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Stanford University Law School - Securities Class Action Clearinghouse
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UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF PENNSYLVANIA
____________________________________
: CIVIL ACTION NO. 96 CV-0633
IN RE: CEPHALON, INC. SECURITIES :
LITIGATION : PLAINTIFFS DEMAND TRIAL
____________________________________: BY A JURY
CONSOLIDATED CLASS ACTION COMPLAINT
Plaintiffs by their attorneys, allege the following upon
information and belief after due investigation by their counsel
(except for those allegations pertaining to plaintiffs, which are
based on personal knowledge). The investigation included, among
other things, thorough review and analysis of (a) public statements
of Cephalon and the individual defendants, (b) analysts' reports,
(c) wire service releases, and (d) articles in newspapers and
periodicals, attendance at a meeting of a U.S. Food & Drug
Administration ("FDA") Advisory Committee meeting at which data
from Cephalon's clinical trials of Myotrophin, the drug which is
the subject of the plaintiffs' claims were discussed and analyzed;
and interviews by counsel with various experts who assisted in the
preparation of the Complaint including experts in clinical trials,
biostatistics and FDA procedures.
NATURE OF THE ACTION
1. This is a class action on behalf of a class (the
"Class") consisting of plaintiffs and all other persons or entities
who purchased the common stock of Cephalon, Inc. ("Cephalon" or the
Company) or traded options to purchase or sell Cephalon securi-
ties during the period from June 12, 1995 through June 7, 1996,
inclusive (the "Class Period") and were damaged thereby, to recover
damages caused to the Class by defendants' violations of the
federal securities laws and the common law.
JURISDICTION AND VENUE
2. This action arises under Sections 10(b) and 20 of
the Securities Exchange Act of 1934 (the "1934 Act"), 15 U.S.C.
§§78j(b) and 78t, and the rules and regulations promulgated
thereunder, including Securities Exchange Commission ("SEC") Rule
10b-5, 17 C.F.R. §240.10b-5. Jurisdiction is based upon Section 27
of the 1934 Act, 15 U.S.C. §78aa, and 28 U.S.C. §1331.
3. Venue is proper in this District because many of the
acts complained of, including the dissemination of materially false
and misleading statements, prepared by or with the participation,
acquiescence, encouragement, cooperation, or assistance of
defendants, occurred, at least in part, in this District.
Additionally, Cephalon has its headquarters within this District.
4. In connection with the acts and conduct complained
of, defendants, directly or indirectly, used the means and
instrumentalities of interstate commerce, including the mails,
interstate telephone communications, and the facilities of the
national securities exchanges.
2
THE PARTIES
5. Plaintiffs Joseph George, Rose Guida, Mathew
Hooshmand, Frank Kearney, Izidor Klein, Marilyn Mandel and Sands
Point Partners, L.P., purchased Cephalon common stock and traded
Cephalon options during the Class Period as described in their
filings in this action.
6. Cephalon is a Delaware corporation with offices at
145 Brandywine Parkway, West Chester, PA 19350. It researches,
develops, and markets products to treat neurological diseases and
disorders such as Alzheimer's disease, amyotrophic lateral
sclerosis, peripheral neuropathies, stroke and head and spinal cord
injury.
7. Defendant Frank Baldino, Jr. ("Baldino") is a
founder of the Company and was at all relevant times, President,
Chief Executive Officer and a director of Cephalon. Defendant
Baldino has a Ph.D degree. During 1994, defendant Baldino received
cash compensation of $428,000 and was granted 200,000 options to
acquire Cephalon shares at an exercise price of $8.25 per share.
In December 1994, Baldino's base salary was increased from $268,000
to $300,000. Among the reasons for an increase in his base salary
effective January 1, 1995 and award of a $160,000 bonus as
represented by the Company in its Proxy Statement dated April 10,
1995, was progress made by the Company toward completion of the
clinical trials of Myotrophin in the treatment of ALS. During the
Class Period defendant Baldino sold 77,418 shares of Cephalon stock
3
at artificially inflated prices, yielding proceeds of approximately
$1.5 million.
8. Defendant Michael F. Murphy ("Murphy") was at all
relevant times herein Senior Vice-President of Worldwide Clinical
Research. Defendant Murphy was the Cephalon officer principally
responsible for the clinical trials of Myotrophin in the treatment
of ALS. Defendant Murphy was granted 25,000 options to acquire
Cephalon shares at an exercise price of $8.25 per share, and
received a salary and bonus of $224,000 in 1994, plus other
compensation of more than $66,000. Defendant Murphy is a physician
and has a Ph.D degree.
9. By reason of their position as officers and, in the
case of defendant Baldino, as a director of Cephalon, defendants
Baldino and Murphy were at all relevant times controlling persons
within the meaning of Section 20 of the 1934 Act. Because of their
executive, managerial, and directorial positions with Cephalon,
defendants Baldino and Murphy had access to adverse, non-public
information about the operations and future business prospects of
Cephalon, in particular the data from the clinical trials of
Myotrophin in the treatment of ALS, and communications with the
U.S. Food & Drug Administration ("FDA") concerning Myotrophin, as
particularized herein, and were able to control the contents of
various reports and filings with the SEC and public statements
regarding Cephalon and Myotrophin. Any acts attributed to Cephalon
were caused and/or influenced by defendants Baldino and Murphy by
virtue of their domination and control thereof.
4
CLASS ACTION ALLEGATIONS
10. Plaintiffs bring this action as a class action under
Rules 23(a) and 23(b)(3) of the Federal Rules of Civil Procedure on
behalf of a class (the "Class") consisting of plaintiffs and all
other persons or entities who purchased the common stock of
defendant Cephalon or traded options to purchase or sell Cephalon
common stock during the period from June 12, 1995 through June 7,
1996, inclusive (the "Class Period") and were damaged thereby.
Excluded from the Class are the defendants, members of their
immediate families, Cephalon and any officer or director of
Cephalon.
11. The Class is so numerous that joinder of all members
is impracticable. As of August 25, 1995, approximately 22 million
shares of Cephalon common stock were outstanding, registered, and
listed on the NASDAQ - National Market System, traded in an open
and efficient market under the symbol "CEPH". There are believed
to be thousands of persons who purchased Cephalon common stock
during the Class Period.
12. Plaintiffs' claims are typical of the claims of the
other members of the Class, as plaintiffs and all members of the
Class sustained damages arising out of defendants' conduct in
violation of federal law and the common law as complained of
herein.
13. Plaintiffs will fairly and adequately protect the
interests of the members of the Class and have retained counsel
5
competent and experienced in class action and securities litiga-
tion.
14. A class action is superior to other available
methods for the fair and efficient adjudication of this controversy
since joinder of all members is impracticable. Furthermore, as the
damages suffered by individual members of the Class may be
relatively small, the expense and burden of individual litigation
make it impossible for the members of the Class individually to
redress the wrongs done to them. There will be no difficulty in
the management of this action as a class action.
15. Common questions of law and fact exist as to all
members of the Class and predominate over any questions affecting
solely individual members of the Class. Among the questions of law
and fact common to the Class are:
(a) whether the federal securities laws or the
common law were violated by defendants' acts as alleged herein;
(b) whether statements disseminated by defendants
to the investing public and to the shareholders of Cephalon during
the Class Period omitted and/or misrepresented material facts about
the business operations and prospects of the Company;
(c) whether defendants acted willfully or reckless-
ly in omitting and/or misrepresenting material facts;
(d) whether defendants' non-disclosures and/or
misrepresentations constituted a fraud on the market by artificial-
ly inflating the market prices of Cephalon common stock and options
6
to purchase or sell Cephalon common stock during the Class Period;
and
(e) whether the members of the Class have sustained
damages and, if so, what is the proper measure of such damages.
FACTUAL BACKGROUND
16. Cephalon has no pharmaceutical product approved by
the FDA and has no revenue generated from the regular sale of
pharmaceutical products other than payments from Bristol-Myers
Squibb Corporation for the co-promotion of a Bristol-Myers
analgesic, Stadol NS Nasal Spray, in the neurology market. These
payments were not expected to exceed related expenses in 1995.
17. Cephalon's major drug is Myotrophin, a recombinant
human insulin-like growth factor-1 (or "rhIGF-1"), which is a
peptide that has been isolated from the hearts of hypertensive rats
and from dilated cardio-myopathic human heart tissue. Myotrophin
was and is being developed and tested jointly with Chiron Corp. for
use in neurologic disorders. The first such condition for which
Myotrophin was tested is the fatal neuro-degenerative disease
amyotrophic lateral sclerosis ("ALS").
18. ALS is a progressive neuro-degenerative disease
which results in death, usually within three to five years after
onset. It is characterized by a gradual weakening of the body's
muscles as motor neurons die. The rate of progression of ALS is
highly variable, and is believed to depend on whether the onset of
the disease is bulbar (swallowing and speech) or respiratory, as
7
opposed to onset in the patient's limbs, and the age of the
patient. The cause is unknown and there is no cure. In more than
90% of ALS patients, death results from respiratory failure.
