LITE DEPALMA GREENBERG & RIVAS, LLC Allyn Z. Lite Joseph J ...securities.stanford.edu/filings-documents/1023/... · Case 2:02-cv-00211-GEB-CCC Document 50-1 Filed 10/21/2005 Page

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LITE DEPALMA GREENBERG & RIVAS, LLC Allyn Z. Lite Joseph J. DePalma Susan D. Pontoriero Two Gateway Center, 12th Floor Newark, New Jersey 07102-5585 (973) 623-3000 Plaintiffs’ Local Counsel MILBERG WEISS BERSHAD & SCHULMAN LLP Lee A. Weiss Sharon M. Lee One Pennsylvania Plaza New York, New York 10119-0165 (212) 594-5300 BERGER & MONTAGUE, P.C. Sherrie R. Savett Carole A. Broderick Gary E. Cantor 1622 Locust Street Philadelphia, PA 19103 (215) 875-3000 Plaintiffs’ Co-Lead Counsel

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY

DOCUMENT ELECTRONICALLY FILED In re PDI Securities Litigation

X : : : : X

Master File No. 02- CV- 0211

THIRD CONSOLIDATED AND AMENDED CLASS ACTION COMPLAINT AND JURY DEMAND

Lead Plaintiffs, by their undersigned attorneys, on behalf of themselves and the Class

they seek to represent, for their Third Consolidated and Amended Class Action Complaint, make

the following allegations against defendants based upon a detailed investigation conducted by

Case 2:02-cv-00211-GEB-CCC Document 50-1 Filed 10/21/2005 Page 1 of 52

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and under the supervision of Lead Counsel, which has included, among other things, a review of

(i) United States Securities and Exchange Commission (“SEC”) filings by PDI, Inc. (“PDI” or

the “Company”); (ii) published reports and media reports about the Company; (iii) press releases,

and other public statements issued by defendants; and (iv) interviews of former PDI employees.

Except as alleged herein, underlying information relating to defendants’ misconduct and the

particulars thereof is not available to Lead Plaintiffs and the public and lies within the possession

and control of defendants, thus preventing Lead Plaintiffs from further detailing defendants’

misconduct at this time. Lead Plaintiffs believe that substantial additional evidentiary support

will exist for the allegations set forth herein after a reasonable opportunity for discovery.

NATURE OF THE ACTION

1. This is a securities class action brought on behalf a class (the “Class”) consisting

of all persons who purchased or otherwise acquired the common stock of PDI between May 22,

2001 and August 12, 2002, inclusive (the “Class Period”), who were damaged thereby, seeking

to recover damages for violations of the Securities Exchange Act of 1934 (the “Exchange Act”).

JURISDICTION AND VENUE

2. This Court has jurisdiction over the subject matter of this action pursuant to § 27

of the Exchange Act, 15 U.S.C. § 78aa, 28 U.S.C. §§ 1331 and 1337, and 28 U.S.C. § 1367. The

claims asserted herein arise under, Sections 10(b) and 20(a) of the Exchange Act, 15 U.S.C.

§§78j(b), 78(n), and 78t(a) and Rule 10b-5, 17 C.F.R. §240.10-b-5, promulgated thereunder by

the SEC.

3. Venue is proper in this District pursuant to § 27 of the Exchange Act, 15 U.S.C.

§78aa, and 28 U.S.C. § 1391(b) and (c). Many of the acts and transactions giving rise to the


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violations of law alleged herein, including the preparation and dissemination to the public of

materially false and misleading information, occurred in this District.

4. PDI maintains its chief executive offices and principal place of business within

this District.

5. In connection with the wrongs alleged herein, defendants used the

instrumentalities of interstate commerce, including, but not limited to, the United States mails,

interstate telephone communications, and the facilities of the national securities markets.

PARTIES

6. Lead Plaintiffs Gary Kessel, Rita Lesser and Lewis Lesser purchased PDI

common stock at artificially inflated prices during the Class Period, as set forth in Schedule A

attached as Exhibit A to the accompanying Certification of Joseph J. DePalma, dated October 21,

2005 (“DePalma Cert.”), and have been damaged thereby.

7. PDI is a Delaware corporation with its principal executive offices located at 10

Mountainview Road, Upper Saddle River, New Jersey. PDI provides customized sales and

marketing services to the pharmaceutical industry.

8. Defendant Charles T. Saldarini (“Saldarini”) was, during the Class Period, the

Chief Executive Officer and Vice Chairman of the Board of Directors of PDI.

9. Defendant Bernard C. Boyle (“Boyle”) was, during the Class Period, the Chief

Financial Officer and Executive Vice President of PDI.

10. Defendants Saldarini and Boyle are sometimes referred to herein collectively as

the “Individual Defendants.”

11. As officers and controlling persons of a publicly-held company whose common

stock was, and is, registered with the SEC pursuant to the Exchange Act, and was traded on the


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Nasdaq National Market, and governed by the provisions of the federal securities laws, the

Individual Defendants each had a duty to disseminate promptly, accurate and truthful

information with respect to the Company’s performance, operations, business, products,

management, present and future business prospects, and to correct any previously-issued

statements that had become materially misleading or untrue, so that the market price of the

Company’s publicly-traded securities would be based upon truthful and accurate information.

The Individual Defendants’ misrepresentations and omissions during the Class Period violated

these specific requirements and obligations.

12. The Individual Defendants, because of their positions of control and authority as

officers and/or directors of the Company, were able to and did control the content of the various

SEC filings, press releases and other public statements pertaining to the Company during the

Class Period. Each Individual Defendant was provided with copies of the documents alleged

herein to be misleading prior to their issuance and/or had the ability and/or opportunity to

prevent their issuance or cause them to be corrected. Accordingly, each of the Individual

Defendants is responsible for the accuracy of the public reports and releases detailed herein and

is therefore primarily liable for the misrepresentations contained therein. The Individual

Defendants are also liable as controlling persons of the Company.

13. It is appropriate to treat the Individual Defendants as a group for pleading

purposes and to presume that the false, misleading and incomplete information conveyed in the

Company’s public filings and corporate press releases as alleged herein were the collective

actions of the narrowly defined group of Individual Defendants identified above. Each of the

above officers of PDI, by virtue of his high-level positions with the Company, directly

participated in the management of the Company and the dissemination of public statements


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regarding PDI during the Class Period, was directly involved in the day-to-day operations of the

Company at the highest levels, and was privy to confidential, proprietary information concerning

the Company and its business and operations, as alleged herein. Said defendants were directly

involved in making, drafting, producing, reviewing and/or disseminating the false and

misleading statements and information alleged herein, and were aware, or recklessly disregarded,

that the false and misleading statements were being issued regarding the Company.

14. Each of the defendants is liable as a primary violator in making false and

misleading statements, and for participating in a fraudulent scheme and course of business that

operated as a fraud or deceit on purchasers of PDI common stock during the Class Period. The

fraudulent scheme and course of business was designed to and did: (i) deceive the investing

public, including Lead Plaintiffs and other Class members; (ii) artificially inflate the price of PDI

stock during the Class Period; and (iii) cause Lead Plaintiffs and other members of the Class to

purchase PDI stock at inflated prices.

CLASS ACTION ALLEGATIONS

15. Lead Plaintiffs bring this action as a class action pursuant to Rule 23(a) and (b)(3)

of the Federal Rules of Civil Procedure on behalf of a Class who purchased the Company’s

common stock during the Class Period. Excluded from the Class are defendants, members of the

immediate family of any Individual Defendant, the affiliates and subsidiaries of the Company

and the officers and directors of the Company and its affiliates and subsidiaries, any entity in

which any excluded person has a controlling interest, and the legal affiliates, representatives,

heirs, controlling persons, successors, and assigns of any excluded person.

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

impracticable. The disposition of their claims in a class action will provide substantial benefits


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to the parties and the Court. Throughout the Class Period, PDI common shares were actively

traded on the Nasdaq National Market. Throughout the Class Period, there were approximately

14 million shares of PDI common stock issued and outstanding. While the exact number of

Class members is unknown to Lead Plaintiffs at this time and can only be ascertained through

appropriate discovery, Lead Plaintiffs believe that there are thousands of members in the

proposed Class. Record owners and other members of the Class may be identified from records

maintained by PDI or its transfer agent and may be notified of the pendency of this action by

mail, using the form of notice similar to that customarily used in securities class actions.

17. Lead Plaintiffs’ claims are typical of those of the members of the Class because

Lead Plaintiffs and other Class members sustained damages from defendants’ wrongful conduct

complained of herein.

18. Lead Plaintiffs will fairly and adequately protect the interests of the Class and

have retained counsel who are experienced in class action securities litigation. Lead Plaintiffs

have no interests that conflict with those of the Class.

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

predominate over any questions solely affecting individual Class members, in that defendants

have acted in a manner generally applicable to the entire Class. Among the questions of law and

fact common to the Class are whether:

(a) the federal securities laws were violated by defendants’ acts and omissions

as alleged herein;

(b) defendants’ publicly disseminated releases and statements during the Class

Period omitted and misrepresented material facts and whether defendants breached any duty to

convey material facts or to correct material facts previously disseminated;


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(c) members of the Class have sustained damages and, if so, what is the

appropriate measure of damages; and

(d) the market price of PDI common stock during the Class Period was

artificially inflated due to the material non-disclosures and/or misrepresentations contained

therein.

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

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

Furthermore, as the damages suffered by individual members of the Class 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. There will be no difficulty in the

management of this action as a class action.

SUBSTANTIVE ALLEGATIONS

PDI’s Contract Sales Business

21. Until October 2000, PDI’s business focuses almost entirely of what the Company

refers to as “contract sales” or “professional detailing,” which consists of providing sales

representatives to pharmaceutical manufacturers who choose to outsource selling activities for

particular drugs. This business is often referred to as “fee-for-service,” as the Company’s

revenue is principally derived from the services it provides, not the sales of the particular drug.

In its 2001 annual report, filed with the SEC on a Form 10-K, the Company describes its contract

sales business as follows:

Historically, most of our product detailing contracts were fee from services, i.e., the client pays a fee for a specified package of services. These contracts typically include operational benchmarks, such as a minimum number of sales representatives or a minimum number of calls. Also, our contracts might have a lower base fee offset by incentives we can earn. In these


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situations, we have the opportunity to earn additional fees based typically on product sales results.

