1 patrice l. bishop (182256) - securities class action...

Case 8:12-cv-01647-PSG-FMO Document 24 Filed 04/15/13 of 84 Page ID #:293

Patrice L. Bishop (182256) service(ssbla.com STULLSTULL & BRODY 9430 West Olympic Boulevard Suite 400 Beverly Hills, CA 90212 Tel: (310) 209-2468 Fax: (310) 209-2087

Liaison Counsel for Plaintiff and the Putative Class

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UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

WESTERN DIVISION

NATHANIEL L. ANDERSON, ) Case No. SACV1 2-01647 PSG (FMOx) Individually and on Behalf of All ) Others Similarly Situated, ) CLASS ACTION

Plaintiff, CONSOLIDATED COMPLAINT

V.

PEREGRINE PHARMACEUTICALS, 'a INC., STEVEN W.KING, PAUL J.

LYTLE, JOSEPH S. SHAN and ROBERT L. GARNICK,

Defendants.

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CONSOLIDATED COMPLAINT I

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Lead Plaintiff James T. Fahey (“Plaintiff”), individually and on behalf of all

2 persons similarly situated, by his undersigned attorneys, for his consolidated

3 complaint against Defendants alleges the following based upon personal knowledge

4 as to his own acts, and information and belief as to all other matters, based upon,

5 inter alia, the investigation conducted by and through his attorneys, which included,

6 among other things, a review of Defendants’ public documents, conference calls and

7 announcements made by Defendants, United States Securities and Exchange

8 Commission (“SEC”) filings, wire and press releases published by and regarding

9 Peregrine Pharmaceuticals, Inc. (“Peregrine” or the “Company”), securities analysts’

10 reports and advisories about the Company, interviews with past Company

11 employees, and information readily obtainable on the Internet. Plaintiff believes that

12 substantial evidentiary support will exist for the allegations set forth herein after a

13 reasonable opportunity for discovery.

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NATURE OF THE ACTION

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1. This is a federal class action on behalf of persons (the “Class”) who

16 purchased or otherwise acquired the Company’s securities between May 21, 2012

17 and September 26, 2012, inclusive (the “Class Period”), seeking to pursue remedies

18 under the Securities Exchange Act of 1934 (the “Exchange Act”).

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2. Peregrine is a clinical-stage biopharmaceutical company that develops

20 and manufactures monoclonal antibodies for the treatment of cancer and viral

21 infections. Peregrine’s key product is bavituximab, a phosphatidylserine targeting

22 anti-body. Peregrine is studying bavituximab as a primary (front-line) and second-

23 line treatment for non-small cell lung cancer (“NSCLC”) and other cancers.

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3. Specifically, throughout the Class Period, Defendants violated the

25 Exchange Act by disseminating materially false and misleading statements to the

26 investing public about the effectiveness of the Company’s experimental drug

27 bavituximab as a treatment for NSCLC and other cancers, making it impossible for

28 shareholders to gain a meaningful or realistic understanding of the drug’s prospects.

1 CONSOLIDATED COMPLAINT

Case 8:1

cv-01647-PSG-FMO Document 24 Filed 04/15/13 of 84 Page ID #:295

1 As a result of Defendants’ materially false and misleading statements, Peregrine’s

2 securities traded at artificially inflated prices during the Class Period, reaching a

3 high of $5.39 per share on September 21, 2012.

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4. On September 24, 2012, Peregrine issued a press release warning of

5 discrepancies in the results of a Phase II clinical trial to assess dose, tolerance and

6 safety using bavituximab as a second-line treatment for NSCLC and advising

7 investors that they should not rely on clinical data the Company had previously

8 disclosed from this trial.

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5. On this news, Peregrine’s stock plummeted $4.23 per share to close at

10 $1.16 per share on September 24, 2012, a one-day decline of 78%.

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6. On September 26, 2012, Peregrine filed a Form 8-K with the SEC,

12 which disclosed that the Company had received a written notice of default from

13 Oxford Finance LLC (“Oxford”), with respect to a security agreement the Company

14 had entered into on August 30, 2012. According to the Company, the lender deemed

15 the Company’s disclosure on September 24, 2012, concerning the major

16 discrepancies in the results from its cancer trial to be a material adverse change

17 under the terms of the loan agreement and, as result, the lender accelerated the

18 repayment of the loan and demanded repayment in full for the outstanding amounts.

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7. On this news, Peregrine’s stock declined $0.55 per share to close at


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8. Defendants state that they conduct their trials (including the Phase II

22 trial discussed herein) in accordance with the International Conference on

23 Harmonization (“ICH”), Good Clinical Practices (“Good Clinical Practices” or

24 “GCP”) standards, and the Food and Drug Administration (“FDA”) rules. The true

25 facts, which were known by Defendants, but not disclosed to the investing public

26 during the Class Period, were as follows:

2

CONSOLIDATED COMPLAINT

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(a) Defendants had not properly administered and monitored the

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Phase II trial of bavituximab in treating second-line NSCLC patients in

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accordance with Section 5.1.1 of the ICH on Good Clinical Practice, E6 (“ The

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sponsor is responsible for implementing and maintaining quality assurance

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and quality control systems with written SOPs [Standard Operating

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Procedures] to ensure that trials are conducted and data are generated,

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documented (recorded), and reported in compliance with the protocol, GCP,

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and the applicable regulatory requirement(s)”) (emphasis added);

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(b) Defendants had not properly administered and monitored the

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accordance with Section 5.1.3 of the ICH on Good Clinical Practice, E6

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(“Quality control should be applied to each stage of data handling to ensure

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that all data are reliable and have been processed correctly”);

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(c) Defendants had not properly administered and monitored the

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accordance with Section 5.2.1 of the ICH on Good Clinical Practice, E6 (“ A

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sponsor may transfer any or all of the sponsor’s trial-related duties and

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functions to a CRO [Contract Research Organization], but the ultimate

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responsibility for the quality and integrity of the trial data always resides

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with the sponsor ”) (emphasis added);

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(d) Defendants had not properly administered and monitored the

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accordance with Section 5.5.1 of the ICH on Good Clinical Practice, E6 (“The

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sponsor should utilize appropriately qualified individuals to supervise the

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overall conduct of the trial, to handle the data, to verify the data, to conduct

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the statistical analyses, and to prepare the trial reports”);

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(e) Defendants had not properly administered and monitored the

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cv-01647-PSG-FMO Document 24 Filed 04/15/13 of 84 Page ID #:297 Case 8:1

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(“The sponsor should ensure that the investigational product(s) (including

active comparator(s) and placebo, if applicable) is characterized as

appropriate to the stage of development of the product(s), is manufactured in

accordance with any applicable GMP [good manufacturing practice], and is

coded and labeled in a manner that protects the blinding , if applicable. In

addition, the labeling should comply with applicable regulatory

requirement(s).”) (emphasis added);

(f) Defendants had not properly administered and monitored the



(“The purposes of trial monitoring are to verify that: . . . The reported trial

data are accurate, complete, and verifiable from source documents . [...].”)

(emphasis added);

(g) Defendants had not properly administered and monitored the



(“The sponsor should ensure that the trials are adequately monitored .

[...].”) (emphasis added);

(h) Defendants had not properly administered and monitored the


accordance with Section 5.18.4(d) of the ICH on Good Clinical Practice, E6

(“Verifying that the investigator follows the approved protocol and all

approved amendment(s), if any.”);

(i) Defendants had not properly administered and monitored the


accordance with Section 5.18.4(h) of the ICH on Good Clinical Practice, E6

(“Verifying that the investigator and the investigator’s trial staff are


cv-01647-PSG-FMO Document 24 Filed 04/15/13 of 84 Page ID #:298 Case 8:1

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performing the specified trial functions, in accordance with the protocol and

any other written agreement between the sponsor and the

investigator/institution, and have not delegated these functions to

unauthorized individuals.”);

(j) Defendants had not properly administered and monitored the




[...]”) (emphasis added);

(k) Defendants violated FDA Guideline on the Preparation of

Investigational New Drug Products, 21 CFR § 211.125 (“Strict control shall

be exercised over labeling issued for use in drug product labeling operations .

. . .”);

(l) Defendants violated FDA Guideline on the Preparation of

Investigational New Drug Products, 21 CFR § 211.130 (“written procedures

be designed and followed to assure that correct labels and labeling materials

are used for drug products”);

(m) Defendants failed to conduct a thorough internal operational

review of the Company’s interim results of the Phase II trial before releasing

the interim results to the investing public, as they later admitted to in a

Company press release issued on January 7, 2013 ( see ¶ 112 below);

(n) Defendants admitted in the Company’s Form 10-K for year

ended April 30, 2010 (“2012 Form 10-K”) that the Company’s reliance on

third parties does not relieve it of Good Clinical Practice for conducting,

monitoring, recording and reporting the results of clinical trials to ensure that

the data and results are scientifically credible, accurate and viable; however,

this statement was false as the Company never conducted a thorough

operational review of the third-party vendor operation to ensure the accuracy



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of its interim reporting of the Phase II trial before releasing those interim

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results to the investing public (as Defendants later admitted to in the

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Company’s January 7, 2013 press release (see ¶ 112 below));

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(o) Peregrine lacked the proper internal controls related to accurately

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conducting clinical trials and accurately reporting the results of the clinical

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trials (see Confidential Witness(es) (“CW(s)”) at ¶¶ 90-111); and

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(p) The Company’s reports on the interim statistical analysis of the

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effectiveness and safety of bavituximab in the treatment of NSCLC gave

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investors a false-positive conclusion of the outcome from the Phase II study.

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Until a clinical study is completed and all components of the study’s

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medications are analyzed, a projected outcome based on partial data cannot be

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cited as statistical evidence of safety or efficacy.

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9. Further, one of the most important values that can be assigned to

14 findings by the process of statistical analysis is the p-value, or “probability” value.

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10. The p-value is a number between 0.00 and 1.0, and is used to

16 demonstrate the strength of a conclusion drawn from clinical trial data. It enables

17 analysts to assign a widely accepted numerical value to the strength of a statement or

18 hypothesis. Essentially, the p-value measures consistency between the results

19 actually obtained in the trial and the “pure chance” explanation for those results.

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11. A statement and corresponding p-value are considered of strong

21 significance if the probability of the same reaction occurring randomly or by chance

22 is less than 5%, corresponding to a p-value of p<0.05.

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12. Here, Defendants failed to disclose the p-value applicable to the interim

24 results of the overall survival of the patients in the Phase II trial when they disclosed

25 certain interim data from the trial on May 21, 2012. See ¶ 65 below. This failure to

26 disclose the p-value as to the overall survival was an omission of material

27 information important to investors as the information provided to investors on May

28 21, 2012 was not “positive top-line results” nor was the data “a significant validation



1 of the clinical potential of bavituximab for patients with few effective treatment

2 options.”

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13. On July 16, 2012, Defendant Peregrine again announced interim results

4 as to the overall survival of patients in the Phase II trial and touted them as

5 “exceptional” but once again failed to disclose the p-value as to the overall survival

6 associated with this data. See ¶ 66 below. This failure to disclose the p-value was

7 an omission of material information important to investors.

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14. In addition, on September 7, 2012, Defendant Peregrine made a further

9 announcement about the interim data as to the overall survival of patients

10 purportedly gathered from the Phase II trial and claimed that the p-value was .0154.

11 This p-value, if accurate, would be statistically significant in showing that

12 bavituximab had been efficacious in the Phase II trial. See ¶ 71 below. However,

13 this description of the p-value as to the overall survival of patients was false and

14 misleading as it was based on incomplete data. Defendant Peregrine later admitted

15 on February 19, 2013, that the p-value as to the overall survival of patients was

16 0.217, which means that chance would be responsible for the outcome of the data in

17 more than one of five times, which is not statistically significant. Defendant

18 Peregrine also failed to disclose any reason for the extreme negative change as to the

19 p-value in the overall survival of patients from the earlier reported incomplete data.

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15. In addition, Defendants admit that they knew that the interim data

21 regarding Phase II was false and misleading on September 20, 2012 (Thursday) --

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(4) days before Defendants disclosed to investors (on September 24, 2012

23 (Monday)) that the interim results for Phase II should not be relied upon , but

24 allowed investors to purchase Peregrine securities on this materially false and

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misleading information. See ¶ 61 below. On September 21, 2013 (Friday),

26 8,417,700 shares of Peregrine stock traded on materially false and misleading

27 information known to Defendants but unknown to investors between $5.50 and

28 $5.05 to close at $5.39.


Case 8:1

cv-01647-PSG-FMO Document 24 Filed 04/15/13 of 84 Page ID #:301

16. As a result of Defendants’ materially false and misleading statements,

Peregrine securities traded at artificially inflated levels during the Class Period.

However, after the above revelations were revealed to the market, the Company’s

securities dropped precipitously, sending them down 79% from their Class Period

high.

JURISDICTION AND VENUE

17. The claims asserted herein arise under and pursuant to Sections 10(b)

and 20(a) of the Exchange Act (15 U.S.C. §§ 78j(b) and 78t(a)) and Rule l0(b)-5

promulgated thereunder (17 C.F.R. § 240.10b-5).

18. This Court has jurisdiction over the subject matter of this action

pursuant to Section 27 of the Exchange Act (15 U.S.C. § 78aa), and 28 U.S.C. §

1331.

19. Venue is proper in this Judicial District pursuant to Section 27 of the

Exchange Act, 15 U.S.C. § 78aa and 28 U.S.C. § 1391(b). Many of the acts and

transactions alleged herein, including the preparation and dissemination of

materially false and misleading information, occurred in substantial part in this

Judicial District.

20. In connection with the acts, conduct and other wrongs alleged in this

Complaint, Defendants, directly or indirectly, used the means and instrumentalities

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

interstate telephone communications and the facilities of the national securities

exchange.

PARTIES

21. Lead Plaintiff James T. Fahey (“Plaintiff”), as set forth in the attached

certification, purchased Peregrine securities at artificially inflated prices during the

Class Period and has been damaged as a result of the revelation of the Company’s

fraud.

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Case 8:

2-cv-01647-PSG-FMO Document 24 Filed 04/15/13 of 84 Page ID #:302

1

22. Defendant Peregrine, as stated supra, is a clinical-stage

2 biopharmaceutical company that develops and manufactures monoclonal antibodies

3 for the treatment of cancer and viral infections. Defendant Peregrine’s key product

4 is bavituximab, a phosphatidylserine targeting anti-body. Defendant Peregrine is

5 studying bavituximab as a primary (front-line) and second-line treatment for

6 NSCLC and other cancers.

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23. Defendant Stephen W. King (“King”) is, and at all relevant times was,

8 the Company’s Chief Executive Officer (“CEO”), President and a Director.

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24. Defendant Paul J. Lytle (“Lytle”) is, and at all relevant times was, the

10 Company’s Chief Financial Officer (“CFO”).

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25. Defendant Joseph S. Shan (“Shan”) is, and at all relevant times was, the

12 Company’s Vice President, Clinical and Regulatory Affairs.

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26. Defendant Robert L. Garnick (“Garnick”) is, and at all relevant times

14 was, the Head of Regulatory Affairs.

