On September 27, 2006, the Court entered the Final Order and Judgment adopting all defined terms as set forth in Stipulation. The Settlement was approved. The Court also entered the Order awarding co-lead counsel reimbursement of expenses in the aggregate amount of $50,000, attorneys' fees in the total amount of $300,000 in equal parts cash and stock, and also payment of interest earned on both the cash portion of the fee award and the expense award for the same time period and at the same rate as earned on the Settlement Fund until paid. On October 27, 2006, the Court entered the Order granting the Joint Motion to Amend Stipulation of Settlement to provide Net Settlement Shares to be sold over a period of 180 trading days on the Nasdaq exchange.
According to the Notice Of Pendency and Proposed Settlement of Class Action, a settlement fund has been established. The Settlement will provide a settlement fund consisting of $1,000,000 in cash and the number of shares of EpiCept Corporation common stock that equal $1,300,000 in value based on the closing price of such common stock on the Nasdaq on the trading day that the Final Order and Judgment has become Final (the “Settlement Fund”) for the benefit of investors who purchased or otherwise acquired shares of Maxim common stock between November 11, 2002 and September 17, 2004, inclusive (the “Class Period”). The Court will hold a Settlement Fairness Hearing at 1:30 p.m. on 22nd day, September, 2006, at the United States District Court for the Southern District of California, 940 Front Street, San Diego, California, in Courtroom 10. At this hearing, the Court will consider whether the Settlement and the Plan of Allocation are fair, reasonable and adequate.
As summarized by the same Notice, on September 21, 2004, the first of three class action complaints was filed against Maxim and Larry G. Stambaugh (“Stambaugh”) (the “Defendants”), on behalf of a class of public investors who purchased or otherwise acquired the common stock of Maxim during the Class Period. By Court orders issued on January 10, 2005, all three cases were consolidated, James Brent Allen and William and Lori Milowitz were appointed as lead plaintiffs in this Action (“Lead Plaintiffs”) and Lead Plaintiffs’ selection of Schiffrin & Barroway, LLP and Goodkind Labaton Rudoff & Sucharow LLP was approved as co-lead counsel (“Co-Lead Counsel”). The lawyers at Goodkind Labaton Rudoff & Sucharow LLP that were associated with the Action changed their law firm affiliation and are now associated with the law firm of Labaton Sucharow & Rudoff LLP and continue to represent the Lead Plaintiffs as Co-Lead Counsel with Schiffrin & Barroway, LLP with full authority to litigate and settle this action. Lead Plaintiffs filed their Consolidated Amended Class Action Complaint (the “CAC”) on March 11, 2005. As stated above, the CAC alleged, among other things, that Maxim and Stambaugh issued false and misleading statements concerning the prospects of its leading drug candidate for approval by the Food and Drug Administration (“FDA”), Ceplene®, and concealed adverse material information regarding Maxim’s business, operations and future prospects during the Class Period. The Complaint alleges that Defendants’ conduct artificially inflated the price of Maxim’s common stock, injuring Class Members who purchased or otherwise acquired the common stock at inflated prices during the Class Period. On May 10, 2005, Defendants moved to dismiss the CAC. Lead Plaintiffs filed their opposition to Defendants’ motion to dismiss on July 7, 2005, and Defendants filed their reply to Lead Plaintiffs’ opposition on August 10, 2005. By an order dated October 14, 2005, the Court granted Defendants’ motion to dismiss, but granted Lead Plaintiffs leave to file an amended complaint. Lead Plaintiffs’ First Amended Consolidated Class Action Complaint (the “FACC”) was filed on February 27, 2006. Shortly before the Lead Plaintiffs filed their FACC, the parties agreed to submit this matter to mediation and met before the Honorable Edward A. Infante (Ret.) on February 16, 2006. Although the parties did not come to a resolution at the mediation, they continued negotiations telephonically. The parties reached the basic terms of the Settlement in April 2006.
The original complaint charges Maxim and certain of its officers and directors with violations of the Securities Exchange Act of 1934. Maxim is a global biopharmaceutical company focused on developing and commercializing therapeutic products for life-threatening cancers and chronic liver diseases. The Company’s leading drug candidate during the Class Period was Ceplene, which Maxim claimed was designed to prevent or inhibit oxidative stress, thereby overcoming immune suppression and protecting critical immune cells. Maxim also claimed that Ceplene, used in combination immunotherapy with cytokines, was being tested as an investigational drug for a number of cancers, including malignant melanoma. In December of 2000, Ceplene was reviewed by the U.S. Food and Drug Administration (“FDA”) