files.” - pronai shareholder litigation
TRANSCRIPT
\OOO\lO\
1o
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
COTCHETT, PITRE & MCCARTHY LLP MARK C. MOLUMPHY (SBN 168009) [email protected] ALEXANDRA P. SUMMER (SBN 266485) [email protected] STEPHANIE D. BIEHL (SBN 306777) [email protected] TAMARAH P. PREVOST (SBN 313422) [email protected] 840 Malcolm Road, Suite 200 Burlingame, California 94010 Telephone: (650) 697-6000 Facsimile: (650) 697—0577
FILES.” SAN MATEG eon. my
JAN 1 6 2015 .1 I ,
Lead Counsel and Attorneys for Plaintifi" Timothy Gallas
[Additional Counsel on Signature Page]
SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF SAN MATEO
IN RE PRONAI THERAPEUTICS, INC. SHAREHOLDER LITIGATION
This Document Relates To: ALL ACTIONS
Lead Case No. 16CIV02473
CLASS ACTION
CONSOLIDATED COMPLAINT FOR VIOLATIONS OF SECTIONS 11 AND 15 OF THE SECURITIES ACT OF 1933
DEMAND FOR JURY TRIAL
. 16—ClV—02473 _\
CONE 1 Consolidated Complaint ‘ 9256
_11IIll!UMHIIHIMHWIHIII
CONSOLIDATED COIVIPLAINT
19$“ 5: d Q\ W3?
flak.
U]
\OOO\10\
10‘
ll 12
13
14
15
. 16
17
18
19
20
21
22
23
24
25
26
27
28
TABLE OF CONTENTS Page
I. NATURE OF THE ACTION .................................................................................................... 2
II. JURISDICTION AND VENUE ................................................................................................ 5
III. PARTIES ................................................................................ '..~ ............................................. 6
A. Plaintiffs ................................................................................................................................ 6
B. Defendants .................................................................... '
......................................................... 6
1. ProNAi ..... A
............................................................................. g
............................................ 6
2. The Individual Defendants ................................................................................................ 6
3. The Underwriter Defendants ............................................................................................. 7
IV. SUB STANTIVE ALLEGATIONS ....................................................................................... 8
A. Background ........................................................................................................................... 8
B. The Company’s Phase 1 PNT225 8 Clinical Trial ................. - .............................................. 1 1
C. The Company’s Phase 2 PNT2258 Clinical Trial ............................................................... 13
D. The Company’s Wolverine Trial ......................................................................................... 15
E. The Company’s False and/or Misleading IPO Registration Statement ............................... 20
F. Post-IPO Events ......................................................................................................... 26
G. Disclosures Subsequent to the [PO ..................................................................................... 31
V. CLASS ACTION ALLEGATIONS ........................................................................................ 35
VI. CAUSES OF ACTION .................................................. .................................................... 36
FIRST CAUSE OF ACTION ,
Violation of Section 11 of the Securities Act .................................................................. 36
SECOND CAUSE OF ACTION Violation of Section 15 of the Securities Act .................................................................. 37
VIII. , DEMAND FOR JURY TRIAL ........................................................................................... 38
1
CONSOLIDATED COMPLAINT
\000\]O'\
1o
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Plaintiffs Timothy Gallas and Christopher Book (“Plaintiffs”), by and through their
attorneys, allege the following based upon information and belief, except as to those allegations
concerning Plaintiffs, which are alleged upon personal knowledge. Plaintiffs’ information and
belief is based upon, among other things, their counsel’s investigation, which includes, without
limitation: (a) review and analysis of regulatory filings made by ProNAi Therapeutics, Inc.
(“ProNAi” or the “Company”) with the United States Securities and Exchange Commission
(“SEC”); (b) review and analysis of press releases and media reports issued by, disseminated by, or
regarding ProNAi; and (c) review of other publicly-available information concerning ProNAi.
Plaintiffs are informed and believe that substantial additional evidentiary support will exist for the
allegations set forth herein after a reasonable opportunity for discovery.
1. NATURE OF THE ACTION
1.
I
Plaintiffs bring this class action on behalf of persons and/or entities that purchased
or otherwise acquired the common stock of ProNAi pursuant and/or traceable to the Company’s
false and/or misleading registration statement and prospectus (collectively, the “IPO Registration
Statement” or “Offering Documents”) issued in connection with the Company’s July 15, 2015,
initial public offering (the “IPO” or the “Offering”). Plaintiffs, individually and on behalf of all
others similarly situated, pursue remedies under the Securities Act of 1933 (“Securities Ac ”)
asserting claims against ProNAi, certain of its officers and directors, and certain underwriters for
misconduct related to the IPO.
2. ProNAi, which is now operating as Sierra Oncology, was a clinical-stage oncology
company that claimed to be pioneering a novel class of therapeutics based on the Company’s
proprietary deoxyribonucleic acid (“DNA”) interference (DNAi) technology platform. According
to the Company’s Offering Documents, the Company’s lead product candidate was PNT225 8, a
purportedly proprietary formulation of the Company’s single—stranded 24-base DNAi
oligonucleotide, known as PNTlOO. The Company claimed in the Offering Documents that PNTIOO
DNAi targets and interferes with BCL2, an important and validated oncogene known to be
dysregulated in many types of cancer. At the time of the IPO, ProNAi’s only product candidate,
2
CONSOLIDATED COMPLAINT
#w
\]O\
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
PNT225 8, was purportedly designed to target cancers that overexpressed BCL2.
3. Claiming that BCL2 is expressed in “more than 60% of all new cases across the top
10 most commonly diagnosed cancers in the United States,” ProNAi touted the potential importance
of PNT2258’S successful development. In the Offering Documents, ProNAi announced its plan to
(a) “broadly develop and commercialize PNT2258 in oncology indications with high unmet medical
needs”; and (b) “deliver extraordinary therapeutic outcomes. that [would] dramatically change
patients’ lives.”
4. In the IPO Registration Statement, ProNAi also touted the advance stage and positive
results in PNT2258’s development. For example, ProNAi claimed that PNT2258 was first
submitted to the United States Food and Drug Administration (“FDA”) for approval in 2008,
PNT2258 had “completed Phase 1 and Phase 2 trials” as of July 2015,1 and PNT2258 was “currently
being investigated in a Phase 2 trial.”
5. ProNAi also stated in the Offering Documents that in December 2014, the Company
initiated “Wolverine,” an open-label 60 patient Phase 2 trial evaluating PNT2258 for the treatment
of third-line relapsed or refractory diffuse. large B-cell lymphoma (“DLBCL”). The Company
further stated, citing evidence of efficacy — combined with safety and tolerability data related to
PNT2258 ——that PNT2258 had the potential to “change treatment paradigms across a wide range of
oncology indications.”
'6. In the face of these representations, the Company sold 9,315,000 shares of common
stock in the IPO at a public offering price of $17 per share. The Company received net proceeds of
approximately $143.6 million from the IPO. The proceeds from the IPO were purportedly to be
used, in part, to support the clinical and manufacturing activities related to PNT2258. In addition,
on July 21, 2015, immediately prior to the closing of the IPO, all outstanding shares of convertible
and redeemable convertible preferred stock converted into 18,361,953 shares of common stock, and
on the closing of the IPO, the Company issued 750,946 shares of common stock to the holders of
1 The FDA requires three phases of testing before approving a new drug. See The FDA’s Drug Review Process: Ensuring Drugs Are Safe and Effective, available at http://www.fda.gov/ drugs/resourcesforyou/consumers/ucm143534.htm (last visited Jan. 15, 2018).
3
CONSOLIDATED COMPLAINT
[\J
4RD.)
\DOONONUI
1o
11
12
13
14
15
16
17
1s
19
20
21
22
23
24
25
26
27
28
its Series C and D redeemable convertible preferred stock in settlement of the cumulative dividends.
7. Defendants plainly mispresented the efficacy of PNT2258 in the Company’s IPO, as
PNT225 8 fell far short of the promising “significant opportunity” ProNAi touted in the Offern
Documents. On June 6, 2016, less than 11 months after the IPO, the Company issued a press release
announcing interim data from the Wolverine trial. Specifically, the Company disclosed that it
observed only modest efficacy from PNT2258. The Company further stated that it did not view the
results as robust enough to justify continued development of the drug in DLBCL. ProNAi also
stated that, as a result, it would suspend development of PNT2258 pending further review of the
data.
8. On this news, ProNAi’s stock price fell $4.31 per share, or 67.5%, to close at $2.07
per share on June 6, 2016, on unusually heavy trading volume. On November 17, 2016, ProNAi’s
stock price closed at $1.53 per share, a decline of $15.47, or 91% from the IPO price of $17 per
share.
9. The statements in the IPO Registration Statement were materially false and
misleading regarding ProNAi’s business, operations, and prospects and/or lacked reasonable basis
because Defendants failed to disclose that, among other things:
a. PNT2258 was only modestly effective in treating DLBCL;
b. ongoing studies and internal Company experiments pre—dating the IPO
demonstrated DNAi and PNT2258 were ineffective;
c. undisclosed data from the Pilot Phase 2 study pre-dating the IPO showed
patients experienced disease progression at a faster rate when treated with
PNT2258 than traditional therapies;
d. efficacy data from the ongoing Wolverine trial showed enrolled patients were
not responding to treatment with PNT2258;
e. PNT2258 would never be an effective third-line therapy for patients with
relapsed or refractory DLBCL and/or RCLL, and the Company would never
submit a New Drug Application (“NDA”) to the FDA for those indications;
4
CONSOLIDATED COL/[PLAINT
#WN
\OOO\IO\U1
1o
11
12
13
14
15
16
17
18
19
2o
21
.22
23
24
25
26
27
28
f. the Company had materially overstated the efficacy of PNT225 8 and its
business prospects;
g. ProNAi planned to exclude the sickest patients in the Wolverine study from
the efficacy data ultimately announced in June 2016;
h. the Offering Documents failed to disclose the percentage of patients who
experienced adverse events in the Company’s trials;
i. ProNAi would never use the proceeds from its IPO to fund other clinical trials
of PNT225 8, manufacture, and commercialize PNT225 8, or expand the
Company’s pipeline of DNAi—based candidates; and
j. ProNAi’s business prospects were far worse than represented.
10. Due to these false and misleading statements, Plaintiffs and other members of the
class who purchased ProNAi stock have been damaged.
11. By issuing the false and misleading Offering Documents, and by participating in the
process that allowed the IPO to be successfully completed, Defendants violated Sections 11 and 15
‘of the Securities Act and are thus liable to Plaintiffs and other members of the class for damages
they suffered as a result of their purchases of ProNAi common stock.
II. JURISDICTION AND VENUE
12. The claims asserted herein arise under and pursuant to Sections 11 and 15 of the
Securities Act (15 U.S.C. §§ 77k and 770). This Court has jurisdiction over the subject matter of
this action pursuant to Section 22 of the Securities Act, 15 U.S.C. § 77v, which explicitly states that
“[e]xcept as provided in section 16(0), no case arising under this title and brought in any State court
of competent jurisdiction shall be removed to any court in the United States.”2 Section 16(c) of the
Securities Act refers to “covered class actions,” which are defined as lawsuits brought as class
actions or brought on behalf of more than fifty persons asserting claims under state or common
law.