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27. Defendants named above in ¶¶ 23-26 are referred to herein as the

16 “Individual Defendants.”

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BACKGROUND

18 A. The Company Background

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28. The drug bavituximab, given by intravenous infusion, is a genetically

20 engineered antibody designed to target a lipid molecule found on tumor blood

21 vessels that acts to suppress the body’s immune system.

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29. The antibody binds to the targeted molecule to reactivate “the immune

23 response locally at the site of the tumor,” allowing the immune system to combat

24 cancer cells, stated Defendant Shan, head of clinical and regulatory affairs at

25 Peregrine. See Peregrine’s Form 10-K for year ended April 30, 2010 (“2010 Form

26 10-K”).

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2-cv-01647-PSG-FMO Document 24 Filed 04/15/13 of 84 Page ID #:303 Case 8:

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30. Defendant Peregrine stated in its public statements to investors that

2 lung cancer is the second most commonly diagnosed cancer with 219,440 new cases

3 and 159,000 deaths in 2009 in the United States alone.

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31. Defendant Peregrine also stated in its public statements to investors that

5 NSCLC is the most common type of lung cancer accounting for approximately 85%

6 to 90% of all lung cancers.

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32. NSCLC is any type of epithelial lung cancer other than small cell lung

8 carcinoma (“SCLC”). As a class, NSCLCs are relatively resistant to chemotherapy,

9 compared to small cell carcinoma.

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33. Defendant Peregrine stated in its public statements to investors that the

11 five year survival for NSCLC patients is only 1%.

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34. Defendant Peregrine also stated in its public statements to investors that

13 it intends to pursue Phase III development with bavituximab in second-line NSCLC.

14 “Once a front-line NSCLC patient progresses following a first course of therapy,

15 they are typically treated with a second course of therapy. There are approximately

16 135,000 patients with NSCLC receiving second-line treatment annually in the U.S.,

17 Europe, and Japan. The market for second-line therapeutics is expected to exceed

18 $1.0 billion annually by 2019 according to independent market research estimates.”

19 See 2012 Form 10-K.

20

35. Defendant Peregrine has attempted to develop bavituximab as a

21 therapeutic agent against various types of cancer for many years. As of fiscal year

22 ended 2012, Defendant Peregrine was engaged in seven (7) clinical trials in Phase I

23 and Phase II attempting to test whether bavituximab was efficacious against five

24 different types of cancer: NSCLC, pancreatic, liver, prostate, and breast. As of

25 fiscal year ended 2012, Defendant Peregrine was also attempting to develop

26 bavituximab as an imaging agent to help identify tumors.

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36. Clinical development of bavituximab for the treatment of cancer began

28 in 2008. Since that time, Peregrine has conducted twelve (12) Phase-I/-II studies

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1 and treated 613 cancer patients, but has yet to observe a statistically significant

2 improvement over a contemporary standard-of-care (“SOC”).

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37. Defendant Peregrine’s only other potential product is a second agent

4 called Cotera. Defendant Peregrine is attempting to develop Cotera as a single

5 treatment brain cancer therapy. Defendant Peregrine has conducted four clinical

6 trials and claims that “Cotera has demonstrated encouraging survival, localization to

7 the tumor, and an acceptable safety profile in patients with brain cancer.” See 2012

8 Form 10-K at p. 8. Despite the fact that Cotera has been granted FDA and European

9 Medicines Agency (“EMA”) orphan drug status for glioblastoma multiforme

10 (“GBM”) and anaplastic astrocytoma, and fast track designation in the U.S. for the

11 treatment of recurrent GBM, Defendant Peregrine has been unable to develop Cotera

12 as a commercial drug. Orphan drug status refers to a pharmaceutical agent that has

13 been developed specifically to treat a rare medical condition. Even if Defendant

14 Peregrine was able to commercially develop Cotera, the market for the drug is small.

15 According to Defendant Peregrine, there will be only an estimated 22,900 malignant

16 brain tumors diagnosed in 2012 of which only 15% are GMB (approximately 3,435).

17 Accordingly, any profits that may ultimately been achieved from Cotera will not be

18 enough to ensure the survival of Defendant Peregrine – only the commercial

19 development of bavituximab can do that.

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38. Defendant Peregrine has never made a profit in its last eight years of

21 existence, and upon information and belief has never made a profit during its entire

22 existence.

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39. As outlined infra, for its past eight (8) fiscal years, Defendant Peregrine

24 has operated at a net loss:

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(a) As of April 30, 2005, Defendant Peregrine had a net loss of

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$15,452,000;

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(b) As of April 30, 2006, Defendant Peregrine had a net loss of

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$17,061,000;



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(c) As of April 30, 2007, Defendant Peregrine had a net loss of

$20,796,000;

(d) As of April 30, 2008, Defendant Peregrine had a net loss of

$23,176,000;

(e) As of April 30, 2009, Defendant Peregrine had a net loss of

$16,524,000;

(f) As of April 30, 2010, Defendant Peregrine had a net loss of

$14,494,000;

(g) As of April 30, 2011, Defendant Peregrine had a net loss of

$34,151,000;

(h) As of April 30, 2012, Defendant Peregrine had a net loss of

$42,119,000; and

(i) As of April 30, 2012, Defendant Peregrine had an accumulated

deficit of $338,124,000 for fiscal year ended April 30, 2012.

40. Defendant Peregrine has not yet released its Form 10-K for the fiscal

year ending April 30, 2013, but represented that its unaudited books and records

showed that for the nine months ending January 31, 2013, Peregrine had a net loss of

$21,331,000. See Form 10-Q for period ending January 31, 2013 (“1Q 2013 Form

10-Q”) at p. 2.

41. Defendant Peregrine’s only way to finance its operations, which

consistently run at a loss, is to either borrow money from lenders or to issue stock

into the public markets.

42. In recent years, Defendant Peregrine has only been able to borrow

money from lenders in two instances.

43. The first such loan was on or about December 9, 2008, when Peregrine

entered into a loan and security agreement with MidCap Financial, LLC and

BlueCrest Capital Finance, LP to borrow $10 million. Defendant Peregrine received

initial funding of $5 million under the loan and security agreement.

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44. Defendant Peregrine paid this loan in full by December 2011 through

2 stock sold into the public markets.

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45. Defendant Peregrine’s second loan transaction was with Oxford,

4 MidCap Financial SBIC LP, and Silicon Valley Bank on or about August 30, 2012.

5 This loan provided for up to $30 million in total funding available in two tranches of

6 $15 million. Defendant Peregrine took the first $15 million in funding available on

7 or about August 30, 2012.

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46. Defendant Peregrine represented to the public that, at its option, it could

9 draw down the second $15 million tranche, “if, on or before March 31, 2013, we (i)

10 achieve positive overall survival data in our bavituximab Phase II second-line non

11 small cell lung cancer (‘NSCLC’) clinical trial and (ii) have a positive end of Phase

12 II meeting with the U.S. Food and Drug Administration (‘FDA’) regarding our

13 bavituximab second-line NSCLC clinical trial (defined as our ability to move into a

14 Phase III trial design) (the ‘End of Phase II Event’).” See Form 10-Q for period

15 ending July 31, 2013 (“2Q 2012 Form 10-Q”) at p. 12.

16

47. The only other method for Defendant Peregrine to raise money to fund

17 its operations and cover its net losses was to sell stock into the public markets.

18 Defendant Peregrine did this by making several shelf registrations of its common

19 stock and entering into At Market Sales Issuance Agreements (“AIMs”) whereby its

20 agents consistently sold Peregrine’s stock into the market, thereby raising funds and

21 diluting the ownership interest of existing shareholders.

22

48. From 2007 to the present, Defendant Peregrine sold its stock into the

23 market, raising in excess of $335 million.

24

49. One of Defendant Peregrine’s motives for falsely and/or recklessly

25 touting the so-called interim data of the bavituximab Phase II trial was so that they

26 could raise more money by selling their stock at the market at a higher price which

27 had been artificially inflated because of the materially false and misleading

28 statements about the clinical trial data.



1

50. Defendant Peregrine admits that it does not have the technology,

2 capacity or the money to bring bavituximab into a Phase III clinical trial.

3

51. If Defendant Peregrine is unable to find a partner to bring bavituximab

4 into a Phase III clinical trial, Defendant Peregrine will fail as a corporation.

5

52. If Defendant Peregrine cannot disclose positive results from its Phase II

6 bavituximab clinical trials, Defendant Peregrine will be unable to sell stock in the

7 market as the investing public will realize that bavituximab is a failure and will

8 never become an approved and licensed drug, resulting in Defendant Peregrine never

9 making a profit and eventually failing.

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53. Accordingly, Defendant Peregrine must tout the results of its

11 bavituximab Phase II clinical trial and portray it in positive light even though

12 Defendant Peregrine knows that the results from the trial are not positive to show the

13 efficacy and safety of bavituximab.

14 B. Phase I Through III

15

54. In order to market a drug in the United States, developers must first

16 obtain the approval of the FDA. This approval process includes, among other

17 required research, conducting a series of clinical trials to establish the safety and

18 efficacy of the drug. The maker of the drug then submits the clinical results of these

19 trials to the FDA to satisfy the safety and efficacy of the new drug as part of its New

20 Drug Application (“NDA”):

21 • Phase I trials test the safety, dose tolerance, and other

22 pharmacokinetic/bioavailability properties of the drug. Phase I trials

23 also identify the primary side-effects, if any, that the drug may cause.

24 • In Phase II trials, researchers test the drug in a patient population to

25 gather information about efficacy, optimal dosage levels, adverse

26 effects, and safety risks versus the benefits. Phase II studies are

27 conducted in a significant patient population designed to assess the

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most effective and safe dose that will be evaluated in a Phase III study.

2

During the clinical development of a new drug, the results of a Phase II

3

study will determine if a drug if safe and effective to administer in a

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larger patient population. A Phase II study is critical in the new drug

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development process. If the risks outweigh the benefits and the patient

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safety is severely jeopardized during the Phase II study, the research on

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that drug is almost always stopped. The FDA will approve a drug that

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demonstrated sufficient data to show the most effective dose correlated

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with the safety profile. This is established in the Phase II program and

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will be the dose selected to be evaluated in the Phase III study.

11 . Phase III trials test the efficacy and safety of the drug in an expanded

12 patient population at geographically dispersed trial sites. The results of

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the Phase III program must demonstrate that the drug is statistically

14 significantly better than placebo.

15 I C. Defendants Admit That Reliance On Third Parties to Conduct Clinical

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Trials Do Not Relieve Them of Conducting, Monitoring, Recording and

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Reporting the Results of Clinical Trials to Ensure That the Data and

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Results Are Scientifically Credible and Accurate

19

55. Defendants admit in their 2012 Form 10-K that, in the course of

20 discovery, preclinical testing and clinical trials, the Company relies on third parties,

21 including universities, investigators and clinical research organizations, to perform

22 critical services for them. For example, the Company relies on third parties to

23 conduct its clinical trials and many of its preclinical studies. Clinical research

24 organizations and investigators are responsible for many aspects of the trials,

25 including finding and enrolling patients for testing and administering the trials.

26 Although the Company relies on these third parties to conduct its clinical trials, “ the

27 Company is responsible for ensuring that each of its clinical trials is conducted in

28 accordance with its investigational plan and protocol .” (emphasis added).



1

56. Moreover, the FDA and foreign regulatory authorities, including the

2 ICH, require the Company to comply with regulations and standards, commonly

3 referred to as Good Clinical Practice for conducting, monitoring, recording and

4 reporting the results of clinical trials to ensure that the data and results are

5 scientifically credible, accurate and viable and that the trial subjects are adequately

6 informed of the potential risks of participating in clinical trials via a signed Informed

7 Consent (“IC”). The Company’s reliance on third parties does not relieve it of

8 these responsibilities and requirements .

9

57. According to the Company’s SEC filings, “[a] clinical trial must be

10 conducted according to good clinical practice following protocols that detail the

11 trial’s objectives, inclusion and exclusion criteria, the parameters to be used to

12 monitor safety and the efficacy criteria to be evaluated, and informed consent must

13 be obtained from all study subjects.” See 2012 Form 10-K at p. 14 (emphasis

14 added).

15

58. The Company’s participation in conducting clinical research on a new

16 drug makes them totally obligated to follow Good Clinical Practice as outlined in the

17 Code of Federal Regulations, the European Directives and the ICH Guidelines.

18 These regulations are specific and demand that all clinical research be conducted

19 according to these regulations. Any conduct by investigators, their staffs, drug

20 packaging and distributing third parties, statistician, internal staff, all come under the

21 responsible persons in charge of a company or their designees and must follow Good

22 Clinical Practice.

23

59. It is up to the sponsor company (Peregrine) to monitor and ensure that

24 every aspect of the clinical research development is conducted according to Good

25 Clinical Practice. Any errors or omissions that occur during the clinical research

26 development must be scrutinized and reported during the clinical trials. Distribution

27 of study medication must have a complete accountability. Each study center should

28 have been monitored closely to guard any protocol violations or mistakes in study



1 drug administration to the patients participating in this study. The Phase II trial in

2 issue was not properly administered and monitored by Defendants in violation of

3 Good Clinical Practice.

4 D. The Company Attempts to Divert the Attention Away from Its Severe

5

Recklessness and Deviation from Good Clinical Practices and Place the

6

Blame On Clinical Supplies Management, Inc.

7

60. In order to divert attention from Defendants’ severe recklessness in

8 their failure to properly monitor, record and report the results of Phase II trial, on

9 September 24, 2012 (the same day the Company announced to the investors that it

10 had discovered major discrepancies in the Phase II interim reporting), the Company

11 filed a suit against Clinical Supplies Management, Inc. (“CSM”). CSM is a third

12 party, independent, FDA-approved Contract Research Organization (“CRO”) that

13 the Company contracted with to execute treatment group assignments and oversee

14 clinical trial material coding and distribution in its second-line NSCLC double-

15 blinded trial.

16

61. The Company alleges in its complaint against CSM that “[o]n or about

17 September 20, 2012, Peregrine discovered major discrepancies between some

18 patient sample test results and patient treatment code assignments. CSM’s error(s)

19 call in to question the accuracy of the results noted and reported on September 7,

20 2012 [and at the 2012 Chicago Symposium, and in the Company’s announcements

21 on May 21, 2012, July 16, 2012, and September 10, 2012, as more fully described

22 infra]. While the scope of CSM’s error(s) is currently under review, its error(s) will

23 diminish the goodwill achieved from the trial results and require analysis and

24 evaluation presently under way and continuing. The magnitude of the resulting

25 harm is currently unknown.”

26

62. On January 16, 2013 (only six days before the expiration of the 120

27 days provided for service under Fed. R. Civ. Proc. 4(m)), the Company finally

28 served the complaint on CSM.