22. For several years, up to and including 2000, the Company’s contract sales

business enjoyed substantial growth in revenues and earnings. However, as belatedly admitted

in a November 13, 2001 conference call by PDI’s Chief Executive Officer and Vice Chairman,

defendant Charles Saldarini, the Company knew that it was necessary to develop “additional

avenues of growth . . . beyond just contract sales” – i.e., PDI could no longer depend on contract

sales for revenue and earnings growth. In an interview with The Wall Street Transcript on or

about February 8, 2002, Saldarini stated that PDI’s business strategy has evolved to “chang[e]

the company from a pure play contract sales organization to one that will ultimately be more

reliant on products around which we control the sales and marketing.”

23. As the growth prospects for the Company’s fee-for-service contract sales business

began to decline and the Company faced the prospect of an end to its revenue and earnings

growth, PDI sought to develop alternative types of arrangements for the sales and marketing of

drugs for pharmaceutical companies.

The Ceftin Contract

24. PDI’s first non fee-for-service arrangement was in October 2000 with

GlaxoSmithKline (“GSK”). The contract with GSK gave PDI the exclusive U.S. marketing,

sales and distribution rights for Ceftin tablets and oral suspension, two different dosage forms of

the antibiotic, Cephalosporin, which had been in use for many years, for the treatment of acute

bacterial respiratory infections such as acute sinusitis, bronchitis and otitis media (acute ear

infection). Although the Company publicly stated at the time that the Ceftin contract had a five

year term, the patent for Ceftin tablets was due to expire in 2003. The Ceftin contract required

the Company to make minimum quarterly purchases of Ceftin, and provided that the agreement


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was cancelable by either party upon 120 days written notice. According to IMS Health, a

company that compiles statistical information about the pharmaceutical and healthcare industry,

Ceftin had a 10.8% share of the Cephalosporin antibiotic market at the time the Company

entered into the Ceftin contract.

25. Sales of Cephalosporin antibiotics exhibit seasonal variations, with peak use in

the fall-winter flu season. Upon execution of the contract, PDI promptly took steps to pump up

Ceftin sales and profits in the fourth quarter of 2000, by inducing drug distributors to stock up on

Ceftin, with the result that the Company reported $101 million of Ceftin revenues in that quarter.

This represented more than half of the Company’s total reported revenues for that period. Ceftin

sales also had a dramatic effect on the Company’s reported earnings for the fourth quarter of

2000, which increased to $0.77 per share, from $0.24 per share in the fourth quarter of 1999 and

$0.41 per share in the third quarter of 2000.

(i) PDI’s Inability to Lawfully Increase Ceftin’s Market Share

26. Having caused distributors to stock up on Ceftin in the fourth quarter of 2000,

PDI attempted to increase Ceftin sales and Ceftin’s market share of prescriptions for

Cephalosporin antibiotics in the first quarter of 2001 by promoting the drug for uses which had

not been approved by U.S. Food and Drug Administration (“FDA”), even though there was no

substantial evidence that the drug was effective for the unapproved uses. In that quarter, the

Company’s marketing materials and marketing strategy heavily stressed the purported efficacy

of Ceftin for drug resistant bacteria, trumpeting the claim that Ceftin was “[f]irst-line in an era of

bacterial resistance.” Also, the Company’s promotional materials made misleading comparisons

of the cost of Ceftin versus other antibiotics, urging physicians to “Save with CEFTIN.”

However, in mid-March 2001, the FDA advised the Company that these promotional materials


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violated the U.S. Food, Drug and Cosmetic Act and applicable FDA regulations, and ordered

PDI to “immediately cease distribution of the sales ads and other similar promotional materials

for Ceftin that contain the same or similar claims or presentations.”

27. Following the FDA action ordering the Company to stop distribution of the

unlawful Ceftin marketing materials, Ceftin’s share of the Cephalosporin market declined such

that by May 2001, it was 10.7% – slightly lower than Ceftin’s share of the Cephalosporin market

at the time PDI entered into the Ceftin contract, and down from 12.8% in February 2001. By

July 2001, Ceftin’s share of prescriptions for Cephalosporin had tumbled further to 8.7%, which

represented a 20% decline from the drug’s market share at the commencement of the Ceftin

contract, and a decline of more than 30% from the level attained when the unlawful marketing

materials were in use. In short, up until this point, except for the period when the Company was

engaged in unlawful promotion of Ceftin, PDI was not successful in increasing Ceftin’s share of

the Cephalosporin market. Rather, although PDI had approximately 525 sales representatives

promoting Ceftin, the drug’s share of that market actually declined over time.

28. Faced with this declining market share, in the second quarter of 2001, the

Company admittedly boosted Ceftin’s sales by announcing a price increase to take effect in the

beginning of July, which induced distributors to increase their Ceftin inventories in advance of

the price change. Indeed, by the Company’s own estimate, this tactic added $10-$15 million to

the Company’s reported Ceftin sales in the second quarter of 2001, and added $0.13-$0.20 per

share to the Company’s reported earnings. Without this addition, the Company’s reported

earnings would have been well below market expectations. Moreover, the excess distributor

inventory resulting from this action would have to be worked off in the third quarter of the year,


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depressing Ceftin sales in that quarter, which the Company acknowledged by projecting a $0.20

reduction in third quarter earnings due to the shift in Ceftin sales to the second quarter.

(ii) The Ceftin Patent Litigation

29. PDI entered into the Ceftin contract eighteen months after Ranbaxy

Pharmaceuticals, Inc. (“Ranbaxy”) had applied to the FDA for marketing approval for a generic

version of Ceftin. Although the Ranbaxy version of Ceftin included an ingredient which was

specifically excluded from the patent description of Ceftin, GSK brought an action seeking to

enjoin Ranbaxy from marketing its generic version of Ceftin on the grounds that it infringed

GSK’s Ceftin patent. An injunction was entered and Ranbaxy appealed to the Federal Circuit.

30. In August 2001, the Federal Circuit reversed the decision of the lower court,

holding that Ranbaxy’s generic version of Ceftin did not infringe the Ceftin patent. As

defendants acknowledged, this meant that generic competition for Ceftin would occur in the near

future. At this time, defendants conceded the obvious, that this decision would reduce the

profitability of the Ceftin contract. However, they assured investors that reduced profits were the

“worst-case scenario” for the Ceftin contract, because the projections were based upon the first

launch of a generic form of Ceftin on October 1, 2001, and the Company could avoid losses by

terminating the contract. In addition to the October 1, 2001 date being extremely aggressive

(indeed, no generic form of Ceftin was ever introduced in 2001) the representation concerning

contract termination was false, as defendants knew that termination of the Ceftin contract would

cost the Company millions of dollars in write-offs of capitalized contract acquisition costs,

continued liability for sales returns and the costs of administering Medicaid rebates, and

significant costs related to the retention of hundreds of sales and marketing personnel whose

assignment ended with the termination of the Ceftin contract. PDI deemed the retention of those


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and its other marketing employees to be extremely important because the availability of an

experienced and qualified sales force that could be immediately deployed to sell a

pharmaceutical company’s products was critical to PDI’s ability to obtain new contracts. In fact,

PDI routinely retained sales personnel for at least several months after the contract for which

they were engaged had ended. Defendants did not publicly disclose the fact that PDI would

incur these costs if the Company terminated the Ceftin contract until November 13, 2001. After

this announcement, PDI retained Ceftin sales personnel and placed them in an “unassigned” pool

until at least April 2002.

31. A former division manager who worked on the Ceftin contract confirmed that it

was common to keep supervisors on the payroll after a contract had ended in order to retain

quality personnel. According to this former employee, PDI retained him and several other

managers after defendants terminated the Ceftin contract in or about November 2001, and placed

them in an unassigned pool until approximately April 2002.

32. Defendants knew all of the expenses for which PDI was contractually responsible

in the event of early termination of the Ceftin contract, including capitalized contract acquisition

costs, sales returns and administration of Medicaid rebates. Despite this knowledge, as discussed

below, even after Ceftin lost its patent action, which defendants knew would lead to the early

termination of the Ceftin contract, defendants disseminated a “worse-case scenario” that failed to

fully account for these exorbitant costs.

The Lotensin Contract

33. In early February 2001, GSK canceled a fee-for-service contract with the

Company, effective mid-April 2001. As the Company stated on February 2, 2001, the loss of

that contract would reduce the Company’s 2001 earnings by $0.40 per share. Thus, the GSK


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fee-for-service contract had been producing annual earnings of approximately $0.50 per share,

which was approximately 30% of the Company’s total earnings from its contract sales business.

34. In addition to the loss of earnings, the loss of the GSK fee-for-service contract

was going to idle the 500-600 PDI sales representatives who had been assigned to the GSK

contract, unless the Company could promptly find a replacement contract. As discussed in ¶ 30,

supra, PDI routinely retained marketing personnel after the contract to which they were assigned

had ended because the Company believed that the availability of an experienced and qualified

sales force was key to winning new contracts. In fact, in a conference call on February 2, 2001,

Saldarini stated that the staff that worked on the GSK contract was well trained and that PDI did

not intend to announce any changes to the workforce.

35. PDI’s practice of retaining marketing personnel after the end of a contract is

clearly illustrated in an internal PDI memorandum, from PDI’s Executive Vice President to the

sales staff who worked on the GSK contract, that discussed potential reassignments of PDI

personnel after the termination of the GSK contract in February 2001. The memorandum stated,

in relevant part, as follows:

Today, we received notice of GlaxoSmithKline’s intention to consolidate their field sales capacity. The result of this decision is that the PDI team under contract will be terminated April 15. This decision was based solely on GlaxoSmithKline’s internal sales strategy and is not indicative of our performance in any way. We are proud of the consistent results we have produced for GlaxoSmithKline for the last 5 years. The contributions this team made played a large part in Glaxo’s decision to hire us for the LCP Ceftin contract, which continues to go well and IN NO WAY is affected by today’s decision.