13. This Court possesses personal jurisdiction over each defendant because each
2 Unless otherwise indicated, all emphasis is added5
CONSOLIDATED COlVTPLAlNT
4:.
\OOO\]O\U1
10
11
12
13
14
15
16
17
18
19
20
’21
22
23
24
25
26
27
28
defendant and his or her respective agent affirmatively solicited the subject securities and
registration statement to investors in California, has sufficient contacts with California, or otherwise
purposefully avails itself of benefits from California or has property in California so as to render the
exercise of jurisdiction over each by the California courts consistent with traditional notions of fair
play and substantial justice.
14. The amount in controversy exceeds the jurisdictional minimum of this Court, and the
total amount of damages sought exceeds $25,000.
15. Venue is proper in this Court pursuant to Section 22 of the Securities Act, 15 U.S.C.
§ 77v. Many of the violations of law complained of herein occurred in this State and in large part
in this County, including the dissemination of the materially false and misleading statements
complained of herein into this State and into this County. In addition, ProNAi’s corporate
headquarters are located in this County.
III. PARTIES
A. Plaintiffs !
16. Plaintiff Timothy Gallas purchased ProNAi common stock pursuant and/or traceable
to the IPO and was damaged thereby.
17. Plaintiff Christopher Book purchased ProNAi securities pursuant and/or traceable to
the IPO and has been damaged thereby.
B. Defendants
1. ProNAi
18. Defendant ProNAi Therapeutics, Inc. is a Delaware corporation with its US.
headquarters located at 1000 Marina Blvd. Suite 450, Brisbane, CA 94005. According to‘the
Company’s 2015 Annual Report, as of December 31, 2015, ProNAi had 52 employees, most of
whom were engaged in research and development. 4
2. The Individual Defendants
19. Defendant Nick Glover (“Glover”) was the President, Chief Executive Officer
(“CEO”), and a Director of ProNAi, and signed or authorized the signing of the Company’s IPO
Registration Statement filed with the SEC.
6
CONSOLIDATED COMPLAINT
\]O\U1-I>-
OO
10
11
12
13
14
15
16
17
18
19
20
,21
22
23
24
25
26
27
28
20. Defendant Sukhi J agpal (“Jagpal”) was the Chief Financial Officer (“CFO”) of
ProNAi, and signed or authorized the signing of the Company’s IPO Registration Statement filed
with the SEC.
21. Defendant Donald Parfet (“Parfet”) was the Chairman of the Board of ProNAi and
signed or authorized the signing of the Company’s IPO Registration Statement filed with the SEC.
22. Defendant Albert Cha (“Cha”) was a Director of ProNAi and signed or authorized
the signing of the Company’s IPO Registration Statement filed with the SEC.
23. Defendant Nicole Onetto (“Onetto”) was a Director of ProNAi and signed or
authorized the signing of the Company’s IPO Registration Statement filed with the SEC.
24. Defendant Robert Pelzer (“Pelzer”) was a Director of ProNAi and signed or
authorized the signing of the Company’s IPO Registration Statement filed with the SEC.
25. Defendant Peter Thompson (“Thompson”) was a Director of ProNAi and signed or
authorized the signing of the Company’s IPO Registration Statement filed with the SEC.
26. Defendant James Topper (“Topper”) was a Director of ProNAi and signed or
authorized the signing of the Company’s [PO Registration Statement filed with the SEC.
27. Defendant Alvin Vitangcol (“Vitangcol”) was a Director of ProNAi and signed or
authorized the signing of the Company’s [PO Registration Statement filed with the SEC.
28. Defendants Glover, Jagpal, Parfet, Cha, Onetto, Pelzer, Thompson, Topper, and
Vitangcol are collectively referred to as the “Individual Defendants.”
3. The Underwriter Defendants
29. Defendant Jefferies LLC (“Jefferies”) served as an underwriter for the Company’s
IPO. In the Offering, Jefferies agreed to purchase 3,240,000 shares of the Company’s common
stock, exclusive of the option to purchase additional shares. Jefferies maintains offices in this
County.
30. Defendant Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”)
served as an underwriter for the Company’s IPO. In the Offering, Merrill Lynch agreed to purchase
3,240,000 shares of the Company’s common stock, exclusive of the option to purchase additional
shares.
7
CONSOLIDATED COMPLAINT
[\J
\OOONQM-Pw
1o
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
31. Defendant Wedbush Securities Inc. (“Wedbush”) served as an underwriter for the
Company’s IPO. In the Offering, Wedbush agreed to purchase 810,000 shares of the Company’s
common stock, exclusive of the option to purchase additional shares.
32. Defendant SunTrust Robinson Humphrey, Inc. (“SunTrust”) served as an
underwriter for the Company’s IPO. In the Offering, SunTrust agreed to purchase 810,000 shares
of the Company’s common stock, exclusive of the option to purchase additional shares.
I
33. Defendants Jefferies, Merrill Lynch, Wedbush, and SunTrust are collectively
referred to as the “Underwriter Defendants.” The Underwriter Defendants received commissions
forltheir participation in the IPO.
IV. SUBSTANTIVE ALLEGATIONS
A. Background
34. Founded in 2003, ProNAi was a clinical stage oncology company with a focus on
pioneering a novel class of therapeutics based on its proprietary DNA interference (DNAi)
technology platform. DNAi was predicated on the theory that cancer cells may overexpress certain
genes (“oncogenes”), that promote uncontrolled growth and other undesirable characteristics of
malignancy. ProNAi had only one drug product candidate — PNT2258 — which the Company
purportedly designed to target cancers that overexpress B—cell lymphoma, such as Hodgkin’s
lymphomas and Non-Hodgkin Lymphoma (“NHL”). B-cell lymphoma 2 (“BCL2”), which is
encoded in humans by the BCL2 gene, is the founding member of the BCL2 family of regulator
proteins that regulate cell death (apoptosis), by either inducing (pro—apoptotic) or inhibiting (anti-
apoptotic) apoptosis.
35. The core of the Company’s DNAi technology platform was its focus upon
oligonucleotides, which are rationally-designed DNA sequences that modulate the transcription of
oncogenes known to be involved in cancer cell survival and proliferation. Oligonucleotides are
short DNA or ribonucleic acid (“RNA”) molecules — oligomers — that have a Wide range of
applications in genetic testing, research, and forensics. Commonly made in the laboratory by solid-
phase chemical synthesis, these small bits of nucleic acids can be manufactured as single—stranded
8
CONSOLIDATED COMPLAINT
\D
00
\]
ON'UI
#-
10
11
12.
13
14
15
‘16
17
18
19
20'
21
22.
23
24
25
26
27
2.8
molecules with any user-specified sequence, and so are Vital for artificial gene synthesis, polymerase
chain reaction, DNA sequencing, library construction, and as molecular probes.
36. The Company designed PNT2258 to target BCL2, a widely overexpressed oncogene
that is an important gatekeeper of the programmed cell death process known as apoptosis, and has
been linked to many forms of cancer. Researchers believe that BCL2 provides certain cancer cells
with the ability to resist naturally occurring apoptosis, which is a primary mechanism for the
removal of aged, damaged, or unnecessary cells. BCL2 overexpression promotes cancel-cell
survival by contributing to tumor formation and growth, as well as the subsequent development of
chemo-resistance as observed in a broad Variety of tumors.
37. The Company designed PNT2258 to affect downstream BCL2 protein production by
interfering with the transcription of BCL2, resulting in a process leading to the death of cancer cells.
The Company intended the drug to be distinct from traditional therapeutic approaches that target
proteins through small molecules and antibodies since PNT2258 targets DNA — the upstream
genetic material underlying the expression of proteins. The Company claimed that the unique DNA-
centric approach of PNT2258 would allow PNT2258 to more profoundly impact oncogenic targets.
38. Defendants were developing PNT2258 as a third-line therapy for the treatment of
two indications: .(1) Diffuse Large B-Cell Lymphoma (“DLBCL,” which is a cancer of B‘cells, a'
type of white blood cell responsible for producing antibodies); and (2) “RCLL,” which is a
transformation that occurs in approximately 5-10% of B cell chronic lymphocytic leukemia (“CLL”)
and hairy cell leukemia into a fast—growing DLBCL. DLBCL is the most common type of NHL
among adults, accounting for about 30% of newly-diagnosed cases in the United States. DLBCL
occurs primarily in older individuals, and is an aggressive lymphoma that can arise in lymph nodes
or outside of the lymphatic system in the brain, skin, breast, bone, thyroid, testes, or gastrointestinal
tract. RCLL is refractory to treatment and carries a detrimental prognosis, with an overall median
survival rate between five and eight months..
39. Because PNT2258 was the Company’s only drug-product candidate, the successfulI
development of PNT2258 was vital to the Company’s Viability. Indeed, in the Company’s Annual
9
CONSOLIDATED COMPLAINT
(/1.t
\]O\
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Report on Form 10-K for the year-ended December 31, 2015 , filed with the SEC on March 3, 2016,
ProNAi stated that “[o]ur business is highly dependent on the success of our only clinical product
candidate, PNT2258 . . . Our business and future success depends on our ability to successfully
develop, obtain regulatory approval for and commercialize our only clinical product candidate,
PNT2258.”
40. ProNAi repeatedly acknowledged that the Company’s business and future success
depended on its ability to successfully develop, obtain regulatory approval, and commercialize
PNT2258. Thus, as a clinical-stage company with no approved drugs —— and therefore no revenue
— the success of PNT225 8 was critical to ProNAi. Accordingly, the Company’s primary efforts
were focused upon the commercialization of PNT2258. For example, in the Company’s 2015
Annual Report, ProNAi stated that the Company’s “primary goal” and “clinical development
strategy,” was “to exploit the full commercial potential of PNT2258.” Similarly, within a press
release dated June 16, 2015, ProNAi stated that the Company was focused on “advancing [its]
registration-oriented clinical development program for [its] lead DNAi product candidate,
PNT225 8, as well as preparing for its potential future commercialization.”
41. The FDA has already approved several widely—used anti—cancer agents with respect
to DLBCL. Unlike PNT225 8, however, these anti-cancer agents generally target proteins through
small molecules and antibodies, resulting in decreased efficacy in patients that have not responded
to multiple treatments. Thus, PNT2258 had considerable commercial potential as the only “DNAi—
based product candidate in clinical developmen ” and as a drug specifically designed to treat patients
with relapsed or refractory oncogenic conditions.
42. Moreover, there are currently no specific therapies approved by the FDA to treat
RCLL, which would have provided PNT2258 viable commercialization had the FDA approved its
use. For instance, according to the American Cancer Society (“ACS”), lymphoma is the most
common type of blood cancer. Additionally, the ACS reports that NHL — which comprises more
than 60 subtypes — is the most common form of lymphoma.
