Case 1:05-cv-02860-RJH Document 23
UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK
In re Elan Corp . Securities Litigation
Filed 02/16/2007 Page 1 of 153
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Master File No. 05 Civ. 2860 (RJH)
CLASS ACTION
JURY TRIAL DEMANDEDX
CONSOLIDATED CLASS ACTION COMPLAINT FORVIOLATIONS OF THE FEDERAL SECURITIES LAWS
Case 1:05-cv-02860-RJH Document 23 Filed 02/16/2007 Page 2 of 153
TABLE OF CONTENTS
1. NATURE OF THE ACTION ................................................................................. ............ 1
II. JURISDICTION AND VENUE ............................................................................. .......... 12
III. PARTIES ................................................................................................................ .......... 15
A. Lead Plaintiffs ............................................................................................. .......... 15
B. Defendants .................................................................................................. .......... 17
C. Control Person Liability .............................................................................. .......... 19
D. Group Pleading ........................................................................................... .......... 20
E. Duties Of The Individual Defendants ......................................................... .......... 21
IV. CLASS ACTION ALLEGATIONS ....................................................................... .......... 22
V. BACKGROUND AND FACTS UNDERMINING THE VERACITY OFDEFENDANTS' CLASS PERIOD REPRESENTATIONS .................................. .......... 25
A. Multiple Sclerosis Is A Severe Autoimmune Disease ................................ . ......... 25
B. Progressive Multifocal Leukoencephalopathy ............................................ .......... 26
C. TysabriO ..................................................................................................... .......... 27
D. Elan Was In Dire Financial Straights .......................................................... .......... 29
E. Elan Collaborated With Biogen On The Marketing , Development AndCommercialization Of Tysabri®O ................................................................ .......... 31
F. The Tysabri « Clinical Trials ...................................................................... .......... 34
1. FDA Requirements Regarding Clinical Trial Testing .................... .......... 34
2. FDA Requirements For "Fast-Track " Approval, Priority ReviewAnd Accelerated Approval OfNew Drug Applications ................. .......... 35
a. The Priority Review Process ............................................... .......... 36
b. Accelerated Approval ......................................................... .......... 36
3. The MS Clinical Trials Of Tysabrig .............................................. .......... 37
4. The Crohn' s Disease Clinical Trials Of TysabriOO ......................... .......... 38
1
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5. The Rheumatoid Arthritis Clinical Trials Of Tysabri® ...................... ...... 39
6. The Suspension Of All Clinical Trials Of Tysabri® UponDefendants' Withdrawal Of The Drug From The Market ........................ 39
G. Defendants Knew Or Recklessly Disregarded Numerous Warnings OfTysabri'sg Severe Immunosuppressive Effects ............................................. ...... 40
1. Defendants Knew That Tysabrig Is A Highly DangerousImmunosuppressive Drug That Would Unequivocally CauseSerious Opportunistic Infections ......................................................... ...... 41
2. Animal Studies Warned Defendants That Tysabrig Is A Highly
Immunosuppressive Drug That Could Cause Potentially Life-Threatening Opportunistic Infections ................................................. ...... 42
3. Scientific And Medical Publications And Industry ConferencesIndicated Tysabri's M Severe Immunosuppressive Effects ................. ...... 45
4. Defendants Were Aware Of Serious Adverse Events OccurringDuring The Tysabri iz Clinical Trials, Confirming Prior Warnings
Of Tysabri's M Severe Immunosuppressive Effects And Failed ToDisclose Those Adverse Events To The FDA .................................... ...... 48
a. FDA Adverse Event Reporting Requirements .............................. 48
b. Defendants Failed To Disclose Opportunistic Infections ToThe FDA, Prior To Receiving Fast-Track Approval Of
Tysabri® ....................................................................................... 52
i. Facts Ultimately Admitted At The March 2006 FDA
Hearing .................................................................................... 53
ii. Elan and Biogen Admittedly Communicated Regularly
Concerning Issues Related To Tysabri Pursuant To The
Collaboration Agreement ........................................................ 56
iii. Confidential Sources Have Confirmed That Defendants
Knew That Serious Opportunistic Infections Occurred
During The Tysabrig Clinical Trials ...................................... 56
H. The FDA Adverse Event Report Contained Numerous OpportunisticInfections That Occurred In Patients On Tysabri@ Therapy, ConfirmingPrior Warnings That Such Infections Were Certain To Occur ............................. 59
1. Defendants' History Of Bad Conduct ................................................................... 64
ii
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VI. DEFENDANTS' MATERIALLY FALSE AND MISLEADING STATEMENTS
AND OMISSIONS DURING THE CLASS PERIOD ..................................................... 65
A. Two Tysabri Patients Are Diagnosed With PML ............................................... 115
VII. THE TRUTH BEGINS TO EMERGE ........................................................................... 117
VIII. POST CLASS-PERIOD EVENTS ................................................................................. 122
A. The Aftennath ..................................................................................................... 122
B. The FDA Approves Tysabri0 To Re-Enter The Market With RestrictedDistribution ......................................................................................................... 129
IX. CAUSATION ALLEGATIONS ..................................................................................... 135
X. DEFENDANTS ACTED WITH SCIENTER ................................................................ 136
A. Defendants Directly Participated In, And/Or Had Direct Knowledge OfOr Recklessly Disregarded The Numerous Warnings And Evidence OfThe Severe Immunosuppressive Effects Of Tysabri0 And ResultingSerious Opportunistic Infections And Deaths ..................................................... 137
B. Defendants Were Motivated To Commit The Fraud Alleged Herein ................ 138
1. The Individual Defendants Were Motivated To Commit The FraudAlleged Herein To Enable Them To Target A Larger MS MarketAnd Return Elan To Profitability ............................................................ 138
2. The Individual Defendants Were Motivated To Commit The FraudAlleged Herein To Successfully Consummate An Offering OfSenior Notes ............................................................................................ 139
3. Defendants Were Motivated To Commit The Fraud Alleged HereinTo Maximize Their Year-End Bonuses .................................................. 140
XI. FRAUD ON THE MARKET ALLEGATIONS ............................................................. 141
XII. NO STATUTORY SAFE HARBOR.............................................................................. 143
COUNT I Violations Of § 10(b) Of The Exchange Act And Rule 1 Ob-5 PromulgatedThereunder Against All Defendants ............................................................................... 144
COUNT II Violations of § 20(a) Of The Securities Exchange Act Of 1934 Against TheIndividual Defendants ..................................................................................................... 146
JURY DEMAND ........................................................................................................................ 148
ill
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Lead Plaintiffs, by their undersigned attorneys, for their Consolidated Class Action
Complaint for Violations of the Federal Securities Laws (the "Complaint"), make the following
allegations against Defendants based upon an investigation conducted by and under the
supervision of Co-Lead Counsel for Lead Plaintiffs, which has included , among other things:
(i) interviews of former employees of Elan Corporation PLC ("Elan" or the "Company") and
Biogen IDEC, Inc. ("Biogen"); and (ii) review and analyses of. Defendants' public filings,
including filings with the Securities and Exchange Commission ("SEC"); press releases issued
by Defendants; news articles and analysts' reports concerning Defendants; transcripts from
conference calls Defendants held with analysts; official records of regulatory actions taken by
government agencies concerning Elan; official records in other relevant legal actions; scientific
publications and studies ; and information received from Freedom of Information Act ("FOIA")
requests to the Food and Drug Administration ("FDA").'
2. Except as alleged herein, the underlying information relating to Defendants'
misconduct and the particulars thereof is not available to Lead Plaintiffs or the public, but lies
within the possession and control of Defendants and other Elan insiders, thus preventing Lead
Plaintiffs from further detailing Defendants' misconduct at this time. Lead Plaintiffs believe that
substantial additional evidentiary support exists for the allegations set forth herein and will be
available to Lead Plaintiffs after a reasonable opportunity for discovery.
1. NATURE OF THE ACTION
3. Lead Plaintiffs bring this action , pursuant to Rule 23 of the Federal Rules of Civil
Procedure on behalf of themselves and all similarly situated persons and entities (collectively,
I The FDA is an agency within the U.S. Department of Health and Human Services.
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the "Class") who purchased Elan American Depository Shares ("ADSs"),2 traded on the New
York Stock Exchange ("NYSE"), and Elan common stock , traded on the London and Dublin
exchanges, from February 18, 2004 through and including February 28, 2005 (the "Class
Period"), seeking to pursue remedies under the Securities Exchange Act of 1934 (the "Exchange
Act")
4. This securities class action is predicated upon serious misstatements and omissions
of material fact by the Defendants herein concerning the purported safety, commercial viability
and projected market share of Tysabri®,3 a drug that Elan needed to become a "blockbuster"
drug in order to save the Company from a potentially imminent bankruptcy. Defendants
developed Tysabri to treat multiple sclerosis ("MS"), a neurological disease that attacks the
central nervous system, as well as Crohn's disease (a type of inflammatory bowel disease) and
Rheumatoid Arthritis ("RA") (an inflammatory autoimmune disorder that attacks the joints).
Throughout the Class Period, Defendants falsely marketed Tysabri® as a "blockbuster" drug. As
the drug progressed through expedited FDA approval, Defendants aggressively represented to
investors that it was an innovative therapy with virtually no serious side effects.
5. As Defendants would later admit, they were aware of numerous undisclosed
serious opportunistic infections and deaths, indicative of severe immunosuppression, that had
occurred during the Tysabri® clinical trials, prior to Defendants' application to, and approval by,
Each ADS traded on the NYSE is equivalent to one share of common stock traded on theDublin and London exchanges.
Tysabri® was formerly known as Antegren® until the FDA caused Elan and Biogen to
change the name to avoid confusion with other drugs with similar names. The terms Tysabri®,
Antegren® and Natalizumab® all refer to the same drug, which is now commonly known as
Tysabri®. These terms are used interchangeably throughout this Complaint.
2
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the FDA.4 By failing to disclose these opportunistic infections and related deaths to the FDA
and investors , the Defendants were able to obtain "fast-track " approval of Tysabri®, allowing
them to accelerate the introduction of the drug to the market with the broadest label possible.
6. Tysabri' s® widespread success was critical to Elan ' s ability to remain a viable
company and avoid an otherwise imminent bankruptcy because, over the past several years, Elan
had been plagued with serious financial troubles. Specifically, the Company had suffered
repeated net losses and negative cash flows, mounting debt levels and SEC and shareholder
lawsuits challenging the propriety of Elan's accounting practices. In 2002, Elan was forced to
withdraw its pivotal Alzheimer's drug, AN-1792®, because the drug reportedly caused brain
inflammation with at least five deaths in patients taking AN-1792®, after the study was halted.
Thus, with no other drugs in the Company's drug pipeline with blockbuster potential, Tysabri's®
success was critical to Elan's ability to return the Company to profitability and escape
bankruptcy. Accordingly, Defendants bet on Tysabri® and divested Elan of $2 billion of its
assets to focus almost exclusively on the development and marketing of the drug.
7. To further fund the development of Tysabri® and quell Elan's failing financial
condition and serious cash flow problems, Defendants consummated a $1.15 billion offering of
Senior Notes in November 2004, which, as Defendant Cooke admitted, allowed the Company to
"focus all of [its] energies on executing the launch of Antegren." Thus, by engaging in the fraud
Opportunistic infections occur when ordinarily benign organisms infect individuals with
severely impaired immune systems. These ordinarily benign organisms may be viruses, bacteria,
fungi or parasites that very rarely produce disease in healthy humans with intact immune
systems. Thus, the occurrence of opportunistic infections in a group of patients is a strong
indication of severe immunosuppression and a cause for great concern. Indeed, the Acquired
Immune Deficiency Syndrome ("AIDS") epidemic was first identified by the occurrence of
serious opportunistic infections in patients infected with Human Immunodeficiency Virus
("HIV").
3
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alleged herein, Defendants were able to raise $1.15 billion of cash from Elan's debt offering and
continue funding the development and marketing of Tysabri.
Defendants were ultimately forced to withdraw Tysabri® from the market on
February 28, 2005, only three months after FDA approval, when Elan and Biogen reported that a
patient taking Tysabri® had died from an opportunistic infection, progressive multifocal
leukoencephalopathy ("PML"),5 which is also directly linked to severe immunosuppression.
Defendants further revealed that another patient in the clinical trials had also contracted PML as
a result of the drug's severe immunosuppressive effects. Defendants subsequently admitted that
these two patients had actually begun exhibiting signs and symptoms ofPML as early as
October 2004.
9. The stock market reaction to the February 28, 2005 withdrawal of Tysabri® was
swift and severe, erasing approximately $ 7.5 billion, or 70% ofshareholder value. On the
NYSE, Elan's ADS value fell $18.90 per ADS to close at $8.00 per ADS, trading on unusually
high volume of 167 million shares, nearly twenty-nine times the average daily trading volume
during the Class Period and the highest trading volume ever in Elan's history. Elan's stock also
plummeted on the Dublin Exchange, falling €13.81 per share, or 68%, to close at €6.49 per
share. Kevin McConnell, head of research for Bloxham Stockbrokers in Dublin, described
Defendants' withdrawal of Tysabri® as "a major body-blow for Elan."
10. Shortly after the withdrawal of TysabriOO, Defendants further revealed that Elan
and Biogen were the subject ofan ongoing investigation by the SEC primarily relating to events
surrounding the February 28, 2005 announcement of the decision to voluntarily suspend the
5 PML is an almost invariablyfatal disease of the central nervous system specifically
associated with severe immunosuppression such as persons with AIDS. Indeed, investors were
ultimately told after the Class Period that Tysabri reduced the immune system of patients taking
the drug to the level of an AIDS patient.
4
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marketing and clinical dosing of Tysabri. The SEC investigation continues to probe the
Defendants' lack of disclosure to investors concerning the life-threatening effects of Tysabri®
and its extremely limited marketability.
11. The SEC also filed a settlement enforcement action against Thomas Bucknum,
Executive Vice President and General Counsel of Biogen , for violating the federal securities
laws when Bucknum sold 89,700 shares ofBiogen stock, reaping approximately $1.9 million in
proceeds from such sale on February 18, 2005, after learning that day at a meeting with other
Biogen senior officers that a patient taking Tysabri in the clinical trials had been diagnosed with
PML. Shortly thereafter, on March 9, 2005, Bucknum entered into a settlement agreement with
the SEC to pay $3 million in disgorgement, interest andpenalties andprohibiting Bucknum
from serving as an officer or director ofa public companyforfive years.
12. In reaction to the withdrawal of Tysabri from the market, Dr. Lawrence Steinman,
a physician and the co -inventor of Tysabri®, who had previously criticized Tysabri® as being
too dangerous, and communicated his views on the drug to the Defendants prior to the Class
Period , declared in a March 1 , 2005 New York Times article that , with respect to the three cases
of PML that occurred in Tysabri-treated patients , "I knew it was going to happen sooner or
later."
13. Despite Defendants' knowledge throughout the Class Period that, because of the
significant risks associated with TysabriOO, the drug would not be the blockbuster drug that Elan
needed, Defendants made false and misleading statements and omissions concerning the
Company's current business and performance and prospects, as well as the market for, and safety
profile of, Tysabri®.
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14. Among Defendants' materially false and misleading statements are the following:
May 13, 2004 conference call - Defendant Martin toutedTysabri® as "a product that's twice as efficacious at leastas any currently therapy with no side effects ... which isobviously a major or the major driving fact ofthe fact thatwe would view Antegren as a mono-therapy product."[Emphasis added]
October 28, 2004 earnings release - Defendant Martinreassured investors that, despite another quarter of negativefinancial results: "We are optimistic that the dedication,commitment andfinancial resources we have in vested inthese products [Tysabri and Prialt] will be reflected in areturn to profitability in the 2006 timeframe." [Emphasisadded]
November 24, 2004 conference call - Defendants stated:
"We feel strongly that TYSABRI is the most powerful
treatment ever developed for MS and will raise the efficacy
bar in the treatment of MS ... We certainly believe that
TYSABRI will move quickly in the first line therapy and
become the number one MSproduct worldwide."
[Emphasis added]
November 24, 2004 conference call - Defendant Martindeclared: We believe [Tysabri] will be a top line therapyfor a disease that has a very high unmet medical need. Thefuture growth in the marketplace is substantial both in theUS andparticularly in Europe , so we are very excitedwith where we are and we are very pleased with thepartnership with Biogen and the collaborative effort wehave to get to this point and the future is very significantlygreat." [Emphasis added]
January 11, 2005 conference call - Defendant Martin
continued to proclaim that: "The safety data is as
impressive as the efficacy data. Highlight on three things,
TYSABRI appears to be with all that we see, safe and very
well tolerated. Serious infections, 1.3% rate in placebo
versus 2.1 % for Tysabri trials, no opportunistic
infections." [Emphasis added]
February 8, 2005 earnings release - Defendant Martinstated : "While it is early days, the initial take-up sincelaunch of Tysabri is exceeding all our expectations and we
6
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remain optimistic that we will return to profitability by the
end of2006." [Emphasis added]
February 17, 2005 press release - Defendant Ekman
declared: "These two-year data strengthen our belief that
TYSABRI will become the leading therapy for MS
patients." [Emphasis added]
15. For the reasons set forth herein, the foregoing statements were each materially false
and misleading because, among other reasons: (i) Tysabri® had serious, undisclosed side effects
that occurred as a result of the drug's severe suppression of the immune system, leaving patients
vulnerable to life-threatening infections, including PML; and (ii) due to its substantial risks to
patients , Tysabri® would be limited to patients in only the most advanced stages of MS and,
thus, the potential market for Tysabri® was only a fraction of the purported $4 billion market
that Defendants represented.
16. Defendants failed to disclose the serious side effects and deaths associated with
Tysabri to investors or the FDA. Indeed , documents submitted to the FDA confirm that
Defendants concealed numerous known opportunistic infections from the FDA, prior to applying
for, and receiving, fast-track approval of Tysabri®. Specifically, according to a November 23,
2004 memorandum to Karen Weiss, M.D., Director at the FDA, from David Ross, M.D., Ph.D.,
Deputy Director on the FDA committee that approved Tysabri®, the data that the Company
submitted to the FDA did not include any evidence of opportunistic infections resulting from the
drug. In this regard, Dr. Ross stated in his memo that: "[t]he events reported do not appear to
represent infections due to opportunistic pathogens." [Emphasis added] Moreover, the FDA
documents that outline the scope of Tysabri® approval , made no mention of any opportunistic
infections, or associated risks. These documents clearly demonstrate that the FDA was not fully
informed with respect to the opportunistic infections that occurred in the Tysabri® clinical trials.
7
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Based upon the limited information presented to the FDA, the drug was approved on November
23, 2004, for the broadest possible market.
17. On March 7-8, 2006, the FDA Advisory Committee held a hearing to determine
whether Tysabri® should be returned to the market (the "March 2006 FDA Hearing"). During
the March 2006 FDA Hearing, Defendants revealed that the two patients who contracted PML in
the MS trials, had actually begun exhibiting signs of PML as early as October 2004. However,
Defendants did not disclose these facts to the public or withdraw the drug until February 28,
2005, nearly three months later and after one patient had already died . Moreover, at the March
2006 FDA Hearing, the Defendants finally admitted that numerous other patients had developed
serious opportunistic infections from the drug, which were previously not disclosed to the
investment community or the FDA.
18. On June 5, 2006, the FDA announced that it had approved the return of Tysabri®
to the market for treating MS, but recommended that Tysabri® only be used as a last resort
therapy for MS patients in which no other therapy was tolerable or effective. Not surprisingly,
however, the FDA imposed landmark protocols which now serve to severely limit and restrict
usage of the drug, including significant restrictions on the label and monitoring of patients taking
Tysabri®. Specifically, the FDA required Defendants to include a "black-box" warning, its
strictest warning, on the Tysabri® label and required Defendants to implement a stringent risk
management plan, as detailed herein. These requirements extinguished any possibility of the
widespread market distribution of Tysabri® that Defendants had promised throughout the Class
Period.
19. In reaction to the significant restrictions imposed on Tysabri®, analysts sharply cut
their ratings and substantially lowered their future estimates of Tysabri®. According to one
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analyst, " it appears that, despite [Tysabri's®] efficacy, the safety concerns shrouding Tysabri
are likely to have bulldozed its potential indefinitely." [Emphasis added] Moreover, another
analyst for Piper Jaffray, who slashed her estimate for worldwide Tysabri® sales to just $21
million for 2006, down 83% from $123 million, noted that physicians she had spoken with
confirmed that they were adopting Tysabri® at a much slower rate than expected, because of
safety concerns and patient-monitoring requirements. In reaction to the significant restrictions
imposed on Tysabri, the value of Elan's ADSs dropped $2.46 per ADS, or 13%, to close at
$16.52 per ADS on June 5, 2006.
20. The following charts compare Elan's ADS price movement on the NYSE and
common stock price movement on the Dublin Exchange to significant events that occurred
during the Class Period, including Defendants' false and misleading statements:6
° In addition to the following graphs, Elan's common stock that traded on the London Exchangereacted in a comparable manner to its stock trading on the Dublin Exchange, as the Company'sstock essentially traded in tandem on those exchanges.
9
Elan Corp.Key Class Period Events
February 18, 2004 - March 31, 2005Elan ADSs Trading on the NYSE
$35.00
$30.00
$25.00
$20.00
$15.00
$10.00
$5.00
$0.00
Class Period
2/18/04 - 2/28/05
6/28/04 - Elan and Biogenannounce the FDADesignated Tysabri forPriority Review as treatmentfor MS. I
♦ 5/25/04 - Elan and
T
Biogen announcesubmission of
5/13/04 - Q1 '04 Elan application to European
earnings release reaffirming Medical Agency for
timing to launch Tysabn onapproval of Tysabri.
track.
3/23/04 - Elan and Biogenannounce intention to seekfast - track approval ofTysabri for treating MS inEurope.
2/18/04: Elan and Biogenannounce intention to submitapplication to FDA for fast-trackapproval of Tysabri.
11/8/04: Defendants release One -year data from phase III . AFFIRMstudy "showed compelling results inmeeting primary end point in MultipleSclerosis."
10/28/04 - Elan issues Q3'04 earnings and reaffirmsthat Elan would return toprofitability in 2006.
2/18/04 3/18/04 4/18/04 5/18/04 6/18/04 7/18/04 8/18/04 9/18/04 10/18/04 11/18/04 12/18/04 1/18/05 2/18/05
10
2/28/05: Biogen and Elan pullTysabri from the market aftertwo reported cases of PML.
$35.00
$30.00
$25.00
$20.00
C-
$15.00
$10.00
$5.00
$0.00
Elan Corp.Key Class Period Events
February 18, 2004 - March 31, 2005 WElan Common Stock Trading on the Dublin Exchange CD
Class Period2/18/04 - 2/28/05
11/8/04: Defendants release One - Dyear data from phase III . AFFIRM N
study "showed compelling results in 00
meeting primary end point in MultipleC)Sclerosis."
6/28/04 - Elan and Biogen C-announce the FDA Designated =Tysabri for Priority Review as 2/28/05: Biogen and Elan pulltreatment for MS. Tysabri from the market after two
reported cases of PML. v
00
3CD
t 5/25/04 -Elan and10/28/04 - Elan issues Q3
'04 earnings and reaffirmsBiogen announcesubmission of
that Elan would return tof l 006itabi ity in 2 .
application topro
-n=
5/13/04 - Q1 '04 ElanEuropean MedicalAgency for approval of CD
earnings release reaffirming Tysabri. Q'timing to launch Tysabri on
C)track. N
\61-3/23/04 - Elan and Biogen 0)announce intention to seek fast - Ntrack approval of Tysabri for Otreating MS in Europe. O
V v7
2/18/04 : Elan and Biogen announceintention to submit application to FDA forfast-track approval of Tysabri. CD
2/17/200 4 3/17/2004 4/17/2004 5 /17/2004 6/17/2004 7/17/2004 8 / 17/2004 9/17/2004 10/17/200 11/17/2004 12/17/200 1/17/2005 2/17/2005 3/ 17/2005 0
01
11
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II. JURISDICTION AND VENUE
21. This action arises under Sections 10(b) and 20(a) of the Exchange Act, as
amended, 15 U.S.C. §§ 78j(b), 78(n) and 78t ( a), and SEC Rule lOb-5, 17 C.F.R. § 240.10b-5,
promulgated thereunder.
22. This Court has jurisdiction over this subject matter pursuant to 28 U.S.C. §§ 1331
and 1337, and Section 27 of the Exchange Act, 15 U.S.C. § 78a.
23. Pursuant to the judicially prescribed "effect test" for asserting extraterritori al
jurisdiction, this Court may properly exercise subject matter jurisdiction over the claims of. (a)
all investors who purchased or acquired Elan securities traded on the U.S. markets, and/or (b)
American investors who purchased or acquired Elan securities in European markets.
24. This Court may also properly exercise jurisdiction over the claims of foreign Class
members who acquired Elan securities on foreign markets, including the London Exchange and
the Dublin Exchange, under the "conduct test" articulated by the Second Circuit (and other
courts), which provides that a federal court has jurisdiction over the claims of foreign purchasers
who acquired their securities abroad if: (1) the Defendant's activities in the United States were
more than "merely preparatory" to a securities fraud conducted elsewhere; and (2) these
activities or culpable failures to act within the United States "directly caused" the claimed losses.
The acts alleged herein show that substantial activity in furtherance of Defendants' fraud
occurred within the United States and damaged Class members worldwide.
25. Defendants engaged in extensive fraud-related conduct in the United States, which
was part of a single fraudulent scheme. The domestic conduct was not merely "preparatory" or
perfunctory acts, but led directly to the losses by both foreign and domestic investors.
26. Throughout the Class Period, Elan's shares predominantly traded on the NYSE in
the form of ADSs. There was a single worldwide and informationally efficient market for Elan
12
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securities and information concerning the Company was accessible globally at the same time to
investors worldwide through electronic financial news reporting media. Elan securities were
priced based on trades reported from various exchanges in the United States and Europe. The
market was defrauded by Defendants' conduct, causing extensive effects on domestic purchasers
of Elan securities, as well as on those who purchased Elan securities on exchanges abroad. In
November 2004, the Company also availed itself of the United States debt market by issuing
$1.15 billion of senior notes.
27. In addition, Defendants' materially false and misleading statements disseminated to
the investing public alleged herein were issued in the United States and were contained in the
Company's annual financial statements filed with the SEC, quarterly press releases in conference
calls aired in the United States. Moreover, the Company's annual and quarterly financial
statements filed with the SEC were prepared in accordance with United States federal securities
laws and United States Generally Accepted Accounting Principles ("GAAP"). The Company's
independent auditor , KPMG Peat Marwick LLP, is also based in the United States.
28. In addition to issuing false and misleading statements to the investing public, Elan
conducts a substantial portion of its regular business activities in the United States. For example,
Elan's partner in developing and marketing Tysabri® is Biogen , whose corporate headquarters
are located in the United States. As discussed further below, Elan and Biogen's senior
executives regularly conversed about the development and marketing of Tysabri® and related
adverse events that occurred during the Tysabri® clinical trials. Tysabri® was primarily
manufactured at Biogen's plants in Cambridge, Massachusetts and Research Triangle Park,
North Carolina. All phases of all of the Tysabri® clinical trials for MS occurred in the United
States and some of the clinical trials for Crohn's disease occurred in the United States. A
13
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significant portion of the adverse events that occurred during the Tysabri clinical trials occurred
in the United States and were aggregated and reported to Elan and Biogen in the United States.
A substantial amount of research related to Tysabri also occurred in the United States by U.S.
neurologists and scientists.
29. Defendants were also subject to regulation in the United States concerning
approval of new drugs to the market. Specifically, Defendants were required to obtain approval
of Tysabri® from the FDA, which is a U.S governmental agency located in the United States.
Moreover, four out of seven (more than half) of what Elan describes as its "Principal Properties"
are located in the United States in San Diego, California; San Francisco, California; Gainesville,
Georgia and King of Prussia, Pennsylvania. According to the Company's 2003 Annual Report
on Form 20-F (the "2003 20-F"), the majority of Elan's products are "U.S. Promoted Products."
For the years-ended 2004 and 2003, Elan generated approximately 83% and 71 %, respectively,
of its external revenue from sales in the United States. In Elan's public filings with the SEC, the
Company describes the U.S. market as "Elan's most important market."
30. The above facts fully justify the exercise of subject matter jurisdiction over the
claims of foreign Class members that purchased Elan securities on foreign exchanges.
31. Venue is proper in this district pursuant to Section 27 of the Exchange Act and 28
U.S.C. § 1391(b). Many of the acts alleged herein , including the dissemination of materially
false and misleading information in connection with the purchase or sale of a security, occurred
in this district.
32. In connection with the acts alleged in this complaint, Defendants, directly or
indirectly, used the means and instrumentalities of interstate commerce, including but not limited
to the mails, interstate telephone and internet communications , and the facilities of the NYSE.
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III. PARTIES
A. Lead Plaintiffs
33. Lead Plaintiff MN Services, based in Rijswijk, manages approximately €30 billion
in assets and is the third largest institutional asset manager in the Netherlands. MN Services
administers pension funds, manages their assets and provides relevant research capabilities.
During the Class Period, MN Services purchased Elan securities at artificially inflated prices and
has been damaged by Defendants' wrongdoing. MN Services previously filed a certification in
this Court in connection with the Motion of the Institutional Investor Group for Consolidation,
Appointment as Lead Plaintiff and Approval of Selection of Lead Counsel (the "Lead Plaintiff
Motion") reflecting its transactions in Elan securities during the Class Period which is
incorporated by reference herein.
34. Lead Plaintiff Activest Investmentgesellschaft mbH ("Activest") is a financial
services group specializing in asset management . Activest is ranked among the top 20
institutional holders of asset -backed securities in the world . It is the investment subsidiary of
Hypovereinsbank, Germany's second largest bank, and is headquartered in Unterfohring near
Munich, Germany. Activest purchased Elan securities at artificially inflated prices during the
Class Period and has been damaged by Defendants' wrongdoing. Activest previously filed a
certification in this Court in connection with the Lead Plaintiff Motion reflecting its transactions
in Elan securities during the Class Period which is incorporated by reference herein.
