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NutriSystem (NTRI)
Typically, our customers purchase monthly food packages of shelf-stable food containing 28 breakfasts, lunches, dinners and desserts, which they supplement with fresh dairy, fruit, salad, vegetables and low-glycemic carbohydrate items. Does Alli cause Constipation? Equity and impairment loss. Sales agents are paid primarily on commission while counselors receive an hourly wage. Sign in Are you a business researcher or a brand?

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The Court also finds that the plaintiffs do not have standing to bring claims arising out of statements made after October 4, , nor have the plaintiffs met their burden of alleging false statements with the particularity required by the PSLRA with respect to most of the allegations in the complaint. The Court will grant the defendants' motion. NutriSystem sells a weight management system based on the purchase of a portion-controlled prepared meal program, typically consisting of a day supply of prepared meals.

Defendant Brown served as the firm's Chief Financial Officer, but announced on August 10, , that he planned to resign. Because NutriSystem experiences a high rate of attrition with its dieting customers, the company has focused on attracting new customers and closely tracks a metric it calls "Customer Acquisition Costs" "CAC".

NutriSystem has used CAC as a shorthand for the effectiveness of its marketing and advertising in presentations to investors and analysts. On February 7, , Glaxo announced that the U.

The drug would be known as Alli and released to the market on June 15, Glaxo invested heavily in marketing and publicity for Alli leading up to and following the drug's introduction. Alli was a tremendous success initially, acquiring 1,, customers by July 25, , and 2,, customers by the end of the third quarter of The complaint alleges that by virtue of their positions within the company, the defendants were aware of the threat Alli posed to the company's financial health and repeatedly misrepresented that threat in communications to investors and analysts throughout the second half of , ending with the company's announcement of full-year results on February 19, The complaint also alleges that defendants Hagan, Brown, Connerty, and Blair "Individual Defendants" , as senior executive officers or directors of the company, were "controlling persons" within the meaning of Section 20 a of the Exchange Act and are directly liable for securities fraud under that statute.

On February 14, , one week after Glaxo announced the FDA's approval of Alli for over-the-counter sale, NutriSystem issued a press release reporting fourth quarter results and providing first quarter and full-year guidance for Defendant Hagan commented on the results and estimates, noting, "We are very pleased with our start in Our advertising continues to perform, our new market segments provide us additional visibility for growth, and our revenue stream from ex-customers is starting strong.

Brown referred to NutriSystem's former customers as "a growing pool of people. On April 25, , the company issued a press release announcing first quarter results and providing guidance for the remainder of In the press release, Hagan attributed part of the company's first quarter success to "ongoing expansion of our pool of ex-customers," Defs'.

Consistent with Glaxo's announcement in February, Alli began over-the-counter sales on June 15, On July 24, , NutriSystem announced its second quarter financial results, third quarter estimates, and full-year guidance in a press release.

CFO Brown noted the company's. The press release quotes CEO Hagan as saying, "[t]he business performed extremely well for the first half of We continue to be excited about the new market segments we've launched in the past year and even more excited about how often our excustomers are returning to us. A conference call with securities analysts was held the same day.

CFO Brown prefaced the discussion with analysts by saying:. The risk factors enumerated in the company's Form K stated, in pertinent part:. During the July 24 call with analysts, Hagan noted a "slight softness in demand" for NutriSystem "starting in late June and carrying into early July.

Hagan added, "We believe the launch of a new over-the-counter weight loss pill with significant PR and media behind it has had an effect, and based on information we have this is fully reflected in our guidance for the remainder of the year.

In response to a question from Citigroup analyst Gregory Badishkanian on the drug's effect, Hagan described the company's guidance as "classically conservative," and noted that the softening of demand for NutriSystem. In response to a question asking whether the comeback in demand was "across-the-board," Hagan responded affirmatively. Later in the call, an analyst asked if the company was making any marketing plan adjustments as a result of Alli's competition.

Chief Marketing Officer Connerty responded:. Connerty also said, "[L]ike everything we do we test [marketing campaigns] so it is not likely we'd go out there overly aggressively with a campaign that wouldn't yield positive return on the media investment.

The complaint alleges that, according to a former NutriSystem employee, in early August the business "had so weakened that a hiring freeze was imposed on the Customer Service Division of the company's Call Center," and that "[t]he number of employees in the Call Center is largely a function of revenues and the volume of orders.

The complaint also alleges that, according to a former weight loss counselor, NutriSystem began layoffs in the Call Center by October According to the same weight loss counselor, by November , calls had decreased even further and call center layoffs were occurring regularly. On August 10, , the company issued a press release announcing the "planned departure" of Chief Financial Officer Brown. In the press release, Hagan described Brown as "leav[ing] the company in excellent financial condition," and Brown commented that "[c]ombined with a fundamentally strong business model, healthy balance sheet and growth catalysts in the horizon, I believe NutriSystem is well positioned to continue its success.