19. Approximately 5,000-6,000 persons in the United
States are afflicted with ALS each year. Thus, the market for an
ALS drug is relatively small. However, throughout the Class Period
defendants stated that Myotrophin had been shown to mediate
regeneration of the peripheral nervous system, to support the
survival of motor neurons, accelerate the regeneration of damaged
neurons, promote sprouting and function of peripheral nerves, and
induce skeletal muscle hypertrophy or enlargement of muscle cells,
in the presence of neurodegenerative conditions, suggesting that
Myotrophin would treat a variety of neurological disorders. Also,
by the beginning of the Class Period defendants stated that
Cephalon had initiated a program to test Myotrophin in the
treatment of a variety of peripheral neuropathies, including
chemotherapy-induced peripheral neuropathy, post-polio syndrome and
diabetic neuropathy. According to defendants, one million persons
in the United States suffer from these neuropathies. Reports of
securities analysts issued during the Class Period state that
200,000 patients in the United States are afflicted with chemother-
apy-induced neuropathy, 165,000 United States patients suffer from
post-polio syndrome, and more than 600,000 have diabetic neuropa-
thy.
20. As discussed herein, based on the defendants'
glowing descriptions of the results of the North American and
8
European clinical trials of Myotrophin in the treatment of ALS,
securities analysts issued reports which stated that they expected
that Myotrophin would be used to treat these conditions, and some
of them projected that Myotrophin would generate tens of millions
of dollars of revenues from "off-label" use for the treatment of
peripheral neuropathies as early as 1997. Off-label use is the use
of a drug to treat conditions other than the conditions for which
the FDA has approved the drug. These expectations were material to
analysts' evaluation of Cephalon.
21. Although the market for ALS is relatively small, the
standards for FDA approval of the drugs for deadly diseases for
which there is no successful therapy are quite lenient, and the FDA
processing time for drugs for use in such conditions is quite
short. Selecting ALS as the condition for which FDA approval of
Myotrophin would be sought appeared to the investing public to
offer the earliest prospects for sale of Myotrophin, not only for
use in ALS, but also for peripheral neuropathies.
22. At the beginning of June, 1995, various securities
analysts, including Robertson Stephens and Furman Selz analysts,
emphasized the Company's representation that Cephalon was testing
Myotrophin for use as a treatment for peripheral neuropathies, and
on June 1, 1995, Cephalon trumpeted the fact that the Company had
received a U.S. patent that claims the use of Myotrophin as a
treatment for peripheral neuropathies.
23. Facts as to the strength of the data from the
clinical trials of Myotrophin in the treatment of ALS were highly
9
material to analysts' expectations of the success of Myotrophin as
a treatment for peripheral neuropathies, and their expectations for
sales of Myotrophin for "off-label" use for such neuropathies.
24. No drug currently being developed or tested is
expected to cure ALS or cause a remission of the disease. However,
by the beginning of the Class Period, drugs, including Myotrophin,
had been or were being tested in clinical trials which were
designed to test whether the drugs would slow disease progression
or prolong survival. One of those drugs, Rilutek, a product of
Rhone-Poulenc Rorer, had demonstrated a statistically significant
increase in survival time of ALS patients in clinical trials. On
December 12, 1995, the FDA approved a New Drug Application ("NDA")
for Rilutek in the treatment of ALS, which permits general sale and
use of the drug.
25. Another drug was being tested for the treatment of
ALS by Amgen and Regeneron. By June 1995, it was announced
publicly that in a clinical trial of the Amgen/Regeneron drug there
were statistically significant reductions in loss of lung function
and reductions in decline in walking speed as well as a trend
toward increased survival in patients treated with the drug.
Defendants knew that as a result of the existing and incipient
competition from these drugs, the potential market success of
Myotrophin would be significantly affected by physician perception
of its comparative therapeutic merits.
26. Cephalon was dependent on the public financial
markets to raise the necessary capital to finance its pharmaceuti-
10
cal development program. Cephalon's ability to raise funds, as
well as the price at which the Company could sell its stock,
substantially depended on positive news with respect to Myotrophin.
In fact, in 1995 before the Company made glowing statements about
the North American trial, the Company had withdrawn a proposed $20
million stock offering due to lack of investor interest. This
failed offering demonstrated that the Company, which was living off
the proceeds of prior public offerings that were being depleted at
a rate of almost $40 million per year, could not replenish its
coffers without reporting positive results from a clinical trial of
Myotrophin.
27. In addition, since Cephalon had no real prospect of
profitable operations absent a successful drug, Cephalon, which
anticipated increasing losses and capital expenditures, would
shortly exhaust its available cash reserves and be unable to
continue in business. Without a successful drug, the Company would
die. Indeed, a June 13, 1995 article in The Wall Street Journal
stated that "a failure [of the Myotrophin trials] would have
crippled Cephalon's ability to raise funds".
28. Accordingly, there was ample motivation for
defendants to misrepresent the results of the Myotrophin clinical
trials and defraud the financial markets so that Cephalon could
raise capital in the public markets, as it did in August 1995 on
the strength of the reported results of the North American trial of
Myotrophin, announced in June 1995.
11
29. Information that is relevant to the timing and
amounts of the Company's sales, earnings and cash flow is highly
material to investors in pharmaceutical and pharmaceutical
development companies. While FDA approval is required for the sale
of pharmaceutical products in the United States, the extent of
revenues, earnings and cash flow from a pharmaceutical product
depend significantly on the extent of market acceptance of the
product, in particular physician and insurer acceptance. As one
securities analyst stated: "Approval by the FDA does not mean that
the drug will be a success in the marketplace. The ultimate
arbiter is the treating physician, and, above him or her, the
insurer or the HMO or managed care agency that pays for treatment."
As another analyst report put it, "[FDA] approval does not mean
these drugs will sell." For these reasons, although (a) at the end
of the Class Period and FDA Advisory Committee unanimously recom-
mended that the FDA grant a Treatment IND for Myotrophin in the
treatment of ALS which would permit the use of the drug prior to
the FDA approval; (b) the FDA granted the Treatment IND shortly
thereafter; (c) the Company repeatedly stated that it expected to
file an application for FDA approval of Myotrophin in the near
future based on existing data; and (d) the investing public
continued to believe that the FDA would approve Myotrophin for the
treatment of ALS, after the June 7, 1996 Advisory Committee meeting
the market price of Cephalon stock plummeted and for months
remained materially lower than the price prior to that meeting, due
to negative disclosures at that meeting concerning the data from
12
those trials which contradicted the defendants' false and mislead-
ing representations during the Class Period.
30. Prior to the announcement of the results of the
North American trial, only a limited amount of information had been
previously disclosed to investors concerning the efficacy and
safety of Myotrophin in the treatment of ALS. Indeed, Cephalon had
not previously conducted clinical trials of Myotrophin in the
treatment of ALS. Also, because there was no satisfactory animal
model of ALS, there was no animal data with respect to Myotrophin
in the treatment of ALS.
31. On April 3, 1995 Cephalon publicly announced the
completion of its North American Phase II/III clinical trial of
Myotrophin for the treatment of ALS (the "North American Trial").
Represented as a double-blind, placebo-controlled study of 266
patients with ALS, the North American trial was conducted at eight
medical centers in the United States and Canada to evaluate the
drug's effect in the treatment of the disease. It was reported
that the Company had begun the process of unblinding all safety and
efficacy information obtained during the study and expected to
begin data analysis shortly. Also, the Company stated that
Cephalon planned to present the study results at the World
Federation of Neurology Workshop on Therapeutic Trials in ALS in
Talloires, a small hamlet in the Rhone-Alps region of eastern
France, on June 8-10, 1995 (the "Talloires meeting"). It was also
reported that Cephalon was conducting a similar clinical study of
Myotrophin in 183 patients with ALS in Europe. That study was
13
expected to conclude by the summer, with results to be made
available after completion of data analysis.
32. In the North American trial a scoring system known
as the Appel rating scale was used to measure disease progression
and severity. Appel scores range from 30 (normal), 40 (ALS with
minimal disability) to 164 (ALS with maximum dysfunction), and are
comprised of five separate measures: Bulbar score, which assess
swallowing and speech (6-30 points); respiratory score, which
assess changes in breathing capacity as measured by FVC test of
pulmonary function (6-30 points); a muscle strength score (6-36
points), which is based on muscle testing, grip strength and
lateral pinch strength; and scores for the function of lower
extremity muscles (6-35 points) and upper extremity muscles, which
are based in part on the patient's ability to function independent-
ly and in part on the speed with which the patient can complete
certain exercises.
33. The course of ALS varies materially among patients.
Some patients die within a year of diagnosis, while others are
still ambulating five years after diagnosis. The rapid deteriora-
tion of the former group is reflected in a high rate of increase in
Appel score, of as much as 7.8 points per month. In the latter
group, in whom the progression of ALS is more gradual, Appel score
increases are far lower, and may be as low as 0.9 points per month.
A rate of increase of Appel score of 3.3 points per month or more
is considered rapid progression; a lower rate of increase is
considered moderate progression. The median time to death for
14
patients with moderate progression is two years longer than for
patients with rapid progression.
34. Due to the material variations in disease progres-
sion in patients with ALS, in order to ascertain whether differenc-
es in disease progression were due to Myotrophin rather than
inherent differences in the rate of disease progression among
patient groups, in the North American trial patients in the trial
were assigned to treatment groups using a technique known as
stratified randomization, which is randomization based on severity
of disease. Although disease severity is reflected in the rate of
increase in Appel scores, randomization in the North American trial
was based on the patients' Appel scores at the time of the treat-
ment. However, there was some imbalance in the severity of the
pre-treatment conditions among the treatment groups in that seven
or eight of the placebo patients in the placebo group had extremely
high Appel scores (more than 90) at the time treatment began, some
of whom had scores above 110. No Myotrophin-treated patient had
reached an Appel score of 90 or more at the start of treatment.
Patients who had Appel scores of 40-80 at the time of screening,
which preceded treatment by two to three months, were eligible for
enrollment.