35. Lead Plaintiff Third Millennium Trading, LLP ("Third Millennium") is a limited
liability partnership, with offices located in Chicago, Illinois and New York, New York and
specializes in proprietary equity trading. Third Millennium is a fully reporting member of the
National Association of Securities Dealers, is registered with the SEC, and is a member of the
Chicago Board Options Exchange, the American Stock Exchange and the Chicago Mercantile
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Exchange. Third Millennium purchased Elan securities at artificially inflated prices during the
Class Period and has been damaged by Defendants' wrongdoing. Third Millennium previously
filed a certification in this Court in connection with the Lead Plaintiff Motion reflecting its
transactions in Elan securities during the Class Period which is incorporated by reference herein.
36. Lead Plaintiff Electronic Trading Group LLC ("ETG") was, at all times during the
Class Period, a limited liability company, headquartered in New York, New York and
specializing in proprietary equity trading, among other disciplines. ETG purchased Elan
securities at artificially inflated prices during the Class Period and has been damaged by
Defendants' wrongdoing. ETG previously filed a certification in this Court in connection with
the Lead Plaintiff Motion reflecting its transactions in Elan securities during the Class Period
which is incorporated by reference herein.
37. Lead Plaintiff Horatio Capital LLC ("Horatio") is a limited liability company,
headquartered in Chicago, Illinois and a proprietary firm specializing in the trading of securities
products. Horatio is also a member of the NYSE Arca. Horatio purchased Elan securities at
artificially inflated prices during the Class Period and has been damaged by Defendants'
wrongdoing. Horatio previously filed a certification in this Court in connection with the Lead
Plaintiff Motion reflecting its transactions in Elan securities during the Class Period which is
incorporated by reference herein.
38. Lead Plaintiff Donald S. Frank purchased Elan securities at artificially inflated
prices during the Class Period and has been damaged by Defendants' wrongdoing. Mr. Frank
previously filed a certification in this Court in connection with the Lead Plaintiff Motion
reflecting his transactions in Elan securities during the Class Period which is incorporated by
reference herein.
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39. By Order, dated August 8, 2005, the Court appointed MN Services, Activest, Third
Millennium, ETG, Horatio and Donald S. Frank as the "Lead Plaintiffs" in this action.
B. Defendants
40. Defendant Elan is a public limited company incorporated under the laws of Ireland
with its principal executive offices located at Treasury Building, Lower Grand Canal Street,
Dublin 2, Ireland. In its public filings with the SEC, Elan describes itself as "a world-class,
neuroscience-based biotechnology company" that discovers, manufactures and markets advanced
therapies in neurology, autoimmune diseases and severe pain. The Company describes its core
business as biopharmaceutical research and development, pharmaceutical commercial activities
and pharmaceutical manufacturing activities. The biopharmaceutical research and development
segment of Elan's business purportedly includes the discovery and development of products in
the therapeutic areas of neurology, autoimmune diseases (such as MS) and severe pain.
41. During the Class Period, Elan was dependent upon only three products to generate
the majority of its revenue -- Maxipime, Azactam and Myobloc -- all of which were "U.S.
Promoted Products." For the years-ended 2004 and 2003, Elan received 83% and 71%,
respectively, of its revenue from its U. S. sales. Although the Company's purported headquarters
are located in Dublin, Ireland, Elan's "Principal Properties" are reportedly located in Ireland,
California, Georgia, Pennsylvania and the United Kingdom. Accordingly, Elan maintains a
significant presence in the United States through its physical locations and by the substantial
amount of revenue generated in the United States.
42. Throughout the Class Period , Elan's shares predominantly traded on the NYSE in
the form of ADSs. Since Elan is a foreign issuer and its corporate insiders are not U.S. citizens,
Elan corporate insiders are not required to publicly disclose their purchases and sales of Elan
securities . 15 U.S.C. § 78p(e). Thus, Lead Plaintiffs do not have access to information
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regarding any potential insider selling of Company securities engaged in by Elan insiders that
may have occurred during the Class Period.
43. Defendant G. Kelly Martin ("Martin'') was at all relevant times Elan's Chief
Executive Officer, President and an Elan director. Defendant Martin made public statements
during the Class Period in Elan's press releases, during quarterly earnings conference calls with
analysts and during healthcare conferences with analysts. Defendant Martin also signed the
Company's 2003 20-F.7 Defendant Martin was a former Merrill Lynch & Co. banker hired by
Elan in January 2003 to help return the Company to profitability.
44. Defendant Shane M. Cooke ("Cooke") was at all relevant times Elan 's Chief
Financial Officer and a director of Elan. Defendant Cooke made public statements during the
Class Period in Elan's press releases, during quarterly earnings conference calls with analysts
and during healthcare conferences with analysts. Defendant Cooke also signed the Company's
2003 20-F.
45. Defendant Lars Ekman ("Ekman") was at all relevant times Elan's Executive Vice
President and President of Research and Development. Defendant Ekman made public
statements during the Class Period in Elan's press releases, during quarterly earnings conference
calls with analysts and during healthcare conferences with analysts. Prior to joining Elan in
January 2001 , Defendant Ekman was Executive Vice President of Research and Development at
Schwarz Pharma AG and was employed in a variety of senior scientific and clinical positions at
Pharmacia (now Pfizer). Defendant Ekman is a board certified surgeon with a Ph.D. in
' Pursuant to Rule 13(a) of the Exchange Act, foreign private issuers, as defined by Rule 3b-4
of the Exchange Act, are required to file a Form 20-F rather than an Annual Report on Form 10-
K. 15 U.S.C. § 78m(a). A foreign issuer filing a Form 20-F is required to report on, and
disclose, essentially the same information as that contained in a Form 10-K, under U.S. GAAPand in accordance with U.S. federal securities laws.
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experimental biology and has held several clinical and academic positions in both the United
States and Europe.
46. Defendants Martin, Cooke and Ekman are referred to collectively herein as the
"Individual Defendants."
C. Control Person Liability
47. During the Class Period, the Individual Defendants, as senior executive officers
and directors of Elan , were privy to confidential and proprietary information concerning Elan
and its business, operations, performance, and prospects, including its compliance with
applicable federal, state and local laws and regulations. Because of their high-level positions
with Elan, the Individual Defendants had regular access to non-public information about the
Company's regulatory compliance, business, operations, performance and prospects through
access to internal corporate documents and information, conversations and connections with
other corporate officers and employees, attendance at management meetings and the Company's
Board of Directors, and committees thereof, and reports and other information provided to them
in connection therewith.
48. Because of their possession of the information described above, the Individual
Defendants knew, or recklessly disregarded the significant risks associated with Tysabri's®
severe immunosuppressive effects and consequently, the liability that the Company faced as a
result of such serious opportunistic infections that were guaranteed to occur as a result.
Defendants knew or recklessly disregarded that these risks had not been disclosed to, and were
being concealed from the investing public and the FDA, and that, as a result of these serious
risks posed by Tysabri®, the potential market for the drug was only a fraction of what
Defendants represented to the public. Accordingly, Defendants knew, or recklessly disregarded
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that the statements complained of herein were materially false and misleading and omitted
material facts when made.
49. Each of the Defendants is liable as a direct participant and primary violator with
respect to the wrongdoing complained of herein. In addition, the Individual Defendants, by
reason of their status as senior executive officers and directors, were "controlling persons" within
the meaning of § 20(a) of the Exchange Act and had the power and influence to cause the
Company to engage in the unlawful conduct complained of herein. Because of their positions of
control, the Individual Defendants were able to, and did, directly and indirectly, control the
conduct of Elan's business.
50. The Individual Defendants, because of their positions with the Company,
controlled and/or possessed the authority to control the content of the various SEC filings, press
releases, and other public statements made by the Company during the Class Period. By reason
of their respective high-level management and Board positions, the Individual Defendants had
the ability and opportunity to review copies of Elan's SEC filings, reports and press releases
alleged herein to be materially misleading, prior to, or shortly after their issuance, and to prevent
their issuance or cause them to be corrected.
D. Group Pleading
51. The Individual Defendants are liable for the materially false and misleading
statements pleaded herein that were issued by or in the name of the Company, as those
statements were each "group-published" information, the result of the collective actions of the
Individual Defendants, each of whom was intimately involved in the day-to-day operations of
Elan. It is appropriate to treat the Individual Defendants as a group and to presume that the
public filings, press releases, and other public statements complained of herein, are the product
of the collective actions of the narrowly defined group of Individual Defendants. The Individual
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Defendants, by virtue of their high-level positions within Elan, directly and actively participated
in the management and day-to-day operations of the Company , and were privy to confidential
non-public information concerning the business and operations of Elan. In addition, the
Individual Defendants were involved in drafting, reviewing and/or disseminating the materially
false and misleading statements issued by Elan and approved or ratified those statements and
therefore, adopted them as their own.
E. Duties Of The Individual Defendants
52. Each of the Individual Defendants had the duty to make full, candid and timely
disclosures of all material facts relating to the business, operations, performance and prospects of
Elan. Among other things, Defendants were required to:
• conduct and supervise the business of Elan in accordancewith all applicable laws and regulations;
• supervise the preparation of the Company's SEC filings
and approve any reports concerning the financial reporting
and results of Elan;
• ensure that Elan established and followed adequate internalcontrols; and
• refrain from obtaining personal benefit, at the expense of
the public purchasers of Elan securities, by misusing
proprietary non-public information.
53. As senior officers and controlling persons of a publicly-held Company whose
securities were, during the relevant time, registered with the SEC pursuant to the Exchange Act,
traded on the NYSE, and governed by the provisions of the federal securities laws, the Individual
Defendants each had a duty to promptly disseminate accurate and truthful information with
respect to the Company's performance, operations, business and prospects, and to correct any
previously issued statements that were or had become materially misleading or untrue, so that the
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market price of the Company's publicly-traded securities would be based upon truthful and
accurate information.
54. As a result of Defendants' failure to fulfill the foregoing obligations, Elan's
securities were artificially inflated during the Class Period. As the truth emerged, Lead Plaintiffs
and other members of the Class were damaged. In response to the emergence of the truth, Elan's
securities prices fell precipitously. As a direct and proximate result of Defendants' wrongdoing,
Lead Plaintiffs and other Class members were damaged.
IV. CLASS ACTION ALLEGATIONS
55. Lead Plaintiffs bring this class action under Rules 23(a) and 23(b)(3) of the Federal
Rules of Civil Procedure, on behalf of a Class of all persons who purchased or otherwise
acquired Elan securities during the Class Period (or their successors-in-interest). Excluded from
the Class are the Defendants named herein, members of the immediate families of the
Defendants, any firm, trust, partnership, corporation, officer, director or other individual or entity
in which a Defendant has a controlling interest or which is related to or affiliated with any of the
Defendants, and the legal representatives, heirs, successors-in-interest or assigns of any such
excluded party.
56. Also excluded from the Class are all Defendants named in the action captioned, In
re Biogen Idec, Inc. Securities Litigation, No. 05-CV-10400 (RCL), currently pending in the
District of Massachusetts, (the "Biogen Defendants") and members of the immediate families of
the Biogen Defendants, any firm, trust, partnership, corporation, officer, director or other
individual or entity in which the Biogen Defendants have a controlling interest or which is
related to or affiliated with any of the Biogen Defendants, and the legal representatives, heirs,
successors- in-interest or assigns of any such excluded party.
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57. The Class is so numerous that joinder of all members is impracticable . During the
Class Period, there were approximately 388,695,832 Elan ordinary shares of common stock
issued and outstanding. Elan common shares were actively traded on the Dublin and London
exchanges and on the NYSE as ADSs . During the Class Period , the average daily volume of
Elan ADSs trading on the NYSE was approximately 6,443,765 shares. While the exact number
of Class members is unknown to Lead Plaintiffs at this time and can only be ascertained through
appropriate discovery, Lead Plaintiffs believe that there are thousands of geographically
dispersed Class members. Record owners and Class members can be identified from records
maintained by Elan or its transfer agent and can be notified of the pendency of this action by
mail and publication, using forms of notice similar to those customarily used in securities class
actions.
58. Lead Plaintiffs' claims are typical of the members of the Class, because Lead
Plaintiffs and all of the Class members sustained damages arising from the same wrongful
conduct complained of herein.
59. Lead Plaintiffs will fairly and adequately protect the interests of the members of
the Class, and Lead Plaintiffs have no interests which are contrary to, or in conflict with, the
interests of the Class members that they seek to represent . Lead Plaintiffs have retained
competent counsel experienced in class action litigation under the federal securities laws to
ensure such protection, and intend to prosecute this action vigorously.
60. Questions of law and fact common to the members of the Class predominate over
any questions that may affect only individual members in that Defendants have acted on grounds
generally applicable to the entire Class. Among the questions of law and fact common to the
Class are:
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a) whether Defendants' acts violated the federal securitieslaws as alleged herein;
b) whether Defendants' publicly disseminated press releasesand statements during the Class Period omitted and/ormisrepresented material facts and whether Defendantsbreached any duty to convey material facts or to correctmaterial facts previously disseminated;
c) whether Defendants participated in and pursued thecommon course of conduct complained of herein;
d) whether Defendants acted with scienter in omitting and/or
misrepresenting material facts;
e) whether the price of Elan securities was artificially inflatedduring the Class Period as a result of the materialmisrepresentations and omissions complained of herein;
f) whether Defendants Martin, Cooke and Ekman werecontrolling persons as alleged herein; and
g) whether members of the Class have sustained damages and,
if so, the proper measure of such damages.
61. A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as
the damages suffered by individual members of the Class may be relatively small, the expense
and burden of individual litigation make it impossible for the members of the Class to
individually seek redress for the wrongs done to them. There will be no difficulty in the
management of this action as a class action.
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V. BACKGROUND AND FACTS UNDERMINING THE VERACITYOF DEFENDANTS ' CLASS PERIOD REPRESENTATIONS
A. Multiple Sclerosis Is A Severe Autoimmune Disease
62. MS is a severe autoimmnune disease 8 that affects the central nervous system
("CNS"), which consists of the brain, spinal cord and optic nerves . Surrounding and protecting
the nerve fibers of the CNS is a fatty tissue called myelin, which helps nerve fibers conduct
electrical impulses.
63. In patients with MS , immune cells migrate into the CNS causing inflammation.
Such inflammation destroys the myelin and nerve fibers themselves in multiple areas, leaving
scar tissue called sclerosis . These damaged areas are known as plaques or lesions.
64. Myelin not only protects nerve fibers, but is essential to their function. Thus, when
the myelin is destroyed or damaged, the ability of the nerves to conduct electrical impulses to
and from the brain is disrupted, and this disruption produces the various symptoms of MS,
including problems with coordination and balance, damaged vision and abnormal sensation.
65. The natural progression of MS varies among patients . Some patients are minimally
affected by the disease for many years, while other patients experience a rapidly progressive
disease leading to total disability or even death, within a few years. MS is classified into the
following categories, according to the stage and type of the disease:
Relapsing-remitting MS - This category of MS ischaracterized by acute exacerbations of disease(relapses) followed by periods of complete orincomplete recovery (remissions). In the initialstages of MS, approximately 80-90% of individualshave relapsing-remitting MS.
° Autoimmune diseases arises when the immune system in appropriately targets the cells,tissues and organs of one's own body.
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Secondary progressive MS - This category of the
disease involves gradual neurological deterioration
with or without superimposed relapses.
Approximately 50% of those with relapsing-
remitting MS will enter the secondary progressive
phase of the disease within ten to fifteen years of
disease onset.
Primary progressive MS - This form of MS is
characterized by a steady progression of disability
with few or no exacerbations. Approximately 10%
of individuals with MS exhibit this form of the
disease.
Progressive relapsing MS - This category of the
disease is characterized by progressive MS from the
onset with infrequent superimposed relapses. This
form is relatively uncommon and occurs in less than
5% of patients.
66. There is no cure for MS and existing treatments provide only modest benefits to
patients. MS has conventionally been treated through the use of different types of drugs, such as
beta-interferons, glatiramer acetate, steroids and other immunosuppressive drugs. Proprietary
drugs currently available in the United States to treat MS patients include: (i) Avonex© (a beta-
interferon marketed by Biogen); ( ii) Betaseron® (a beta-interferon marketed by Schering AG);
(iii) Rebif® (a beta-interferon marketed by Serono Pharma); (iv) Copaxone® (glatiramer acetate
marketed by Teva Neuroscience); and (v) Novantrone® (an antineoplastic marketed by Serono
Pharma). All of these therapies, however, have proven to be marginally effective in most MS
patients and often carry intolerable side effects such that some patients choose to forego any
treatment.
B. Progressive Multifocal Leukoencephalopathy
67. PML is an almost always fatal disease of the nervous system caused by a
polyomavirus (the "JC Virus") that typically strikes people with severely impaired immune
systems, such as persons with AIDS. PML presents symptoms such as impaired cognition,
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cortical blindness and weakness on one side of the body. PML usually results in death within
one to four months of the onset of the disease.
68. The JC virus, which causes PML, is latent in the kidneys of almost all adults
following infection in childhood or adolescence. JC virus only invades the brain when the
immune system is severely impaired, which allows the virus to replicate uncontrollably in the
CNS.
C. Tysabri®
69. Tysabri® is scientifically referred to as a "humanized monoclonal antibody" and
the "first alpha -4 integrin antagonist in the new selective adhesion molecule ('SAM') inhibitor
class." Tysabri® works by binding to a specific receptor present on most white blood cells
including lymphocytes, thereby preventing such white blood cells' normal migration in the body
and suppressing both inflammation and normal immune responses in the body. Thus, Tysabri®,
by its very nature, is a highly immunosuppressive drug.
70. Tysabri® was developed in the early 1990's by Dr. Lawrence Steinman, Professor
of Neurology and Immunology at Stanford University and Dr. Ted Yednock of Athena
Neurosciences (acquired by Elan in 1996), among others, as part of a collaborative academic
experiment. Drs. Steinman and Yednock studied the effects of Tysabri® in mice with
experimental autoimmune encephalomyelitis ("EAE"), a condition pathologically similar to MS,
and concluded that Tysabri® successfully prevented migration of lymphocytes and monocytes
(another type of white blood cell) to the brain, thus preventing inflammation in the brains of
mice with EAE. These results indicated that Tysabri® might be effective in treating MS.
71. The results of Dr. Steinman's study were published in a March 5, 1992 article
entitled, "Prevention of Experimental Autoiminune Encephalomyelitis by Antibodies Against
a4(31 Integrin," in the journal, Nature, (356:63-6, 1992), well before the Class Period.
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72. During a July 2005 conference call with Co-Lead Counsel for Plaintiffs herein (the
"July 2005 Conference Call") Dr. Steinman stated that he had concluded, based upon the results
of the animal study described above, that Tysabri® prevented migration of lymphocytes and
monocytes to other organs as well. According to Dr. Steinman, by preventing migration of
these white blood cells -- the body's primary defense mechanism for fighting infections --
Tysabrig left the patient's bodily organs other than the brain defenseless to fight the infection.
73. For these reasons, the widespread application of the drug posed serious concerns to
Dr. Steinman. Indeed, Dr. Steinman stated during the July 2005 Conference Call that his most
significant concern was that, since Tysabri® prevented white blood cells from migrating to all
organs in the body, its effects could not be localized to only the CNS. As a result, according to
Dr. Steinman , patients taking Tysabri® would be vulnerable to serious , potentially life-
threatening opportunistic infections because white blood cells could not reach the infected area
to fight the infection.
74. During the July 2005 Conference Call, Dr. Steinman further explained that people
with MS are not unusually susceptible to infectious diseases, but generally handle infections
quite well . However, according to Dr. Steinman , when MS patients begin taking Tysabri®, they
become much more susceptible to opportunistic infections because the patient's immune system
is severely suppressed by use of the drug.
75. Accordingly, as described above, Tysabri® is an extremely dangerous drug that
virtually "turns off' the immune system . This result can lead to the onslaught of PML by
allowing the JC virus (discussed above) to replicate in the CNS of patients taking Tysabri®®. As
indicated above, Defendants were forced to withdraw Tysabri® from the market on February 28,
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2005 because , among other reasons, two patients in the MS Tysabri® clinical trials were
diagnosed with PML, one of whom died.
D. Elan Was In Dire Financial Straights
76. Prior to and throughout the Class Period, Elan was in deep financial trouble as a
result of the Company being forced in 2002 to withdraw its pivotal Alzheimer's drug, AN-
1792®, the only potential blockbuster drug in Elan's drug pipeline, when nineteen people
reportedly suffered from brain inflammation caused by the drug. Five of those died. Moreover,
Elan had reported net losses and negative cash flows for several years, while continuing to incur
substantial amounts of debt to cover its cash shortfalls. Specifically, Elan recorded net losses of
$2.9 billion, $3.6 billion and $887.2 million for the years ended December 31, 2003, 2002 and
2001, respectively, and negative cash flows of $256.5 million and $518.7 million for 2003 and
2002, respectively. As of December 31, 2003, Elan reported total debt of approximately $2
billion, representing approximately two-thirds of the Company's total asset value in 2003.
77. Moreover, Elan was dependant on only three drugs for essentially all of its
revenue. Since the Company had no other drugs in its pipeline with purported "blockbuster"
potential , Tysabri® was Elan's only hope of returning the Company to profitability. As a result
of Elan's financial troubles and public skepticism regarding senior management's credibility
stemming from earlier SEC and shareholder lawsuits alleging accounting improprieties
(discussed below), analysts predicted that Elan would likely have to file for bankruptcy unless
Tysabri® was successful . In this regard, analysts commented as follows:
March 1, 2005 New York Times article described Elan'sfinancial status as being on the brink of "bankruptcy" as aresult of financial troubles beginning in 2002, from whichElan had not yet recovered.
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• March 1 , 2005 research report by Canaccord stated that
Elan would face "dire consequences ," including "possible
bankruptcy" unless Tysabri® was a blockbuster.
• March 31, 2005 research report issued by A.G Edwards
declared that "[a]bsent Tysabri, we believe Elan effectively
belongs to its debt holders."
• April 28, 2005 Citigroup research report opined that
without Tysabri®, Elan may be forced to partially or fully
dissolve the Company.
78. Confidential sources confirmed Elan's need for a successful launch of Tysabri®.
For example, a former Director of Marketing for Elan Pharmaceuticals who assisted in the
marketing research preparation for Tysabri ("CS 1 "), a former Administrative Director in the
Department of Neurology for Caritas St. Elizabeth's Medical Center in Boston, MA from 2004
through May 2006 who established a Multiple Sclerosis Clinic where this witness worked with
Tysabri ("CS 2"), and a former Vice President of Drug Metabolism and Pharmacokinetics for
Elan Pharmaceutical from June 2003 to April 2004 ("CS 3"), all confirmed that Elan's future
was dependant upon on approval and a successful launch of Tysabri® to remain a viable
company. CS 1, CS 2 and CS 3 highlighted the fact that the Company was forced to withdraw
its Alzheimer's drug, AN-1792®, from the market in 2002 and had no other potential
blockbuster drugs in its pipeline, as well as the Company's enormous debt load, as the reasons
why Elan was in financial trouble.
79. In light of the fact that Tysabri® was Elan's only potential blockbuster drug,
Defendants decided to divest the Company of $2.1 billion of other assets in 2002 and 2003,
including, among other things, its European sales and marketing business, pain products
portfolio and other products to allow the Company to focus on the development and marketing of
Tysabri®.
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E. Elan Collaborated With Biogen On The Marketing,Development And Commercialization Of Tysabri®
80. On August 17, 2000, Elan and Biogen announced in a joint press release, that they
had entered into an Antegren Development and Marketing Collaboration Agreement (the
"Collaboration Agreement" or "Agreement"), for the "exclusive" and mutual benefit of both, to
work collaboratively to expedite the development, regulatory approval and commercialization of
Tysabri0, under which the parties would share revenue and costs equally ( the "August 17, 2000
Press Release" ). In the August 17, 2000 Press Release, James Mullen , Biogen 's CEO, described
Tysabri® as a drug with "blockbuster potential."
81. At the time of the Collaboration Agreement, Elan and Biogen contemplated use of
Tysabri® for treating MS, Crohn' s disease and RA. The Collaboration Agreement required that
Elan and Biogen "work exclusively with each other to research , Develop, manufacture and
Commercialize Licensed Products in the Field ...." According to CS 3, Elan joined forces with
Biogen to obtain access to Biogen ' s manufacturing facilities and its expertise in MS, which
Biogen had achieved through developing and marketing its premier MS drug, Avonex g.
82. The Collaboration Agreement established a Joint Steering Committee (the "JSC")
to "oversee and manage the Development and Commercialization activities contemplated by
[the] Agreement." As discussed below, the Collaboration Agreement required two teams that
reported to the JSC, the Joint Project Team ("JPT") and the Joint Commercialization Team
("JCT") to implement the development and marketing of Tysabri®. Thus, information and
results learned by either Biogen or Elan concerning positive or negative results of the drug was
shared with the other company pursuant to the Agreement.
83. The JSC was comprised of six members, three representatives from Elan and three
from Biogen. At least two representatives from each party were required to be senior members
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of management, either a "vice-president or more senior officer." The third representative was
required to be someone of a "suitable authority and seniority who has significant experience or
expertise in biophannaceutical drug research, development commercialization or marketing."
CS 3 confinned that pursuant to the Collaboration Agreement, Elan and Biogen created a
committee comprised primarily of senior management from both companies to monitor the
progress of Tysabri®.
84. In addition to its general responsibilities to oversee and coordinate the development
of Tysabri®O according to the Development Plan, pursuant to the Collaboration Agreement, the
JSC was also charged with the responsibility to: (1) direct "the overall strategy, timing, goals and
direction of Development activities ... and provide direction to the Joint Project Team;" (ii)
"review and approve global regulatory and clinical strategies;" (iii) "approve the Development
Plan and each Annual Workplan/Budget;" (iv) "review and approve the determinations of the
Joint Project Team with respect to the calculations of the presence or absence of a Commercially
Significant Indication;" and (v) "perform such other functions as are allocated to it...."
85. According to the Collaboration Agreement, before each meeting, JSC members
received written copies of materials used at JSC meeting presentations. The JSC could also
request, at any time, "information related to Development or Commercialization activities or that
a written report be prepared in advance of any meeting summarizing certain material data....
86. As stated above, the Collaboration Agreement also called for the JPT, which
consisted of representatives from Elan and Biogen with technical scientific expertise, who were
responsible for, among other things, preparing and executing Development activities, preparing
the Development Plan and Annual Work Plan/Budget (as outlined in the Collaboration
Agreement ) and selecting the criteria for developing Tysabri®, including decisions on design
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and implementation of research programs and clinical trials. The JPT was also required to
submit various written reports to the JSC concerning its duties and progress of Tysabri's®
development.
87. The JCT was comprised of three to five members from Elan and Biogen with
experience in the commercialization and marketing of pharmaceutical products. The JCT was
responsible for preparing the Commercialization Plan and each Annual Commercialization
Budget, as outlined in the Collaboration Agreement, overseeing and implementing
commercialization activities , and "coordinating with the [JPT] in developing and implementing
standard operating procedures for adverse event reporting and compliance with regulatory
requirements ....
88. Pursuant to Article 3.5 of the Collaboration Agreement - Meetings of Chief
Executive Officers, Defendant Martin and James Mullen, Biogen 's CEO, were required to "meet
two (2) times per year during the term of [the] Agreement" to review the progress of the
development and commercialization of Tysabri and any important issues that arose. As Mullen
admitted during conference calls for the second and third quarters of 2004 "Kelly Martin and I
are in frequent communications. We believe these investments will provide healthy returns to
the business, given ANTEGREN's blockbuster potential ." [emphasis added]
89. The Collaboration Agreement - Article 4.3 - Clinical Trials - requires that "all
clinical data and reports related to the clinical trials ... shall be jointly owned by the Parties
[Elan and Biogen], and each Party shall have full use...."
90. Article 13 governs adverse event reporting and requires , in relevant part:
13.1 INFORMATION. Biogen and Elan willdisclose and make available to each other in atimely manner all preclinical , clinical , regulatory,
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commercial and other information concerningLicensed Products and constituting Know-how ...
13.3 ADVERSE EVENTS. Each Party will be
responsible for the safety surveillance and
pharmacovigilance regulatory obligations with
respect to the Licensed Product in those territories
where it is the sponsor of non-clinical or clinical
development ... or where it is the license holder of
the Licensed Product's Regulatory Approval. Each
party shallprovide to the responsible Party under
this Section with data on all adverse drug
experience reports related to the Licensed Product
in each case in accordance with procedures
established by the JJPTJ or the IJCTJ or pursuant
to an adverse event reporting agreement entered
into by the Parties. Elan and Biogen agree to
fulfill all their safety surveillance and
pharmacovigilance regulatory obligations with
respect to the Licensed Product . [Emphasis added]
91. Thus, under the Collaboration Agreement , senior executives at Elan and Biogen,
including Defendant Kelly and James Mullen, were charged with approving and closely
monitoring the progress of the development and marketing of Tysabri ®, including the manner in
which clinical trials were designed and conducted, the tracking of adverse events, the resolution
of issues as they arose and communication of issues and findings to one another.
F. The Tysabri® Clinical Trials
1. FDA Requirements Regarding Clinical Trial Testing
92. Before a drug may be marketed and sold commercially in the United States, FDA
regulations require that it first be tested for safety and efficacy in animals to determine its
potential toxicity and usefulness. Drugs that demonstrate acceptable safety profiles and benefits
may be approved by the FDA for testing in clinical trials using human volunteers . According to
the FDA, "[i]t's important ... that people make their decision to participate in a clinical trial
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only after they have a full understanding of the entire process and the risks that may be
involved."
93. The FDA requires a company to conduct three phases of clinical trials using human
volunteers before a drug may be approved and then marketed and sold to the general population.
The first phase ("Phase I") is conducted using a small number of healthy people for the purpose
of determining the proper dosage of a drug, documenting how it is metabolized and excreted and
identifying acute side effects. The second phase ("Phase II") includes participants who have the
condition the product may potentially treat and seeks to gather further safety data and
preliminary evidence of the drug's efficacy. If Phase II trials indicate that the drug may be
effective in treating a disease, and the risks are acceptable given the observed efficacy and the
severity of the disease, the drug moves on to the third phase ("Phase III"), which tests the
product's effectiveness and monitors side effects in a larger population of patients and control
subjects.
94. Elan and Biogen conducted clinical trials purportedly to test the safety and efficacy
of Tysabri® as a treatment for MS, Crohn's disease and RA. Although under the Collaboration
Agreement, Elan and Biogen were both responsible for the trials and required to communicate all
details associated with the clinical trials to one another, Elan was primarily responsible for
running the Crohn's disease and RA trials and Biogen was primarily responsible for running the
MS trials.
