, and $0.04 for the termination payment th e Company received in the first quarter. In addition, the guidance e x c lu d e s the effect of increasing legal reserves expected to occur in th e third quarter. W ith respect to Express Scripts' stock repurchase program, d e fe n d a n ts further stated that during the quarter "the Company re p u rc h a s e d 554,000 shares of common stock for $42.3 million." D e f e n d a n ts further stated that "[o]n On July 27, 2004, the Company's B o a r d of Directors increased the authorized share repurchase p ro g ra m to permit the Company to purchase up to an additional 5.2 million shares." P la in tiffs further allege that Defendants, in discussing the 2nd Q FY04 re s u lts , also stated that the Company had received a Notice of Proposed Litigation fr o m the Office of the Attorney General for the State of New York and a Civil In v e stig a tiv e Demand from the Attorney General of the State of Vermont. Defendants reiterated the belief that Express Scripts believed its services and b u s in e s s practices were in compliance with all applicable laws, rules and re g u la tio n s . Defendants also announced it was evaluating the adequacy of legal re s e rv e s and expected to increase the reserves in the third quarter for the costs of d e fe n s e. The 2nd Q FY04 Report on Form 10-Q was filed with the SEC contained th is information. Express Scripts stock fell from $71.85 per share on July 28, 2004 to $65.36

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p e r share on July 29, 2004. O n August 4, 2004, the Attorney General for the State of New York filed a la w s u it against Express Scripts, alleging that the Company had improperly w ith h e ld rebates that should have been paid to the state of New York and m a n ip u la te d its prescription pricing schemes to New York's detriment in breach of its duties. Plaintiffs allege Defendants caused Express Scripts to issue a statement denying the allegations in the lawsuit and its intention to vigorously defend the a ctio n . By the close of trading on August 4, 2004, Express Scripts stock had d e c lin e d another 2%, falling from $63.85 per share on August 3, 2004, to $62.48 p e r share on August 4, 2004. P la in tiffs further allege that during the Class Period, Defendants caused E x p r e s s Scripts to violate GAAP and SEC rules by its failure to timely reserve for a known loss contingency and by its failure to provide full and adequate d is c lo s u re s concerning the "improper practices designed to improperly inflate its r e v e n u e s ..." The Complaint alleges the same allegations of a series of deceptive schemes d e s ig n e d to improperly inflate Express Scripts' revenues as the New York law suit: im p ro p e rly increasing the cost of prescription drugs to certain health plans by o f fe r in g pharmacies a higher-than-warranted price for drugs whose entire cost

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c o u ld be passed onto a client in exchange for a lower-than-warranted price for d ru g s where Express Scripts had guaranteed a certain price with its client and c o u ld retain any savings if it purchased the drugs for less; misappropriating rebates p a id by manufacturers that belonged to its clients by disguising them as special f e e s ; inducing physicians to switch their patients' prescription to drugs whose m a n u fa c tu re rs paid Express Scripts for the favor; selling and licensing data b e lo n g in g to its clients without proper authorization to third parties. Plaintiffs c la im Express Scripts did not establish legal reserves for the liabilities arising th e r e f r o m . Plaintiffs also allege Express Scripts did not disclose the alleged improper p r a c tic e s during the Class Period in violation of GAAP, and did not fully disclose th e serious nature of the threatened lawsuits and investigations due to the alleged im p r o p e r practices in violation of GAAP. Further, Plaintiffs claim that Express S c rip ts presented its financial results and statements which violated GAAP. Plaintiffs allege Defendants had access to, and used Express Scripts files and c o m p u te r systems to monitor the allegedly improper practices and all the while m a k in g false positive statements about Express Scripts' new business model, a g g r es siv e use of generic and low-cost brand name drugs and mail order p re s c rip tio n services, which Defendants said increased profitability.

