Case3:10-cv-00998-EMC Document110 Filed05/09/11 Page1 of 87 1 LAW OFFICES OF BRIAN BARRY 2 Brian Barry (135631) 1801 Avenue of the Stars, Suite 307 3 Los Angeles, CA 90067 4 Telephone: (310) 788-0831 Fax: 310-788-0841 5 Email: [email protected]6 Liaison Counsel for Lead Plaintiff and the Proposed Class 7 8 BERNSTEIN LIEBHARD LLP Sandy A. Liebhard ([email protected]) 9 U. Seth Ottensoser ([email protected]) 10 Michael S. Bigin ([email protected]) Joseph R. Seidman, Jr. ([email protected]) 11 Brian Lehman (lehmanfbernlieb.com ) 12 10 East 40th Street, 22 n Floor New York, NY 10016 13 Telephone: (212) 779-1414 14 Fax: (212) 779-3218 15 Lead Counsel for Lead Plaintiff and the Proposed Class 16 UNITED STATES DISTRICT COURT 17 NORTHERN DISTRICT OF CALIFORNIA 18 DAVID APPLESTEIN, Individually and on Behalf of All No. 3:10-cv-00998- 19 Others Similarly Situated, MHP 20 Plaintiff, 21 vs. 22 MEDIVATION, INC., DAVID T. HUNG, C. PATRICK 23 MACHADO, LYNN SEELY, and GREGORY BAILEY, 24 Defendants. 25 26 27 CONSOLIDATED AND AMENDED COMPLAINT 28
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Case3:10-cv-00998-EMC Document110 Filed05/09/11 Page1 of 87
1 LAW OFFICES OF BRIAN BARRY2 Brian Barry (135631)
1801 Avenue of the Stars, Suite 3073 Los Angeles, CA 900674 Telephone: (310) 788-0831
4 40. Step Four: New Drug Application. If clinical studies confirm that a
5 new drug is relatively safe and effective, the manufacturer files a New Drug
6 Application (“NDA”), the actual request to manufacture and sell the drug in the
7 United States. The NDA must include all data from animal and laboratory testing,
8 comprehensive information about the drug’s chemistry and pharmacology, and the
9 complete results of all clinical investigations. Samples of the finished product are
10 also included.
11 41. Step Five: FDA Review. When an NDA is reviewed, agency
12 statisticians and epidemiologists closely examine the drug’s safety and efficacy
13 data. At the same time, samples of the drug undergo laboratory analysis. When
14 the FDA examines a drug’s safety and efficacy profile, it focuses on the quality
15 and totality of the clinical trial data. FDA officials will meet with the sponsor to
16 discuss possible deficiencies in the application that must be resolved to the FDA’s
17 satisfaction before final approval is given.
18 V. BACKGROUND ON DIMEBON AND ALZHEIMER’S DISEASE
19 42. In 1983, Dimebon was approved in Russia as an over-the-counter oral
20 antihistamine for the treatment of allergic rhinitis and allergic dermatitis. It was
21 later taken off the market when better antihistamines with fewer side effects were
22 introduced. It was never available in the United States.
23 43. In the early 1990’s, research began in Russia into whether there could
24 be a link between Dimebon and Alzheimer’s disease.
25
26
27
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1 44. Alzheimer’s disease is a progressive, ultimately fatal, disorder in
2 which certain types of nerve cells in particular areas of the brain degenerate and
3 die for unknown reasons.
4 45. The financial market for Alzheimer’s drugs is enormous. The
5 Company discussed the financial possibilities of an Alzheimer’s drug in a February
6 22, 2007 press release:
7 Alzheimer’s disease, the leading cause of dementia, is characterized
8 by the progressive loss of memory, thinking (cognitive function) and
the ability to perform the activities of daily living (global function).
9 There is currently no cure. According to the Alzheimer’s Association
10and the American Health Assistance Foundation:
11 • Alzheimer’s disease currently affects approximately 4.5 million
12 people in the U.S., including as many as 10% of people aged 65 andolder and nearly 50% of those aged 85 and older.
13• Worldwide, Alzheimer’s disease affects 18 million people, and
14that number is expected to reach 34 million by 2025.
15• There are 350,000 new diagnoses of Alzheimer’s disease, and
16 59,000 Alzheimer’s disease deaths, per year in the U.S.
17• Following initial diagnosis, patients live 8 years, on average,
18 but may live up to 20 years with the disease.
19 • Total annual expenditures on Alzheimer’s disease in the U.S.
20 exceed $100 billion annually, and the average lifetime cost per
21Alzheimer’s disease patient is $174,000.
22 46. According to the Company’s 2006 Annual Report, there were only
23 four drugs approved by the FDA for treating Alzheimer’s disease: Aricept,
24 Exelon, Razadyne, and Namenda. Pfizer, Inc. held the patent to one drug, Aricept,
25 which was to expire on November 25, 2010.
26 47. In February 2001, the U.S. Patent Office issued patent number
27 6,187,785, which described Dimebon’s potential utility in Alzheimer’s and other
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1 neurodegenerative disorders. The patent was given to Selena Laboratories, a
2 company started by Dr. Sergey Sablin. The patent emphasized Dimebon’s activity
3 as an NMDA receptor antagonist – the same mechanism of action as Namenda,
4 another popular Alzheimer’s drug produced by Forest Laboratories. Dr. Sablin
5 relocated to the United States from Russia to commercialize the Dimebon patent.
6 48. In June 2001, four months after the U.S. Dimebon patent was issued,
7 Dr. Sablin and others published a Phase 1 clinical study for Dimebon involving 14
8 patients in Russia. The trial, in which patients received an oral dose three times
9 per day for an eight week period, was performed at a single test site and used an
10 unproven scale to measure cognitive function.
11 49. Using these methods, and in large part because Dimebon had not
12 shown any significant adverse effects when taken for allergies in Russia for over
13 two decades, Dimebon passed this Phase 1 study in 2001.
14 50. Two years after the Phase 1 study, Medivation was founded in
15 September 2003 by Defendants Hung and Machado. The Company bought the
16 rights to Dimebon a month later, in October 2003.
17 VI. THE IMPORTANCE OF DOUBLE BLINDING
18 51. Medivation conducted the Phase 2 Dimebon Alzheimer’s study in
19 Russia.
20 52. The Phase 2 Study lasted six months and involved 183 patients at
21 eleven different sites in Russia. The Phase 2 Study’s results were announced by
22 the Company on the first day of the Class Period, September 21, 2006.
23
24
25
26
27
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1 53. Blinding is fundamental to a Phase 2 test. As the FDA has explained,
2 “Blinding is intended to ensure that subjective assessments and decisions are not
3 affected by knowledge of treatment assignment.”
4 http://www.fda.gov/RegulatoryInformation/
5 Guidances/ucm125802.htm#P234_13165
6 54. The FDA defines “double-blind” to mean that “both subjects and
7 investigators, as well as sponsor or investigator staff involved in the treatment or
8 clinical evaluation of subjects, are unaware of each subject’s assigned treatment.”
9 See Ctr. for Biologics Evaluation & Research, U.S. Dep’t of Health & Human
10 Servs., Guidance for Industry, E10 Choice of Control Group and Related Issues in
11 Clinical Trials 4 (2001) available at http:// www. fda. gov/ cder/ guidance/ 4155
12 fnl. pdf.Blinding. A test being termed double-blind, means neither the patient nor
13 the investigator know which patients are taking the drug being tested and which are
14 taking a placebo.
15 55. “Masking” is another commonly used term to describe blinding.
16 56. In May, 2001, the FDA, together with the U.S. Department of Health
17 and Human Services, the Center for Drug Evaluation and Research, and the Center
18 for Biologics Evaluation and Research, published a “Choice of Control Group and
19 Related Issues in Clinical Trials”. The study states as follows:
20 DETAILED CONSIDERATION OF TYPES OF CONTROL
21A. Placebo Control
22
231. Description
24 In a placebo-controlled trial, subjects are assigned, almost always
25by randomization, to either a test treatment or to a placebo. Aplacebo is a dummy treatment that appears as identical as possible
26 to the test treatment with respect to physical characteristics such as
27
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1 color, weight, taste and smell, but that does not contain the test
2 drug....