2. FDA Requirements For "Fast-Track" Approval, Priority
Review And Accelerated Approval Of New Drug Applications
95. On May 25, 2004, Defendants announced that they had submitted a Biologics
License Application to the FDA for "fast-track approval" (defined below) of Tysabri® for
treating patients with MS, based upon only one year's worth of data from Phase III of the
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Tysabri® MS clinical trials. On June 28, 2004, Defendants announced that the FDA had
designated Tysabri® for "priority review" and "accelerated approval" (defined below) for the
treatment of MS, which still required Defendants to complete Phase III testing of Tysabri®. On
November 23, 2004, Defendants announced that the FDA granted approval of Tysabri® based on
one-year's worth of data from two Phase III studies , the AFFIRM monotherapy trial and the
SENTINEL add-on trial , which combined Tysabri® with Avonex®O.
a. The Priority Review Process
96. "Priority Review" relates to the time frame the FDA targets for reviewing a
completed new drug application and is a designation for an application after it has been
submitted to the FDA for review and approval of a marketing claim. See
http://www.accessdata.fda.gov/scripts/cder/onctools/Accel.cfm#Priority. Under the Food and
Drug Administration Modernization Act ("FDAMA"), reviews for "new drug applications" are
designated as either standard or priority. A standard designation sets the target date for
completing all aspects of a review and for the FDA taking action on the application (approve or
not approve) at ten months after the date it was filed . A priority designation sets the target date
for the FDA action at six months. The FDA grants priority review status to products that are
considered to be potentially significant therapeutic advancements over existing therapies that
address an unmet medical need.
b. Accelerated Approval
97. "Accelerated Approval" is a program that is intended to make promising products
for life-threatening diseases available on the market on the basis of preliminary evidence prior to
formal demonstration of patient benefit. See http://www.accessdata.fda.gov/
scripts/cder/onctools/Accel.cfm#SubpartH . If accelerated approval is granted , the approval that
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is granted may be considered a provisional approval with a written commitment to complete
clinical studies that formally demonstrate patient benefit.
3. The MS Clinical Trials Of Tysabri®
98. Pre-clinical animal studies to evaluate Tysabri® as a treatment for autoimmnune
diseases, like MS and Crohn's disease, were conducted beginning in the early 1990's. Phase I of
the Tysabri® clinical trials for use as a treatment for MS, Crohn 's disease and RA was
completed by Athena Neurosciences (acquired by Elan in 1996) in December 1995.
99. In September 2001, Elan and Biogen presented promising data from Phase II of the
Tysabri® MS trials at the annual meeting of the European Congress on Treatment and Research
in Multiple Sclerosis. The Phase II trials were purportedly double-blinded,9 placebo-controlled
studies that evaluated Tysabri's® effect on inflammatory lesions in the brain of patients with MS
and assessed the tolerability and clinical benefit of Tysabri®. According to Elan and Biogen, the
primary analysis was based on magnetic resonance imaging ("MRI") scans and purportedly
demonstrated that MS patients treated with Tysabri® for six months had fewer lesions known as
"gadolinium - enhancing lesions" ( characteristic of MS ) in their CNS's than patients treated with
placebo. The data also purportedly demonstrated that the number of MS relapses over the
treatment period, one of the pre-specified clinical endpoints in the trial, was also reduced.
Specifically, in the placebo group, there were thirty-four relapses as compared to the Tysabri 1z 3
mg/kg group and Tysabri® 6 mg/kg group, which had nineteen and fourteen reported relapses,
respectively.
A double-blinded study is "a study in which at least two separate groups receive theexperimental medication or procedure at different times, with neither group being made aware of
when the experimental treatment or procedure has been given." See http://www.medterms.com/
script/main/art.asp ? articlekey=11177.
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100. Phase III of the Tysabri® MS testing began in December 2001 and consisted of
two trials: (1) the AFFIRM trial ; and (2 ) the SENTINEL trial. The AFFIRM trial was a two-
year, randomized, multi-center, placebo-controlled, double-blinded study of approximately 900
patients, designed to determine whether Tysabri ®t effectively slowed the rate of disability in MS
patients and reduced the rate of clinical relapses. The SENTINEL trial evaluated the safety and
efficacy of Tysabri® used in combination with Biogen ' s other MS drug, Avonex It (Interferon
beta-1 a), in patients with relapsing-remitting MS. The SENTINEL trial was also a two-year,
randomized, multi-center, placebo-controlled, double-blinded study of approximately 1,200
patients , designed to determine whether, in combination with Avonex®, Tysabri® was more
effective than Avonex® alone in slowing the rate of disability in MS and in reducing the rate of
clinical relapses.
101. On February 18, 2004, Defendants announced their intention to apply for fast-track
approval for treatment of Tysabri in MS patients after only one year of data in the Phase III
clinical trials, the results of which were finally disclosed to the public on November 8, 2004.
4. The Crohn' s Disease Clinical Trials Of Tysabri®
102. On May 23, 2001, Elan and Biogen issued a joint press release announcing that
Phase II of the Tysabri® Crohn' s disease trial was complete and indicated "promising results on
multiple endpoints." Phase III of the Crohn's disease trials, which began in December 2001,
consisted of two trials: (1) ENACT- I (to evaluate clinical responses to Tysabri® and its ability
to induce remission of disease); and (2 ) ENACT-2 (to evaluate the duration and effects of
Tysabri®). The ENACT-2 study only enrolled patients who participated in the ENACT-I study.
On July 24, 2003, Defendants announced that the ENACT-I study did not meet the primary
endpoint of "response." According to Defendants:
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This result appears to be due to a larger than
expected placebo response rate. However, data
from the study indicate that the biological activity
of natalizumab was similar to that seen in the Phase
11 study published in the New England Journal of
Medicine earlier this year. Additionally, there were
no notable differences in the overall rates of side
effects between natalizumab and placebo treatment
groups through week 12.
103. On January 29, 2004, Defendants issued a press release announcing that the
ENACT-2 trial had "met its primary endpoint ." At the same time , Defendants began an
additional Phase III induction trial, the ENCORE trial , because the original Phase III induction
trial (ENACT- ]) did not meet its primary endpoint . The ENCORE trial was designed as a
double-blinded, placebo-controlled study of 510 patients at 114 sites to evaluate the safety and
efficacy of intravenous Tysabri® in patients with moderately to severely active Crohn's disease.
5. The Rheumatoid Arthritis Clinical Trials Of Tysabri®
104. During mid-2004, Defendants began the Phase II RA trials. This RA trial was a
multi-center, double-blinded, placebo-controlled study measuring the efficacy, safety and
tolerability of intravenous Tysabri® in patients with moderate to severe RA receiving
concomitant treatment with methotrexate, an antimetabolite drug, which blocks the metabolism
of cells and, thus, has been found useful in treating certain cancers and autoimmune diseases,
among other diseases.
6. The Suspension Of All Clinical Trials Of Tysabri® Upon
Defendants' Withdrawal Of The Drug From The Market
105. On February 28, 2005, Defendants suspended all of the on-going Tysabri© clinical
trials and withdrew the drug from the market, purportedly pending an investigation into two
patients enrolled in the MS trials who were diagnosed with PML. At the time of the February
28, 2005 announcement, the status of the clinical trials were as follows:
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MS Clinical Trials - Phase III of the AFFIRM study was
completed and Phase III of the SENTINEL study was
substantially completed.
Crohn's Disease Clinical Trials - The Enact I and Enact II
studies were completed and the Encore Phase III Induction
trial was in progress.
RA Clinical Trials - Phase II had been underway for
approximately eight months.
106. As each of the phases in these clinical trials were completed and, thus, the results
unblinded, Elan and Biogen had exhaustively studied and analyzed the data. Thus, by at least
February 2004, when Elan and Biogen announced their intention to apply to the FDA for fast-
track approval of Tysabri® for treatment of MS, Defendants had conducted a thorough analysis
of the completed phases of the clinical trials, including Phase I, Phase II and one year of data
from Phase III of the MS trials and all phases of the Crohn' s disease trials (except the ENCORE
study).
G. Defendants Knew Or Recklessly Disregarded Numerous
Warnings Of Tysabri's® Severe Immunosuppressive Effects
107. As a result of Elan's status as a purported "world - class neuroscience-based
biotechnology company" as well as the Individual Defendants' significant experience and
education in the biotechnology industry, Defendants had the ability to, and did, keep themselves
apprised of all facts and information concerning the drugs that they were developing in order to
market and sell them commercially. Defendants were particularly focused on Tysabri®, which
they claimed would be the next "blockbuster" drug that would "revolutionize " the treatment of
MS, because Tysabri 's® success as a blockbuster drug was critical to Elan's ability to return the
Company to profitability and avoid an otherwise imminent bankruptcy.
108. Prior to filing an application with the FDA for fast-track approval of Tysabri®,
Defendants knew or recklessly disregarded the following red flags, confinning that the market
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for Tysabri® would be only a fraction of that disclosed by Defendants because of the significant
risks associated with Tysabri®: (i) Tysabri®, by its very nature because of the way it worked,
was an immunosuppressive drug that left patients vulnerable to serious opportunistic infections;
(ii) animal studies indicated that Tysabri1z was potentially, a highly immunosuppressive drug;
(iii) publications in scientific and medical journals warned about the severe iinmunosuppressive
effects of Tysabri®; ( iv) scientific meetings were held where top scientists discussed the serious
and inherent risks of Tysabri®; and (v) numerous serious opportunistic infections that had
already occurred in patients participating in TysabriRO clinical trials, confirmed prior data
indicating how dangerous Tysabri® actually is. Moreover , several confidential sources have
corroborated that Defendants knew of the severe immunosuppressive effects of Tysabri®, and of
the resulting adverse events and deaths that occurred during the Tysabri® clinical trials, before
the Class Period, which Defendants never disclosed to the investing public or the FDA.
1. Defendants Knew That Tysabri® Is A Highly Dangerous
Immunosuppressive Drug That Would Unequivocally
Cause Serious Opportunistic Infections
109. Unbeknownst to Class members during the Class Period, Tysabri® is a highly
dangerous immunosuppressive drug that prevents white blood cells from migrating to an infected
area of the body. Accordingly, patients taking Tysabri® are highly vulnerable to developing
serious opportunistic infections . According to CS 2, Tysabri® raised a red flag when it comes to
the issue of vulnerability to infection.
110. Thus, given that Tysabri 8, by its very nature, is a highly immunosuppressive drug,
Defendants knew or recklessly disregarded that Tysabri1z, carried the substantial risk that
patients taking the drug would develop serious, frequently life-threatening opportunistic
infections. Accordingly, Defendants also knew or recklessly disregarded that the market for
Tysabri® would, at best, only be a fraction of the purported $4+ billion market represented to
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investors, and limited to only those in the most advanced stages of MS for which no other MS
therapy worked.
2. Animal Studies Warned Defendants That Tysabri® Is
A Highly Immunosuppressive Drug That Could Cause
Potentially Life-Threatening Opportunistic Infections
111. Animal studies beginning in the early 1990's conducted by Defendants,
themselves, as well as by renowned scientists, revealed that Tysabn® was a highly dangerous
drug that posed serious, life-threatening, risks to patients taking the drug.
112. Defendants, along with Biogen, conducted several animal studies demonstrating
that Tysabri® was potentially a highly iinmunosuppressive. As discussed below, these animal
studies resulted in numerous, unexplained deaths in animals injected with as little as one dose of
Tysabri®. These animal studies, the results of which were made available to senior executives at
both Elan and Biogen, include the following:
Athena NeuroSciences Study #AL077 ( 8/10/95) --Two unexplained deaths in Tysabri ®-treated guineapigs.
Athena NeuroSciences Study #961011
(1/8/97) -- One Tysabri®-treated cynomolgusmonkey died of undetermined causes. Pathologyreported hepatorenal failure possibly due to fatalfatty liver-kidney syndrome, although the monkeydid not fit such a diagnosis.
Biogen Study # 309-010-01(9/24/01) -- Unexplained deaths among Tysabri®O -
treated guinea pigs attributed to hypersensitivity
reactions . Masses were noted under the skin of
these animals , but no pathological examination was
performed to check for malignancies that might be
due to severe immunosuppression.
Elan Study #309-008-01 ( 11/21/01) -- Unexplaineddeaths of pregnant female guinea pigs after takingTysabri®O, attributed to the process of giving birth,
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although there were no such deaths among control
guinea pigs.
Elan Study #309-007-01 (1/22/02) -- Unexplaineddeaths of a number of male guinea pigs after aninitial dose of Tysabri®, attributed to anaphylaxis (asudden , severe, potentially fatal , systemic allergicreaction ). However , anaphylaxis was extremelyunlikely because the guinea pigs had never beenexposed to Tysabri®.
Elan Study #309-028 -02 (12/28 /02) -- Unexplaineddeaths of pregnant female guinea pigs treated withTysabri0. Technicians vaguely concluded that thedeaths were "not related to test article."
113. In addition, as discussed above, Dr. Lawrence Steinman concluded that, based
upon an animal study that he conducted in 1992, Tysabrig prevented migration of white blood
cells to other organs in the body, leaving the body defenseless to fight serious and potentially
life-threatening opportunistic infections. In light of these conclusions, Dr. Steinman stated
during the July 2005 Conference Call with Co-Lead Counsel for Plaintiffs herein, that some of
the potential opportunistic infections that he was concerned might occur, which he characterized
as "horrendous infectious diseases," included atypical pneumonias, tuberculosis and brain
abscesses . Accordingly, Dr. Steinman opined that , in light of the fact that Tysabri® is not a cure
for MS, and its severe immunosuppressive effects, Tysabri® should not be used as a first-line
therapy, but rather limited to only the most severe cases of MS.
114. Also during 1999, Dr. Steve Adam of Biogen, in charge of developing and testing
Tysabri at Biogen , contacted Dr . Stephen D . Miller seeking Dr. Miller's assistance in
conducting animal studies to test the effects of Tysabri®. According to Dr. Miller, he was
employed by Biogen from 1999 to 2001, during which time Dr. Miller conducted animal studies
on behalf of Elan and Biogen. Dr. Miller stated that he maintained close and frequent
communications and held regular meetings with high-ranking officials at Biogen, including Dr.
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Adam and Dr. Eric Whally, during which Dr. Miller orally discussed his findings and made
recommendations based upon those findings.
115. During his involvement with Biogen, Dr. Miller also co-authored an article with
Biogen scientist Carol L. Vanderlugt, which was contributed to by Dr. Cheryl Nickerson-Nutter,
a Biogen researcher, among others, published in April 2001 in the Journal of Clinical
Investigation , entitled "Discordant Effects of Anti-VLA-4 Treatment Before And After Onset of
Relapsing Experimental Autoimmune Encephalomyelitis," (107:995-1006, 2001) [hereinafter the
"JCI Article"]. In that article, Dr. Miller concluded that, based upon the effects of Tysabri®O in
treated animals, "these results suggest that treatment with anti-VLA-4 Ab has multiple effects on
the immune system and may be problematic in treating established autoimmnune diseases such as
MS." [Emphasis added] The study further indicated that Tysabri® treatment either at the peak
of the acute disease or during remission, actually "exacerbated relapses ....
116. Moreover, according to the JCI Article:
[O]ur results indicate that caution must be used
when attempting to treat established Thl -mediated
autoimnmune diseases such as MS with intact mAb
to VLA-4 [Antegren®]. The exacerbation of R-
EAE [the equivalent of MS in humans] in animals
in which treatment [with Antegren®] is initiated
during the acute phase or during remission ....
Caution regarding the potential use of intact anti-
VLA-4 in human disease is also suggested by recent
clinical trials on MS patients. Although designed
specifically to only examine magnetic resonance
imaging MRI lesions, relapse rates in patients
treated with an anti-VLA-4 mAb were increased
over controls, even though the therapy appeared to
inhibit short-teen development of new MRI
lesions . .. Continued examination ofthe multiple
effects ofanti-VLA-4 and VLA -4 inhibitors have
on the immune system will be required to resolve
these important issues. [Emphasis added]
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117. Dr. Miller found the results of his research "alarming" and, thus, directly
recommended to senior Biogen officials that they should conduct additional animal studies
before Tysabri 1z was tested in humans . Specifically, Dr. Miller, recommended to Biogen
officials that they test Tysabri® in another animal model of MS that uses Theiler's virus (a virus
that infects the CNS) to produce lesions in mice similar to those of MS patients. However,
Defendants ignored Dr. Miller's warnings because of their dissatisfaction with the results of his
studies, which called into question the safety and efficacy of Tysabri®, and failed to conduct the
additional recommended animal studies.
118. In addition to concluding that Tysabri® was a highly immunosuppressive drug, the
August 1999 Study and the JCI Article also concluded that patients on Tysabri 1z therapy who
then discontinue the therapy, develop "rebound disease ," where MS progresses at a more rapid
pace than that prior to taking Tysabri®. In other words, although Tysabri® acts to slow-down
the progression of MS, once the patient discontinues Tysabri® therapy, MS progresses at a much
faster pace, as if to catch up to the point where the disease would have progressed, if the patient
had never been on Tysabri® therapy.
119. In 2001, shortly after the JCI Article was published , Biogen terminated Dr. Miller's
research because his findings were unfavorable to Elan and Biogen.
3. Scientific And Medical Publications And Industry Conferences
Indicated Tysabri's® Severe Immunosuppressive Effects
120. In addition to the numerous animal studies described above, several scientific and
medical publications, as well as physicians and other experts who spoke at industry conferences,
warned of the severe immunosuppressive effects of Tysabri®. These publications were reviewed
and industry conferences were attended by a close-knit group of physicians, scientists and other
biotechnology experts.
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121. For example , in another article published on July 9, 2004 in the journal , Science,
(305:212-216, 2004), entitled "Immune Therapy for Autoimmune Diseases ," Dr. Steinman
reiterated his well-founded concerns about the serious risks that Tysabri® posed to patients
stating: "[c]linical trials of drugs with unknown safety profiles should aim to exclude patients
with normal or near-normal neurological examination and target those patients with relapsing-
remitting multiple sclerosis at greater risk of disability...." According to Dr . Steinman,
Tysabri 1z had:
at least a theoretical concern that recipients of the
therapy would become generally compromised in
their ability to fight infection. This concern has
been borne out in a phase 2 trial in MS, in which an
increased rate of pharyngitis, a form of upper
respiratory tract infection, was observed.
[Emphasis added]
122. After this article was published , senior officials at Biogen, asked Dr. Steinman to
"tone down " his criticism of Tysabri. [Emphasis added] Indeed, Defendants did not want Dr.
Steinman ' s warnings to the medical and scientific communities to adversely affect the
Company's targeted market for Tysabri®O.
123. Similarly, a study funded by Elan and published in an August 11, 1999 article in
the journal , Neurology, published by the American Academy ofNeurology, (53:466-472, 1999),
entitled "The Effect of Anti-[alpha]4 Integrin Antibody on Brain Lesion Activity in MS," (the
"August 1999 Study") concluded that given the potential risks of Tysabri® , "[f]urther studies
will be required to determine the longer effect of this treatment ... " The article also questioned
Tysabri's 1z overall efficacy, as follows:
[It] is important to note a significant increase in
relapses in the treatment group compared to placebo
during the second 12 weeks ... our findings raise
the possibility that there may be a rebound
increase in the relapse rate after stopping
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treatment . .. The preliminary efficacy of Antegren(3mg/kg) in the treatment of MS has been shown inthe study but the effect was modest and transient.[Emphasis added]
124. In 2004, prior to Tysabri's approval by the FDA, Dr. Elliott Obi-Tabot wrote a
research paper for Serono Phanna International, a Swiss biotechnology company that competes
with Elan and Biogen, where he was employed as a consultant, raising concerns about the potent
immunosuppressive properties of Tysabri® and concluded that serious opportunistic infections
were a possible side effect of Tysabri®.
125. In addition , a May 23, 2003 article, entitled "VLA-4 Antagonists: Potent Inhibitors
of Lymphocyte Migration. Yang GX, Hagrnann WK," Med. Res. Rev., at 369-92 (2003), warned
that drugs like Tysabri® block thefunction ofthe immune system and interfere with normal
inflammatory responses to infection.
126. Similarly, a May 2006 article by Dr. Olaf Stuve, et al. in the journal Annals of
Neurology, (59:743-747, 2006), entitled "Immune Surveillance in Multiple Sclerosis Patients
Treated with Natalizumab ," [hereinafter, the "Stuve Study"] concluded that Tysabri® therapy
reduced a patient's immune system in the CNS to that of an AIDS patient. This study also found
that, even if physicians could run tests to determine whether certain patients were at risk of
subsequent opportunistic infections, "stopping [Tysabri®] therapy at that time may not prevent
the risk of a subsequent clinically evident infection" because Tysabri® remains in the patient's
system for a prolonged period after therapy is discontinued.
127. In the Stuve Study, Dr. Stuve and his colleagues found that low lymphocyte counts
persisted in the CNS six months after discontinuing Tysabri®. A neurologist who participated in
and, thus, was intimately involved with the MS Tysabri® clinical trials ("CS 4") confirmed that,
before Tysabri® was approved by the FDA, senior management at Elan and Biogen were aware
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that Tysabri® persisted in the body bound to lymphocytes for months after administration,
leaving the patient vulnerable to opportunistic infections for a prolonged period, far longer than
most immunosuppressive drugs.
128. Top Elan and Biogen scientists and physicians also frequently attended analyst
conferences held within the scientific community where scientists and physicians discussed
current events and key issues, including the risks of Tysabri®. At one conference held in
Venice, Italy in September 2004, Dr. Steinman warned about the risks of opportunistic infections
from Tysabri®. Similarly, Dr. Steinman made the same strong warnings about the risk of
opportunistic infections caused by Tysabri®O in a formal scientific presentation at the Keystone
Symposium, held in January 2005 in Montana, which Biogen co-sponsored.
129. As discussed earlier, Dr. Steinman was in a unique position to offer such warnings
given his expertise and status as a co-inventor of Tysabri®. Moreover, opportunistic infections
that occurred as a result of Tysabri® therapy validated Dr. Steinman ' s earlier concerns.
4. Defendants Were Aware Of Serious Adverse Events Occurring
During The Tysabri® Clinical Trials, Confirming Prior
Warnings Of Tysabri's® Severe Immunosuppressive Effects
And Failed To Disclose Those Adverse Events To The FDA
a. FDA Adverse Event Reporting Requirements
130. Defendants have now admitted, at the March 2006 FDA Hearing to determine
whether to allow Tysabri® to re-enter the market (discussed below), that serious opportunistic
infections and deaths occurred in patients on Tysabri® therapy during the Tysabri®O clinical
trials, well before they applied.for, and received fast-track approvalfrom the FDA to market
and sell Tysabri®. These opportunistic infections and deaths confirmed the prior warning
discussed above, that Tysabri® was a severely immunosuppressive drug that was certain to, and
did, cause serious and sometimes life-threatening opportunistic infections. These opportunistic
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infections qualify as "serious adverse events" or "serious adverse drug events" according to FDA
guidelines, and should have been disclosed to the public as well as the FDA when they occurred,
prior to FDA approval.
131. The FDA defines an "adverse event" or an "adverse drug experience" as:
Any adverse drug experience occurring at any dose
that results in any of the following outcomes:
Death, a life-threatening adverse drug experience,
inpatient hospitalization or prolongation of existing
hospitalization, a persistent or significant
disability/incapacity, or a congenital anomaly/birth
defect. Important medical events that may not result
in death, be life-threatening, or require
hospitalization may be considered a serious adverse
drug experience when, based upon appropriate
medical judgment, they may jeopardize the patient
or subject and may require medical or surgical
intervention to prevent one of the outcomes listed in
this definition. Examples of such medical events
include allergic bronchospasm requiring intensive
treatment in an emergency room or at hone, blood
dyscrasias or convulsions that do not result in
inpatient hospitalization, or the development of
drug dependency or drug abuse.
21 C.F.R. § 314.80.10
132. A life-threatening adverse drug experiences is defined as:
Any adverse drug experience that places the patient,
in the view of the initial reporter, at immediate risk
of death from the adverse drug experience as it
occurred, i.e., it does not include an adverse drug
experience that, had it occurred in a more severe
10 The FDA's Adverse Event Reporting System ("AERS") "is a computerized information
database designed to support the FDA's post-marketing safety surveillance program for all
approved drug and therapeutic biologic products. The ultimate goal of AERS is to improve the
public health by providing the best available tools for storing and analyzing safety reports." See
http://www.fda.gov/cder /aers/default . htm. "The FDA receives adverse drug reaction reports
from manufacturers as required by regulation ." Id. "Health care professionals and consumers
also send reports voluntarily through the MedWatch program , which become part of a database."
Id.
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form, might have caused death. Id. [Emphasisadded]
133. According to FDA regulations, Defendants were required to keep written
documentation of all adverse events that occurred during the Tysabri® clinical trials. 21 C.F.R.
§ 310.305(a) -- "Records and Reports Concerning Adverse Drug Experiences on Marketed
Prescriptions Drugs for Human Use Without Approved New Drug Applications"
("manufacturers, packers, and distributors of marketed prescription drug products that are not the
subject of an approved new drug ... application" must "establish and maintain records" of all
adverse events); see also 21 C.F.R. § 312.32(b) (with respect to Investigational New Drug
Applications, the sponsor "shall promptly review all information relevant to the safety of the
drug obtained or otherwise received by the sponsor from any source .... ").
134. Pursuant to FDA regulations, Defendants were also required to promptly report
adverse events to the FDA. See 21 C.F.R. § 312.50 -- "Responsibilities of Sponsors" ("Sponsors
are responsible for . .. ensuring that FDA and allparticipating investigators are promptly
informed ofsignificant new adverse effects or risks with respect to the drug") [Emphasis
added ]; 21 C.F.R. § 310.305( a) -- "Records and Reports Concerning Adverse Drug Experiences
on Marketed Prescriptions Drugs for Human Use Without Approved New Drug Applications''
("manufacturers, packers, and distributors of marketed prescription drug products that are not the
subject of an approved new drug ... application" must report to the FDA "all serious,
unexpected adverse drug experiences associated with the use of their drug products."); 21 C.F.R.
§ 314.80 ( same); 21 C.F.R. § 600.80 (same).
135. With respect to the time a company has to report an adverse event to the FDA, the
sponsor must report an adverse event associated with the drug "that is both serious and
unexpected ... as soon as possible and in no event later than 15 calendar days after the sponsor's
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initial receipt of the information .'' Id., § 312.32( c)(1)(i) [Emphasis added]. Moreover, the
sponsor must notify the FDA of any "unexpected fatal or life- threatening" experience associated
with the use of the drug as soon as possible but in no event later than 7 calendar days after the
sponsor ' s initial receipt of the information ." Id., § 312.32(c)(2).
136. Despite Defendants' disclosure and reporting obligations under FDA regulations
and the federal securities laws, as discussed below, Defendants failed to disclose any of the
"opportunistic" infections that occurred during the Tysabri® clinical trials to the FDA or to the
public until after they received fast-track approval of Tysabri® in November 2004. Defendants
were motivated to conceal these serious opportunistic infections from the FDA in order to
receive fast-track approval of Tysabri® with the broadest label possible. Indeed, had the FDA
had all of the data concerning the serious adverse events that occurred in patients taking
Tysabri ®, including the substantial number of serious opportunistic infections that occurred, the
FDA would not have approved Tysabri® at that time without additional extensive testing and
would most certainly have required Defendants to include a prominent safety warning, as they
have with other similar drugs, and have now required for Tysabri®. Such additional testing
however would have been very expensive and time consuming and would have resulted in
delaying the introduction of Tysabri® to the U.S. market.
137. Moreover, a prominent safety warning, such as a black-box warning, would have
been devastating to Elan because it would have limited the future market for Tysabri® to only a
fraction of that promised to investors and certainly would have been much less than the "4+
billion dollars" in revenue that Defendants had promised investors throughout the Class Period.
138. Notably, other drugs like Tysabri, that are immunosuppressive monoclonal
antibodies , typically have prominent black-box warnings in their FDA approved labels
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cautioning about the severe immnunosuppressive effects of those drugs and their potential serious
side effects.
b. Defendants Failed To Disclose Opportunistic Infections To The
FDA, Prior To Receiving Fast-Track Approval Of Tysabri®
139. As discussed below, Defendants knew of the serious opportunistic infections that
occurred during the Tysabri® clinical trials , but failed to disclose them to the FDA prior to
receiving approval in November 2004. An exhaustive search of the FDA website revealed no
evidence indicating that Defendants disclosed these serious opportunistic infections to the FDA
until after they received fast-track approval of Tysabri V in November 2004. In fact , documents
obtained from the FDA's website confirm that Defendants concealed numerous known
opportunistic infections from the FDA, prior to applying for, and receiving, fast-track approval
of Tysabri®.
140. Specifically, according to a November 23, 2004 memorandum to Karen Weiss,
M.D., Director at the FDA, from David Ross, M.D., Ph.D., Deputy Director on the FDA
committee that approved Tysabri®, the data that the Company submitted to the FDA did not
include any evidence of opportunistic infections resulting from the drug. In this regard, Dr. Ross
stated in his memo that: "[t]he events reported do not appear to represent infections due to
opportunistic pathogens ." [Emphasis added] Moreover, the FDA documents that outline the
scope ofTysabri® approval, made no mention of any opportunistic infections, or associated
risks. These documents clearly demonstrate that the FDA was not fully informed with respect to
the opportunistic infections that occurred in the Tysabri® clinical trials. Based upon the limited
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and/or inaccurate information presented to the FDA, the drug was approved to treat MS patients
for the broadest possible market.' 1
141. Defendants' knowledge of these serious opportunistic infections is evidenced by
the following (discussed below): ( i) Defendants ' own admissions at the March 2006 FDA
Hearing; (ii) the Collaboration Agreement required Defendants to closely monitor and
exhaustively review all aspects of all phases of the clinical trials. which revealed such infections;
(iii) the Tysabri® clinical trials for Crohn 's disease and MS were substantially completed by
early 2004 and thus, Defendants had access to, and exhaustively reviewed the data results; and
(iv) confidential sources confirm Defendants knew of adverse events that were reported during
Tysabri® clinical trials , before the Class Period.
i. Facts Ultimately Admitted AtThe March 2006 FDA Hearing
142. During the March 2006 FDA Hearing to review Elan and Biogen's application for
the return of Tysabri® to the market, Defendants admitted that they were aware of numerous
serious opportunistic infections that occurred during the Tysabri® clinical trials , prior to FDA
approval, which were not previously disclosed to the FDA.