Clearly, we did not anticipate this decision and, while there are no guarantees, we are committed to working vigorously to sustain the members of this team’s employment at PDI. Options we will pursue are:


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1. Speak to other potential clients about contracting a full-trained, high-performance respiratory sales force

2. Conversion to other PDI programs

3. Out-placement to PDI clients

We have an excellent track record of reassigning our field employees and are optimistic that we will be able to do so with this team.

* * *

36. According to a former PDI regional manager who was employed at the Company

for approximately seven years and worked on the Evista contract, the Company routinely

retained managers and sales representatives after the contract on which they were working had

ended.

37. Due to the stagnant condition of the market for fee-for-service contracts, it was

impossible for PDI to replace the GSK contract with another fee-for-service contract or

contracts, and deploy the 500-600 sales representatives who had been used for the lost GSK

contract to new contracts. Instead, defendants embarked upon an undisclosed long-term strategy

of entering into unprofitable co-promotion or marketing contracts with drug companies in the

hopes of obtaining profitable business from those companies in the future. Defendants knew that

the Company would incur substantial losses in at least the first year of these contracts, in fact, in

the case of the Evista contract described herein, defendants knew as PDI’s management stated in

meetings with the Company’s regional managers, that PDI would lose money for at least the first

two years of the contract due to the contract’s terms. Indeed, that fact was common knowledge

at PDI. However, because the contracts had declining baselines over which PDI would earn

revenue, defendants hoped to break even on the contracts in future periods. The first such


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contract was with Novartis Pharmaceutical Corporation (“Novartis”), a drug company which was

expected to introduce five new drugs in 2002.

38. In 2001, Novartis was selling three drugs for the treatment of hypertension. At

that time, the market shares of two of those drugs, Diovan and Lotrel, was increasing. In fact,

Diovan was Novartis’s best selling drug.

39. Novartis’s third drug for the treatment of hypertension was Lotensin, an

angiotensin converting enzyme (“ACE”) inhibitor, which had been on the market for many

years, was nearing the end of its patent life, and had annual U.S. sales of approximately $300

million.

40. At the time of the contract, there were at least five ACE inhibitors with larger

market shares than Lotensin, and Lotensin’s share of that market was declining. Moreover, there

was no new data or other information demonstrating any previously unknown advantage of

Lotensin over competing ACE inhibitors, and there was evidence that other ACE inhibitors

reduced the risk of heart attacks, while there was no evidence that Lotensin had that effect. To

develop a relationship with Novartis, which defendants hoped would lead to profitable contracts

in the future, defendants agreed to assume responsibility for marketing Lotensin in the United

States at a cost of tens of millions of dollars, thus, materially reducing Novartis’s marketing

expenses.

41. At the inception of the Lotensin contract, however, PDI encountered significant

difficulties in training sales representatives and obtaining training and marketing materials. At

least three to four months passed before the Company had the capacity to market Lotensin.

Defendants were aware that these initial problems would cause delays that would materially and

adversely impact PDI’s short-term ability to increase Lotensin sales. Indeed, defendants would


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later admit that the problems precluded the Lotensin contract from contributing to the

Company’s earnings in the fourth quarter of 2001. In addition, defendants knew that the

Lotensin contract would ultimately be unprofitable because the terms of the contract were

onerous and unfavorable to PDI. The Lotensin contract was structured in a way such that PDI’s

sole compensation for its marketing efforts was a split of net Lotensin sales over a baseline

amount. The exact amount, which was not disclosed at that time, was set at a level that would

cause PDI to lose money on the contract throughout 2001. In fact, although Lotensin’s market

share was decreasing at this time, PDI was guaranteed to lose money on the contract even if it

achieved a significant increase in market share. Specifically, the baseline above which PDI

would profit from Lotensin sales was so high that although Lotensin’s share of the ACE inhibitor

market had increased by the fourth quarter of 2001, PDI lost $5 million on the contract in that

quarter. In order to offset that loss, PDI would have needed to increase Lotensin sales by another

$10 million in the quarter. As typical quarterly Lotensin sales at that time were approximately

$75 million, this meant that simply to break even on the contract, PDI would have needed to

boost sales by an additional 13%. Moreover, to achieve the $0.25 earnings per share forecasted

by defendants, PDI needed to increase Lotensin sales by over 30%, which was not reasonably

possible after only a few months of promotional activity, without any new data about the drug, in

a crowded highly competitive market.

42. With respect to Lotensin, defendants were well aware of the relevant baselines in

the contract that determined PDI’s revenue, along with the cost of training and paying the

Company’s sales representatives assigned to the contract. Additionally, defendants received

weekly IMS Health reports setting forth sales figures and market share for Lotensin. Indeed,

defendant Saldarini reported this data in public conference calls. As the contract baselines


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required a 30% increase in Lotensin sales to meet the forecasted $0.25 earnings per share for the

fourth quarter of 2001, defendants knew at all relevant times that PDI would not be able to come

close to achieving such forecasted results. Defendants’ awareness of these baselines also

indicates that they knew that PDI would suffer losses in connection with the Lotensin contract in

at least the first six months of fiscal 2002. In addition, defendants’ awareness of the problems

related to the startup of the Lotensin program indicates that they knew that the Company would

not be able to achieve the projected results. A former PDI employee, who worked directly with

Saldarini and other members of PDI’s senior management in connection with his oversight of the

Company’s campaign to win a corporate award, recounted that PDI encountered significant

difficulties at the beginning of the Lotensin contract in training sales representatives, obtaining

marketing materials such as sales aides and detail sheets, and assigning sales territories.

According to this employee, it was at least three to four months before PDI was fully staffed and

functional to market Lotensin.

43. Defendants concealed the significant hurdle to profitability created by this

baseline. For example, on May 23, 2001, WR Hambrecht & Co. published an analyst report

based on defendants’ announcement during a conference call on May 22, 2001 that PDI had

entered into an agreement with Novartis to market Lotensin. In the report, analyst Josh Fisher

and Rosemary Wang summarized the “Gain-share” aspect of the Novartis agreement, which,

according to defendants, was intended to “creat[e] a delta” in light of Lotensin’s declining

market share of ACE inhibitors:

PDI’s main goal with Lotensin will be to try and slow-down its market share deterioration (PDI calls this “creating a delta”).

Based on the contractual baseline described above, to attain the stated profitability PDI needed to

do a lot more than merely “slow-down” Lotensin’s market share deterioration.


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44. At the time PDI entered into the Lotensin contract, the Company was attempting

to procure contracts for its services with other pharmaceutical companies. Disclosing that the

terms of the Lotensin contract were unprofitable for PDI would likely cause the companies with

whom PDI was negotiating to demand similarly unfavorable contractual terms. Moreover, PDI

made a regular practice of forecasting future earnings and the earnings effect of large contract

gains and losses. Therefore, instead of disclosing the true facts about the Lotensin contract,

defendants told the public that although the contract would be unprofitable in the second and

third quarters of 2001, by the fourth quarter of that year, the Lotensin contract would produce

earnings of $0.25 per share, (i.e., pre-tax income of approximately $6 million), knowing that this

was impossible.

45. On November 13, 2001, when defendants disclosed that not only would the

Lotensin contract not produce the represented $0.25 earnings in the fourth quarter of 2001, but

would produce a loss of $0.23 per share, defendants blamed this huge disparity on delay in

completing market research and the preparation of marketing materials. On the same day,

defendants conducted a conference call during which Saldarini announced dramatically reduced

guidance of $50-$60 million in revenues and a profit margin of 20-25% from the Lotensin

contract in 2002. In these circumstances, the Company would have had to generate $165-$200

million in revenues and earn operating profits of $25-$42.5 million in 2003 to achieve the results

projected by Saldarini on May 22, 2001. In addition, during the conference call, defendants

admitted, for the first time, that the Lotensin contract was a “long-term strategic opportunity,”

apparently intended as a loss leader in the hope of obtaining future profitable business from

Novartis.


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46. At the time they announced the Lotensin contract, defendants refused to disclose

the specific baselines that would be used to calculate PDI’s revenues, but stated generally that

the baseline amount declined over the contract life. Despite this decline in the baseline amount in

2002, PDI again lost money on the contract in the first two quarters of 2002, although Lotensin’s

market share once again increased. The reduction in the baseline merely reduced the loss to $2.5

million for the first quarter and $3.2 million for the second quarter, or an annualized rate of $11.4

million per year. On February 20, 2002, during a conference call, defendants’ affirmed their

November 13, 2001 revenue and profit projection for Lotensin, stating that they were ahead of

their revised expectations. In May 2002, when they disclosed the first quarter Lotensin loss,

defendants stated that the Company would reduce the number of representatives selling Lotensin

by 75%. They also disclosed that PDI had entered into another contract with Novartis to market

Diovan, Novartis’s best selling drug. In August 2002, when defendants disclosed PDI’s second

quarter results, they announced that the Lotensin program had recently been “restructured” so

that the Company’s Lotensin sales representatives could focus on marketing Lotrel and Diovan.

The Evista Contract

47. On October 2, 2001, PDI announced that it signed an agreement with Eli Lilly and

Company (hereinafter referred to as “Eli Lilly”) to co-promote the non-hormonal osteoporosis

drug, Evista (raloxifene HC1), in the United States. Under the terms of the agreement, PDI was

to provide a significant number of sales representatives to augment the Eli Lilly sales force

promoting Evista at that time.

48. Evista’s principal competitor in the market for non-hormonal osteoporosis drugs

was and is Merck & Co.’s (“Merck”) Fosamax, which had and has a significantly higher market

than Evista. Moreover, by 2001 Merck had introduced a once-a-week formulation of Fosamax,


DOCS\314284v1 20

which was more convenient than Evista, which had to be taken once a day. Also, while both

Fosamax and Evista have very unpleasant side effects, the weekly formulation of Fosamax

reduced these side effects, providing it with an additional competitive advantage over Evista. As

a result, in the second half of 2002, the growth rate of Evista sales was declining. As Eli Lilly

stated, in its 2001 Annual Report: “U.S. sales growth [of Evista] slowed in the second half [of

2001] primarily due to increased competition.” In fact, in the second half of 2001, U.S. sales of

Evista were $272.7 million, up $19.5 million (approximately 8%) from U.S. Evista sales in the

first half of 2001.