35. Patients with Appel scores higher than 60 and equal
to or less than 60 were separately randomized and assigned to
receive high dose Myotrophin (.1 milligram per kilogram of body
weight), low dose Myotrophin (.05 milligram per kilogram by body
weight), or a placebo for a period of nine months.
15
36. The primary specified objective or endpoint of the
North American trial of Myotrophin in the treatment of ALS was to
compare the rate of progression of Appel score of the combined high
and low dose of Myotrophin groups with the rate of increase of
Appel score in the placebo group. This difference was not statist-
ically significant. (The generally accepted standard of statisti-
cal significance is a statistical "p-value" of 0.05 or less. The
p-value for the comparison of the combined Myotrophin groups with
the placebo was p=0.055, which is greater than the accepted p-value
for statistical significance, and therefore, is not statistically
significant.)
37. Also, scoring in the trial of patients who reached
an Appel score of 115 during the course of the trial or who had a
forced vital capacity ("FVC") of 39% or less than predicted was
terminated when they reached either of those points, and the
patients were dropped from the trial. Their last recorded score at
the time that they reached either of those points was used
throughout the data analysis. Placebo patients with Appel scores
of 115 or higher or FVC = 39% or lower were switched to Myotrophin
treatment.
38. Having determined that there was no statistically
significant difference between the rates of Appel score increases
of the combined Myotrophin treatment groups and the placebo group
during the study period, which was the primary endpoint of the
study, the Company compared the rate of increase in Appel scores of
the high dose Myotrophin group with the placebo group and the low
16
dose Myotrophin group with the placebo group, using the last
recorded Appel score for patients who reached Appel scores of 115
or had FVC equal to or less than 39% of predicted. The difference
was statistically significant for the high dose group as compared
with the placebo group. The statistical p-value for this compari-
son was p=0.027 before the standard adjustment for multiple dose
comparisons. After adjusting for multiple dose comparisons, the
statistical p-value for the difference between Appel score
increases in the high dose Myotrophin and placebo group "just
reached statistical significance, as stated by Dr. Feeney of the
FDA at the June 7, 1996 FDA Advisory Committee meeting. The
difference in the rate of increase in Appel scores between the high
dose Myotrophin and placebo groups in the North American trial was
accounted for entirely by patients with rapidly progressing ALS.
There was no apparent effect of Myotrophin in patients with
moderate progressing ALS. There was no statistically significant
difference in Appel score increases between low dose Myotrophin and
placebo patients.
39. The data collected in the North American trial
included a Sickness Impact Profile ("SIP") to measure the decline
in life style of patients participating in the study. The SIP
consisted of answers to a questionnaire that was intended to
measure how patients perceive their quality of life, including the
ability to walk and talk. According to the Company, there was a
statistically significant difference between the high dose
Myotrophin patients and the placebo patients in SIP scores.
17
However, as Dr. Hoberman of the FDA pointed out at the June 7, 1996
FDA Advisory Committee meeting, the SIP is "insufficiently
sensitive" to measure disease progression in patients with ALS.
40. In addition, in the North American trial, the time
during the trial when patients reached either an Appel score of 115
or an FVC of 39% of predicted or less was measured ("time-to-
event"). The Company reported that there was a statistically
significant difference between the high dose Myotrophin group and
the placebo group with respect to this measure, with the difference
accounted for by the patients with rapidly progressing ALS.
However, death was not included as an "event" in this analysis, and
correcting the data to account for deaths reduced the significance
of the difference. Moreover, if placebo patients with Appel scores
of 90 or more are excluded from the analysis, there was little or
no difference in time-to-event between the high dose Myotrophin and
placebo patients until the end of the study period, when there was
only a slight difference.
41. The mortality rates of Myotrophin-treated patients
in the North American trial during the study period were higher for
the Myotrophin-treated patients than for the placebo patients.
Those rates were 12.4% for the low dose Myotrophin group, 9.2% for
the high dose Myotrophin group, and 7.8% for the placebo group.
After the study period study patients were permitted to be treated
with Myotrophin. Because the decision to continue treatment was a
matter of patient choice, and many patients chose not to continue
treatment, the groups continuing treatment (patients previously
18
treated with high dose or low dose Myotrophin or a placebo) were
not random. Indeed, there were a number of dropouts during the
study period itself, more of them in the Myotrophin groups than in
the placebo group, with only half of the patients completing the
study. Moreover, it was not possible to determine whether deaths
of patients during the post-study period who previously were in the
placebo group were due to their condition or to treatment with
Myotrophin.
42. Cephalon was conducting another clinical trial of
Myotrophin in the treatment of ALS in Europe at approximately the
same time as the North American trial. There were 183 patients in
that trial, two-thirds of whom were treated with high dose
Myotrophin, and one-third with a placebo. None of the stated
objectives or endpoints of that trial was achieved, as the Company
admitted at the June 7, 1996 FDA Advisory Committee meeting. In
that trial there was no statistically significant difference in the
principal endpoint of trial, the rate of increase of Appel scores
between the Myotrophin-treated patients and the placebo patients
during the study period, measured by the patient's Appel score at
the end of the study period minus the patient's Appel score at the
start of treatment. There was no statistically significant
difference in the time to event (Appel score of 115 or higher, or
FVC of 39% or less than predicted). In fact, when death is
included as an event there was essentially no difference between
the Myotrophin-treated and placebo patients in time-to-event, even
in patients with rapidly progressing ALS. In addition, there was
19
no difference in the rate of increase in Appel scores between
Myotrophin-treated patients and placebo patients for the first six
months that the patients were in the trial, and there was no
difference in the change in the rate of disease progression from
pre-treatment levels between the Myotrophin-treated and placebo
groups. Not only was there no statistically significant difference
in the SIP scores of Myotrophin-treated and placebo patients, the
psycho-social scores of the placebo patients were better than the
scores of the Myotrophin-treated patients.
43. Moreover, as in the North American trial, in the
European trial the mortality rate during the trial of the Myotro-
phin-treated patients was higher than the mortality rate of the
placebo patients. The morality rate of the Myotrophin-treated
patients was 14.5%, while the mortality rate of the placebo
patients was only 8.5%. Because the European trial did not achieve
its stated objectives that trial did not confirm the results of the
North American trial.
DEFENDANTS' MISREPRESENTATIONS AND OMISSIONS
44. The market price of Cephalon common stock closed on
Friday, June 9, 1995 at $10.50 per share.
45. Beginning on June 12, 1995, defendants commenced a
practice, which continued throughout the Class Period, of making
false, selective and misleading disclosures of information
concerning Myotrophin clinical trial results, while concealing
20
negative information and manipulating and distorting the reported
test results.
46. On Saturday, June 10, 1995, Cephalon described the
results of the North American Trial at the Talloires meeting,
before a few dozen neurologists. This procedure was unusual, in
that the results of clinical trials are generally described at
medical meetings by the clinical investigators who supervised the
conduct of the trials. Those clinical investigators are usually
not employees of the company sponsoring the clinical trials. In
addition, also contrary to general practice, securities analysts
were barred from that meeting. Instead, the Company conducted a
separate very large conference with approximately 80 securities
analysts to tout the results of the North American Trial on Monday,
June 12, 1995, followed by a press conference giving the announce-
ment maximum exposure. As a final touch, on the same day, June 12,
the Company issued a press release, which was disseminated by PR
Newswire, describing the results of the North American Trial in
glowing terms.
47. The Company's June 12, 1995 press release stated:
Cephalon, Inc. announced today that in a Phase
III clinical study of 266 patients with amyo-
trophic lateral sclerosis (ALS, or Lou
Gehrig's disease), patients who received
Myotrophin(TM) (recombinant human insulin-like
growth factor-1, or rhIGF-1) experienced less
disease severity, slower progression of dis-
ease, and better functional ability compared
to patients who received placebo.
The effects from Myotrophin administration
were dose-related and consistent across prima-
ry and secondary measures using intent-to-
treat analysis. Demonstration of these ef-
21
fects did not require subgroup analysis.
Benefits of Myotrophin were evident as early
as the first few months of drug therapy.
"This study demonstrated that IGF-1 had highly
statistically significant effects on clinical-
ly important measurements for patients with
ALS, for whom no approved therapies currently
exist," said Michael F. Murphy, M.D., Ph.D.,
Cephalon's senior vice resident, worldwide
clinical research...
* * *
After nine months of therapy, patients who
received 0.10 mg/kg per day of Myotrophin
showed approximately 25 percent less deterio-
ration than patients receiving placebo, based
on their scores on the Appel ALS Rating Scale
in analyses of both rate of change (p less
than or equal to 0.01) and functional severity
of disease (p less than or equal to 0.01).
Positive effects were observed in the 0.05
mg/kg dose group without statistical signifi-
cance. In both Myotrophin dose groups, pa-
tients experienced a slower decline in life-
style, as measured by twenty-point changes on
the Appel scale (Logrank analysis: p = 0.002
for 0.10 mg/kg and p = 0.1 for 0.05 mg/kg;
Wilcoxon: p= 0.001 for 0.10 mg/kg and p = 0.2
for 0.05 mg/kg). The slower decline in life-
style in patients receiving the 0.10 mg/kg
dose was confirmed by an independent assess-
ment of sickness and disability (p = 0.01),
compared to patients receiving placebo.
