Opinion
Case No. 01cv1455 BTM(NLS)
October 9, 2002
ORDER DENYING DEFENDANTS' MOTION TO DISMISS
Defendant Amylin Pharmaceuticals, Inc. and the individual defendants (collectively "Amylin" or "defendants") filed a motion to dismiss plaintiffs' consolidated complaint. The court heard argument on the motion on September 17, 2002. For the reasons set forth below, defendants' motion is denied.
BACKGROUND
Plaintiffs seek to represent a class of persons purchasing shares of Amylin between November 8, 1999 and July 25, 2001 ("class period"). Plaintiffs have filed a consolidated complaint ("CC") against Amylin and individual defendants Joseph Cook, who was CEO during the class period, and Howard Greene, who is a director and co-founder of Amylin. Plaintiffs allege that defendants made false and misleading statements that artificially inflated Amylin's stock price causing them damage when they purchased shares during the class period. The following comes from allegations in the Complaint.
Amylin is a pharmaceuticals company engaged in the development of potential drug candidates for the treatment of metabolic disorders. In 1987, Garth Cooper, a Ph.D. student at Oxford University, discovered amylin, a naturally occurring hormone that is secreted, along with insulin, in the pancreas. CC ¶ 29. Later that year, Cooper and defendant Greene founded Amylin Pharmaceuticals. Id. Amylin developed pramlintide acetate, a synthetic version of amylin, for the treatment of diabetes. Pramlintide was later named SYMLIN for marketing purposes.
The CC alleges that, prior to the start of the class period, Amylin had suffered significant setbacks in connection with the development and clinical testing of SYMLIN. In August, 1997, Amylin's first set of Phase III trials achieved somewhat disappointing results when some dose groups did not achieve statistical significance after twelve months. CC ¶ 1 36. Following these results, Amylin modified its test protocols by (1) using a constant, instead of varying, dose of insulin, and (2) became more particular in its selection of study participants by requiring them to have a higher HbA1c value. Id.
HbA1c is an indictor for average blood glucose concentrations.
On October 28, 1997, Amylin met with the FDA regarding the development of SYMLIN. The minutes from the FDA meeting state: "Since keeping a constant dose is not how diabetics are treated, the Agency stated that it will have difficulty in evaluating data from study designs that are inconsistent with clinical practice." CC ¶ 45.
In March, 1998, Johnson Johnson gave its six-month notice of intent to terminate its collaboration with Amylin on SYMLIN. Without Johnson Johnson's backing, Amylin had to restructure operations and cut staff. CC ¶ 37.
In October, 1998, Amylin's second set of Phase III trials achieved disappointing results because they did not reach statistical significance for the group who received the highest SYMLIN dosage. CC ¶ 38.
In early 1999, Amylin's stock was delisted from the NASDAQ. CC ¶ 39. Plaintiffs allege that Amylin made false and misleading statements regarding the clinical studies on SYMLIN in order to cause its stock to be relisted on the NASDAQ and to raise over $129 million from two private placement offerings during the Class Period without excessively diluting defendants' holdings. CC ¶ 27, 43.
One day after the close of the class period, on July 26, 2001, the FDA's Advisory Committee voted not to recommend approval of SYMLIN. CC ¶ 66. On July 27, 2001, Amylin shares fell to as low as $5.75 on a record volume of over 17 million shares. CC ¶ 66. During the class period, Amylin's stock traded as high as $18 per share. Id.
DISCUSSION
I. Request for Judicial NoticeDefendants have requested that the court take judicial notice of several documents in ruling on the motion to dismiss. Specifically, Amylin has requested that the court take judicial notice of the FDA's October, 2001 "approvable" letter, which was issued after the close of the class period. (Request for Judicial Notice ("RJN"), Exh. A). Plaintiffs do not dispute the letter's authenticity and rely upon it implicitly in their CC and in their opposition papers. The court may therefore take judicial notice of the October, 2001 letter. See Branch v. Tunnell, 14 F.3d 449, 453-54 (9th Cir. 1994).