Case 8:


1

63. Shortly thereafter, on March 7, 2013, the Company and CSM entered

2 into a stipulation to stay the action because the Master Services Agreement entered

3 into between Peregrine and CSM, dated on or about March 18, 2010, required the

4 parties to participate in a dispute resolution process in the event of any controversy

5 or claim arising out of, relating to or in connection with any provision of said

6 agreement, or the rights or obligations of the parties thereunder, before pursuing

7 their rights and remedies at law or equity. Thus, there was no realistic chance that

8 the Company’s lawsuit against CSM could have proceeded without a prior

9 participation in a dispute resolution process. Indeed, had the Company not been

10 looking to divert attention away from its own misconduct, it could have simply

11 initiated a dispute resolution process with CSM directly and without the publicity of

12 the lawsuit.

13

64. On March 8, 2013, the Court in the Peregrine v. CSM lawsuit entered

14 an order staying the proceedings for a period of 120 days from the entry of the Order

15 to allow the parties to pursue the dispute resolution process.

16

DEFENDANTS’ MATERIALLLY FALSE AND MISLEADING

17

STATEMENTS ISSUED DURING THE CLASS PERIOD

18

65. On May 21, 2012, the Company issued a press release entitled

19 Peregrine Announces Positive Top-Line Data from Randomized, Double-Blind

20 Bavituximab Phase II Trial in Second-Line Non-Small Cell Lung Cancer --

21 Bavituximab Plus Chemotherapy Demonstrates Doubling of Overall Response Rates

22 Versus Chemotherapy Alone -- 50% Improvement in Progression-Free Survival and

23 Overall Survival Trends Support Phase III Development . The Company reported in

24 this press release:

25

Peregrine Pharmaceuticals, Inc. (NASDAQ: PPHM)

26

today announced positive top-line results from its

27

randomized, double-blind, placebo-controlled Phase IIb

28

trial evaluating two dose levels of bavituximab plus

18


2-cv-01647-PSG-FMO Document 24 Filed 04/15/13 of 84 Page ID #:312 Case 8:1

docetaxel versus docetaxel plus placebo (control arm) in

patients with second-line non-small cell lung cancer

(NSCLC). Data from the trial showed a doubling of

overall response rates (ORR), the primary endpoint, and

an improvement in progression-free survival (PFS), a

secondary endpoint, in patients treated in the

bavituximab-containing arms when compared to the

control arm. Another secondary endpoint, median

overall survival (OS), in the control arm has already been

determined at less than 6 months, while the median has

not been reached th either bavituximab-containing arm.

Based on independent radiology reviews and current

status of patients, top-line data from the trial are as

follows:

Treatment Arm Placebo plus Bavitumab Bavitumab docetaxel (1 mg/kg) plus (3 mg/kg) plus

docetaxel docetxel)

Overall 7.9% 15% 17.9% Response Rate

Median 3.0 4.2 months 4.5 months Progression-Free months Survival

'The compelling results from this rigorously designed

trial clearly demonstrate that the combination of

bavituximab and docetaxel is more active than

docetaxel alone in treatin2 second-line non-small cell

lunif cancer. We saw twice as many patients

demonstrating an objective tumor response, increased

1

2

3

4

5

6

7

8

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16

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19

20

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25

26

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28

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Case 8:


1

progression-free survival, and already promising survival

2

trends in this refractory setting. These results give us a

3

high level of confidence as we begin planning for Phase

4

III development in this indication,” said Joseph Shan,

5 vice president, clinical and regulatory affairs at

6

Peregrine. “We now look forward with heightened

7

enthusiasm to several clinical data points coming this

8

year, including overall survival results from this and

9

potentially two other randomized Phase II trials, as well

10

as data from four ongoing investigator-sponsored trials

11

evaluating new treatment combinations in various

12

cancers.”

13

14

Based on the review of safety and efficacy of this trial

15

conducted by an independent Data Monitoring

16

Committee, no significant safety issues or concerns were

17

identified when comparing the bavituximab containing

18

arms with the docetaxel alone arm.

19

20

This trial enrolled 121 patients with second-line Stage

21

IIIb or IV (TNM Edition 7) non-squamous NSCLC

22

following one prior chemotherapy regimen and were

23

equally randomized to 1 of the 3 treatment arms, with

24

117 patients included in the top-line analysis. Tumor

25

responses were determined in accordance with Response

26

Evaluation Criteria In Solid Tumors (RECIST 1.1).

27

Patients received up to 6 cycles of docetaxel (75mg/m2)

28

20


Case 8:


1

plus either placebo, 1 mg/kg bavituximab, or 3 mg/kg

2

bavituximab until disease progression.

3

4

“After working on 17 drug approvals, it is data like this

5

that continues to energize me. These robust data will be

6

important in discussions with the FDA regarding

7

advancing bavituximab’s clinical development in

8

second-line non-small cell lung cancer ,” said Robert

9

Garnick, PhD, head of regulatory affairs at Peregrine.

10

“We look forward to working closely with the FDA to

11

identify the most efficient path toward commercialization

12

for this promising candidate in this indication where new

13

therapies are desperately needed.”

14

15

According to the American Cancer Society, lung cancer

16

is the second most commonly diagnosed cancer in the

17

U.S., with approximately 226,160 new cases and 160,340

18

deaths each year, representing approximately 28% of all

19

cancer deaths. NSCLC is the most common type of lung

20

cancer, accounting for approximately 85-90% of lung

21

cancer cases. Unfortunately, the five-year survival rate

22

for NSCLC patients is only 1%.

23

24

“These data are a significant validation of the clinical

25 potential of bavituximab for patients with few effective

26

treatment options. These data will be instrumental in

27 planning Phase III development in NSCLC and we are

28

excited to share these data as part of ongoing

21


Case 8:


1

partnering discussions ,” said Steven W. King, president

2

and chief executive officer of Peregrine. “We look

3

forward to sharing even more clinical data points this

4

year from all seven bavituximab studies aimed at

5

highlighting the broad therapeutic potential of

6

bavituximab across multiple oncology indications and

7

treatment combinations thus potentially building even

8

more value in the program.”

9 (Emphasis added).

10

66. On July 16, 2012, the Company issued a press release entitled

11 Peregrine Pharmaceuticals Reports Fourth Quarter and Fiscal Year 2012 Financial

12 Results and Recent Developments -- Exceptional Data from Bavituximab Proof-of-

13 Concept Phase II Trial in Second-Line NSCLC Validates Platform and Positions

14 Program for Phase III Development -- Wholly-owned Subsidiary Reports Record

15 Revenue and Over $30 Million in Revenue Backlog from Contract Manufacturing

16 Business . The Company reported in this press release:

17

“Since our last quarterly update, we reported

18

transformational data from a robust double-blinded,

19

placebo-controlled Phase II proof-of-principle trial

20

evaluating the potential of bavituximab in treating

21

second-line non-small cell lung cancer patients. The

22

doubling of tumor response rates, a 50% increase in

23

median progression free survival, and trends toward

24

significant improvement in median overall survival

25 strongly support advancing the program toward Phase

26

III development. ” said Steven W. King, president and

27

chief executive officer of Peregrine. “ We could not be

28

happier with the strength of the data from this robustly

22



1

designed trial which gives us a clear direction and

2

greatly enhances the probability of success as we look to

3

Phase III development . These data have resulted in a

4

surge in partnering interest for the program . We have

5 already begun evaluating Phase III trial designs and we

6

look forward to updating survival data from this and two

7

other randomized studies in the second half of the year.

8

In addition, we further established our leadership in this

9

first-in-class PS-targeting platform with the recent

10

addition of a tumor imaging clinical program. This

11

program has tremendous potential to complement the

12

bavituximab program as well as provide valuable insight

13

into the effectiveness of existing cancer therapies.”

14 (Emphasis added).

15

67. The Company’s 2012 Form 10-K stated the following regarding the

16 I Phase II trial:

17

Phase IIb Trial - Bavituximab Plus Docetaxel in

18

Second-Line NSCLC

19

Our current lead indication clinical study is a

20

randomized, double-blinded, placebo-controlled Phase

21

IIb second-line NSCLC study evaluating two dose levels

22

of bavituximab plus docetaxel (“bavituximab-containing

23

arms”) versus docetaxel plus placebo (“control arm”) as

24

second-line treatment in 121 patients with Stage IIIb or

25

Stage IV NSCLC. Patients were randomized to one of

26

three treatment arms in over 50 sites in the U.S. and

27

internationally and enrollment was completed in October

28

2011. All patients received up to six 21-day cycles of

23


Case 8:1


docetaxel (75 mg/m2). In addition, one bavituximab-

containing arm received bavituximab (3 mg/kg) weekly,

a second bavituximab-containing arm received

bavituximab (1 mg/kg) weekly, and the control arm

received placebo weekly until progression or toxicity.

The primary endpoint of this trial is ORR and secondary

endpoints include median PFS, median overall survival

(“OS”), duration of response, and safety. Patients were

evaluated regularly for tumor response according to

Response Evaluation Criteria In Solid Tumors

(“RECIST”) criteria.

In May 2012, we announced positive top-line data from

this trial from 117 evaluable patients, based on

independent radiology reviews and current status of

patients as of that date , as shown in the following table:

Treatment Arm Placebo plus Bavituximab (1 Bavituximab docetaxel mg/kg) plus (3 mg/kg) plus

docetaxel docetxel) Overall Response 7.9% 15% 17.9% Rate

Median 3.0 months 4.2 months 4.5 months Progression-Free Survival

Both dose levels of bavituximab and docetaxel

combination treatment were generally safe and well

tolerated with adverse events being similar to the

patients receiving docetaxel with placebo . Another

secondary endpoint, median OS, in the control arm has

1

2

3

4

5

6

7

8

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15

16

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18

19

20

21

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24

25

26

27

28

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Case 8:


1

already been determined at less than 6 months, while the

2

median has not been reached in either bavituximab-

3

containing arm. We anticipate announcing median OS

4

from this trial in the second half of calendar year 2012,

5

but this is a time-to-event endpoint and could take longer

6

to reach.

7

8

Based on these encouraging data and our discussions

9

with medical advisors, our strategy is to pursue Phase

10

III development with bavituximab in second-line

11

NSCLC .

12

13

Once a front-line NSCLC patient progresses following a

14

first course of therapy, they are typically treated with a

15

second course of therapy. There are approximately

16

135,000 patients with NSCLC receiving second-line

17

treatment annually in the U.S., Europe, and Japan. The

18

market for second-line NSCLC therapeutics is expected

19

to exceed $1.0 billion annually by 2019 according to

20

independent market research estimates.

21

22

Only three drugs are approved in the U.S. as second-line

23

treatment for NSCLC. Administered as monotherapies,

24

these include pemetrexed (Alimta®), docetaxel

25

(Taxotere®), or erlotinib (Tarceva®). Package insert

26

information for these three products shows ORRs of

27

between 5 and 9% for second-line NSCLC. Given these

28

low response rates with current approved therapies, there

25


Case 8:


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6

7

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10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

is an urgent need for new therapeutic options for second-

line NSCLC.

It has been a transformational time at Peregrine since our

last quarterly conference call. Since that call, our lead

clinical program, bavituximab, yielded exceptional

proof of principle data that was announced May 21 ,

[2012] when the trial testing bavituximab in combination

with docetaxel versus docetaxel alone was unblinded.

Results from the study showed a doubling of tumor

shrinkage or tumor response; 50% improvement in

progression-free survival, or PFS; and a significant

trend in overall survival, or OS, in which median OS

has already been reached in the docetaxel alone arm,

and a majority of patients are still alive in both

bavituximab-containing arms of the trial. These data

have been extremely well-received . And our internal

experts, our key opinion leaders and advisors, and

potential partners, agree that the strength of this data

strongly supports moving the program into Phase III

with a similar trial design, which should give us a high

probability of success.

* * *

(Emphasis added).

68. On July 16, 2012, the Company conducted a Fourth Quarter 2012

Earnings Conference Call (“4Q Conference Call”). It was on this call that

Defendant King, President, CEO and a director of the Company, stated in relevant

part:

26


Case 8:


1

And based on the recent bavituximab data, we believe

2

bavituximab has tremendous potential in this indication,

3

and is making a difference in the lives of the patients in

4

this trial, and has the potential to give patients in the

5

future a significant new treatment option. The strength

6

of this data in this large area of high unmet medical

7

need has also sparked a surge in partnering discussions

8

that has included over 15 in-person partnering meetings

9

since that time with major players in oncology, with

10

follow-up discussions ongoing and additional parties

11

showing interest .

12 * * *

13

With this proof principle data in-hand for bavi, we now

14

have two Phase III-ready programs , with the other being

15

Cotara, for which we believe we are making good

16 progress in our ongoing Phase III discussions with the

17

FDA . We also continue to expand our pipe

18

line with a new and exciting IST combining bavi with

19

radiation – a combination that has been very powerful in

20

preclinical studies.

21 * * *

22

So just to recap a few upcoming events, spurred by the

23

positive PhaseIIb data in second-line non-small cell lung

24

cancer, we expect to have median overall survival results

25

from this trial in the second-half of 2012; to have an end-

26

of-Phase II meeting with the FDA by the end of 2012;

27

and to continue partnering discussions toward hopefully

28

having a partner onboard to participate in planning and

27


Case 8:


1

running a Phase III trial in second-line non-small cell

2

lung cancer.

3 (Emphasis added).

4

69. In that same 4Q Conference Call, Defendant Shan, Vice President of

5 Clinical and Regulatory Affairs, stated in relevant part:

6

To begin, I want to take a moment now to expand on the

7

recently announced data from the Phase II trials on these

8

indications of second-line non-small cell lung cancer.

9

Peregrine continues to meet its pre-specified milestones,

10 as we announce top line data from our randomized

11

double-blinded, second-line lung cancer trial evaluating

12

two-dose levels of bavituximab plus docetaxel, versus

13

docetaxel [and a] placebo, which we refer to as the

14

control arm .

15 * * *

16

The primary endpoint of this trial is overall response

17

rates, or ORR, using the assist definition; secondary

18

endpoints include progression-free survival, overall

19

survival, and safety. First, it should be noted that an

20

Independent Data Monitoring Committee, or IDMC,

21

regularly reviewed the safety data throughout the trial,

22

and no significant safety issues or concerns were

23

identified, with similar adverse event profiles among the

24

three study arms resembling AEs historically associated

25

with docetaxel.

26 * * *

27

As Steve mentioned, this is a robustly-designed clinical

28

trial, which means we included all the known design

28


Case 8:


1

features for minimizing bias in a trial. First, treatment

2

was randomly assigned. Second, procedure and

3

examination schedules were identical for patients in all

4

three arms. Third, the trial was blinded to all parties

5

involved, whether they were patients who participated,

6

investigators who administered treatment or follow-up,

7

central radiology reviewers who evaluated scans, or a

8

company like ours who oversaw the entire trial.