* * *
Each twenty-point increase in the Appel scale
represents a major increase in a patient's
disability or dysfunction. An Appel score of
30 points is considered normal for a healthy
individual. A patient with ALS who can still
function independently averages 52 points on
the Appel scale; one who is still able to work
but needs some assistance averages 75 points;
one who usually can no longer work averages 99
points; one who is home-bound averages 119
points; and one who is completely bed-bound
averages 135 points. On average, the group
receiving placebo achieved a twenty-point
deterioration by the sixth month of treatment,
22
while the group receiving 0.010 mg/kg/day of
Myotrophin never reached this threshold for
the duration of the study.
"We are excited about this accomplishment and
grateful to the patients with ALS who coura-
geously chose to participate in this landmark
study," said Frank Baldino, Jr., Ph.D., presi-
dent and CEO of Cephalon. "This is the first
demonstration that the use of Myotrophin can
alter the course of a neurodegenerative dis-
ease. These findings represent an important
validation of the company's mission, and we
are encouraged about future prospects for
treating chronic neurodegenerative condi-
tions."
IGF-1 is a naturally occurring protein found
in muscle and other tissue which mediates
regeneration of the peripheral nervous system
and its recovery from injury. In preclinical.
studies, IGF-1 has been shown to support the
survival of motor neurons and accelerate the
regeneration of damaged neurons. Preclinical
studies have also shown that IGF-1 promotes
sprouting and function of peripheral nerves,
and induces skeletal muscle hypertrophy, or
enlargement of muscle cells, in the presence
of neurodegenerative conditions. Neuronal
sprouting is the natural process by which
neurons generate additional branches, enabling
them to establish functional contacts with
muscle fibers whose original nerve contacts
have been lost as a result of neuronal death.
These multiple actions of IGF-1 may explain
the effects of Myotrophin demonstrated in this
Phase III study. (emphasis added)
48. The Company's June 12 analyst and press conferences
generated extremely widespread publicity. Indeed, Reuters and
European Reuters issued a number of wires on the subject on June
12, and wires were also issued on June 12 by The Associated Press,
A.P. Worldstream and U.P.I. The Associated Press reported the
assertion by defendant Baldino that Myotrophin had increased the
survival time of patients in the North American trial who were
23
treated with the drug by six months. The Company's press confer-
ence was also widely covered by the press, including an article in
the June 13, 1995 issue of The San Francisco Chronicle, which
reported the Company's statement that it planned to seek "fast
track," approval by the FDA.
49. Further commenting on the news, defendant Baldino
said at the press conference: "It's good news for a lot of people.
The robustness of the effect here was very significant and dose-
related." (emphasis added)
50. Cephalon's disclosures concerning the North American
trial of Myotrophin drew an enthusiastic response on Wall Street.
Minutes after the news conference ended, the price of Cephalon
common stock nearly doubled, soaring to more than $20 per share on
the NASDAQ exchange on volume of more than six million shares. On
June 12, 1995, the price of Cephalon stock closed at $18 per share,
up more than $7.00 per share.
51. On June 12, 1995, Cephalon also made an announcement
concerning Myotrophin in the treatment of neuropathies, a market of
one million patients in the United States alone. On that date,
Reuters reported the statement by Cephalon that it had initiated a
Phase II clinical program to evaluate Myotrophin in the treatment
of a variety of neuropathies, including chemotherapy-induced
peripheral neuropathy, post-polio syndrome and diabetic neuropathy.
52. On June 19, 1995, Biotechnology Newswatch reported
that defendant Baldino had stated at the June 12, 1995 press
conference that he was surprised by the power of the data: "I'm
24
absolutely stunned with the level of consistency, dose-relatedness
across all measures, and more stunned as to the clinical relevance
.... [The data are] so robust and so statistically significant"
(emphasis added). Defendant Baldino further stated that no
subgroup analysis was required. Biotechnology Newswatch further
reported statements at the June 12 press conference by defendant
Murphy that in the trial "[b]eneficial effects were corroborated by
every measure in the protocol."
53. As reported by Marketletter on June 19, 1995,
defendant Baldino stated at the June 12 press conference that "the
results are rather spectacular." (emphasis added)
54. Based on defendant Baldino's statements, securities
analysts issued strong buy ratings of Cephalon stock, estimating
total sales of the drug at $300 million per year by 1998.
55. Matthew M. Geller, a biotech analyst with Oppen-
heimer & Co., stated that:
This is very important to Cephalon. It's
their lead product and it has a lot of poten-
tial.
56. Similarly, on June 12, 1995, analyst Scott R.
Sacane, of Furman Selz, reiterated his strong buy recommendation
based on defendants' presentation, and stated that:
Cephalon presented extremely positive results
from its . . . Phase III clinical trial . . .
and is currently among the best positioned
biotech companies in the industry.
57. As reported by Reuters on June 12, 1995, another
analyst, David Stone of Cowen & Co. reiterated his strong buy
25
rating of Cephalon stock, based on the Company's representations
about the trial results.
58. Timothy Wilson, of Hambrecht & Quist, stated that
defendants' presentation of the North American trial was "very
encouraging and clearly demonstrated that at the highest dose used
the drug could delay the progression of disease in a statistically
significant and clinically-relevant fashion."
59. Similar research reports were disseminated by
analysts at Robertson Stephens & Co. ("The data was clear, clean,
unambiguous, and unassailable."); Brown Brothers Harriman ("Myotro-
phin achieved statistical significance in showing a decline in
progression of disease as measured by the Appel scale."); and JP
Morgan Securities ("The data show that Myotrophin is very well
tolerated and has a significant effect on slowing the progression
of the disease.").
60. On June 17, 1995, at a meeting of the Endocrine
Society, John Farah, Jr., Ph.D., associate director of scientific
affairs for Cephalon, stated that in the North American trial
treatment with high dose Myotrophin resulted in a statistically
significant improvement in the Appel ratings scale compared to
patients who received a placebo. Farah further stated that in the
post-study period it appeared that fewer Myotrophin-treated
patients were dying at fixed time points compared to placebo
patients. Also, Farah said that the Company had several other
clinical trials under way, including Phase II trials in post-polio
syndrome and peripheral sensory neuropathy. These statements were
26
reported in the June 1995 issue of The Genesis Report/RX, which was
issued in July 1995.
61. On June 22, 1995, defendant Baldino sold 75,613
shares of Cephalon stock on the open market at $18.50 per share, a
price that was artificially inflated due to the false and mislead-
ing statements regarding the North American trial detailed herein,
reaping proceeds of more than $1.4 million, a price which was
almost twice the market of Cephalon stock prior to the defendants'
representations about the results of the North American trial.
Also, on August 9, 1995, defendant Baldino sold an additional 1,875
shares of Cephalon stock at $27.50 per share, yielding proceeds of
$41,562.50.
62. Taking advantage of the favorable recommendations of
securities analysts and investor interest in Cephalon resulting
from the defendants' false and misleading statements regarding the
North American trial and the results thereof, on June 27, 1995
Cephalon publicly reported that it had filed a registration
statement with the Securities and Exchange Commission for a
proposed public offering of 2.5 million shares of common stock.
63. On August 1, 1995 Cephalon announced a public
offering of its common stock. Of the shares of common stock being
offered, 3,000,000 new shares were being offered by the underwrit-
ers at a price of $22.50 per share, representing an increase of
500,000 shares from the amount as initially filed. Upon completion
of the offering, the Company would have approximately 22.1 million
shares of common stock outstanding. The offering was managed by
27
Cowen & Company, Hambrecht & Quist and Robertson, Stephens &
Company, all of whom had issued buy recommendations of Cephalon on
the stock as a result of the June test results. The underwriters
had the option to purchase approximately 450,000 additional shares
to cover over-allotments.
64. The Amended Registration Statement for the offering,
which was filed on August 1, 1995 and signed by defendant Baldino,
contained the same types of materially false and misleading
statements as defendants' prior disclosures of the U.S. test
results. The Prospectus included in the August 1, 1995 Registra-
tion Statement stated, at 32-33, that:
On June 12, 1995, the Company announced that
in a Phase III clinical study of 266 patients
with ALS, patients who received Myotrophin
(recombinant human insulin-like growth factor-
1, or rhIGF-1) experienced less disease sever-
ity, slower progression of the disease, and
better functional ability compared to patients
who received placebo. The double-blind Phase
III study was conducted at eight medical
centers in the United States and Canada to
evaluate Myotrophin's potential to treat ALS.
In this study, after an evaluation period of
up to three months, eligible patients with ALS
were randomized to receive placebo, 0.05 or
0.10 milligrams per kilogram per day of
Myotrophin by subcutaneous injection for up to
nine months, at which time all patients were
eligible to receive Myotrophin.
The primary hypothesis of the study is that
Myotrophin slows the rate of progression of
the disease as measured by the Appel ALS
Rating Scale (the "Appel Scale"). The Appel
Scale is a validated index of disease severity
developed in 1982 to provide a quantitative
estimate of the clinical condition and disease
progression of patients with ALS. It includes
assessment of swallowing, speech and respira-
tory function, as well as muscle strength in
upper and lower extremities, and function of
28
upper and lower extremities. Each 20-point
increase in the Appel Scale represents a major
increase in a patient's disability or dysfunc-
tion. An Appel Score of 30 points is consid-
ered normal for a healthy individual. A
patient with ALS who can still function inde-
pendently averages 52 points on the Appel
Scale, one who is still able to work but needs
some assistance averages 75 points, one who
usually can no longer work averages 90 points,
one who is home-bound averages 119 points and
one who is completely bed-bound averages 135
points. On average, the group receiving
placebo achieved a 20-point deterioration by
the sixth month of treatment, while the group
receiving 0.10 mg/kg per day of Myotrophin
never reached this threshold for the nine-
month duration of the study.
