In Re Neopharm Inc. Securities Litigation.
| Decision Date | 31 March 2010 |
| Docket Number | No. 02 C 2976.,02 C 2976. |
| Citation | 705 F.Supp.2d 946 |
| Parties | In re NEOPHARM, INC. SECURITIES LITIGATION. |
| Court | U.S. District Court — Northern District of Illinois |
COPYRIGHT MATERIAL OMITTED
Eric Belfi, Murray, Frank & Sailer LLP, Joel P. Laitman, Jay P. Saltzman, Schoengold and Sporn, P.C., New York, NY, Christopher B. Sanchez, Cafferty Faucher LLP, Amelia Susan Newton, Leigh R. Lasky, Norman Rifkind, Lasky & Rifkind, Ltd., Chicago, IL, Helen J. Hodges, Steven W. Pepich, John J. Rice, Lauren G. Kerkhoff, X. Jay Alvarez, Robbins Geller Rudman & Dowd LLP, San Diego, CA, for Plaintiffs.
Leann Pedersen Pope, Stephen Ryan Meinertzhagen, Burke, Warren, MacKay & Serritella, P.C., Chicago, IL, Dylan J. Liddiard, Lloyd Winawer, Luke Liss, Wilson, Soncini, Goodrich & Rosati, Palo Alto, CA, for Defendants.
Plaintiffs, a class of persons who purchased the common stock of defendant, NeoPharm, Inc. (“NeoPharm”), between the dates of October 31, 2001 and April 19, 2002 (“the class period”), alleging that NeoPharm, John N. Kapoor (“Kapoor”),1 James M. Hussey (“Hussey”), and Imran Ahmad (“Ahmad”) (collectively “defendants”), violated Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, by knowingly or recklessly making false and misleading statements regarding NeoPharm's experimental drug Liposome Encapsulated Paclitaxel (“LEP”). Plaintiffs also maintain that Hussey and Ahmad, acting as control persons, violated § 20(a) of the Exchange Act, 15 U.S.C. § 78t(a). Defendants have moved for summary judgment and to exclude the expert testimony of Bjorn I. Steinholt. For the reasons set forth below, defendants' motion for summary judgment [165] will be granted in part and denied in part. Defendants' motion to exclude [162] will be denied with leave to raise any challenges to his methodology in a motion in limine prior to trial.
NeoPharm is a biopharmaceutical company engaged in the research, development, and commercialization of drugs for the treatment of various forms of cancer. At all relevant times, Hussey was NeoPharm's President, Chief Executive Officer, and Director; Ahmad was NeoPharm's Vice President of Research and Development and Chief Scientific Officer.
Prior to the start of the class period, NeoPharm publicly represented that LEP was a potentially revolutionary method of administering the anti-cancer drug paclitaxel. Paclitaxel is marketed by Bristol-Myers Squibb Company under the trade name “Taxol®” and is used to treat a number of cancers, including breast and lung cancer. Despite paclitaxel's wide use and its anti-tumor characteristics, its effectiveness has been limited both by side effects, such as nausea, vomiting, hair loss and nerve and muscle pain, and by a long infusion time. Because of the chemical characteristics of paclitaxel, it cannot be introduced into the body unless it is first formulated in a toxic mixture of castor oil and ethanol, which requires premedication of the patient. LEP delivery consists of encapsulating paclitaxel in a liposome.2 LEP does not require administration with castor oil and ethanol, thus reducing the need for premedication.
On February 19, 1999, NeoPharm entered into a worldwide collaborative relationship with Pharmacia & Upjohn Company (“Pharmacia”) to develop and commercialize two products, one of which was LEP 3 (the “Pharmacia Agreement”). At that time, LEP was NeoPharm's lead product in development. Under the Pharmacia Agreement, Pharmacia obtained exclusive rights to develop and market LEP throughout the world and assumed responsibility for, and the costs associated with, the clinical development and regulatory filings for LEP. Further, neither NeoPharm nor Pharmacia was able to make public announcements regarding the development of LEP without the prior written consent of the other party, unless the disclosure was mandated by law. Defs.' SoF ¶ 2; Ex. 45 to Defs.' Appendix of Evidence ( ). No joint development committee between NeoPharm and Pharmacia was formed.4 Rather, NeoPharm was to receive status updates regarding the progress Pharmacia had made in developing LEP. Defs.' SoF ¶ 3. Pharmacia's and NeoPharm's licensing arrangement was discussed in pre-class period analyst reports, as well as NeoPharm's own SEC filings, which indicated that its lack of control over LEP development was a significant risk factor. Defs.' SoF ¶¶ 5, 6. The analyst reports warned that Pharmacia might not be as aggressive regarding the development timelines as a biotechnology company would be. Id. ¶ 5. Consequently, Neopharm stock was rated as “high risk” and “speculative.” Id. ¶ 7.