9 * * *

10

We truly could not have expected anything more from

11

this successful proof of concept trial, in which not only

12

did the control arm produce expected results, but both

13

bavituximab doses yielded similar improved efficacy

14

results, as we expected going into the study, which

15 mirrored the consistently positive trend across all

16

efficacy end points that we observed in our prior single

17 arm studies, as well as our overall clinical experience to

18

date with bavituximab. We have also conducted further

19

analyses of the top line results, and determined that not

20

only were baseline characteristics well-balanced across

21 all treatment groups , but there are no subgroup

22

differences in geography, age, gender, race, et cetera.

23

And because of the rigorous trial design, these data have

24

ignited a great deal of excitement within the medical

25

community, with our clinical advisors as well as thought

26

leaders in the field supporting advancement to Phase III.


29


28


1

70. On August 30, 2012, the Company announced that it had secured a $30

2 million term loan from Oxford, which was the lead lender, MidCap Financial, and

3 Silicon Valley Bank. Under the loan facility, the Company received initial funding

4 of $15 million and had an option to receive an addition $15 million. The release

5 stated in relevant part:

6

“This loan facility strengthens our balance sheet as we

7

approach near-term clinical milestones and continue our

8

ongoing partnering discussions,” said Paul J. Lytle, chief

9

financial officer of Peregrine. “With the potential $30

10

million in total funding, we will have sufficient capital to

11

fund our operations for at least the next 12 months as we

12

advance our lead program toward Phase III development.

13

Leveraging the proof-of-concept data in our lead

14

bavituximab indication in second-line non-small cell lung

15

cancer and our growing contract manufacturing business

16

enabled us to secure this facility, which accomplished the

17

near term financing goal we announced in mid-July. We

18

appreciate the support of our lender group, their

19

flexibility in structuring a two-tranched loan, and their

20

confidence in the bavituximab program.”

21

71. On September 7, 2012, the Company issued a press release announcing

22 interim data from its Phase II trial in second-line non-small cell lung cancer that was

23 presented at the 2012 Chicago Multidisciplinary Symposium in Thoracic Oncology.

24 According to the Company, the interim results indicated that lung cancer patients

25 taking bavituximab lived twice as many months as those treated with only

26 chemotherapy. In a mid-stage study of 121 patients, the patients given a lower dose

27 of bavituximab and the chemotherapy drug docetaxel lived for a median of 11.1

28 months compared with 5.6 months for patients treated with the chemotherapy drug

30


Case 8:


1 and a placebo. Patients given a higher dose of the drug lived for a median of 13.1

2 months, resulting in a pooled survival time of 12.1 months for the treated group.

3

72. The Company’s press release further stated in part:

4

Tustin, CA September 7, 2012 -- Peregrine

5

Pharmaceuticals, Inc. (NASDAQ: PPHM), today

6

announced that interim results were presented from its

7

121 patient randomized, double-blind, placebo-controlled

8

Phase IIb trial in patients with refractory non-small cell

9

lung cancer (NSCLC). The blinded study evaluated two

10

dose levels of bavituximab (bavituximab-containing

11

arms) given with docetaxel versus docetaxel plus placebo

12

(control arm). The interim data showed a statistically

13 significant improvement in overall survival (Hazard

14

Ratio 0.524, p-value .0154) and a doubling of median

15 overall survival (OS) in the bavituximab-containing

16

arms compared to the control arm . The following

17

interim data was presented as part of a late-breaking

18

plenary presentation at the 2012 Chicago

19

Multidisciplinary Symposium in Thoracic Oncology by

20

David Gerber, M.D., Associate Professor of Internal

21

Medicine at the University of Texas Southwestern

22

Medical Center, a principal investigator in the trial.

23

24

25

26

31


27

28

1

2

3

4

5

6

7

8

9

10

11

Case 8:1


12

13 * * * 14

“This study was a rigorous trial designed to minimize

15

bias and we are encouraged that this trial yielded such

16 positive results in the most important endpoint, overall

17 survival . The positive overall response rates and

18 progression free survival in both bavituximab-

19 containing arms seen earlier in the study has now

20 translated into a statistically significant extension in

21 overall survival for patients, a result rarely achieved in

22 phase II clinical trials .” said Joseph Shan, vice president

23 of clinical and regulatory affairs at Peregrine. “ The

24 quality of this data gives us a solid foundation for

25

designing a Phase III trial with an increased probability

26 of success . We are planning for an end-of-phase II

32


27

28

Case 8:1


1

meeting with the FDA as we plan to initiate this trial by

2

mid-2013.”

3

4

The trial enrolled 121 patients (117 evaluable per the

5 study protocol) with second-line non-squamous NSCLC

6

following one prior chemotherapy regimen at over 40

7

clinical centers. Patients were equally randomized to 1

8

of the 3 treatment arms, docetaxel (75mg/m2) plus either

9

placebo, 1 mg/kg bavituximab, or 3 mg/kg bavituximab

10

until disease progression. Approximately 50% of the

11

patients were enrolled in the U.S. and 50% were enrolled

12

internationally with equal distribution between all

13

treatment groups.

14

15

“Robust data from this Phase II trial clearly

16

demonstrate a significant benefit in overall survival

17 with a good safety profile in patients receiving

18

bavituximab plus docetaxel compared to those receiving

19

docetaxel plus placebo ,” said Steven W. King, president

20

and chief executive officer of Peregrine. “ We are

21

currently in discussions with several potential

22

pharmaceutical partners who have expressed great

23

interest in our bavituximab oncology program. It is our

24

goal to identify the optimal partner to assist with the

25

design and logistics of a multinational Phase III pivotal

26

trial .”

33


27

28

Case 8:1


1

The interim results from the study showed no

2

significant safety differences between the three

3

treatment arms as determined by the trial’s independent

4

data monitoring committee . Baseline characteristics

5

were well balanced across all three treatment arms of the

6

study, including performance (ECOG) status, age,

7

gender, and race. Tumor responses were determined in

8

accordance with Response Evaluation Criteria In Solid

9

Tumors (RECIST 1.1) based on blinded central radiology

10

review.

11

12

“The median overall survival results from the Proof-of

13

Concept study are truly outstanding and great news for

14

patients . Statistically significant overall survival results

15

at this stage of development are rare and have put us in

16

an excellent position for advancing the program. Our

17

attention is now turned to an end of phase II meeting by

18

year end which will help us define the most efficient path

19

forward to potential regulatory approval.” said Robert

20

Garnick, PhD, head of regulatory affairs at Peregrine. “A

21

global Phase III trial designed very similarly to the robust

22

design of this Phase II trial greatly increases

23

bavituximab’s likelihood of success.”


25

73. After this news, the Company’s stock rose from $3.07 to close on

26 September 7, 2012 at $4.50.

27

74. On September 10, 2012, the Company issued a press release

28 announcing its First Quarter fiscal year 2013 financial results. The Company


Case 8:


1 provided an update on the development of bavituximab. The Company’s press

2 release stated in part:

3

“ We have achieved major milestones since the end of

4

last quarter with the unblinding of our proof-of-

5

principle bavituximab study in second-line NSCLC in

6

May and the recent announcement of overall survival

7

data from the study being the most significant . The

8

statistically significant overall survival seen in that

9

study is an obvious green light for us to begin plans to

10 advance the program into phase III and goes a long

11

way toward validating the technology platform ,” said

12

Steven W. King, president and chief executive officer of

13

Peregrine. “Following these exciting developments, the

14

upcoming milestones for the program include additional

15

clinical data from eight ongoing bavituximab clinical

16

trials, an end of phase II meeting with the FDA expected

17

by year end, and potential partnering as the result of

18

ongoing discussions . This is truly an exciting time at

19

Peregrine and we look forward to advancing the

20

bavituximab program as well as the rest of our business

21

operations.”


23

75. On September 10, 2012, the Company conducted its First Quarter 2013

24 Conference Call (“1Q Conference Call”). It was on that call that Defendant King

25 stated the following:

26

Since the beginning of last quarter, it has been an

27

exceptional time for Peregrine, as we have seen two of

28

the most important milestones in the Company history

35


Case 8:


achieved, transitioning the Company toward late-stage

drug development. The exclamation point for these

milestones came just last Friday with the report that

patients receiving Bavituximab plus chemotherapy in

our proof-of-concept studying second-line non-small-

cell lung cancer had double the median overall survival

compared to patients receiving chemotherapy plus

placebo . These are truly remarkable results that are not

only great for the program, providing a clear signal to

proceed toward a Phase III clinical trial, providing

proof of concept that Bavituximab is an active drug

when given with Docetaxel, but also great news for the

non-small-cell lung cancer patients in the trial .

(Emphasis added).

76. At the same 1Q Conference Call, Defendant Shan stated in relevant

part:

This trial for our lead indication is a randomized, double-

blinded placebo-controlled Phase II trial evaluating

Docetaxel with or without Bavituximab as second-line

treatment in patients with stage IIIb or IV non-squamous

non-small cell lung cancer. On study, all patients

received standard second-line chemotherapy of up to six

21-day cycles of Docetaxel at 75 milligrams per meter

squared. In addition, patients were randomly assigned to

receive a blinded weekly infusion of placebo, which we

refer to as the control group, or one of two Bavituximab

doses studied, either 1- or 3-milligram per kilogram, until

progression or toxicity. The primary end point of this

1

2

3

4

5

6

7

8

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10

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14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

36



1

trial is overall response rate, and secondary endpoints

2

include progression-free survival, overall survival, and

3

safety.

4 * * *

5

Bavituximab continues to demonstrate a favorable

6

safety profile, with a combination of Docetaxel plus

7

Bavituximab being well tolerated, with no increase in

8

frequency or nature of adverse events compared to the

9

control arm . Notably, no increase in bleeding or clotting

10

adverse events were reported with the addition of

11

Bavituximab, unlike the experience with other

12

compounds which target blood vessels.

13

14

In terms of efficacy outcomes, let me start with the

15

primary endpoint, overall response rate, or ORR, which

16

was determined by independent central radiology reviews

17

according to RECIST criteria, or Response Evaluation

18

Criteria in Solid Tumors. As reported in May when the

19

study was initially unblinded, the response rate in the

20

Docetaxel plus placebo arm was 8% compared to 15%

21

in the Bavituximab1-milligram per kilogram arm. And

22

18% in the Bavituximab 3-milligramper kilogram arm.

23

And 16.5% in the pooled Bavituximab arm .


25

77. At the same 1Q Conference Call, Defendant Garnick, Head of

26 Regulatory Affairs at the Company, stated in relevant part:

27

As you have just heard from Joe, the data we announced

28

last week has far exceeded our expectations . And I

37



1

hope that you’re as excited as I am over Bavituximab’s

2

potential. I feel strongly that Peregrine should be

3

recognized for having the corporate courage to conduct

4

the rigorous randomized, placebo-controlled Phase II trial

5

that provided these robust data, and that provide the basis

6

for us to plan for a pivotal Phase III program. We took

7

an extraordinary amount of care in developing this Phase

8

II trial design, and conferred with clinical experts and

9

regulatory agencies, including the FDA, in the design of

10

this rigorous clinical trial. Peregrine chose to conduct

11

this trial to definitively establish the proof of concept of

12

Bavituximab, and now plan to potentially include this

13

data as part of a registrational package.


15

78. At the same 1Q Conference Call, Defendant Lytle, CFO of the

16 Company, stated in relevant part:

17

[...] We recently executed on our stated milestone, and

18

closed on a $30 million term loan with three extremely

19

well-respected institutions -- Oxford Finance, MidCap

20

Financial, and Silicon Valley Bank. Under the loan

21

facility, we received initial funding of $15 million on

22

August 30, and we have the option to receive an

23

additional $15 million in funding.

24

25

This second tranche becomes available to us upon the

26

attainment of certain pre-determined milestones, one of

27 which was just achieved last Friday with the

28

announcement of the positive overall survival data from

38


Case 8:


1

our second-line lung cancer trial . The second related

2

milestone pertains to having a positive end-of-Phase II

3

meeting with the FDA, defined as our ability to move

4

into the Phase III trial design. And we plan to have that

5 end-of-Phase II meeting with the FDA before the end of

6

this year.

7 (Emphasis added).

8

79. On September 10, 2012, the Company filed its 1Q 2013 Form 10-Q.

9 The 1Q 2013 Form 10-Q contained the positive findings concerning bavituximab

10 that were contained in the Company’s September 7, 2012 press release. Defendants

11 King and Lytle signed the 1Q 2013 Form 10-Q attesting to the accuracy of the

12 information presented in the SEC filing.

13

80. The 1Q 2013 Form 10-Q stated the following regarding the Company’s

14 Phase II trial in Second-Line Non-Small Cell Lung Cancer:

15

Our lead indication is second-line NSCLC, based on

16

validating data from a randomized, double-blind,

17

placebo-controlled Phase II second-line NSCLC study

18

evaluating two dose levels of bavituximab plus docetaxel

19

(“bavituximab-containing arms”) versus docetaxel plus

20

placebo (“control arm”) in 121 patients with Stage IIIb or

21

Stage IV NSCLC. In May 2012, we announced positive

22

top-line overall response rate (“ORR”) data (primary

23

endpoint) and median progression-free survival

24

(“PFS”) (one secondary endpoint) from this trial from

25

117 evaluable patients, based on independent radiology

26

reviews and current status of patients as of that date, as

27

shown in the following table :

39


28

Case 8:1


1 Treatment Arm Placebo plus Bavituximab (1 Bavituximab (3 docetaxel mg/kg) plus mg/kg) plus

docetaxel docetxel)

Overall Response 7.9% 15% 17.9% Rate

Median 3.0 months 4.2 months 4.5 months Progression-Free Survival

In addition, on September 7, 2012, we presented

compelling interim median overall survival data

(“OS”), another secondary endpoint from the trial, at

the 2012 Chicago Multidisciplinary Symposium in

Thoracic Oncology. The data presented showed a

doubling of median OS in each of the bavituximab-

containing arms compared to the control arm,

representing a significant improvement in survival .

Based on these encouraging data and our discussions

with medical advisors, we are actively preparing for an

End-of-Phase II meeting with the FDA by the end of

calendar year 2012 that should allow us to initiate a

Phase III trial with bavituximab in second-line NSCLC

by mid-calendar year 2013.

(Emphasis added).