10
CONSOLIDATED COMPLAINT
.bUJN
\OOO\10\U1
1o
11
12
13
14
15
16
17
18
19
2o
21
22
23
24
25
26
27
28
B. The Company’s Phase 1 PNT2258 Clinical Trial
43. Pursuant to an investigational NDA that the FDA approved in 2008, the Company
conducted two clinical trials before the Company’s IPO: (1) a Phase 1 safety trial in patients with
relapsed or refractory solid tumors; and (2) a Pilot Phase 2 trial in patients with relapsed or refractory
NHL.
44. The Eastern Cooperative Oncology Group (“ECOG”) Scale of Performance Status
is a tool that researchers in clinical oncology trials use to measure how a cancer impacts the daily
living abilities of a patient and to track the level of functioning for a patient undergoing treatment
during a trial. Drug sponsors also use the ECOG Scale of Performance to design a clinical-oncology
trial. According to FDA Guidance, ECOG score and baseline—tumor size constitute the most
significant risk factors for survival in oncology patients. Patients who have a higher ECOG score
and limited functional capacity tend to have more difficulty tolerating rigorous cancer treatments.
These patients, therefore, have less favorable outcomes than more fit patients with lower ECOG
scores, regardless of the treatments given. Indeed, patients with a poor performance status —
defined as a score of two or greater on the ECOG rating scale — are often excluded from clinical
trials because they tend to have poorer responses to treatment and shorter survival than their
counterparts.
45. In 2010, ProNAi conducted a study of PNT2258 in 22 patients with relapsed or
refractory solid tUmOrs. This Phase 1 dose-escalation study was primarily designed to evaluate the
safety and tolerability of PNT2258 in order to determine an appropriate dose and schedule for
subsequent efficacy trials. The primary objectives of ' the study included identification of the
maximum tolerated dose of PNT2258 and characterization of its safety and toxicity profile when
administered to patients with advanced solid tumors. The Secondary objectives of the study
included characterization of the PNT225 8 pharmacokinetic profile and identification of any anti-
tumor effect. According to ClinicalTrials. gov (identifier number NCT01191775), inclusion criteria
in the study permitted an ECOG performance status of 0—2.
46. Of the 22 patients enrolled in the Phase 1 study, 19 of the patients —— or 86% —— had
11
CONSOLIDATED COMPLAINT
4:.
\DOONONUI
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
an ECOG performance scale rating of 0-1, meaning they were fully active or slightly restricted in
strenuous activity, but nevertheless ambulatory. The Phase 1 study was open-label and
uncontrolled, such that the trial data was not blinded to the participants in the trial or to the
researchers, including the Company’s officers and directors —— and Defendants, in fact, accessed
and analyzed such information. In fact, although the Company did not report the trial data until
December 5, 2012, in a March 15, 2012 interview with Bio World Today, ProNAi’s former CEO and
Board member Mina Sooch revealed that “[e]ar1y Phase 1 data suggest[s] the trial will validate the
company’s preclinical studies of PNT225 8.” Thus, because the trial was open—label, the Company’s
officers and directors were able to access and analyze the Phase 1 clinical trial data.
47. The Company reported its Phase 1 trial results on December 5, 2012. Importantly,
of the 22 patients participating in the trial: (1) none achieved a complete response or partial response
following treatment; (2) one patient died within 30 days of trial participation; (3) 13 patients (62%)
experienced a deterioration in their condition; and (4) five patients (24%) experienced a lack of any
clinical benefit. Accordingly, 90% of the patients treated in the Phase 1 study got worse, died, or
experienced no clinical benefit after treatment.
48. Critically, the Company only reported the pharrnacokinetics of PNT2258 in the
Phase 1 study and either failed to test or failed to report the pharmacodynamics of PNT2258.
Pharmacokinetics is the study of the way in which drugs move through the body during absorption,
distribution, metabolism, and excretion, and is used by drug sponsors to determine a safe and
tolerable dosing regimen. Pharmacodynamics, on the other hand, is the study of the way in which
drugs effect the body; namely whether the drug dosed at the site of action has a resulting effect.
Thus, while the former implicates largely the safety profile of the drug, the latter has direct
implications for a drug’s ability to establish efficacy in subsequent clinical trials.
49. Despite the lack of pharmacodynamics data, the Company touted the results of the
Phase 1 trial. At the annual Symposium on Molecular Targets and Cancer Therapeutics, ProNAi
claimed that it obtained “encOuraging clinical results,” notwithstanding the apparent lack of efficacy
in 90% of the patients who failed to respond to treatment. Similarly, the Company issued a press
12
CONSOLIDATED COMPLAINT
\lONUI-P
10
11
12 i
13
14
15
16
17
18
19
2o
'
21
22
23
24
25
26
27
28
release on November 9, 2012 in which it stated the following:
The encouraging clinical results from our 22 patient study, conducted at START in Texas, showed we can achieve exposure levels in humans that were many times the level needed to achieve antitumor effect in animals without significant liver or blood platelet toxicity. . .These results indicate that we can administer the drug either as a single agent or potentially in combination with other anti—cancer drugs without adding patient side effects.
C. The Company’s Phase 2 PNT2258 Clinical Trial
50. The Company initiated patient enrollment in its Pilot Phase 2 trial of PNT2258 for
the treatment of patients with relapsed or refractory NHL in December 2012. The primary objective
of the Pilot Phase 2 trial was to determine the anti-tumor activity of PNT2258 across several
hematological malignancies and to collect safety data. According to ClinicalTrials.gov (identifier
number NCT0173 323 8), of the 13 patients enrolled in the Pilot Phase 2 trial, 12 — or 92.3% — had
an ECOG performance scale rating of 0-1 , and only one patient had a poor ECOG performance scale
rating of 2. Moreover, approximately 77% of the patient population had received two or fewer prior
lines of therapy, and every single DLBCL patient enrolled had an ECOG performance scale ranking
of 1.
51. Like the Phase 1 study, the Company’s Pilot Phase 2 study was open-label and
uncontrolled, and ProNAi’s officers and directors had access to the data as the trial was ongoing —
and Defendants, in fact, accessed and analyzed such information. Indeed, although the Company
did not publicly announce data from the Phase 2 trial until December 5, 2014 in a Company press
release, ProNAi’s then-CEO, Mina Sooch, presented detailed safety and efficacy data as the trial
was ongoing at the 55th Annual Meeting of the American Society for Hematology (“ASH”) on
December 9, 2013 — an entire year earlier. In addition, ProNAi’s key executives (including Sooch,
Chief Scientific Officer Wendi Rodrigueza, and Chief Medical Officer Richard A. Messmann)
summarized the data from the ongoing Pilot Phase 2 study in a medical journal sponsored by the
ASH on November 15, 2013, and described PNT2258 as “a promising novel approach to treating
lymphoma, and cancer therapy in general.”
52. In a press release dated December 5, 2014, the Company announced interim efficacy
13
CONSOLIDATED COMPLAINT
U.)
OO\]O\
\O
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
' results for the Phase 2 trial. ProNAi reported that treatment with PNT225 8 resulted in “significant,
durable responses in patients with relapsed or refractory non—Hodgkin’s Lymphoma” and is
“demonstrably active in patients with diffuse large B-cell lymphoma (DLBCL).” Conspicuously,
the Company only disclosed that a response had been observed in these five DLBCL and RCLL
patients but never disclosed how those responses compared to the patient’s prior treatment responses
or how the other relapsed or refractory NHL patients in the study responded to treatment with
PNT2258. Rather, as would only be revealed after the IPO, patients in the Pilot Phase 2 study
actually experienced disease progression at a faster rate compared to their prior therapies. In fact,
virtually every patient in the Pilot Phase 2 study demonstrated a shorter interval to disease
progression when compared to their last prior therapy. Furthermore, Defendants did not adequately
disclose until after the IPO that of the 13 patients treated in the Pilot Phase 2 study, 12 discontinued
treatment with PNT225 8 as their disease progressed and 85% of the patients treated in the study
experienced one or more grade three or four adverse events.
53. Defendant Glover nevertheless lauded the Pilot Phase 2 trial results, stating the
Company would initiate further clinical testing in the ensuing months in patients with DLBCL and
RCLL:
These results demonstrate that PNT2258 is an obviously active, well-tolerated therapeutic that warrants advanced clinical development. As such, in the coming months we will be initiating robustly designed studies of PNT2258 as a single agent in patients with refractory or relapsed DLBCL and in Richter’s transformed DLBCL, areas of high unmet medical need in which PNT2258 appears to be particularly effective. Given PNT2258’s favorable safety profile and the prospect for a BCL2— targeted agent to augment complementary mechanistic approaches, combination clinical studies with other targeted agents are also being planned.
'
54. Contrary to Defendant Glover’s representations, ProNAi did not wait months before
initiating the next clinical study. Indeed, ProNAi did not even wait for the Pilot Phase 2 trial to
finish. Rather, ProNAi began enrolling patients with third-line relapsed or refractory DLBCL in the
Phase 2 Wolverine trial in December 2014 —— the same month the interim Pilot Phase 2 data was
disclosed.
55. Most egregiously, the enrollment in the Wolverine trial was based only on the interim
14
CONSOLIDATED COMPLAINT
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
clinical response of four patients with DLBCL in the Pilot Phase 2 trial. ProNAi would later initiate
—- in October 2015 — patient enrollment in the Brighton trial for patients with RCLL based on the
clinical response of only one patient in the Pilot Phase 2 trial.
56. These sample populations prior to initiating enrollment — of four patients and one
patient, respectively — were significantly below the sample populations used by all of ProNAi’s
competitors in past Pilot Phase 2 studies of DLBCL or RCLL patients. This is significant because
larger sample sizes generally lead to increased precision when estimating unknown parameters. The
sample size is also significant because Defendants represented that the Wolverine trial would prove
the efficacy of PNT225 8, after which a Phase 3 trial would be merely confirmatory.
D. The Company’s Wolverine Trial
5 7. The Company designed its Wolverine trial based only on the interim clinical
response of four patients with DLBCL in the Pilot Phase 2 trial. This sample size was substantially
below the historical sample sizes of various clinical studies of DLBCL patients in recent years.
Additionally, the Wolverine study did not include a control group — contrary to industry practice
—— and used interim rather than final clinical data, further minimizing the reliability of the trial and
deviating from industry practice.
58. On December 28, 2014 — only three weeks after the Company announced interim
data from the ongoing Pilot Phase 2 study — ProNAi initiated patient enrollment in the Wolverine
Phase 2 study of PNT2258 for patients with relapsed or refractory DLBCL: The Wolverine trial
was an open-label, non—randomized Phase 2 study without placebo controls. According to the
Company, the Wolverine study was “designed on the basis of interim results from an ongoing pilot
Phase II trial of PNT225 .” Thus, ProNAi prematurely determined to initiate an entirely new
clinical trial on the basis of interim data only from four patients who were still progressing through
the Phase 2 trial protocol — again deviating from industry practice.I
59. Like ProNAi’s previous trials, the Phase 2 Wolverine study was open-label and
uncontrolled, and thus was not blinded to the participants or the researchers. Accordingly,
Defendants had access to trial data as the trial was ongoing and were able to — and, in fact, did —
15
CONSOLIDATED COlVIPLAlNT
4;
\OOONCNUI
10
11‘
12
‘13
14
15
16.