49. To develop a relationship with Eli Lilly, which defendants hoped would lead to

profitable contracts in the future, and to retain hundreds of sales persons who would have

otherwise left PDI, including Ceftin sales persons whose employment was about to end with the

termination of the Ceftin contract, defendants agreed to co-promote Evista in the United States,

materially reducing Eli Lilly’s promotional expenses. PDI’s sole compensation for these efforts

was a split of net Evista sales over a baseline amount.

50. The specifics of the agreement were not publicly disclosed, including the fact that

the baseline was set at a level that would cause PDI to lose money on the contract throughout

2001 and 2002, and thereafter, even if it increased Evista’s market share. According to Eli

Lilly’s Form 10-K for fiscal year 2001, sales of Evista in the U.S. increased 21%. Yet PDI still

suffered a loss on account of the contract. The terms of the contract were so onerous that the

contract was rejected by Innovex, the Company’s principal competitor.

51. According to the former PDI employee who managed the Company’s campaign

to compete for the corporate award for quality and organizational performance excellence, and

who worked directly with defendant Saldarini and other members of PDI’s senior management


DOCS\314284v1 21

in this regard, defendant Saldarini stated in his presence at or about the time the Company

entered into the Evista contract, that he did not expect the Evista contract to be profitable.

According to a former PDI regional manager who worked on the Ceftin and Evista contracts, the

fact that the Evista contract was not expected to be profitable was confirmed by PDI executives

in meetings of regional managers, and was common knowledge at PDI. In fact, PDI’s National

Vice President stated that it was clear from the beginning of the Evista contract that it was not

going to be profitable. Several PDI managers at the regional and divisional level stated that they

were aware that the Evista contract would not be profitable in its first two to three years.

According to a former regional manager who worked on the Ceftin and Evista contracts, PDI’s

Executive Vice President, stated in her presence in or about October 2001 that the Company

believed it could not make any money off the Eli Lilly program for the first three years.

Defendants were also well aware of the relevant baselines in the contract that determined

whether PDI would receive revenues, as well as the expenses, which PDI was contractually

obligated to make. Additionally, defendants received weekly IMS Health reports setting forth

sales figures and market share for Evista. As PDI was able to successfully increase Evista’s

market share by 15% in the first quarter of fiscal 2002, but it still recorded a loss of almost $9

million in connection with the Evista contract in that period, defendants knew at all relevant

times that PDI would achieve a result anywhere near the forecast made in the November 13,

2001 conference call and repeated thereafter.

52. As was the case with the Lotensin contract, the Company was attempting to

procure contracts for its services with other pharmaceutical companies, so disclosing the terms of

the Evista contract would be disadvantageous for PDI because it was likely to cause the

companies with whom PDI was negotiating to demand similarly unfavorable contractual terms.


DOCS\314284v1 22

53. At the end of the Class Period, defendants also admitted, for the first time, that the

Evista contract was a “long-term strategic opportunity,” apparently intended as a loss leader in

the hope of obtaining future profitable business from Eli Lilly. In fact, defendants admitted that

the Evista contract was intended to be profitable in the “back-end” and, according to Saldarini,

the “concept and the underlying strategy was that would take some time for the joint efforts [of

PDI and Elli Lilly] to really root.”

54. In November 2002, defendants admitted that the Company had canceled the

Evista contract because it was expected to continue to produce tens of millions of dollars of

losses to its December 31, 2003 termination date, and that by canceling the contract losses of

$35-$45 million would be avoided.

55. The terms of the Evista contract were such that it was almost certain to produce

millions of dollars of losses, and, indeed, as set forth herein, the defendants expected the contract

to be unprofitable. The terms of the contract, which were not disclosed by defendants until after

the end of the Class Period, committed the Company to a certain level of spending for

promotional activities, including, but not limited to sales representatives, which would produce

expenses ranging from $8-$12 million per quarter, or $32-$48 million per year. Thus, Evista

sales needed to exceed the contractual baseline by $32-$48 million for the Company to break

even on the contract. Further, the contractual baseline for the first year of the contract was such

that the contract would not produce any revenues to offset these expenses unless the rate of

Evista U.S. sales growth increased materially from the 8% U.S. sales growth experienced by

Evista in the second half of 2001. Moreover, as defendants admitted after the end of the Class

Period, to break even on the Evista contract would require that Evista U.S. sales growth more

than triple, despite Evista’s dosing disadvantage and the fact that Evista’s share of the market for


DOCS\314284v1 23

non-hormonal osteoporosis drugs had been declining materially. In addition, the contractual

baseline was cumulative, so that shortfalls from any period or periods would be added to the

baseline from other periods, thereby increasing the required level of Evista U.S. sales growth

before the Company would receive any revenues to offset the $32-$48 million of annual

expenditures which the Company was obligated to make pursuant to the contract. Defendants

also admitted at the end of the Class Period that the Evista contract’s failure to contribute to the

Company’s revenues in the first two quarters of 2002 “was consistent with our actual

expectations.”

56. As set forth herein, defendants correctly anticipated that the Evista contract,

whose term ended December 31, 2003, would not be profitable for at least two years. In fact, due

to the facts set forth in the preceding paragraph, the Company suffered losses on the Evista

contract in every quarter from its inception through the third quarter of 2002, which totaled tens

of millions of dollars. Moreover, the Company expected those losses to continue at the same rate

into 2003, which the Company estimated would total $35-$40 million. Due to these anticipated

losses, in November 2002, the Company announced that it would terminate the Evista contract as

of the end of 2002, the Company was taking a charge of $9.1 million dollars related to the

contract, and was laying off hundreds of employees. At that time, the Company also stated that

it was “less interested in strategies which would require PDI to enter into baseline arrangements

and in which we cannot control all of the commercial levers.” As a result of prior losses on the

contract, plus the announced charge, by November 2002, the Evista contract had cost the

Company almost $50 million in losses.

57. In contrast to Novartis, the “long-term” strategy did not work with Eli Lilly.

After PDI suffered millions of dollars of losses on Evista, instead of awarding a new desirable


DOCS\314284v1 24

contract to PDI, Lilly awarded the contract to Innovex. Innovex was awarded the contract to

promote the drug Cymbalta for the five years following product launch. On September 16, 2002,

Eli Lilly received an approval letter from the U.S. Food and Drug Administration for Cymbalta,

a serotonin and norepinephrine reuptake inhibitor, used to treat depression. The Cymbalta

contract could have been very profitable for PDI because there is significant promotion potential

for new prescription drugs that treat depression.

58. Defendants’ repeated Class Period statements coupled with their failure to

disclose the foregoing known, material problems with the Ceftin, Lotensin and Evista contracts

resulted in a material deception of the investing public. As set forth below, PDI’s disclosure of

the potential Ceftin contract termination costs and the fact that Lotensin would provide no

earnings in 2001 resulted in an immediate decline of the price of PDI common stock during the

Class Period. Furthermore, PDI’s disclosure of significant losses for the Evista and Lotensin

contracts, the fact that the Evista contract would never be profitable, and the restructuring of the

Lotensin program resulted in an immediate decline in the price of PDI common stock at the end

of the Class Period. Thereafter, defendants belatedly made additional disclosures revealing the

true nature of the Lotensin and Evista contracts.

SUBSTANTIVE ALLEGATIONS

Materially False and Misleading Statements Issued During the Class Period

59. On May 22, 2001, the first day of the Class Period, the Company held a

conference call with securities analysts to discuss and answer questions regarding the contract

with Novartis for distribution of Lotensin, announced a day earlier. During the conference call,

defendant Saldarini represented that although startup costs related to the Lotensin contract, such

as training and promotional costs, would likely depress earnings for the second and third


DOCS\314284v1 25

quarters, the contract would generate (a) substantial earnings of $0.25 per share to its fourth

quarter of 2001; (b) revenues of $225 to $250 million from 2001-2003; and (c) operating income

of $45 to $62.5 million over the same period with an operating profit margin of 20 to 25%,

“substantially” higher than the Company’s fee-for-service contract sales activity, with the result

that the Company’s overall profit margins would increase.

60. The positive statements in the conference call had the intended effect of

increasing the price of PDI common stock. Following the May 22 conference call, the price

increased by $5.10 from a close of $86.08 per share on May 22, 2001, to close at $91.18 on May

23, 2001.

61. The statement concerning the Lotensin agreement’s positive contribution to PDI’s

financial results was materially false and misleading when made for the reasons stated in ¶¶ 40-

45, supra. Among other things, although defendants’ statement was intended to convey the false

and misleading impression that the terms of the Lotensin contract were very favorable to PDI,

and that PDI would earn significant profits after an initial investment in start-up costs,

defendants knowingly or recklessly failed to disclose, at all relevant times, that PDI had

purposefully entered into an unprofitable contract with Novartis to (a) retain the services of

hundreds of marketing representatives who otherwise would have left the Company; and (b)

obtain future profitable business from Novartis. As set forth in ¶ 30, supra, PDI deemed the

retention of qualified salespersons to be critical to the Company’s ability to win new contracts.

According to former PDI regional and division managers, the Company routinely retained

marketing personnel after the contract to which they were assigned ended. Therefore, to avoid

the loss of 500 to 600 sales representatives after the GSK contract ended in February 2001, the

Company entered into the Lotensin contract and assigned members of the sales force thereto.


DOCS\314284v1 26

Defendants also failed to disclose that PDI was experiencing significant startup problems in

marketing Lotensin (see ¶ 41, supra), which defendants knew or recklessly disregarded at the

time that it would prevent the Company from achieving the projected results. Indeed,

defendants admitted in a conference call on November 13, 2001 that the same problems

prevented the Lotensin contract from contributing to PDI’s fourth quarter of 2001 earnings. See

¶ 73, infra. As set forth in ¶ 41, supra, defendants knew or recklessly disregarded at all relevant

times that PDI needed to increase Lotensin sales by over 30% to achieve defendants’ forecasted

results, which was implausible in light of Lotensin’s declining market share, the crowded and

highly competitive market for ACE inhibitors, and the fact that the Company had just begun to

promote Lotensin and was experiencing significant startup problems. Moreover, given the

importance of new, non fee-for-service contracts to investors, all defendants acted knowingly or,

at a minimum, were reckless in issuing statements regarding the Lotensin contract without

revealing the terms of the contract and PDI’s true motivation in entering into it. Ultimately, as

set forth in ¶¶ 89 and 93, infra, not only did PDI fail to achieve profitability and suffer a

significant loss in connection with the Lotensin contract in fourth quarter 2001, the contract

remained unprofitable (even with a declining baseline) in the first two quarters of 2002.