81. The statements made in ¶¶ 65-72, 74-80 above regarding the efficacy of

bavituximab in treating second-line non-small cell lung cancer patients were

materially false and misleading because, as outlined supra:




2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Case 8:


1

accordance with Sections 5.1.1 of the ICH on Good Clinical Practice, E6

2

(“The sponsor is responsible for implementing and maintaining quality

3

assurance and quality control systems with written SOPs to ensure that trials

4

are conducted and data are generated, documented (recorded), and reported in

5 compliance with the protocol, GCP, and the applicable regulatory

6

requirement(s)”) (emphasis added);

7


8


9


10


11


12


13


14

accordance with Section 5.2.1 of the ICH on Good Clinical Practice, E6 (“A

15


16

functions to a [Contract Research Organization] CRO, but the ultimate

17 responsibility for the quality and integrity of the trial data always resides

18


19


20


21


22


23


24

the statistical analyses, and to prepare the trial reports.”);

25


26


27


28



Case 8:


1

active comparator(s) and placebo, if applicable) is characterized as

2


3

accordance with any applicable GMP, and is coded and labeled in a manner

4

that protects the blinding , if applicable. In addition, the labeling should

5 comply with applicable regulatory requirement(s).”) (emphasis added);

6


7


8


9


10


11

(emphasis added);

12


13


14


15


16


17


18


19

accordance with Section 5.18.4(d) of the ICH on Good Clinical Practice, E6

20


21


22


23


24


25


26


27


28

42


Case 8:


1


2


3


4


5 accordance with Section 5.18.3 of the ICH on Good Clinical Practice, E6

6


7


8


9


10


11 . . .”);

12


13


14


15


16


17 review of the Company’s interim results of the Phase II trial, as they later

18

admitted to in a Company press release issued on January 7, 2013 ( see ¶ 112

19

below).

20

(n) Defendants admitted in the Company’s 2012 Form 10-K that the

21

Company’s reliance on third parties does not relieve it of Good Clinical

22

Practice for conducting, monitoring, recording and reporting the results of

23

clinical trials to ensure that the data and results are scientifically credible,

24

accurate and viable; however, this statement was false as the Company never

25

conducted a thorough operational review of the third-party vendor operation

26

to ensure the accuracy of its interim reporting of the Phase II trial (as

27

Defendants later admitted to in the Company’s January 7, 2013 press release

28

(see ¶ 112 below));

43


Case 8:


1

(o) Peregrine lacked the proper internal controls related to

2

conducting clinical trials and reporting the results of the clinical trials ( see

3

CWs at ¶¶ 90-111);

4


5 effectiveness and safety of bavituximab in the treatment of NSCLC gave

6


7


8


9

cited as statistical evidence of safety or efficacy;

10

(q) The Company failed to disclose the p-value applicable to the

11

interim results of the overall survival of the patients in the Phase II trial when

12

they disclosed certain interim data from the trial on May 21, 2012. See ¶ 65

13

above. This failure to disclose the p-value as to the overall survival was an

14

omission of material information important to investors as the information

15

provided to investors on May 21, 2012 was not “positive top-line results” nor

16

was the data “a significant validation of the clinical potential of bavituximab

17

for patients with few effective treatment options.”

18

(r) The Company again announced interim results on July 16, 2012,

19

as to the overall survival of patients in the Phase II trial and touted them as

20

“exceptional” but once again failed to disclose the p-value as to the overall

21

survival associated with this data. See ¶ 66 above. This failure to disclose the

22

p-value was an omission of material information important to investors; and

23

(s) The Company made a further announcement on September 7,

24

2012, about the interim data as to the overall survival of patients purportedly

25

gathered from the Phase II trial and claimed that the p-value was .0154. This

26

p-value, if accurate, would be statistically significant in showing that

27

bavituximab had been efficacious in the Phase II trial. See ¶ 71 above.

28

However, this description of the p-value as to the overall survival of patients


Case 8:


1

was false and misleading as it was based on incomplete data. Defendant

2

Peregrine later admitted on February 19, 2013, that the p-value as to the

3

overall survival of patients was 0.217, which means that chance would be

4

responsible for the outcome of the data in more than one of five times, which

5

is not statistically significant. Defendant Peregrine also failed to disclose any

6

reason for the extreme negative change as to the p-value in the overall

7

survival of patients from the earlier reported incomplete data.

8

82. On September 24, 2012, the Company issued a press release entitled

9 Peregrine Pharmaceuticals Announces That It Has Discovered Major Discrepancies

10 in Treatment Group Coding by an Independent Third-Party Vendor Responsible for

11 Distribution of Blinded Investigational Product Used in Its Bavituximab Phase II

12 Second-Line Non-Small Cell Lung Cancer Trial , which stated in relevant part:

13

Peregrine Pharmaceuticals announced today that during

14

the course of preparing for an end-of-phase II meeting

15

with regulatory authorities and following recent data

16

announcements from its randomized, double-blind

17

placebo-controlled Phase II trial of bavituximab in

18

second-line non-small cell lung cancer, it discovered

19

major discrepancies between some patient sample test

20

results and patient treatment code assignments . Due to

21

the double-blind nature of the trial, Peregrine was not

22

permitted to have access to either patient group

23

assignments or related product coding information. As

24

part of the trial’s execution, Peregrine contracted with

25

independent third-party contractors to execute treatment

26

group assignments and oversee clinical trial material

27

coding and distribution according to established

28

procedures. A subsequent review of information has

45



1

determined that the source of these discrepancies appear

2

to have been associated with the independent third-party

3

contracted to code and distribute investigational drug

4

product.

5

6

This discrepancy is specific to this trial and will have no

7

impact on other ongoing bavituximab trials.

8

9

Peregrine intends to communicate further as soon as it is

10

able to determine the impact of this issue. In the

11 meantime, investors should not rely on clinical data that

12

the company disclosed on or before September 7, 2012

13

from its Phase II bavituximab trial in patients with

14 second-line non-small cell lung cancer or any

15 presentations or other documents related to this Phase

16

II trial .


18

83. After this news, the Company’s stock plummeted $4.23 per share to

19 close at $1.16 per share on September 24, 2012, a one-day decline of 78%.

20

84. On September 26, 2012, as noted supra, the Company filed a Form 8-K

21 with the SEC, which disclosed that it had received a written notice of default from

22 Oxford, with respect to a security agreement the Company had entered into on

23 August 30, 2012. According to the Company, the lender deemed the Company’s

24 disclosure on September 24, 2012, concerning the major discrepancies in the results

25 from its cancer trial to be a material adverse change under the terms of the loan

26 agreement and, as result, the lender accelerated the repayment of the loan and

27 demanded repayment in full for the outstanding amounts. The Company’s Form 8-

28 K stated in relevant part:

46


Case 8:


1

On September 24, 2012, we received a written notice of

2

default (“Notice of Default”) from Oxford Finance LLC,

3

as collateral agent (“Collateral Agent”), on behalf of

4

itself, Silicon Valley Bank, and MidCap Financial SBIC,

5

LP (collectively, the “Lenders”), with respect to that

6

certain loan and security agreement dated as of August

7

30, 2012, by and among Peregrine, its wholly owned

8

subsidiary, Avid Bioservices, Inc., and the Lenders (the

9

“Loan Agreement”). Pursuant to the Notice of Default,

10 all amounts due under the Loan Agreement were

11

accelerated as a result of the above event , which was

12

deemed a material adverse change under the Loan

13

Agreement, and the Lenders demanded full payment of

14

all obligations under the Loan Agreement, including

15

the outstanding principal amount of $15 million and all

16

accrued interest thereon, plus a final payment fee equal

17

to 6.5% of the principal amount repaid . On September

18

25, 2012 Peregrine paid the Lenders all outstanding

19

obligations and the Loan Agreement was terminated.

20

21

Based on these developments, we believe we will have

22

sufficient capital to fund our operations into the fourth

23

quarter of our fiscal year 2013 based on current

24

projections, which includes projected cash inflows under

25

signed contracts with existing customers of Avid

26

Bioservices, and assumes we raise no additional capital

27

from the capital markets or other potential sources.

28

There are a number of uncertainties associated with our

47


Case 8:


1

financial projections, including but not limited to,

2

termination of third party contracts, technical challenges,

3

the rate at which patients are enrolled into any current or

4

future clinical trials, any of which could reduce, delay or

5 accelerate our future projected cash inflows and

6

outflows.

7 (Emphasis added).

8

85. On this news, the Company’s stock declined $0.55 per share to close at


10

86. The true facts, which were known by Defendants or recklessly ignored

11 by them, but, in either event were concealed from the investing public during the

12 Class Period, were as follows:

13


14


15

accordance with Sections 5.1.1 of the ICH on Good Clinical Practice, E6

16

(“The sponsor is responsible for implementing and maintaining quality

17

assurance and quality control systems with written SOPs to ensure that trials

18

are conducted and data are generated, documented (recorded), and reported in

19

compliance with the protocol, GCP, and the applicable regulatory

20

requirement(s)”) (emphasis added);

21


22


23


24


25


26


27


28

accordance with Section 5.2.1 of the ICH on Good Clinical Practice, E6 (“A


Case 8:


1


2

functions to a [Contract Research Organization] CRO, but the ultimate

3

responsibility for the quality and integrity of the trial data always resides

4


5


6


7


8


9


10

the statistical analyses, and to prepare the trial reports.”);

11


12


13


14


15 active comparator(s) and placebo, if applicable) is characterized as

16


17

accordance with any applicable GMP, and is coded and labelled in a manner

18

that protects the blinding , if applicable. In addition, the labelling should

19

comply with applicable regulatory requirement(s).”) (emphasis added);

20


21


22


23


24


25

(emphasis added);

26


27


28



Case 8:


1


2


3


4


5 accordance with Section 5.18.4(d) of the ICH on Good Clinical Practice, E6

6


7


8


9


10


11


12


13


14


15


16


17


18


19


20


21


22


23


24 . . .”);

25


26


27


28



Case 8:


1


2

review of the Company’s interim results of the Phase II trial, as they later

3

admitted to in a Company press release issued on January 7, 2013 ( see ¶ 112

4

below);

5

(n) Defendants admitted in the Company’s 2012 Form 10-K that the

6

Company’s reliance on third parties does not relieve it of Good Clinical

7

Practice for conducting, monitoring, recording and reporting the results of

8

clinical trials to ensure that the data and results are scientifically credible,

9

accurate and viable; however, this statement was false as the Company never

10

conducted a thorough operational review of the third-party vendor operation

11

to ensure the accuracy of its interim reporting of the Phase II trial (as

12

Defendants later admitted to in the Company’s January 7, 2013 press release

13

(see ¶ 112 below));

14

(o) Peregrine lacked the proper internal controls related to

15

conducting clinical trials and reporting the results of the clinical trials ( see

16

CWs at ¶¶ 90-111);

17


18

effectiveness and safety of bavituximab in the treatment of NSCLC gave

19


20


21


22

cited as statistical evidence of safety or efficacy;

23

(q) The Company failed to disclose the p-value applicable to the

24

interim results of the overall survival of the patients in the Phase II trial when

25

they disclosed certain interim data from the trial on May 21, 2012. See ¶ 65

26

above. This failure to disclose the p-value as to the overall survival was an

27

omission of material information important to investors as the information

28

provided to investors on May 21, 2012 was not “positive top-line results” nor



was the data “a significant validation of the clinical potential of bavituximab

for patients with few effective treatment options.”

(r) The Company again announced interim results on July 16, 2012,

as to the overall survival of patients in the Phase II trial and touted them as

“exceptional” but once again failed to disclose the p-value as to the overall

survival associated with this data. See ¶ 66 above. This failure to disclose the

p-value was an omission of material information important to investors; and

(s) The Company made a further announcement on September 7,

2012, about the interim data as to the overall survival of patients purportedly

gathered from the Phase II trial and claimed that the p-value was .0154. This

p-value, if accurate, would be statistically significant in showing that

bavituximab had been efficacious in the Phase II trial. See ¶ 71 above.

However, this description of the p-value as to the overall survival of patients

was false and misleading as it was based on incomplete data. Defendant

Peregrine later admitted on February 19, 2013, that the p-value as to the

overall survival of patients was 0.217, which means that chance would be

responsible for the outcome of the data in more than one of five times, which

is not statistically significant. Defendant Peregrine also failed to disclose any

reason for the extreme negative change as to the p-value in the overall

survival of patients from the earlier reported incomplete data.

87. Further, in an article entitled Peregrine’s Bavituximab Future Looks

Bleak , dated May 12, 2013, the Chimera Research Group 1 reported:

1 The founding members of Chimera Research Group have over 50 years of combined experience in the biotech and pharmaceutical sector. Their experience includes work at investment banks, hedge funds, pharmaceutical companies, top-tier universities, and the FDA. Their published work includes freelance and editorial contributions both print and on-line, clinical and medical research, books and tutorials, as well as contributions to on-line social media.

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28


Case 8:


1

After much hype, Peregrine released overall survival data

2

from their randomized Phase II trial in second-line non-

3

small cell lung cancer that wowed many. They spoke of

4

over a dozen big pharma companies looking to partner

5 with them. Even during the Q4 ‘12 earnings call,

6

Peregrine hyped the potential for accelerated approval.

7

However on September 24 th, Peregrine informed the

8

world that their previous data wasn’t reliable due to

9

“major discrepancies between some patient sample test

10

results and patient treatment code assignments.” The

11

stock was down 80%+ that day.

12

13

Peregrine’s investigation indicated that somehow

14

discrepancies were isolated to only the placebo and

15

1mg/kg treatment arms of the trial, but no evidence of

16

discrepancies in the 3mg/kg treatment arm of the trial.

17

How does a vendor mix up labeling two of the arms, but

18 not the third? We find their explanation insufficient

19

and rather odd, but Peregrine has a long history of

20 straining credulity to the limits .

21

22

We also don’t view their recent ad-hoc analysis of the

23

data as acceptable by any standards. The following is a

24

great example of Peregrine’s creativity: they are

25

analyzing the combined placebo and Bavituximab

26

1mg/kg arms into one treatment arm (control arm), and

27

comparing those results to the 3mg/kg arm. Notice the

28

complete lack of any other details like the p-value or

53



censoring rate. We would love to see the faces of the

FDA when Peregrine has their mid-year end of Phase II

meeting.

With a botched trial and multiple other failed studies, it

should be unlikely they will move this into Phase III.

However, management still looks willing to waste

shareholder money further by initiating a pivotal trial

near year-end. Based on their Phase II missteps and

inconclusive data, it is not a wise investment to move

Bavituximab into Phase III.

(Emphasis added).

88. Also, on February 26, 2013 in an article entitled Peregrine

Pharmaceuticals’ Bavituximab: It’s Time To Throw In The Towel , a Doctor Robert

Schwartz2 reported:

Peregrine initiated a randomized Phase-II study of

docetaxel ± bavituximab in 2nd-line NSCLC patients

(N=121) in 2010. The results of the study were the

subject of a recent press release in which the company

reported that the “results from this Phase-II trial indicate

a meaningful improvement in median overall survival of

11.7 months in the 3mg/kg bavituximab plus docetaxel

arm compared to 7.3 months in the control arm

2 Dr. Schwartz is a 30-year veteran of the pharmaceutical industry most recently in the role of Executive Director, Strategic Transactions for Bristol-Myers Squibb Company where he has more than a dozen completed transactions to his credit. He speaks frequently on the Biotech-Big Pharma dynamics and evolving research and treatment paradigms in oncology and is perhaps best known for predicting FDA’s rejection of Dendreon’s Provenge vaccine in 2007 (San Francisco Chronicle, March 30, 2007).