3 2. Ability to Minimize Bias
4 The placebo-controlled trial, using randomization and blinding,
5 generally minimizes subject and investigator bias. Such trials,
6 however, are not impervious to blind-breaking through recognition
of pharmacologic effects of one treatment; blinded outcome
7 assessment can enhance bias reduction in such cases.
8 57. According to Steven Piantadosi, Clinical Trials: A Methodological
9 Perspective (2d ed. 2005):
10Masking (blinding) reduces assessment bias . . . . Masking can be
11 accomplished by ensuring that both treatments look, feel, or taste the
12same and that the investigators do not know or reveal the assignmentto the patients. . . . Double masking (double blinding) implies that
13 both patient and investigator responsible are unaware of which
14treatment is being administered. This type of masking furtherincreases the usefulness of subjective endpoints because investigators
15 can also be influence by their expectations. This is especially true if
16the investigator has been exposed to seemingly favorablepreclinical data, believes strongly in the biological basis on which
17 the therapy was developed, and/or has professional or financial
18[interest] in the success of the study. Effective treatment maskingis essential in such cases.
19
20 Id. at 180 (emphasis added).
21 58. Blinding is particularly critical to a Phase 2 clinical trial testing the
22 effects of a drug on Alzheimer’s disease. The symptoms of Alzheimer’s disease
23 are mostly behavioral and the disease cannot be measured with an instrument such
24 as a thermometer or blood pressure device. For example, the widely accepted
25 cognitive function test used in clinical trials to measure changes in the core
26 symptoms of Alzheimer’s is the Alzheimer’s disease Assessment Scale (the
27 “ADAS-cog”). The ADAS-cog consists of 11 tasks in which observers measure
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1 the disturbances of memory, language, praxis, attention and other cognitive
2 abilities, which are often referred to as the core symptoms of Alzheimer’s, by
3 questioning the subject and observing behavior.
4 59. Designing a test so that the active drug tastes the same as the placebo
5 is a basic and well-known measure that scientists take to ensure the test is double-
6 blind. As one article has stated, “The blind may be compromised in a variety of
7 ways, however, beginning with differences in medication taste or smell.” R.H.
8 Perlis et al.., “Assuring that Double-blind is Blind,” The American Journal of
9 Psychiatry 167, 250-2 (2010) (emphasis added).
10 60. Patients who knew they were receiving Dimebon were more likely to
11 report favorable outcomes as measured by the ADAS-cog because they expected a
12 benefit by being in the treatment group. In addition, observers are less likely to
13 identify and report treatment responses in a no-treatment group and more sensitive
14 to a favorable outcome in patients receiving Dimebon.
15 VII. DEFENDANTS’ SCHEME TO DEFRAUD
16 61. Medivation decided to conduct the Phase 2 Dimebon Alzheimer’s
17 study in Russia. The Phase 2 Study involved 183 patients at eleven different sites
18 in Russia. Phase 2 Study’s results were announced by the Company on the first
19 day of the Class Period, September 21, 2006.
20 62. The Phase 2 Study was not double blind because Defendants directed
21 the Dimebon manufacturer to use Dimebon pills that did not have a coated capsule
22 to mask the taste of the Dimebon pill compared to the placebo.
23 63. Dr. Lon S. Schneider, MD, MS, is professor of psychiatry, neurology,
24 and gerontology at the University of Southern California Keck School of
25 Medicine, director of the Alzheimer’s Disease Research and Clinical Center (State
26 of California), director of the USC NIH Alzheimer’s Disease Research Center
27 clinical core, and has reviewed numerous Alzheimer drug trials. Dr. Schneider
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1 agreed to discuss the events concerning Dimebon with Lead Counsel and has
2 reviewed the comments in the following paragraphs ¶¶ 64-70.
3 64. Dr. Schneider stated that “[t]he Phase 2 study was not a double-blind,
4 placebo-controlled trial. The study was deceptive because the active drug pills and
5 the placebo pills in the study were different; they were not identically appearing
6 and tasting.”
7 65. According to Dr. Schneider, conventionally, in double-blind, placebo-
8 controlled drug trials, neither the study site investigators, testers, nor the patients or
9 their caregivers know what drug is being given. To preserve the “blind,” and
10 minimize bias, the drug, the active pharmaceutical ingredient being tested, is
11 masked. Masking is accomplished by manufacturing the drug and its placebo
12 comparator into pills that are identical in every way, shape, color and form.
13 66. Dr. Schneider stated that the pills used in Russia in the Phase 2 trial
14 were provided by the commercial manufacturer of Dimebon and were not the same
15 as the placebo pills. For example, they were uncoated and as such, Dimebon’s
16 bitterness could be tasted.
17 67. Dr. Schneider also stated that tellingly, unlike other clinical trials,
18 Defendants did not describe the pills used in the Phase 2 Study. “There would
19 typically be a sentence saying, ‘The pills, tablets, or capsules were identically
20 appearing in size, color, taste, etc.’ The standard practice in clinical trial papers is
21 to describe in detail what the test substance looked like.” For example, [Dr. Karl]
22 Kieburtz and colleagues from the University of Rochester Parkinson’s Study
23 Group who conducted Medivation’s Phase 2 Huntington disease trial with
24 Dimebon described the study drugs as follows:
25 The study drug [Dimebon] was formulated as a tablet and
26encapsulated to maintain masking. Latrepirdine [Dimebon] andmatching placebo were supplied by KP Pharmaceutical Technology
27 Inc (Bloomington, Indiana) and manufactured by QS Pharma
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1 (Boothwyn, Pennsylvania). (Kieburtz et al Archives of Neurology
2February 2010).
3 68. Dr. Schneider also discussed Dimebon’s Phase 3 failure with an
4 attendee at the SG Cowen & Co. Annual Health Care Conference held in Boston
5 March 8-11, 2010, a week after Medivation announced the Phase 3 Study results
6 (“SG Cowen Conference”). The attendee stated that Defendants Hung and Seely,
7 after an oral slide presentation, were questioned by an analyst about whether the
8 pills in the Phase 2 study were identical. Dr. Schneider’s colleague stated that
9 Defendants Hung and Seely admitted that the pills were not identical. Dr.
10 Schneider stated that Defendants, “Doctors Hung and Seely offered what many
11 doctors in the field have long suspected – that the tablets were not identical in
12 appearance and that Dimebon had a bitter or numbing taste, but the placebo did
13 not.”
14 69. Accordingly, Dr. Schneider believes that the Phase 2 trial was not a
15 double-blind trial but was rather unblinded – and thus subject to biased assessment,
16 results, and reporting, even if it was unconscious – as investigators, staff, patients
17 and caregivers can be aware of differences between the pills and make biased
18 assessments. For example, when investigators know that certain patients are taking
19 an active drug because they are telling them that their mouth is numb – and the
20 placebo group is reporting no side effect – those patients could then be up-rated or
21 their rating scale scores could be intentionally or unintentionally exaggerated or
22 improved. “If you suspect someone is on placebo, you might down-rate them.”
23 Dr. Schneider stated that there is often great pressure on investigators to show
24 positive results and that “[t]his is why we go to lengths to do true, randomized,
25 placebo-controlled, double-blinded study, making sure the pills are identical.”
26 70. Dr. Schneider added that when Dimebon was made for the Phase 3
27 trial in the United States, Defendants “made sure it was manufactured according to
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1 FDA GMP standards and prepared as hard-coated tablets that you can’t break open
2 easily, and therefore, you can’t taste.”
3 71. Additionally, Roy Jones, director of Alzheimer’s Research and
4 Therapy, stated in a September 13, 2010, article entitled “Dimebon
5 disappointment” that:
6 The Dimebon formulation used in Russia appears different from that
7 of the multinational study. The original medication has a bitter taste
and a numbing effect on the tongue, which could lead to unblinding,
8 whereas in the later study the tablet was film-coated.