62. On August 14, 2001, the Individual Defendants participated in a conference call

regarding the Company’s results for the second quarter of 2001, which had been announced the

previous day, and the Company’s expected results for the remainder of 2001. As reported in an

August 14, 2001 Reuters article, during the conference call, defendants explained that the

Company would likely earn $0.20 per share less than previously forecasted for the third quarter

due to a Ceftin inventory glut at distributors. The Individual Defendants, however, reassured the

market that despite the expected weakness in the third quarter, the Company would meet


DOCS\314284v1 27

previously announced expected earnings for the year 2001 of $2.30 per share, due to expected

strength in the fourth quarter.

63. Defendants’ statements concerning earnings guidance, set forth in ¶ 62, supra,

were materially false and misleading when made because they included earnings of $0.25 related

to the Lotensin contract, which as set forth in ¶¶ 40-45 and 61, supra, defendants could not have

reasonably expected to achieve. Moreover, as discussed above defendants knew or recklessly

disregarded that PDI could not achieve the forecasted results because Ceftin’s market share was

declining at the time and that Ceftin sales were unlikely to increase given the glut of inventory at

the distributor level.

64. On August 21, 2001, PDI issued a press release announcing that the Court of

Appeals for the Federal Circuit reversed the trial court’s decision and held that Ranbaxy’s

generic Ceftin did not infringe on GSK patent and vacated the injunction against Ranbaxy. As a

result, according to the press release, Ranbaxy could begin selling generic Ceftin once it received

FDA approval. Anticipating the negative effect that this development would have on the

Company’s stock price, defendant Saldarini stated that PDI was still evaluating the situation and

would make further announcements shortly, and that the agreement with GSK contained a

provision addressing the Company’s Ceftin purchasing obligations in the face of generic

competition for the drug:

We are surprised and disappointed that the Circuit Court overturned what we understood to be a well reasoned lower court decision. We are evaluating our options as a result of this development which include invoking the purchase requirement reset provisions in our agreement with Glaxo which were incorporated to address potential generic introductions, as well as our right to terminate the agreement upon notice.


DOCS\314284v1 28

65. On August 23, 2001, the Company issued a press release discussing its options in

light of the negative Ceftin patent decision. In particular, the press release stated that the

Company was considering the following options:

*terminating its Ceftin marketing agreement with GSK;

*assessing suspension and tablet strategies individually;

*evaluating Ceftin pricing scenarios;

*assessing demand creation opportunity for the brand;

*assessing cost reduction measures; and

*evaluating the impact of the purchase minimum reset provisions provided for in the GSK agreement.

66. The August 23, 2001 press release also presented the following as estimates of the

financial impact that the immediate introduction of generic Ceftin would have on the Company’s

business for the remainder of 2001 and 2002:

Revised estimates are set forth below for the third and fourth quarters of 2001 and for 2001 in its entirety, giving effect to a generic competition. In the third and fourth quarters of 2001, PDI expects a severe impact on net revenue and profitability. Such impact will result partly from wholesalers and other trade customers reducing projected purchases from PDI in anticipation of building generic cefuroxime axetil tablet inventories from other suppliers, and partly because sales and marketing costs cannot be significantly reduced over the short-term.

Assuming the immediate introduction of a generic tablet equivalent, PDI estimates the following adverse impact on net revenue and earnings per share and believes its net revenue and earnings per share should be lowered as follows:

Net Revenue Reduction EPS Reduction

2001-3rd Quarter $25 - 30 million $0.55 - 0.60 2001-4th Quarter $25 - 30 million $0.25 - 0.30 2001- Full Year $50 - 60 million $0.80 - 0.90 2002 $225 - 235 million $1.50


DOCS\314284v1 29

67. The August 23, 2001 press release also announced that the Company would

conduct a conference call on August 24, 2001, to further address the implication of the potential

for generic Ceftin competition.

68. On the August 24, 2001 conference call, defendant Saldarini sought to assuage the

concerns prompted by the developments regarding Ceftin. During the conference call, Saldarini

stated that the earnings reductions contained in the previous day’s release, were the “ugliest

scenario” premised on the most conservative assumptions, and went on to explain why those

assumptions were unlikely to materialize. First, according to defendant Saldarini, even if

introduced in October, the generic Ceftin could not satisfy the entire fourth quarter demand for

Ceftin, and he expected that 80% of fourth quarter demand would be satisfied by Ceftin, not the

generic competition. As a result, according to Saldarini, the Company was expecting Ceftin to

contribute $0.30-$0.40 earnings per share in the fourth quarter of 2001. In addition, Saldarini

stated that the Company was expecting Ceftin to contribute $0.30 earnings per share in 2002.

69. Defendants’ statements regarding the impact of generic competition for Ceftin,

and Ceftin’s contributions to earnings were materially false and misleading when made for the

reasons set forth in ¶¶ 26-28, 30, supra. Among other things, defendants failed to disclose that

the termination of the Ceftin contract due to generic competition would cause PDI to incur

massive expenses, as set forth in ¶ 30, supra, and that PDI had never increased Ceftin’s market

share, except when it had unlawfully promoted the drug, or artificially inflated reserve by

shifting sales into an earlier quarter at the expense of a later quarter. As a result of the foregoing,

the estimates contained in the August 23, 2001 press release, and the August 24, 2001 conference

call representation of $0.30 earnings per share contribution of Ceftin in the fourth quarter of


DOCS\314284v1 30

2001, were lacking in any reasonable basis and were not based on conservative or “ugliest

scenario” assumptions.

PDI Begins to Reveal Details Regarding the Lotensin and Ceftin Contracts

70. After the close of the market on November 12, 2001, PDI issued a press release

announcing a net loss of $17.3 million, or $1.24 per share, for the third quarter of 2001, the

period ended September 30, 2001. These reported results, which included a $24 million charge

as reserves for potential Ceftin contract-termination costs, stood in stark contrast to the August

23, 2001 and August 24, 2001 “ugliest scenario” statements. In the November 12, 2001 press

release, defendant Saldarini stated that the Company would terminate the Ceftin agreement with

GSK, but that the Company had positive developments in the pipeline:

PDI’s third quarter results were adversely impacted by both a general softening in the CSO market and developments surrounding the patent protection for Ceftin tablets. Based upon these developments, GSK and PDI believe that it is in our respective best interests to mutually wind-down and terminate our agreement.

While the Ceftin deal will be terminated early, we have developed in a short time, a sales and marketing platform which has enabled PDI to enter into other relationships this year with both Novartis and Eli Lilly and to broaden the types of discussions that PDI is having with other potential partners.

71. The November 12, 2001 press release indicated that for the fourth quarter of

2001, the Company anticipated a loss of $0.23 per share because the Lotensin contract with

Novartis would not contribute to Company’s earnings until 2002, directly contrary to defendants’

previous statements:

We continue to feel confident about Lotensin’s ability to contribute positively to 2002 financial results, however, in the fourth quarter we will not realize the full amount we had planned to achieve.


DOCS\314284v1 31

72. PDI’s November 12, 2001 revelations, including its partial disclosure about the

Lotensin contract, were much worse than what the Company led investors to believe in the

August 23, 2001 press release and the August 24, 2001 conference call, and severely impacted

the market. In reaction to the news, the price of PDI common stock declined from a $29 per

share close on November 12, 2001 to close at $18.35 per share on November 13, 2001 — a drop

of 35%.

73. On November 13, 2001, the Company held a conference call with investors and

analysts during which defendant Saldarini revealed that PDI would receive no profit from Ceftin

in the fourth quarter. In addition, defendant Saldarini revealed that Lotensin would not

contribute as expected to fourth quarter earnings because PDI “did not have all of the marketing

materials, the positioning and support programs in place.” Notably, in the November 12, 2001

press release and on the November 13, 2001 conference call, PDI failed to disclose the baselines

in the Lotensin contract.

74. On November 13, 2001, in response to the Company’s announcement and

subsequent revelations during the conference call, SunTrust Robinson Humphrey issued a report

stating in pertinent part:

This revenue softness from Lotensin is what disappoints us the most, and is the primary reason prompting our downgrade to a NEUTRAL rating from OUTPERFORM. The success of Lotensin, on the heels of a disappointing series of events surrounding Ceftin, we believe was crucial to the company re-establishing credibility with the street and its recently introduced but controversial, performance based product offering.

This same report highlighted the fact that defendants had still failed to disclose the true nature of

PDI’s risk-sharing contracts:

[W]e also believe the company still needs more time to flush out the nuances associated with more risk-based performance


DOCS\314284v1 32

contracts. The company has implemented four of these contract over the last twelve months and we frankly feel like the company is still fine-tuning its evolving business model. Accordingly, we are moving to the sidelines on PDI, at least for the time being.

Several other securities analysts including Prudential Securities and J.P. Morgan issued reports

noting their surprise and disappointment with the Lotensin revenue shortfalls.

75. Despite the foregoing revelations, defendants continued to make materially false

and misleading statements about PDI’s performance-based contracts. For example, during the

November 13, 2001 conference call, defendant Saldarini stated that PDI expected the Evista

contract to provide approximately $53-$60 million in revenue for 2002. Additionally, defendant

Saldarini stated that PDI expected “to report a contribution from Evista in the fourth quarter of

the year.”

76. The statements concerning the revenue impact of the Evista contract were

materially false and misleading when made for the reasons stated in ¶¶ 49-51, supra. Among

other things, as set forth in ¶ 50, supra, the contract’s baselines were set at levels that guaranteed

PDI would not earn revenue, even in the event it materially increased Evista’s rate of growth.

Moreover, as set forth in ¶¶ 49-51, supra, defendants knowingly or recklessly failed to disclose,

at all relevant times, that PDI had purposefully entered into an unprofitable contract with Eli

Lilly to obtain future profitable business from Eli Lilly and to retain hundreds of sales

representatives. As set forth in ¶ 51, supra, defendant Saldarini stated at or about the time PDI

entered into the Evista contract that he did not expect the contract to be profitable. In fact, it was

common knowledge among management at PDI that the Evista contract would not be profitable.