17
18
19
20
21
22 i
23
24
25
26
27
28
access, analyze, and synthesize trial data as the trial was ongoing. Indeed, although the Company
did not report interim trial data from the Wolverine study until June 6, 2016, Defendant Glover
provided‘an update on the Company’s ongoing clinical development of PNT22'58, including the
Wolverine trial, at the 33rd Annual JP. Morgan Healthcare Conference on January 15, 2015, more
than a year before the interim data was publicly disclosed. I J
60. The primary objective of the Wolverine trial was to characterize anti-tumor activity
and collect safety data on approximately 60 patients with relapsed orrefractory DLBCL. According
to ClinicalTrials.gov (identifier number N CT02226965), the original primary endpoint of the .
Wolverine trial was disease control rate assessed by Computerized Tomography (‘ZCT”) scan, FDG—
Positron Emission Tomography (“PET”) scan, and "compared to relevant historical controls.
Secondary outcome measures included overall response rate, predictors of treatment outcome, and
progression-free and overall survival. Additionally, the original inclusion criteria for the Wolverine
trial permitted patients with “no limit to the number of prior therapies” and an ECOG performance
status of 0-2. Thus, the patient population initially enrolled in the Wolverine trial targeted patients
consistent with the purpose of the trial to prove the efficacy of PNT2258 as a third-line therapy. Of
the 37 DLBCL patients enrolled in the Wolverine trial, 27% had a clinically defined poor ECOG
performance scale rating of 2 or had received four or more prior therapies.
. 1. Defendants Repeatedly Amend the Wolverine Phase 2 Trial Protocol
,
61. Defendants learned well before ProNAi announced the results of the failed
Wolverine trial in June 2016 that patients were not responding to treatment with PNT225 8. Through
their ongoing access to, and analysis of, the clinical trial results from the Pilot Phase 2 and Wolverine
trials, Defendants repeatedly manipulated the Wolverine trial protocol based on the efficacy data
they were receiving to include patients with a more favorable health profile and more achievable
outcome measures. These modifications began in December 2014 — long before the Company’s
IPO, and years before Defendants publicly disclosed the interim data from the Wolverine trial.'
62. The first major amendment to the Wolverine trial occurred onDecember 22, 2014
— long before the Company’s July 15, 2015 IPO. Although Defendants disclosed high-level-
response rate results from only five patients in the Pilot Phase 2’ trial in December 2014, they failed
16
CONSOLIDATED COMPLAINT
\DOO\I0\
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
r
to disclose how the response data compared to those patients’ prior treatment responses, or how the
other relapsed or refractory NHL patients in the study responded to treatment with PNT225 8. This
omission was critical. As Defendants later revealed in the Company’s Targeted Cancer Therapies
ASCO Presentation on June 6, 2016: (1) patients in the Pilot Phase 2 study actually experienced
disease progression at a faster rate than compared to their prior therapies; (2) of the 13 patients
treated in the Pilot Phase 2 study, 12 discontinued treatment with PNT2258; and (3) 85% of the
patients treated in the study experienced one or more grade three or four adverse events. Thus, the
new primary endpoint of overall response rate focused the trial on-the objective response of patients
to PNT2258 Without comparing the durational nature of that response to the patient’s prior
treatments. Accordingly, the Defendants’ December 2014 amendment altered the primary endpoint
of the Wolverine trial from disease control rate to overall response rate. Importantly, the FDA
abandoned the overall response rate as a measure in the 19805 as a meaningful endpoint to establish
efficacy in oncology clinical trials.
63.. ‘ Defendants also. used the December 2014 amendment to extend the timeframe for 4
disease control assessment from 4.5 months to six months, and increased the induction treatment
phase from six cycles of PNT2258 to eight cycles. By extending the timeframe for assessment and
increasing the number of treatment cycles, Defendants sought to boost patients’ exposure to
PNT2258 and produce an observable treatment response — responses that were not observed in the
Pilot Phase 2. These modifications reflect the Defendants’ concerns regarding the lack of efficacy
and the pharmacodynamics of PNT2258.’
64. Additionally, Defendants were aware that PNT225 8 was failing to establish efficacy
in the Wolverine trial — and that patients were not responding to treatment —— because they
approved and prepared the protocol menhents, yet they failed to disclose this material
information. Specifically, before implementing modifications to the trial protocol, Defendants
would have been required to submit a protocol amendment to both the FDA and each of the
Company’s 27 Internal Review Boards (“IRB”) supported by actual clinical data from the ongoing
trial. An IRB‘ is a group that has been formally designated to review and monitor biomedical
l7 CONSOLIDATED COMPLAINT
LAN
U1
\OOONQ
_ 10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
research involving human subjects. In accordance with FDA regulations, every clinical trial site
within a particular study must have its own IRB, which has the authority to approve, require
modifications in (to secure approval), or disapprove research:
For changes in a protocol, the amended study may only begin once it has been submitted to the FDA and the amended study has local IRB (Institutional Review Board) approval. Moreover, while there is no 30 day window of FDA approval, it is strongly recommended that the drug sponsor communicate with the FDA and make sure they are OK With the protocol amendment before going forward.
21 CFR 56.108(a)(4).
65. Once approved by the 27 different IRBs at each clinical trial site and Defendant
Glover, Defendants would have then submitted the amendment to the FDA with supporting data
from the ongoing clinical trial:
A sponsor shall submit a protocol amendment describing any change in a Phase 1
protocol that significantly affects the safety of subjects or any change in a Phase 2 or 3 protocol that significantly affects the safety of subjects, the scope of the investigation, or the scientific quality of the study. . .revised protocols should build logically on previous submissions and should be supported by additional in ormation, including the results of animal toxicology studies or other human studies as appropriate.
21 CFR 312.30.
66. ProNAi, moreover, has acknowledged in its public filings that the Company has
IRBs. For example, ProNAi stated the following in each of the Company’s quarterly and annual
reports: “[t]he trial protocol and informed consent information for patients in clinical trials must
also be submitted to an institutional review board (lRB) for approval. An IRB may also require the
clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with
the IRB’s requirements, or may impose other conditions.” The Company further represented in
past studies that “[t]he institutional review board approved the protocol, and the study was registered
at ClinicalTrials. gov.”
67. Defendants were also aware that the Wolverine trial was failing to meet its efficacy
endpoints and patients were not responding to treatment because ProNAi was required to monitor
patient deaths and had an obligation to report each death promptly to the FDA. Defendants,
l8 CONSOLIDATED COlVIPLAINT
xoooqoxm-xs'wmr-t
NMNNNNNNNHP—‘Hl—‘HHHHHr—l
OO\]G\M4>UJNHO\OOO\IO\UI-PWNHO
however, failed to do so. FDA regulations also required ProNAi to collect and maintain information
on subjects who withdraw from a clinical investigation, whether the subject decides to discontinue
participation in the clinical trial (21 CFR 50.25(a)(8)) or is discontinued by the investigator because
[the subject no longer qualifies under the protocol (for example, due to a significant adverse event or
due to failure to cooperate with study requirements).
2. Defendants Violated FDA Regulations by Excluding Non-Responsive Patients from Reported Clinical Trial Results
68. Importantly, Defendants also never disclosed to investors before the [PC that
Defendants were excluding from the Company’s trials the sickest patients in the study (i.e. those
excluded by the August 2015 and November 2015 patient population amendments) from the efficacy
data ultimately announced — a plain violation of FDA policy and guidance.
69. As set forth by the FDA in its Guidance for Sponsors, Clinical Investigators, and
IRBs: Data Retention When Subjects Withdraw from FDA-Regulated Clinical Trials (“Guidance
for Sponsors”):
FDA regulations require investigators to prepare and. maintain adequate case
histories recording all observations and other data pertinent to the investigation on each individual treated with the drug or exposed to the device. The agency needs all such data in order to be able to determine’the safety and effectiveness of the drug or device. The fact of having been in an investigation cannot be taken back. Also, ifa subject were able to control the use (inclusion and exclusion) of his or her data, and particularly if the clinical investigation were not blinded, the bias potential would be immense....Subjects may subsequently withdraw from such studies, but the data collected up to withdrawal may not be removed.
In its Guidance for Sponsors, the FDA explained that;
The validity of a clinical study would also be compromised by the exclusion of data collected during the study. There is long-standing concern with the removal of data, particularly when removal is non-random, a situation called “informative censoring...T here is particular concern with a study ’s reliability when subjects withdraw their data in a non-random way because they are unhappy with their experience, either because they failed to obtain a desired effect or suffered an adverse event. Loss of these subjects’ data could greatly distort effectiveness results and could hide important safety information (for example, toxicity) of a poorly tolerated treatment. Allowing subjects to withdraw data could even provide an opportunity for unscrupulous parties to “improve” study results by selectively encouraging certain subjects to withdraw from a study.
19
CONSOLIDATED COMPLAINT
4;
KDOO\10\U1
10
1'1
12
13
14
15
16
17
18
19
20
21
22'
23
24
25
26
27
28
70. Rather, Defendants only disclosed such information after the IPO in ProNAi’s June
6, 2016 presentation by Defendant Glover that the Company had excluded patients with an ECOG
Performance Status of 2 or more and/or greater than or equal to four prior lines of therapy from the
trial’s efficacy data. '
I
E. The Company’s False and/or Misleading IPO Registration Statement
71. On July 15, 2015, ProNAi filed an amendment to the Fonn S-l registration statement
originally filed on June 12, 2015. The Offering Documents contained several categories of
materially false and misleading statements concerning: (i) the efficacy of PNT225 8 and the DNAi
platform; (ii) the potential market for PNT225 8 and the DNAi platform; and (iii) the Company’s
compliance with FDA regulations.