9Alzheimer's Research & Therapy 2010, 2:25 (13 September 2010).
1072. Significantly, Defendants knew the Phase 2 test would be biased
11unless the Dimebon was masked. In a separate, unsuccessful, Dimebon study of
12the drug’s effect on Huntington’s disease, which was conducted in the United
13States and United Kingdom from July 18, 2007 to July 16, 2008, the Company
14informed investors that in that study, Dimebon “was formulated as a tablet and
15encapsulated to maintain masking.” [Emphasis added.]
16VIII. DEFENDANTS FALSELY ATTRIBUTE PHASE 2
17 RESULTS TO DIMEBON’S EFFECT ON MITOCHONDRIA
18 73. Though the Dimebon patent claimed the mechanism of action was a
19 NMDA receptor antagonist (similar to another FDA approved Alzheimer drug),
20 throughout the Class Period, Defendants claimed that Dimebon worked through a
21 novel mechanism of action – by boosting energy-producing cellular mitochondria.
22 74. In May 2003, Dr. Bachurin and others published data indicating that
23 Dimebon, among other drugs, could prevent the inappropriate opening of
24 mitochondrial pores due to neurotoxins such as beta-amyloid. Importantly, the
25 tissues used in the study were from rat liver – not brain. Further, the tests were
26 conducted at many orders above proper concentration levels.
27
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1 75. The chief support for Defendants’ mitochondrial mechanism of action
2 appears to be work by Dr. Maria Ankarcrona of the Karolinska Institute in Sweden.
3 Dr. Ankarcrona apparently performed experiments on cortical neuronal cultures.
4 These neurons were introduced to ionomycin (a chemical used in research to raise
5 the intracellular level of calcium and as a research tool to understand transport
6 across biological membranes) and the mitochondrial membrane potential was
7 measured with indicators. Dr. Ankarcrona claimed that .1nM of Dimebon was
8 enough to reduce potential mitochondrial changes in response to ionomycin. There
9 were apparently no controls to these experiments – negative or positive. Further,
10 the importance of the Dimebon dose was unclear since similar effects were
11 reported at .1, 1, 10, and 100nM concentrations – very different orders of
12 magnitude.
13 76. A number of scientists tried to replicate Dimebon’s mechanism of
14 action in their own laboratories. Yet Medivation would not provide Dimebon for
15 these experiments. As reported by Dr. Ilya Bezprozvanny in a 2010 issue of Drug
16 News & Perspectives, other scientists were unable to replicate Dr. Ankarcrona’s
17 results:
18 Despite being continuously presented at scientific and investors
19meetings, these results have never been published in a peer-reviewedjournal. Not convinced by Dr. Ankarcrona’s results, a number of
20 scientists attempted to investigate Dimebon’s mechanism of action in
21their own laboratories. Unfortunately, Dimebon was not madeavailable for independent experimental studies by Medivation. When
22 our request for a sample of Dimebon was not satisfied by Medivation,
23we hired a contract research organization, Nanosyn, to synthesize asample of Dimebon based on publicly available structural
24 information.... [W]e did not observe any evidence of mitochondrial
25protective effects in a nanomolar concentration range as claims by Dr.Ankarcrona.... Based on these results, we concluded that Dimebon is
26 not likely to act on mitochondria.
27
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1 77. Dr. Schneider stated in a March 3, 2010 news article that although
2 some evidence supports the idea that Dimebon hits mitochondria, laboratory data
3 shows that Dimebon hits all sorts of brain chemicals including serotonin and
4 dopamine. Emphasizing mitochodria, he says “is just cherry-picking a particular
5 mechanism of action that may or may not be relevant.”
6 78. Further, the issue of what concentrations of Dimebon are needed to
7 affect mitochondria is key. Dr. Schneider pointed to an independent study
8 showing that while the drug can have neuroprotective effects in animals, the
9 concentrations of the drug achieved in humans are far too low to have
10 neuroprotective effects. The 2009 study from the UT Southwestern Medical
11 Center in Dallas, published in the journal Molecular Neurodegeneration, concluded
12 that the high concentration of Dimebon required to achieve neuroprotective effects
13 in animals “is not likely to be achieved in human trials.”
14 79. Indeed, Defendants’ claim that Dimebon effected the Mitochondria
15 through a novel mechanism of action helped convince the market that Dimebon
16 was not just an antihistamine.
17 IX. DIMEBON SHOWED FALSE PROMISE
18AFTER THE BIASED PHASE 2 TESTING
19 80. On September 21, 2006, the first day of the Class Period, the
20 Company announced that the Phase 2 Study was a success. The Company claimed
21 that Dimebon met all efficacy endpoints in a “randomized, double-blinded,
22 placebo-controlled Phase 2 clinical study of 183 patients with mild to moderate
23 Alzheimer’s disease conduced at 11 sites in Russia.”
24 81. Defendants informed the public of the specific results of the Phase 2
25 Study, specifically stating that:
26 Compared with patients receiving placebo, patients treated withDimebon demonstrated highly statistically significant improvement on
27 the study’s primary efficacy endpoint, the Alzheimer’s Disease
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1 Assessment Scale-cognition (ADAS-cog; 4.0 point improvement in
2 the mean change from baseline to week 26 as compared to placebo; p
< 0.0001), and on the key secondary efficacy endpoint, the Clinical
3 Global Impression of Change (CGIC; 0.6 point improvement in the
4mean change from baseline to week 26 as compared to placebo; p <0.0001). Dimebon-treated patients also achieved statistically
5 significant improvement (p < 0.01) compared with placebo patients on
6 all three of the other secondary efficacy endpoints - the Activities of
Daily Living, the Neuropsychiatric Inventory and the Mini Mental
7 State Examination.
8In addition to these improvements in comparison to placebo,
9 Dimebon-treated patients also showed statistically significant
10 improvement over baseline on all five efficacy endpoints used in thisstudy (p < 0.05). By contrast, placebo-treated patients deteriorated
11 from baseline on all five endpoints.
12Dimebon was well tolerated in this study. There were fewer serious
13 adverse events in Dimebon-treated patients than in placebo-treated
14 patients. No gastrointestinal side effects occurred in more than 3% ofthe Dimebon-treated patients except for dry mouth, which occurred in
15 13.5% of the Dimebon-treated patients. A higher percentage of
16 Dimebon-treated patients than placebo-treated patients completed thetrial (87.6% and 81.9%, respectively), for an overall trial completion
17 rate of 84.7%.
18
1982. Dr. Rachelle Doody, MD, PhD, Effie Marie Cain Chair, Director of
20 the Alzheimer’s Disease and Memory Disorders Center at Baylor College of
21 Medicine, and a member of Medivation’s Clinical and Scientific Advisory Board,
22 stated in the September 21, 2006 press release:
From my review of these rigorously collected data, I believe the23 results are striking. It is very rare for a Phase 2 Alzheimer’s24 disease study to demonstrate significance on all of the primary
25and secondary endpoints, five in this case, and with strongstatistical significance. I look forward to continued collaboration
26 with the Medivation team to further develop Dimebon as a potential
27new therapy for Alzheimer’s disease. [Emphasis added.]
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1 83. The results were so strong that, according to Samuel Gandy, associate
2 director of the Alzheimer’s Disease Research Center at Mount Sinai School of
3 Medicine in New York, Dimebon would win FDA approval even if the Phase 3
4 study “is only half as good as the original.” Michelle Fay Cortez, Mystery
5 Alzheimer’s Drug May Yield Advance for Pfizer, Bloomberg.com (Feb. 2, 2010)
14 cog) at six months, was highly significant (p<0.0001). Patientstreated with Dimebon were also significantly improved at six months
15 over baseline on all measures (p=0.005 on ADAS-cog). Dimebon’s
16 benefit over placebo continued to increase throughout the 12-monthtreatment period. At the end of 12 months, Dimebon-treated patients
17 preserved their starting level of function on each measure of
18 Alzheimer’s disease. The results of this trial suggest that, if thefindings are replicated, Dimebon could advance Alzheimer’s
19 treatment, offering more hope for patients and their caregivers.”