The effects from Myotrophin administration
were dose-related and consistent across prima-
ry and secondary measures using intent-to-
treat analysis. Benefits of Myotrophin were
evident as early as the first few months of
drug therapy. After nine months of therapy,
patients who received 0.10 mg/kg of Myotrophin
showed approximately 25 percent less deterio-
ration than patients receiving placebo, based
on their scores on the Appel Scale in analyses
of both rate of change (p=0.01*) and function-
al severity of disease (p=0.01). Positive
effects were observed in the 0.05 mg/kg dose
group without statistical significance. In
both Myotrophin dose groups, patients experi-
enced a slower decline in lifestyle, as mea-
sured by 20-point changes on the Appel Scale
(Logrank analysis: p=0.002 for 0.10 mg/kg and
p=0.1 for 0.05 mg/kg; Wilcoxon: p=0.001 for
0.10 mg/kg and p=0.2 for 0.05 mg/kg). The
slower decline in lifestyle in patients re-
ceiving the 0.10 mg/kg dose was confirmed by
an independent assessment of sickness and
disability (p=0.01), compared to patients re-
ceiving placebo. In addition, the Company has
retrospectively analyzed the mortality data,
on an intent-to-treat basis, related to all
183 patients for whom data currently is avail-
able for the 14 months after the patient was
randomized into the trial. Of the 100 deaths
which occurred in this group during this
period, a statistically significant difference
was observed with respect to the risk of death
29
through time in the 0.10 mg/kg per day dosage
group (Logrank analysis: p=0.04) compared to
placebo, with 16% more patients in this dosage
group surviving at the beginning of month 15
compared to placebo. This effect on mortality
was dose-related. (emphasis added)
* Each "p value" in parentheses represents
the probability that the observed result is
attributable to chance. As an example, a p
value of 0.01 means that the observed result
has a 1% probability of being attributable to
chance. Observed results with a p value of
less than 0.05 (that is, less than 5%) are
considered to be statistically significant.
[Footnote in original.]
65. The August 1, 1995 prospectus also described the
market for a drug to treat peripheral neuropathies, and the
Company's clinical program to test Myotrophin in the treatment of
these neuropathies, stating:
Peripheral Neuropathies. Peripheral neuropa-
thies are disorders of the peripheral nervous
system characterized by a degeneration of
sensory and motor nerves. The disability
produced by any particular neuropathy depends
on the nerves affected. Sensory neuropathies
are accompanied by burning sensations, imbal-
ances, numbness and pain. motor neuropathies
are characterized by muscular weakness and
motor abnormalities, including problems with
coordination, movement and respiration. In
the most severe cases, peripheral neuropathy
may eventually led to significant limitations
in normal physical activity.
Chemotherapy-Induced Neuropathies. Treatment
with vincristine, Taxol® (paclitaxel), cis-
platin and other chemotherapeutic agents often
results in the occurrence of severe sensory
and motor neuropathies, which can often be a
dose limiting side effect of this therapy.
These cancer chemotherapeutic agents treat
tumors by killing cancer cells but may also
30
damage healthy cells, including neurons, re-
sulting in peripheral neuropathy. There is
currently no effective treatment for the
peripheral neuropathies induced by cancer
chemotherapy. The Company believes that
chemotherapy-induced peripheral neuropathies
affect approximately 200,000 people in the
United States.
Post-Polio Syndrome. Post-polio syndrome is a
progressive deterioration of the peripheral
nervous system suffered by individuals who
previously were afflicted with poliomyelitis.
The Company estimates the number of polio
survivors in the United States to be approxi-
mately 300,000, of where approximately 25%
currently suffer from this neuropathy. Al-
though very few new cases of poliomyelitis are
diagnosed, the post-polio syndrome patient
population is expected to remain stable over
the next several years because incidence of
this disorder increases with age.
* * *
The Company has initiated a Phase II clinical
program to test the potential utility of
Myotrophin in the treatment of peripheral
neuropathies.
66. The August 1, 1995 prospectus disclosed facts which
indicate that the proceeds of the offering were necessary to fund
its ongoing operations, demonstrating the importance of the
offering, which, in turn, depended on the purportedly "spectacular"
results of the North American trial. The prospectus stated:
The Company expects the funding requirements
for its operating activities to increase
substantially in the future ... The Company
also expects to expend significant funds for
improvements to its research, drug development
and manufacturing facilities. Therefore, the
Company anticipates that the capital opera-
tions for the next year will be greater than
that of the prior year. (p. 10)
* * *
31
The Company believes that its cash and invest-
ment resources, together with the proceeds
from this offering, are adequate to fund its
anticipated level of operations for a period
in excess of one year. (emphasis added) (p.
29)
67. On August 7, 1995 Cephalon announced that it had
completed its common stock public offering. The total shares sold
included the exercise of the underwriter's option to purchase an
additional 450,000 shares to cover over-allotments. Total proceeds
were in excess of $89 million, with net proceeds to the Company of
approximately $84.4 million.
68. On August 8, 1995 Cephalon issued a press release
which reported that in the quarter ending June 30, 1995 the Company
had a loss of more than $16.5 million in the quarter, had incurred
operating expenses of $20.1 million, compared to $14.8 million in
the same quarter of the prior year, and had made capital expendi-
tures of $12.3 million in that quarter.
69. In response to defendants' representations that the
North American trial was successful, and the further represen-
tations made in connection with the Offering, analysts continued to
strongly recommend the stock. On August 9, 1995, Cowen & Co.
reinforced its "strong buy rating" based on "compelling Phase III
data on Myotrophin", and established a $40-45 per share price
target. On October 9, 1995, Robertson Stephens & Co. reiterated
its buy recommendation based on Myotrophin's "robust U.S. results".
70. Defendants' statements concerning the North American
trials were materially false and misleading and failed to disclose
32
facts necessary to make the statements made not misleading. Among
other things:
(a) Defendants' representations regarding the
statistical p values for the difference in Appel score increases
between patients treated with high dose Myotrophin and placebo
patients were false and misleading in that they materially
overstated the statistical significance of the results. Defendants
represented that the p value for this difference was p=0.001 or
lower, when the actual p value was materially higher (worse). As
an FDA physician stated at the June 7, 1996 FDA Advisory Committee
meeting: "The high dose comparison to placebo reached statistical
significance with a p value of 0.027. It just reached statistical
significance based on [the standard] correction for multiple dose
comparisons." (emphasis added)
(b) Defendants' representations that Myotrophin
produced a survival benefit were materially misleading by reason of
the failure to disclose the fact that during the study period the
mortality rate of Myotrophin-treated patients was higher than the
mortality rate of patients who received a placebo. Moreover, this
effect was seen although seven or eight placebo patients had Appel
scores of 90 or more at the start of treatment, while no Myotro-
phin-treated patients had such high scores.
(c) Defendants' representations that patients
treated with Myotrophin in the North American trial had a six-month
survival benefit as compared with placebo patients were materially
misleading in that the claimed survival benefit was based on a
33
retrospective analysis of a self-selected group which did not
include many of the patients who had been in the study. Thus, the
survival data presented by defendants was not based on randomized
patient groups, with the result that the data was not meaningful.
The data on which the defendants based their claim of survival
benefit was for a six-month period after the conclusion of the
nine-month study period, during which only some of the patients who
had been in the trial chose to be treated with Myotrophin (includ-
ing patients who received a placebo during the trial) Indeed,
Cephalon did not advance a claim that Myotrophin increased patient
survival in the North American trial at the meeting of the FDA
Advisory Committee discussed herein, and the FDA stated that
"[w]hat happened after [the end of the study period] is anybody's
guess." Moreover, in addition to the fact that the survival data
was not meaningful, according to the FDA the difference in survival
was not statistically significant, contrary to the defendants'
representations. In addition, the representations regarding
survival benefit were materially misleading by reason of the
failure to disclose the fact that the mortality rates of Myotro-
phin-treated patients in the trial were higher than the mortality
rates of placebo patients.
(d) Defendants' representations concerning the
average deterioration in the Appel scores of high-dose Myotrophin-
treated patients as compared with patients who received a placebo,
which implied a generalized benefit in patients who were treated
with the higher dose of Myotrophin were materially misleading. In
34
fact, approximately 70% of the patients to whom the high dose of
Myotrophin was administered did not appear to benefit from the
drug. Of the high-dose Myotrophin patients, 30% experienced at
least a twenty point deterioration in Appel scores during the
trial; while 40% of patients who received a placebo did not
experience that level of deterioration. Moreover, defendants
concealed the fact that although the average deterioration in Appel
scores of high-dose Myotrophin-treated patients whose results were
counted in the defendants' data analysis was less than twenty
points, 30% of high-dose Myotrophin-treated patients did experience
deterioration of twenty points or more. In addition, the foregoing
representations were materially misleading by reason of the failure
to disclose the fact that any effect of Myotrophin in the North
American trial was limited to patients with rapidly progressing
ALS. These facts indicate that, at best, treatment with Myotrophin
would benefit only some of the patients with ALS.
(e) Defendants' representations about the results
of the North American trial were materially misleading by reason of
the failure to disclose the fact that the trial failed in its
primary objective or endpoint, which was to demonstrate a statisti-
cally significant difference in the rate of increase in Appel
scores between all Myotrophin-treated patients in the trial and the
patients who received a placebo. That difference was non-signifi-
cant.