72. In the Offering Documents, Defendants falsely represented that PNT225 8 had
produced “evidence of efficacy and tolerability [and] the potential to change treatment paradigms
across a wide range of oncology indications:”
Our Lead Product Candidate: PNT2258
Our lead DNAi product candidate, PNT2258, is a proprietary formulation of our single-stranded 24-base DNAi oligonucleotide, known as PNT100, encapsulated in our LNP. PNTIOO DNAi targets and interferes with BCL2, an important and validated oncogene known to be dysregulated in many types of cancer. This dysregulation, which is manifested in the excess production of BCL2 protein, is believed to provide certain cancer cells with the ability to resist naturally occurring programmed cell death, a process referred to as apoptosis, which is a primary mechanism for the removal of aged, damaged or unnecessary cells. PNT100 targets a specific regulatory region associated with theBCL2 oncogene, interfering with its transcription. This affects downstream BCL2 protein production, resulting in a restoration of apoptotic processes leading to the death of cancer cells. Since we estimate that BCL2 is expressed in more than 60% of all new cases across the top 10 most commonly diagnosed cancers in the United States, we believe there is a significant opportunity to develop PNT 2258 across many oncology indications. We are pursuing a multi-faceted clinical development strategy that is designed to efficiently achieve regulatory approval and maximize the commercial opportunity of PNT 2258. Under an investigational new drug application that was submitted to the FDA and became effective in 2008, we have conducted two clinical trials with PNT225 8 to date: a Phase 1 safety trial in patients with relapsed or refractory solid tumors and a Phase 2 trial in patients with relapsed or refractory NHL. In a Phase 2 trial of 13 patients with relapsed or refractory NHL, PNT 2258 demonstrated evidence of anti-tumor activity, with 11 patients achieving a CR, PR or SD. Having observed preliminary evidence of efficacy and tolerability, we plan to pursue a
20
CONSOLIDATED COlVfPLAINT
\DOOVONUI-P-
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
broad registration-oriented clinical development program, initially in hematologic malignancies, that we anticipate will provide the foundation of a global registration strategy for PN T 2258.
In December 2014, we initiated “Wolverine, ” an open-label 60 patient Phase 2 trial evaluating PNT 225 8 for the treatment of third-line relapsed or refractory DLBCL. DLBCL is the most prevalent form of NHL, comprising approximately 30% of the annual NHL diagnoses in the United States according to a 2013 report by the Leukemia & Lymphoma Society. By mid—2015, we plan to initiate “Brighton,” an open-label 50 patient Phase 2 trial evaluating PNT 225 8 for the treatment of Richter’s transformed chronic lymphocytic leukemia (Richter’s CLL). Richter’s CLL is a rare and aggressive form of NHL with no currently approved therapies. We plan to initiate three additional trials in 2016: in the first quarter, a Phase 2 trial of PNT2258 in combination with a therapeutic agent or treatment regimen; in the second quarter, a single-agent Phase 2 trial evaluating PNT2258’s potential in other hematological malignancies, such as acute myeloid leukemia, acute lymphoblastic leukemia and multiple myeloma; and in the third quarter, a second Phase 2 combination trial. If the efficacy data obtained in some or all of these trials are highly compelling, we plan to discuss accelerated registration paths and other regulatory designations with regulatory agencies.
Our lead DNAi product candidate, PNT2258, targets BCL2, a widely overexpressed oncogene that is an important gatekeeper of the programmed cell death process known as apoptosis and has been linked to many forms of cancer. In a recent single- agent Phase 2 trial of 13 patients with relapsed or refractory non-Hodgkin’s lymphoma (NHL), PN T 225 8 demonstrated evidence of anti-tumor activity, with 11 patients achieving a complete response (CR), partial response (PR) or stable disease (SD). Furthermore, all four of the diffuse large B—cell lymphoma (DLBCL) patients treated in this trial experienced a clinical response, including three CRs and one PR, with reported durations on study in the range of nine to more than 20 months. Although not statistically powered for a formal efficacy analysis, we believe the preliminary evidence of efficacy observed in this trial, coupled with safety and tolerability data collected to date, suggest that PNT225 8 has the potential to change treatment paradigms across a wide range of oncology indications.
73. Defendants also falsely touted in the Offering Documents the DNAi platform’s
purportedly “unique mechanism for impacting downstream BCL2 protein levels” that “could also
potentially amplify and be complementary to other therapeutic modalities” and the implications
that platform would have for PNT2258’S “enhanced efficacy.”
74. The Offering Documents further misrepresented the following regarding the
Company’s DNAi platform and the implications that platform would have for PNT2258:
21
CONSOLIDATED COMPLAINT
\OOO\]O\
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
We believe that DNAi technology may be applicable to additional high value genetic targets beyond BCL2 that are also challenging to drug by conventional means. We plan to leverage our DNAi technology platform to generate a pipeline of product candidates that modulate the transcription of oncogenes known to be involved in cancer, and potentially genes implicated in other diseases.
\
75. In the Offering Documents, Defendants falsely represented that ProNAi would
become “a leader in developing and commercializing a broad and diverse portfolio of cancer
therapies and deliver therapeutic outcomes that dramatically changed patients’ lives.” In support of
this strategy, Defendants specifically noted that “[h]aving observed preliminary evidence of
efficacy and tolerability, we plan to pursue a broad registration-oriented clinical development
program, initially in hematologic malignancies, that we anticipate will provide the foundation ofa
global registration strategy for PNT2258.” Specifically, Defendants falsely represented with
respect to the Company’s development strategy for PNT2258:
Our Strategy
Key elements of our business strategy are to:
° Expedite the Clinical Development and Regulatory Approval of PNT 2258. We plan to advance our lead product candidate, PNT 2258, in DLBCL and Richter ’s CLL and may pursue accelerated registration paths and other regulatory designations if data are compelling. In December 2014, we initiated Wolverine, a Phase 2 trial for the treatment of third—line relapsed or refractory DLBCL, and by mid-2015, we plan to initiate Brighton, 3 Phase 2 trial for the treatment of Richter’s CL.
- Pursue a .Multi-Faceted Development Strategy for PN T 225 8 Across Many Oncology Indications. In addition to Wolverine and Brighton, we intend to expand the commercial market opportunity for PN T 2258 by developing it for the treatment of a wide variety of BCL2-driven tumors, including other hematologic malignancies, such as leukemias and myelomas, as monotherapy and in combination with other therapeutic agents or treatment regimens. BCL2 overexpression has also been implicated as a driver of a wide variety of solid tumors, including breast, prostate ‘and lung, which could provide additional future development opportunities for PN T 225 8.
- ’Maximize the Global Commercial Value of PNT 2258. We have retained all commercial rights to PNT2258 and future DNAi product candidates. As we further develop PN T 2258, we plan to build a commercial infrastructure to directly market in North America and possibly other major geographies that are core to our commercial strategy. We plan to enter into collaborations for the development, marketing and commercialization of PNT 2258 in additional geographies at an
22
CONSOLIDATED COMPLAINT
\DOONQUI-hUJNr—A
NNNNNNNNND—ll—‘HD—‘HHHHr—lb—l
OONONm-PWNHOKDOOQONUl-P-WNl—‘O
appropriate time. We also plan to invest in scaling our manufacturing capacity to support our global commercial strategy.
- Maintain our Competitive Advantage by Continuing to' Invest in our Proprietary DNAi Technology Platform. We plan to continue to conduct research in the field of DNAi to flirther our understanding of the role this technology plays in modulating gene transcription. We also plan to continue fostering relationships with leading scientific advisers and physicians to support these efforts.
- Broaden our Pipeline of Novel Product Candidates by. Leveraging our Proprietary DNAi Technology Platform. We believe DNAi technology may be applicable to additional high value genetic targets beyond BCL2 that are also challenging to effectively drug by conventional means.
'76. Defendants also falsely represented that‘ ‘our technology, knowledge, experience,
and scientific resources provide us with competitive advantages” and further touted the commercial
viability of PNT2258 post-FDA approval:
Since we estimate that BCL2 is expressed in more than 60% of all new cases across the top 10 most commonly diagnosed cancers in the United States, we are also interested in developing PNT225§ for indications beyond‘DLBCL. Specifically, BCL2 is highly overexpressed in various other hemotologic malignancies. We plan to initiate a trial in the second quarter of 2016 to test the potential efficacy of PNT2258 as a single agent in the treatment of late stage AML, ALL and MM. If initial results are promising, this trial may provide a basis for subsequent clinical development, facilitating PNT2258’ 3 entry into additional cancer indications to further broaden its commercial potential. BCL2 overexpression has also been implicated as a driver of a wide variety of solid tumors, including breast, prostate and lung, which could provide additional future development opportunities for PNT2258.
'
77. In addition, Defendants represented that there was purportedly “a significant
opportunity to develop PNT225 8 across many oncology indicationsz”
Since we estimate that BCL2 is expressed in more than 60% of all new cases across the top 10 most commonly diagnosed cancers in the United States, we believe there is a significant opportunity to develop PNT 225 8 across many oncology indications.
78. According to Defendants, the Company was pursuing “a multi-faceted clinical
development strategy that is designed to achieve regulatory approval and maximize the
commercial opportunity of PNT 225 .”
79. Additionally, the Offering Documents contained numerous false representations and
ineffective purported warnings to investors regarding the Company’s compliance with FDA
CONSOLIDATED COMPLAINT
\DOO\]O\
10
11
12
13
14
15
16
. 17
18
19
20
21
22
23
24
25
26
27
28
regulations. For example, Defendants purportedly warned investors of the risks ProNAi faced in
connection with FDA oversight of the Wolverine trial, stating that “[w]e may be required to suspend,
repeat or terminate our clinical trials if they are not conducted in accordance with regulatory
requirements, the results are negative or inconclusive or the trials are not well designed:”
Clinical trials are subject to oversight by the FDA, other foreign governmental agencies and RBS at the study sites Where the clinical trials are conducted Clinical trials may be suspended by the FDA, other foreign governmental agencies, or us for various reasons, including:
- deficiencies in the conduct of the clinical trials, including failure to conduct the clinical trial in accordance with regulatory requirements or clinical protocols;
- deficiencies in the clinical trial operations or trial sites;
the product candidate may have unforeseen adverse side effects;
0 deficiencies in the trial design necessary to demonstrate efficacy;
- fatalities or other AEs arising during a clinical trial due to medical problems that may not be related to clinical trial treatments;
- 4 the product candidate may not appear to be more effective than current therapies; or the quality or stability of the product candidate may fall below acceptable standards.
Although we have never been asked by a regulatory agency, IRB or data safety monitoring board to temporarily or permanently discontinue a clinical trial, if we elect or are forced to suspend or terminate a clinical trial of any otherof our product candidates, the commercial prospects for that product will be harmed and our ability to generate product revenue from that product may be delayed or eliminated Furthermore, any of these events could prevent us or our partners from achieving or maintaining market acceptance of the affected product and could substantially increase the costs of commercializing our product candidates and impair our ability to generate revenue from the commercialization of these products either by us or by our collaboration partners.