As set forth in ¶ 30, supra, PDI deemed the retention of a qualified and experienced sales force

to be critical to the Company’s ability to win new contracts and, according to former regional

and division managers, the Company routinely retained marketing personnel after the end of a


DOCS\314284v1 33

contract. For example, according to a former regional manager on the Ceftin contract, nearly

80% of the new Evista sales representatives who attended a meeting in or about October 2001 in

connection with the Evista program had worked on the Ceftin contract.

77. Additionally, during the November 13, 2001 conference call, Saldarini stated that

PDI expected $50-$60 million in revenue from the Lotensin contract in 2002 which, because the

Company’s expenses for the contract were approximately $5 million in the fourth quarter of

2001, would have produced operating profits of $20 to $30 million, or a profit margin of 20-

25%.

78. The statements in the November 13, 2001 conference call, set forth in ¶ 77 supra,

concerning the expected positive contribution from Lotensin in 2002 were materially false and

misleading when made for the reasons stated in ¶¶ 40-45, 89 and 93, supra. Among other things,

although defendants’ statements were intended to convey the false and misleading impression

that the terms of the Lotensin contract were very favorable to PDI, and that PDI would earn

significant profits on increased revenues in 2002, as set forth in ¶¶ 40-45, supra, defendants

knowingly or recklessly failed to disclose, at all relevant times, that PDI had purposefully

entered into an unprofitable contract with Novartis to (a) retain the services of hundreds of

marketing representatives who otherwise would have left the Company; and (b) obtain future

profitable business from Novartis. As set forth in ¶ 30, supra, PDI deemed the retention of a

qualified and experienced sales force as critical to winning to contracts, and, according to former

PDI regional and division managers, the Company routinely retained managers, supervisors, and

sales representatives after the contract on which they were assigned had ended. Therefore, to

avoid the loss of 500 to 600 sales representatives after the termination of the GSK contract in

February 2001, the Company entered into the Lotensin contract and assigned the sales persons


DOCS\314284v1 34

thereto. Defendants also knew or recklessly disregarded that PDI was not on track to achieve the

results projected for 2002 because the Lotensin contract had not contributed to PDI’s earnings

since its inception, the Company would have to generate revenues of $165-$200 million and earn

profits of $25-$42.5 million in 2003 to achieve such results, and Lotensin’s market share was

declining. As admitted by defendant Saldarini in a May 15, 2002 conference call, the Company

was on its way to reporting another loss in the first quarter of 2002. Moreover, defendants

knowingly or recklessly failed to disclose that the contract’s baseline was so high that PDI would

not earn profits even if it significantly increased Lotensin’s market share, a highly unlikely

prospect because Lotensin was losing market share to other ACE inhibitors that reduced the risk

of heart attacks, which Lotensin did not. Additionally, given the importance of new, non fee-for-

service contracts to investors, all defendants acted knowingly or, at a minimum, were reckless in

issuing statements regarding the Lotensin contract without revealing the terms of the contract

and PDI’s true motivation in entering into it. Ultimately, as set forth in ¶¶ 89 and 93, infra, not

only did PDI fail to achieve profitability and suffer a significant loss in connection with the

Lotensin contract in fourth quarter 2001, the contract remained unprofitable (even with a

declining baseline) in the first two quarters of 2002.

79. In a February 20, 2002 conference call, after the announcement of PDI’s fiscal

2001 results, defendant Saldarini stated the following concerning Lotensin:

[Lotensin] is currently trending in the right direction for our 2002 expectations. I think it’s fair to characterize our view of Lotensin as delayed, not damaged.

* * *

Lotensin is currently ahead of our revised expectations. We are creating a substantive delta over a declining baseline.

* * *


DOCS\314284v1 35

In the fourth quarter we have made progress against both our baseline as well as against our growth target.

80. The statements in the February 20, 2002 conference call, set forth in ¶ 79 supra,

concerning the expectations for Lotensin in 2002 were materially false and misleading when

made for the reasons stated in ¶ 78, supra.

81. Additionally, during the February 20, 2002 conference call, defendant Saldarini

highlighted PDI’s purported ability to minimize losses from Lotensin:

It’s important for everyone to realize that we control all the spending on the brand [Lotensin] and if the performance is not in line or the performance does not follow we can make adjustments, and we are carefully monitoring this on literally a day-today and week-by-week basis.

* * *

Because we control the spending on the product, we can manage the income statement effect of Lotensin very successfully.

82. The statements concerning PDI’s supposed ability to control any losses from the

Lotensin contract were materially false and misleading when made, as defendants were aware of

the baseline on the Lotensin contract, along with current and projected sales and cost information

for Lotensin indicating that PDI’s losses from the Lotensin contract would continue to increase.

In fact, as set forth in ¶¶ 89 and 93, infra, PDI’s loss from the Lotensin contract actually

increased by almost 30% from the first quarter to the second quarter of fiscal 2002.

83. With respect to Evista, during the February 20, 2002 conference call, defendant

Saldarini stated:

We are providing a major increase in the brand share of Evista. We believe that’s approximately a 50% increase in brand share of Evista and we have aggressive goals as a function of that. We expect that this increase in share of Evista should produce product net sales growth of 25-30% on a year-over-year basis.


DOCS\314284v1 36

Additionally, Saldarini affirmed the Company’s previous 2002 guidance of $50 million in

revenues from the Evista contract.

84. The statements concerning the Evista contract made during the February 20, 2002

conference call, set forth in ¶ 83 supra, were materially false and misleading when made for the

reasons stated in ¶ 76, supra.

85. During the February 20, 2002 conference call, Saldarini also affirmed the

Company’s previous guidance for the Lotensin contract in 2002, that is, revenues of $60 million

with a profit margin of 20 to 25%.

86. The statements concerning the Lotensin contract in the February 20, 2002

conference call were materially false and misleading when made for the reasons stated in ¶ 78,

supra.

87. In a May 14, 2002 conference call, the Company announced that it had reduced

the number of representatives selling Lotensin from 500 to 150 in order to decrease its losses

from the Lotensin contract. This statement was materially false and misleading when made

because, as defendants were in possession of the current cost and sales information pertaining to

Lotensin, they knew that because of the baseline in the contract, PDI would continue to suffer

significant losses. In fact, as set forth in ¶¶ 89 and 93, supra, PDI’s losses due to the Lotensin

contract were almost 30% greater in the second quarter of 2002 than they were in first quarter of

2002, despite this supposed cost-cutting measure.

88. In the May 14, 2002 conference call and the Company’s earnings press release,

issued prior thereto on May 14, 2002 defendants revealed that PDI had lost $8.5 million in the

first quarter of 2002 in connection with the Evista contract. However, these statements were

materially false and misleading, as defendants failed to disclose that the losses would have been


DOCS\314284v1 37

much higher absent significant distributor overstocking during the quarter. Due to this

overstocking, the growth of Evista sales dropped sharply from 16% to 5% in the first two

quarters of fiscal 2002.

89. In the Company’s 10-Q for the first quarter of fiscal 2002, filed with the SEC on

May 15, 2002, the Company acknowledged that the Lotensin contract was again unprofitable, as

“sales of Lotensin did not exceed the specified baselines by an amount sufficient to cover its

operating costs.” The loss related to the Lotensin contract was $2.5 million. Moreover, as

confirmation of PDI’s still undisclosed long-term strategy of using Lotensin as a loss leader to

obtain other business from Novartis that defendants had failed to disclose at the inception of the

Lotensin contract, the Company also announced that it had entered into a contract with Novartis

to market Diovan.

PDI Reveals The Truth About Lotensin and Evista

90. After the close of the market on August 12, 2002, PDI issued a press release

announcing a net loss of $9.2 million for the second quarter of 2002, the period ended June 30,

2002. These reported results included a quarterly net loss of $8.9 million for the Evista contract,

which brought the net loss on the contract for the first six months to a total of $17.6 million.

Additionally, while PDI still refused to disclose the baseline for the Evista contract, it did admit

that losses on the contract would continue in the third quarter of 2002, stating:

PDI expects the Evista program to yield a $7.0 million to $10.0 million negative gross profit in the third quarter of 2002 as the baseline is cumulative and sales of Evista are not expected to exceed the baseline through the first nine months of 2002.

91. In that same press release, PDI also stated that the Evista contract was never

going to be profitable:


DOCS\314284v1 38

[PDI] currently anticipates that renewal over the remaining life of the Evista contract will exceed the future costs associated with the contract.

92. In the August 12, 2002 press release, defendant Saldarini also acknowledged the

Company’s inability to earn a profit on the previously heralded Lotensin contract:

We are disappointed with our second quarter results which were aversely impacted by operating losses attributable to our Evista and Lotensin performance based contracts. The Lotensin program was restructured during the quarter to provide for incremental promotion of both Lotrel and Diovan.

93. In an August 13, 2002 conference call, defendants revealed that PDI lost $3.2

million in connection with the Lotensin contract in the second quarter of fiscal 2002. With

respect to Evista, Saldarini stated during the conference call that the fact that the Evista contract

did not account for the Company’s revenues in the first two quarters of 2002 “was consistent

with our actual expectations.”

94. In addition, defendant Boyle admitted for the first time that PDI intended the

Evista contract to be part of a long-term strategy such that the contract would be profitable in the

“back-end” and would generate future business with Eli Lilly:

It would take time for us to develop the working relationship with the Eli Lilly people, and we said that our success there is going to be back-end loaded with respect to 2002.

95. During the same conference call, defendant Saldarini also conceded that the

Evista contract was a part of a long-term business strategy:

The concept and the underlying strategy was that would take some time for the joint efforts [of PDI and Elli Lilly] to really root.

96. In reaction to PDI’s August 12 and 13, 2002 disclosures, on August 13, 2002, the

price of PDI common stock declined nearly 50% from $12.98 to $6.54. The closing price of PDI

stock had been as high as $96.53 per share during the Class Period.


DOCS\314284v1 39

97. Subsequent to the end of the Class Period, securities analysts confirmed that PDI

had willfully entered into unprofitable contracts. For example, in an August 14, 2002 report,

William Blair & Company analyst John Kreger stated:

In hindsight, we believe PDI underpriced its risk-sharing business to prevent layoffs and maintain momentum as the traditional CSO market slowed and fee-for-service contracts ended with GlaxoSmithKline.