(f) Defendants' representations about the results
of the North American trial were materially misleading by reason of
35
the failure to disclose the fact that the patient characteristic
used to stratify randomization in the trial, the patients' Appel
scores at the time they were assigned to treatment groups, is not
predictive the rate of their disease progression, which was the
primary endpoint of the study. As the FDA pointed out at the June
7, 1996 meeting of the FDA Advisory Committee, Appel score at the
time of assignment to treatment group is a poor predictor of
disease progression. Indeed the FDA commented that the Appel score
entry criteria and randomization procedure were a "primary flaw" of
the analysis of the study, and Cephalon admitted that patients
should have been randomized to treatment group based on the pre-
treatment rates of progression of the patients' disease. This
method of patient assignment creates the possibility that the
observed differences were due to differences in the severity of the
patients' disease, rather than to the drug;
(g) The defendants' representation that the slower
decline in life style in patients treated with high dose Myotrophin
was confirmed by an independent assessment of sickness and
disability was materially misleading in that (i) the SIP is
insufficiently sensitive to measure disease progression in ALS
patients, (ii) the difference in the physical subset of SIP scores
between the high dose Myotrophin and placebo groups was not
statistically significant, and (iii) there was very little differ-
ence in time-to-event if death is included as an event and placebo
patients with very high pre-treatment Appel scores are excluded
from the analysis; and
36
(h) The defendants' representations that the
results of the North American trial were "spectacular" lacked a
reasonable basis, principally as a result of the foregoing facts.
71. The facts set forth in the preceding paragraph which
were misrepresented and/or omitted by defendants were material not
because the results of the North American trial, taken alone, would
not support the grant of a T-IND or because the trial could not
qualify as one of the two pivotal trials needed for FDA marketing
approval of a drug, but because those facts were important for
investor assessment of (a) the probability of success of other
clinical trials of Myotrophin in the treatment of ALS or peripheral
neuropathies, (b) the market potential of Myotrophin for the
treatment of ALS, (c) the market potential for off-label use of
Myotrophin for the treatment of peripheral neuropathies, and (d)
the risk that trials of a drug or drugs produced by competitors of
Cephalon would produce better results in the treatment of ALS,
thereby reducing the market potential for Myotrophin. For example,
one analyst commenting on the reported results of the European
trial, stated that the results of that trial as reported by the
Company were not "compelling" because the p-values for the results
flirted with insignificance.
72. As reported on September 7, 1995 by Gannett News
Service, the Company stated that Cephalon's expansion plans called
for the addition of 100 employees and the possibility of European
production. Gannett further reported that defendant Baldino stated
37
that "certainly the confidence in Cephalon is at an all-time high,"
and predicted that Cephalon could show a profit as early as 1997.
73. As reported by Gannett, defendant Baldino also
stated that Myotrophin's ability to fight ALS could also be a
springboard to treating other illnesses with symptoms similar to
ALS, for example, multiple sclerosis and Parkinson's disease, which
could expand the drug's market, and that Myotrophin could also
fight nerve damage associated with other conditions, such as
diabetes and some forms of cancer. "Myotrophin's got a big
opportunity beyond ALS," defendant Baldino was reported by Gannett
to have stated.
74. On October 12, 1995 Cephalon issued a press release,
which was disseminated by PR Newswire on that date. That press
release announced that data from the European clinical trial of
Myotrophin in patients with ALS, which included 183 patients and
was conducted at eight medical centers in six countries in Europe,
would be presented by a principal investigator (physician who
supervised the trial) on October 31 at the Sixth International
Symposium on ALS/MND in Dublin, Ireland.
75. On October 23, 1995 Cephalon issued a press release,
which was disseminated by PR Newswire on the same day. That press
release announced that Cephalon had submitted a T-IND to the FDA
for the use of Myotrophin in the treatment of ALS based on data
from the North American trial.
76. Cephalon filed the T-IND application with the FDA at
a time when the Company had the European study data. However, the
38
application did not include the European study data, which
disclosed the fact that the European trial, far from confirming the
results of the North American trial, did not achieve any of its
objectives or endpoints, and that the mortality rate of the
Myotrophin-treated patients in the European trial during the study
period, as in the North American trial, was higher than the
mortality rate of patients who received a placebo.
77. On October 31, 1995, Cephalon issued a press release
lauding the result of the European trial of Myotrophin. That press
release, which was disseminated by PR Newswire, stated:
Cephalon ... announced today that findings
from the second Phase III clinical study of
Myotrophin(R) (rhIGF-1) reached statistical
significance on the primary measure and con-
firmed previous findings that patients with
amyotrophic lateral sclerosis (ALS) who re-
ceived Myotrophin experienced less disease
severity and slower progression of disease
compared to patients who received placebo.
"We have now confirmed in an international
setting with two independent studies of compa-
rable design, that the effects of IGF-1 are
clinically important in the treatment of ALS,"
said Michael Murphy, M.D., Ph.D., Cephalon's
senior vice president of worldwide clinical
research. "Data from the European study
demonstrate statistically significant effects
of IGF-1 on disease severity and progression
that are consistent with our findings from the
North American Phase III study."
The European study was conducted at eight
medical centers in six countries to evaluate
Myotrophin's potential to treat ALS (also
known as motor neurone disease (MND), or Lou
Gehrig's disease). After an evaluation period
of up to three months, eligible patients with
ALS were randomized to receive placebo or 0.10
milligrams per kilogram per day of Myotrophin
by subcutaneous injection for up to nine
months. Patient demographics and disease
39
characteristics were consistent with patients
who participated in the North American study.
As a group, patients in this study who re-
ceived Myotrophin showed approximately 22
percent less deterioration than patients
receiving placebo, based on their scores on
the Appel ALS Rating Scale in analyses of both
functional severity of disease and disease
progression. Myotrophin also delayed onset of
disease-related morbidity as measured by time
until a deterioration in respiratory capacity
(FVC) or advanced stage of disease (Appel
total score greater than or equal to 115).
These findings were statistically significant.
... Myotrophin was well-tolerated. There
were no statistically significant differences
between drug and placebo groups for reported
adverse events.
Earlier this year, Cephalon reported that
patients in the North American study who
received Myotrophin experienced significantly
less disease severity, slower progression of
disease, better functional ability and pro-
longed survival compared to patients who
received placebo. These effects were dose-
related and statistically significant across
all measures.
"The successful completion of these two clini-
cal trials is an important milestone towards
our goal of delivering innovative therapies to
patients suffering from neurodegenerative
diseases such as ALS," said Frank Baldino,
Jr., Ph.D., Cephalon's President and CEO. "We
plan to submit a New Drug Application to the
U.S. Food and Drug Administration to market
Myotrophin in the United States and are also
preparing equivalent regulatory applications
in other countries." (emphasis added)
78. On October 31, 1995, defendant Baldino also
disseminated false and misleading information about the European
trial through Bloomberg Business News, which, in a wire report on
that date, quoted the statement by defendant Baldino that "[t]he
40
data was equally spectacular in [the European] trial, so it looks
like we have a drug."
79. Further, as reported by Dow Jones Newswire on
October 31, 1995, defendant Baldino stated that in the European
trial "[n]ot only did we win on the primary endpoints, but on all
measures of functionality" (emphasis added). Defendant Baldino
further stated that "what's going to come across [from the North
American and European trials] is the remarkable consistency.
That's what doctors want to see." (emphasis added)
80. Dow Jones News Service further reported on October
31, 1995 that:
Cephalon said the results of its trial were
statistically significant. In the European
trial, as in the first Phase III in the U.S.,
patients received the drug for nine months.
In disease severity, the p-value (the measure
of statistical significance) was less than
0.038. In disease progression, the p-value
was less than 0.042. In morbidity, the p-
value was less than 0.045. Anything less than
5%, or p-value 0.05, is statistically signifi-
cant. Myotrophin was well-tolerated and there
were not statistically significant differences
between drug and placebo groups, Cephalon
said.
* * *
The drug appears to have an effect on surviv-
al, the company says. Though that particular
endpoint was not prospectively defined, fol-
low-up analyses bore that finding out,
Cephalon says.
81. As reported by BIOWORLD Today on November 1, 1995,
Cephalon said that the European trial confirmed the findings of the
North American trial. Also reported was the statement of Jason
Rubin, an employee of and spokesman for Cephalon, that an 18-month
41
analysis of patients from the North American trial, which included
nine months of follow-up after the clinical trial, revealed a six-
month "survival benefit" for those receiving Myotrophin compared
with patients in the placebo group. Rubin further stated that the
consistency of Myotrophin's performance in the two trials should
"enable us to take a very strong case to the FDA." Rubin further
stated that in the European trial 124 patients were treated with
Myotrophin and 59 received placebo. Rubin also said that "[t]here
was no statistically significant difference in the deaths that
occurred in the placebo and treatment groups," while failing to
disclose either the mortality data by treatment group or the fact
that the mortality rate of Myotrophin-treated patients was higher
than the mortality rate of placebo patients, i.e., a higher
percentage of Myotrophin-treated patients died than patients who
received a placebo.
82. Defendants' statements concerning the European test
results were materially false and misleading and failed to disclose
facts necessary to make the statements made not misleading. Among
other things:
(a) The foregoing representations concerning the
European trial results, that the results of the European trial
"confirmed" the results of the North American trial and that there
was "remarkable consistency" in the results of the two trials were
materially misleading in that:
(i) None of the specified objectives of the
European trial was achieved.