Amylin has also requested judicial notice of the full copies of the press releases and SEC filings referred to in the CC. The court finds that the full copies of the press releases (RJN, Exhs. I-K) and SEC filings (RJN, Exhs. L-O) are judicially noticeable and may be used to place the allegedly false and misleading statements into context. See In re Silicon Graphics, Inc. Sec. Litig., 183 F.3d 970, 986 (9th Cir. 1999).
Plaintiffs challenge the request for judicial notice of Amylin's stock price from November 8, 1999 through November 27, 2001 (RJA, Exh. B) and Amylin's reference to "internal studies" that were not pled in the CC but were referred to in the transcript of the July 26, 2001 hearing (RJN, Exh. D). The court finds Amylin's historical stock price, introduced to show that the price rose after the close of the class period, is irrelevant to the motion to dismiss.
Paragraph 64 of the CC refers to statements made by Amylin scientists during the July 26, 2001 hearing that allegedly admit that Amylin was aware of the hypoglycemia problem all along. Amylin seeks to introduce other portions of the July 26 transcript. In ruling on a motion to dismiss, a district court may take judicial notice of a document if the plaintiff relies upon it in her complaint and its authenticity is not questioned. Parrino v. FHP, Inc., 146 F.3d 699, 706 (9th Cir. 1998). The court finds that the excerpts of the July 26, 2001 transcript (RJN, Exh. D) are judicially noticeable because they provide a context for Amylin's statements at the meeting, which are alleged in the complaint. Furthermore, plaintiffs do not dispute the authenticity of the transcript.
II. Section 10(b) of the Exchange Act and Rule 10b-5
A. Fraud and Scienter
Amylin argues that plaintiffs have failed to plead fraud and scienter with the particularity required by Fed.R.Civ.P. 9(b) and the Private Securities Litigation Reform Act ("PSLRA"), 15 U.S.C. § 78u-4(b). Rule 9(b) requires that "in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Fed.R.Civ.P. 9(b). Under Rule 9(b), the complaint must allege specific facts regarding the fraudulent activity, such as the time, date, place and content of the alleged fraudulent representation, how or why the representation was false or misleading, and in some cases, the identity of the person engaged in the fraud. In re GlenFed Sec. Litig., 42 F.3d 1541, 1547-49 (9th Cir. 1994).
In addition to the requirements of Rule 9(b), the PSLRA added heightened pleading requirements for alleging both falsity and scienter in securities fraud actions. If the complaint does not satisfy these pleading requirements, the court, upon motion of the defendant, must dismiss the complaint. See 15 U.S.C. § 78u-4(b)(3)(A). Under PSLRA, the complaint must (1) "specify each statement alleged to have been false or misleading," (2) specify "the reason or reasons why the statement is misleading, " and, if an allegation regarding the statement or omission is made on information and belief, (3) "state with particularity all facts on which that belief is formed." 15 U.S.C. § 78u-4(b)(1).
With regard to alleging scienter, the complaint must, with respect to each alleged act or omission, "state with particularity facts giving rise to the strong inference that the defendant acted with the required state of mind." 15 U.S.C. § 78u-4(b)(2). The Ninth Circuit has interpreted the PLSRA's "required state of mind" provision to require plaintiffs "to plead, at a minimum, particular facts giving rise to a strong inference of deliberate or conscious recklessness." Lipton v. Pathogenesis Corp., 284 F.3d 1027, 1034 (9th Cir. 2002) (citation omitted) (emphasis in original). Pleading scienter in terms of mere "motive and opportunity, " without more, does not satisfy the PSLRA's heightened pleading requirements. Id. at 1035. Plaintiffs allege defendants made false and misleading statements in three press releases and four SEC filings between November 9, 1999 (the first day of the class period) and May 17, 2001. Although worded differently, the seven allegedly false and misleading statements relate to three issues: (1) the sufficiency of Amylin Phase III trials as a basis for FDA approval; (2) representations concerning the risk of "severe hypoglycemia;" and (3) the reliability of Amylin's safety database.