143. Dr. Alice Hughes, an FDA participant, disclosed that the Tysabri® clinical trial
data showed seventeen deaths that had occurred in patients participating in the Tysabri® clinical
11 The FDA Medical Review approving Tysabri for commercial use in November 2004 lists one
infection, pulmonary aspergillosis, which was later determined at the March 2006 FDA Hearing
to be an opportunistic infection. Aspergillus is a non-pathogenic fungus that may produce
limited infections in the lungs or sinuses of normal people and cause minimal other symptoms.
In immunosuppressed individuals, however, aspergillosis is much more serious and the fungus
may grow rapidly in the body and aggressively invade the bloodstream producing a fungal
septicemia and death without prompt treatment. A thorough analysis of the Medical Review,
however, indicates that Defendants did not provide the FDA with any data that would have
alerted the FDA that this infection was opportunistic and not simply a minor infection.
Otherwise, Dr. Ross certainly would have cited this case of pulmonary aspergillosis as an
opportunistic infection in his memo.
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trials, thirteen of which were in patients taking Tysabri 1z . FDA Tr., 185. Among the causes of
death were PML (two cases), malignant melanoma (one case), pulmonary aspergillosis (one
case), and pneumocystis carinii pneumonia (one case) - all but the melanoma being a serious
opportunistic infection . FDA Tr., 185.
144. Dr. Michael Panzara, employed by Biogen, who presented safety data for Elan and
Biogen, and Dr. Hughes, also explained that the Tysabri® clinical trial data had revealed at least
the following opportunistic infections that occurred during the Tysabri® clinical trials: PML,
herpes virus infections, cryptosporidial gastroenteritis, pneumocystis carinii pneumonia,
pulmonary aspergillosis , CMV colitis, mycobacterium avium intracellular pneumonia, lower
respiratory tract infections, pulmonary tuberculosis, lung abscess and Burkholderia cepacia
pneumonia. FDA Tr., 62-64, 180-81, 203-4. According to Dr. Hughes, these infections suggest
"the possibility of a compromise in cell -mediated immunity ." FDA Tr., 180.
145. During the March 2006 FDA Hearing, Dr. Panzara noted that herpes infections had
occurred with greater frequency in Tysabri® treated patients, particularly those using
combination therapy and that this was true for both MS and Crohn' s Disease patients on
Tysabri®. FDA Tr., 58-60, 66. Defendants directly attributed the increase in herpes infections
to suppression of cell mediated immunity - the very risk that Defendants had been warned about
for well over a decade. FDA Tr., 58.
146. According to Dr. Panzara, a herpes infection was the type of opportunistic infection
that Elan and Biogen "chose to study to evaluate potential effects of natalizumab on cell-
mediated immunity ." FDA Tr., 54. Dr. Hughes echoed similar concerns related to the
significant number of herpes-type infections, stating that the "types of infections that we
observed suggest the possibility of a compromise in cell -mediated immunity. " Id., 180.
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147. Dr. Panzara's concerns were correct . After Tysabri V was approved in November
2004, two MS patients developed recrudescent herpes virus consistent with severe
immunosuppression. One patient, who received a single dose of Tysabri® in February 2005,
developed herpes simplex type 2 encephalitis (a brain infection) and died as a result of the
infection three months thereafter . FDA Tr., 57. The second case involved a patient who
contracted herpes simplex type I encephalitis after taking a single dose of Tysabri®. Id. That
patient fortunately is reported to have survived after appropriate treatment for the infection. Id.
148. During the March 2006 FDA Hearing, Dr. Hughes also expressed concerns that
Tysabri® "has the potential to increase the risk of cancer ." FDA Tr., 175. Dr. Hughes was
particularly alarmed with the data in the Crohn's Disease clinical trials, which demonstrated that
malignancies were more frequent in Tysabri® treated patients as compared to placebo treated
patients. Id. Dr. Hughes's concern arose from her knowledge that severely immunosuppressed
individuals are at greater risk for developing certain malignancies.
149. Moreover, Dr. Panzara reported on a third case of PML that occurred in a patient in
the Crohn's Disease trial, who was purportedly misdiagnosed in July 2003 with malignant
astrocytoma (a type of brain cancer). FDA Tr., 61. After the two reported PML cases in the MS
trials, Elan and Biogen re-reviewed this patient's medical records and determined that the patient
died in December 2003 of PML, not malignant astrocytoma.
150. Dr. Panzara concluded that, based upon the data from pre and post clinical trials,
"natalizumab®" [Tysabr]®] treatment is associated with an increased risk of PML" and that
"[t]here may also be an increased risk of other opportunistic infections ." FDA Tr., 65.
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ii. Elan and Biogen Admittedly CommunicatedRegularly Concerning Issues Related To Tysabri
Pursuant To The Collaboration Agreement
151. According to the Collaboration Agreement, Defendants were charged with closely
monitoring the Tysabri® clinical trials and reporting any adverse events that occurred during the
trials. Indeed, James Mullen, Biogen's CEO, admitted in a July 28, 2004 Biogen earnings
release that "[w]e and our partner Elan have been meeting regularly to formulate the launch plan
[of Tysabri®]. Kelly Martin and I are in frequent communication on a variety of issues."
152. Accordingly, senior executives at Elan, including the Individual Defendants, knew
about serious opportunistic infections that occurred in any of the Tysabri® clinical trials by
virtue of their duties under the Collaboration Agreement and their positions at Elan.
iii. Confidential Sources Have Confirmed That Defendants
Knew That Serious Opportunistic Infections Occurred
During The Tysabri® Clinical Trials
153. By January 2004, one month prior to Defendants announcing Elan and Biogen's
intention to seek fast-track approval of Tysabri®, the Crohn's disease trials and Phase II of the
MS trials were completed. By mid-year 2004, one-year data from Phase III of the MS trials had
been analyzed. Since the data from the completed trials was unblinded, Defendants had access
to, and conducted as a matter of course, an exhaustive analysis of the results in those trials.
Accordingly, Defendants knew or recklessly disregarded the opportunistic infections and deaths
that occurred during the Tysabri® clinical trials, indicative of severe immunosuppression,
discussed above.
154. Confidential sources confirm that Defendants knew of the serious opportunistic
infections that occurred during the Tysabri® clinical trials. For example, a neurologist formerly
affiliated with the Yale University School of Medicine who was directly involved in the
Tysabri® clinical trials for MS ("CS 5") confirmed that several serious opportunistic infections
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occurred during the MS and Crohn's disease clinical trials. Among the opportunistic infections
that CS 5 recalled, was a cryptosporidiosis infection (an opportunistic infection caused by a
parasite) that occurred during the MS trials and pneumocystis carinii pneumonia and atypical
mycobacterial infections that occurred during the Crohn's disease trials. In CS 5's opinion, these
earlier opportunistic infections constituted significant warnings to the Defendants about how
immunosuppressive Tysabri® actually is. None of these opportunistic infections, however, were
disclosed to investors or the FDA prior to Tysabri's® approval in November 2004.
155. CS 5 also confirmed that Defendants had had access to the data in the MS trials
that were run by Biogen and, thus, were fully aware of opportunistic infections that had arisen
during both the MS and the Crohn's Disease trials. CS 4, who participated in the MS trials,
similarly confirmed that this witness was informed of serious opportunistic infections that
occurred during the Tysabri® Crohn's disease clinical trials as well, including pneumocystis
carinii pneumonia and atypical mycobacterial infections. None of these opportunistic infections
were disclosed to the public or the FDA prior to Tysabri's® approval in November 2004.
156. Moreover, in CS 5's opinion, many of the problems that occurred with Tysabri®
were the result of executives of Elan and Biogen being excessively aggressive in getting
Tysabri® to the market . According to CS 5, Biogen executives pushed hard to get fast track
designation and initial approval of Tysabri by the FDA with limited safety data.
157. A neurologist involved in the SENTINEL Phase II trial in Glasgow ("CS 6") noted
that, during the clinical trials, it became obvious that continued use of Tysabri® compromised
the immune system . According to CS 6, the Crohn's disease clinical trials revealed that
Tysabri® increased the risk of patients developing cancer. CS 6 recalled that five clinical trial
participants contracted cancer as compared to one patient in the placebo group. CS 6 was
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particularly concerned with the types of cancer that patients had contracted. For example, CS 6
recalled one patient in the Crohn' s disease clinical trials taking Tysabri® who developed
malignant melanoma, a type of skin cancer, which was particularly unusual because MS patients
do not typically get malignant melanoma. Moreover, according to CS 6, another patient taking
Tysabri 12 in the clinical trial developed cervical cancer, which is caused by human
polyomavirus, a virus closely related to the JC virus that causes PML. CS 6 believed that if a
disease such as MS was not curable, life-threatening treatments such as Tysabri® were not
appropriate. Again, none of the opportunistic infections were disclosed to the FDA prior to
Tysabri's® approval in November 2004.
158. Moreover, a former Data Entry Clerk for Randstad from May 2004 to December
2004 assigned to work with Biogen to track clinical trial data ("CS 7"), confirmed that a
approximately fifty to sixty adverse events , on average , were reported daily during the MS
clinical trials. CS 7 recalled that in June 2004 and just before Tysabri® was approved in
November 2004, the volume of adverse events was extremely high, particularly when compared
to other clinical trials in which this witness was involved. CS 7 recalled that just before
Tysabri® was approved , there were approximately sixty to seventy adverse events reported
daily.
159. CS 7 also recalled that many of the adverse events reported in 2004 were serious
adverse events, including an increase in the size of tumors that resulted in patients being
admitted to the hospital because of a loss in motor skills and complaints suggesting symptoms of
PML. CS 7 recalled that approximately five to ten of every fifty adverse events were reported
from a doctor's office via a physician's note or a call from the nurse. CS 7 was certain that
Defendants were aware ofany concerns relating to the Tysabri® clinical trials. Moreover,
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according to CS 7 , this witness would have sold her stock if she owned any, based upon the
reported adverse event data that Defendants were receiving.
160. According to CS 2, there was a concern at Biogen that Tysabri® might leave
people unable to deal with other infections and that was something about which the scientific
team was generally aware. Similarly , CS 7 recalled concerns about the fast-tracking of
Tysabri®.
161. Thus, by Defendants ' own admission at the March 2006 FDA Hearing and
corroborating confidential witness statements, Defendants clearly knew of the serious
opportunistic infections and deaths that occurred during the Tysabri® clinical trials. However,
Defendants never disclosed these severe infections to investors, and instead, touted Tysabri® as
a "blockbuster" drug that would "revolutionize" the treatment of MS throughout the Class
Period.
H. The FDA Adverse Event Report Contained Numerous Opportunistic
Infections That Occurred In Patients On Tysabri® Therapy,
Confirming Prior Warnings That Such Infections Were Certain To Occur
162. A review of the Adverse Event Report data concerning Tysabri® dated November
24, 2004, immediately after Tysabri® was approved, through March 2006, received from the
FDA (the "Adverse Event Report") pursuant to Plaintiffs ' FOIA request, confirms that patients
on Tysabri® therapy were vulnerable to developing serious and sometimes life-threatening
opportunistic infections because Tysabri® effectively turns off their immune systems leaving
patients defenseless to fight such infections.
163. As summarized in the table below, a review of the Adverse Event Report
concerning Tysabri©, which contains adverse events reported after Tysabri® was approved for
public consumption, reveals that at least 60 opportunistic infections or potential opportunistic
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infections related to severe immunosuppression were reported in patients taking Tysabri®
between November 2004 and March 2006.
InfectionNumberReported
Progressive Multifocal Leukoencephalopathy 3
Sepsis 11
Meningitis Herpes 11
Encephalitis Herpes 5
Pneumocystis Jiroveci Pneumonia 5
Gangrene 4
Pyelonephritis 3
Escherichia Sepsis 3
Septic Shock 2
Pneumocystis Jiroveci Infection 2
JC Virus Infection 2
Cryptogenic Organizing Pneumonia 2
Tuberculosis Gastrointestinal I
Systemic Mycosis I
Pyelonephritis Acute I
Pseudomonas Infection I
Oral Fungal Infection I
CFS Virus Identified I
Candidiasis I
Total 60
164. A review of the Adverse Event Report further revealed the following additional
163 severe infections that occurred in patients taking Tysabri®O that could be considered seriousI
opportunistic infections associated with severe immunosuppression, although additional
information would be required to make that determination.
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Infection
Number
Reported
Pneumonia 29
Diarrhea 29
Fungal Infection 10
Kidney Infection 8
Herpes Simplex 8
Infection 7
Viral Infection 6Herpes Zoster 5
Pneumonia Bacterial 4
Pericarditis 4
Respiratory Tract Infection 4
Gastroenteritis Viral 4Bronchopneumonia 4
Stomatitis 3Respiratory Tract Infection Viral 3
Lobar Pneumonia 3
Hepatitis 3
Escherichia Infection 3Abscess Limb 2
Aphthous Stomatitis 2Infectious Mononucleosis 2Infected Cyst 2
Pneumonia Viral 2
Streptococcal Infection 1Staphylococcal Infection 1Staphylococcal Abscess 1Septic Arthritis Staphylococcal 1
Purulent Discharge 1
Oral Infection 1Meningitis Viral 1
Lower Respiratory Tract Infection 1
Herpes Virus Infection 1Fungal Skin Infection 1
Febrile Infection 1Eye Infection 1Epstein-Barr Virus Test Positive I
Epstein-Barr Virus Infection 1
Empyema 1
Arthritis Bacterial 1
Total 163
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165. With respect to malignancies , six cases of malignant melanoma and at least two
cases of lymphoma, which are associated with severe immunosuppression , appeared on the
Adverse Event Report. In addition , the Adverse Event Report disclosed the following other
reported malignancies: (i) eight reports of ovarian cancer; (ii) two reports each of the following
malignancies : astrocytoma malignant, neoplasm malignant, metastases to lymph nodes,
metastases to liver, lung neoplasm ; and (iii ) one report of each of the following malignancies:
papillary thyroid cancer , metastatic malignant melanoma, metastases to skin , metastases to
peritoneum, malignant pleural effusion, malignant neoplasm progression, gastric neoplasm,
gastric cancer, endoinetrial cancer and colon cancer.
166. Moreover, a Professor of Neurology with expertise in immunology of the CNS as
well as MS ("CS 8"), commented on the purported misdiagnosis of a Crohn' s disease patient
who was diagnosed in July 2003 with malignant astrocytoma (brain cancer) and died in
December 2003. Relying on his expertise as a neurologist, CS 8 drew the conclusion that the
misdiagnosis was highly suspicious. In this witness's opinion, a neuropathologist with even a
few months training would not have misdiagnosed this patient. Similarly, according to a senior
scientist at the National Institute of Health specializing in the JC virus ("CS 9"), PML and
malignant astrocytoma are completely dissimilar and any neuropathologist with any skill would
not have made this purported misdiagnosis.
167. According to CS 8, the neuropathologist who re-examined the case in March 2005
only needed to examine the CNS specimens from the Crohn' s disease patient for approximately
ten minutes before determining that it was PML rather than a malignant astrocytoma. CS 8
suggested that the purported misdiagnosis of the Crohn' s disease patient was the result of either
an effort to conceal the true diagnosis or malpractice on the part of the neuropathologist because
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in CS 8's opinion, there was no way a competent neuropathologist would confuse PML with
brain cancer. Thus, CS 8 was concerned that there could be other similar incidents that had been
concealed or misdiagnosed.
168. Given that Tysabri® was removed from the market in February 2005 after one
reported death from PML, it can be inferred that , had the proper diagnosis been made in
December 2003 that this Crohn's disease patient had actually died of PML, Tysabri® would
almost certainly not have received fast-track approval from the FDA and the FDA would have
required the black-box warning that Tysabri® has today.
169. An August 29, 2005 Wall Street Journal article (the "August 29 WSJ Article'")
analyzing adverse events associated with Tysabri® obtained from the FDA pursuant to a FOIA
request similarly concluded that the FDA adverse event data contained "numerous" accounts of
serious, opportunistic infections that "suggest again that the toll from Tysabri extends beyond
PML." [Emphasis added]
170. According to the August 29 WSJ Article, at least seven non-PML deaths in patients
taking Tysabri® "appear[ed] to be related to immunosuppression." The August 29 WSJ Article
further observed that one death resulted from pneumocystis carinii pneumonia, an infection that
only patients with severely debilitated immune systems contract; another death was attributed to
herpes encephalitis, a rare infection of the CNS; and four other deaths appeared to be caused by
sepsis, an uncontrolled bacterial infection spreading throughout the body.
171. As discussed below, despite the numerous serious opportunistic infections that
occurred during the Tysabri® clinical trials, and the other numerous warnings discussed above,
Defendants continued to report a stellar safety profile for Tysabri® with purportedly only
common, non-life threatening, treatable infections that occurred in the clinical trials and
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throughout the relevant period. Defendants also continually touted Tysabri® as a blockbuster
drug when, in fact, Defendants already knew of the serious side effects that resulted from
Tysabri® and thus, it would not be even close to a blockbuster drug.
1. Defendants' History Of Bad Conduct
172. This is not the first time Elan investors have been victimized by Defendants'
fraudulent conduct. For example, in 1999, an SEC review forced Elan to restate its earnings.
Only approximately two years later, in February 2002, Defendants faced a wave of shareholder
lawsuits and another SEC investigation into Defendants' deceptive alleged accounting practices.
Specifically, Elan was alleged to have defrauded investors and artificially inflated earnings by
failing to disclose that it had created off-balance entities to hold stakes in biotech firms where it
had set up partnerships.
173. In reaction to the 2002 restatement, a pharmaceutical analyst with Goodbody
Stockbrokers Ian Hunter, called for changes at the senior management level of the company.
According to Mr. Hunter, "[t]here has to be some change at the top to restore credibility.
There has been a lot lost." [Emphasis added] When asked to elaborate, Mr. Hunter stated that
Elan needed to beef up its senior management team with a heavyweight from the pharmaceutical
industry. Similarly, a London-based Prudential analyst Tim Anderson stated in a broker's note
that: "Elan's long-standing history of accounting aggressiveness has finally caught up with it."
On October 25, 2004, Elan announced that it had settled the shareholder class action for $75
million. Then, on February 8, 2005, Elan announced a "Final Settlement of SEC Investigation"
in which the Company agreed to pay a civil penalty of $15 million.
174. Now, approximately two years later, Elan has, once again, undertaken to defraud
investors, as alleged herein.
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VI. DEFENDANTS' MATERIALLY FALSE AND MISLEADINGSTATEMENTS AND OMISSIONS DURING THE CLASS PERIOD
175. As discussed above, Defendants knew, or recklessly disregarded, numerous facts
known to them well before the Class Period began, and well before applying for, and receiving
FDA approval, informing them that Tysabri® was a highly immunosuppressive drug that would
inevitably result in serious, sometimes life-threatening, opportunistic infections. Specifically,
Defendants were aware of the following results and events that occurred prior to the beginning of
the Class Period:
1992 - 2002 -- Animal studies, indicating that Tysabri® is a
highly immunosuppressive and, thus, dangerous drug, were
conducted from at least 1992 to 2002 and the results of
those studies were published during that time. Thus, the
results of the animal studies were known to Defendants
well before the Class Period and well before they applied
for, and received approval of TysabriR in November 2004
(¶¶ 111-22);
1995 - January 2004 -- Numerous serious opportunistic
infections and related deaths had occurred in patients taking
Tysabri® during the Defendants' Tysabri® clinical trials.
The infections were unblinded by January 2004, and thus,
known to Defendants by at least January 2004, prior to
submitting an application to the FDA for approval of
Tysabri® (¶¶ 139-52, 162-71);
1995 - January 2004 -- Confidential sources intimately
involved with the development and testing of Tysabri®
confirmed that Defendants knew that Tysabri® was a
highly dangerous drug, from at least 1995 through January
2004, well before the Class Period and well before they
received FDA approval (¶¶ 153-61); and
September 2004 - January 2005 -- Senior Elan officials
attended scientific meetings prior to, and during the Class
Period where top scientists in the field discussed the serious
and inherent risks of Tysabri® (¶¶ 128-29).
176. Notwithstanding the numerous warnings above concerning the serious risks
associated with Tysabri®, Defendants , throughout the Class Period , continually touted Tysabri®
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as the next "blockbuster drug" with a "reassuring safety profile" that would result in "4+ billion
dollars" of additional revenue for Elan and Biogen. In this regard, Defendants made the
following materially false and misleading statements and omissions to the investing public
during the Class Period.
177. On February 18, 2004, the beginning of the Class Period. Defendants issued a press
release (the "February 18, 2004 Press Release") communicating their "Intention to Submit
Antegren® for Approval for Multiple Sclerosis Based on One-year Data." The February 18,
2004 Press Release stated in relevant part:
The decision to file a Biologics License Application
(BLA) was made after discussions with the FDA of
one-year data from the two ongoing two-year Phase
III trials in MS. The companies are committed to
completing the two-year trials. To protect the
integrity of the trials, the companies are not
disclosing the one-year data at this time.
178. In the February 18, 2004 Press Release, Defendants described the Tysabri® clinical
trials as follows:
About the ANTEGREN MS Clinical Trials
The AFFIRM (natalizumab safety and efficacy in
relapsing-remitting MS) trial is a two-year,
randomized , multi-center, placebo-controlled,
double-blind study of approximately 900 patients,
evaluating the ability of natalizumab to slow the
progression of disability in MS and reduce the rate
of clinical relapses. The SENTINEL (safety and
efficacy of natalizumab in combination with
AVONEX(T (Interferon beta-I a)) trial is a two-year,
randomized, multi-center , placebo-controlled,
double-blind study of approximately 1,200 patients
with relapsing -remitting MS, evaluating the effect
of the combination of natalizumab and AVONEX
compared to treatment with AVONEX alone in
slowing the progression of disability and reducing
the rate of clinical relapses. Both studies have
protocols that included a one-year analysis of the
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data. The primary endpoints for both Phase III two-
year trials in MS are based on the Expanded
Disability Status Scale (EDSS) and relapse rates.
The pre-specified primary endpoint of the one-year
analysis was relapse rates.
179. With respect to the adverse events that occurred during the Tysabri®O clinical trials,
Defendants reported in the February 18, 2004 Press Release that:
the following adverse events occurred more
commonly with natalizumab when compared to
placebo: headache, nausea, abdominal pain,
infection, urinary tract infection, pharyngitis and
rash. Serious adverse events have included
infrequent hypersensitivity -like reactions.
[Emphasis added]
180. On February 18, 2004, Defendants also issued a press release announcing the
Company's financial results for the fourth quarter and year-ended December 31, 2003 (the
"February 18, 2004 Earnings Release"). The February 18, 2004 Earnings Release repeated the
same false and misleading statements as those contained in the February 18, 2004 Press Release
with respect to the Tysabri® clinical trials. In addition, in the February 18, 2004 Earnings
Release, Defendant Kelly Martin, reassured investors that Elan would achieve "key R&D
Milestones ," set forth for the commercialization of Tysabri:
The expected one-year filing for MS, the recent
positive Phase III maintenance results in Antegren
for Crohn's disease and the successful Phase III trial
for Pri alt confirms the potentialfor our world class
science to reach those patients who sufferfrom
these diseases.
Such execution momentum is the result of focus,
dedication and the extraordinary efforts of the Elan
employees around the world who remain dedicated
to positioning us for success and working towards
bringing our scientific innovation to patients.
[Emphasis added]
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181. On February 18, 2004, Defendants also held a conference call with analysts
discussing the Company's financial results for the year-ended December 31, 2003 and
Defendants' intention to file for approval of Tysabri®O as a treatment for MS with one-year data
(the "February 18, 2004 Conference Call"). During the February 18, 2004 Conference Call,
Defendant Cooke reiterated the Company' s intention to "file a BLA for ANTEGREN MS by
mid-2004 with the potential launch of this product in 2005" and assured investors that there was
a huge market for ANTEGREN , stating:
We're currently working with Biogen to determine
the additional investments which will be required
this year to ensure successful launch of
ANTEGREN and to ensure it reaches its full
potential which we think is enormous.
182. During the February 18, 2004 Conference Call, Defendant Martin made several
representations concerning Elan's stellar research capabilities, characterizing them as: "world-
class," "innovative," and "distinctive," and boldly asserted that: "now with the recent successes
in the marketplace [Elan's research] is now proven." Moreover, according to Defendant Martin,
"I think the key to our research is now that it's proven in certain areas to be not just successful
but potentially explosively successful."' With respect to the one-year data from the Tysabri®
clinical trials, Defendant Martin boasted "I believe this tangibly demonstrates the type of success
that Elan will demonstrate across the board and I also believe it sets the bar within the industry, a
new standard for product execution and development."
183. Throughout the February 18, 2004 Conference Call, Defendants made numerous
representations concerning the success of the Tysabri® clinical trials. Specifically, Defendant
Lars Ekman, President, Research & Development, Biopharmaceuticals at Elan, stated: "we
believe that our one-year data is sufficient to support a filing," and "we are extremely
encouraged by the extraordinary development over the last two months." [Emphasis added]
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Defendant Martin echoed Defendant Ekman's comments, stating "we believe that we have
significant execution momentum across all parts of the company."
184. When questioned by analysts during the February 18, 2004 Conference Call about
the Company' s intended marketing of Tysabri® as a monotherapy or a combination therapy,
Defendant Ekman represented that MS was "an enormous potential market and we are going to
make sure that we invest what is required to get the full potentialfrom this
product . ..." [Emphasis added] Defendant Martin affirmatively stated that, with respect to the
market for MS:
It's a 4-plus billion dollar market . There's also, as
you know, a large number of patients with whom
current therapy does not work or has side effects
that are too significant. So, as Shane said, it's a
very significant market in the current space. It's
also a very significant market from a development
point of view, and we and Biogen, based on the data
and based on further discussions with the agency
[FDA], will -- we will make sure that the necessary
investment to capture maximum amount ofthat
market is made .... [Emphasis added]
185. Following Defendants' affirmative statements, Elan's stock price soared, climbing
$3.00 per ADS on the NYSE, or 34%, to close at $11.80 per ADS, on trading volume of 60.6
million shares, far in excess of the average daily trading volume of 6,443,765 shares. Similarly,
Elan's shares on the Dublin Exchange rose €1.85 per share, or 27%, to close at €8.77 per share.
186. Analysts praised the Company's purported success with Tysabri® and issued the
following statements on February 18, 2004:
Morgan Stanley -- "Home Run on Antegren."
Davy -- "[t]his is hugely positive news as it
indicates that the FDA found one-year data
compelling enough to begin a review process, based
on the pre-specified one-year endpoint of relapse
rates."
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Goodbody Analyst Dr. Ian Hunter -- "[t]his is a
highly significant boost to the stock, given the
importance of Antegren in bringing the company
back to profitability."
Richard Barnett, a Los Angeles-based Fund
Manager for Northern Trust Corp. -- "[t]his event
definitely removes some uncertainty from a
potential blockbuster drug...
Deutsche Bank -- As a result of fast-trackingTysabri, "management now anticipates a return toprofitability sometime in 2H05."
187. The next day, as investors were still digesting Defendants' positive statements
detailed above, Elan's shares rose another $ 1.53 per ADS on the NYSE, or 12%, to close at
$13.33 per ADS. Elan's shares rose €1.92 per share on the Dublin exchange, or 22% to close at
€10.65 per share. Ian Hunter of Goodbody commented that "fyjesterday's announcement
increases our confidence that Antegren willprovide such an effective therapy that it will
trigger significant patient switch from existing treatments plus drive market expansion."
[Emphasis added]
188. The February 18, 2004 Press Release, February 18, 2004 Earnings Release, and
February 18, 2004 Conference Call were materially false and misleading because, once
Defendants chose to speak about the Company and the success of Tysabri®, they had a duty to
speak fully and accurately concerning the true risks of Elan's business, operations, performance
and prospects and thus, the true risks of Tysabri®. These statements identified above were also
materially false and misleading at the time they were made because:
a) Tysabri® had serious, undisclosed side effects that were
inherent in the nature of the drug and the way it worked to
suppress the immune system, leaving patients vulnerable to
life-threatening infections, including PML, pulmonary
aspergillosis, pneumocystis carinii pneumonia, atypical
mycobacterial infections and various herpes virus
infections associated with immunosuppression;
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b) Tysabri's® severe immunosuppressive effect was likely to,and did, cause numerous serious opportunistic infectionsand even death;
c) clinical trials of Tysabri® failed to include the full range of
medical tests necessary to timely detect symptoms of
serious opportunistic infections, such as lumbar punctures,
routine blood tests and neurological examinations;
d) the one-year data from Tysabri RO clinical trials was not assuccessful as Defendants led investors to believe because itdid not disclose that Tysabri® had already caused seriousopportunistic infections and deaths;
e) the "severe adverse events" that occurred during the trialsextended far beyond the purported "infrequenthypersensitivity-like reactions" or minor infections thatDefendants disclosed;
f) because of its substantial risks to patients, Tysabri® would
have a very limited use, in patients in the most advanced
stages ofMS where alternative treatments were
unsuccessful, and thus the potential market for Tysabri®
was only a fraction of the potential purported $ 4 billion
MS market that Defendants represented and Tysabri®
would contribute only marginally to Elan's earnings;
g) Defendants had no reasonable expectation that Tysabriwould "return the Company to profitability;" and
h) Elan's research was not "world class," as represented.
189. On March 23, 2004, Defendants issued a press release concerning their intention to
seek regulatory approval of Tysabri in Europe , under the headline, "Biogen Idec and Elan
Announce Intention to Submit Antegren for Approval for Multiple Sclerosis in Europe" (the
"March 23, 2004 Press Release"). With respect to the purported adverse events that occurred
during the Tysabri clinical trials, Defendants represented in the March 23, 2004 Press Release
that "the following adverse events occurred more commonly with natalizumab when compared
to placebo: headache, nausea, abdominal pain, infection, urinary tract infection, pharyngitis and
rash . Serious adverse events have included infrequent hypersensitivity-like reactions."