42
(ii) There was no statistically significant
difference in the rates of increase of Appel scores of
Myotrophin-treated and placebo patients when measured by
the same statistical analysis that was used in the North
American trial or the analysis that had been specified by
the Company for the European trial;
(iii) There was no difference at all between
the rates of increase in Appel scores of Myotrophin-
treated and placebo patients for the first six months
that they were in the European trial;
(iv) There was no statistically significant
difference in the time to first event (Appel score of 115
or more or FVC 39% of predicted or less) between the
Myotrophin treated and placebo patients. Moreover, the
"time to event" analysis was flawed because death was not
an included "event";
(v) There was no statistically significant
difference in the Sickness Impact Profiles of Myotrophin-
treated patients and placebo patients. Indeed, the
scores for the psycho-social aspect of the Profile were
better for placebo patients than for Myotrophin-treated
patients;
(vi) Improvement in the rate of increase from
the pre-treatment rate of increase in Appel scores
occurred in both Myotrophin-treated and placebo patients.
Indeed, Dr. Temple of the FDA observed, at the June 7,
43
1996 meeting of the FDA Advisory Committee that placebo
patients did worse as measured by Appel score increases
when they were switched to Myotrophin treatment.
(vii) The representation that the higher
mortality in the Myotrophin-treated patients was not
statistically significant was materially misleading in
that the data did not permit the conclusion that Myotro-
phin did not increase mortality, particularly in view of
the sample size and the patients excluded from the
analysis. The fact that the difference in the mortality
rates was not statistically significant does not mean
that Myotrophin did not increase mortality in patients
treated with the drug, as the FDA stated at the June 7,
1996 FDA Advisory Committee meeting.
83. On or about November 22, 1995, the FDA responded to
the T-IND for Myotrophin in the treatment of ALS, demanding data
from the European trial. As reported by Bloomberg on December 12,
1995, defendants disclosed that the Company had provided to the
FDA, at the FDA's request, additional data from the European trial
of Myotrophin. In disclosing the FDA's request for additional
data, Jason Rubin, Cephalon's spokesperson, dismissed concerns
about mortality rates from the European trial. He said the deaths
weren't related to the drug, and that the patients who died may
have had a more advanced stage of the disease stating: "We don't
believe there is a safety issue with Myotrophin."
44
84. On January 10, 1996, defendant Baldino made a
presentation to investors at Hambrecht & Quist's 14th Annual
Healthcare Conference in San Francisco. At the conference
defendant Baldino stated that Myotrophin had "completed clinical
development," that the data from the North American and European
trials are "quite compelling," and that "no safety concerns have
been identified with [Myotrophin] to date". In addition defendant
Baldino stated that the Company would file a New Drug Application
for Myotrophin with the FDA in the first half of 1996, "hopefully"
in the first quarter of the year. These statements by defendant
Baldino were materially false and misleading in light of the
clinical trial data already received and analyzed as set forth
herein, and Cephalon's communications with the FDA to that date.
85. At the Hambrecht & Quist meeting defendant Baldino
emphasized the market potential for Myotrophin in the treatment of
diseases other than ALS, stating that Cephalon had "launched a
comprehensive program with Myotrophin in the treatment of peripher-
al neuropathies", including post-polio syndrome, chemotherapy-
induced neuropathy, diabetic neuropathy and the small fiber painful
neuropathies. He said that "[y]ou should look for us to launch
many more studies with Myotrophin in this particular arena
[neuropathies] in the year ahead," adding that there are more than
400 documented neuropathies, none of which are currently effective-
ly treated by any product. Baldino asserted that the "market
opportunity for Myotrophin goes well beyond ALS," pointing out that
the four neuropathies that were presently included in Cephalon's
45
"comprehensive Phase II program" afflict one million patients in
the United States alone.
86. As reported by Dow Jones News Service on January 19,
1996, Cephalon announced that the FDA had failed to approve the T-
IND due to expressed concern about the data from the European
trial. Cephalon further stated that it hadn't been told exactly
what worried the FDA, insisting that Myotrophin is safe and that
the higher mortality rate in Myotrophin-treated patients "was not
statistically significant". As reported by Dow Jones, defendant
Baldino stated: "Once I find out the issues, I'm sure we can
resolve them." This disclosure caused the price of Cephalon stock
to plummet to a closing price on January 19, 1996 of $23.375 per
share, a decline of $12.50 from the previous day's close of
$35.875, or approximately 35%. The foregoing representations were
false and misleading because the FDA's concern about Myotrophin as
expressed by Cephalon, was actually based on the fact that,
contrary to the defendants' representations, the results of the
European trial, did not achieve any of its specified objectives,
and the representation by Baldino that he was sure Cephalon could
resolve this concern lacked a reasonable basis. Dow Jones further
reported that Cephalon refused to disclose mortality data for
patients who were dropped from the trial.
87. On April 16, 1996, Cephalon issued a press release
that was disseminated by Business Wire, which stated that the
Company and Chiron, the Company's partner in the development of
Myotrophin, announced that they had discussed a New Drug Applica-
46
tion for marketing approval of Myotrophin with the FDA, which had
"indicated to the two companies that an application [for marketing
approval of Myotrophin] based upon currently completed studies will
be accepted for filing, will receive a priority review and will be
presented to an FDA advisory committee." The companies further
stated that an application for FDA approval of Myotrophin in the
treatment of ALS would be submitted to the FDA as early as the
summer of 1996. These statements were also reported by Reuters on
the same day. These representations caused the market price to
Cephalon stock to increase from a closing price of $27.875 per
share on April 15, 1996 to a closing price of $31.50 on April 16,
1996, on trading volume of more than 3.3 million shares. The
foregoing representations were false and misleading in that the FDA
did not indicate that the data from the North American and European
trials would support marketing approval of Myotrophin, which
requires two successful clinical trials.
88. Thereafter, the FDA, which customarily makes deci-
sions as to whether a T-IND should be granted without the advice of
an Advisory Committee, took the unusual step of convening a meeting
of an FDA Advisory Committee to consider whether a T-IND for
Myotrophin should be approved to permit limited treatment of
patients with ALS while the Company pursued whatever additional
steps might be necessary to file an application for FDA marketing
approval of the drug. That meeting, which was attended by
securities analysts, was held on June 7, 1996 in Bethesda,
Maryland. At the meeting the facts set forth herein concerning the
47
European and North American Myotrophin trials were discussed. Both
the FDA and the Committee expressed the view that the European
trial did not demonstrate an effect of Myotrophin on patients with
ALS or confirm the results of the North American trial. Moreover,
the FDA pointed out the flaws of the North American trial and the
results of that trial described herein. Further, the FDA pointed
out that although the difference in the mortality rates of
Myotrophin-treated and placebo patients in the European trial was
not statistically significant, the trial was not large enough to
detect a statistically significant difference, so that it was not
possible to tell whether Myotrophin increased mortality of patients
with ALS. The Committee recommended approval of a T-IND for
Myotrophin for ALS. However, eight of the ten Committee members
stated that they did not deem the data adequate to support
marketing approval of the drug, and that another trial of Myotro-
phin in the treatment of ALS should be conducted. Since that
meeting the market price of Cephalon common stock has declined to
as low as $14.00 per share, from as high as $25.875 the day before
the meeting.
89. As reported on June 24, 1996 by F-D-C- Reports, The
Pink Sheet, the FDA granted a T-IND for Myotrophin in the treatment
of ALS on June 19, 1996, but the FDA indicated that the application
for approval of Myotrophin that the Company had planned to file
this summer may not be sufficient for marketing approval, reminding
the Company that an additional trial should be conducted. The Pink
Sheet further reported that:
48
FDA is recommending that the company add six-
month tumor screening tests to safety monitor-
ing in the Treatment IND protocol because of
the potential for tumor formation and growth
with Myotrophin therapy.
The investigator's brochure for physicians
participating in the protocol should include a
table summarizing the rat tumor findings with
the drug, FDA has told the company. The
agency also wants Cephalon to omit a statement
in the current brochure that contends Myotro-
phin is not tumorigenic until the firm submits
documentation supporting the statement.
Patient informed-consent forms should mention
Rilutek as an alternative therapy, the agency
told the company.
FDA is also asking that the ophthalmic exams
be performed during treatment due to the risk
of benign intracranial hypertension with the
drug. Routine urinalysis for signs of renal
toxicity and periodic monitoring of blood
glucose levels also are being recommended by
the agency.
Following this announcement the market price of Cephalon stock
continued the downward trend that began following the June 7, 1996
FDA Advisory Committee meeting. Thereafter, Cephalon announced
that it did not expect to file an application for marketing
approval of Myotrophin until the end of 1996. To plaintiffs'
knowledge there has been no disclosure of results of any study of
Myotrophin in the treatment of peripheral neuropathies.
49
COUNT I
AGAINST ALL DEFENDANTS FOR VIOLATION OF
SECTION 10(b) OF THE 1934 ACT AND
RULE 10b-5 OF THE SECURITIES AND EXCHANGE COMMISSION
90. Plaintiffs repeat and reallege each and every
allegation contained in each of the foregoing paragraphs as if
fully set forth in full herein.
91. This Count is asserted against all defendants and is
based upon Section 10(b) of the 1934 Act, 15 U.S.C. § 78j(b), and
Rule 10b-5 promulgated thereunder by the Securities and Exchange
Commission.
92. During the Class Period, defendants, singly and in
concert, directly or indirectly, engaged in a common plan, scheme,
and unlawful course of conduct pursuant to which they knowingly or
recklessly engaged in acts, transactions, practices, and courses of
business which operated as a fraud and deceit upon plaintiffs and
the other members of the Class, and made various deceptive and
untrue statements of material facts and omitted to state material
facts necessary in order to make the statements made, in light of
the circumstances under which they were made, not misleading to
plaintiffs and the other members of the Class. The purpose and
effect of said scheme, plan, and unlawful course of conduct was to
induce plaintiffs and the other members of the Class to purchase
Cephalon common stock or trade options to purchase or sell Cephalon
stock during the Class Period at artificially inflated prices.