20 [Emphasis added.]
21 135. Defendants’ statements that the Phase 2 Study were “double-blind”
22 and “placebo-controlled” were materially misleading because Defendants knew or
23 with deliberate recklessness disregarded that the Phase 2 Study was neither double-
24 blind nor placebo-controlled. As alleged herein, Defendants used uncoated
25 Dimebon pills in the Phase 2 Study. Using uncoated Dimebon pills allowed
26 patients to distinguish between the Dimebon pill and the placebo because patients
27 given Dimebon experienced Dimebon’s bitter taste and numbing effect.
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1 Accordingly, the Phase 2 study was unblinded and not truly placebo-controlled.
2 See ¶¶ 51-72.
3 136. Defendants’ statements concerning the positive results of the Phase 2
4 Study were materially false and misleading because Defendants knew or with
5 deliberate recklessness disregarded that the Phase 2 Study was biased to produce
6 positive results because it was not double-blind. As alleged herein, Defendants
7 designed and executed the Phase 2 Study using uncoated Dimebon pills to cause
8 false and misleading positive results. See ¶¶ 51-72.
9 137. On July 30, 2008, Medivation issued a press release entitled
10 “Medivation Presents Positive New Data on Dimebon’s Long-Term Efficacy and
11 Novel Mechanism of Action at the International Conference on Alzheimer’s
12 Disease,” which stated in part:
13 Medivation, Inc. today announced new data showing that its
14investigational drug Dimebon continues to produce broad,clinically meaningful benefits in Alzheimer’s disease patients after
15 long-term dosing, and appears to operate through a novel
16mechanism of action. These data were presented today in a podiumsession and two poster sessions at the 2008 Alzheimer’s Association
17 International....
18Dimebon’s Novel Mechanism of Action
19
20 In a podium presentation at ICAD 2008, Medivation presentednew data on Dimebon’s novel mitochondrial mechanism of action.
21 Mitochondria generate energy for cells and play important roles in
22 mediating cell function and survival. Mitochondrial dysfunction hasbeen linked in the published literature to both Alzheimer’s and
23 Huntington’s diseases. Preclinical data presented showed that24 Dimebon improves mitochondrial function in the setting of
cellular stress with very high potency. For example, Dimebon25 treatment improved mitochondrial function and increased the
26 number of surviving cells after treatment with a cell toxin knownas ionomycin in a dose-dependent fashion. The effect of Dimebon
27 to improve mitochondrial dysfunction has been confirmed in the
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1 independent laboratory of Maria Ankarcrona, Ph.D., Associate
2 Professor at the Karolinska Institutet in Sweden.
3 . . . . This is a novel mechanism that may, in part, explain the
4 clinical benefits seen in Alzheimer’s patients treated with Dimebon.”
5 About the Pivotal Study. Dimebon’s first pivotal Alzheimer’s trial
6 was a randomized, double-blind, placebo-controlled study of 183patients with mild to moderate Alzheimer’s disease. In this study,
7 patients treated with Dimebon experienced statistically significant
8 improvements compared to placebo in all the key aspects of thedisease: memory and thinking, activities of daily living, behavior and
9 overall function - after both six months and a full year of treatment.
10 Dimebon’s benefit over placebo continued to increase throughout the12-month treatment period. At the end of 12 months, Dimebon-
11 treated patients preserved their starting level of function on each
12 measure of Alzheimer’s disease. [Emphasis added.]
13 138. Defendants’ statements that the Phase 2 Study were “double-blind”
14 and “placebo-controlled” were materially misleading because Defendants knew or
15 with deliberate recklessness disregarded that the Phase 2 Study was neither double-
16 blind nor placebo-controlled. As alleged herein, Defendants used uncoated
17 Dimebon pills in the Phase 2 Study. Using uncoated Dimebon pills allowed
18 patients to distinguish between the Dimebon pill and the placebo because patients
19 given Dimebon experienced Dimebon’s bitter taste and numbing effect.
20 Accordingly, the Phase 2 study was unblinded and not truly placebo-controlled.21 See ¶¶ 51-72.
22 139. Defendants’ statements concerning the positive results of the Phase 2
23 Study were materially false and misleading because Defendants knew or with
24 deliberate recklessness disregarded that the Phase 2 Study was biased to produce
25 positive results because it was not double-blind. As alleged herein, Defendants26
27
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1 designed and executed the Phase 2 Study using uncoated Dimebon pills to cause
2 false and misleading positive results. See ¶¶ 51-72.
3 140. Defendants’ statements identifying the mitochondria as Dimebon’s
4 method of action were materially false and misleading because Defendants knew
5 or with deliberate recklessness disregarded that Dimebon’s effect on the
6 mitochondria was based on flawed studies and disputed by members of the
7 scientifically community. See ¶¶ 73-79.
8 141. On August 11, 2008, Medivation reported its second quarter 2008
9 financial results, in a release which stated in part:
10 Medivation, Inc. today reported on its corporate progress and financial
11results for the quarter ended June 30, 2008.
12 “Based on the significant findings of the Dimebon 12-month pivotal
13 trial in Alzheimer’s disease recently published in The Lancet, as wellas the promising results from our Phase 2 study in Huntington’s
14 disease announced last month, we believe Dimebon is among the most
15 promising drug candidates being investigated today to treat patientswith debilitating, and ultimately fatal, neurodegenerative diseases,”
16 said David Hung, M.D., president and chief executive officer of
17 Medivation. ...
18 • Published results of the first pivotal clinical trial of Dimebon in
19 the July 19, 2008 issue of The Lancet. The article highlightedthat patients with mild-to-moderate Alzheimer’s disease treated
20 with Dimebon experienced statistically significant
21 improvements compared to placebo on all of the key aspects ofthe disease - memory and thinking, activities of daily living,
22 behavior and overall function - over a 12-month period.
23 • Presented new Dimebon data at three presentations at the 2008
24 Alzheimer’s Association International Conference on
25 Alzheimer’s Disease (ICAD):
26 • Presented results from a six-month, open-label extension
27of the 12-month placebo-controlled study showing that
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1 Dimebon continued to improve the clinical course of the
2 disease. After 18 months of treatment, Dimebon
preserved function in patients at or near their original
3 levels upon entering the trial across all key aspects of
4 Alzheimer’s disease. Dimebon remained well tolerated
throughout the 18-month treatment period.5
• Presented new 12-month data from subgroup analyses by
6 disease severity of the first pivotal trial showing that
7 Dimebon benefited both mild and moderate patients,resulting in significant benefit on the study’s primary
8 endpoint, the Alzheimer’s Disease Assessment
9 Scale¬cognitive subscale (ADAS-cog). The drug-placebo difference in moderate patients was 9.7 ADAS-
10 cog points after 12 months of Dimebon treatment.11
• Presented new preclinical data at a podium presentation
12 on Dimebon’s novel mechanism of action, showing that
13 Dimebon improves mitochondrial function in the settingof cellular stress with very high potency. Mitochondria,
14 which generate energy for cells and play important roles
15 in mediating cell function and survival, have beenassociated with both Alzheimer’s and Huntington’s
16 diseases in the published literature. [Emphasis added.]
17 142. Defendants’ statements concerning the positive results of the Phase 2
18 Study were materially false and misleading because Defendants knew or with
19 deliberate recklessness disregarded that the Phase 2 Study was biased to produce
20 positive results because it was not double-blind. As alleged herein, Defendants
21 designed and executed the Phase 2 Study using uncoated Dimebon pills to cause
22 false and misleading positive results. See ¶¶ 51-72.
23 143. Defendants’ statements identifying the mitochondria as Dimebon’s
24 method of action were materially false and misleading because Defendants knew
25 or with deliberate recklessness disregarded that Dimebon’s effect on the26
27
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1 mitochondria was based on flawed studies and disputed by members of the
2 scientifically community. See ¶¶ 73-79.