In general, Amylin contends that the statements do not support a strong inference of deliberate recklessness because the FDA approval process is fraught with uncertainty. According to Amylin, the company simply used a different methodology than some FDA Advisory Committee members would have used in conducting its Phase III trials and in calculating hypoglycemic event rates. Amylin argues that the CC does not allege facts suggesting that Amylin knew or was deliberately reckless to the fact that SYMLIN's fate would rest upon this undisclosed methodology. Thus, when Amylin described the results of its Phase III trials in rosy terms, it had no idea that its description of the sufficiency of the Phase III trials, or the hypoglycemic events and safety issues, could be misleading to the public. Amylin also notes that, unlike most securities fraud cases, plaintiffs do not allege that the individual defendants sold any shares prior to the close of the class period.
1. Sufficiency of Phase III trials
Plaintiffs allege that Amylin's statements regarding the sufficiency of its Phase III trials were false and misleading because, in a 1997 meeting with the FDA, agency officials warned Amylin that its clinical studies deviated from good medical practice. Specifically, plaintiffs assert that the following statements were deceptive based on the content of the 1997 meeting:
1. "We now have comprehensive data from which to prepare our regulatory submissions . . ." (Nov. 8, 1999 Press Release, CC ¶ 44).
2. "We have completed clinical testing of SYMLIN that we believe is sufficient to support [FDA] approval to market SYMLIN." (1999 10-K Form, 1999 Annual Report, 2000 10-15 Form, May 17, 2001 S-3 Form, CC ¶¶ 48, 49, 56, 57).
3. "This comprehensive plan integrates not only all the data and reports required by FDA . . . (May 15, 2000 Press Release, CC ¶ 51).
4. "This NDA includes approximately 660,000 pages and represents over 13 years of research and development." (December 7, 2000 Press Release, CC ¶ 53).
Plaintiffs contend that these statements are false and misleading based on the minutes from the 1997 meeting in which FDA stated:
Since keeping a constant dose is not how diabetes is treated, the Agency stated that it will have difficulty in evaluating data from study designs that are inconsistent with clinical practice; The Agency recommended [an insulin titration study with] endpoints that should be either reduction in HbA1c or [reduction in episodes of] hypoglycemia; and The Agency stated that the current study data is not considered pivotal data for an NDA.
(CC ¶ 45). Since Amylin conducted its Phase III trials using a constant insulin dose, despite FDA's warning that such methodology would be difficult to evaluate, plaintiffs contend that the above statements regarding Amylin's "comprehensive data" and sufficient "clinical testing to support [FDA] approval" were false and misleading.
Amylin argues that FDA's statements were suggestions about Phase III methodology and there is no allegation in the CC that FDA indicated in the 1997 meeting that data from clinical trials with varying dosages of insulin were mandatory to gain NDA approval. Moreover, Amylin argues that FDA's suggestions were part of a "continuous dialogue" between regulators and the company. See In re MedImmune, 873 F. Supp. 953, 966 (D.Md. 1995) (company has no duty to report ongoing discussions with FDA during the review process).
Because the FDA ultimately found SYMLIN "approvable" (RJA, Exh. A), Amylin also argues that the defendants could not possibly have known that the FDA's comments during the 1997 would be fatal to its NDA. See Chu v. Sabratek, 100 F. Supp.2d 827, 835 (N.D. Ill. 2000) ("Simply receiving a number of letters from the FDA listing regulatory shortcomings does not portend ultimate denial of the recipient's application, as demonstrated by the FDA's ultimate approval of Sabratek's revised 510(k) application."). Furthermore, Amylin argues that plaintiffs' allegations regarding the sufficiency of the Phase III trials make no rational sense since the company would not have spent three years pursuing a clinical trial that it knew or had reason to believe would be useless to support its NDA. Amylin also notes that all clinical trials must be approved by the FDA and all of its Phase III trials, including trials using a constant dose of insulin, gained FDA approval.
Plaintiffs argue that Chu is distinguishable because SYMLIN has not yet been approved. In fact, the "approvable" letter required Amylin to perform additional testing with varying, as opposed to constant, doses of insulin. This is the same recommendation that the FDA made in the October 1997 meeting and in Dr. Roman's July 26, 1997 medical report (CC ¶ 62).