93. During the Class Period, defendants, pursuant to
said scheme, plan, and unlawful course of conduct, knowingly and
50
recklessly issued, caused to be issued, participated in the
preparation and issuance of deceptive and materially false and
misleading statements to the investing public which were contained
in or omitted from various documents and other statements, as
particularized above.
94. Defendants each knew the facts set forth herein and
intended to deceive plaintiffs and the other members of the Class,
or in the alternative, acted with reckless disregard for the truth
when they failed to disclose or cause the disclosure of the true
facts to plaintiffs and the other members of the Class. Applicable
FDA regulations require companies that sponsor clinical trials to
monitor the progress of the studies, to promptly report deaths and
other adverse events to the FDA, and to cause all patient data to
be recorded in Case Report Forms approved by the FDA. These Case
Report Forms are regularly reviewed by the company supplying the
experimental drug to assure the accuracy thereof, and the originals
thereof are supplied to the Company as soon as they are completed.
In addition, the analyses of data from Cephalon's clinical trials,
as Cephalon has stated publicly, were made by Cephalon biostatisti-
cians. As a result of the foregoing, the defendants were regular-
ly, promptly and fully apprised of all information concerning
Cephalon's clinical trials including the facts set forth herein.
95. As a result of the dissemination of the false and
misleading statements set forth above, the market prices of
Cephalon common stock and options to purchase or sell Cephalon
common stock were artificially inflated during the Class Period.
51
In ignorance of the false and misleading nature of the representa-
tions described above and the deceptive and manipulative devices
and contrivances employed by said defendants, plaintiffs and the
other members of the Class relied to their detriment on the
integrity of the market price of the stock in purchasing Cephalon
common stock and trading options to purchase or sell Cephalon. Had
plaintiffs and the other members of the Class known of the
materially adverse information misrepresented or not disclosed by
defendants, they would not have purchased Cephalon common stock or
traded options to purchase or sell Cephalon stock at the artifi-
cially inflated prices that they did.
96. As a result of the inflation of the prices of
Cephalon common stock during the Class Period caused by defendants'
material misrepresentations and omissions, plaintiffs and the other
members of the Class have suffered substantial damages as a result
of the wrongs alleged.
97. By reason of the foregoing, defendants, directly or
indirectly, violated the 1934 Act and Rule 10b-5 promulgated
thereunder in that they:
(a) employed devices, schemes, and artifices to
defraud;
(b) made untrue statements of material facts or
omitted to state material facts necessary in order to make the
statements made, in light of the circumstances under which they
were made, not misleading; and/or
52
(c) engaged in acts, practices, and a course of
business which operated as a fraud and deceit and a scheme to
defraud upon plaintiffs and the other members of the Class in
connection with their purchases of Cephalon common stock during the
Class Period.
COUNT II
AGAINST THE INDIVIDUAL DEFENDANTS FOR
VIOLATION OF SECTION 20(a) OF THE 1934 ACT
98. Plaintiffs repeat and reallege each and every
allegation contained in each of the foregoing paragraphs as if
fully set forth in full herein.
99. Defendants Baldino and Murphy, by virtue of their
offices, directorship, and specific acts described above, were, at
the time of the wrongs alleged herein, controlling persons of
Cephalon within the meaning of Section 20(a) of the 1934 Act.
100. Defendants Baldino and Murphy had the power and
influence and exercised the same to cause Cephalon to engage in the
illegal conduct and practices complained of herein.
101. By reason of the conduct alleged in Count I of the
Complaint, defendants Baldino and Murphy are liable for the
aforesaid wrongful conduct, and are liable to plaintiffs and to the
other members of the Class for the substantial damages which they
suffered in connection with their purchases of Cephalon common
stock or trading options to purchase or sell Cephalon stock during
the Class Period.
53
COUNT III
NEGLIGENT MISREPRESENTATION AGAINST ALL DEFENDANTS
102. Plaintiffs repeat and reallege each and every
allegation contained in paragraphs 1 through 89 above as if fully
set forth in full herein.
103. Plaintiffs assert this Count for negligent misrepre-
sentation against all defendants.
104. Defendants made and participated in the making of
factual representations to plaintiffs and the other members of the
Class by means of public statements, including press releases as
set forth above. Such material representations were materially
false and misleading and omitted to state material facts necessary
in order to make the statements made not misleading. Such material
misrepresentations and omissions were a result of the failure by
each of the defendants to satisfy the ordinary standard of care
they owed to plaintiffs and members of the Class.
105. Plaintiffs and other Class members relied upon the
material misrepresentations and/or the integrity of the market in
trading in common stock of Cephalon or options to purchase or sell
Cephalon common stock at the prices paid. Such reliance and the
fact that defendants' negligence would result in damages to the
Class were reasonably foreseeable by defendants.
106. The direct and proximate cause of the misrepresenta-
tions and omissions of material facts set forth above was the
negligence and carelessness of defendants.
54
107. At the time of said material misrepresentations,
plaintiffs and the Class members were ignorant of their falsity and
misleading nature and believed them to be true. In reliance on
said misrepresentations and/or upon the superior knowledge and
expertise of defendants and/or the integrity of the market and in
ignorance of the true facts, plaintiffs and other Class members
were induced to and did trade in common stock of Cephalon at
inflated prices. Had plaintiffs and the other Class members known
the true facts, they would not have taken such action.
108. As a direct and proximate result of the defendants'
careless and negligent conduct in violation of the duties owed to
plaintiffs and other Class members, plaintiffs and each Class
member suffered damages in an amount to be determined at trial.
JURY DEMAND
109. Plaintiffs demand a trial by jury on all issues.
WHEREFORE, plaintiffs, on behalf of themselves and the
members of the Class, pray for judgment as follows:
(a) declaring this action to be a proper class action
and certifying plaintiffs as the representative of the Class under
Rule 23 of the Federal Rules of Civil Procedure;
(b) awarding compensatory damages in favor of plaintiffs
and the other members of the Class against all defendants for the
damages sustained as a result of the wrongdoing of defendants,
together with interest thereon;
55
(c) awarding plaintiffs and the Class their costs and
expenses incurred in this action, including reasonable allowance of
fees for plaintiffs' attorneys, accountants, and experts, and
reimbursement of plaintiffs' expenses; and
(e) granting such other and further relief as the Court
may deem just and proper.
Dated: October 18, 1996
BERGER & MONTAGUE, P.C.
/s/
_________________________________
Sherrie Savett, (SS-8135)
Carole A. Broderick, (CB-2666)
1622 Locust Street
Philadelphia, PA 19103
(215) 875-3000
WOLF POPPER ROSS WOLF
& JONES, L.L.P.
/s/
_________________________________
Marian P. Rosner
845 Third Avenue
New York, New York 10022
(212) 759-4600
GREENFIELD & RIFKIN LLP
/s/
_________________________________
Richard D. Greenfield (RG-4046)
Mark C. Rifkin (MR-0904)
800 Times Building
Ardmore, PA 19003
(610) 649-3900
Co-Lead Counsel for Plaintiffs
and the Class
56
Ira A. Schochet
GOODKIND, LABATON, RUDOFF
& SUCHAROW LLP
100 Park Avenue
New York, NY 10017-5563
(212) 907-0700
Richard Schiffrin
SCHIFFRIN & CRAIG
Three Bala Plaza East
Suite 400
Bala Cynwyd, PA 19004
(610) 667-7706
Stuart H. Savett
SAVETT FRUTKIN PODELL & RYAN, P.C.
320 Walnut Street
Suite 508
Philadelphia, PA 19106
(215) 923-5400
Daniel W. Krasner
WOLF HALDENSTEIN ADLER FREEMAN
& HERZ
270 Madison Avenue
New York, NY 10016
(215) 545-4600
Kevin M. Prongay
PRONGAY & MIKOLAJCZYK
881 Alma Real Drive
Pacific Palisades, CA 90272
(310) 573-3600
Attorneys for the Plaintiffs
57
CERTIFICATE OF SERVICE
I, Claudia Givens, hereby certify that on October 18,
1996 a true and correct copy of PLAINTIFFS CONSOLIDATED CLASS
ACTION COMPLAINT, was served upon all counsel via hand delivery and
U.S. mail:
via Hand Delivery:
John G. Harkins, Jr., Esq.
HARKINS, CUNNINGHAM
1800 One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
and via U.S. mail:
Marian P. Rosner, Esq.
WOLF POPPER ROSS WOLF & JONES
845 Third Avenue
New York, NY 10022
Mark C. Rifkin, Esq.
GREENFIELD & RIFKIN
800 Times Building
Ardmore, PA 19003
Ira Schochet, Esq.
GOODKIND, LABATON, RUDOFF
& SUCHAROW
100 Park Avenue
New York, NY 10017-5563
Richard Schiffrin, Esq.
SCHIFFRIN & CRAIG
Three Bala Plaza East
Bala Cynwyd, PA 19004
Stuart H. Savett, Esq.
SAVETT FRUTKIN PODELL
& RYAN, P.C.
320 Walnut Street, Suite 508
Philadelphia, PA 19106
Daniel Krasner, Esq.
WOLF HALDENSTEIN ADLER
FREEMAN & HERZ
270 Madison Avenue
New York, NY 10016
/s/
__________________________
CLAUDIA GIVENS
2
19 June 1997