80. The above statements in the Offering Documents regarding ProNAi’s business,
operations, and prospects were materially false and misleading when made and/or lacked a
reasonable basis because Defendants failed to disclose that, among other things:
a. PNT2258 was only modestly effective in treating DLBCL;
24
CONSOLIDATED COlVIPLAINT
t
\DOO\10\UI
1o
11
12
13
14
15
16
17
18
20
21
‘22
23
24
25
26
27
28
19
81.~
j.
ongoing studies and internal Company experiments pre-dating the IPO 1
demonstrated DNAi and PNT225‘8 were ineffective;
undisclosed data from the Pilot Phase 2 study pre-dating the [PO showed
patients experienced disease progression at a faster rate when treated with
PNT2258 than traditional therapies;
' efficacy data from the ongoing Wolverine trial showed enrolled patients were
not responding to treatment With PNT2258;
PNT225 8 would never be an effective third-line therapy for patients with
relapsed or refractory DLBCL and/or RCLL, and the Company would never
submit a New Drug Application (“NDA”) to the FDA for those indications;
the Company had materially overstated the efficacy of PNT2258 and its
business prospects;
ProNAi planned to exclude the sickest patients in the Wolverine study from
the efficacy data ultimately announced in June 2016;
the Offering Documents failed to disclose the percentage of patients who
experienced adverse events in the Company’s trials;
ProNAi would never use the proceeds from its IPO to fund other clinical trials
of PNT225 8, manufacture; and commercialize PNT225 8, or expand the
Company’s pipeline of DNAi-based candidates; and
ProNAi’s business prospects were far worse than represented
On July 16, 2015, the Company filed with the SEC its [PO Prospectus, which forms
part of the IPO Registration Statement that was declared effective on July .15, 2015. The IPO
Prospectus reaffirmed the statements identified above.
82. The Company held its IPO on July 15; 2015. In the IPO, the Company sold 9,315,000
‘
shares of common stock at a public offering price of $17 per share. The Company received net
proceeds of approximately $143.6 million from the IPO. The proceeds from the [PO were
,
purportedly to be used, in part, to support the clinical and manufacturing activities related to
25
CONSOLIDATED COMPLAINT
\D‘OO<\]O\
1o
11
12
13
14
15
16
17
13'
19
20
21
22
23
24
25
26
27
28
\
PNT2258. In addition, on July 21, 2015, immediately prior to the closing of the IPO, all outstanding
shares of convertible and redeemable convertible preferred stock converted into 18,361,953 shares
of common stock, and on the closing of the IPO,‘the Company issued 750,946 shares of common
stock to the holders of its Series C and D redeemable convertible preferred stock in settlement of
the cumulative dividends.
83. The IPO Registration Statement was negligently prepared and, as a result, contained
untrue statements of material facts or omitted to state other facts necessary to make the statements
made not misleading, and were not prepared in accordance with the rules and regulations governing
their preparation. Under applicable SEC rules and regulations, the IPO Registration Statement was
required to disclose known trends, events, or uncertainties that were having, and were reasonably
likely to have, an impact on the Company’s continuing operations.
84. The IPO Registration Statement was inaccurate and misleading, contained untrue
statements of material facts, omitted to state other facts necessary to make the statements made not
misleading, and omitted to state material facts required to be stated therein. Defendants and the
Underwriting Defendants are liable for the misrepresentations and omissions contained within thei
Offering Documents.‘
F. Post-1P0 Events
85. Defendants continued to manipulate the outcome measures of the Wolverine trial
throughout August and September 2015.; For example, on August 20, 2015, ProNAi modified the
trial’s secondary outcome measure from “overall response rate, disease control rate, and duration of
overall response” to “overall survival rate’? — effectively abandoning any attempt to show a
durational response. Defendants were well aware that PNT2258 could never establish efficacy
based on durational endpoints like disease control rate or duration of overall response because they
were in possession of the undisclosed data from the Pilot Phase 2 study and the ongoing Wolverine
trial showing patients experienced disease progression at a faster rate when being treated with
PNT225 8 than compared to their prior therapies.
86. .The August 2015 amendment also removed language that required an end-of—cycle
26
CONSOLIDATED COMPLAINT
\]O\
10
11
12
13
'14
15
16
17
'18
19
2o
21
22
23
24
25
26
27
28
eight FDG PET scan, suggesting that patients were not remaining in the study long enough to
complete eight cycles with PNT2258 either because of disease progression or because of
discontinuation. Consistently, the August 2015 amendment removed as eligible patients those with
high—risk aggressive histology such as DLBCL and Burkitt’s-like DLBCL. Accordingly, this
amendment, targeting the most high-risk DLBCL patients, strongly suggests the sicker patient
population initially enrolled in the Wolverine trial had not responded to treatment with PNT2258.
87. Indeed, as Defendants disclosed after the IPO within ProNAi Targeted Cancer
Therapies ASCO Presentation on June 6, 2016 with respect to the Wolverine trial: (1) 89% of the
patients discontinued treatment; (2) all 37 subjects experienced one or more adverse event; (3) 65%
of the subjects experienced one or more grade three or four adverse event; (4) 43% of the subjects
experienced a severe adverse event; and (5) 22% of the subjects had died'within 30 days of their last
dose of PNT225 8.
88. Defendants made similar modifications to the Wolverine trial protocol in September
2015. For instance, on September 2, 2015, ProNAi modified the trial’s secondary outcome measure
from “time to response and duration of response” to “time to response.” This alteration again
indicated that the Company was abandoning any attempt to show a durational response after the
undisclosed Pilot Phase 2, and that ongoing Wolverine trial data showed patients experienced
disease progression at a faster rate when being treated with PNT2258. The September 2, 2015
amendments also extended the timeframe for safety outcome assessment from six months to 24
months — a modification strongly indicative of late, serious adverse events in the study.
89. ProNAi also repeatedly manipulated the timeframes to evaluate certain secondary
outcome measures — such as overall survival and time to response — throughout September 2015,
indicating the Defendants were, again, engaged in data dredging to produce any cognizable
durational response data. Data dredging refers to the process of using data mining to uncover
patterns in data that can be presented as statistically significant. Defendants, thus, were attempting
to manipulate the trial’s efficacy data as PNT2258 continually failed to meet its predetermined
endpoints, in the hope of being able to announce a statistically—significant efficacy result to investors
27
CONSOLIDATED COMPLAINT
#0310
\DOOQONUI
1o
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
and support FDA approval.
90. Furthermore, on November 12, 2015, ProNAi altered the inclusion criteria in the trial
to skew the patient population towards healthier, more treatable patients after efficacy data from the
ongoing trial showed subjects with an ECOG Performance Scale of 2 or more and/or greater than
or equal to four prior lines of_therapy were not reSponding to treatment with PNT225 8. Specifically,
Defendants manipulated the inclusion criteria to limit patient enrollment to subjects with “no more
than 3 prior chemotherapeutic regimens” and an ECOG performance status of “0- 1 ,” in a transparent
effort to salvage the failing trial.
91. Around the same time frame — on October 29, 2015 — ProNAi announced that it
had initiated patient enrollment in the Brighton Phase 2 study of PNT2258 for patients with RCLL.
The Brighton trial was an open-label, non-randomized Phase 2 study without placebo controls.
Patients in the trial were administered PNT2258 as a four—hour IV infusion on Days 1-5 of a 21—day
cycle. The efficacy evaluation for the trial was conducted through imaging evaluations conducted
at baseline and after Cycles three, five, and eight. Accordingly, toveven reach the first efficacy
evaluation, patients would have to remain in the study for at least three Cycles, or 63 days.
92. The Brighton trial followed a similar trajectory in terms of enrolling patients with
less favorable ECOG scores, and many prior failed treatments population when enrollment was first
initiated on or about October 29, 2015. According to ClinicalTrials.gov (identifier number
NCT023 7803 8), the original inclusion criteria for the Brighton trial permitted patients with “no limit
to, the number of prior therapies” and an ECOG performance score of 0-2. Of the five patients
enrolled prior to the premature termination of the Brighton trial, four patients discontinued treatment
— two due to death and two due to disease progression (2’. e. , lack of efficacy). Even more troubling,
the patient deaths occurred at the outset of the Brighton trial: one subject received only one dose of
PNT2258 and died on Study Day 2 from an intracranial hemorrhage and a second subject received
just one cycle of PNT2258 and died on Study Day 28. Realizing the Brighton trial, like Wolverine,
was doomed to fail due to lack of efficacy, Defendants quickly and quietly amended the patient
criteria in an attempt to salvage the trial.
28
CONSOLIDATED COMPLAINT
U)
\DOO\10\
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
93 . Shortly after Defendants’ November 2015 protocol amendment altering the inclusion
criteria for the Wolverine trial, three members of the Board (including a majority of the Company’s
Audit Committee), the Company’s Chief Scientific Officer, and the Company’s Chief Medical
Officer resigned over the course of only five months. Specifically:
a. On December 9, 2015 — less than one month after ProNAi implemented its
protocol amendment to the inclusion criteria in the Wolverine trial — ProNAi
announced that Defendant Thompson had notified ProNAi of his decision to
resign from the Company’ Board and Audit Committee, effective December
18, 2015. Thompson had been appointed to the Board in April 2014.
On January 25, 2016, ProNAi announced that Wendi Rodrigueza — the
Company’s Chief Scientific Officer — had resigned, effective February 25,
2016. Rodrigueza had been the Company’s Chief Scientific Officer since
February 2012, and before that, she previously served as the Company’s Vice
President of Product Development from September 2006 to January 2012.
On March 4, 2016, ProNAi announced that Defendant Vitangcol had resigned
from the Company’s Board and Audit Committee, effective March 18, 2016.
Prior to their resignations, Defendants Thompson and Vitangcol comprised a
majority of the Company’s Audit Committee.1
Additionally, on March 4, 2016, ProNAi announced that Defendant Cha had
notified ProNAi of his decision not to stand for re-election. Cha had been
appointed to the Board in April 2014.
On April 26, 2016, Richard Messmann — ProNAi’s Chief Medical Officer
— resigned, effective May 26, 2016. This resignation came only one day
following the Company’s interim analysis — conducted on April 25, 2016
— of all data collected in the Wolverine trial for patients enrolled as of
February 29, 2016. While Defendants did not reveal this data for several
more months, the analysis showed that PNT2258 would fail to achieve its
29
CONSOLIDATED COMPLAINT
\DOO\]C\
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
efficacy endpoints.
94. The Offering Documents represented to ProNAi investors that proceeds from the
public offering would be primarily used to “fund [its] ongoing Wolverine Phase 2 trial, [its] planned
Brighton Phase 2 trial. . .and manufacturing activities related to these trials; to fund other planned
future Phase 2 trials related to PNT2258 and manufacturing activities related to these trials; [and]
to support non—clinical activities and preclinical activities related to PNT2258, including activities
related to its mechanism of action.” Accordingly, of the anticipated $124.4 million raised in the IPO,
ProNAi purportedly intended to spend $88 million on the clinical development of PNT225 8 and
reserved only $7 million “to further develop our DNAi technology platform and broaden our
pipeline of DNAi-based product candidates.”
95. On July 21, 2015, ProNAi announced the close of its IPO of 9.315 million shares of
common stock at a public offering price of $17.00 per share for gross proceeds of $158.4 million,
before deducting underwriting discounts and commissions and estimated offering expenses. Despite
its representations to investors, however, ProNAi would never use these proceeds to fund other
clinical trials of PNT225 8, manufacture and commercialize PNT225 8, or expand the Company’s
pipeline of DNAi-based candidates.