The court finds that statement 4 is too vague to support an allegation of fraud. With respect to statements #1-3, plaintiffs have sufficiently alleged that the statements were misleading based on the FDA's statement during the October, 1997 meeting. The FDA was clearly concerned that SYMLIN trials duplicate real-life conditions by treating patients who use varying doses of insulin. The court finds that plaintiffs have adequately alleged that this statement was more than a mere recommendation, or simply part of a continuous dialogue because the concern was reiterated by FDA medical reviewer Dr. Roman in his July 25, 2001 review (CC ¶ 62) and the October, 2001 "approvable" letter.
Furthermore, the court finds that plaintiffs have alleged sufficient facts giving rise to a "strong inference" that defendants were deliberately reckless as to whether their Phase III trials were sufficient to support SYMLIN's NDA approval. The FDA's statements in the October, 1997 meeting, as corroborated by the approvable letter put Amylin on notice that its Phase III trials may have been insufficient to support NDA approval. While the court agrees that the FDA approval process is highly uncertain and drug companies engage in a "continuous dialogue" with regulators, Amylin was also under no obligation to make statements regarding the "completeness" of the trials or the likelihood for FDA approval. Moreover, the fact that Amylin received FDA approval to conduct tests using constant dosages of insulin does not negate the finding of scienter. These "apples to apples" trials may have indeed established SYMLIN's efficacy, but they did not address the FDA's concern about the drug's clinical viability.
2. Severe Hypoglycemia
Plaintiffs assert that Amylin's statements regarding the results of Phase III tests were materially false or misleading because Amylin reported that successful results were obtained without an increase in severe hypoglycemic events or clinically important safety issues. CC ¶¶ 45, 50, 54, 58.
Plaintiffs contend that these statements were false when made. Plaintiffs allege that in five of the six Phase III trials, SYMLIN appeared to increase the risk of severe hypoglycemia, particularly during the first four weeks of treatment. CC ¶¶ 50. Plaintiffs allege that when these data and results were analyzed by FDA reviewers, the clinical trial data were interpreted to have caused an increase in severe hypoglycemic events. See CC ¶¶ 61-62 (FDA reviewers Dr. Misbin and Dr. Roman). Dr. Misbin's and Dr. Roman's reports indicated that the SYMLIN study data showed that severe hypoglycemia was a problem, that driving-related events associated with hypoglycemia were reported four times more frequently in SYMLIN-treated patients than in patients on insulin alone, and that SYMLIN was associated with serious adverse events related to hypoglycemia. CC ¶¶ 62-63.
Amylin correctly points out that the first of the seven allegedly deceptive statements does not mention severe hypoglycemia and therefore cannot be deliberately false or misleading on these grounds. With respect to the other six statements, Amylin argues that its statements downplaying the incidence of hypoglycemic events were not inaccurate but, rather, can be explained by different interpretations of the same clinical results.
First, Amylin argues that its data supports the conclusion that there is no overall increase in the annual event rate of severe hypoglycemia. While FDA regulators focused on the increase in hypoglycemic events per individual, Amylin contends that its use of the annual event rate was an accepted medical methodology. Amylin also contends that its statements regarding the lack of correlation between SYMLIN and hypoglycemia were not false because its internal studies indicate that SYMLIN, acting alone, does not cause hypoglycemia. Rather, its studies reflect insulin-induced hypoglycemia and demonstrate that SYMLIN is simply efficacious in enhancing the effect of insulin. (Tr. July 26, 2001 Meeting, RJN, Exh. D at 36-37).
Plaintiffs argue that Amylin's explanations fail to dispel the false and misleading nature of its statements since they unequivocally denied any association between SYMLIN and severe hypoglycemia. Plaintiffs contend that Amylin never hedged its statements to suggest that SYMLIN "might" or "could" increase severe hypoglycemia, such as during the first four weeks of treatment or in conjunction with insulin.
The court finds that plaintiffs have adequately alleged facts showing Amylin's statements were at least misleading because a reasonable investor would believe that "no" severe hypoglycemia means "no" severe hypoglycemia regardless of the time interval or insulin dose. Indeed, plaintiffs allege that a Roth Capital Partners analyst stated that the problem with hypoglycemia "was not something that was brought up by the company beforehand . . . it said that Symlin does not increase the rate of hypoglycemia." CC ¶ 65.