UNDISCLOSED ADVERSE INFORMATION

98. As set forth above, the market for PDI’s common stock was open, well-developed

and efficient at all relevant times. As a result of the materially false and misleading statements

and failures to disclose described above, PDI common stock traded at artificially inflated prices

during the Class Period until the true state of PDI’s business and operations was communicated

to the securities markets. Lead Plaintiffs and the other members of the Class purchased or

otherwise acquired PDI’s common stock relying upon the integrity of the market price of the

Company’s stock and market information relating to PDI, as well as reliance presumed by

material omissions, and have been damaged thereby.

99. During the Class Period, defendants materially misled the investing public,

thereby inflating the price of PDI common stock, by publicly issuing false and misleading

statements and omitting to disclose material facts necessary to make defendants’ statements, as

set forth herein, not false and misleading. Said statements and omissions were materially false

and misleading in that they failed to disclose material adverse information and misrepresented

the truth about the Company, its business and operations, including, as previously described,

inter alia:

(1) PDI would incur significant costs in connection with the termination of the

Ceftin contract;


DOCS\314284v1 40

(2) during the Class Period, PDI was never able to legitimately increase

Ceftin’s market share;

(3) defendants knew the Lotensin contract was going to be unprofitable at the

time PDI entered into it;

(4) even though Lotensin’s market share was decreasing, the baselines for the

Lotensin contract for fiscal 2001 required PDI to increase Lotensin’s market share by 30% to

meet the forecasted earnings per share and those same baselines guaranteed a loss for PDI in

connection with the Lotensin contract in at least the first six months of fiscal 2002;

(5) the baselines of the Evista contract were so onerous, and the contractual

commitments for expenditures were so large, that even if PDI successfully increased Evista’s

market share, it was still guaranteed to lose money on the contract; and

(6) defendants did not expect the Evista contract to be profitable for at least

two (2) years.

100. At all relevant times, the material misrepresentations and omissions particularized

in this Complaint directly or proximately caused or were a substantial contributing cause of the

damages sustained by Lead Plaintiffs and other members of the Class. As described herein,

during the Class Period, defendants made or caused to be made a series of materially false and

misleading statements, and/or omissions that created in the market an unrealistically positive

assessment of PDI and its prospects and operations, thus causing the Company’s common stock

to be overvalued and artificially inflated at all relevant times. Defendants’ materially false and

misleading statements during the Class Period resulted in Lead Plaintiffs and other members of

the Class purchasing the Company’s common stock at artificially inflated prices, thus leading to


DOCS\314284v1 41

their losses when the illusion was revealed, and the Class was unable to accurately value the

Company.

SCIENTER ALLEGATIONS

101. As alleged herein, defendants acted with scienter in that they knew, or recklessly

disregarded, that the public documents and statements issued or disseminated by or in the name

of the Company were materially false and misleading; knew or recklessly disregarded that such

statements and documents would be issued or disseminated to the investing public; and

knowingly and substantially participated or acquiesced in the issuance or dissemination of such

statements and documents as primary violators of the federal securities laws. As set forth herein

in detail, the Individual Defendants, by virtue of their receipt of information reflecting the true

facts regarding PDI, their control over and receipt of PDI’s allegedly materially misleading

misstatements, and their associations with the Company which made them privy to confidential

proprietary information concerning the Company were active and culpable participants in the

fraudulent scheme alleged herein. The Individual Defendants knew or recklessly disregarded the

materially false and misleading nature of the information they caused to be disseminated to the

investing public.

102. Defendants also knew or recklessly disregarded that the misleading statements

and omissions complained of herein would adversely affect the integrity of the market for the

Company’s common stock and would cause the price of the Company’s common stock to be

artificially inflated. Defendants acted knowingly or in such a reckless manner as to constitute a

fraud and deceit upon Lead Plaintiffs and other members of the Class.


DOCS\314284v1 42

103. In addition to the foregoing and other facts alleged herein, the following facts

provide compelling evidence that defendants acted with actual knowledge, or, at the very least,

with extreme recklessness.

104. The Individual Defendants were senior executive officers and directors of PDI

and were intimately involved with and had direct responsibility with respect to important issues

affecting the Company’s business, operations, products, performance, and prospects.

105. Defendants had the opportunity to commit the fraud alleged. As the most senior

officers and directors of PDI, defendants controlled the dissemination of, and could thereby

falsify, information about PDI’s business, performance, products, and prospects that reached the

investing public and affected the price of PDI stock. Defendants controlled the content of PDI’s

press releases, corporate reports, SEC filings, and other public statements, which were created,

reviewed, and approved by defendants.

106. Defendants’ knowledge of all critical information concerning the Lotensin, Evista

and Ceftin contracts further supports a strong inference of scienter, as these major contracts were

the Company’s core business. As discussed in ¶¶ 24, 30, 43, 41, 42 and 51, supra, defendants

were aware of all terms of the contracts, including the baselines that determined PDI’s revenues

under the contracts and PDI’s costs in connection with the contracts. Additionally, defendants

received weekly IMS Health reports setting forth sales figures and market share data.

107. Moreover, with respect to the Evista contract, defendant Saldarini stated both

before and after the fact that he did not expect that contract to be profitable (see ¶¶ 51, 53, and

54, supra). PDI’s National Vice President stated that it was clear from the beginning of the

Evista contract that the contract was not going to be profitable, and regional and divisional


DOCS\314284v1 43

managers indicated that they knew that the Evista contract would not be profitable for at least 2-3

years. See ¶ 51, supra.

108. With respect to the Lotensin contract, the immediate problems concerning

training, materials and other start-up difficulties provided defendants with the knowledge that

this contract could not be profitable as early as was forecasted. See ¶ 41, supra. Moreover, as

defendants were aware of the baselines in the contract they knew the amount by which

Lotensin’s market share would need to increase to achieve their forecasts. See ¶¶ 41-42, supra.

As numerous factors indicated to defendants that such increases were not remotely possible, they

knew, at all relevant times, that the forecasts would not be achieved. See id.

109. As for Ceftin, defendants were aware, at all relevant times, of the significant

expenses that PDI would incur in the event the Ceftin contract was terminated early. See ¶ 30,

supra.

NO STATUTORY SAFE HARBOR

110. The federal statutory safe harbor provided for forward-looking statements under

certain circumstances does not apply to any of the allegedly false statements pleaded in this

Complaint. Further, none of the statements pleaded herein which were forward-looking

statements were appropriately identified as “forward-looking statements” when made. Nor was

it appropriately stated that actual results “could differ materially from those projected.” Nor

were the forward-looking statements pleaded accompanied by meaningful cautionary statements

identifying important factors that could cause actual results to differ materially from the

statements made therein. Defendants are liable for the forward-looking statements pleaded

because at the time each of those forward-looking statements was made, the speaker knew the

forward-looking statement was false or misleading and the forward-looking statement was


DOCS\314284v1 44

authorized and/or approved by an executive officer of PDI who knew that those statements were

false or misleading when made.

APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD-ON-THE-MARKET DOCTRINE

111. At all relevant times, the market for PDI common stock was an efficient market

for the following reasons, among others:

(a) PDI common stock met the requirements for listing and was listed and

actively traded on the Nasdaq National Market System, a highly efficient market;

(b) As a regulated issuer, PDI filed periodic public reports with the SEC;

(c) PDI stock was followed by securities analysts employed by major

brokerage firms who wrote reports which were distributed to the sales force and customers of

their respective brokerage firms. These reports were publicly available and entered the public

marketplace; and

(d) PDI regularly issued press releases which were carried by national news

wires. These releases were publicly available and entered the public marketplace.

112. As a result, the market for PDI common stock promptly digested current

information with respect to PDI from all publicly-available sources and reflected such

information in PDI’s stock price. Under these circumstances, all purchasers of PDI common

stock during the Class Period suffered similar injury through their purchase of PDI stock at

artificially inflated prices and a presumption of reliance applies. Further, Lead Plaintiffs are

entitled to and will rely on the presumption of reliance doctrine based on the material omissions

alleged herein.


DOCS\314284v1 45

COUNT I

For Violations of §10(b) of the Exchange Act and Rule 10b-5 Against All Defendants

113. Lead Plaintiffs repeat and reallege each and every allegation contained above as if

fully set forth herein.

114. During the Class Period, PDI and the Individual Defendants, directly and

indirectly, by the use of the means and instrumentalities of interstate commerce and the mails,

carried out a plan, scheme and course of conduct which was intended to and, throughout the

Class Period, did: (i) deceive the investing public, including Lead Plaintiffs and other Class

members, as alleged herein; (ii) artificially inflate and maintain the market price of PDI common

stock; and (iii) cause Lead Plaintiffs and other members of the Class to purchase PDI stock at

artificially inflated prices that did not reflect the stock’s true value. In furtherance of this

unlawful scheme, plan and course of conduct, PDI and the Individual Defendants took the

actions set forth herein.

115. Defendants (a) employed devices, schemes, and artifices to defraud; (b) made

untrue statements of material fact and omitted to state material facts necessary to make the

statements not misleading; and (c) engaged in acts, practices and a course of business which

operated as a fraud and deceit upon the purchasers of the Company’s common stock and the

marketplace in an effort to maintain an artificially high market price for PDI common stock in

violation of §10(b) of the Exchange Act and Rule 10b-5. All defendants are sued as primary

participants in the wrongful and illegal conduct charged herein. The Individual Defendants are

also sued herein as controlling persons of PDI, as alleged below.

116. In addition to the duties of full disclosure imposed on defendants as a result of

their making affirmative statements and reports, or their participating in the making of


DOCS\314284v1 46

affirmative statements and reports to the investing public, each defendant had a duty to promptly

disseminate truthful information that would be material to investors in compliance with the

integrated disclosure provisions of the SEC as embodied in SEC Regulation S-X (17 C.F.R.

§210.01 et seq.) and S-K (17 C.F.R. §229.10 et seq.) and other SEC regulations, including

accurate and truthful information with respect to the Company’s operations, financial condition

and performance so that the market prices of the Company’s publicly traded securities would be

based on truthful, complete and accurate information.