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P la in tiffs allege that Defendants engaged in a scheme to deceive the market a n d a course of conduct that artificially inflated Express Scripts' stock price and o p e rate d as a fraud or deceit on Class Period purchasers by misrepresenting the C o m p a n y 's financial results, business success and future business prospects. According to the Complaint, Defendants achieved this by blatantly misrepresenting th e Company's compliance with the applicable laws and falsifying the Company's fin a n c ia l statements. Plaintiffs claim that when the prior misrepresentations and fr a u d u le n t conduct were disclosed and became apparent, Express Scripts' stock fell p r ec ip ito u s ly as the prior artificial inflation came out of Express Scripts' stock p r ic e. Plaintiffs claim they were damaged as a result of these alleged m is re p re s e n ta tio n s and fraudulent conduct. D is c u s sio n Section 10(b) and Rule 10b-5 prohibit fraudulent conduct in the sale and p u rc h a s e of securities. See 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5. McAdams v. M c C o r d 584 F.3d 1111, 1113 (8th Cir. 2009). Claims require (1) a material m is r e p r e s e n ta tio n or omission, (2) scienter, i.e., a wrongful state of mind, (3) a c o n n e c tio n with the purchase or sale of a security, (4) reliance, (5) economic loss, a n d (6) loss causation. Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 341-42 (2005); H o r iz o n Asset Mgmt. Inc. v. H&R Block, Inc., 580 F.3d 755, 760 (8th Cir. 2009)

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( c ita tio n s omitted). "As a check against abusive litigation by private parties, C o n g re s s enacted the [PSLRA]. Exacting pleading requirements are among the c o n tro l measures Congress included in the PSLRA." Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (internal citation omitted). The PSLRA h e ig h te n s the Federal Rule of Civil Procedure 12(b)(6) standard in two important w a y s . First, the PSLRA provides that to survive a motion to dismiss, the complaint m u s t "specify each statement alleged to have been misleading, the reason or re a s o n s why the statement is misleading, and, if an allegation regarding the s ta te m e n t or omission is made on information and belief, the complaint shall state w ith particularity all facts on which that belief is formed." 15 U.S.C. § 78u-4(b)(1). Second, the complaint must, "with respect to each act or omission alleged to v io la te this chapter, state with particularity facts giving rise to a strong inference th a t the defendant acted with the required state of mind." 15 U.S.C. § 78u-4(b)(2). In re Hutchinson Technology, Inc. Securities Litigation 536 F.3d 952, 961 (8th Cir. 2008). U n d e r the PSLRA and Federal Rule 9(b), a complaint must state with p a rtic u la rity the circumstances of the alleged fraudulent statement. In re K-tel Sec. L itig ., 300 F.3d 881, 890 (8th Cir. 2002). The complaint must also "state `with p a rtic u la rity ' facts giving rise to a `strong inference' that the defendant acted with

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th e scienter required for the cause of action." Florida State Bd. of Admin. v. Green T r ee Fin. Corp., 270 F.3d 645, 654 (8th Cir.2001), quoting 15 U.S.C. § 78u4 (b )(2 ). The PSLRA requires plaintiffs "to specify each misleading statement or o m is sio n and specify why the statement or omission was misleading." Kushner v. B e ve rly Enters, Inc., 317 F.3d 820, 826 (8th Cir. 2003)(citing 15 U.S.C. § 78u4 (b )(1 )). The complaint must also "state with particularity facts giving rise to a s tro n g inference that the defendant acted with the required state of mind." 15 U .S .C . § 78-4(b)(2); see also Kushner, 317 F.3d at 826 (citation omitted). In e v a lu a tin g this information, the PSLRA requires the Court to consider plausible o p p o s in g inferences. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. at 310 (2 0 0 7 ). Finally, the Court must "disregard `catch-all' or `blanket' assertions that d o not live up to the particularity requirements." Kushner, 317 F.3d at 824 (q u o tin g Fla. State Bd. of Admin. v. Green Tree Fin. Corp., 270 F.3d 645, 660 (8th C ir . 2001)). This complaint contains numerous allegedly fraudulent statements by the e x e c u tiv e s in press releases and Express Scripts' financial statements. Plaintiffs c la im these statements were misleading because the "truth was revealed" when the A tto r n e y General for the State of New York filed the lawsuit against Express S c r ip ts alleging that Express Scripts had engaged in improper behavior.