I. Clinical Trials Conducted by Pharmacia from August 2000 to July 2001
Pharmacia's initial clinical development plan 5 was two-pronged: (1) to run accelerated Phase II clinical trials in esophageal, gastric and bladder cancers, sometimes referred to by the parties as “orphan cancers,” 6 for which the use of Taxol® was not FDA approved, and (2) to run Phase II clinical trials in breast and lung cancers, sometimes referred to by the parties as “key oncology indications,” 7 for which the use of Taxol® was FDA approved. Defs.' SoF ¶ 8. Because of the incentives under the Orphan Drug Act, Pharmacia's goal was to receive accelerated approval of LEP for orphan cancers. Pharmacia also wanted to receive FDA approval for a non-inferiority comparison to Taxol® for breast cancer.8 Pls.' SoF ¶ 8.
In the third-quarter of 2000, Pharmacia commenced Phase II clinical trials for orphan cancers using a different formulation of LEP than had been developed by NeoPharm.
Pls.' SoF ¶ 10. The LEP developed by NeoPharm was sonicated 9 (“LEP-s”); the LEP used by Pharmacia in the Phase II orphan cancer clinical trials was not sonicated (“LEP-ns”). Id. Pharmacia created LEP-ns because sonication produced a high variability in the content of non-encapsulated paclitaxel. Ex. 124 to Decl. of Steven W. Pepich ). By eliminating sonication, Pharmacia believed that the drug would be easier to reproduce and therefore be more commercially viable. Defs.' Ex. 47. Pharmacia informed NeoPharm that the formulations were pharmaceutical equivalents, disclosing only that their new method of preparation eliminated sonication and added the organic compound “mannitol.” Defs.' SoF ¶¶ 11, 13. At the time Pharmacia decided to use LEP-ns in its clinical trials, neither NeoPharm nor Pharmacia believed that the differences between the formulations were material. See Pls.' Resp. to Defs.' SoF ¶ 11. Accordingly, Pharmacia based the doses of LEP-ns given in the Phase II orphan cancer trials on the “maximum tolerated dose,” or “MTD,” obtained in Phase I trials for LEP-s.10 Pls.' Resp. to Defs.' SoF ¶ 11; Bowden Dep. 136:19-137:14, 142:12-143:15. Nevertheless, at the same time Pharmacia commenced Phase II trials, it also commenced Phase I trials of LEP-ns to determine, among other things, whether its MTD was higher than that of LEP-s.
NeoPharm began receiving status updates on the clinical trials in February 2001. On February 5, 2001, Pharmacia emailed NeoPharm its January 2001 Monthly Update, reproduced in relevant part below:
-------
|Trial |Indication |Status |Comments |
|-----------------------|------------||---------------|
| | |1 patient ongoing, 90mg/|-Enrollment @ |
|001 |Phase I |m 2 |250 mg/m 2 |
| | | |open |
|-----------------------|------------||---------------|
|-Additional site | | | |
|initiated 11/28 (Marin | | | |
|Oncology) | | | |
|-----------------------|------------||---------------|
| |2nd line | |-No objective |
|005 |Gastric |TBD |responses |
| |Phase II | |reported |
|-----------------------|------------||---------------|
| |2nd line | |-No objective |
|006 |Esophagus |TBD |responses |
| |Phase II | |reported |
|-----------------------|------------||---------------|
| |2nd line | | |
|007 |Bladder |TBD | |
| |Phase II | | |
|-----------------------|------------||---------------|
| |2nd line |1 patient has completed | |
|008 |Gastric |6 cycles with stable | |
| |Phase II |disease | |
|-----------------------|------------||---------------|
| |2nd line | | |
|009 |Esophagus | | |
| |Phase II | | |
|-----------------------|------------||---------------|
| |2nd line | | |
|010 |Bladder | | |
| |Phase II | | |
-------
Pls.' Ex. 18.
On March 14, 2001, Pharmacia emailed NeoPharm its February 2001 Monthly Update, reproduced in relevant part below:
-------
|Trial |Indication |Status |Comments|
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