3 144. On August 11, 2008, the Individual Defendants held a conference call
4 with analysts. On that call, Defendant Hung stated:
5 We believe that Dimebon has a novel mitochondrial mechanism of
6 action that makes it a promising potential treatment for diseases such
as Alzheimer’s and Huntington’s and potentially other
7 neurodegenerative diseases as well.
8In a podium presentation at the ICAD 2008 meeting in Chicago at the
9 end of July we presented new preclinical data on Dimebon’s
10 mechanism of action that showed Dimebon improves mitochondrialfunction and increased the number of surviving cells after treatment
11 with a cell toxin known as ionomycin in a dose dependent fashion.
12The effect of Dimebon on improving mitochondrial dysfunction
13 has been confirmed in an independent laboratory at the14 Karolinska Institute in Sweden. We also presented data that
showed Dimebon promoted neurite outgrowth, an important step15 in the formation of new brain cell connection. [Emphasis added.]
16
17145. Defendants’ statements identifying the mitochondria as Dimebon’s
18 method of action were materially false and misleading because Defendants knew
19 or with deliberate recklessness disregarded that Dimebon’s effect on the
20 mitochondria was based on flawed studies and disputed by members of the
21 scientifically community. See ¶¶ 73-79.
22146. On September 3, 2008, Medivation issued a press release entitled
“Pfizer and Medivation Enter into Global Agreement to Co-Develop and Market2324 Dimebon for the Treatment of Alzheimer’s and Huntington’s Diseases,” which
25 stated in part:
Dimebon is an orally-available, small molecule that has been26 shown to inhibit brain cell death in preclinical models relevant to27 Alzheimer’s disease and Huntington’s disease, making it a potential
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1 treatment for these and other neurodegenerative conditions. Based on
2preclinical data generated to date, Dimebon appears to improve thefunction of mitochondria, the energy generators in cells that play a
3 vital role in governing brain cell health, growth and overall function.
4 Dimebon also has been shown to stimulate the outgrowth of nerves
from brain cells, or neurites, a process that is believed to play an
5 important role in restoring or generating new brain cell connections.
6 [Emphasis added.]
7 147. Defendants’ statements concerning the positive results of the Phase 2
8 Study were materially false and misleading because Defendants knew or with
9 deliberate recklessness disregarded that the Phase 2 Study was biased to produce
10 positive results because it was not double-blind. As alleged herein, Defendants
11 designed and executed the Phase 2 Study using uncoated Dimebon pills to cause
12 false and misleading positive results. See ¶¶ 51-72.
13 148. Defendants’ statements identifying the mitochondria as Dimebon’s
14 method of action were materially false and misleading because Defendants knew
15 or with deliberate recklessness disregarded that Dimebon’s effect on the
16 mitochondria was based on flawed studies and disputed by members of the
17 scientifically community. See ¶¶ 73-79.
18 149. On November 10, 2008, Medivation filed its quarterly report on Form
19 10-Q, signed by Defendant Machado. The report stated as follows:
20 Our lead product candidate, Dimebon, has successfully completed the
21 first of two pivotal clinical trials required to seek marketing approvalfrom the U.S. Food and Drug Administration, or FDA, in the U.S. for
22 mild-to-moderate Alzheimer’s disease. ... Based on data generated in
23 independent third party laboratories, we believe that Dimebonoperates through a novel mitochondrial mechanism of action.
24
25 150. Defendants’ statements concerning the positive results of the Phase 2
26 Study were materially false and misleading because Defendants knew or with
27 deliberate recklessness disregarded that the Phase 2 Study was biased to produce
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1 positive results because it was not double-blind. As alleged herein, Defendants
2 designed and executed the Phase 2 Study using uncoated Dimebon pills to cause
3 false and misleading positive results. See ¶¶ 51-72.
4 151. Defendants’ statements identifying the mitochondria as Dimebon’s
5 method of action were materially false and misleading because Defendants knew
6 or with deliberate recklessness disregarded that Dimebon’s effect on the
7 mitochondria was based on flawed studies and disputed by members of the
8 scientifically community. See ¶¶ 51-72.
9 152. On December 9, 2008, Medivation issued a press release entitled
10 “Medivation Presents New Data on Dimebon’s Novel Mechanism of Action -
11 Dimebon Shown to Impact Two Key Aspects of Brain Cell Function,” which
12 stated in part:
13 Medivation, Inc. presented new data that provide additional evidence
14that Dimebon, its lead product candidate in development to treatAlzheimer’s and Huntington’s diseases, potentially operates via a
15 novel mitochondrial mechanism of action. In preclinical studies,
16Dimebon was shown to impact two key aspects of brain cell function:it promoted neurite outgrowth and it preserved mitochondrial function
17 after brain cells were challenged with beta amyloid, a toxic substance
18often associated with Alzheimer’s disease and the loss of brain cells.
19 “In experiments in which brain cells were exposed to
20 different toxins, including beta amyloid, Dimebon was shown tostabilize mitochondrial function, a vital element of neuron
21 function and survival,” said Andrew Proffer, Ph.D., vice
22 president, preclinical development for Medivation. “Thesefindings suggest that Dimebon may have benefits on slowing the
23 progression of Alzheimer’s disease by preserving mitochondria)
24 function. This potential novel mechanism may help explain theclinical benefits seen to date in Alzheimer’s patients treated with
25 Dimebon.”
26****
27
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1 Dimebon’s effect on improving mitochondrial dysfunction
2has been confirmed previously in the independent laboratory ofMaria Ankarcrona, Ph.D., associate professor at the Karolinska
3 Institutet in Sweden. Additional data about Dimebon’s potential
4 novel mechanism of action were presented in November at theSociety for Neuroscience’s “Neuroscience 2008” conference in
5 Washington, D.C.
6Preclinical data also have been presented that suggest that
7 Dimebon works through a different mechanism of action than other
8 drugs that focus on targets implicated in cognition and memory loss,such as cholinesterase inhibition. In these experiments, Dimebon was
9 shown to be a weak cholinesterase inhibitor, and additional data from
10 binding assays showed that Dimebon did not have strong affinity toother standard targets. This suggests that Dimebon’s potential novel
11 mitochondrial mechanism of action may account for the clinical
12 benefit observed in the Dimebon Alzheimer’s and Huntington’sdisease clinical trials completed to date. [Emphasis added.]
13
14 153. Defendants’ statements identifying the mitochondria as Dimebon’s
15 method of action were materially false and misleading because Defendants knew
16 or with deliberate recklessness disregarded that Dimebon’s effect on the
17 mitochondria was based on flawed studies and disputed by members of the
18 scientifically community. See ¶¶ 73-79.
19 154. On March 16, 2009, Medivation filed its annual report for the 2008
20 fiscal year on Form 10-K (the “2008 Annual Report”). The report was signed by
21 Defendants Hung, Machado, Palekar, and Bailey. The report stated, in pertinent
22 part:
23 Mechanism of Action
24 We believe that Dimebon is exerting its activity through a novel
25 mechanism of action involving enhancement of mitochondrialfunction.....
26
27
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1 In July 2008, we presented new preclinical data on Dimebon’s novel
2 mitochondrial mechanism of action. These data showed that Dimebon
improves mitochondrial function in the setting of cellular stress with
3 very high potency. For example, Dimebon treatment improved
4 mitochondrial function and increased the number of surviving cells in
a dose-dependent fashion after treatment with a cell toxin known as
5 ionomycin.
6 ****
7 In addition, we believe based on preclinical data that Dimebon works
8 through a different mechanism of action than other drugs that focus ontargets implicated in cognition and memory loss, such as
9 cholinesterase inhibition. In these preclinical experiments, Dimebon
10 was shown to be a weak cholinesterase inhibitor, and additional datafrom binding assays showed that Dimebon did not have strong affinity
11 to other standard targets. This suggests that Dimebon’s potential
12 novel mitochondrial mechanism of action may account for theclinical benefit observed in the Dimebon Alzheimer’s and
13 Huntington’s disease clinical trials completed to date. [Emphasis
14 added.]