96. Instead, beginning in at least December 2015, the Company shifted its focus and use
of proceeds from developing PNT2258 in various ongoing and planned clinical trials to hiring
executives for the express purpose of identifying and acquiring new drug candidates. To this end,
ProNAi: (1) hired Dr. Gregg Smith on December 3, 2015 as the Company Vice President of
Preclinical to be “actively involved in the search, evaluation and development planning of any
potentially acquirable oncology drug assets,” (2) added Jeffrey H. Cooper and Tran Nguyen to the
Board during the first quarter 2016 “to evaluate novel drug candidates for potential licensing or
acquisition, with the vision of establishing a broad and diversified pipeline under our developmen ;”
and (3) hired Dr. Chris Hassig on June 1, 2016 to “play an integral role in the identification, selection
and validation of targets and novel drug candidates.”
97. These hiring efforts culminated in the Company’s public announcement on May 26,
30
CONSOLIDATED COMPLAINT
\OOOQONUI-Jk
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
2016 — three business days before announcing the Wolverine and Brighton trial failures — that
ProNAi had obtained an exclusive license from Carna Biosciences, Inc. for worldwide rights to
develop and commercialize AS-141, a small molecule kinase inhibitor targeting CDC7. Under the
terms of the agreement, ProNAi was required to pay Cama Biosciences an initial upfront payment
of $0.9 million and aggregate additional potential payments upon achievement of certain
developmental, regulatory and commercial milestones of up to $270 million. As the Company’s
only revenue source in recent years — and as the Defendants later admitted in its Form 10—Q for the
second quarter of 2016, filed on August 12, 2015 — this acquisition was funded by proceeds from
the IPO, contrary to Defendants’ representations in the Offering Documents.
1G. Disclosures Subsequent to the IPO
98. On June 6, 2016, the Company issued a press release announcing interim data from
the Wolverine trial in patients with DLBCL, including that the trial had failed to establish efficacy.
Therein, the Company stated, in relevant part:
Vancouver, BC — June 6, 2016. ProNAi Therapeutics, Inc. (NASDAQ: DNAI), a drug development company advancing targeted therapeutics for patients with cancer, today announced interim results from the Wolverine Phase 2 trial of PNT225 8 for the treatment of relapsed or refractory (r/r) diffuse large B-cell lymphoma (DLBCL). ProNAi Will host an Analyst and Investor Event today from 7:00—8:00am CT at the Hyatt Regency McCormick Place in Chicago where management will discuss these results and provide an update on the PNT2258 development program.
“Although we observed modest efficacy from PNT225 8 in this interim analysis of Wolverine, we do not View these results as robust enough to justify continued development of the drug in DLBCL. We have. decided to suspend development of PNT2258 pending further review of these data in order to determine next steps for both this asset and the DNAi platform,” said Dr. Nick Glover, President and CEO of ProNAi. “We continue to maintain a strong balance sheet and will focus our resources and activities on advancing our newly licensed Cdc7 inhibitor, PNT141, as well as on securing additional assets to build a broad and diverse pipeline of oncology drugs under our development.”
Wolverine is a multicenter Phase 2 study designed to evaluate the safety and efficacy of PNT2258 monotherapy in 61 response evaluable r/r DLBCL subjects and to explore the correlation between various baseline patient characteristics, including biomarkers, and response rate.
Interim safety and efficacy data as of April 25, 2016 are reported for the first 37 subjects enrolled. PNT225 8 showed singlseiagent activity in r/r DLBCL subjects with
CONSOLIDATED COIVIPLAINT
\DOO\]O\
10
ll 12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
a response rate of 8.1% overall (n. = 37) and 15.8% in the response evaluable subgroup (n = 19), defined as subjects meeting the amended eligibility criteria of a
performance status (PS) of 0-1, exposure to 1-3 prior systemic regimens and having received at least eight doses of PNT2258 within 35 days of starting therapy. No responses were observed in the 10 subjects with a PS of 2 and/or 3 4 prior lines of therapy enrolled prior to the amendment, nor to date in the eight additional subjects enrolled subsequent to the data cutoff date for this interim analysis.
PNT2258 is also being evaluated in patients with Richter’s Transformation in the Brighton study, a multi-center, single—arm Phase 2 trial. To date, five subjects have been enrolled in this study, of which four have discontinued. The other subject has completed two cycles of treatment. No responses have been observed to date.
“We designed and conducted a robust, well—executed set of experiments, both clinical and preclinical, in order to further our understanding of the PNT225 8 asset and the underlying DNAi technology. Unfortunately, advanced DLBCL and Richter’s Transformation are challenging diSeases to treat, and PNT2258 did not markedly improve outcomes in these indications,” said Dr. Barbara Klencke, Chief Development Officer of PrONAi. “On the basis of these interim assessments, we have decided to close the Wolverine and Brighton studies to further enrollment of new subjects. On behalf of ProNAi, we would like to thank the patients and their families,
. investigators and staff involved in these studies for their participation and support.”
* * =1:
Wolverine Phase 2 DLBCL Study Interim Results
The Wolverine Phase 2 trial (PNT2258—03-DLBCL [NCT02226965]) is a
multicenter, single-arm, open-label study of PNT225 8 at a dose of 120 mg/m2 administered as a 4—hour IV infusion on days 1—5 of a 21-day cycle in adults with r/r FDG-PET positive, measureable DLBCL. Other inclusion criteria included: ECOG PS 5 2, adequate bone marrow, renal and hepatic function, and exposure to CD20-targeted therapy, an alkylating agent, and a steroid. Following a protocol amendment, enrollment was limited to patients with PS of 0—1 who had been exposed to 1-3 prior systemic regimens.
The primary objective of the study is to assess overall response rate defined as the proportion of subjects with CR/complete metabolic response (CMR) or PR/partial metabolic response (PMR) according to the revised 2014 International Working Group criteria for lymphoma (Lugano Classification) in approximately 61 response evaluable subjects. Subjects are imaged with FDG—PET/CT at Baseline and after 3, 5, and 8 cycles.
A key study objective is to evaluate biomarker data, including BCL2, MYC, and cell of origin (C00), in order to identify correlations and possible predictors of outcome to treatment with PNT2258. Tumor samples are centrally assessed by IHC for protein expression, FISH for chromosomal rearrangement, and by LymphZCx gene expression array for C00.
32
CONSOLIDATED COlVIPLAlNT
.1;
\IONUI
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
PNT2258 demonstrated single agent activity in Wolverine, With a response rate of 8.1% overall (n = 37) and 15.8% in the response evaluable subgroup (n = 19); all responses were evaluated as PMR. The disease control rate (disease control rate defined as CMR plus PMR plus no metabolic response) was 18.9% overall and 36.8% in the response evaluable subgroup. Of the 37 subjects, the median progression free survival was 1.9 months.
Overall, the safety profile of PNT225 8 appears acceptable in subjects with PS 0—1
and 5 3 prior lines of therapy. The median treatment duration was 47 days in these subjects compared with 15.5 days in those with PS of 2 and/org 4 prior lines of therapy. Serious adverse events (SAE) and Grade 5 adverse events (AE) rates, respectively, were 37% and 11% in the 27 subjects with PS 0-1 and 5 3 prior lines of therapy, and 60% and 50% in the 10 subjects with PS 2 and/or: 4 prior lines of therapy.
A full report of this interim analysis, including biomarker data, will be presented at an upcoming medical conference.
99. According to Defendant Glover, “[a]lthough [ProNAi] observed modest efficacy .
from PNT2258 in this interim analysis of Wolverine, [it does] not view these results as robust
enough to justify continued development of the drug in DLBCL.” As a result, Defendant Glover
announced that ProNAi would suspend all clinical development of PNT225 8 and all further
investment in the Company’s DNAi platform.
100. The June 6, 2016 announcement also revealed for the first time that ProNAi had
implemented a protocol amendment to the Wolverine trial and would be excluding the trial’s sickest
patients from the efficacy results, subtly revealing: “the Wolverine Phase 2 trial (PNT2258-03-
DLBCL [NCT02226965]) is a multicenter, single—arm, open—label study of PNT2258 at a dose of
120 mg/m2 administered as a 4—hour IV infusion on days 1-5 of a 21-day cycle in adults with r/r
FDG—PET positive, measureable DLBCL. . .Following a protocol amendment, enrollment was
limited to patients with PS of 0-1 who had been exposed to 1-3 prior systemic regimens.”
101. ProNAi also revealed for the first time that the Brighton trial had managed to enroll
only five patients in the trial since it was initiated eight months prior, and of these five patients, four
had discontinued treatment and no responses had been observed in any patient to date. As a result,
the Company was prematurely terminating the Brighton trial.
102. Finally, the June 6, 2016 presentation by Defendant Glover at the 2016 Annual
33
CONSOLIDATED COB/[PLAINT
\OOO\]O'\
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
26
27
28
Meeting of the American Society of Clinical Oncology disclosed for the first time the final efficacy
data from the Pilot Phase 2 trial that the Defendants had previously touted as early as December
2014. Therein, ProNAi finally disclosed that, although responses were observed in some patients
treated with PNT225 8, patients in the Pilot Phase 2 study actually experienced disease progression
at a faster rate when being treated with PNT2258 than compared to their prior therapies. Further,
of the 13 patients treated in the Pilot Phase 2 study, 12 discontinued treatment with PNT2258 as
their disease progressed and 85% of the patients treated in the study experienced one or more grade
three or» four adverse event — a fact that Defendants did not adequately disclose until after the
Company’s IPO.
103. The June 6, 2016 press release also summarized the lackluster efficacy data from
both the Wolverine and Brighton trials. With respect to the Wolverine trial, ProNAi astoundingly
revealed for the first time that even excluding the sickest patients enrolled in the trial: (1) 89% of
the patients had discontinued treatment; (2) all 37 subjects had experienced one or more adverse
event; (3) 65% of the subjects had experienced one or more grade three or four adverse event; (4)
43% of the subjects had experienced a severe adverse event; and (5) 22% of the subjects had died
within 30 days of their last dose of PNT2258. Based on these results, the Company concluded that:
“[c]1inical data in Wolverine are not trending to an outcome that supports the likelihood of
registration as monotherapy in late line DLBCL.” With respect to the Brighton trial, the Company
revealed for the first time that: (1) only five subjects had been enrolled in the trial to date, of which
four had discontinued treatment; (2) no responses were observed in any patient; (3) two subjects
discontinued study treatment due to death, with one patient dying on day two of the study and the
other dying on day 28 of the study; and (4) two other subjects discontinued treatment for progressive
disease, i.e. because they got worse, after being treated with PNT2258. Based on these results, the
Company concluded: “In the Brighton study. . .we have also noted generally poor outcomes in this
advanced patient population, with limited signs of activity.”
104. On this news, ProNAi’s stock price fell $4.31 per share, 67.5%, to close at $2.07 per
share on June 6, 2016, on unusually heavy trading volume. On November 17, 2016, ProNAi’s stock
34
CONSOLIDATED COlVfPLAINT
.hUJN
\IGNUI
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25 '
26
27
28
price closed at $1.53 per share, a decline of $15.47, or 91% from the [PO price of $17 per share.