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

54


Case 8:


1

(HR=0.73; p value=0.217).” To add to the hype, the

2

company went on to say that “these compelling results

3

strongly support advancing the 3mg/kg bavituximab plus

4

docetaxel combination into Phase-III development in

5 second-line NSCLC.” To be clear, this was a failed trial

6

(P = 0.217), the results were not compelling and the

7

“improvement” in median overall survival was orders of

8

magnitude away from achieving statistical significance.

9

This was, in part, due to the inclusion of a 1 mg/kg dose

10

arm which reduced the size of each arm to 40 patients.

11

Given that there was a significant volume of data

12

available for docetaxel in combination with 3mg/kg of

13

bavituximab at the time this study was initiated, there

14

was no apparent reason to include the 1mg/kg arm.

15

16

Based on the results of a Phase-II study (NCT00687817)

17

with bavituximab in combination with paclitaxel and

18

carboplatin in previously untreated NSCLC patients

19

(N=49), the company initiated a randomized Phase-II

20

study with carboplatin/paclitaxel ± bavituximab

21

(NCT01160601) in the same patient population (N=86).

22

It is disappointing that the company chose to limit this

23

study to 86 patients as it will be difficult to “tease out”

24

differences between the arms of the study. Clinical

25

development is more than simply conducting clinical

26

trials, it’s about asking hard questions and designing and

27

conducting clinical trials to secure definitive answers.

28

Regrettably, this study, which should read out shortly, is

55



1

underpowered and not designed to provide definitive

2

answers.

3

89. As a result of Defendants’ materially false and misleading statements

4 regarding the efficacy of bavituximab in treating second-line non-small cell lung

5 cancer patients, Peregrine securities traded at artificially inflated levels during the

6 Class Period. However, after the above revelations seeped into the market, the

7 Company’s shares were hammered by massive sales, sending them down 79% from

8 their Class Period high.

9

CONFIDENTIAL WITNESSES

10

90. Confidential Witness No. 1 (“CW1”) is a former employee of

11 Peregrine and was employed in a high level managerial position in the capacity of

12 Chief Operating Officer (“COO”) from April 2009 through December 2011. CW1

13 was responsible for all operations of the Company.

14

91. CW1 stated said that the Company would announce positive

15 preliminary results when, in his/her opinion, nothing should be announced until the

16 information was confirmed.

17

92. CW1 also stated that he/she thought the Company lacked internal

18 controls related to conducting clinical trials and reporting the results of the clinical

19 trials.

20


21 Peregrine’s subsidiary Avid Bioservices and was employed in a high level

22 managerial position at Avid Bioservices from October 1996 to July 2011. CW2

23 reported to CW1 during part of his/her employment with Avid Biosciences.

24

94. CW2 stated that he/she was in charge of the manufacturing of all the

25 drugs which were used for the clinical tests at the Company. The manufacturing

26 included filling the vials for the drug tests which included the placebo and different

27 strengths of the drugs being tested. CW2 also stated that once the vials where filled

28 they were shipped to a vendor to have them labeled.

56



1

95. CW2 stated that he/she was shocked at what Peregrine reported

2 regarding the Phase II trial. CW2 stated that the Company overstated the data and

3 the data that the Company promised was not present. CW2 further stated that the

4 Phase II trial results were incredible and hard to believe.

5


6 Peregrine and was a Process Development Scientist at the Company from July 2010

7 to September 2012.

8

97. CW3 stated the Company never performed its due diligence on any

9 project. CW3 stated that “[i]f the Company received good results on a project they

10 would never verify the results, they would just report the good news.”

11

98. CW3 further stated that the Company should have known that the

12 Company’s Phase II trial in second-line non-small cell lung cancer could not be

13 relied upon, as major discrepancies existed between patient sample test results and

14 patient treatment codes. CW3 stated that in “typical Peregrine fashion a result that is

15 beneficial to them is what they want. The Company does not try to see if it is

16 reproducible or even makes sense.” CW3 further stated that “[i]n typical fashion

17 they [Peregrine] looked at only the things that would make their case look good and

18 not what was actually occurring. Other people not even intimately familiar with the

19 trial pointed out discrepancies in the safety profile that should have caused them to

20 take a second third or fourth look. Every decision ultimately is done by Steve King.

21 He is not a scientist of any stature. I would say the intellectual honesty of a

22 Peregrine trial is very similar to those people who found WMD in Iraq when none

23 existed. While I worked there I never heard one word from management about what

24 is owed the shareholders in terms of giving them a return, of being honest, of getting

25 a drug to market, of having any obligation to the shareholders. They got the result

26 they wanted to have, not the truth.”

27

99. Confidential Witness No. 4 (“CW4”) was a former consultant at

28 Defendant Peregrine for Clinical Operations from mid-2007 until March 2012.

57


Case 8:12 -cv-01647-PSG-FMO Document 24 Filed 04/15/13 of 84 Page ID #:351

1

100. CW4 stated that all the Peregrine clinical trials, including the

2 bavituximab clinical trial in issue, follow a standard set of operating procedures

3 (SOPs) and a Clinical Protocol specific to each clinical trial.

4

101. CW4 stated that the Clinical Protocol details all aspects of the clinical

5 trial including the drug supply, packaging, labeling, shipping arrangements, safety

6 procedures, patient population, manufacturing processes and all other steps in the

7 clinical trial.

8

102. CW4 stated that the SOPs described how the data generated from the

9 clinical trial should be monitored to ensure its accuracy.

10

103. CW4 stated that all Peregrine employees involved in the trial are

11 supposed to follow the SOPs and the Clinical Protocol.

12

104. In addition, according to CW4, Defendant Peregrine has Case Report

13 Forms that are distributed to the clinical investigators and on which they are

14 supposed to record the data collected from the patients in the clinical trial. The data

15 collected and reported back to Peregrine by the clinical investigators includes the

16 patient’s height, weight, date of birth, sex, date of diagnosis, and reports of

17 treatments, including the results of diagnostic tests such as radiology reports and

18 electrocardiograms.

19

105. CW4 stated that the SOPs, the Clinical Protocol and the Case Report

20 Forms for the bavitruximab trial in issue are found on the main frame computer at

21 Defendant Peregrine’s offices.

22

106. According to CW4 these documents are subject to non-disclosure

23 agreements signed by Peregrine employees which prevents them from releasing

24 these documents to outside parties without a subpoena.

25

107. According to CW4, the SOPs, Clinical Protocol and Case Report Forms

26 cannot be obtained from the FDA with a FOIL request as they are considered

27 proprietary.

28

58



1

108. Confidential Witness No. 5 (“CW5”)was a former project manager at

2 Clinical Supplies Management (CSM), the Contract Resource Organization (CRO)

3 hired by Defendant Peregrine to manage the bavituximab clinical trial in issue,

4 including the blinding of the drug and placebo and the distribution of the drug and

5 placebo to clinical investigators.

6

109. CW5 stated that each clinical trial managed by CSM had its own set of

7 Standard Operating Procedures (SOPs) and had a Clinical Protocol supplied to CSM

8 by the drug company such as Peregrine conducting the clinical trial. These

9 documents were stored in the office of CSM in electronic format and hard copies

10 were maintained in large binders in the work area for easy reference by the CSM

11 workers.

12

110. CW5 stated that these documents were never supposed to leave the

13 CSM facility.

14

111. CW5 stated that he/she and other CSM employees signed

15 confidentiality agreements that would prevent them from revealing the contents of

16 the SOPs and Clinical Protocol without a lawful subpoena.

17

POST CLASS PERIOD STATEMENTS

18

112. On January 7, 2013, the Company issued a press release entitled

19 Peregrine Pharmaceuticals Provides Update on the Internal Review of Its Phase II

20 Second-Line Non-Small Cell Lung Cancer Trial . This press release stated in

21 relevant part:

22

TUSTIN, CA -- (Marketwire) -- 01/07/13 -- Peregrine

23

Pharmaceuticals, Inc. (NASDAQ: PPHM), a

24

biopharmaceutical company developing first-in-class

25

monoclonal antibodies focused on the treatment and

26

diagnosis of cancer, today provided an update from its

27

internal review of discrepancies from its Phase II

28

randomized, double-blind placebo-controlled trial of

59


Case 8:


1

bavituximab in second-line non-small cell lung cancer

2

(NSCLC) in 121 patients. The review was prompted by

3

the discovery of vial coding discrepancies while

4

preparing for an end of Phase II meeting with the FDA .

5

The internal review included a thorough operational

6

review of multiple third-party vendor operations at sites

7

worldwide, testing of investigational product used in the

8

trial, additional patient sample testing to determine

9

drug levels and a review of immunogenicity testing

10

results from the trial . The results of the extensive

11

internal review indicate that discrepancies are isolated to

12

the placebo and 1 mg/kg treatment arms of the trial and

13

that there was no evidence of discrepancies in the 3

14

mg/kg treatment arm of the trial .

15

16

“Our goal in undertaking such a comprehensive review

17

was to understand every aspect of this clinical trial ,”

18

said Jeffrey L. Masten, vice president, quality of

19

Peregrine. “Due to the complex nature of this trial, this

20

was an enormous effort involving multiple third-party

21

vendors and thousands of product and patient samples

22

obtained from three different continents. Specifically, we

23

sought to determine the cause and the impact of any

24

discrepancies within the trial and to verify every step

25

within the drug product distribution process. We believe

26

we have accomplished our goals in obtaining a more

27

thorough understanding of the trial and we are very

28

pleased with the outcome .”

60


Case 8:


1

Based on the results of the internal review, Peregrine is

2

taking a very conservative approach toward analyzing the

3

results from the trial which included combining the

4

placebo and 1mg/kg arms into one treatment arm (control

5 arm), and comparing those results to the 3mg/kg arm.

6

This analysis indicates that the 3 mg/kg arm continues to

7

show favorable tumor response rates, progression-free

8

survival and overall survival (OS) over the new

9

combined control arm. Peregrine expects to announce

10

more detailed results from the analysis in the near term

11

when it is completed.

12

13

“The results from this comprehensive review have

14

provided a better understanding of the outcome of this

15

trial . We believe that these results of our internal review

16

and subsequent data analysis support advancing

17

bavituximab into Phase III development for the treatment

18

of second-line non-small cell lung cancer,” said Joseph S.

19

Shan, vice president, clinical and regulatory affairs of

20

Peregrine. “We are now preparing for discussions with

21

the FDA and worldwide regulatory agencies.”

22

23

“With the results of this review in hand, we are now in

24

the process of updating potential partners and moving the

25

program forward,” said Steven W. King, president and

26

chief executive officer of Peregrine. “Looking ahead, we

27

anticipate data from seven ongoing bavituximab trials in

61


28

Case 8:


different indications as well as results from an imaging

study based on the same novel target.”

(Emphasis added).

A. The Company Had Substantial Motivation

to Make False and/or Misleading Statements

113. The Company defaulted on their $30 million loan with Oxford. In

addition to returning all the money, the Company was forced to pay roughly $1.8

million in fees and interest on this loan, the monies from which Peregrine had only

received less than 30 days prior to its return.

114. Peregrine reported cash and cash equivalents of $24.4 million at the end

of October 31, 2012. In December 2012, Peregrine filed another at-the-market

offering through MLV3 in the amount of $75 million. As of October 31, 2012,

Peregrine has an accumulated deficit of $354 million since inception.

115. According to the 2012 Form 10-K, the Company funded itself at the

market:

Historically, we have funded a significant portion of

our operations through the issuance of equity . During

fiscal year 2012, we raised $34,330,000 in gross proceeds

(as described in Note 7 to the accompanying consolidated

financial statements). Subsequent to April 30, 2012 and

through June 30, 2012 we raised an additional

$1,496,000 in gross proceeds under an At Market

Issuance Agreement (as described in Note 7 to the

accompanying consolidated financial statements). As of

June 30, 2012, additional shares of our common stock for

aggregate gross proceeds of up to $185,886,000 remained

3 MLV is the company that takes the Company stock and sells it in market for Peregrine.

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Case 8:


1

available under our current effective shelf registration

2

statements on Form S-3.

3

4

Although we believe we can raise sufficient capital to

5 meet our obligations through fiscal year 2013, our ability

6

to raise additional capital in the equity markets is also

7

dependent on a number of factors, including, but not

8

limited to, the market demand for our common stock .

9

The market demand or liquidity of our common stock is

10

subject to a number of risks and uncertainties, including

11

but not limited to, negative economic conditions, adverse

12

market conditions, adverse clinical trials results, and

13

significant delays in one or more clinical trials. If our

14

ability to access the capital markets becomes severely

15 restricted, it could have a negative impact on our

16

business plans, including our clinical trial programs and

17

other research and development activities. In addition,

18

even if we are able to raise additional capital, it may not

19

be at a price or on terms that are favorable to us.

20

116. During the Class Period, Defendants were motivated to make false and

21 misleading statements in order to be able to raise millions of dollars in gross

22 proceeds from the sale of the Company’s common stock.

23

117. Further, Defendants King, Lytle and Shan were motivated to make false

24 and misleading statements regarding the Phase II trial in order to retain their

25 positions and lucrative annual salaries. For example, Defendants received the

26 following annual base salaries:

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27

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1 Defendant Position Annual Base Salary King CEO, President and Director $429,000 Lytle CFO $325,812 Shan VP, Clinical and Regulatory $260,000

Affairs

118. Defendants King, Lytle, and Shan were further motivated to make false

and misleading statements regarding the Phase II trial in order to receive lucrative

bonuses. For example, Defendant King received a $257,400 year-end bonus in

2012; Defendant Lytle received a $130,300 year-end bonus in 2012; and Defendant

Shan received a $142,500 year-end bonus in 2012. In addition, according to the

Company’s DEF14A, dated August 27, 2012, “[d]ue to Mr. Shan’s significant

contributions in advancing Peregrine’s three phase II clinical trials during the fiscal

year, the Committee approved a bonus for Mr. Shan based on a corporate factor of

1.5, and exercised its discretion to approve an additional bonus amount of $6,000.”

119. Defendant King was further motivated to make false and misleading

statements regarding the Phase II trial in order receive $441,119 of Peregrine stock

option awards and $257,400 in Non-Equity Incentive Plan Compensation in 2012.

This Non-Equity Incentive Plan Compensation represents a performance-based

bonus awarded to Defendant King in recognition of his performance during fiscal

year 2012 pursuant to the Company’s Annual Cash Bonus Plan for its Named

Executive Officers.

120. Defendant Lytle was further motivated to make false and misleading

statements regarding the Phase II trial in order to receive $177,243 of Peregrine

stock option awards and $130,300 in Non-Equity Incentive Plan Compensation in

2012. This Non-Equity Incentive Plan Compensation represents a performance-

based bonus awarded to Defendant Lytle in recognition of his performance during

fiscal year 2012 pursuant to the Company’s Annual Cash Bonus Plan for its Named

Executive Officers.