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190. That same day, Morgan Stanley issued a research report, interpreting Defendants'
materially false and misleading representations as "feedback [that] suggests to us that Antegren
will be a paradigm shift in the MS market." Similarly, according to analyst Davy in a March 23,
2004 research report, "[t]he signs are positive that Antegren will become a gold standard in the
MS market, with a superior safety and efficacy profile to existing therapies on the market at
present."
191. Following Defendants' announcement, Elan's ADSs closed at $19.70 per ADS on
the NYSE, up $1.30 per ADS, or 7%, from the previous day's closing price of $18.40 per ADS,
on trading volume of 16.9 million shares.
192. The statements identified above in the March 23, 2004 Press Release were
materially false and misleading when made for the reasons set forth in paragraph 188 above.
193. In a March 29, 2004 research report, Deutsche Bank praised Tysabri's® potential
to treat MS, commenting that "Antegren offers the opportunity to significantly alter the MS
market - likely becoming best in class." Moreover, with respect to its financial forecast for the
Company, Deutsche Bank stated that "[s]ince Antegren is expected to be the principal driver of
Elan's growth outlook over the next several years, this near-term forecast understates the real
potential impact to Elan."
194. On April 2, 2004, ING issued a "buy" recommendation for Elan' s securities,
explaining that "our analysis suggests launch of Elan's Antegren could transform the MS market.
We therefore upgrade our recommendation to Buy from Sell" and characterized Tysabri® as a
potential "blockbuster" drug. Similarly, on April 16, 2004, Moody confirmed Elan's "positive"
outlook.
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195. On April 29, 2004, Elan filed its 2003 20-F with the SEC, signed by Defendants
Martin and Cooke. In the 2003 20-F, Defendants repeated the same false and misleading
statements regarding the Tysabri clinical trials as those contained in the February 18, 2004 Press
Release, February 18, 2004 Earnings Release and February 18, 2004 Conference Call.
196. In his letter to shareholders, Garo Armen, Elan's Chairman, praised Elan's
successes in 2003, particularly with respect to Tysabri® and Elan-s scientific accomplishments,
stating:
Throughout 2003, we made steady progress in the
research and development of novel treatments in
our core therapeutic focus areas of neurology,
autoimmune diseases and severe pain, bringing the
Company to a new threshold in each.
^C X :F
In autoimmune diseases, we earned the interest -
and admiration - of the entire industry with our
news concerning Antegren, whose unique
inflammatory-inhibiting characteristics werereported in announcements concerning Crohn'sdisease, multiple sclerosis and rheumatoid arthritis.
^C X Je
Today, our financial and scientific accomplishments
speak clearly of a company that has been
successfully transformed. This transformation
encompassed more than our business and scientific
ventures; equally important was how we executed
against our plans, delivered on our pledge of
transparency, and were guided by strong principles
and strong leaders.
197. Defendant Martin, in his letter to shareholders, characterized Elan's purported
success in 2003 as a "transformation into a world-class neuroscience-based biotechnology
company....
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198. Defendants also touted the success of the Tysabri® clinical trials in the Company's
2003 20-F, as follows:
To date, approximately 2,800 patients have been
treated with Antegren in clinical trials. Elan and
Biogen Idec are encouraged by results thus far and
believe that, due to its unique mechanism of action,
Antegren may provide a meaningful advancement
for patients with debilitating autoimmune diseases.
199. With respect to the Company's publicly announced intention to fast-track Tysabri,
Defendants stated "[i]t is important to note that no other MS therapy currently on the market has
been approved with less than two years of data."
200. In the 2003 20-F, Defendants went on to describe two publications in January 2003
in the New England Journal ofMedicine regarding Phase II studies in MS and Crohn's disease as
follows:
The first publication reported on the results of the
Phase II MS study and noted a greater than 90%
reduction in the volume of new inflammatory brain
lesions in Antegren-treated patients. For patients
with relapsing forms of MS, the study showed an
approximate 50% reduction in the number of
patients experiencing relapse in the natalizumab
group compared to placebo. The second publication
reported the results of the Antegren Phase II
Crohn's disease study. That study showed
promising data on patient response rate, disease
remission, and quality of life for patients with
Crohn's disease, as determined by the Crohn's
Disease Activity Index ("CDAI") and the
Inflammatory Bowel Disease Questionnaire
("IBDQ").
201. Moreover, Exhibits 12(a)(1) and 12(a)(2) to the 2003 20-F contained certifications
signed by Defendants Martin and Cooke, pursuant to section 302 of the Sarbanes Oxley Act of
2002 ("Sarbanes Oxley"), stating that the 2003 Form 20-F did not contain any material
misrepresentations and that the Company maintained adequate internal controls, as follows:
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CERTIFICATION PURSUANT TO SECTION 302OF THE SARBANES OXLEY ACT OF 2002
I, Shane Cooke, certify that:
1. I have reviewed this Annual Report on Form
20-F of Elan Corporation , plc (the "registrant");
2. Based on my knowledge, this annual report
does not contain any untrue statement of'a
materialfact or omit to state a materialfact
necessary to make the statements made, in light of
the circumstances under which such statements
were made, not misleading with respect to the
period covered by this annual report [Emphasis
added];
3. Based on my knowledge, the financial
statements, and other financial information included
in this annual report, fairly present in all material
respects thefinancial condition , results of
operations and cash flows ofthe registrant as of,
and for, the periods presented in this annual report
[Emphasis added];
4. The registrant's other certifying officer and I
are responsible for establishing and maintaining
disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for
the registrant and have:
(a) Designed such disclosure controls and
procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
JC J^C Jk
(c) Evaluated the effectiveness of theregistrant's disclosure controls and procedures andpresented in this annual report our conclusionsabout the effectiveness of the disclosure controlsand procedures, as of the end of the period coveredby this annual report based on such evaluation; and
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(d) Disclosed in this annual report any changein the registrant's internal control over financialreporting that occurred during the period covered bythis annual report that has materially affected, or isreasonably likely to materially affect, theregistrant's internal control over financial reporting;and
5. The registrant's other certifying officer and Ihave disclosed, based on our most recent evaluationof internal control over financial reporting, to theregistrant's auditors and the audit committee of theregistrant's board of directors (or personsperforming the equivalent functions):
(a) All significant deficiencies and materialweaknesses in the design or operation of internalcontrol over financial reporting which arereasonably likely to adversely affect the registrant'sability to record, process, summarize and reportfinancial information; and
(b) Any fraud, whether or not material, thatinvolves management or other employees who havea significant role in the registrant's internal controlover financial reporting.
Date: April 28, 2004
/s/ Shane Cooke
Shane CookeExecutive Vice President andChief Financial Officer
CERTIFICATION PURSUANT TO SECTION 302OF THE SARBANES OXLEY ACT OF 2002
I, Kelly Martin, certify that:
I have reviewed this Annual Report on Form20-F of Elan Corporation, plc (the "registrant");
2. Based on my knowledge, this annual report
does not contain any untrue statement ofa
materialfact or omit to state a materialfact
necessary to make the statements made, in light of
the circumstances under which such statements
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were made, not misleading with respect to theperiod covered by this annual report [Emphasisadded];
3. Based on my knowledge, the financial
statements, and other financial information included
in this annual report, fairly present in all material
respects thefinancial condition , results of
operations and cash flows ofthe registrant as of,
and for, the periods presented in this annual report
[Emphasis added];
4. The registrants other certifying officer and I
are responsible for establishing and maintaining
disclosure controls and procedures (as defined in
Exchange Act Rules 13a-I5(e) and 15d-15(e)) for
the registrant and have:
(a) Designed such disclosure controls and
procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
***
(c) Evaluated the effectiveness of theregistrant's disclosure controls and procedures andpresented in this annual report our conclusionsabout the effectiveness of the disclosure controlsand procedures, as of the end of the period coveredby this annual report based on such evaluation; and
(d) Disclosed in this annual report any change
in the registrant's internal control over financial
reporting that occurred during the period covered by
this annual report that has materially affected, or is
reasonably likely to materially affect, the
registrant's internal control over financial reporting;
and
5. The registrant ' s other certifying officer and I
have disclosed , based on our most recent evaluation
of internal control over financial reporting, to the
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registrant's auditors and the audit committee of theregistrant's board of directors (or personsperforming the equivalent functions):
(a) All significant deficiencies and materialweaknesses in the design or operation of internalcontrol over financial reporting which arereasonably likely to adversely affect the registrant'sability to record, process, summarize and reportfinancial information; and
(b) Any fraud , whether or not material, that
involves management or other employees who have
a significant role in the registrant ' s internal control
over financial reporting.
Date: April 28, 2004
/s/ Kelly Martin
Kelly MartinPresident and Chief Executive Officer
202. Exhibits 12(a)(3) and 12(a)(4) to the 2003 20-F contained certifications signed by
Defendants Martin and Cooke, pursuant to section 906 of Sarbanes Oxley, stating that the 2003
20-F did not contain any material misrepresentations , as follows:
CERTIFICATION PURSUANT TO 18 U.S.C.SECTION 1350, AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEYACT OF 2002
In connection with the Annual Report of Elan
Corporation, plc (the "Company") on Form 20-F for
the period ending December 31, 2003, as filed with
the Securities and Exchange Commission on the
date hereof (the "Report"), I, Shane Cooke,
Executive Vice President and Chief Financial
Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that to my
knowledge:
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(1) the Report fully complies with the
requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) the information contained in the Report
fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Dated : April 28, 2004
/s/ Shane Cooke
Shane CookeExecutive Vice President
and Chief Financial Officer
CERTIFICATION PURSUANT TO 18 U.S.C.SECTION 1350, AS ADOPTEDPURSUANT TO SECTION 906 OF THESARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Elan
Corporation, plc (the "Company") on Form 20-F for
the period ending December 31, 2003, as filed with
the Securities and Exchange Commission on the
date hereof (the "Report"), I, Shane Cooke,
Executive Vice President and Chief Financial
Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that to my
knowledge:
(1) the Report fully complies with the
requirements of section 13(a) or 15 (d) of the
Securities Exchange Act of 1934; and
(2) the information contained in the Reportfairly presents, in all material respects, the financialcondition and results of operations of the Company.
Date: April 28, 2004
/s/ Kelly Martin
Kelly Martin
President and Chief Executive Officer
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203. With respect to Elan's internal controls, the 2003 20-F further disclosed that:
Item 15. CONTROLS AND PROCEDURES
1. At the end of the period covered by this
2003 Annual Report on Form 20-F, the Company,
under the supervision and with the participation of
the Company's management, including G. Kelly
Martin, president and chief executive officer, and
Shane M. Cooke, executive vice president and chief
financial officer, evaluated the effectiveness of the
design and operation of the Company's "disclosure
controls and procedures" (the "Disclosure
Controls"). Disclosure Controls are procedures
designed to ensure that information required to be
disclosed in the Company's reports filed under the
Securities Exchange Act of 1934, as amended (the
"Exchange Act"), such as its Annual Report on
Form 20-F, is recorded, processed, summarized and
reported within the time periods specified in the
Securities and Exchange Commission rules and
forms. Disclosure Controls are also designed to
ensure that the information is accumulated and
communicated to the Company's management,
including Mr. Martin and Mr. Cooke, as
appropriate, to allow timely decisions regarding
required disclosure.
2. The evaluation of the Company's Disclosure
Controls included a review of the controls'
objectives and design, the implementation of the
controls and the effect of the controls on the
information generated for use in the Company's
Annual Report on Form 20-F. During the
evaluation, management sought to identify data
errors, control problems or acts of fraud and
confirm that appropriate corrective actions,
including process improvements, were being
undertaken. This type of evaluation is performed by
the Company on a regular basis. The overall goals
of these evaluation activities are to monitor the
Company's Disclosure Controls and to modify them
as necessary.
3. Based upon their evaluation ofthe
Company's Disclosure Controls, Mr. Martin and
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Mr. Cooke have concluded that the Company's
Disclosure Controls are effective in alerting
management, including Mr. Martin and Mr. Cooke,
in a timely manner, to material information
required to be disclosed in the Company's reports
filed with the Securities and Exchange Commission
[Emphasis added]
4. There were no significant changes in the
Company's internal controls or in other factors that
could significantly affect the Company's Disclosure
Controls subsequent to the date of the evaluation
activities described above, nor were there any
significant deficiencies or material weaknesses in
the Company's internal controls. Accordingly, no
corrective actions were required or undertaken.
204. The statements identified above in Elan's 2003 20-F were materially false and
misleading when made for the reasons set forth in paragraph 188 above. The statements made in
the 2003 20-F were further materially misstated because: (i) Defendants lacked the necessary
controls to ensure that adverse events were reported to the FDA in a timely manner;
(ii) Defendants violated Sarbanes Oxley, 18 U.S.C. § 1350, as adopted pursuant to § 302 and
§ 906 by issuing the false certifications above; and (iii) Defendants violated Section 13(b)(2)(B)
of the Exchange Act by misrepresenting that Elan maintained adequate internal controls, when,
in fact, Elan's controls were deficient, allowing Defendants to engage in the fraud alleged herein.
205. On May 13, 2004, Defendants issued a press release announcing the Company's
earnings for the first quarter 2004 and touting the continued success of the Tysabri® clinical
trials (the "May 13, 2004 Earnings Release"). In the May 13, 2004 Earnings Release, Defendant
Martin assured investors that the Company was on track to launch Tysabri 1z , stating:
In the first quarter of 2004, we continued ourexecution momentum across our core therapeuticareas of neurodegenerative diseases, autoimmunediseases and severe pain. Our key second-quarterfilings are on track - Antegren for multiple sclerosisin the United States and Europe, and Pnalt for
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severe pain in the United States - and we continuediscussions with the United States and Europeanregulators regarding potential filings for Antegrenas a treatment in Crohn's disease. Operationally, weare preparing for the anticipated launches ofAntegren and Prialt, with specific targetedinvestments in the specialized infrastructure andpersonnel required for successful product launches.
206. That same day, Defendants held a conference call with analysts reiterating the
same false and misleading statements with respect to Tysabri' s® anticipated launch remaining
on track as those contained in the May 13, 2004 Earnings Release (the "May 13, 2004
Conference Call"). Additionally, Defendant Martin informed investors in the May 13, 2004
Earnings Release that "we don't view Antegren for MS as a product that is going to be a
combination therapy at all." Moreover, despite numerous known serious opportunistic infections
developed by patients taking Tysabri® in the MS clinical trials, Defendant Martin represented
that, according to the Phase II data, Antegren was "a product that's twice as efficacious at least
as any current therapy with no side effect ... which is obviously a major or the major driving
factor of the fact that we would view Antegren as a mono-therapy product." [Emphasis added]
Furthermore, according to Defendant Martin:
[I]t would be hard for me to imagine that the payer
community ... is going to pay for combination
therapy if ... there is an alternative product out
there as strong as Antegren for MS. So, while there
may be some combination therapy, we certainly
don't think that Antegren will be positioned with
that regard. We think that Antegren will clearly be
positioned as mono-therapy, first linefor MS on a
global basis Period. [Emphasis added]
207. During the May 13, 2004 Conference Call, Defendant Ekman reassured investors
about the Company's intention to market Tysabri® as a mono-therapy, stating that:
[Elan's] objective is to publish the one-year data onmono-therapy. We would then look at how many
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patients are left in the study for combination, and ifwe can disclose that data at that date withoutharming the two - the two-year data, we will have aconversation with the agency and we will notdisclose any data without having a good interactionwith the agency.
208. Defendant Martin also emphasized the importance of Tysabri® to Elan ' s cash flow
as follows:
With regard to sort of broad commentary on the
cash flow for `04, negative sort of $175 - 200
million, it 's obviously all in anticipation of what we
would view as the need to have an extraordinarily
successful launch ofAntegren .... [Emphasis
added]
209. Upon the news, on May 13, 2004, ING Financial Markets issued a "buy" rating in a
research report entitled "Antegren on Track." In that report, ING analysts forecasted growth of
the MS market from $3.5 billion today to more than $6 billion by 2008 and forecasted Tysabri®
sales to reach $2.2 billion by 2008. On May 13, Deutsche Bank issued a "buy" rating and
commented that the key valuation driver of Tysabri® "obviously remains MS," forecasting
worldwide Tysabri® sales of $2.3 billion by 2009. Moreover, according to Deutsche Bank,
when adding forecasted revenue from Crohn' s disease , total forecasted Tysabri® revenue for
2009 was $3. 1 billion , "which would make this therapy one of the largest-selling biologics on the
market." Following Defendants' affirmative misrepresentations, Elan's ADSs closed at $22.25
per ADS on May 14. 2004 on the NYSE, up $2.06 per ADS, or 10%, from the previous day's
closing price of $20.19 per ADS, on trading volume of 7.7 million shares.
210. The statements identified above in the May 13, 2004 Press Release and May 13,
2004 Conference Call were materially false and misleading when made for the reasons set forth
in paragraph 188 above. Moreover, Defendants' statements were further materially false and
misleading because the one-year data from the Tysabri® clinical trials was not nearly as
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successful as Defendants led investors to believe because many serious adverse events and even
deaths had occurred in both the MS and Crohn's disease Trials, indicating Tysabri'so severe
immunosuppressive effects. Furthermore, contrary to Defendants' material misrepresentations,
Elan and Biogen fully intended Tysabri® to be used as a combination therapy with Biogen's
other MS drug, Avonex®O, and not solely as a monotherapy.
211. On May 25, 2004 , Defendants issued a press release announcing that "Biogen Idec
and Elan Submit Biologics License Application to the FDA for Approval of Antegren for
Multiple Sclerosis Based on One-Year Data" the ("May 25, 2004 Press Release"). In the May
25, 2004 Press Release, Defendants included statements made by Biogen executives, thereby
adopting those statements as their own. Specifically, Dr. Adelman of Biogen stated in the May
25, 2004 Press Release that:
Based on the one-year analysis from our Phase III
studies, which include more than 2,100 patients, we
believe that natalizumab has the potential to become
an important new therapy for MS. Natalizumab's
novel mechanism of action represents an innovative
approach to treating MS.
212. Defendant Ekman echoed Dr. Adelman' s sentiments in the May 25, 2004 Press
Release stating:
This submission represents a significant milestone
for Elan and Biogen Idec and demonstrates our
continued commitment to providing a new
treatment option for the more than one million
patients experiencing the debilitating effects of MS.
We look forward to working with the FDA
throughout the review process to make natalizumab
available to patients who may be in need.
213. Defendants described the Tysabri® clinical trials as follows:
About the MS Clinical Trials for ANTEGREN:
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The AFFIRM (natalizumab safety and efficacy in
relapsing-remitting MS) trial is a two-year,
randomized, multi-center, placebo-controlled,
double-blind study of approximately 900 patients,
evaluating the ability of natalizumab to slow the
progression of disability in MS and reduce the rate
of clinical relapses. The SENTINEL ( safety and
efficacy of natalizumab in combination with
AVONEX® (Interferon beta-I a)) trial is a two-year,
randomized , multi-center , placebo - controlled,
double-blind study of approximately 1,200 patients
with relapsing-remitting MS, evaluating the effect
of the combination of natalizumab and AVONEX
compared to treatment with AVONEX alone in
slowing the progression of disability and reducing
the rate of clinical relapses. Both study protocols
provided for a one-year analysis of the data. The
primary endpoints for both Phase III two-year trials
in MS are based on the Expanded Disability Status
Scale (EDSS ) and relapse rate. The pre-specified
primary endpoint of the one-year analysis was
relapse rate.
214. With respect to adverse events, Defendants further represented in the May 25, 2004
Press Release that "[t]o date, approximately 2,800 patients have received natalizurnab in clinical
trials, and the safety profile continues to supportfur°ther° development. [Emphasis added] In
placebo-controlled trials to date, in both Crohn's disease (CD) and MS, the most commonly
reported adverse events in either group were headache, fatigue and nasopharyngitis."
215. On May 25, 2004, Defendants issued a similar news release announcing that
"Biogen Idec and Elan Submit Application to the European Medicines Agency for Approval of
ANTEGREN for Multiple Sclerosis Based on One-Year Data" (the "May 25, 2004 News
Release"). In the May 25, 2004 News Release, Defendant Ekman repeated his earlier statements
made in the May 25, 2004 Press Release regarding the market for Tysabri as a treatment for MS.
216. Analysts, as well as investors, continued to be fooled by Defendants' false and
misleading representations . In the May 25, 2004 News Release, analyst Scott H. Fullman of
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Investec was quoted as rating Elan a "buy and Jennifer Chao, an analyst with RBC Capital
Markets in New York was quoted as rating Elan an "outperform."
217. Following Defendants' affirmative misrepresentations , Elan's ADSs on the NYSE
rose $0.67 per ADS, or 3%, to close at $19.96 per ADS, on trading volume of 5.8 million shares.
218. The statements identified above in the May 25, 2004 Press Release and May 25,
2004 News Release were materially false and misleading when made for the reasons set forth in
paragraph 188 above.
219. On June 4 , 2004, Defendants issued a news release entitled "Biogen Idec and Elan
Submit Application to the European Medicines Agency for Approval of ANTEGREN for
Multiple Sclerosis Based on One-Year Data" (the "June 4, 2004 Press Release"), announcing
that the Company had submitted a Marketing Authorization Application ("MAA") to the
European Medicines Agency (the equivalent of the FDA in the U.S.) for approval of Tysabri® as
a treatment for MS.
220. Like the filing with the FDA, Elan's submission was based upon only one-year
data from two ongoing Tysabri® Phase III MS clinical trials, the results of which they refused to
disclose, purportedly "to protect the integrity of the trials."
221. In the June 4, 2004 Press Release, Defendants stated (by adopting a statement by
Dr. Adelman) that "[biased on the promising results in previous clinical trials and the one-year
analysis from our Phase III studies, we believe natalizumab has the potential to meet a
significant unmet needfor MSpatients around the world . Natalizumab's novel mechanism of
action represents an innovative approach to treating MS." [Emphasis added]
222. Defendant Ekman echoed Dr. Adelman's comments in the June 4, 2004 Press
Release, stating: "[t]his submission represents a significant milestone for Elan and Biogen Idec
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and demonstrates our ongoing commitment to new therapies for MS patients. We will continue
to work with European regulators during the review process to bring natalizuinab to patients as
quickly as possible."
223. With respect to the MS Clinical Trials for Tysabri g, Defendants represented that
The AFFIRM (natalizumab safety and efficacy in
relapsing-remitting MS) trial is a two-year,
randomized , multi -center , placebo-controlled,
double-blind study of approximately 900 patients,
evaluating the ability of natalizumab to slow the
progression of disability in MS and reduce the rate
of clinical relapses. The SENTINEL (safety and
efficacy of natalizumab in combination with
AVONEX(R) (Interferon beta-1 a)) trial is a two-
year, randomized , multi -center , placebo-controlled,
double-blind study of approximately 1,200 patients
with relapsing -remitting MS, evaluating the effect
of the combination of natalizurnab and AVONEX
compared to treatment with AVONEX alone in
slowing the progression of disability and reducing
the rate of clinical relapses . Both study protocols
provided for a one-year analysis of the data. The
primary endpoints for both Phase III two-year trials
in MS are based on the Expanded Disability Status
Scale (EDSS) and relapse rate. The pre-specified
primary endpoint of the one-year analysis was
relapse rate.
224. Defendants also reiterated the same false and misleading statements as those
contained in prior releases about the purported success of the Tysabri® clinical trials , as follows:
To date, approximately 2,800 patients have received
natalizumab in clinical trials, and the safety profile
continues to support further development. In
placebo-controlled trials to date, in both Crohn's
disease (CD) and MS, the most commonly reported
adverse events in either group were headache,
fatigue and nasopharyngitis.
225. The statements identified above in the June 4, 2004 Press Release were materially
false and misleading when made for the reasons set forth in paragraph 188 above.
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226. On June 15, 2004, Davy and ING Financial Markets issued a "buy" rating on
Elan's ADSs.
227. On June 28, 2004, Defendants issued a press release under the headline, "FDA
Designates Antegren Biologics License Application for Priority Review as a Treatment for
Multiple Sclerosis; Application Under Accelerated Approval Guidelines" (the "June 28, 2004
Press Release"). In the June 28 , 2004 Press Release , Defendant Ekman declared:
The Priority Review designation underscores the
significant unmet medical need in the area of MS.
We believe natalizumab will offer a new approach
to treating MS and will bring hope to patients living
with this disease.
The BLA for natalizumab is being evaluated by the
FDA under Accelerated Approval guidelines. This
review will be based on one-year data from two
ongoing Phase III trials. The companies are
committed to completing these two-year trials. In
order to protect the integrity of the trials, the
companies are not disclosing the one-year data at
this time.
228. With respect to the Tysabri® clinical trials the June 28 , 2004 Press Release stated:
About the MS Clinical Trials for ANTEGREN
The AFFIRM (natalizumab safety and efficacy in
relapsing-remitting MS) trial is a two-year,
randomized , multi-center , placebo-controlled,
double-blind study of approximately 900 patients,
evaluating the ability of natalizumab to slow the
progression of disability in MS and reduce the rate
of clinical relapses. The SENTINEL (safety and
efficacy of natalizumab in combination with
AVONEX(R) (Interferon beta-I a)) trial is a two-
year, randomized , multi-center, placebo-controlled,
double-blind study of approximately 1,200 patients
with relapsing-remitting MS , evaluating the effect
of the combination of natalizumab and AVONEX
compared to treatment with AVONEX alone in
slowing the progression of disability and reducing
the rate of clinical relapses. Both study protocols
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provided for a one-year analysis of the data. The
primary endpoints for both Phase III two-year trials
in MS are based on the Expanded Disability Status
Scale (EDSS) and relapse rate. The pre-specified
primary endpoint of the one-year analysis was
relapse rate.
229. Defendants also reiterated the same false and misleading statements in the June 28,
2004 Press Release as those made in prior releases about the adverse events that occurred during
the Tysabri® trials, stating:
To date, approximately 2,800 patients have received
natalizumab in clinical trials, and the safety profile
continues to support further development. In
placebo-controlled trials to date, in both Crohn's
disease (CD) and MS, the most commonly reported
adverse events in either group were headache,
fatigue and nasopharyngitis.
230. The statements identified above in the June 28, 2004 Press Release were materially
false and misleading when made for the reasons set forth in paragraph 188 above.
231. On June 28, 2004, in reaction to Defendants' positive statements , ING Direct
issued a research report rating Elan a "buy." In that research report, ING analysts concluded that
since Elan and Biogen applied to the FDA for Priority Review of Tysabri®, "the drug must have
demonstrated it had the potential to treat a serious aspect (in this case disease relapse) of an
unmet medical need. We believe this indicates that data presented to the FDA must, as we
expected, demonstrate a significant advance on current therapy." Accordingly, ING upgraded
their Tysabri® revenue estimates from $125 million to $225 million . That same day,
ThinkEquitySales issued an "overweight" rating (expects the stock to outperform that of
comparable stocks) and raised its revenue target for Tysabri® for 2005 from $349 million to
$443 million.
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232. On June 29, 2004, Deutsche Bank issued a "buy"' recommendation, noting that
Elan's stock had increased 241 % since the beginning of 2004, as compared to the NASDAQ
Biotech Index, which gained only 3%. Similarly, NCB Stockbrokers issued a "buy" rating that
same day and increased projected revenues from Tysabri ® in 2005 from $ 191 million to $320
million and for 2006 from $635 million to $866 million.
233. As investors digested the news, Elan ' s ADS price climbed over the following days
to close at $25.39 per ADS on July 2, 2004 on the NYSE, up $1.42 per ADS, or 5%, from the
closing price of $23.97 per ADS on June 25, 2004, the last business day before the
announcement.
234. On July 26, 2004, Elan issued a news release under the headline , "FDA Accepts
Biologics License Application for ANTEGREN for Multiple Sclerosis" (the "July 26, 2004 Press
Release"). The July 26, 2004 Press Release stated, in relevant part:
The FDA's review of natalizumab will be based on
one-year data from two ongoing Phase III trials,
AFFIRM (natalizumab safety and efficacy in
relapsing-remitting MS) and SENTINEL (safety
and efficacy of natalizumab in combination with
AVONEX(R) (Interferon beta-1 a)), which evaluate
the ability of natalizumab to slow the progression of
disability and reduce the rate of clinical relapses in
patients with relapsing-remitting MS. The
companies are committed to completing these two-
year trials.
235. Defendants again, reiterated the same false and misleading statements regarding
the purported safety of Tysabri® as evidenced in the clinical trials, as follows:
To date, approximately 2,800 patients have received
natalizuinab in clinical trials, and the safety profile
continues to support further development. In
placebo-controlled trials to date, in both Crohn's
disease (CD) and MS, the most commonly reported
adverse events in either group were headache,
fatigue and nasopharyngitis.
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236. On July 26, NCB issued a "buy' rating.
237. The statements identified above in the July 26, 2004 Press Release were materially
false and misleading when made for the reasons set forth in paragraph 188 above.
238. On July 29, 2004, Elan issued a press release (the "July 29, 2004 Earnings
Release"), announcing its second quarter financial results and continuing to tout the Company's
success with respect to the development and commercialization of Tysabri® as follows:
We continue to focus and align resources against
the commercialisation of Antegren for multiple
sclerosis and Crohn's disease, working with our
partner Biogen Idec. Having achieved designation
for priority review and accelerated approval for MS
in the U.S. further enhances our focus on execution
and operating discipline. Overall we continue to
strengthen our core therapeutic areas in
neurodegenerative diseases, autoimmune, and pain.
We continue to evaluate growth opportunities to
enhance our presence in these specific areas.
239. That same day, Defendants held a conference call with analysts (the "July 29, 2004
Conference Call"), during which Defendant Martin reassured investors that, based upon results
of the clinical data and the FDA's designation of Tysabri® for priority review, the Company's
plans to sell Tysabri® to the public "remains on track" and that Defendants "remain[ed] very
comfortable and confident that Antegren will provide significant improvement in disease therapy
across multiple indications going forward."
240. When confronted during the July 29 Conference Call with a statement Defendants
made in a Pfizer Q&A that Tysabri® was hampered by a lack of long term safety and efficacy
data, Defendant Martin responded as follows:
First of all, my understanding is the FDA is in
charge of assessing safety, not the industry ....
Secondly, you know this business is all about
innovation and bringing innovation to patients.
Again Elan's core belief has been over the last 15
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years, certainly embedded within the Athena
Neurosciences world, that they did not want to work
on "me, too" drugs. They wanted to work on
changing the treatment paradigm in certain areas.