V. CLASS ACTION ALLEGATIONS
105. Plaintiffs bring this action as a class action pursuant to California Code of Civil
Procedure Section 382 on behalf of a Class, consisting of all persons and/or entities who purchased
or otherWise acquired the common stock of ProNAi pursuant and/or traceable to the Company’s
false and/or misleading Offering Documents issued in connection with the Company’s IPO, and
who were damaged thereby (the “Class”). Excluded from the Class are Defendants, the officers and
directors of the Company or its related entities, at all relevant times, members of their immediate
families and their legal representatives, heirs, successors or assigns and any entity in which
Defendants have or had a controlling interest.
106. )The members of the Class are so numerous that joinder of all members is
impracticable. During the relevant period, ProNAi’s securities were actively traded on the
NASDAQ Stock Market (“NASDAQ”). While the exact number of Class members is unknown to
Plaintiffs at this time and can only be ascertained through appropriate discovery, Plaintiffs believe
that there are hundreds or thousands of members in the proposed Class. The Company sold
approximately 9.3 million shares of common stock in the IPO. Moreover, record owners and other
members of the Class may be identified from records maintained by ProNAi or its transfer agent
and may be notified of the pendency of this action by mail, using the form of notice similar to that
customarily used in securities class actions.
107. Plaintiffs’ claims are typical of the claims of the members of the Class as all members
of the Class are similarly affected by Defendants wrongful conduct in violation of federal law that
is complained of herein.
108. Plaintiffs will fairly and adequately protect the interests of the members of the Class
and have retained counsel competent and experienced in class and securities litigation.
109. Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
35
CONSOLIDATED COMPLAINT
4;
\IO‘xU‘I
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
(a) whether the Securities Act was violated by Defendants’ acts as alleged
herein;
(b) whether statements made by Defendants to the investing public in connection
with the Company’s IPO omitted and/or misrepresented material facts about the business,
operations, and prospects of ProNAi; and
(c) to what extent the members of the Class have sustained damages and the
proper measure of damages.
110. 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 Class members may be relatively small, the expense and burden of
individual litigation make it impossible for members of the Class to individually redress the wrongs
done to them. There will be no difficulty in the management of this action as a class action.
VI. CAUSES OF ACTION FIRST CAUSE OF ACTION
Violation of Section 11 of the Securities Act (Against All Defendants)
111. Plaintiffs repeat and reallege each and every allegation contained above, except any
allegation of fraud, recklessness, or intentional misconduct.
112. This Count is brought pursuant to Section 11 of the Securities Act, 15 U.S.C. § 77k,
on behalf of the Class, against the Individual Defendants and the Underwriter Defendants.
113. The IPO Registration Statement was inaccurate and misleading, contained untrue
statements of material facts, omitted to state other facts necessary to make the statements made not
misleading, and omitted to state material facts required to be stated therein.
114. ProNAi is the registrant for the E0. The Individual Defendants and Underwriter
Defendants were responsible for the contents and dissemination of the IPO Registration Statement.
115. As issuer of the shares, ProNAi is strictly liable to Plaintiffs and the Class for the
misstatements and omissions.
116. None of the Individual Defendants and Underwriter Defendants made a reasonable
investigation or possessed reasonable grounds for the belief that the statements contained in the IPO 36
CONSOLIDATED COlVIPLAlNT
\OOO\10\
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Registration Statement were true and without omissions of any material facts and were not
misleading.
117. By reasons of the conduct herein alleged, each Defendant violated — and/or
controlled a person who violated — Section 11 of the Securities Act.
118. Plaintiffs’ claim is not based upon any allegations of fraud. Plaintiffs, rather, allege
that none of the Individual Defendants and the Underwriter Defendants made a reasonable
investigation or possessed reasonable grounds for the belief that the statements contained in the
Offering Documents were trueland without omissions of any material facts and were not misleading.
Plaintiffs specifically disclaim any allegations of fraud, as well as any allegations that are based
upon the scienter of the Individual Defendants or the Underwriter Defendants.
119. Plaintiffs acquired ProNAi shares pursuant and/or traceable to the IPO Registration
Statement.
120. Plaintiffs and the Class have sustained damages. The value of ProNAi common stock
has declined substantially subsequent to, and due to, Defendants’ violations.
SECOND CAUSE OF ACTION Violation of Section 15 of the Securities Act
(Against the Individual Defendants)
121. Plaintiffs repeat and reallege each and every allegation contained above, except any
allegation of fraud, recklessness, or intentional misconduct.
122. This count is asserted against the Individual Defendants and is based upon Section
15 ofthe Securities Act, 15 U.S.C. § 770.‘
123. The Individual Defendants, by virtue of their offices, directorship, and- specific acts
were, at the time of the wrongs alleged herein and as set forth herein, controlling persons of ProNAi
within the meaning of Section 15 of the Securities Act. The Individual Defendants had the power
and influence and exercised the same to cause ProNAi to engage in the acts described herein.
124. The positions of the Individual Defendants made them privy to and provided them
with actual knowledge of the material facts concealed from Plaintiffs and the Class.
125. ProNAi and the Individual Defendants were each culpable participants in the
37
CONSOLIDATED COIVIPLAINT
KOOON
10
11
12
13
, 14
15
16
17 ‘
18
19
2o
21
22
23
24
25
26
27
28
violations of Section 11 of the Securities Act alleged in Count I above.
126. By virtue of the conduct alleged herein, the Individual Defendants are liable for the
aforesaid wrongful conduct and are liable to Plaintiffs and the Class for damages suffered.
VII. PRAYER FOR RELIEF
WHEREFORE, Plaintiffs pray for relief and judgment, as follows:
A. Determining that this action is a proper class action under California Code of Civil
Procedure section 382;
B. Declaring that Defendants have violated the Securities Act by virtue of the acts
described herein;0
C. Awarding compensatory damages in favor of Plaintiffs and the other Class members
against all Defendants, jointly and severally, for all damages sustained as a result of Defendants’
wrongdoing, in an amount to be proven at trial, including interest thereon;
D. Awarding Plaintiffs and the Class their reasonable costs and expenses incurred in
this action, including attorneys’ fees and expert fees;
I
E. Awarding rescission or a rescissory measure of damages; and
F. Such other and further relief as the Court may deem just and proper.
VIII. DEMAND FOR JURY TRIAL
Plaintiffs hereby demand a trial byjury.
Dated: January 16, 2018 Respectfully submitted,
COTCHETT, PITRE & MCCARTHY LLP
By: % #2— ar ( . umphy
Mark C. Molumphy Alexandra P. Summer Stephanie D. Biehl Tamarah P. Prevost 840 Malcolm Road, Suite 200 Burlingame, California 94010 Telephone: (650) 697-6000 Facsimile: (650) 697-0577
38
CONSOLIDATED COMPLAINTZ
4s.
\OOO\10\U1
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28.
Lead Counsel and Attorneys for Plaintifi’ Timothy Gallas
BOTTINI & BOTTINI, INC. Francis A. Bottini, Jr. Albert Y. Chang Yury A. Kolesnikov 7817 Ivanhoe Avenue, Suite 102 La Jolla, California 92037 Telephone: (858) 914-2011 Facsimile: (858 914-2002
Attorneys for Plaintifl T inéothy Gallas
GLAN CY PRONGAY & MURRAY LLP Lionel Z. Glancy Robert V. Prongay Ex Kano S. Sams II Lesley F. Portnoy Charles H. Linehan 1925 Century Park East, Suite 2100 Los Angeles, CA 90067 Telephone: (310) 201-9150 Facsimile: (310) 201-9160
Attorneys for Plaintifl Christopher Book
39
CONSOLIDATED COMPLAINT
\oooxiox.mu>ooNr—A
NNNNNNb—‘l—‘l—lb—‘t—‘I—‘h—ll—lb—lb—l
gggmfimNHoomuomrtr-Ao
PROOF OF SERVICE
I am employed in San Mateo County where service of the document(s) referred to below occurred. I am over the‘age of 18 and not a party to the within action. My business address is Cotchett, Pitre, & McCarthy, San Francisco Airport Center, 840 Malcolm Road, Suite 200, Burlingame CA 94010. I am readily familiar with the firm’ s practices for the service of documents. On this date, I served or caused to be served a true copy of the following:
CONSOLIDATED COMPLAINT FOR VIOLATIONS OF SECTIONS 11 AND 15 OF THE SECURITIES ACT OF 1933 ‘/ BY E-MAIL: By e-mail Icaused service of this document(s) occurred on the date shown
below. This document is being served electronically and the transmission was reported as complete and without error.
BY MAIL: I placed a true copy of the aforementioned document(s) in a sealed envelope ‘ with postage fully paid. I am familiar with this firm’s practice of collection and processing of mail
for delivery by the United States Postal Service on the same day in the ordinary course of business.
I declare under penalty of perjury, under the laws of the State of California, that the foregoing 1s true and correct. Executed at Burlingame, California, n /January 16,2018.
W/T‘QERINE MA
-1- PROOF OF SERVICE
\OOO\10\
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
W NORTON ROSE FULBRIGHT US LLP Joshua D. Lichtman Sarah E. Moses 555 South Flower Street, F orty-First Floor Los Angeles, CA 90071 Tel: (213) 892-9200 Fax: (213) 892-9494 J oshua.lichtman@nortonr0sefulbri ghtcom [email protected]
Attorneys for Defendants- Pronai Therapeutics, Inc., Nick Glover, Sukhi Jagpal, Donald Parfet, Albert Cha, Nicole Onetto, Robert Pelzer, Peter Thompson, James Topper, And Alvin Vitangcol
MORGAN LEWIS & BOCKIUS LLP Charlene S. Shimada Lucy Wang Melissa C. Hughes One Market, Spear Street Tower San Francisco, CA 94105 Tel: (415) 442-1000 Fax: (415) 442-1001 Charlene,shimad’[email protected] [email protected] [email protected]
Attorneys for Defendants- Jefleries, LLC, Merrill Lynch, Pierce, Fenner & Smith Inc., Wedbush Securities, Inc., and Sunrust Robinson Humphrey, Inc.
GLANCY PRONGAY & MURRAY LLP Lionel Z. Glancy Roebrt V. Prongay Ex Kano S. Sams II Lesley F. Portnoy Charles H. Lineham 1925 Century Park East, Suite 2100 Los Angeles, CA 90067 Tel: (310) 201-9150 Fax: (310) 201-9160 rgronganglancylawcom esams lanc 1aw.com l ortno lanc 1aw.com [email protected]
Attorneys for Plaintiflr Christopher Book
BOTTINI & BOTTINI, INC. Francis A. Bottini, Jr.
Albert Y. Chang Yury A. Kolesnikov 7817 Ivanhoe Avenue, Suite 102 La J olla, California 92037 Telephone: (858) 914-2011 Facsimile: (858 ‘9 14—2002
[email protected] [email protected] [email protected]
Attorneys for Plaintiff Timothy Galla
2
PROOF OF SERVICE