The press release included a forward-looking statement disclaimer and identified risks and uncertainties by reference to the company's Form K. On October 3, , NutriSystem issued a press release announcing preliminary third quarter results and revising guidance for the remainder of Hagan acknowledged the shortfall, and announced:.

C cited in Defs'. The press release was accompanied by a disclaimer invoking the PSLRA safe harbor for forward-looking statements. The company had a conference call with analysts that day, acknowledging the failure to meet the guidance provided in the July 24th announcement.

Brown acknowledged the increase in CAC compared to the third quarter of and said the company believed the increase was "largely caused" by Alli's introduction. Brown also preceded the call with a disclaimer invoking the PSLRA safe harbor for forward-looking statements. On February 19, , NutriSystem discussed fourth quarter and full year results with analysts in a conference call.

The complaint contains two counts: The plaintiff claims that as a result of the material misrepresentations and omissions alleged, NutriSystem's common stock traded at artificially inflated prices throughout the class period and led to losses as a result of the company's disclosures on July 24, , October 3, , and February 19, The defendants have moved to dismiss the complaint, arguing that: The complaint alleges that the defendants made false and misleading statements and omissions of material fact necessary to make their statements not false or misleading.

The complaint alleges that these statements and omissions "failed to disclose material adverse information and misrepresented the truth about the company, its business and operations. The complaint alleges that these statements were materially false and misleading at the time because they omitted "adverse facts which were known to defendants or recklessly disregarded by them.

The specific facts omitted are alleged as follows:. Finally, the complaint alleges that the defendants knew of or recklessly disregarded the false and misleading nature of the documents and statements at issue because they were privy to contradictory confidential information regarding the company's true competitive position.

Further, the complaint cites sales of NutriSystem shares by Blair, Connerty, and Hagan between April 4, , and June 4, , as well as sales by Brown between May 10, , and September 10, The Court will grant the motions to dismiss both the Rule 10b-5 claim and the Section 20 a claim.

The Court finds that with respect to the factual allegations in the complaint the statements at issue have not been pled with the specificity required by the PSLRA, are protected by the PSLRA safe harbor for forward-looking statements, or are too vague to be actionable. The Court also finds that the plaintiff does not have standing to bring claims arising from statements made after October 4, , and has not adequately pled materiality or causation with respect to statements made on October 24, , and February 19, With respect to the entire complaint, the Court concludes that the plaintiff has failed to raise the strong inference of scienter required by the PSLRA.

Because the Rule 10b-5 claims fail, the Court will dismiss the Section 20 a claims for failure to allege an independent violation of the securities laws.

Section 10 b of the Exchange Act forbids a person, through the use of any means of interstate commerce, the mails, or any national securities exchange, to employ any manipulative or deceptive device or contrivance in contravention of rules promulgated by the SEC.

SEC Rule 10b-5 forbids the making of any "untrue statement of a material fact," the omission of any material fact necessary to make a statement not misleading, or engaging in any practice that operates as a fraud or deceit upon any person in connection with the purchase or sale of any security. The six basic elements of the action are: In re Rockefeller Ctr.

With respect to each act or omission, a plaintiff must identify each statement alleged to have been misleading, specify the reasons why it is misleading, and state with particularity the facts that give rise to a strong inference that the defendant acted with the required state of mind. To survive a motion to dismiss, the inference of scienter must be cogent and at least as compelling as any competing nonculpable inference plausibly drawn from the facts alleged and taken as a whole.

The company provides monthly food packages containing a day supply of breakfasts, lunches, dinners, and desserts. As public awareness of the obesity epidemic has grown, demand for products from companies like Nutrisystem has increased dramatically. Nutrisytem, which is primarily based in the United States, also has operations in Europe, Australia and Canada.

While entering any new market comes with significant risks, in this case, the company's target markets represent significant revenue opportunities, particularly in the case of a depreciating U. The large size and continued growth of the weight loss market has attracted a number of new players. Other pharmaceutical companies have released weight loss drugs, but the ability of these drugs to gain market share has been limited by doctors' reluctance to prescribe them in any but the most extreme cases.

Alli's over the counter status, however, makes it a much more viable competitor to NTRI. Traditional food companies are also responding to the revenue opportunity represented by the pre-packaged meal segment of the weight loss market and have begun marketing their products as weight loss solutions.

NutriSystem markets its program as a reasonable alternative to fad diets and other unhealthy or unrealistic dieting methods. Nutrisystem does not charge membership fees. A sluggish US economy tends to have an adverse effect on the weight loss industry. As consumers lose discretionary funds, luxuries like weight loss programs and dieting products lose their priority. As Weight Watchers CEO David Kirchoff noted, "when consumers are facing a sudden crisis over their savings, livelihood, and standard of living, the natural inclination is to comfort eat, not to lose weight.

The obesity trend in the United States and the world at large has greatly expanded the weight loss industry as a whole. Worldwide, it is estimated that the number of overweight and obese people is around 1. NutriSystem markets itself as a weight-management program that is affordable as well as convenient. Below you'll find some of the most effective weight loss supplements on the market today, in our opinion.

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