With respect to scienter, plaintiffs argue that Amylin's own briefing document for the July 26, 2001 meeting noted that patients on SYMLIN suffered higher rates of severe hypoglycemia than the control group. CC ¶ 65. Plaintiffs allege that Amylin knew about the hypoglycemia problem all along based on comments made by Amylin scientists Dr. Kolterman and Dr. Baron to the FDA Advisory Panel on July 26, 2001. For example, Dr. Kolterman is quoted as acknowledging in the meeting that "the two significant side effects that we need to deal with when we consider pramlintide [are] overall nausea and severe hypoglycemia"; "the two side effect issues of concern, overall nausea and severe hypoglycemia, both increased during the first four weeks of therapy." CC ¶ 64.
Amylin argues that, even if the statements are misleading, plaintiffs have failed to allege facts creating an inference that Amylin was deliberately reckless to the fact that its statements would mislead investors. Amylin contends that it could not have known that the FDA would use a different definition of "severe hypoglycemia" and, therefore, cannot be held liable for securities fraud based on legitimate differences in data interpretation. See MedImmune, 873 F. Supp. at 966 (no scienter where plaintiffs' allegations rest upon the adequacy of testing procedures and interpretation of results that are subject to differences in medical opinion). Amylin points to the transcript of the July 26 meeting where the company explained its rationale for using annual event rate data, rather than the FDA's approach of using hypoglycemic events per individual:
When one looks at the entire data set, one sees that there is no overall increase in the annual event rate of severe hypoglycemia. Let me remind you that I am using annual event rate data because it captures, it compensates, deals with, addresses the issue of multiple events in a single individual and also accounts for differences in exposure of subjects. The over all rate is identical. However, given the importance of this, it needs to be looked at in greater detail.
(RJN, Exh. D, 34-35).
Here, the court finds that plaintiffs have alleged facts creating a sufficient inference that defendants acted with deliberate recklessness. Plaintiffs have alleged facts showing that Amylin knew that some correlation existed between SYMLIN and severe hypoglycemia, yet failed to prevent investor confusion with more cautionary language. Although, Amylin provided a rational explanation for its methodology during the July 26, 2001 meeting, the court finds that this post-hoc explanation does not negate the sufficient inference of "conscious or deliberate recklessness" on the part of the defendants.
3. Safety Database
Plaintiffs allege that Amylin's statements about the success of its Phase III trials were also false and misleading because they asserted: (1) [a]dverse events . . . consistent with those in previous SYMLIN studies [where there were no adverse events] (CC ¶¶ 44, 45); (2) improvements in glucose control "without an increase in the incidence of . . . clinically important safety issues" (CC ¶ 48, 56); and (3) "[n]o major safety concerns" (CC ¶ 53) when in fact Amylin had manipulated its safety database to demonstrate safety. Plaintiffs assert falsity based on random FDA inspections of 44 patient records that revealed one hypoglycemic event and one motor vehicle event that did not appear in the database.
Amylin argues that this "minuscule" data-entry error does not support plaintiffs' allegations of falsity or scienter because 2 errors out of 3,500 patients is only 0.05%. Furthermore, Amylin argues that there is no allegation that anyone at Amylin knew about the data entry error. Finally, Amylin contends that this data entry error in the safety database does not support plaintiff's fraud claim because the FDA did not consider the database to be an issue in its July 26, 2001 meeting (RJN, Exh. D at 39:16-17) or in its "approvable" letter (RJN, Exh. A).
During oral argument, Amylin argued that the data entry error in the safety database also does not support plaintiffs securities fraud action because the safety events were in the database, they were simply entered into the wrong part of the database. The court does not consider this argument because it is not supported by any judicially noticeable evidence.
Plaintiffs correctly point out that defendants have miscalculated the error rate since the correct ratio is 2 errors per 44 inspections, not 2 errors per 3,500 patients. Moreover, the fact that no one at Amylin knew about the data entry error is irrelevant because the question is whether defendants knew about the actual events, yet still described SYMLIN's safety record as impeccable. Finally, plaintiffs do not dispute that the FDA Advisory Committee did not consider the safety database to be an issue at the July 26, 2001 meeting but, instead, argue that FDA was concerned with the safety database since its October, 2001 "approvable" letter referred to the need for "careful and complete" ascertainment of safety events. (RJN, Exh. A at 8-9).
