According to a press release dated May 20, 2004, Maxim Pharmaceuticals, Inc. announced that the Plaintiff in the Company's federal class action securities complaint has dropped their appeal of the court's previous dismissal of the action, ending the litigation. On December 14, 2000, the plaintiff Blake Martin, on behalf of himself and purportedly on behalf of a class of similarly situated stockholders, filed a complaint in the United States District Court for the Southern District of California against Maxim and certain officers of Maxim, alleging that the defendants violated the federal securities laws by purportedly issuing false and misleading statements to the securities markets. In December 2003, the United States Federal Court granted Maxim's motion to dismiss the lawsuit with prejudice and without leave to amend, which was the third dismissal entered by the court in the case. Thereafter, the Plaintiff filed an appeal of the dismissal with the Ninth Circuit Court of Appeals. That appeal has been dropped, ending the litigation in favor of the Company.
As previously reported by the Company’s FORM 10-Q For the Quarter Ended June 30, 2003, approximately fourteen similar complaints were filed in the Southern District. The Southern District complaints have been consolidated into a single action. No discovery has been conducted. The Company successfully brought motions to dismiss the consolidated complaint and a second amended complaint. The plaintiff then filed a third amended complaint, and the Company’s motion to dismiss the third amended complaint is currently under consideration by the court.
The original complaint charges Maxim and certain of its officers with violations of the Securities Exchange Act of 1934. The complaint alleges that during the class period, the company's leading drug candidate was Maxamine, a drug to facilitate an immune system mechanism to achieve full anti-tumor and anti-infection potential. Subject to FDA approval, this drug was set to launch in early 2001. Defendants' alleged false and misleading statements about the effectiveness of its Maxamine drug and the company's adherence to FDA protocol allowed Maxim to complete a follow-on public offering on 02/28/2000 at $55.00 and artificially inflate its stock to a class period high of $79.50 on 03/01/2000. Maxim sold 3.2 million shares of its stock at as high as $55 for $165 million in proceeds so as to provide it with ample monies to make a large acquisition and fund its operations.
The complaint further alleges that on or around 12/12/2000, information regarding Maxim's testing began to become public, including that Maxim had been concealing a materially negative communication from the FDA suggesting that FDA approval of Maxamine would be impossible. Based on this disclosure, Maxim's stock price dropped to as low as $9-1/4. Public investors who invested based on Maxim's representations about its compliance with FDA regulations and the effectiveness of its drug Maxamine, and thus paid as high as $79.50 per share for Maxim's stock during the class period, suffered millions in damages.