Antegren is the first of what, we think will be
others, but certainly the first breakthrough in
treatment paradigm for autoimmune related diseases
and that - therefore is a significant change in
technology and a significant change in the way
patients are going to look at treatment alternatives.
Antegren isfundamentally going to change, to a
very large degree, the way patients are treated in
many ofthese disease areas and our focus is with
Biogen to deliver that. I think, a change in
technology will cause some other strategic issues
for some of the competitors who have very
significant MS practices, and that's for them to deal
with. We are going to stay focused on Antegren
with Biogen and delivering it to the patients the
right way . [Emphasis added]
241. On July 29, 2004, Deutsche Bank issued a research report entitled "Slightly Wider
Q2 Loss - It's All About Antegren in 2Q04" and maintained, its "buy" rating on Elan's shares.
Analysts for Deutsche Bank estimated revenues from Tysabri of $475 million , $ 890 million and
$1.455 billion in 2005, 2006 and 2007, respectively, and stated that Tysabri® was "potentially
positioned to become the therapy of choice for relapsing-remitting MS, ultimately reaching
combined US and European MS Sales of $2.6B by 2009."
242. The statements identified above in the July 29, 2004 Earnings Release and July 29,
2004 Conference Call were materially false and misleading when made for the reasons set forth
in paragraph 188 above.
243. The day after the Company released its second quarter 2004 earnings, ING
Financial Markets issued a "buy" rating on Elan's shares. Similarly, on August 3, 2004,
Goodbody issued a buy rating on the Company' s shares.
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244. On August 17, 2004, Defendants provided a status update on the progress of
Tysabri to investors in a press release entitled "Biogen Idec and Elan Announce Update on
Global Filings and Data Release for ANTEGREN® for Multiple Sclerosis" (the "August 17,
2004 Press Release"). In the August 17, 2004 Press Release, Defendants disclosed that Elan and
Biogen submitted an application for approval of Tysabri® as a treatment for MS in Canada and
expected to submit applications in Australia and Switzerland, based on one-year data from the
ongoing Phase III trials. The August 17, 2004 Press Release also revealed that "[t]he companies
also anticipate that the first release of the one-year data from these trials will be upon approval of
natalizumab by the U.S. Food and Drug Administration (FDA)."
245. With respect to the safety of Tysabri®O, Defendants repeated the same false and
misleading disclosures as those in earlier press releases as follows:
To date, approximately 2,800 patients have received
natalizumab in clinical trials, and the safety profile
continues to support further development. In
placebo-controlled trials to date, in both Crohn'sdisease (CD) and MS, the most commonly reportedadverse events in either group were headache,fatigue and nasopharyngitis.
246. In reaction to the news, on August 17, 2004, Deutsche Bank issued a "buy" rating,
stating: "[w]e continue to think that Antegren is potentially positioned to become the therapy of
choice for relapsing-remitting MS, ultimately reaching combined US and European MS sales of
$2.6B by 2009." Deutsche Bank noted that the "potential risks to" the target stock price of $31
per ADS "being achieved primarily relates to FDA approval for Antegren."
247. Following the news, Elan 's ADS price closed at $21.96 per ADS on the NYSE, up
$1.39 per ADS, or 6%, from the previous day's closing price of $21.96 per ADS, on trading
volume of 10.5 million shares.
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248. The statements identified above in the August 17, 2004 Press Release were
materially false and misleading when made for the reasons set forth in paragraph 188 above.
249. On September 8, 2004, Morgan Stanley issued another research report entitled
"Still Bullish on Antegren" stating that Morgan Stanley was still bullish because "given
managements' comments at Elan and Biogen Idec, we can't imagine that the [Phase III] data will
disappoint." Morgan Stanley analysts stated that they were "resuming coverage on our favorite
stock." In that research report, Morgan Stanley also predicted Tysabri® sales of $250 million,
$900 million and $1.7 billion in 2005, 2006 and 2007, respectively.
250. On October 20, 2004, Piper Jaffray issued a research report entitled "Antegren
Infuses Us With Bullishness; Initiating With An Outperform." In that research report, Piper
Jaffray characterized Tysabri® as Elan's "potential blockbuster" and the key to returning Elan to
profitability by the end of 2005. Moreover, Piper Jaffray attributed $25 per ADS of the total
estimated $30 per ADS value, or 83%, to Tysabri® alone. In its October 20, 2004 research
report, Piper Jaffray also commented that the combination of fast-tracked approval by the FDA
and results from the Phase II trials, "give us confidence in the drug's uptake." Piper Jaffray
predicted Tysabri® worldwide revenues of $1 billion by 2006.
251. The next day, on October 26, 2006, two days before Elan was scheduled to release
earnings, NCB Stockbrokers Ltd issued a "buy" rating in its report entitled "Q3 Results Preview
- Focus Squarely on Antegren."
252. On October 28, 2004, Defendants issued Elan's third quarter 2004 earnings release
over the Business Wire (the "October 28, 2004 Earnings Release" ) in which they attempted to
offset disclosures of continuing and widening net losses with positive statements about the
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prospects for Tysabri®. Specifically, Defendant Martin stated in the October 28, 2004 Earnings
Release that:
All of our energies are focused on delivering our
science to patients with unmet medical needs.
Today, our emphasis on preparing for a successful
launch of Antegren in multiple sclerosis exemplifies
our commitment to bringing innovative therapies
from the lab to patients around the world.
253. Similarly, Defendant Cooke was quoted as follows:
We continued to report net losses this quarter as we
resolve outstanding legacy issues, streamline the
balance sheet and, most importantly, invest for a
successful launch of Antegren and Prialt. We are
optimistic that the dedication, commitment and
financial resources we have invested in these
products will be reflected in a return to
profitability in the 2006 timeframe . [Emphasis
added]
254. That same day, Defendants held a conference call with analysts during which they
repeated the same material false and misleading statements as those made in the October 28,
2004 Earnings Release concerning the Company's financial results and plans to return to
profitability (the "October 28, 2004 Conference Call")
255. Following Defendants' materially false and misleading statements, Elan shares,
which rose 10% over the previous week on rumors of merger talks with Biogen, rose another
€0.62 per share, or 3.2%, to €20.28 per share on the Dublin exchange.
256. The statements identified above in the October 28, 2004 Earnings Release and
October 28, 2004 Conference Call were materially false and misleading at the time they were
made for the reasons set forth in paragraph 188 above. Defendants' statements were further
materially false and misleading because Defendants had no reasonable basis to state that Elan
could return to profitability from the revenues it would purportedly receive from Tysabri®O sales
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because Tysabri® would not result in significant future revenues for the Company given its
significant undisclosed risks.
257. That same day, the Company issued a news release over the Business Wire in
which it announced that it intended to offer US $850 million in aggregate principal amount of
senior fixed rate notes due 2011 and senior floating rate notes due 2011 in a private placement.
258. Upon the news , analysts applauded Tysabri and estimated significant revenue
figures for Tysabri ®® as follows:
Piper Jaffray 10/28/04 -- issued report entitled
"Antegren Remains the Focus" and estimating
Tysabri® revenues worldwide in 2006 of $1 billion.
Deutsche Bank 10/28/04 -- issued "buy" rating and
noted the importance of Tysabri® to Elan, stating,
"[g]iven the significance of this new product
[Tysabri®] to Elan, FDA approval in MS is
absolutely critical for Elan to return to sustainable
profitability over the next several years...."
Deutsche Bank forecasted revenue from Tysabri®
sales in 2005 of $300 million, noting "Antegren is
potentially positioned to become the therapy of
choice for relapsing-remitting MS, ultimately
reaching combined US and European MS sales of
$2.6 billion in 2009."
Morgan Stanley 10/28/04 -- issued report , entitled
"Uneventful Q3; All Eyes on Antegren," rated Elan
"Overweight" and forecasted Tysabri® revenue of
$251 million, $913 million, $1 .7 billion, $2.5
billion and $2.9 billion in 2005, 2006, 2007, 2008and 2009, respectively.
Davy -- 10/29/04 - issued an Equity Note entitled
"Waiting on Antegren" and stating that "[w]e
continue to believe, in light of the strong Phase II
data and the positive FDA signals to date, that full
approval will be granted to Antegren." Davy
forecasted Elan's share of revenue in 2005 from
Tysabri to be $205 million.
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259. On November 8, 2004, Elan and Biogen issued a joint news release over the
Business Wire (the "November 8, 2004 Press Release") in which they announced that the one-
year data from the Phase III Antegren® (natalizumab) AFFIRM trial "met the primary endpoint
of clinical relapse rate reduction" and that in the international study of 942 patients with
relapsing-remitting multiple sclerosis (RRMS), Tysabri reduced the rate of relapses by 66
percent compared to placebo, a statistically significant result . All secondary endpoints were also
met".
260. In the November 8, 2004 Press Release, Defendants described the Tysabri®
clinical trials, as follows:
The AFFIRM trial is a two-year, randomized, multi-
center, placebo-controlled, double-blind study of
942 patients evaluating the effect of natalizumab
monotherapy on the progression of disability in MS
and the rate of clinical relapses. Secondary
endpoints at one year included the number of new
or newly enlarging T2-hyperintense lesions, the
number of gadolinium-enhancing lesions and the
proportion of patients who were relapse free. To
enroll, patients had to be diagnosed with a relapsing
form of MS and had to have experienced at least
one relapse in the previous year. Patients were
randomized to receive a 300 mg IV infusion of
natalizumab (n=627) or placebo (n=315) once a
month.
***
A second Phase III trial, SENTINEL, is a two-year
randomized , multi-center , placebo-controlled,
double-blind study of approximately 1,200 patients
with relapsing-remitting MS , evaluating the effect
of the combination of natalizumab and AVONEX®
(Interferon beta-1 a) compared with AVONEX alone
on the progression of disability and the rate of
clinical relapses.
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261. With respect to adverse events in the clinical trials, Defendants further represented
that "[s]erious infections occurred in l percent of placebo-treated patients and 2 percent of
natalizuinab-treated patients. Serious hypersensitivity-like reactions occurred in approximately 1
percent of natalizumab-treated patients."
262. In the November 8, 2004 Press Release, Defendants included a statement made by
Burt Adelman, Biogen's Executive Vice President of Development, thereby adopting Dr.
Adelman's statement. Specifically, Dr. Adelman stated:
These data demonstrate that natalizumabdramatically reduced the rate of relapses at one
year," said Burt Adelman, MD, executive vice
president, Development, Biogen Idec. "We believe
natalizumab, with its novel mechanism of action,
has the potential to be a significant step forward in
the treatment ofMS. [Emphasis added]
263. Defendant Ekman echoed Dr. Adelman's sentiments, assuring investors of
Tysabri'sO imminent launch and success:
Natalizumab has the potential to make a realdifference in the lives of MS patients. We areworking closely with regulatory authorities to makenatalizumab available to patients in need as soon aswe can.
264. The reaction to this announcement in the investment community was positive, as
evidenced by an article published the same day on the Bloomberg Wire ("November 8, 2004
News Article"), reporting that "the results, after a year of final-stage tests exceed rates seen in
studies of existing MS treatments," and that:
Elan and Biogen are using the results to back their
U.S. and European applications for the drug, which
may enter the market that Lehman Brothers values
at $5 billion. Biogen, the No. 3 U.S. biotechnology
company, is looking to Antegren as growth slows in
older medicines such as its top-selling Avonex MS
drug. Elan needs a successful product to help return
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to profit after selling about $2 billion in assets topay down debt.
265. In the November 8, 2004 News Article, James Mullen, Biogen's CEO, informed
investors that he "expects Antegren to capture as much as 50 percent of the MS market."
[Emphasis added]
266. The November 8, 2004 News Article applauded the results of the AFFIRM trial
stating that "[t]he 66 percent reduction in relapses exceeds results from an earlier trial which
showed Antegren cut the rate by 50 percent. Results also topped the 30 percent reduction rate of
the interferon medicines."
267. Following Defendants' affirmative misrepresentations, Elan's ADS price closed at
$29.00 per ADS on the NYSE, up $2.50 per ADS, or 9%, from the closing price on November 4,
2006, of $26.50 per ADS, on trading volume of 11.3 million shares. Similarly , on the Dublin
exchange, Elan's shares closed at €22.98 per share, up €2.54 per share, or 12%, from the closing
price on November 4, 2004 of €20.44 per share.
268. The statements identified above in the November 8, 2004 Press Release and
November 8, 2004 News Release were materially false and misleading at the time made for the
reasons set forth in paragraph 188 above.
269. On November 11, 2004, Defendants issued a release over the Business Wire in
which they announced the pricing of the Senior Notes offering by Elan's wholly-owned
subsidiaries, Elan Finance Public Limited Company and Elan Finance Corp., and that Elan had
increased the size of its debt offering from that previously announced of $850 million aggregate
principal amount to $1 .15 billion. On November 17, 2004, the Company reported that the
offering had been completed. As a result of the offering, S&P increased its rating of Elan to B
with a positive outlook and Moody's increased its rating of Elan to B3 with a stable outlook.
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270. On November 17, 2004, Defendants also held a conference call with analysts, in
part, to tout the success of the Tysabri clinical trials and the anticipated market for Tysabri® (the
"November 17, 2004 Conference Call"). Demonstrating the analysts' enthusiasm for Tysabri®,
the session host from Ian & Cowen introduced the Company as follows: "Elan probably can
simply be introduced with one word, and that is Antegren ...." Defendant Ekman responded
that "Elan is not only the Antegren Company, although Antegren is important at this point."
[Emphasis added]
271. During the November 17, 2004 Conference Call, Defendant Martin, again , stressed
Elan's purported superior research and development platform and the significant market for
Tysabri®, stating:
We have three broad focus areas, one isautoimmune, the amount of disease areas in theautoimmune space that still have very significantun-met medical needs are significant, we believenot just with Antegren but with our basic researchtechnology platform, that [t]here are many parts ofthe autoimmune space that we will participate in thefuture.
272. Defendant Martin further stated:
This is the way we at Biogen and Elan look at, the
MS patient flow. The current market today is about
350,000 patients that equates, from a revenue pie
point of view, commercially to something around
$3.5 billion. Furthermore, there's another 100,000
patients roughly that have discontinued treatments .
.. for a number of reasons ...[s]o there is a large
group of patients who [have] discontinued and then
there is even a larger group of patients, many of
whom are in Europe who are currently untreated.
X * *
Europe as all of you know the MS therapy has some
reimbursement to it but by and large the
reimbursement treatment of current MS therapy is
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significantly incomplete in Europe. So there [are]
large groups of patients in Europe who are currently
untreated. In addition to these patients flows there
is also 10-20,000 new patients a year. In the green,
what we've outlined here is Antegren initial
opportunity.
The current markets 350,000 people that's based on
current prices, current price of therapy is
somewhere between $12,000 to $16,000, as far as
gross prices but Biogen and ourselves have said
repeatedly that Antegren will be priced at a
premium to those price ranges. So therefore you
can see, as many analysts have reported, that the
total MS revenue pool over time could grow and it
could grow substantially . If you incorporate the
100,000 patients who are currently untreated but
used to be on treatment, and you accrue [ph] over
time some slice of an increased European patient
population at slightly higher prices, you could come
up with very very large numbers over time and
again with Antegren and with the data and with our
focus on working with the medical community and
patients over time we see this as a very very
significant opportunity for us in delivering what we
think will be terrific product to the patients.
[Emphasis added]
273. In the November 17, 2004 Conference Call, Defendant Cooke, Elan's CFO,
reiterated Defendants' promise to "return to profitability" on an EPS basis by the end of 2006.
274. With respect to specific disclosures regarding Tysabri®, Defendant Ekman
reaffirmed that Tysabri® was "key" to Elan's achieving its stated goals in 2004 and that the
results from Phase III of the Tysabri® clinical trials showed that Tysabri® had "reduced the rate
of relapses by 66%, relative to placebo" and "[a]ll secondary end points were met."
275. The statements identified above in the November 17, 2004 Conference Call were
materially false and misleading when made for the reasons set forth in paragraph 188 above.
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276. On November 23, 2004, the Company announced that the FDA's "Approval of
TYSABRI® Marks A Major Advancement in the Treatment of MS Phase III Trials at One Year
Demonstrate New Level of Efficacy - 66% Reduction in Rate of Relapses Seen in AFFIRM
Monotherapy Trial" (the "November 23, 2004 Press Release"). With respect to Tysabri, the
November 23, 2004 Press Release disclosed that:
TYSABRI, the first humanized monoclonal
antibody approved for the treatment of MS, inhibits
adhesion molecules on the surface of immune cells.
Research suggests TYSABRI works by preventing
immune cells from migrating from the bloodstream
into the brain where they can cause inflammation
and potentially damage nerve fibers and their
insulation.
277. The November 23, 2004 Press Release also quoted James C. Mullen , Biogen's
CEO, as follows:
TYSABRI is a powerful and innovative therapy that
offers new hope for hundreds of thousands of
people living with MS. We believe TYSABRI will
revolutionize the treatment of MS and become the
leading choice for patients and physicians.
[Emphasis added]
278. Defendant Martin echoed Mullen's sentiment as follows:
TYSABRI is a significant breakthrough for patients
with MS. The approval of TYSABRI, with its
unique mechanism of action and new level of
efficacy, has the potential to make a genuine
difference in the lives of patients and families who
struggle with the debilitating effects of this disease.
[Emphasis added]
279. The November 23, 2004 Press Release also provided essentially the same false and
misleading description of the two Tysabri® MS clinical trials as the earlier press releases above.
280. With respect to the safety of Tysabri, Defendants represented that:
SAFETY
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Common adverse events associated with TYSABRI
include headache , fatigue , urinary tract infection,
depression , lower respiratory tract infection, joint
pain and abdominal discomfort . The rate of
infection in both studies was approximately one per
patient -year in both TYSABRI-treated patients and
placebo-treated patients.
Serious infections occurred in 1.3 percent of
placebo-treated patients and 2.1 percent of
TYSABRI-treated patients. Serious infections
included bacterial infections such as pneumonia and
urinary tract infection, which responded
appropriately to antibiotics. TYSABRI has been
associated with hypersensitivity reactions, including
serious systemic reactions, which occurred at an
incidence of less than 1 percent of patients.
281. Like the November 23, 2004 Press Release, the Tysabri package insert that was
provided to patients taking Tysabri made no mention of how severely immunosuppressive
Tysabri really is. For example, the Tysabri package insert contained only the following safety
disclosures:
PRECAUTIONS
Immunosuppression
In Studies I and 2, concomitant treatment of
relapses with a short course of corticosteroids was
not associated with an increased rate of infection.
The safety and efficacy of TYSABRI® in
combination with other immunosuppressive agents
have not been evaluated. Patients receiving these
agents should not receive concurrent therapy with
TYSABRI ® because of the possibility of increased
risk of infections.
ADVERSE REACTIONS
General
The most frequently reported serious adversereactions with TYSABRI® were infections (2.1 %
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versus 1.3% in placebo, including pneumonia[0.6%]), hypersensitivity reactions (1.3%, includinganaphylaxis/anaphylactoid reaction [0.8%]),depression (.08%, including suicidal ideation[0.5%]), and cholelithiasis (0.8%).
282. Similarly, in Table 3 of the Tysabri package insert, Defendants reported infections
such as urinary tract infections and lower respiratory tract infections, but made no mention of
serious, opportunistic infections that had occurred during clinical trials, such as pneumocystis
carinii pneumonia, atypical mycobacterial infections or Burkholderia cepacia pneumonia.
283. The statements identified above in the November 23, 2004 Press Release were
materially false and misleading when made for the reasons set forth in paragraph 188 above.
Moreover, Defendants' statements were further materially false and misleading because
Defendants had no reasonable basis for claiming that the potential market for MS could grow
"substantially ," given the known severe immunosuppressive effects of Tysabri, which, because
of its severe side effects, would likely only be used to treat a small population of patients as a last
resort therapy.
284. On November 24, 2004, Elan and Biogen held a joint conference call with
analysts to discuss the recent FDA approval of Tysabri® (the "Joint November 24, 2004
Conference Call"). During the Joint November 24 Conference Call, James C. Mullen, Biogen's
CEO, described Tysabri® as follows:
This is a great day for people living with MS.
TYSABRI is the first major advance in nearly a
decade, we expect, that it will revolutionize the
treatment for multiple sclerosis. This innovating is
clearly a breakthrough therapy for patients suffering
with MS.
We feel strongly that TYSABRI is the most
powerful treatment ever developed for MS and will
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raise the efficacy bar in the treatment of MS. The
magnitude of the effect for TYSABRI in relapses
and placebo control trials is twice that achieved in
pivotal trials of current therapies .... We certainly
believe that TYSABRI will move quickly in the
first line therapy and become the number one MS
product worldwide. [Emphasis added]
285. With respect to the label, Dr. Gordon S. Francis, M.D., Vice President of
Neurology at Elan, boasted that "[t]he FDA gave us the broadest possible label, there were no
restriction, they specifically said it could be used as monotherapy or as add-on therapy."
286. During the November 24, 2004 Conference Call, Dr. Francis also reassured the
public about the safely of Tysabri®:
I think that's in addition to the very strong efficacy
result that were just described and as important is
that TYSABRI appears to be safe and well
tolerated and have a reassuring safety profile ...
The AFFIRM study fielded the bulk of the safety
information in the package insert and the safety
profile in SENTINEL was similar. [Emphasis
added]
287. In describing the commercialization of Tysabri in the Joint November 24, 2004
Conference Call, Robert Hamm, Biogen's Senior Vice President of Immunology Business Unit,
described the expected Tysabri® market as follows:
The SENTINEL trial as you referred demonstrates
the benefit of adding TYSABRI , a new therapy with
the different mechanism of action onto the current
standard of care, which is AVONEX. We believe
this will result in expanding the market. There are
approximately 350,000 patients with relapsing
forms of MS in the US today. About 190,000
patients on therapy, which represents a penetration
of approximately 55%. But after a decade of
available treatment , many patients remain untreated
and that ' s due to the high unmet need, which means
the current therapies are partially effective , require
frequent injections and many patients are intolerant
of the side effect profile . TYSABRI meets these
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needs with a new way to fight MS with great
efficacy data, dosing every 4 weeks, and with a
good tolerability and safety profile. This growth
comes from bringing back the quitters. We estimate
that over 50,000 patients in the US have left
therapy, and another 50,000 worldwide. TYSABRI
will be first-line for new patients and TYSABRI
willpick up switchersfrom all current therapies.
In summary ... [t]he goal is for TYSABRI to be the
number one MS product worldwide, and we are
very confident the MS franchise will continue to
grow. [Emphasis added]
288. When asked during the Joint November 24, 2004 Conference Call to provide
some clarity regarding the marketing strategy of Tysabri, Defendants engaged in the following
exchange:
Q: Sohan Handia: [M]y question relates to the fact
that you did say that you were going to have sort of
one sales force for promoting AVONEX as well as
Antegren. Can you just comment what sort of the
marketing message is going to be? Are you going
to stress the results from the SENTINEL trial, can
you please provide some clarity on that?
A: James Mullen : Our goal is for TYSABRI to be
the number I product in MS, and we will be
stressing the advantage of TYSABRI AS
MONOTHERAPY. However, as I indicated there
is portion of population that's quite satisfied with
the AVONEX treatment today and we don't want
to lose sight of servicing them and we want to stress
the fact that for certain patients that are not well
controlled today adding TYSABRI is a very viable
option for physicians . [ Emphasis added]
289. When asked about disclosure relating to immunosuppression on the Tysabri label
as it related to use of Tysabri in combination with Avonex it , Defendants downplayed the
dangers of Tysabri and attributed the lack of disclosures to a lack of data, which, unbeknownst to
the public, Defendants did have as a result of the numerous warnings discussed above, including
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adverse events reporting serious opportunistic infections and deaths caused by Tysabri® therapy.
Dr. Adelman engaged in the following exchange during the Joint November 24, 2004
Conference Call:
Lehman Brothers Q: [T]he section of the package
insert referring to immunosuppression and any
comment that patients ... who do not receive
concurrent therapy because of the possibility of
increased risk of infection. Can you elaborate on
that?
Burt Adelman A: That really reflects the lack of
data at the moment on that... So, you know, I think
this is an appropriate warning at the moment in light
of the data that are available, but I think over the
nextfew years that the language there will
hopefully change as we better understand the
value ofadding those 2 products and adding those
two products and TYSABRI and other
immunodulators. [Emphasis added]
290. Another similar exchange went as follows:
Prudential Q: I took interest in the label and drug
interactions that when you use the drug together, I
guess, AVONEX reduces TYSABRI clearance by
about 30% and it seems to do so without any real
safety ramifications. I guess in my mind that raises
all kinds of intriguing dose - related questions and
the one I'll ask is, with the higher dose interferon
products might you see even a higher reduction in
clearance and might that actually be a positive?
James Mullen A: Interesting question. This is an
observation and barely outside of the conventional
limits of the bioequivalent being that, you can say 2
products are bioequivalent if their pharmacokinetic
profile is plus or minus about 20% to 25%. So, the
30% number with an arrow curve around it is barely
outside of the conventional bioequivalent limits,
and therefore, I am not sure exactly how to even
interpret those data ... And we'll be doing some
additional work indirectly around some of the issues
you suggest because we are certainly going to try to
help physicians and patients understand how to add
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this product on to any of the existing therapies or
how to transition from one existing therapy to
TYSABRI.
291. At the end of the November 24, 2004 Conference Call, Defendant Kelly Martin
again reemphasized that "the unmet medical need is significant and TYSABRI will help meet
that significantly and grow the marketplace both in the US, in Europe , and potentially other parts
of the world very significantly over the near term."
292. Later that morning, on November 24, 2004, Elan held its own, separate
conference call with analysts, reiterating the successes of Tysabri (the "Second November 24,
2004 Conference Call"). Specifically, Defendant Martin stated:
We believe [Tysabri] will be a top line therapy for a
disease that has a very high unmet medical need.
The future growth in the marketplace is substantial
both in the US and particularly in Europe, so we are
very excited with where we are and we are very
pleased with the partnership with Biogen and the
collaborative effort we have to get to this point and
the future is very significantly great. [Emphasis
added]
293. During the Second November 24, 2004 Conference Call, Defendant Martin
reiterated Defendants' promise that Elan would return to profitability by the end of 2006 "and
that would obviously include ANTEGREN ....
294. Analysts applauded Defendants' success in getting Tysabri approved with only
one-year's worth of data, particularly with such a broad label. For example, on November 24,
2004, ING stated that "[t ] he approval of Tysabri together with the label they have received
reaffirms our belief that Tysabri will transform the MS market." Moreover, ING noted of
particular importance, the fact that "the safety profile of the drug looks as good as expected."
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295. The statements identified above in the Joint November 24, 2004 Conference Call
and Second November 24 Conference Call were materially false and misleading when made for
the reasons set forth in paragraph 188 above.
296. On December 8, 2004, JP Morgan stated in a report that "[t]he results were
extremely encouraging and support our belief that Tysabri will quickly become the #1 treatment
for MS."
297. On January 6, 2005, Defendants held another conference call with analysts to
primarily discuss the status of Tysabri (the "January 6, 2005 Conference Call"). During that call,
Defendant Martin reiterated the same statements as in prior calls regarding the significant market
for Tysabri®, stating:
The two hardest things in the equation areidentifying patients that have a significant unmetmedical need. Arguably if you look at the entireMS population and how it's treated in a movementwithin different therapies and the significant amountof patients who are still untreated or unsatisfiedwith treatment, the unmet medical need is clear in
our view. TYSABRI , given the results on the data
is obviously going to be a very, very significant
therapy in the treatment of those things.
[Emphasis added]
298. On January 11, 2005, Defendants held another conference call with analysts,
touting the success and safety of Tysabri (the "January 11, 2005 Conference Call"). Specifically,
during the January 11, 2005 Conference Call, Defendant Martin reiterated the results of the
mono-therapy and combination therapy trials and commented on the safety of Tysabri, stating:
"[TJlze safety data is as impressive as the efficacy data. Highlight on three things, TYSABRI
appears to be with all that we see, safe and very well tolerated. Serious infections, 1.3% rate in
placebo versus 2.1 % for Tysabri trials, no opportunistic infections ." [Emphasis added]
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299. The statements identified above in the January 6, 2005 Conference Call and
January 11, 2005 Conference Call were materially false and misleading for the reasons set forth
in paragraph 188 above. Moreover, Defendants' statements were further materially false and
misleading because Tysabri was not, as Defendants represented, "safe and well tolerated' and,
as alleged herein, there were numerous reported serious opportunistic infections and not "no"
opportunistic infections.
300. On February 7, 2005, Dr. Daniel Pelletier of the University of California, San
Francisco, admitted a Tysabri® trial subject to the hospital with what purportedly appeared to be
a brain infection. The patient had weakness on one side, slurred speech and cognitive
impairment. While other neurologists said the symptoms could be caused by multiple sclerosis,
Dr. Pelletier said these symptoms were not typical of MS. Dr. Pelletier further stated that he
immediately informed Biogen that the symptoms were not typical of MS but rather, PML.
However, Elan and Biogen did not at that time, or for three weeks thereafter, disclose the
incident to the investing public. Moreover, Defendants have now admitted that this patient
began exhibiting signs of PML as early as October 2004. See ¶¶ 312-13, 315 below.
301. On February 8, 2005, Defendants issued a news release in which they announced
Elan's financial results for the fourth quarter and year ended December 31, 2004, provided
updated guidance, and highlighted the purportedly successful launch of Tysabri® (the "February
8, 2005 Earnings Release''). In the February 8, 2005 Earnings Release, Defendant Martin touted
Elan's annual financial results and performance of Tysabri®, declaring:
2004 was an extraordinary year for Elan, with two
Elan innovations, Tysabri for multiple sclerosis and
Prialt for severe chronic pain, approved in the US,
with both therapies advancing in the regulatory
process in Europe. For 2005, we look forward to
continued growth across the Tysabrifranchise,
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working with our collaborator Biogen Idec;
continued clinical progress in the Alzheimer's
immunotherapy program in collaboration with
Wyeth; ongoing advancements in our strategic
pipeline; and disciplined investment aligned to our
core therapeutic areas of autoimmune diseases and
neurodegenerative diseases. Our company and our
people remain steadfastly focused on our
commitment to discover and deliver novel
therapeutic approaches for patients with significant
unmet medical needs - and to bring sustainable
growth and value creation to our shareholders.