While this is a closer question, the court finds that the omissions in the safety database support plaintiffs' allegations that the statements regarding SYMLIN's safety track record were false or misleading in that the statements regarding "[n]o major safety concerns" were knowingly misleading.
4. Individual Defendants
With respect to the individual defendants, the court finds that since the plaintiffs have adequately alleged scienter as to Amylin, under the circumstances here, they have adequately pled it with respect to Cook and Greene. Because SYMLIN was Amylin's primary drug candidate and Amylin is a small biotech company, defendants Cook and Greene are properly charged with knowledge of the misstatements regarding severe hypoglycemia. See Nathensen v. Zonagen, 267 F.3d 400, 425-26 (5th Cir. 2001) (finding strong evidence of scienter with respect to company officer where Zonagen was essentially a one-product company, company's prospects were substantially dependant on one product and the company was small). Nathensen is not distinguishable on the grounds that Amylin is a three-product company (1999 Annual Report, Letter to Shareholders, RJN, Exh. G) because the Letter to Shareholders discusses SYMLIN as the company's "number one priority." See Epstein v. Itron, Inc., 993 F. Supp. 1314 (E.D. Wash 1998) ("The fact that a particular matter constitutes a significant source of income to a company can establish a strong inference that the company and its relevant officers knew of easily discoverable additional facts that directly affected that source of income.").
B. PLSRA's Safe Harbor and "Bespeaks Caution" Doctrine
Amylin argues that all of its seven public statements are also protected by the PSLRA's safe harbor provisions for forward-looking statements and the "bespeaks caution" doctrine. Amylin contends that its press releases and SEC filings are all forward-looking because all refer to the future potential FDA approval of SYMLIN. In addition, all statements were accompanied by cautionary language regarding the risks and uncertainties of FDA's approval process.
1. Safe Harbor
The PSLRA contains a safe harbor provision which protects false or misleading forward-looking statements if 1) the statements are accompanied by "meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement"; or 2) plaintiff fails to prove the statement "was made with actual knowledge by that person that the statement was false or misleading." A present-tense statement can qualify as a forward-looking statement as long as the truth or falsity of the statement cannot be discerned until some point in time after the statement is made. See Harris v. Ivax Corp., 182 F.3d 799, 805 (11th Cir. 1999) (classifying the statement "the challenges unique to this period in our history are now behind us" as a forward-looking statement and classifying a press release with a mixed list of forward-looking and non-forward looking statements as covered by the safe harbor provision). Although the Ninth Circuit has not addressed the issue, at least one district court has held that statements concerning historical or current facts are not forward-looking. See Gross v. Medaphis Corp., 977 F. Supp. 1463, 1473 (N.D.Ga. 1997).
Plaintiffs argue that the safe harbor provision is inapplicable because the statements are not forward-looking. Specifically, the challenged statements refer to the methodology used and the results obtained from clinical studies that had already been conducted. Plaintiffs argue that even if the statements are forward-looking, they were not accompanied by meaningful cautionary language.
Here, the statements regarding (1) the sufficiency of the Phase III trials, (2) the incidence of severe hypoglycemia in Phase III clinical trials and (3) the safety database all relate to the future submission of Amylin's NDA. The PSLRA includes in its definition of forward-looking statements "any statement of the assumptions underlying or relating to" statements of the plans and objectives relating to the products of the issuer. 15 U.S.C. § 78u-5(i)(1)(D) (emphasis added). Because the challenged statements both underlie and relate to Amylin's objective to obtain FDA approval of SYMLIN, they are forward-looking under the PSLRA.
Plaintiffs argue that even if the statements are forward-looking, they are actionable because they are not accompanied by meaningful cautionary language and are made with actual knowledge of its falsity. All seven statements include cautionary language. For example, the four SEC filings include the following language:
The data collected from our clinical trials may not be sufficient to support approval of Symlin . . . (RJN, Exh. L, M, N, O).