15 155. Defendants’ statements identifying the mitochondria as Dimebon’s
16 method of action were materially false and misleading because Defendants knew
17 or with deliberate recklessness disregarded that Dimebon’s effect on the
18 mitochondria was based on flawed studies and disputed by members of the
19 scientifically community. See ¶¶ 73-79.
20 156. The 2008 Annual Report also stated:
21 First Pivotal Clinical Trial
22We completed our first pivotal Alzheimer’s disease trial in 2007. This
7176. Prior to the Class Period, the Individual Defendants did not sell any
8Medivation stock.
9The Individual Defendants Made
10 Suspiciously-Timed Sales With Respect
11 To Various Medivation Announcements
12 177. Within the month following the announcement of the Pfizer deal on
13 September 3, 2008, the Individual Defendants sold over 66,000 shares for proceeds
14 of almost $2 million. See ¶ 175.
15 178. On June 9, 2008, Defendants Hung, Machado, and Seely sold 44,000
16 Medivation shares for proceeds of $655,710 – the same day that Medivation
17 announced glowing news concerning Dimebon. See ¶¶ 130, 175.
18 179. On July 18 and 21, 2008, Defendant Bailey sold a total of 22,000
19 Medivation shares for proceeds of $418,000 – within days after Medivation’s
20 announcement of Phase 2 Dimebon results for Alzheimer’s in the Lancet. See ¶¶
21 134, 175.
22 180. On March 18, 2009, Defendants Hung, Machado, and Seely sold a
23 total of 63,000 Medivation shares for proceeds of over $1 million just two days
24 after Defendants made positive statements about Dimebon in connection with the
25 Company’s fourth quarter 2008 results on March 16, 2009. See ¶¶ 159, 175.
26 181. Between January 14, 2010 and February 23, 2010 – just weeks before
27 the devastating March 2, 2010 announcement – Defendants Bailey and Machado
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1 unloaded 110,000 Medivation shares for proceeds of approximately $4 million.
2 See ¶¶ 170, 175.
3 Certain Individual Defendants Sold
4 Substantial Amounts Of Their Medivation Stock
5 182. Several Individual Defendants sold suspicious amounts of their
6 Medivation stock.
7 183. On December 7, 2009, Defendant Seely sold 100% of his Medivation
8 holdings.
9 184. On February 19, 2010 – less than two weeks before announcing the
10 adverse news about Dimebon – Defendant Machado sold 22% of his Medivation
11 holdings.
12 Suspicious Patterns – Sales By IndividualDefendants On The Same Day
13
14185. Many of the Individual Defendants, particularly Hung, Machado, and
15 Seely, repeatedly sold Medivation stock on the same day.
16186. On March 16, 2007, Defendants Hung, Machado and Seely sold a
17 total of 33,810 Medivation shares for proceeds of approximately $600,000.
18187. On June 5, 2007, Defendants Hung, Machado, and Seely sold a total
19 of 44,000 Medivation shares for proceeds of $727,597.
20188. On September 19, 2007, Defendants Hung, Machado, and Seely sold a
21 total of 44,000 Medivation shares for proceeds of $834,958.
22189. On December 3, 2007, Defendants Hung, Machado, and Seely sold a
23 total of 44,000 Medivation shares for proceeds of $577,462.
24190. On March 3, 2008, Defendants Hung, Machado and Seely sold a total
25 of 44,000 Medivation shares for proceeds of $687,975.
26191. On June 9, 2008, Defendants Hung, Machado, and Seely sold a total
27 of 44,000 Medivation shares for proceeds of $655,710.
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1 192. On September 25, 2008, Defendants Hung, Machado, and Seely sold a
2 total of 44,000 Medivation shares for proceeds of $1,304,759.
3 193. On December 3, 2008, Defendants Hung, Machado and Seely sold a
4 total of 44,000 Medivation shares for proceeds of $616,966.
5 194. On March 18, 2009, Defendants Hung, Machado, Palekar and Seely
6 sold a total of 63,000 Medivation shares for proceeds of approximately $1 million.
7 195. On June 30, 2009, Defendants Hung, Machado, and Seely sold a total
8 of 36,461 Medivation shares for proceeds of approximately $800,000.
9 196. On July 1, 2009, Defendants Hung, Machado, and Seely sold a total of
10 26,539 Medivation shares for proceeds of $607,230.
11 197. On September 9, 2009, Defendants Hung, Machado, and Seely sold a
12 total of 41,576 Medivation shares for proceeds of approximately $1 million.
13 198. On December 7, 2009, Defendants Hung, Machado, and Seely sold a
14 total of 63,000 Medivation shares for proceeds of approximately $2 million.
15 Certain Individual Defendants Created
16 Preset Sell Orders With Knowledge ThatThe Price Of Medivation Stock Would Drop
17
18199. On December 13, 2006, three insiders – (1) President and CEO David
19 Hung, (2) Chief Medical Officer Lynn Seely, and (3) Senior Vice President and
20 CFO Machado Clarence Patrick – adopted “Rule 10b5-1” trading plans with
21 knowledge or with deliberate recklessness as to the fact that the Phase 2 Study was
22 materially false and misleading.
23200. The name of this trading plan refers to the fact that, in 2000, the SEC
24 adopted Rule 10b5-1 and allowed an affirmative defense is available if, at a time
25 when the insider had no material nonpublic information, the insider commits to the
future trades.26
27
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1 201. Rule 10b5-1 plans give insiders a motive to delay the release of bad
2 news until after the automatic sales are completed.
3 202. In fact, commentators have explained that one should expect more
4 false or misleading statements by insiders when the insiders have adopted Rule
5 10b5-1 plans than when they do not adopt such a plan. See, e.g., Stanley Veliotis,
6 Rule 10b5-1 Trading Plans and Insiders’ Incentive to Misrepresent, 47 Am. Bus.
7 L.J. 313 (2010).
8 203. Hung, Seely, and Machado used their Rule 10b5-1 plans to quickly
9 sell their Medivation stock for large profits before the Phase 3 Study results were
10 released. By December 3, 2007, Hung’s first plan ended and he had sold
11 $1,659,345 in stock; Machado had sold $664,967; and Seely had sold $598,905.
12 204. Throughout the Class Period, Defendants repeatedly set up automatic
13 trading plans to quickly sell the stock, as demonstrated by the following chart:
14 Defendants Were Motivated To Commit Fraud
15 To Obtain Funding For Medivation
16 205. The Individual Defendants were also financially motivated to commit
17 the wrongdoing alleged herein to attract a financing partner for Dimebon.
18 206. Defendants repeatedly stated the importance of finding a partner for
19 Dimebon during the Class Period. For example, Defendants stated: “Our business
20 strategy relies in part on potentially selling or partnering successful product
21 development candidates with larger pharmaceutical, biotechnology or medical
22 device companies for late-stage clinical trials and/or commercialization. For
23 example, because Alzheimer’s disease is a large market requiring a large sales
24 force, we expect to seek a commercial partner for Dimebon in that indication.”
25 207. The 2006 Annual Report also discussed the need for Medivation to
26 find a partner for Dimebon:
27
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1 We may never attract partners for our technologies or receive
2marketing approval in any jurisdiction.... We have not yet sold orpartnered any of our product development candidates with third party
3 collaborators, and we cannot control whether we will be able to do so
4 on favorable terms or at all. Our business strategy relies in part on
potentially selling or partnering successful product development5 candidates with larger pharmaceutical, biotechnology or medical
6device companies for late-stage clinical trials and/orcommercialization. For example, because Alzheimer’s disease is a
7 large market requiring a large sales force, we expect to seek a
8 commercial partner for Dimebon in that indication. We may also
be required to enter into collaborative relationships to complement our
9 internal efforts, whether in research and development, manufacturing
10or commercialization, and/or to generate necessary financing. Wehave not entered into any such sales or collaborations to date. It may
11 be difficult for us to find third parties that are willing to enter into
12such transactions on acceptable economic terms or at all. [Emphasisadded].
13
14 208. By June 30, 2008, Medivation had cash and cash equivalents of only
15 $33.4 million. If Medivation did not find a business partner soon, it would need to
16 raise cash before finishing Dimebon’s Phase 3 Study.