[Emphasis added]
302. Commenting on Elan's fourth quarter and year-end 2004 financial results,
Defendant Cooke echoed Defendants Martin's positive statements as follows:
2004 has proven to be a transitional year for Elan;
we reduced losses by 33% to $0.96 per share;
experienced double digit growth in revenues from
our remaining business; completed the repositioning
of our business and balance sheet with continued
disciplined and focused investment in our core
therapeutic areas; expanded our organization in
targeted areas by recruitment of key talent to
execute the successful launch of Tysabri and
Prialt; and we significantly strengthened ourfinancial position completing a $1 billion plus bondoffering. While it is early days, the initial take-upsince launch of Tysabri is exceeding all ourexpectations and we remain optimistic that we willreturn to profitability by the end of2006.[Emphasis added]
303. In the February 8, 2005 Press Release, Defendants provided earnings guidance as
follows:
2005 Outlook
Financial
Elan is providing guidance as to the potential
financial outcome for 2005, excluding the impact of
potential revenues from Tysabri and the impact of
expensing stock options. Tysabri was approved in
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the U.S. as a treatment for all forms of relapsing
remitting MS in late November 2004. While Elan
expects Tysabri to become the market leader in
this indication it is too early in the launch to give
revenue guidance for this product. However, on
the basis of the initial take-up, Elan is optimistic
of a return to profitability by the end of2006.
x*^
Elan will record all of the U.S. sales of Tysabri in
revenue and will share the gross profit with Biogen
Idec. Elan's gross profit on Tysabri revenue is
expected to be in the range of 30% to 35%.
[Emphasis added]
304. On that same day, Elan held its fourth quarter 2004 conference call with analysts
(the "February 8, 2005 Conference Call"), repeating the same false and misleading statements as
those contained in their February 8, 2005 Press Release concerning the Company's financial
results. During the February 8, 2005 Conference Call, Defendant Cooke reaffirmed that he
"recognize[d] ... that Tysabri will have a very significant impact on our financial results for
2005... and assured investors that Elan "remain[ed] optimistic that we will return to profitability
by the end of 2006."
305. The statements identified above in the February 8, 2005 Earnings Release and
February 8, 2005 Conference Call were materially false and misleading for the reasons set forth
in paragraph 188 above. Moreover, Defendants' statements were also materially false and
misleading because Defendants' future earnings guidance lacked any reasonable basis in fact in
light of Tysabri' s® known risks.
306. The next day, on February 9, 2005, Piper Jaffray rated Elan an "outperform"
stating its rationale was because "we believe the Tysabri trajectory is on track to meet or exceed
our expectations in 2005...." On February 10, 2005, analyst Davy reiterated its financial
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forecast for Elan, based on Defendants' public statements, affirming that "we still agree with
management guidance that Elan can achieve profitability towards the end of 2006."
307. On February 17, 2005, Defendants announced the results of the two-year
"monotherapy" trial of Tysabri® (i.e., Tysabri without Avonex) claiming that the results
demonstrated that Tysabri® has a "significant impact on disability progression and Relapse Rate
in Multiple Sclerosis" and that the adverse event trial was "consistent with previous results" (the
"February 17, 2005 Press Release")
308. With respect to the clinical trials, the February 17, 2005 Press Release stated, in
relevant part:
AFFIRM monotherapy trial achieved the two-year
primary endpoint of slowing the progression of
disability in patients with relapsing forms of
multiple sclerosis (MS). TYSABRI treatment led to
a 42 percent reduction in the risk of disability
progression relative to placebo. These data also
demonstrated a 67 percent reduction in the rate of
clinical relapses over two years, which was
sustained and consistent with the previously
reported one-year results.
Other data from AFFIRM at two years, including
MRI measures and immunogenicity were similar to
previously reported results.
The adverse event profile at two years was also consistent
with previously reported results. Common events included
headache, fatigue, urinary tract infection, depression,
lower respiratory tract infection, limb andjointpain, and
pharyngitis. The incidence of infections in TYSABRI-
treated andplacebo-treated patients was similar. Serious
infections occurred in 3.2 percent and 2.6 percent of
patients, respectively. These included bacterial infections
such as pneumonia and urinary tract infection, which
responded appropriately to antibiotics. TYSABRI has
also been associated with hypersensitivity reactions,
including serious systemic reactions that occurred at an
incidence of less than I percent ofpatients.
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TYSABRI, with its significant effect on slowing the
progression of disability, offers new hope for
patients with MS," said Burt Adelman, MD,
executive vice president, Development, Biogen
Idec. "With these data, we gain a more complete
understanding of the broad therapeutic benefit of
TYSABRI in MS. [Emphasis added]
309. According to Defendant Ekman, "[r]esults from the two-year monotherapy
clinical trial mark a major milestone in the treatment of MS. These two-year data strengthen
our belief that TYSABRI will become the leading therapy for MSpatients." [Emphasis added]
310. The February 17, 2005 Press Release further described the Tysabri® clinical trials
as follows:
AFFIRM is a two-year, randomized, multi-center,
placebo-controlled, double-blind study of 942
patients conducted in 99 sites worldwide, evaluating
the effect of TYSABRI on the progression of
disability as measured by the Expanded Disability
Status Scale (EDSS) and the rate of clinical
relapses. Patients were randomized to receive either
a 300 mg IV infusion dose of TYSABRI (n=627) or
placebo (n=315) every four weeks.
Based on one-year data from AFFIRM and the
SENTINEL add-on trial with AVONEX®
(Interferon beta-I a), the U.S. Food and Drug
Administration (FDA) granted Accelerated
Approval for TYSABRI on November 23, 2004, as
a treatment for relapsing forms of MS.
311. The statements identified above in the February 17, 2005 Earnings Release were
materially false and misleading for the reasons set forth in paragraph 188 above. Moreover, the
statements made in the February 17, 2005 Press Release were further materially false and
misleading because Defendants knew that, in addition to the other opportunistic infections that
occurred, as discussed above, two patients had developed symptoms consistent with PML and
Tysabri would never "become the leading therapy for MS patients" and rather would only be, at
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best, a last resort therapy for MS patients who had failed all other therapies and whose disease
was progressing relentlessly.
Two Tysabri Patients Are Diagnosed With PML
312. Defendants have stated that they purportedly became aware that one patient in the
MS SENTINEL trial taking Tysabri® (combination therapy of Tysabri with Avonex) had been
diagnosed with PML and that there was another suspected case of PML in a patient taking
Tysabri® in the same clinical trial , on February 18, 2005. An internal memorandum from
Biogen and Elan to physicians participating in the Tysabri clinical trials dated February 28, 2005
(the "February 28, 2005 Internal Memo"), however, sets forth a markedly different timeline.
According to the February 28, 2005 Internal Memo , the two patients in the MS clinical trials who
developed PML, a "46-year-old female" and a "46-year-old male," showed neurological
problems as early as October 2004.
313. The February 28, 2005 Internal Memo further explained that the 46-year-old
female was hospitalized on February 12, 2005 where she underwent an MRI that "suggested a
differential diagnosis that included PML." A review of this patient's autopsy report revealed that
the patient actually began experiencing PML symptoms in October 2004, right around the time
Defendants were expecting to receive FDA approval of Tysabri®. The autopsy report further
revealed that, consistent with the February 28, 2005 Internal Memorandum , the patient's PML
symptoms had worsened by December 2004 and that the patient's MRI of the brain showed
lesions that were atypical of MS and were, in fact , typical of PML.
314. Moreover, according to CS 9, the 46 year-old patient's brain contained more JC
virus than this witness had ever seen in a PML patient. CS 9 has been researching JC virus and
PML for approximately twenty-five years. Indeed, according to CS 9, this patient's brain was
loaded with the JC virus.
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315. With respect to the second patient, a 46-year-old male, the February 28, 2005
Internal Memo disclosed that, in December 2004 , the patient "developed slow thinking , slurred
speech and cognitive dysfunction ...." which, as discussed above, are symptoms consistent with
PML, such as impaired cognition and difficulty thinking. Moreover, according to a New
England Journal ofMedicine article dated June 9, 2005, this patient began exhibiting symptoms
of PML in October 2004 when the patient was found to have atypical frontal lesions. The article
further reported that, by November 2004, this patient 's physician noted "uncharacteristic,
inappropriate behavior during a routine study visit'" and, by December 2004, "new MRI lesions
were seen consistent with PML," at which point dosing of Tysabri was terminated by the
attending physicians in a desperate attempt to restore the patient's immune system as the only
possible treatment for presumptive PML.
316. Moreover, Dr. Adelman later admitted at an SG Cowen Annual Healthcare
Conference held on March 16, 2005, that, with respect to the two reported PML cases "it is very
clear thatfrom the signs and the symptoms the PML related symptoms started much earlier
than when the diagnosis was made. " Dr. Adelman further admitted, with respect to the second
PML case, that while "[t]he other case ...got this diagnos[is] much faster , [] the prudent action
was not taken ." [Emphasis added]
317. Defendants similarly acknowledged at the March 2006 FDA Hearing that,
consistent with the February 28, 2005 Internal Memo and biopsies, the two PML patients began
experiencing PML symptoms in October 2004 (FDA Tr., 150), right about the time Defendants
were expecting to receive FDA approval of Tysabri®. Yet Defendants concealed these serious
adverse events from the public and the FDA.
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VII. THE TRUTH BEGINS TO EMERGE
318. At 7:59 a.m. on February 28, 2005, prior to the opening of trading, Elan and
Biogen , in a joint press release, announced their "Voluntary Suspension of TYSABRF" and that
they had "suspended dosing in all clinical trials" (the "February 28, 2005 Press Release"). The
February 28, 2005 Press Release stated, in relevant part:
This decision is based on very recent reports of twoserious adverse events that have occurred in patientstreated with TYSABRI in combination withAVONEX® (interferon beta-1 a) in clinical trials.
These events involve one fatal, confirmed case and
one suspected case of progressive multifocal
leukoencephalopathy (PML), a rare and frequently
fatal, deinyelinating disease of the central nervous
system . Both patients received more than two years
of TYSABRI therapy in combination with
AVONEX.
The companies ' actions have been taken in
consultation with U.S. Food and Drug
Administration (FDA). Worldwide regulatory
agencies are being kept informed.
The companies will work with clinical investigators
to evaluate TYSABRI-treated patients and will
consult with leading experts to better understand the
possible risk of PML. The outcome of these
evaluations will be used to determine possible re-
initiation of dosing in clinical trials and future
commercial availability.
319. Defendants ' suspension of Tysabri required them to alert medical professionals,
and, accordingly, Defendants sent a "Dear Healthcare Professional" letter to physicians that same
day, signed by Defendant Ekman and Burt Adelman of Biogen, advising physicians of the
Company's decision to suspend sales of the drug, indefinitely . See Tysabri® website, available
at www.tysabri.com.
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320. Later that morning, Defendants held a conference call with analysts to discuss the
suspension of Tysabri® (the "February 28, 2005 Conference Call"), during which Defendant
Martin stated: "the fact that we have one adverse event ... is something that we are taking very
seriously with Biogen." Despite Defendants' knowledge of the numerous serious adverse events
and deaths that occurred during the Tysabri® clinical trials (as described above) Defendant
Martin, in a desperate attempt to salvage Tysabri's® blockbuster potential, denied the occurrence
of virtually any adverse events, let alone serious opportunistic infections, stating: "It/here's
been no adverse events in Crohn 's, in RA, for the course ofseveral years. " [Emphasis added]
Moreover, according to Defendant Martin:
To date, we have had no issues or no signals in anyof the monotherapy MS trials. We have had nosignals, no issues currently in any of the Crohn'strials. And we have certainly had none in the RAtrials.
321. During the February 28, 2005 Conference Call, Defendant Martin admitted that
Elan and Biogen had conducted an extensive review of the Tysabri® clinical trial data, declaring:
"[w]e have had 3.5 to 4 years worth of data that has been reviewed extensively by ourselves and
Biogen . . . ." [Emphasis added]
322. With respect to PML, Defendant Ekman explained that PML "primarily affects
immune-compromised patients" and that "90 percent of the patien[ts] with PML are AIDS
patients." As discussed above, the Stuve Study found that Tysabri diminishes the immune-
system in the CNS to that of a patient with AIDS.
323. When asked during the February 28, 2005 Conference Call by analyst Ian Hunter
of Goodbody Stockbrokers about when Defendants first knew that there were signs of PML in
the two patients diagnosed with PML, Defendant Martin flatly denied knowledge of any adverse
event until February 18, 2005, stating "from notification of the first adverse event to the decision
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between ourselves and Biogen and the FDA was a matter of days, 4 or 5 days." Despite this
statement, Defendants would later admit at the March 2006 FDA Hearing that they knew that
these patients showed signs of PML as far back as October 2004. As discussed above,
Defendants' knowledge is corroborated by several accounts from confidential sources.
324. As a result of Defendants ' announcement that they were withdrawing Tysabri®O
from the market, Elan's ADSs plummeted , erasing approximately $7.5 billion, or 70% of its
market value in only one day. Elan 's ADSs fell $18.90 per ADS on the NYSE, or 70%, to close
at $8.00 per ADS, trading on unusually high volume of 167 million shares, nearly twenty-nine
times the average trading volume during the Class Period and the highest trading volume in
Elan's history. Elan's stock also tumbled on the Dublin Exchange, falling €13.81 per share, or
68%, to close at €6.49 per share. Kevin McConnell, head of research for Bloxham Stockbrokers
in Dublin described it as "a major body-blow for Elan." Jennifer Chao, an analyst for Deutsche
cut her rating of Elan from "buy" to "sell."
325. Similarly, approximately $9.6 billion dollars of Biogen's shareholder value was
erased on February 28, 2005, leaving Biogen with market capitalization of only $13 billion.
Biogen shares plunged 42.5 percent, falling $28.63 per share to close at $38.65 per share on
trading volume of 118 million shares, more than thirty times the average daily trading volume
during the Class Period. Notably, this was nearly four times the highest trading volume in
Biogen 's history.
326. Comparatively, on that same day, the S&P 500 Index decreased only 2.6% and
the S&P Biotechnology Index increased 1.7%.
327. Neither Elan's nor Biogen's stock prices have returned to their previous Class
Period highs.
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328. Following Defendants' announcement on February 28, 2005 withdrawing
Tysabri®, analysts quickly downgraded Elan's ADS value. For example, Deutsche Bank
lowered the target price by two-thirds from $28 per ADS to $9 per ADS. According to
Citigroup, "we believe that Elan is worth more than $12.00 with Tysabri but little more than
$1.00 without it."
329. On March 1, 2005, a New York Times article cited Dr. Lawrence Steinman a
leading MS expert and the co-inventor of Tysabri®, as calling the PML deaths an
"unfortunately logical" result given that Tysabri® works by suppressing the immune system.
According to Dr. Steinman , as he previously warned on numerous occasions , Tysabri® should
not have been approved based upon only one year's data. Dr. Steinman was quoted in the article
as stating: "I'm shocked that it happened so soon, but I knew it was going to happen sooner or
later ." [Emphasis added] The New York Times article reported that, according to Dr. Steinman,
he had expressed his apprehensions about Tysabri® in speeches and in a July 2004 article in the
journal Science and was asked by Biogen executives to "tone down criticisms of the drug."
[Emphasis added]
330. Similarly, The New York Times ran an article from Dublin under the headline
"Elan Shares Fall After A Drug Is Withdrawn" in which it described the impact of the disclosure
on Elan:
To a company that spent three years recovering
from a crippling accounting scandal, Tysabri had
looked like the ticket to its resurgence.
The Elan Corporation, which developed Tysabri
with Biogen Idec, had looked to the drug, a multiple
sclerosis treatment, to catapult it into the ranks of
the world's top biotechnology companies. Since the
drug's introduction in November, Tysabri had
shown the patient response, and earnings potential,
that would make it a blockbuster.
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Instead, Elan's stock plunged 68 percent Mondaywhen the company withdrew Tysabri from themarket after a patient's death. Elan shares fell to6.49 Euros ($8.59) in Dublin, and dragged the smallIrish stock exchange's benchmark index down 6percent with it.
"It's a major body-blow for Elan," said KevinMcConnell, head of research for BloxhamStockbrokers in Dublin. "The question is, will wesee Tysabri back?"
Elan's current portfolio in the United Statesincludes just three products -- two intravenousantibiotics and a newly approved treatment forchronic pain. For several years, Elan has conductedresearch into Alzheimer's disease in a partnershipwith Wyeth, but that is far from yielding amarketable treatment.
That near-death experience humbled a company thathad previously dominated the Irish stock exchange.
Before Tysabri's withdrawal, Elan was the fourth-
largest company traded in Dublin by market
capitalization, representing more than 9 percent of
the value of the whole exchange; it fell to around 3
percent on Monday.
The steep tumble in its shares "has a huge
psychological impact, but people quickly realize
that it's not an economic story," Mr. McConnell
said.
331. A March 1, 2005 Wall Street Journal article described PML as a "devastating"
disease and reported that, contrary to analysts' expectations of Tysabri® "quickly becom[ing] a
blockbuster with annual sales of over $2 billion within a couple of years," there is "a lower
market potential" than originally thought.
332. Meanwhile, analysts continued to cut their ratings of Elan securities. On March 1,
2005 JP Morgan announced it was "cutting estimates" and Goodbody downgraded Elan to
"reduce."
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333. As the market digested the news, Elan's ADSs continued to tumble, dropping
$1.29 per ADS on the NYSE, or 16.2% on March 3, 2005 to close at $6.65 per ADS , on trading
volume of 98.7 million shares.
VIII. POST CLASS-PERIOD EVENTS
A. The Aftermath
334. On March 4, 2005, an article issued on Bloomberg L.P. reported that the second
suspected PML case had been confirmed. Upon the announcement, Elan's ADSs closed at $5.71
per ADS on the NYSE, down $.94 per ADS, or 14% from the previous day's closing price of
$6.65 per ADS, on trading volume of approximately 104.6 million shares, more than sixteen
times the normal average daily trading volume during the Class Period. Similarly, on the Dublin
Exchange, Elan's share price closed at €4.80 per share, down €0.77 per share, or 13% from the
previous day's closing price of €5.57 per share.
335. Following the Company's announcement, analysts predicted that if Tysabri®
returned to the market, sales would be substantially less than Defendants previously represented.
For example, a March 4, 2005 Boston Herald article predicted that "if "Tysabri® returns to the
market, "it will be a much meeker performer than the $4 billion blockbuster" Elan and Biogen
had promised investors (the "March 4, 2005 Boston Herald Article"). Accordingly, the March 4,
2005 Boston Herald Article reported that the following analysts had reduced their Tysabri®
revenue estimates: (i) Eric Schmidt, an analyst for SG Cowen Securities Corp., estimated
Tysabri®O revenues would be between $300 million and $500 million; (ii) Merrill lynch reduced
its estimated Tysabri® revenues to $1.4 billion from $ 3.1 billion , assuming Tysabri would only
be used in patients who do not improve on other treatments; (iii) Goodbody Stockbrokers
estimated Tysabri® sales as low as $350 million in 2009 versus his original forecast of $2
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billion ; and (iv ) Morgan Stanley cut sales Tysabri® sales estimates to $1.2 billion from $1.7
billion.
336. Moreover, according to the March 4, 2005 Boston Herald Article, several analysts
slashed their ratings of Elan. Specifically, of the seven analysts cited in this article, three issued
"buy" ratings, two issued "hold" ratings and two issued "sell" ratings. Piper Jaffray analyst
Deborah Knobelman expressed concerns that Elan would be unable to pay down its $2.5 billion
in debt.
337. On March 9, 2005, the Los Angeles Times published an article providing specifics
with respect to the infection rate associated with Tysabri and adding that FDA officials lacked
sufficient information about Tysabri's long-term effects. The article stated, in relevant part:
In hundreds of pages of documents that offered the
first detailed look at the FDA's handling of the
drug, reviewers noted that Tysabri appeared more
effective than existing drugs, reducing relapses in
patients by 66%, based on one year's data. The
reviewers said it was `reasonably likely' that the
drug would provide long-term benefits.
Nonetheless, the agency's drug reviewersacknowledged they were unsure about Tysabri'slong-term effects.
The clinical meaningfulness of a decrease in theincidence of relapses at one year is uncertain.
FDA reviewers found that Tysabri had anacceptable safety profile, though they noted thathealth risks beyond one year are not known.
Infections, including urinary and respiratory, were
seen with Tysabri, but they were `generally routine
and did not have a complicated course.'
Stanford University professor Dr. LawrenceSteinman, an MS specialist, had warned there was aclear risk of infection for patients taking such drugs,
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because they tend to suppress the body's immune
system.
Steinman had helped discover the active agents in
the drug, but later became concerned about potential
side effects, and is working on a competing drug.
He noted that the infection rate of Tysabri patients
in one tri al was 2.1 %, compared with l .3% in the
placebo group.
`There were hints of an increase in the infection
rate,' said Steinman . The FDA should have dug
deeper. [Emphasis added]
338. On March 31, 2005, before the market opened, the Boston Globe reported that a
third patient had diedfromn PML back in December 2003 . As reported by the Boston Globe,
the third case of PML resulted from a patient taking Tysabri® in the Crohn's disease trials, who
was previously misdiagnosed in June 2003 with malignant astrocytoma, a kind of brain cancer.
The patient reportedly had taken eight doses of Tysabri® over an 18-month period. Unlike the
two patients previously diagnosed with PML who were taking Tysabri® in combination with
Avonex®, the Crohn's disease patient had previously taken other immunosuppressive drugs but
had ceased doing so eight months prior to developing PML. Thus, this cast doubt on suspicions
that Tysabri®, taken with Avonex®, caused the PML and rather indicated that Tysabri® itself
was the real culprit.
339. Indeed, a healthcare strategist at New York-based Miller Tabak & Co., Les
Funtleyder, reportedly described the third confirmed case of PML as a "death blow" particularly
given that the patient was taking Tysabri 12 as a monotherapy , rather than in combination with
Avonex®, as in the other two PML-related deaths. [Emphasis added]
340. In reaction to the news, on March 31, 2005, analysts again slashed their ratings of
Elan. Deutsche Bank, ING and Canaccord cut their ratings to "sell," Morgan Stanley cut its
rating to "underweight " and Piper Jaffray downgraded Elan to "market perform." Analysts
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viewed the third PML death as highly damaging for Elan because Elan was counting on Tysabri
to return the Company to profitability.
341. An analyst for A.G. Edwards wrote in a research report on March 31, 2005 that
"[a]bsent Tysabri, we believe Elan effectively belongs to its debt holders ." Moreover, some
Wall Street analysts speculated that: We think it is unlikely that [Elan] will have the resources to
overcome a complete Tysabri failure."
342. Upon the announcement of the third case of PML, Elan's ADSs lost more than
half of their value, dropping $3.90 per ADS on the NYSE, or 56% to close at $3.08 per ADS, on
trading volume of 157.9 million shares . Elan's shares similarly plummeted on the Irish
Exchange, closing at €2.40 per share, down € 3.10 per share, or 56% from the previous day's
closing price of €5.5 per share. Elan's shares had lost 90% of their value since Tysabri was
withdrawn from the market on February 28, 2005.
343. Following the withdrawal of Tysabri, Elan and Biogen announced that the
companies had become the subject ofan ongoing investigation by the SEC into whether any
violations of the federal securities laws occurred in connection with the suspension of marketing
and commercial distribution of Tysabri. Specifically, in Elan' s annual report on Form 10-K for
the year-ended December 31, 2004 (the "2005 10-K") filed with the SEC on April 11, 2005, Elan
revealed:
In March 2005, we received a letter from the SEC
stating that the SEC's Division of Enforcement is
conducting an informal inquiry into actions and
securities trading relating to us. The SEC's inquiry
primarily relates to events surrounding the February
28, 2005 announcement of the decision to
voluntarily suspend the marketing and clinical
dosing of Tysabri.
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The SEC investigation continues to probe the Defendants' lack of disclosure to investors
concerning the life-threatening effects of Tysabri and its extremely limited marketability.
344. The SEC also filed a settlement enforcement action against Thomas Bucknuin,
Executive Vice President and General Counsel of Biogen, for violating the federal securities
laws when Bucknum sold 89,700 shares ofBiogen stock, reaping approximately $1.9 million in
proceeds from such sale on February 18, 2005, after learning that day at a meeting with other
Biogen senior officers that a patient taking Tysabri in the clinical trials had been diagnosed with
PML. Shortly thereafter, on March 9, 2005, Bucknum entered into a settlement agreement with
the SEC to pay $3 million in disgorgement, interest andpenalties and prohibiting Bucknuin
from serving as an officer or director ofa public companyforfive years.
345. On June 3, 2005, Elan's shares fell another $0.69 per ADS on the NYSE, or 9
percent, after a.fourth possible PML case was reported.
346. On July 21, 2005, the Boston Globe reported that the family of one of the PML
victims who died in February 2005 filed a wrongful death suit against Defendants alleging that
Elan and Biogen knew of the potential dangers associated with taking Tysabri® "yet recklessly
proceeded with tests in clinical trials" (the "Wrongful Death Suit"). Moreover, the Wrongful
Death Suit alleges that Elan and Biogen did not disclose the dangers and risks of Tysabri to the
patient . In further effort to keep Defendants ' knowledge of the serious risks posed by Tysabri
and the truth about when Defendants knew that Tysabri caused PML, Elan and Biogen entered
into a multi-billion dollar settlement to settled the Wrongful Death Suit, prior to any discovery
being taken.
347. A Boston Globe article, dated August 11, 2005, provided an update on the
screening of patients who took Tysabri® in the MS trials and noted no new cases of PML.
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Nevertheless, analysts and physicians reportedly remained skeptical. For example, Dr. Aaron
Miller, Chief Medical Officer of the National Multiple Sclerosis Society and Medical Director at
Corinne Goldsmith Dickinson Center for Multiple Sclerosis in New York told the Boston Globe
that he thought it would be reasonable to use Tysabri ®® only "in patients who are seriously ill
and are not responding to other therapies ." [Emphasis added] Similarly, analysts stated that
"because of the higher risks associated with the drug, Tysabri may be reservedfor much
smaller subsets ofMS patients" and that Tysabri "would most likely be used for patients who
haven't responded to existing therapies and those,for whom the treatments no longer provide
significant benefits." [Emphasis added]
348. On September 26, 2005, Elan and Biogen reported that they had submitted their
supplemental biologics license application ("sBLA") to the FDA for Priority Review. The sBLA
contained a substantially more detailed and a stricter warning label and limited distribution than
that initially submitted. Elan disclosed its risk management plan as follows:
completion of final two-year data from the
Phase III AFFIRM monotherapy trial and
SENTINEL add-on trial with AVONEXOO
(Interferon beta-1 a) in MS;
integrated safety assessment of patientstreated with Tysabri previously in clinicaltrials; and
revised label and risk management plan.[Emphasis added]
349. According to Elan and Biogen, they planned to submit a similar data package to the
European Medicines Agency. In an October 2005 Reuters-Summit news article, Dr. Adelman
stated that Elan and Biogen were developing a package insert label for Tysabri that would
adequately explain potential risks of the drug, especially for patients who might already be
"immune-compromised." Dr. Adelman also disclosed that Biogen was advocating creating a
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"registry of patients taking Tysabri" to track the safety of the medication and identify others who
were in danger of developing PML. According to Dr. Adelman, a registry of patients would
"slow the process down and ... make people think twice" about taking Tysabri®O . Dr. Adelman
predicted the demand for Tysabri would be "much more modest" if and when Tysabri® became
available.
350. On November 17, 2005, the FDA accepted Elan and Biogen's sBLA.
351. On February 15, 2006, Elan and Biogen announced that the FDA had removed the
hold on Tysabri®O clinical trials in the U.S. The companies reported that they "expect to begin an
open label, multi-center safety extension study of TYSABRI monotherapy in the U.S. and
internationally in the coming weeks. Patients who previously participated in the Phase III MS
program are eligible for entry."
352. On February 28, 2006, Piper Jaffray reported on a survey that they conducted
involving 140 neurologists (27% of whom prescribed Tysabri®), which revealed that only 59%
of neurologists thought Tysabri® should return to the market. According to the doctors
surveyed, they only expected to prescribe Tysabri® to 10% of their patients. Approximately
57% of those doctors believed Tysabri'sOO effectiveness was only worth the risk of opportunistic
infections, such as PML, with patients who have not responded to other MS drugs and only 6%
would use Tysabri®O as a first -line therapy on newly diagnosed patients.
353. Upon the news, on February 28, 2006, Elan's ADSs fell $1.25 per share on the
NYSE, or 8 %, to close at $12.70 per ADS. Similarly, Elan common shares fell €0.51 per share
on the Dublin Exchange, or 4.4%, to close at €11.19 per share.
354. On March 7-8, 2006, an FDA Advisory Committee met to hear Elan and Biogen's
revised safety plan and vote on whether Tysabri® should be returned to the market in any
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capacity. The FDA Advisory Panel unanimously recommended reintroduction of Tysabri for
treatment in relapsing forms of MS in a 12-0 vote on March 8, 2006. The Panel , however, voted
7-5 to leave to the physicians, the decision for which MS patients to prescribe Tysabri®.
355. Investors were delighted with the FDA Advisory Panel ' s recommendation to return
Tysabri® to the market. Trading was suspended during the two-day FDA hearing. On March 9,
2006, however, the day following the FDA's announcement, Elan's shares rose $2.70 per ADS
on the NYSE, or 20%, to close at $15.80 per ADS. Elan's 7.75% note maturing in 2001 rose
$0.325 to $0.9625 on the dollar.
356. On April 28, 2006, Elan announced that a drug advisory panel to the European
Union recommended that Tysabri® should be approved only for patients with the severest
disease or those who have not been helped by other treatments.
B. The FDA Approves Tysabri® To Re-Enter
The Market With Restricted Distribution
357. On June 5, 2006, the FDA announced that it "approved an application for resumed
marketing of Tysabri (natalizumab) subject to a special restricted distribution program."
[Emphasis added] The final FDA approval was far more restrictive than the recommendations of
the FDA Advisory Panel that reviewed Biogen and Elan's request to return Tysabri® to the
market on March 7-8, 2006. Specifically, the FDA approval restricted use of Tysabri® to use as
only a monotherapy and not in combination with other drugs. Moreover, the FDA recommended
use of Tysabri® as a salvage therapy for "patients who have not responded adequately to, or
cannot tolerate, other treatments for MS."