The FDA may also require additional testing for safety and efficacy. (RJN, Exh. L, M, N, O).
The press releases contain the cautionary language similar to the following:
This press release contains forward-looking statements about the Company's plans, including statements regarding the Company's planned regulatory filings. These forward-looking statements involve risks and uncertainties. The Company's actual results could differ materially from those discussed in this press release, due to risks and uncertainties regarding the Company's ability to coordinate the completion and submission of planned regulatory filings, the timing of applications or marketing approvals for SYMLIN and, if approvals are obtained, time to market thereafter . . . (May 15, 2000 Press Release, RJN, Exh. J).
The December 7, 2000 Press Release contains slightly more cautionary language regarding the FDA approval process:
The Company's actual results could differ materially from those discussed in this press release, due to risks and uncertainties regarding the drug discovery and development process, uncertainties regarding the Company's ongoing clinical studies of its of its drug candidates including SYMLIN . . . (December 7, 2000 Press Release, RJN, Exh. K).
The court finds that the safe harbor provision does not shield Amylin from liability because the cautionary language is not sufficiently meaningful. Individuals commonly ignore such boilerplate warnings. Even if investors read them, merely warning investors that FDA may not approve the drug tells them something they already know. The cautionary language does not warn investors about some of the specific shortcomings of the Phase III trials (i.e., that the FDA has suggested the need for additional testing using varying dosages of insulin) or SYMLIN's correlation with severe hypoglycemia. Indeed, plaintiffs have alleged facts suggesting that the cautionary language was ineffective to warn an investment analyst that SYMLIN might cause hypoglycemia. See CC ¶ 65 (quoting a Roth Capital Partners analyst as stating that the problem with hypoglycemia "was not something that was brought up by the company beforehand. In fact, it said that Symlin does not increase the rate of hypoglycemia.").
2. Bespeaks Caution
The "bespeaks caution" doctrine is a judge-created safe-harbor that immunizes certain forward-looking statements when those statements are accompanied by cautionary language. "A motion to dismiss for failure to state a claim will succeed only when the documents containing defendants' challenged statements include "enough cautionary language or risk disclosure' . . . that "reasonable minds' could not disagree that the challenged statements were not misleading." Fecht v. Price Co., 70 F.3d 1078, 1082 (9th Cir. 1995).
Here, the challenged statements include boilerplate language that does not preclude "reasonable minds" from differing on the question of whether the statements were misleading. Indeed, plaintiffs allege that an investment analyst was misled. See CC ¶ 65. Therefore, the bespeaks caution doctrine does not further insulate Amylin's statements.
III. Control Person Liability
Next, Amylin argues that the allegations in the CC are insufficient to impose control person liability on the individual defendants under Section 20(a) of the Securities Exchange Act, 15 U.S.C. § 78t because (1) there is no underlying violation and (2) Tom Greene is only an outside director. To establish "controlling person" liability, the plaintiff must show that a primary violation was committed and that the defendant "directly or indirectly" controlled the violator. See Hollinger v. Titan Capital Corp., 914 F.2d 1564, 1575 (9th Cir. 1990). The determination of who is a controlling person "is an intensely factual question" and "involves scrutiny of the defendant's participation in the day-to-day affairs of the corporation and the defendant's power to control corporate actions." Howard v. Everex Systems, Inc., 228 F.3d 1058, 1065 (9th Cir. 2000). If the plaintiff establishes that the defendant is a "controlling person, " then the defendant bears the burden of proving he "acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action." 15 U.S.C. § 78t(a). See Hollinger, 914 F.2d at 1575.
The allegations against the individual defendants are sufficient to plead control. The CC alleges that Cook was Chairman and CEO of Amylin and as such had power and authority to engage in the conduct that is alleged to be wrongful. The CC alleges that Greene, as a co-founder, former officer and the largest shareholder of Amylin was involved in the day-to-day activities of the corporation. CC ¶ 25. This is sufficient for pleading purposes. See Howard, supra.
CONCLUSION
For the reasons set forth above, defendants' motion to dismiss [26-1] is DENIED.