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A complaint must "provide a defendant with some indication of the loss and th e causal connection that the plaintiff has in mind." Dura, 544 U.S. at 347. To a d e q u a te ly plead loss causation, the complaint must state facts showing a causal c o n n e c tio n between Defendant's misstatements and Plaintiffs' losses. Schaaf v. R e sid e n tia l Funding Corp., 517 F.3d 544, 549 (8th Cir.2008), citing Dura, 544 U .S . at 347. Loss causation in a securities fraud case is analogous to the common la w 's requirement of proximate causation. Schaaf, 517 F.3d at 550. Plaintiffs m u s t show "that the loss was foreseeable and that the loss was caused by the m a te r ia liz a tio n of the concealed risk." Id. (emphasis added)(citation omitted). T h e Complaint alleges that during the Class Period, Defendants c o n tin u o u s ly asserted that the Company's new business model was successful and th a t the Company's interest were aligned with its clients. Plaintiffs' allege that th e s e statements were misleading when made because Defendants were engaging in the improper practices alleged in the New York suit. The Complaint alleges th a t as a result of the improper practices that were "clarified" and details of which w e r e first learned through the New York suit, Plaintiffs have been damaged. These c o n c lu s o ry statements do not sufficiently allege loss causation. Plaintiffs have c o m p le te ly failed to state any facts which establish that Defendants' statements w e re not truthful. Plaintiffs presume the truth of the allegations contained in the

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N e w York suit, but fail to present any materialization of the fraudulent behavior u p o n which they rely. Plaintiffs do not contend that Defendants concealed the facts of the in v e s tig a tio n , (nor could they, in that it is clearly established that Defendants d is c lo s e d the investigations and the notice of proposed litigation), rather, Plaintiffs re ly solely on the truth of the allegations in the New York suit to state their claim. T h e complaint states that the truth about Defendants' scheme was revealed on A u g u s t 4, 2004, when the Attorney General filed suit, thereby establishing that D e fe n d a n ts ' statements must have been false when made, however, Plaintiffs fail to plead any facts that those statements were not true. Defendants continued to d e n y any allegation of misconduct and Plaintiffs have not plead any facts which e sta b lis h the truth of the allegations. In essence, Plaintiffs have put the proverbial c a rt before the horse. The Complaint also alleges that Plaintiffs suffered damages because they p u rc h as e d stock at "artificially inflated prices." This allegation is insufficient u n d e r Dura. Specifically, a stock's subsequent loss in value can reflect a variety of fa c to rs other than the earlier misstatement. Dura, 544 U.S. at 342-43 ("When the p u rc h a se r subsequently resells such shares, even at a lower price, that lower price m a y reflect, not the earlier misrepresentation, but changed economic

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c irc u m s ta n c e s , changed investor expectations, new industry-specific or firms p e cific facts, conditions, or other events, which taken separately or together a c c o u n t for some or all of that lower price."); Schaaf, 517 F.3d at 550. Quite p o s s ib ly , the fact of the investigation and the market's reaction to that information c o u ld have caused the drop in the value of the stock, but Plaintiffs do not contend th a t Defendants' statements were untrue because the investigations were occurring; th e y allege that the statements were misleading because of the "schemes to d e f ra u d " and that Defendants omitted to disclose their scheme. "In order to satisfy th e Reform Act's falsity pleading standard, a complaint may not rest on mere a lle g a tio n s that fraud has occurred. Chen v. Navarre Corp. ( In re Navarre Corp. S e c . Litig.), 299 F.3d 735, 742 (8th Cir.2002). Instead, the complaint must indicate w h y the alleged misstatements `would have been false or misleading at the several p o in ts in time in which it is alleged they were made.' Id. at 743. In other words, th e complaint's facts must necessarily show that the defendants' statements were m is le a d in g . Fields, 390 F.3d at 549 (Wollman, J., concurring)." In re Cerner C o r p . Securities Litigation, 425 F.3d 1079, 1083 (8th Cir. 2005). See McAdams 5 8 4 F.3d at 1113-1115. P la in tiff s cannot pursue a Section 20(a) claim because a Section 20(a) claim is derivative of their claims under Section 10(b). Accordingly, the dismissal of

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th e ir 10(b) claims are fatal to their Section 20 claim. In re Hutchinson Technology, In c . Securities Litigation 536 F.3d at 961. Conclusion P la in tiff s have failed to satisfy the pleading requirements to state a claim u n d e r the PSLRA. Their claims are therefore dismissed. Because they fail to state a Section 10(b) claim, their Section 20(a) claims are likewise dismissed.

Accordingly, I T IS HEREBY ORDERED that Defendants' Motion to Dismiss Plaintiffs' Consolidated Securities Complaint, [Doc. No. 44], is granted. IT IS FURTHER ORDERED that this matter is dismissed. Dated this 30th day of June, 2010.

________________________________ HENRY EDWARD AUTREY UNITED STATES DISTRICT JUDGE

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