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121. Defendant Shan was further motivated to make false and misleading

2 statements regarding the Phase II trial in order to receive $133,512 of Peregrine

3 stock option awards and $136,500 in Non-Equity Incentive Plan Compensation in

4 2012. This Non-Equity Incentive Plan Compensation represents a performance-

5 based bonus awarded to Defendant Shan in recognition of his performance during

6 fiscal year 2012 pursuant to the Company’s Annual Cash Bonus Plan for its Named

7 Executive Officers.

8

122. In addition, according to CW2, Defendant Garnick is employed as a

9 consultant to the Company in the position as Head of Regulatory Affairs through

10 Lone Mountain Biotechnology and Medical Devices, Inc. Defendant Garnick was

11 motivated to make false and misleading statements regarding the Phase II trial in

12 order to retain his position as a consultant to the Company.

13

PLAINTIFF’S CLASS ACTION ALLEGATIONS

14

123. Plaintiff brings this action as a class action pursuant to Federal Rule of

15 Civil Procedure 23(a) and (b)(3) on behalf of a Class consisting of all those who

16 purchased or otherwise acquired Peregrine’s securities between May 21, 2012 and

17 September 26, 2012, inclusive, seeking to pursue remedies under the Exchange Act.

18

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

19 is impracticable. While the exact number of Class members is unknown to Plaintiff

20 at this time and can only be ascertained through appropriate discovery, Plaintiff

21 believes that there are hundreds or thousands of members in the proposed Class.

22

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

23 records maintained by Peregrine or its transfer agent and may be notified of the

24 pendency of this action by mail, using the form of notice similar to that customarily

25 used in securities class actions.

26

126. Plaintiff’s claims are typical of the claims of the members of the Class

27 as all members of the Class are similarly affected by Defendants’ wrongful conduct

28 in violation of federal law that is complained of herein.


Case 8:12 -cv-01647-PSG-FMO Document 24 Filed 04/15/13 of 84 Page ID #:359

1

127. Plaintiff will fairly and adequately protect the interests of the members

2 of the Class and have retained counsel competent and experienced in class and

3 securities litigation.

4

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

5 and predominate over any questions solely affecting individual members of the

6 Class. Among the questions of law and fact common to the Class are:

7

(a) whether the federal securities laws were violated by Defendants’

8

acts as alleged herein;

9

(b) whether statements made by Defendants to the investing public

10

during the Class Period misrepresented material facts regarding the efficacy of

11

bavituximab in treating second-line non-small cell lung cancer patients; and

12

(c) whether the members of the Class have sustained damages and, if

13

so, the proper measure of damages.

14

129. A class action is superior to all other available methods for the fair and

15 efficient adjudication of this controversy since joinder of all members is

16 impracticable. Furthermore, as the damages suffered by individual Class members

17 may be relatively small, the expense and burden of individual litigation make it

18 impossible for members of the Class to individually redress the wrongs done to

19 them. There will be no difficulty in the management of this action as a class action.

20

Loss Causation

21

130. Defendant’s wrongful conduct, as alleged herein, directly and

22 proximately caused the economic loss suffered by Plaintiff and the Class.

23

131. During the Class Period, as detailed herein, Defendants made materially

24 false and misleading statements and engaged in a scheme to deceive the market and

25 a course of conduct that artificially inflated the price of Peregrine securities and

26 operated as a fraud or deceit on Class Period purchasers of Peregrine securities by

27 misrepresenting the efficacy of bavituximab in treating second-line non-small cell

28 lung cancer patients. Later, when Defendants’ prior misrepresentations and

66


-cv-01647-PSG-FMO Document 24 Filed 04/15/13 of 84 Page ID #:360 Case 8:12

fraudulent conduct became apparent to the market, the price of Peregrine securities

fell precipitously, as the prior artificial inflation came out of the price over time. As

a result of their purchases of Peregrine securities during the Class Period, Plaintiff

and other members of the Class suffered economic loss, i.e. , damages, under the

federal securities laws.

Applicability of Presumption of Reliance:

Fraud-on-the-Market Doctrine

132. At all relevant times, the market for Peregrine’s securities was an

efficient market for the following reasons, among others:

(a) Peregrine met the requirements for listing on the NASDAQ, a

highly efficient and automated market;

(b) During the Class Period, on average, millions of shares were

traded weekly, demonstrating a very active and broad market for Peregrine

securities and permitting a strong presumption of an efficient market;

(c) As a regulated issuer, Peregrine filed periodic public reports with

the SEC;

(d) Peregrine regularly communicated with public investors via

established market communication mechanisms, including through regular

disseminations of press releases on the national circuits of major newswire

services and through other wide-ranging public disclosures, such as

communications with the financial press and other similar reporting services;

(e) Peregrine was followed by several securities analysts employed

by major brokerage firms who wrote reports that were distributed to the sales

force and certain customers of their respective brokerage firms during the

Class Period. Each of these reports was publicly available and entered the

public marketplace; and

(f) Unexpected material news about Peregrine was rapidly reflected

and incorporated into the Company’s securities price during the Class Period.

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Case 8:


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133. As a result of the foregoing, the market for Peregrine’s securities

2 promptly digested current information regarding Peregrine from all publicly

3 available sources and reflected such information in the price of Peregrine’s

4 securities. Under these circumstances, all purchasers of Peregrine’s securities during

5 the Class Period suffered similar injury through their purchase of Peregrine’s

6 securities at artificially inflated prices, and a presumption of reliance applies.

7

FIRST CLAIM

8

Violation of Section 10(b) Of

9

The Exchange Act and Rule 10(b)-5

10

Promulgated Thereunder Against All Defendants

11

134. Plaintiff repeats and re-alleges each and every allegation contained

12 above as if fully set forth herein.

13

135. This claim is brought against Peregrine and all of the Individual

14 Defendants.

15

136. During the Class Period, Defendants carried out a plan, scheme and

16 course of conduct which was intended to and, throughout the Class Period, did: (a)

17 deceive the investing public, including Plaintiff and other Class members, as alleged

18 herein; and (b) cause Plaintiff and other members of the Class to purchase

19 Peregrine’s securities at artificially inflated prices. In furtherance of this unlawful

20 scheme, plan and course of conduct, Defendants, and each of them, took the actions

21 set forth herein.

22

137. Defendants (a) employed devices, schemes, and artifices to defraud; (b)

23 made untrue statements of material fact and/or omitted to state material facts

24 necessary to make the statements not misleading; and (c) engaged in acts, practices,

25 and a course of business that operated as a fraud and deceit upon the purchasers of

26 the Company’s securities in an effort to maintain artificially high market prices for

27 Peregrine’s securities in violation of Section 10(b) of the Exchange Act and Rule

28 10(b)-5 thereunder. All Defendants are sued either as primary participants in the

68



1 wrongful and illegal conduct charged herein or as controlling persons as alleged

2 below.

3

138. Defendants, individually and in concert, directly and indirectly, by the

4 use, means or instrumentalities of interstate commerce and/or of the mails, engaged

5 and participated in a continuous course of conduct to conceal adverse material

6 information about the business, operations and future prospects of Peregrine as

7 specified herein.

8

139. Defendants employed devices, schemes and artifices to defraud, while

9 in possession of material adverse non-public information and engaged in acts,

10 practices, and a course of conduct as alleged herein in an effort to assure investors of

11 Peregrine’s value and performance and continued substantial growth, which

12 included the making of, or participation in the making of, untrue statements of

13 material facts and omitting to state material facts necessary in order to make the

14 statements made about Peregrine and its business operations and future prospects in

15 the light of the circumstances under which they were made, not misleading, as set

16 forth more particularly herein, and engaged in transactions, practices and a course of

17 business that operated as a fraud and deceit upon the purchasers of Peregrine’s

18 securities during the Class Period.

19

140. Each of the Individual Defendants’ primary liability, and controlling

20 person liability, arises from the following facts: (a) the Individual Defendants were

21 high-level executives, directors, and/or agents at the Company during the Class

22 Period and members of the Company’s management team or had control thereof; (b)

23 each of these defendants, by virtue of his responsibilities and activities as a senior

24 officer and/or director of the Company, was privy to and participated in the creation,

25 development and reporting of the Company’s financial condition; (c) each of these

26 defendants enjoyed significant personal contact and familiarity with the other

27 defendants and was advised of and had access to other members of the Company’s

28 management team, internal reports and other data and information about the



1 Company’s Phase II trial, finances and operations at all relevant times; and (d) each

2 of these Defendants was aware of the Company’s dissemination of information to

3 the investing public which they knew or recklessly disregarded was materially false

4 and misleading.

5

141. Defendants had actual knowledge of the misrepresentations and

6 omissions of material facts set forth herein, or acted with reckless disregard for the

7 truth in that they failed to ascertain and to disclose such facts, even though such facts

8 were available to them. As demonstrated by Defendants’ false and misleading

9 financial statements issued throughout the Class Period, Defendants, if they did not

10 have actual knowledge of the omissions alleged, were reckless in failing to obtain

11 such knowledge by deliberately refraining from taking those steps necessary to

12 discover whether the statements regarding the Phase II trial were false and

13 misleading.

14

142. As a result of the dissemination of the materially false and misleading

15 information and failure to disclose material facts, as set forth above, the market price

16 of Peregrine’s securities was artificially inflated during the Class Period. In

17 ignorance of the fact that market prices of Peregrine’s securities were artificially

18 inflated, and relying directly or indirectly on the misleading financial statements and

19 Company press releases issued by Defendants, or upon the integrity of the market in

20 which the Company’s securities trades, and/or on the absence of material adverse

21 information that was known to or recklessly disregarded by Defendants but not

22 disclosed in public statements by Defendants during the Class Period, Plaintiff and

23 the other members of the Class acquired Peregrine securities during the Class Period

24 at artificially high prices and were or will be damaged thereby.

25

143. At the time of said omissions and/or materially false and misleading

26 statements, Plaintiff and other members of the Class were ignorant of their

27 misleading nature, and believed them to be true. Had Plaintiff and the other

28 members of the Class and the marketplace known the truth regarding Peregrine’s



1 Phase II trial, Plaintiff and other members of the Class would not have purchased or

2 otherwise acquired their Peregrine securities, or, if they had acquired such securities

3 during the Class Period, they would not have done so at the artificially inflated

4 prices that they paid.

5

144. By virtue of the foregoing, Defendants have violated Section 10(b) of

6 the Exchange Act, and Rule 10b-5 promulgated thereunder.

7

145. As a direct and proximate result of Defendants’ wrongful conduct,

8 Plaintiff and the other members of the Class suffered damages in connection with

9 their respective purchases and sales of the Company’s securities during the Class

10 Period.

11

SECOND CLAIM

12

Violation of Section 20(a) Of

13

The Exchange Act Against the Individual Defendants’

14

146. Plaintiff repeats and re-alleges each and every allegation contained

15 above as if fully set forth herein.

16

147. The Individual Defendants acted as controlling persons of Peregrine

17 within the meaning of Section 20(a) of the Exchange Act as alleged herein. By

18 virtue of their high-level positions, agency, and their ownership and contractual

19 rights, participation in and/or awareness of the Company’s operations and/or

20 intimate knowledge of the misleading interim Phase II reporting filed by the

21 Company with the SEC and disseminated to the investing public, the Individual

22 Defendants had the power to influence and control, and did influence and control,

23 directly or indirectly, the decision-making of the Company, including the content

24 and dissemination of the various statements that Plaintiff contends are false and

25 misleading. The Individual Defendants were provided with or had unlimited access

26 to copies of the Company’s reports, press releases, public filings and other

27 statements alleged by Plaintiff to have been false and misleading prior to and/or


28

-cv-01647-PSG-FMO Document 24 Filed 04/15/13 of 84 Page ID #:365 Case 8:12

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shortly after these statements were issued and had the ability to prevent the issuance

of the statements or to cause the statements to be corrected.

148. Each Defendant had direct and supervisory involvement in the day-to-

day operations of the Company and, therefore, is presumed to have had the power to

control or influence the particular transactions giving rise to the securities violations

as alleged herein, and exercised the same.

149. As set forth above, the Individual Defendants each violated Section

8 10(b) and Rule 10b-5 by their acts and omissions as alleged in this Complaint.

9

150. By virtue of their positions as controlling persons, the Individual

10 Defendants are liable pursuant to Section 20(a) of the Exchange Act. As a direct and

11 proximate result of Defendants’ wrongful conduct, Plaintiff and other members of

12 the Class suffered damages in connection with their purchases of the Company’s

13 securities during the Class Period.

14

PRAYER FOR RELIEF

15

WHEREFORE , Plaintiff prays for relief and judgment, as follows:

16

(a) Determining that this action is a proper class action, designating

17

Plaintiff as class representatives under Rule 23 of the Federal Rules of Civil

18

Procedure and Plaintiff’s counsel as Class Counsel;

19

(b) Awarding compensatory damages in favor of Plaintiff and the

20

other Class members against all Defendants, jointly and severally, for all

21

damages sustained as a result of Defendants’ wrongdoing, in an amount to be

22

proven at trial, including interest thereon;

23

(c) Awarding Plaintiff and the Class their reasonable costs and

24

expenses incurred in this action, including counsel fees and expert fees; and

25

(d) Awarding such other and further relief as the Court may deem

26

just and proper.

27 //

28 //


Case 8:1


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JURY TRIAL DEMANDED

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Plaintiff hereby demands a trial by jury.

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Patrice L. Bishop STULL, STULL & BRODY

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Dated: April 15, 2013 By: A Patrice L. Bishop 9430 West Olympic Boulevard Suite 400 Beverl

(31 '0~ S209-2468 Hll, CA 90212

Tel: Fax: (310 209-2087 service.ssb1a.eorn

Liaison Counsel for Plaintiff and the Putative Class

Thomas J. McKenna, Pro Hac Vice tjmckenna(Zigme-1aw.com Gregory M. Egleston ggJeston(2gme-law.com GA[NEY McKENNA & EGLESTON 440 Park Avenue South, 5th Floor New York, NY 10016 Tel: (212) 983-1300 Fax: (212)983-0383

Lead Counsel for Plaintiff and the Putative Class

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Case 8:12-cv-01647-PSG-FMO Document 24 Filed 04/15/13 of 84 Page ID #:367 CERTff1CAThPN OF NAMED PLAINTIF F

I, _rvc T. /"P1aintiff') hcrebyretain Gainey McKenna &Egleston and such co-counsel as appropriate, subject to their I vstigation 1 to pursue my claims on a contingent fee basis and for counsel to advance the costs of the case, with no attorneys fee owing except as may be awarded by the court at the conclusion of the matter and paid out of any recovery obtained and I also hereby declare the following as to the claims asserted under the law that:

Plaintiff did not purchwe the security tiurt is the subject of this action at the direction of'Plaintiff's counsel or in order to participate in this private action.

Plaintiff reviewed a copy of the Consolidated Complaint and is willing to serve as a representative party on behalf of the class, including providing testimony at deposition and trial, if necessary.

Plaintiff's transactions in Peregrine Pharmr.weulJcaIs Inc. security that is subject of this action during the Class Period are as follows:

- Stock Smbol Buy/Sell - Price Per Share

See attached chart L' h A

Please list other transactions on a separate sheet of paper, if necessary.