358. As a condition of allowing Tysabri® back on the market, the FDA required the
drug to carry the FDA's strictest black-box warning label and that Tysabri© be available only
under a restricted distribution program. The drug would also be subject to a comprehensive
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safety and risk management plan and the strictest measures to monitor the side effects of
Tysabri®.
359. The main features of the risk management plan, called the TOUCH (Tysabri
Outreach Unified Committee to Health) Prescribing Plan, consisted of the following:
• Significantly revised labeling with prominent black-box warning of the
risk of PML and warning against concurrent use with chronic
immunosuppressive or immunomodulatory therapies or in patients who
are immunocompromised;
• Tysabri® will only be prescribed, distributed, and infused by prescribers,infusion centers, and pharmacies registered with the program;
• Tysabri® will only be administered to patients who are enrolled in theprogram;
• Prior to initiating the therapy, health care professionals are to obtain thepatient's MRI scan to help differentiate potential future multiple sclerosissymptoms from PML;
• Mandatory FDA review of educational tools for patients and physicians,
including a patient medication guide, TOUCH enrollment form, and a
monthly pre-infusion checklist;
• Patients on Tysabri® are to be evaluated at 3 and 6 months after the firstinfusion and every 6 months after that, and their status will be reportedregularly to Biogen and Elan; and
• A 5,000 patient cohort observational study, which will be performed overfive years, called the Tysabri® Global Observation Program in Safetystudy.
360. The new Tysabri® label, obtained from the FDA website, contains the following
prominent black-box warning:
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WARNING
TYSABRI® increases the risk of progressive multifocalleukoencephalopathy (PML), an opportunistic viral infection of the brainthat usually leads to death or severe disability.Although the cases of PML were limited to patients with recent or
concomitant exposure to immunomodulators or immunosuppressants, there
were too few cases to rule out the possibility that PML may occur with
TYSABRI® monotherapy.
Because of the risk of PML, TYSABRIOO is only available through a special
restricted distribution program called the TOUCHTM Prescribing Program.
Under the TOUCHTM Prescribing Program, only prescribers, infusion
centers, and pharmacies associated with infusion centers registered with the
program are able to prescribe, distribute, or infuse the product. In addition,
TYSABRI® must be administered only to patients who are enrolled and
meet all conditions of the TOUCHTM Prescribing Program (see
WARNINGS, Progressive Multifocal Leukoencephalopathy, and
Administration Program for TYSABRI®).
Healthcare professionals should monitor patients on TYSABRI® for any
new sign or symptom that may be suggestive of PML. TYSABRI® dosing
should be withheld immediately at the first sign or symptom suggestive of
PML. For diagnosis, an evaluation that includes a gadolinium-enhanced
magnetic resonance imagine (MRI) scan of the brain and, when indicated,
cerebrospinal fluid analysis for JC viral DNA are recommended (see
CONTRAINDICATIONS and WARNINGS, Progressive Multifocal
Leukoencephalopathy)
361. Tellingly, the WARNINGS and ADVERSE REACTIONS sections of the label
now contain warnings about specific serious opportunistic infections, such as PML, herpes virus
infections, cryptosporidial gastroenteritis, pneumocystis carinii pneumonia, pulmonary
mycobacterium avium intracellular, bronchopulmonary aspergillosis, and Burkholderia cepacia
infection , which were not contained in the original label for Tysabri® approved in November
2004. These opportunistic infections are the very same infections that occurred during the
Tysabri® clinical trials.
362. Moreover, the label included an extensive discussion of PML and the three
confirmed cases of PML. Under the heading "Immunosuppression," the new label, unlike the
original label, contains the following warnings:
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Immunosuppression
The immune system effects of TYSABRI® may
increase the risk for infections . In Study 1, certain
types of infections, including pneumonias and
urinary tract infections (including serious cases),
gastroenteritis , vaginal infections , tooth infections,
tonsillitis , and herpes infections occurred more
often in TYSABRI®-treated patients than in
placebo -treated patients (see WARNINGS,
Progressive Multifocal Leukoencephalopathy
(PML); and ADVERSE REACTIONS , General
Infections). One opportunistic infection, a
cryptosporidial gastroenteritis with a prolonged
course was observed in a patient who received
TYSABRI® in Study 1.
Concurrent use of antineoplastic,immunosuppressant, or immunomodulating agents
may further increase the risk of infections, including
PML and other opportunistic infections, over the
risk observed with use of TYSABRI® alone (see
BOXED WARNING; WARNINGS, Progressive
Multifocal Leukoencephalopathy (PML); and
ADVERSE REACTIONS, Infections). The safety
and efficacy of the prior label did not disclose that
TYSABRI® in combination with antineoplastic,
immunosuppressant, or immunomodulating agents
have not been established.
Page 136 of 153
Concurrent use of short courses, of corticosteroids was associated withincrease in infections in Studies I and 2. However, the increase ininfections in TYSABRI®-treated patients who received steroids wassimilar to the increase in placebo -treated patients who received steroids.
363. In July 2006, Tysabri® was re-introduced to the market for commercial
consumption, with substantial restrictions on its use and availability.
364. According to a June 5, 2006 Wall Street Journal article, "[t]he prospects of using
Tysabri with other MS treatments was a major reason the drug was originally thought to have
huge sales potential . Analysts now have dimmer expectations ." A June 6, 2006 article in Global
Insight echoed The Wall Street Journal article, predicting that the severe restrictions imposed on
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Tysabri® "look set to significantly dampen sales of Tysabri" particularly recognizing that the
impact was "likely to prove a greater problem for Elan than Biogen. Elan is more dependent on
Tysabri sales to improve its operating outlook ...." [Emphasis added]
365. Upon the news, investors expressed their disappointment in the limited approval of
Tysabri as essentially a last resort therapy with a significantly smaller market than Defendants
had promised. Elan's ADSs dropped $2.46 per ADS on the NYSE, or nearly 13%, to close at
$16.52 per ADS. On the Dublin exchange, Elan's shares closed at €12.06 per share, down €2.70
per share, or 18%, from the previous business day's closing price of €14.76 per share.
366. Following the FDA's announcement, analysts sharply cut their ratings of Elan.
Merrill Lynch, Citigroup Investment, and Canaccord Adams all issued a "sell" recommendation,
while Deutsche Bank, A.G. Edwards & Sons, and Merrion Stockbrokers issued "hold"
recommendations.
367. Moreover, analysts also reduced their future Tysabri® revenue estimates, well
below their original forecasts of $3.1 billion by 2009. For example, Christopher Raymond of
Robert W. Baird & Co. estimated Tysabri sales of several hundred million per year, much less
than that originally estimated in the billions. Similarly, Geoffrey C. Purges of Sanford C.
Bernstein & Co. estimated sales of only $35 million in 2006, rising to $946 million by 2008, and
RBC Capital Markets analyst Jason Kantor estimated U.S. Tysabri® sales of only $36 million,
$439 million and $806 million in 2006, 2007 and 2008, respectively.
368. While presenting an overview of Tysabri® at a meeting with fellow researchers on
June 19, 2006, Biogen 's Burt Adelman conceded that Biogen and Elan had not sufficiently
focused on the safety of Tysabri®, stating: "We have to make sure we fully understand the
mechanism of action that we're dealing with, and what the potential upsides and downsides of
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that mechanism are." According to Dr. Adelman, more preclinical testing should be required.
As discussed above, neurologists such as Dr. Miller had previously recommended that Biogen do
just that and perform additional animal studies to fully determine Tysabri's® safety profile. Yet,
Defendants did not heed Dr. Miller's earlier warnings or advice concerning the risks of Tysabri.
369. On June 29, 2006, Elan and Biogen announced that "Tysabri was approved by
European regulators for patients with the severest cases of [MS]." Similar to the FDA, the
European Union also said that Tysabri® could be used by patients who haven't been helped by
older treatments."
370. In light of the FDA's limitations on the use of Tysabri®, analysts remain doubtful
of its revenue potential . For example, a July 26, 2006 DataMonitor article, entitled
"Elan/Biogen Idec: Tysabri Back on the Shelves; Elan and Biogen Idec's Multiple Sclerosis
Drug Tysabri Has Returned to the Market," reported that forecasts for future Tysabri sales have
"plummeted ." Moreover, according to DataMonitor, "it appears that, despite its efficacy, the
safety concerns shrouding Tysabri are likely to have bulldozed its marketpotential
indefinitely."' [Emphasis added] Similarly, a July 26, 2006 Market Watch article reported that,
according to Citigroup analyst Elise Wang, "'[w]e continue to expect a relatively slow ramp-up
in sales for Tysabri ...."'
371. Since reapproval by the FDA in June 2006, Tysabri® sales have been minimal.
For the third quarter ended September 30, 2006, Elan reported net revenue from Tysabri sales in
the U.S. of $5.4 million and negative net revenue from Tysabri sales in Europe of $5.7 million.
372. Moreover, according to one analyst at Piper Jaffray, Deborah Knobelman, the
feedback that she has received from physicians, thus far (November 2006), has shown that the
prescription rates of Tysabri® were slower than she had anticipated in the U.S. because of safety
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concerns, reimbursement procedures, and patient-monitoring requirements. Accordingly,
Knobelman slashed her estimate for worldwide Tysabri®O sales to just $21 million for 2006,
down from her previous estimate of $123 million, a decrease of 83%.
373. As demonstrated herein, Tysabri is not, and was never going to be, the blockbuster
drug that Defendants promised investors throughout the Class Period.
IX. CAUSATION ALLEGATIONS
374. Elan 's common stock was traded on the London and Dublin stock exchanges and
on the NYSE in the form of ADSs at all relevant times . As described above, Defendants'
material misrepresentations and omissions had the effect of creating and maintaining an
artificially inflated price for Elan' s securities . Those misrepresentations and omissions that were
not immediately followed by an upward movement in the Company's stock price served to
maintain the share price at artificially inflated levels by maintaining and supporting the false
public perception of Elan's business, operations, performance and prospects, and particularly of
Tysabri® as a purported "blockbuster" drug.
375. Defendants had a duty to disseminate promptly accurate and truthful information
with respect to Elan's financial and operational condition and to cause and direct that such
information be disseminated and to promptly correct any previously disseminated information
that was misleading to the market. As a result of their failure to do so, the prices of Elan's
securities were artificially inflated during the Class Period. The price fell upon the ultimate
disclosure of the truth, damaging Lead Plaintiffs and the Class.
376. Defendants' false and misleading statements and omissions in their press releases
and other public statements directly caused losses to the Class. On the strength of these false
statements, misrepresentations and material omissions in its press releases, announcements and
other public statements concerning its financial condition, the Company's securities were
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artificially inflated to a Class Period high of $30.45 per ADS on November 15, 2004, and
remained artificially inflated until the end of the Class Period. Thereafter, the ADS value fell to
$7.90 per ADS on February 28, 2005, thereby inflicting substantial damages on Lead Plaintiffs
and the Class.
377. Until shortly before Lead Plaintiffs filed their Complaint, they were unaware of all
of the facts, as described herein, and could not have reasonably discovered the Defendants'
fraudulent scheme by the exercise of reasonable diligence.
X. DEFENDANTS ACTED WITH SCIENTER
378. As alleged herein, Defendants acted with scienter in that Defendants knew or
recklessly disregarded that the public statements and documents issued and disseminated in the
name of the Company were materially false and misleading when made, knew or recklessly
disregarded that such statements or documents would be issued or disseminated to the investing
public, and knowingly and substantially participated or acquiesced in the issuance and
dissemination of such statements or documents as primary violators of the federal securities
laws.
379. Defendants had the opportunity to commit and participate in the wrongful conduct
complained of herein. Each was a senior executive officer and/or director of Elan and thus
controlled the information disseminated to the investing public in the Company's press releases,
SEC filings and communications with analysts. As a result , each could falsify the information
that reached the public about the Company's business and performance. With respect to non-
forward looking statements and/or omissions, Defendants knew and/or recklessly disregarded the
false and misleading nature of the information that they caused to be disseminated to the
investing public.
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380. Throughout the Class Period, each of the Individual Defendants acted intentionally
or recklessly participated in and orchestrated the fraudulent schemes alleged herein to conceal
the true risks associated with Tysabri' s® and the resulting serious opportunistic infections and
deaths that occurred during the Tysabri RO clinical trials to obtain fast-track approval of Tysabri® ,
with the hope of returning Elan to profitability.
A. Defendants Directly Participated In, And/Or Had Direct KnowledgeOf Or Recklessly Disregarded The Numerous Warnings And EvidenceOf The Severe Immunosuppressive Effects Of Tysabri® And ResultingSerious Opportunistic Infections And Deaths
381. Elan is Ireland's fourth largest biotechnology company and Biogen is the third-
largest American biotechnology company. Working together, these two companies were world-
wide leaders in the biotech industry. As alleged herein, throughout the Class Period, Defendants
acted intentionally or recklessly disregarded numerous warnings and red flags identifying the
severe risks and resulting debilitating effects that Tysabri had on a patient ' s immune system,
leaving patients vulnerable to serious, often life-threatening, opportunistic infections.
382. As alleged herein, the Individual Defendants knew or recklessly disregarded at
least the following facts, alerting them to the dangers of Tysabri®: (i) Tysabri®, by its very
nature because of the way it worked, was an immunosuppressive drug that exposed patients to
serious opportunistic infections ; ( ii) animal studies indicated that Tysabri® was potentially a
highly immunosuppressive drug; ( iii) publications in scientific and medical journals warned of
Tysabri's® severe immunosuppressive effects; (iv) Defendant Kelly and James Mullen spoke
regularly about issues concerning Tysabri; (v) pursuant to the Collaboration Agreement, Elan
and Biogen held safety committee meetings discussing issues concerning Tysabri®, including
adverse events and deaths that occurred during the Tysabri® clinical trials ; ( vi) senior Elan
officials attended scientific meetings where top scientists discussed the serious and inherent risks
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of Tysabri®; and (vii ) numerous serious opportunistic infections that had already occurred in
patients participating in Tysabri® clinical trials. Indeed, as discussed above , Defendants were
well aware of, or recklessly disregarded, the serious opportunistic infections that occurred during
clinical trials because the majority of the MS trials and the Crohn's Disease trials were
completed by January 2004. Thus, these studies were unblinded and Defendants were aware of
their results by that time.
383. Defendants were further aware of, or recklessly disregarded, the serious
opportunistic infections that occurred during the clinical trials through admittedly closely
monitoring the Tysabri® clinical trials in accordance with the Collaboration Agreement.
Moreover, as discussed above, several confidential sources confirmed Defendants" knowledge
and concern of the true risks of Tysabri® before the Class Period began. In light of the
foregoing, Defendants were aware of, or recklessly disregarded that Tysabri® was unlikely to
contribute to Elan's revenues and earnings to the extent they had led the market to believe.
B. Defendants Were Motivated To
Commit The Fraud Alleged Herein
1. The Individual Defendants Were Motivated To Commit
The Fraud Alleged Herein To Enable Them To Target
A Larger MS Market And Return Elan To Profitability
384. As alleged herein, the survival of Elan's business was dependant upon the
successful launch of Tysabri® as a blockbuster drug to capture its share of a purportedly $4
billion MS market and return the Company to profitability.
385. Elan had previously suffered a number of devastating setbacks in 2002 and 2003,
immediately preceding the Class Period, including being forced to withdraw its potential
blockbuster Alzheimer's drug from the market, as well as shareholder and SEC lawsuits,
mounting debt levels and consecutive quarters of negative cash flows and negative profitability.
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Thus, on the brink of bankruptcy and desperately in need of a new blockbuster drug to save its
business , Elan divested itself of $2 billion worth of assets to focus substantially all of its
resources on developing and marketing Tysabri® -- the only drug in Elan's pipeline that had the
potential to become a blockbuster drug and Defendants' only hope of returning the Company to
profitability.
386. Moreover, anything short of Tysabri® becoming a blockbuster drug would
jeopardize the continued existence of Elan as well as Defendants' salaries and bonuses.
Therefore, the success of Tysabri® was crucial to the operating health of Elan and ensuring the
maximum financial benefit to the Defendants.
387. Accordingly, Defendants engaged in the fraudulent acts alleged herein to enable
Elan to capture a much larger market for Tysabri® than would otherwise be possible if they
disclosed the numerous risks and resulting serious opportunistic infections and deaths that had
occurred during the Tysabri® clinical trials, which would undoubtedly have resulted in the
black-box warning the Tysabri® label has today. Indeed, Defendants knew that if they publicly
disclosed the true immunosuppressive effects of Tysabri, the market for the drug would be only a
fraction of what Elan needed to return the Company to profitability.
388. Thus, as described above, Defendants knew or recklessly disregarded the true risks
of Tysabri®, but failed to publicly disclose them in hopes of obtaining a large portion of the MS
market.
2. The Individual Defendants Were Motivated To
Commit The Fraud Alleged Herein To Successfully
Consummate An Offering Of Senior Notes
389. As a result of several consecutive unprofitable quarters and years of negative cash
flows, Elan, desperately in need of cash to enable the Company to continue funding the
development and marketing of Tysabri®, pay down the Company's enormous debt load and
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cover cash flow shortfalls, consummated a $1.15 billion offering of Senior Notes. Elan executed
the offering on November 17, 2004, offering senior notes consisting of $850 million aggregate
principal amount of 7 3/% Senior Fixed Rate Notes due 2011 and $300 million aggregate
principal amount of Senior Floating Rate Notes due 2011, guaranteed by Elan and certain of Elan
subsidiaries.
390. According to Defendant Cooke in a Press Release dated November 22, 2004:
"[w]ith this offering completed, we can now focus all of our energies on executing the launch of
Antegren."
391. By engaging in the fraud alleged herein, Defendants were able to use the cash
obtained in the offering to pay down high debt levels and continue to fund the development and
marketing of Elan's purported new wonder drug, Tysabri®, meanwhile concealing the true risks
of Tysabri® from investors and the FDA.
392. Moreover, using the proceeds from the offering, Defendants were able to pay down
the Company's debt and avoid an otherwise imminent bankruptcy.
3. Defendants Were Motivated To Commit The Fraud
Alleged Herein To Maximize Their Year-End Bonuses
393. Defendants were further motivated to artificially inflate the value of the
Company's stock, through the fraudulent scheme alleged herein , to maximize their annual
bonuses, which were based, in part, on the Company's financial performance.
394. According to the 2003 20-F, the Leadership Development and Compensation
Committee is responsible for determining "the compensation, terms and conditions of
employment of the chief executive officer and other executive directors and [] review[ing] the
recommendations of the chief executive officer with respect to the remuneration and terms and
conditions of employment of our senior management."
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395. According to the Company's compensation policy (disclosed in the 2003 20-F),
executive directors are compensated according to, among other things, the Company's overall
performance. Components of an executive's compensation package include basic salary and
benefits, annual cash incentive bonuses, pensions and participation in stock option plans. The
basic salary component is based upon personal performance, company performance and market
practice. Annual bonuses are based upon individual and companypeiformance.
396. For the period ended December 31, 2003, Defendant Martin received a cash bonus
of $800,000, more than 100% of his annual salary of $702,854 that year. Similarly, Defendant
Martin also received his full potential cash bonus in 2004 of approximately $900,000, which he
waived in exchange for 200,000 stock options at an exercise price of $7.47 per share, with an
estimated value of $900,000, presumably in anticipation that the price of Elan's securities would
increase substantially once Tysabri was introduced to the market.
397. Although the Company's policy for compensating officers, including Defendant
Cooke, was not disclosed publicly, it is likely that since Defendant Martin received one hundred
percent of his bonus, Defendants Cooke and Ekman similarly received the same, given the
purported successful launch of Tysabri®.
398. By marketing Tysabri® as the Company's next blockbuster drug and forecasting
substantial future revenues from Tysabri Ii without any reasonable basis, Defendants caused
Elan's securities to be artificially inflated throughout the Class Period. Accordingly,
Defendants' improper conduct allowed them to meet performance targets and receive their full
bonuses.
XI. FRAUD ON THE MARKET ALLEGATIONS
399. At all relevant times , the market for Elan securities was an efficient market for the
following reasons, among others:
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(a) Elan's ADSs were listed and actively traded on the NYSE and Elan
common shares were actively traded on the Dublin and London Stock Exchanges, all highly
efficient markets. Moreover , during the relevant period, Elan had approximately 388,695,832
shares issued and outstanding worldwide.
(b) As a registered and regulated issuer of securities , Elan filed periodic
reports with the SEC, in addition to the frequent voluntary dissemination of information
described in this Complaint.
(c) Elan regularly communicated with public investors through established
market communication mechanisms, including through regular dissemination 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;
(d) Elan was followed by at least sixteen different securities analysts
employed by major brokerage firms, including JP Morgan, Lehman Brothers, Morgan Stanley,
Merrill Lynch, Piper Jaffray & Co., Smith Barney Citigroup and Goodbody (European analyst),
who followed Elan's business and wrote reports, which were distributed to the sales force and
customers of their respective brokerage firms. Those reports were publicly available and
affected the public marketplace.
400. As a result of the above, the market for Elan securities promptly digested current
information with respect to the Company from all publicly available sources and reflected such
information in Elan's securities' prices. Under these circumstances, all purchasers of Elan
securities during the Class Period suffered similar injury through their purchase of securities at
prices which were artificially inflated by the Defendants' misrepresentations and omissions.
Thus, a presumption of reliance applies.
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XII. NO STATUTORY SAFE HARBOR
401. The statutory safe harbor for certain forward- looking statements does not apply to
the misrepresentations and omissions alleged in this Complaint . Many of the statements were
not specifically identified as "forward-looking statements" when made. To the extent that there
were any properly identified forward-looking statements, there were no meaningful cautionary
statements identifying the important then-present factors that could, and did, cause actual results
to differ materially from those in the purportedly forward-looking statements . Alternatively, to
the extent that the statutory safe harbor does apply to any forward-looking statement pleaded
herein, Defendants are liable nonetheless because at the time each of the misrepresentations was
made, the particular speaker(s) knew that the statement was false or misleading at that time,
and/or the forward-looking statement was authorized and/or approved by an executive officer of
Elan who knew that the statement was false when made.
402. Any warnings or other cautionary language contained in the press releases and
other public statements described herein were generic, "boilerplate" statements of risk that would
affect any similar company, and misleadingly contained no factual disclosure of any of the
problems with the Company which placed the ability of the Company to accurately depict its
own financial situation into serious question . As such, any forward-looking statements
complained of herein were not accompanied by meaningful cautionary language.
403. Any relevant purported risk disclosures were, in fact, false and misleading in and
of themselves, by virtue of the fact that the events which the risk disclosures purported to warn
against as contingencies had frequently already become a reality or a certainty.
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COUNT I
Violations Of § 10(b) Of The Exchange Act AndRule IOb-5 Promulgated Thereunder Against All Defendants
404. Lead Plaintiffs incorporate by reference and reallege all preceding paragraphs as
though fully set forth herein.
405. During the Class Period, Defendants used the means and instrumentalities of
interstate commerce, the mails, and the facilities of national securities exchanges to: (i) deceive
the investing public, including Lead Plaintiffs and other Class members, as alleged herein; (ii)
artificially inflate and maintain the market price of Elan securities; and (iii) cause Lead Plaintiffs
and other members of the Class to purchase Elan securities at artificially inflated prices that did
not reflect their true value. As the truth became known at the end of the Class Period, the trading
price of Elan securities fell precipitously. In furtherance of their unlawful scheme, plan, and
course of conduct, Defendants took the actions set forth herein.
406. Defendants, individually and in concert, directly and indirectly, by the use of
means and instrumentalities of interstate commerce, the mails, and the facilities of national
securities exchanges: (a) employed devices, schemes, and artifices to defraud; (b) made untrue
statements of material fact and omitted to state material facts necessary in order to make the
statements made, in the light of the circumstances under which they were made, not misleading;
and (c) engaged in acts, practices, and a course of business which operated as a fraud and deceit
upon the purchasers of the Company's securities, in violation of § 10(b) of the Exchange Act and
Rule I Ob-5 promulgated thereunder. All Defendants are sued as primary participants in the
wrongful and illegal conduct charged herein. The Individual Defendants are also sued as
controlling persons of Elan, as alleged below.
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407. The Individual Defendants' primary liability , and controlling person liability, arises
from the following facts, among others: (i) the Individual Defendants were high-level executives
and directors at the Company during the Class Period; (ii) the Individual Defendants were privy
to and participated in the creation, development, and reporting of the Company's internal
budgets, plans, projections and reports; and (iii) the Individual Defendants were aware of the
Company's dissemination of information to the investing public they either knew, or recklessly
disregarded, was materially false and misleading.
408. Defendants had actual knowledge of the misrepresentations and omissions of
material facts set forth herein, or acted with reckless disregard for the truth in that they failed to
ascertain and to disclose such facts, even though such facts were readily available to them.
Defendants' material misrepresentations and omissions were done knowingly, or recklessly, and
for the purpose and effect of concealing the truth with respect to Elan's operations, business,
performance, and prospects from the investing public and supporting the artificially inflated
price of its securities.
409. The dissemination of the materially false and misleading information and failure to
disclose material facts, as set forth above, artificially inflated the market price of Elan's
securities during the Class Period. In ignorance of the fact that the market prices of Elan's
securities were artificially inflated, and relying directly or indirectly on the materially false and
misleading statements made by Defendants, or on the integrity of the market in which the
securities trade, or on the absence of material adverse information that was known to or
recklessly disregarded by Defendants but not disclosed in public statements by Defendants
during the Class Period, Lead Plaintiffs and other members of the Class purchased Elan
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securities during the Class Period at artificially high prices. As the truth eventually emerged, the
price of Elan securities fell.
410. At the time of said misrepresentations and omissions , Lead Plaintiffs and other
members of the Class were ignorant of their falsity, and believed them to be true. Had Lead
Plaintiffs and other members of the Class and the marketplace known the truth with respect to
the business, operations, performance, and prospects of Elan, which was concealed by
Defendants, Lead Plaintiffs and other members of the Class would not have purchased Elan
securities or would not have purchased such securities at the prices they paid.
411. By virtue of the foregoing, Defendants have violated § 10(b) of the Exchange Act,
and Rule I Ob-5 promulgated thereunder.
412. As a direct and proximate result of Defendants' wrongful conduct, Lead Plaintiffs
and other members of the Class suffered damages in connection with their transactions in the
Company's securities during the Class Period.
COUNT 11
Violations of § 20(a) Of The Securities ExchangeAct Of 1934 Against The Individual Defendants
413. Lead Plaintiffs repeat and reallege each and every allegation contained above as
though fully set forth herein.
414. Each of the Individual Defendants acted as a controlling person of Elan within the
meaning of § 20(a) of the Exchange Act, as alleged herein. By virtue of their high-level
positions, participation in and/or awareness of the Company's operations and/or intimate
knowledge of the statements filed by the Company with the SEC and disseminated to the
investing public, the Individual Defendants had the power to influence and control and did
influence and control, directly or indirectly, the decision-making of the Company, including the
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content and dissemination of the various statements Lead Plaintiffs contend are materially false
and misleading . The Individual Defendants were provided with or had unlimited access to
copies of the Company's reports, press releases, public filings, and other statements alleged by
Lead Plaintiffs to be misleading prior to and/or shortly after those statements were issued and
had the ability to prevent the issuance of the statements or to cause the statements to be
corrected.
415. In particular, the Individual Defendants had direct and supervisory involvement in
the day-to-day operations of the Company and, therefore, are 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.
416. As set forth above, Elan and the Individual Defendants each violated § 10(b) and
Rule I Ob-5 by their acts and omissions as alleged in this complaint. By virtue of their positions
as controlling persons, the Individual Defendants are also liable pursuant to § 20(a) of the
Exchange Act. As a direct and proximate result of Defendants ' wrongful conduct, Lead
Plaintiffs and other members of the Class suffered damages in connection with their purchases of
the Company' s securities during the Class Period.
WHEREFORE , Lead Plaintiffs pray for relief and judgment on behalf of
themselves and the Class:
a) Determining that this action is a proper class action and certifying Lead
Plaintiffs as Class representatives under Rule 23 of the Federal Rules of Civil Procedure;
b) Awarding compensatory damages in favor of Lead Plaintiffs and the other
Class members against all Defendants, jointly and severally, for all damages sustained as a result
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of Defendants' wrongdoing, in an amount to be determined at trial, including pre-judgment and
postjudgment interest, as allowed by law;
c) Awarding Lead Plaintiffs and the Class their costs and expenses incurred
in this action, including counsel fees and expert fees; and
d) Such other and further relief as the Court may deem just and proper.
JURY DEMAND
Lead Plaintiffs hereby demand a trial by jury.
Dated: February 16, 2007
ENTWISTLE & CAPPUCCI LLP
Xiucci (VC-6864)
Stephen D. Oestreich (SD-8933)
Robert N. Cappucci (RC-2193)
Shannon L. Hopkins (SH-1887)
280 Park Avenue, 26th Floor WestNew York, New York 10017Telephone : (212) 894-7200Facsimile: (212) 894-7272
MILBERG WEISS & BERSHAD LLP
(f' ll G
7Sanford P. D ain (SD-8712)Richard Weiss (RW-9265)Ann E. Gittleman (AG-8367)
One Pennsylvania Plaza
New York, New York 10119-0165Telephone: (212) 594-5300Facsimile: (212) 868-1229
Co-Lead Counselfor Plaintiffs
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CERTIFICATE OF SERVICE
1, Vincent R. Cappucci, hereby certify that on this 16th day of February 2007, 1 caused
true and correct copies of the foregoing CONSOLIDATED CLASS ACTION COMPLAINT
FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS to be served upon defense
counsel listed below via Federal Express, overnight delivery.
Vincent R. C%app`uA( (VC-6864)
ENTWISTLE & CAPPUCCI LLP
280 Park Avenue, 26th Floor West
New York, New York 10017
Telephone: (212) 894-7200
Facsimile: (212) 894-7272
Defendants' Counsel:
SHEARMAN & STERLING LLPJaculin AaronPanagiotis Katsambas
599 Lexington Avenue
New York, New York 10022Tel: (212) 848-4000Fax: (212) 848-7179
DECHERT LLP
Frances S. Cohen
200 Clarendon Street
27"' Floor
Boston, Massachusetts 02116-5021
Tel: (617) 728-7100
Fax: (617) 426-6567
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