117. PDI and the Individual Defendants, individually and in concert, directly and

indirectly, by the use, means or instrumentalities of interstate commerce and/or of the mails,

engaged and participated in a continuous course of conduct to conceal adverse material

information about the business, operations, future prospects and financial condition, of PDI as

specified herein. Defendants employed devices, schemes and artifices to defraud, while in

possession of material, adverse, non-public information and engaged in acts, practices, and a

course of conduct, as alleged herein, in an effort to assure investors of PDI’s value and

performance, which included the making of, or the participating in the making of, untrue

statements of material facts, and omitting to state material facts necessary to make the statements

about PDI and its business operations in the light of the circumstances under which they were

made, not misleading, as set forth more particularly herein, and engaged in transactions,

practices, and a course of business that operated as a fraud and deceit upon the purchases of PDI

common stock during the Class Period.


DOCS\314284v1 47

118. Each of the Individual Defendants’ liability arises from the following facts:

(1) the Individual Defendants were high-level senior executives and directors

at the Company during the Class Period and members of the Company’s management team or

had control thereof;

(2) each of these defendants, by virtue of his responsibilities and activities as

a senior officer and director of the Company, was privy to and participated in the creation,

development and reporting of the Company’s Class Period announcements, releases, and

findings;

(3) each of these defendants enjoyed significant personal contact and

familiarity with the other defendants and was advised of and had access to other members of the

Company’s management team, internal reports and other data and information about the

Company’s operations at all relevant times; and

(4) each of these defendants was aware of the Company’s dissemination of

information to the investing public which they knew, or recklessly disregarded, was materially

false and misleading.

119. Defendants had actual knowledge of the misrepresentations and omissions of

material facts complained of herein, or acted with reckless disregard for the truth in that they

failed to ascertain and to disclose such facts, even though such facts were readily available to

them. Defendants’ material misrepresentations and omissions were done knowingly or

recklessly and for the purpose and effect of concealing the truth regarding PDI’s business,

operations, performance, products, and prospects from the investing public and supporting the

artificially inflated price of its stock.


DOCS\314284v1 48

120. As a result of the dissemination of the materially false and misleading information

and failure to disclose material facts, as set forth above, the market price of PDI common stock

was artificially inflated during the Class Period. In ignorance of the fact that the market price of

PDI shares was artificially inflated, and relying directly or indirectly on the false and misleading

statements made by defendants, or upon the integrity of the market in which the securities trade,

and/or on the absence of material adverse information that was known to or recklessly

disregarded by defendants but not disclosed in public statements by defendants during the Class

Period, Lead Plaintiffs and other members of the Class purchased PDI common stock during the

Class Period at artificially inflated high prices and were damaged thereby.

121. At the time of said misrepresentations and omissions, Lead Plaintiffs and other

members of the Class were ignorant of their falsity and believed them to be true. Had Lead

Plaintiffs and other members of the Class and the marketplace known the truth regarding the

business, operations, performance, products, prospects, and intrinsic value of PDI, which was not

disclosed by defendants, Lead Plaintiffs and other members of the Class would not have

purchased PDI stock during the Class Period, or, if they had acquired such stock during the Class

Period, they would not have done so at the artificially inflated prices they paid.

122. By virtue of the foregoing, defendants each violated §10(b) of the Exchange Act

and Rule 10b-5 promulgated thereunder.

123. As a direct and proximate result of defendants’ wrongful conduct, Lead Plaintiffs

and other members of the Class have suffered damages in connection with their purchases of the

Company’s stock during the Class Period.


DOCS\314284v1 49

COUNT II

For Violations of §20(a) of the Exchange Act Against Defendants Saldarini and Boyle

124. Lead Plaintiffs repeat and reallege each and every allegation contained above as if

fully set forth herein.

125. The Individual Defendants were, and acted as, controlling persons of PDI within

the meaning of §20(a) of the Exchange Act as alleged herein. By virtue of their high-level

positions with the Company, participation in and awareness of the Company’s operations, and

intimate knowledge of the Company’s actual performance, they had the power to influence and

control, and did influence and control, directly or indirectly, the decision-making of the

Company, including the content and dissemination of the various statements Lead Plaintiffs

contend are materially false and misleading. The Individual Defendants were provided with or

had unlimited access to copies of the Company’s reports, press releases, public filings, and other

statements alleged by Lead Plaintiffs to be misleading prior to and/or shortly after these

statements were issued and had the ability to prevent the issuance of the statements or cause the

statements to be corrected.

126. In particular, each of the defendants had direct and/or supervisory involvement in

the day-to-day operations of the Company at the highest levels and, therefore, is presumed to

have had the power to control or influence the particular acts and transactions giving rise to the

securities violations alleged herein, and exercised the same. The Individual Defendants culpably

participated in the commission of the wrongs alleged herein.

127. As set forth above, PDI and the Individual Defendants each violated §10(b) of the

Exchange Act and Rule 10b-5 by their acts and omissions as alleged in this Complaint. By

virtue of their positions as controlling persons of PDI, the Individual Defendants also are liable


DOCS\314284v1 50

pursuant to §20(a) of the Exchange Act. As a direct and proximate result of the Individual

Defendants’ wrongful conduct, Lead Plaintiffs and other members of the Class suffered damages

in connection with their purchases of the Company’s stock during the Class Period.

PRAYER FOR RELIEF

WHEREFORE, Lead Plaintiffs, individually and on behalf of the Class, pray for

judgment as follows:

(1) Determining that this action is a proper class action and certifying Lead

Plaintiffs as class representatives under Rule 23 of the Federal Rules of Civil Procedure;

(2) Awarding compensatory damages in favor of Lead Plaintiffs and the other

Class members against all defendants for all damages sustained as a result of defendants’

wrongdoing, in an amount to be proven at trial, including interest thereon;

(3) Awarding Lead Plaintiffs and the Class their reasonable costs and

expenses incurred in this action, including counsel fees and expert fees; and

(4) Awarding such other and further relief as this Court may deem just and

proper including any extraordinary equitable and/or injunctive relief as permitted by law or

equity to attach, impound or otherwise restrict the defendants’ assets to assure Lead Plaintiffs

have an effective remedy.


DOCS\314284v1 51

JURY DEMAND

Lead Plaintiffs demand a trial by jury.

Dated: October 21, 2005 Respectfully submitted,

By:

LITE DEPALMA GREENBERG & RIVAS, LLC

/s/ Joseph J. DePalma Allyn Z. Lite Joseph J. DePalma Susan D. Pontoriero Two Gateway Center, 12th Floor Newark, New Jersey 07102-5585 (973) 623-3000

Plaintiffs’ Local Counsel

MILBERG WEISS BERSHAD & SCHULMAN LLP Lee A. Weiss Sharon M. Lee One Pennsylvania Plaza New York, New York 10119-0165 (212) 594-5300

BERGER & MONTAGUE, P.C. Sherrie R. Savett Carole A. Broderick Gary E. Cantor 1622 Locust Street Philadelphia, PA 19103 (215) 875-3000

Plaintiffs’ Co-Lead Counsel


DOCS\314284v1 52


LITE DEPALMA GREENBERG & RIVAS, LLCAllyn Z. Lite Joseph J. DePalma Susan D. PontorieroTwo Gateway Center, 12th FloorNewark, New Jersey 07102-5585(973) 623-3000

Plaintiffs’ Local Counsel

MILBERG WEISS BERSHAD & SCHULMAN LLPLee A. WeissAlisha C. SmithOne Pennsylvania Plaza New York, New York 10119-0165(212) 594-5300

BERGER & MONTAGUE, P.C.Sherrie R. SavettCarole A. BroderickGary E. Cantor1622 Locust StreetPhiladelphia, PA 19103(215) 875-3000

Plaintiffs’ Co-Lead Counsel

UNITED STATES DISTRICT COURTFOR THE DISTRICT OF NEW JERSEY

DOCUMENT ELECTRONICALLY FILED

In re PDI Securities Litigation

X:::X

Master File No. 02- CV- 0211(KSH)

CERTIFICATION OF JOSEPH J. DEPALMA

JOSEPH J. DEPALMA, of full age, hereby certifies as follows:

1. I am an attorney at law of the State of New Jersey and a partner of the law

firm of Lite DePalma Greenberg & Rivas, LLC, attorneys for Lead Plaintiffs in this action. This


G:\Lite\L0213\0202\Pleadings\JJD Certification 10-21-05.wpd

Certification is submitted in support of Lead Plaintiffs’ Third Consolidated and Amended Class

Action Complaint.

2. Attached as Exhibit A is a true and correct copy of Schedule A - Lead Plaintiffs'

Purchases of PDI, Inc. Common Stock During the Class Period.

I certify that the foregoing statements made by me are true. I am aware that if any of the

foregoing statements by me are willfully false, I am subject to punishment.

/s/ Joseph J. DePalmaJoseph J. DePalma

Dated: October 21, 2005


DOCS\314284v1 1

EXHIBIT A


DOCS\314284v1 2

SCHEDULE A

Lead Plaintiffs’ Purchases of PDI, Inc. Common Stock During the Class Period

DATE SHARES SHARE PRICE

PRICE

Gary Kessel 07/20/2001 1000 $74.2300 $74,230.00 Rita Lesser 08/13/2001 400 52.0000 20,800.00 08/14/2001 200 44.3700 8,874.00 09/18/2001 200 27.9200 5,584.00 09/24/2001 200 24.9300 4,986.00 10/02/2001 200 26.2000 5,240.00 10/03/2001 200 27.9800 5,596.00 11/02/2001 200 27.8700 5,574.00 Lewis Lesser 08/10/2001 200 51.3640 10,272.80 08/10/2001 500 50.4000 25,200.00 10/02/2001 200 26.3600 5,272.00 10/02/2001 300 26.3600 7,908.00 10/02/2001 500 26.2180 13,109.00 10/03/2001 500 28.6000 14,300.00 10/03/2001 500 28.6000 14,300.00 10/04/2001 500 30.2600 15,130.00


Documents

LITE DEPALMA GREENBERG & RIVAS, LLC Allyn Z. Lite Joseph J ...securities.stanford.edu/filings-documents/1023/... · Case 2:02-cv-00211-GEB-CCC Document 50-1 Filed 10/21/2005 Page