Plaintiff has sought to serve as a class representative in the following cases within the last three years:

None.

Plaintiff will not accept any payment serving as a representative party on behalf of the class beyond Plaintiff's pro rata share of any recovery, except such reasonable casts and expenses (including lost wages) directly relating to the representation of the class as ordered or approved by the court

I declare under penalty of penury that the foregoing is true and correct.

Executed this J dayof ._AorJ.._, 2013

.j

Siiature

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Print Name (& Title if applicable)

Page 74


EXHIBIT A


Exhibit A to the James T. Fahey Certification

Price $2.08 $2.08 $2.19 $2.22 $2.23 $2.22 $2.28 $2.25 $2.27 $2.28 $2.29 $2.36 $2.36 $3.48 $3.45 $3.38 $3.33 $3.28 $3.30 $3.29 $3.26 $2.54 $2.53 $Z54 $2.56 $2.55 $2.57 $2.45 $2.45 $2.45 $2.45 $2.50 $2.50 $2.50 $2.50 $2.50 $2.50 $2.50 $2.50 $2.53 $2.53

No. of Shares 20,000 20,000 5,000 24,000 27,300 2,700 4,686 15,314 20,000 100 9,900 20.000 10,000 5,677 200 400 3,700 23 7,600 400 2,000 13,850 6,150 3,000 2,652 14,400 9,948 20,000 12,450 4,400 100 3,050 10,000 22,400 7,500 100 19,500 10,400 100 5,200 4,800

Stock Symbol PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PP HM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM

Buy/Sell Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy

Date 8/9/2012 8/9/2012 8/9/2012 8/9/2012 819/2012 8/9/2012 8/912012 8/9/2012 8/9/2012 8/9/2012 8/9/2012 8/10/2012 8/10/2012 8/14/2002 8/14/2012 8/14/2012 8/14/2012 8/14/2012 8/14/2012 8/14/2012 8/14/2012 8/14/2012 8/14/2012 8/14/2012 8/14/2012 8/14/2012 8/14/2012 8/14/2012 8/14/2012 8/1412012 8/14/2012 8/14/2012 8/14/2012 5/14/2012 8/14/2012 8/14/2012 8/14/2012 8/14/2012 8/1412012 8/14/2012 8/14/2012

Page 75

PPHM PPHM PPI-IM RPHM PP HM PP HM PPHM PPHM PP HM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPI-IM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPI-IM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM

Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell


$2.54 $2.55 $259 $259 $2.58 $258 $2.58

$2.59 $2.63 $2.85 $2.86 $2.62 $2.63 $2.59 $2.60 $2.59 $2.59 $2.52 $2.56 $2.55 $2.50 $2.50 $2.48 $2.48 $2.49 $2.48 $2.48 $2.48 $249 $2.55 $2.54 $2.52 $2.53 $2.53 $2.52 $2.51 $2.52 $2.51 $2.51 $2.50 $2.50 $2.50

10,000 10,000 10,000 10,000 4,600 800 200 4,050 350 10,000 5,000 5,000 20,000 5,000 5,000 100 100 7,201 10,000 4,700 5300 10000 4150 3600 2,250 10000 100 100 9800 10000 300 3700 10000 10000 10000 6000 10000 200 100 6850 100 100 19800

811412012 8/14/2012 8/14/2012 8/14/2012 8/14/2012 8/14/2012 8/1412012 8/14/2012 8/14/2012 8/14/2012 8/20/2012 8/20/2012 8/14/2012 8/14/2012 8/1412012 8/14/2012 8/14/2012 8/14/2012 8/14/2012 8/14/2012 8/14/2012 8/14/2012 8/14/2012 $114/2012 8/14/2012 8/1412012 8/14/2012 8/14/2012 8/14/2012 8114/2012 8114120'[2 8/14/2012 8/14/2012 8/14/2012 8/14/2012 8/14/2012 8/14/2012 6/14/2012 8/14(2012 8/14/2012 8/14(2012 8/14/2012 8/14/2012

Page 76

PPHM PPHM PPRM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPI-{M PPHM PPHM PPHM PPHM PPH M PPI-1 M PPHM PPHM PPI-IM PPHM PPHM PPHM PPHM PPHM PPF-{M PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM PPHM

Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Sell Self Sell Sell Sell Sell Sell



$2.50 $2.50 $2.50 $2.36 $2.36 $2.36 $236 $2.40 $2.40 $2.41 $2.41 $2.40 $1.97 $1.97 $1.97 $1.96 $1.96 $1.95 $1.94 $1.86 $1.89 $1.68 $1.88 $1.88 $1.84 $1.84 $1.85 $1.86 $1.85 $1.88 $1.87 $1.90 $1.89 $1.88 $1.88 $1.90 $1.59 $1.89 $1.89

10,000 2850 20,000 100 1500 3400 5000 2300 2700 4500 35 3064 2600 7,400 19,050 950 20,000 50 11430 10000 7154 12846 3800 5900 2300 8000 20000 700 17820 2788 17212 2100 5952 3900 8045 400 400 100 9100

8/14/2012 8/14/2012 8/14/2012 8/23/2012 8/23/2012 8/23/2012 8/23/2012 8/23/2012 8/23/2012 8123/2012 812312012 8/23/2012 8/27/2012 8/27/2012 8127/2012 8/27/2012 8/27/2012 8/27/2012 8127/2012 8(27/2012 8/27/2012 8/27/2012 8/27/2012 8/27/2012 8/27/2012 8/27/2012 8/27/2012 8/27/2012 8/27/2012 8/27/2012 8127/2012 8/27/2012 8/27/2012 8/27/2012 8/27/2012 8/27/2012 8/27/2012 8/27/2012 8/27/2012

Date Purchased Calls Purchased Strike Price Price Paid

819/2012 200 01119113 $2.5 $0.60

Page 77


23 100 300 100 300 200 77 400 50 50 100 100 100 100 100 100 100 100 179 21 50 150 300 300 200 200 200 120 180 100 200 100 100 100 200 200 100 100 100 20 10 200 270

$0.60 $0.70 $0.75 $0.75 $0.90 $0.90 $0.90 $0.90 $0.55 $0.60 $0.60 $0.60 $0.70 $0.55 $0.55 $0.55 $0.55 $0.55 $0.60 $0.55 $0.55 $0.60 $0.65 $0.60 $0.60 $0.60 $0.80 $0.60 $0.65 $0.65 $0.65 $0.65 $0.65 $0.65 $0.70 $0.70 $0.70 $0.70 $0.70 $1.00 $1.00 $1.00 $2.25

8/9/2012 8/9/2012 8/912012 8/9/2012 8/9/2012 8/9/2012 8/9/2012 Sf9/2012 8/9/2012 8/9/2012 8/9/2012 8/9/2012 8/9/2012 8/27/2012 8/27/2012 8/27/2012 8/27/2012 8/2712012 8/27/2012 8/27/2012 8/27/2012 8/27/2012 8/27/2012 8/27/2012 8/27/2012 8/27/2012 8/27/2012 8/27/2012 8/27/2012 8/27/2012 8/27/2012 8/27/2012 8/27/2012 8/2712012 8/27/2012 8/27/2012 8/27/2012 8/27/2012 8/27/2012 9/5/2012 9/512012 9/712012 9/7/2012

01119113 $2.5 01119113 $2.5 01/19113 $2.5 01119113 $2.5 01119113 $2.5 01/19/13 $2.5 01119113 $2.5 01119113 82.5 10/20/12 $2.5 10120112 $2.5 10120112 $2.5 10/20/12 $2.5 10/20/12 $2.5 01119113 $2.5 01119/13 $2.5 01119/13 $2.5 01/19/13 $2.5 01/19113 $2.5 01/19/13 $2.5 01119/13 $2.5 01/19/13$2.5 01/19113$2.5 01119113 $2.5 01119113 $2.5 01119113 $2.5 01119/13 $2.5 01119113$2.5 01/19/13 $2.5 01119113 $2.5 01119/13 $2.5 01/19113 $2.5 01119113 $2.5 01119/13 82.5 01119/13 $2.5 01/19/13 $2.5 01/19113 $2.5 01/19/13 $2.5 01119/13 $2.5 01119/13 $2.5 01119/13 $2.5 01118/13 $2.5 01/19/13$5.0 01119/13 $2.5

Page 78



9118/2012 9/18/2012 9120/2012 9/20/2012 9120/2012 9/20/2012 9/20/2012 9/20/2012 9/20/2012 9/20/2012 9/20/2012 9/20/2012 9/20/2012 9/20/2012 9120/2012 9/20/2012 9/20/2012 9/25/2012

Oats Sold 9/7/2012 9/20/2012 9/20/2012 9/20/2012 9120/2012 9/20/2012 9/2012012 9/20/2012 9120/2012 9120/2012

50 10 140 124 76 200 300 50 150 100 200 350 40 110 50 150 200 45

Calls Sold 400 100 200 200 86 114 200 100 100 100

01/19113 $5.0 01/19/13 $5.0 01119/13 85.0 01119113 $5.0 01119113 $5.0 01119113 $5.0 01/19/13 $5.0 01/19113 $5.0 01/19/13 $5.0 01119113 $5.0 0111 9/13 $5.0 01119113 $5.0 01119113 $5.0 01119/13 $5.0 01119113 $5.0 01119/13 $5.0 01119/13 $5.0 01119/13 $1.0

Strike Price 10/20112 $2.5 01/19/13 $2.5 01/19113 $2.5 01119/13 $2.5 01/19113 $2.5 01119113 $2.5 01 11 9113 $2.5 01119113 $2.5 01119113 $2.5 01119/13 $2.5

$0.70 $0.90 $1.30 $1.25 $1.30 $1.30 $1.30 $1.20 $1.25 $1.25 $1.25 $125 $1.25 $1.25 $1.35 $1.35 $1.40 $0.95

Price Paid $2.15 $2.55 $2.60 $2.50 $2.50 $2.30 $2.35 $2.35 $2.45 $2.50

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PROOF OF SERVICE

STATE OF CALIFORNIA ) )

COUNTY OF LOS ANGELES)

I am employed in the county of Los Angeles, State of California, I am over the age of 18 and not a party to the within action; my business address is 9430 West Olympic Boulevard, 4th Floor, Beverly Hills, California 90212.

On April 15, 2013, I caused the following document(s) to be served:


I served the above document(s) as follows:

By U.S Mail. I enclosed the document(s) in a sealed envelope(s) or package(s) addressed to the persons at the addresses below and placed the envelope(s) for collection and mail, following our ordinary business practices. I am readily familiar with this firm's practice for collection and processing correspondence for rnailin. On the same day that correspondence is placed for collection and mailing, it is deposited in the ordinary course of business with the United States Postal Service, in a sealed envelope with postage fully prepaid.

I declare that I am employed in the office of a member of the bar of this Court at whose direction the service was made.

Executed on April 15, 2013 at Beverly Hills, California 90212.

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MELANIE JACOBS Type or Print Name

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SERVICE LIST

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Thomas J. McKenna GAINEY & McKENNA 440 Park Avenue South, 5th Floor New York, NY 10016 Tel: (212) 983-1300 Fax: (212) 983-0383 [email protected]

Counsel for Lead for Plaintiff and the Putative Class

Darren J. Robbins David C. Walton Catherine J. Kowalewski ROBBINS GELLER RUDMAN & DOWD LLP 655 West Broadway, Suite 1900 San Diego, CA 92101-3301 Tel: (619) 231-1058 Fax: (619) 231-7423 [email protected]

Counsel for Plaintiff Nathaniel L. Anderson and the Tereshko Investors Group

Corey D. Holzer Michael I. Fistel, Jr. Marshall P. Dees HOLZER HOLZER & FISTEL, LLC 200 Ashford Center North, Suite 300 Atlanta, GA 30338 Tel: (770) 392-0090 Fax: (770) 392-0029 [email protected] [email protected]

Jeffrey A. Berens DYER & BERENS LLP 303 East 17th Avenue, Suite 300 Denver, CO 80203 Tel: (303) 861-1764 Fax: (303) 395-0393 [email protected]

Counsel for Plaintiff Nathaniel L. Anderson

Lionel Z. Glancy Michael Goldberg Robert B. Prongay GLANCY BINKOW & GOLDBERG LLP 1925 Century Park East, Suite 2100 Los Angeles, CA 90067 Tel: (310) 201-9150 Fax: (310) 201-9160 [email protected]

Counsel for Plaintiff Dennis W. Chew, Plaintiff James T. Jerie and the Peregrine Investor Group

Marc I. Gross Jeremy A. Lieberman POMERANTZ GROSSMAN HUFFORD DAHLSTROM & GROSS LLP 600 Third Avenue, 20th Floor New York, NY 10016 Tel: (212) 661-1100 Fax: (212) 661-8665 [email protected] [email protected]

Patrick V. Dahlstrom POMERANTZ GROSSMAN HUFFORD DAHLSTROM & GROSS LLP Ten South LaSalle Street, Suite 3505 Chicago, IL 60603 Tel: (312) 337-1181 [email protected]

Counsel for Plaintiff James T. Jerie and the Peregrine Investor Group

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Avi Wagner THE WAGNER FIRM 1925 Century Park East, Suite 2100 Los Angeles, CA 90067 Tel: (310) 491-7949 [email protected]

Nicholas I. Porritt Thomas M. Gottschlich LEVI & KORSINSKY LLP : 1101 30th Street NW, Suite 115 Washington, DC 20007 Tel: (202) 524-4290 Fax: (202) 337-1567 [email protected] [email protected]

Counsel for Movant Lennard Lucas

David E. Bower FARUQI & FARUQI, LLP 10866 Wilshire Boulevard, Suite 1470 Los Angeles, CA 90024 Tel: (424) 256-2884 Fax: (424) 256-2885 Fax: (310) 558-3005 [email protected]

Counsel for Movant Marshall Lee

Stephen R. Basser Samuel M. Ward BARRACK, RODOS & BACINE 600 West Broadway, Suite 900 San Diego, CA 92101 Tel: (619) 230-0800 Fax: (619) 230-1874 [email protected] [email protected]

Counsel for the Tereshko Investors Group

Jeff S. Westerman MILBERG LLP One California Plaza 300 South Grand Avenue, Suite 3900 Los Angeles, CA 90071 Tel: (213) 617-1200 Fax: (213) 617-1975 [email protected]

Sandy A. Leibhard Joseph R. Seidman, Jr. BERNSTEIN LIEBHARD LLP 10 East 40th Street New York, NY 10016 Tel: (212) 779-1414 Tel: (212) 779-3218 fax [email protected] [email protected]

Counsel for Movants Jason Ebach and Mary Legnetti

Koji F. Fukumura Meghan O’Ryan Spieker Peter M. Adams COOLEY LLP 4401 Eastgate Mall San Diego, CA 92121 Tel: (858) 550-6000 Fax: (858) 550-6420 [email protected] * [email protected] * [email protected] * (*Courtesy copy via email)

Counsel for Defendants

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