17 209. On September 3, 2008, Defendants announced “Pfizer and Medivation
18 Enter into Global Agreement to Co-Develop and Market Dimebon for the
19 Treatment of Alzheimer’s and Huntington’s Diseases,” which stated in part:
20 Under the terms of the agreement, Medivation will receive anup-front cash payment of $225 million. Medivation also is eligible to
21 receive payments of up to $500 million upon the attainment of
22 development and regulatory milestones plus additional undisclosedcommercial milestone payments. Medivation and Pfizer will
23 collaborate on the Phase III program in Alzheimer’s disease,
24 Huntington’s disease development and regulatory filings in the UnitedStates. The companies will share all U.S. development and
25 commercialization expenses along with U.S. profits/losses on a 60
26 percent/40 percent basis, with Pfizer assuming the larger share of bothexpenses and profit/losses. In addition, Medivation will co-promote
27 Dimebon to specialty physicians in the U.S.
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1 Pfizer will have responsibility for development, regulatory and
2commercialization outside the U.S. and will pay Medivation tieredroyalties on commercial sales outside of the U.S. The agreement is
3 subject to approval under the Hart-Scott-Rodino Antitrust
4 Improvements Act of 1976. J.P. Morgan served as financial advisor,
and Cooley Godward Kronish LLP served as legal advisor, to
5 Medivation on this transaction.
6210. After landing Pfizer as Medivation’s Dimebon partner, Defendant
7Hung stated on a November 10, 2008 conference call:
8As you may be aware, we consistently articulated our strategy to
9 pursue a partnership for Dimebon and if collaboration deliver what
10 we thought to accomplish will allow us to achieve our strategicobjectives of maximizing the global market opportunity for Dimebon,
11 are retaining a significant role in ongoing development activities,
12 building out our US especially commercial infrastructure andretaining significant economic participation in [sic] the Dimebon’s
13 ultimate commercial success.
14Our Pfizer partnership also provides us with significant financial
15 resources including the $225 million upfront payment that we
16 received last month up to $500 million in potential development andregulatory milestones based on achievement of targeted global net
17 sales level. [Emphasis added.]
18XIII. LOSS CAUSATION
19
20211. During the Class Period, as detailed herein, Defendants engaged in a
21 scheme to deceive the market and a course of conduct that artificially inflated
22 Medivation’s stock price and operated as a fraud or deceit on Class Period
23 purchasers of Medivation stock by misrepresenting the Company’s key product
24 and the implications of the findings from earlier studies on Dimebon. Later,
25 however, when Defendants’ prior misrepresentations and fraudulent conduct were
26 disclosed and became apparent to the market, Medivation stock fell precipitously
27 as the prior artificial inflation came out of Medivation’s stock price. As a result of
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1 their purchases of Medivation stock during the Class Period, plaintiff and other
2 members of the Class suffered economic loss, i.e., damages under the federal
3 securities laws.
4 212. Defendants’ false and misleading statements had the intended effect
5 and caused Medivation securities to trade at artificially inflated levels throughout
6 the Class Period – Medivation common stock reached a price as high as $40.25 per
7 share.
8 213. On March 3, 2010, before the market opened, Defendants were forced
9 to publicly disclose that Dimebon had failed its first late phase clinical trial as the
10 drug did not meet its primary or secondary endpoints. These public revelations
11 indicated that the prior representations about Dimebon for treatment of
12 Alzheimer’s disease had been false. As investors and the market became aware
13 that Medivation’s statements had been false and misleading and that Medivation’s
14 actual business prospects, which had long been obfuscated by the scheme to distort
15 the study results, were, in fact, poor, the prior artificial inflation came out of
16 Medivation’s stock price, damaging investors.
17 214. As a direct result of Defendants’ admissions and the public revelations
18 regarding the truth about Medivation’s key drug and its actual business prospects
19 going forward, Medivation’s stock price plummeted 67%, on unusually high
20 volume, falling from $40.25 on March 2, 2009, to $13.10 per share on March 3,
21 2010. This drop removed the inflation from Medivation’s stock price, causing real
22 economic loss to investors who had purchased the stock during the Class Period.
23 215. The 67% decline in Medivation’s stock price at the end of the Class
24 Period was a direct result of the nature and extent of Defendants’ fraud finally
25 being revealed to investors and the market. The timing and magnitude of
26 Medivation’s stock price decline negates any inference that the loss suffered by
27 plaintiff and other Class members was caused by changed market conditions,
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1 macroeconomic or industry factors or Company-specific facts unrelated to the
2 Defendants’ fraudulent conduct. The economic loss, i.e., damages, suffered by
3 plaintiff and other members of the Class, was a direct result of Defendants’
4 fraudulent scheme to artificially inflate Medivation’s stock price and the
5 subsequent significant decline in the value of Medivation’s stock when
6 Defendants’ prior misrepresentations and other fraudulent conduct were revealed.
7 XIV. PRESUMPTION OF RELIANCE
8(FRAUD ON THE MARKET DOCTRINE)
9 216. At all relevant times, the market for Medivation’s securities was an
10 efficient market for the following reasons, among others:
11 (a) Medivation’s stock met the requirements for listing, and was
12 listed and actively traded on the NASDAQ and the American Stock
13 Exchange, highly efficient and automated markets;
14 (b) As a regulated issuer, Medivation filed periodic public reports
15 with the SEC, as well as NASDAQ and the American Stock
16 Exchange;
17 (c) Medivation regularly communicated with public investors via
18 established market communication mechanisms, including through
19 regular disseminations of press releases on the national circuits of
20 major newswire services and through other wide-ranging public
21 disclosures, such as communications with the financial press and other
22 similar reporting services; and
23 (d) Medivation was followed by several securities analysts
24 employed by major brokerage firms who wrote reports which were
25 distributed to the sales force and certain customers of their respective
26 brokerage firms. Each of these reports was publicly available and
27 entered the public marketplace.
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1 217. As a result of the foregoing, the market for Medivation’s securities
2 promptly digested current information regarding Medivation from all publicly-
3 available sources and reflected such information in Medivation’s stock price.
4 Under these circumstances, all purchasers of Medivation’s securities during the
5 Class Period suffered similar injury through their purchase of Medivation’s
6 securities at artificially inflated prices and a presumption of reliance applies.
7 XV. CLASS ACTION ALLEGATIONS
8 218. Plaintiff brings this action as a class action pursuant to Rule 23 of the
9 Federal Rules of Civil Procedure on behalf of all persons who purchased or
10 otherwise acquired Medivation securities during the Class Period (“Plaintiffs” or
11 the “Class”). Excluded from the Class are Defendants and their families, the
12 officers and directors of the Company, at all relevant times, members of their
13 immediate families and their legal representatives, heirs, successors or assigns and
14 any entity in which Defendants have or had a controlling interest.
15 219. The members of the Class are so numerous that joinder of all
16 members is impracticable. The disposition of their claims in a class action will
17 provide substantial benefits to the parties and the Court. Medivation has over 34.7
18 million shares of stock outstanding, owned by hundreds if not thousands of
19 persons.
20 220. There is a well-defined community of interest in the questions of law
21 and fact involved in this case. Questions of law and fact common to the members
22 of the Class which predominate over questions which may affect individual Class
23 members include:
24 (a) whether the Exchange Act was violated by Defendants;
25 (b) whether Defendants omitted and/or misrepresented material
26 facts;
27
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1 (c) whether Defendants’ statements omitted material facts
2 necessary to make the statements made, in light of the circumstances
3 under which they were made, not misleading;
4 (d) whether Defendants knew or deliberately disregarded that their
5 statements were false and misleading;
6 (e) whether the price of Medivation securities was artificially
7 inflated; and
8 (f) the extent of damage sustained by Class members and the
9 appropriate measure of damages.
10 221. Plaintiff’s claims are typical of those of the Class because plaintiff
11 and the Class sustained damages from Defendants’ wrongful conduct.
