Medical CBD maker will pay out $7.5 million to settle suit over valuation, executive bonuses

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Medical CBD maker GW Pharmaceuticals said it will pay $7.5 million to settle a class action lawsuit that challenged the company’s 2021 takeover by Ireland-based Jazz Pharmaceuticals.

The lawsuit, brought by a shareholder group, alleged the company violated the U.S. Securities Exchange Act in the takeover by undervaluing the company’s shares based on “unsound forecasting methodologies” in statements aimed at getting the deal approved. The plaintiffs, who further allege the deal resulted in millions of dollars in bonuses for the company’s executives, sued GW for “deceptive practices.”

‘Deeply flawed’ advice

Jazz Pharmaceuticals, Dublin, paid $7.2 billion in cash and stock for GW, maker of Epidiolex, a THC-free drug that contains high levels of CBD and has proven effective in the treatment of rare forms of epilepsy.

Epidiolex had sales of $845.5 million in 2023.

The plaintiff group claimed that advice GW received from financial advisors at Goldman Sachs and Centerview Partners was “deeply flawed.” They alleged that GW management deliberately gave the advisors a watered-down forecast that made the company’s future earnings look worse than expected, even though the managers didn’t believe the projections.

The plaintiffs argued that the reduced projections made it easier for the advisors to recommend the merger.

Cannabinoid giant

Epidiolex, which is approved in more than 35 countries, won FDA approval in 2018 and was approved by the UK’s Medicines and Healthcare Products Regulatory Agency in 2019. Canada’s federal health regulator, Health Canada, approved the medicine late last year.

GW is considered to be the biggest medical cannabinoid company in the world, having developed its products under strict regulations for medicine in the markets where it is present.

Sales of Epidiolex (Epidyolex in the UK) grew 16% to $240.6 million in the last quarter of 2023 compared to the year previous. That brought total net product sales for the year to $845.5 million, an increase of 15%. Parent company Jazz Pharmaceuticals, whose shares are traded on the NASDAQ Global Market, had total revenues of $3.8 billion in 2023.

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