12 222. Plaintiff will adequately protect the interests of the Class and has
13 retained counsel who are experienced in class action securities litigation. Plaintiff
14 has no interests which conflict with those of the Class.
15 FIRST CLAIM
16 XVI. FOR VIOLATING SECTION 10(b) OF THE
17 EXCHANGE ACT AND RULE 10b-5 PROMULGATEDTHEREUNDER AGAINST ALL DEFENDANTS
18223. Lead Plaintiff repeats and realleges each and every allegation
19contained above as if fully set forth herein.
20224. During the Class Period, Defendants carried out a plan, scheme, and
21course of conduct that was intended to and, throughout the Class Period, did: (i)
22deceive the investing public regarding Medivation’s business, operations,
23management and the intrinsic value of Medivation securities; (ii) enable
24Defendants to artificially inflate the price of Medivation securities; (iii) enable
25Medivation’s insiders to sell millions of dollars of their privately-held Medivation
26stock while in possession of materially adverse, non-public information about the
27
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1 Company; and (iv) cause Lead Plaintiff and other members of the Class to
2 purchase Medivation securities at artificially inflated prices. In furtherance of this
3 unlawful scheme, plan and course of conduct, Defendants, jointly and individually
4 (and each of them) took the actions set forth herein.
5 225. Defendants, individually and in concert, directly and indirectly, by the
6 use, means or instrumentalities of interstate commerce and/or of the mails, engaged
7 and participated in a continuous course of conduct to misrepresent and/or conceal
8 adverse, material information about the business, operations, and future prospects
9 of Medivation as specified herein.
10 226. Defendants employed devices, schemes and artifices to defraud, while
11 in possession of materially adverse, non-public information and engaged in acts,
12 practices, and a course of conduct as alleged herein in an effort to assure investors
13 of Medivation’s value and performance and continued substantial growth, which
14 included the making of, or the participation in the making of, untrue statements of
15 material facts and omitting to state material facts necessary in order to make the
16 statements made about Medivation and its business operations and future prospects
17 in the light of the circumstances under which they were made not misleading, as
18 set forth more particularly herein, and engaged in transactions, practices, and a
19 course of business that operated as a fraud and deceit upon the purchasers of
20 Medivation securities during the Class Period.
21 227. Defendants had actual knowledge of the misrepresentations and
22 omissions of material facts set forth herein, or acted with deliberate recklessness of
23 the truth in that they failed to ascertain and to disclose such facts. Such
24 Defendants’ material misrepresentations and/or omissions were done knowingly or
25 with deliberate recklessness of the purpose and effect of concealing Medivation’s
26 core product and future business prospects from the investing public and
27 supporting the artificially inflated price of its securities.
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1 228. As a result of the dissemination of the materially false and misleading
2 information and failure to disclose material facts, as set forth above, the market
3 prices of Medivation securities were artificially inflated during the Class Period.
4 In ignorance of the fact that the market prices of Medivation securities were
5 artificially inflated, and relying directly or indirectly on the false and misleading
6 statements made by Defendants, or upon the integrity of the market in which the
7 securities traded, and/or on the absence of material, adverse information that was
8 known to or with deliberate recklessness disregarded by Defendants but not
9 disclosed in public statements by Defendants during the Class Period, Lead
10 Plaintiff and the other members of the Class acquired Medivation securities during
11 the Class Period at artificially high prices and were damaged by the revelation of
12 the true facts about Medivation, its business, and its operations.
13 229. At the time of said misrepresentations and omissions, Lead Plaintiff
14 and other members of the Class were ignorant of their falsity, and believed them to
15 be true. Had Lead Plaintiff and the other members of the Class and the
16 marketplace known the truth regarding the problems that Medivation was
17 experiencing, which were not disclosed by Defendants, Lead Plaintiff and other
18 members of the Class would not have purchased or otherwise acquired their
19 Medivation securities, or, if they had acquired Medivation securities during the
20 Class Period, they would not have done so at the artificially inflated prices that
21 they paid.
22 230. By virtue of the foregoing, Defendants have violated Section 10(b) of
23 the Exchange Act and Rule 1 0b-5 promulgated thereunder.
24 231. As a direct and proximate result of Defendants’ wrongful conduct,
25 Lead Plaintiff and the other members of the Class suffered damages in connection
26 with their respective purchases and sales of the Company’s securities during the
27 Class Period and the revelation of the truth at the end of the Class Period.
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1 SECOND CLAIM
2 XVII. FOR VIOLATING SECTION 20(a) OF THE EXCHANGE ACT
3 AGAINST THE INDIVIDUAL DEFENDANTS
4 232. Plaintiffs repeat and reallege each and every allegation contained
5 above as if fully set forth herein.
6 233. The Individual Defendants acted as controlling persons of Medivation
7 within the meaning of Section 20(a) of the Exchange Act as alleged herein. By
8 virtue of their high-level positions, and their ownership and contractual rights,
9 participation in and/or awareness of the Company’s operations and/or intimate
10 knowledge of the false statements filed by the Company with the SEC and
11 disseminated to the investing public, the Individual Defendants had the power to
12 influence and control and did influence and control, directly or indirectly, the
13 decision-making of the Company, including the content and dissemination of the
14 various statements that Lead Plaintiff contends are false and misleading. The
15 Individual Defendants were provided with or had unlimited access to copies of the
16 Company’s reports, press releases, public filings and other statements alleged by
17 Lead Plaintiff to be misleading prior to and/or shortly after these statements were
18 issued and had the ability to prevent the issuance of the statements or cause the
19 statements to be corrected.
20 234. In particular, the Individual Defendants had direct and supervisory
21 involvement in the day-to-day operations of the Company and, therefore, are
22 presumed to have had the power to control or influence the particular transactions
23 giving rise to the securities violations as alleged herein, and exercised the same.
24 235. As set forth above, the Medivation and the Individual Defendants
25 each violated Section 10(b) and Rule 10b-5 by their acts and omissions as alleged
26 in this Complaint. By virtue of their positions as controlling persons, the Individual
27 Defendants are liable pursuant to Section 20(a) of the Exchange Act. As a direct
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1 and proximate result of Defendants’ wrongful conduct, Lead Plaintiff and other
2 members of the Class suffered damages in connection with their purchases of the
3 Company’s securities during the Class Period.
4 WHEREFORE, Lead Plaintiff prays for relief and judgment, as follows:
5 (a) Determining that this action is a proper class action under Rule
6 23 of the Federal Rules of Civil Procedure;
7 (b) Awarding compensatory damages in favor of Plaintiffs and the
8 other Class members against all Defendants for all damages
9 sustained as a result of Defendants’ wrongdoing, in an amount
10 to be proven at trial, including interest thereon;
11 (c) Awarding Lead Plaintiff and the Class their reasonable costs
12 and expenses incurred in this action, including counsel fees and
13 expert fees; and
14 (d) Such other and further relief as the Court may deem just and
15 proper.
16 XVIII. JURY TRIAL DEMANDED
17 Lead Plaintiff hereby demands a trial by jury.
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DATED: May 9, 2011 Respectfully submitted,
LAW OFFICES OF BRIAN BARRYBrian Barry1801 Avenue of the Stars, Suite 307Los Angeles, CA 90067Telephone: (310) 788-0831
Liaison Counsel for Lead Plaintiff and theProposed Class
BERNSTEIN LIEBHARD LLP
Sandy A. LiebhardU. Seth Ottensoser (admitted pro hac vice)Michael S. BiginJoseph R. Seidman, Jr.Brian Lehman10 East 40th Street, 22 nd FloorNew York, NY 10016Telephone: (212) 779-1414
Lead Counsel for Lead Plaintiff and theProposed Class
Case3:10-cv-00998-EMC Document110 Filed05/09/11 Page87 of 87
CERTIFICATE OF SERVICE
I hereby certify that on the 9 1h day of May, 2011, I caused a true and accurate copy of the
foregoing Consolidated and Amended Complaint to be served by FedEx and ECF upon the
following:
Angela L. Dunning, Esq.Cooley LLPFive Palo Alto Square3000 El Camino RealPalo Alto, CA 94306-2155
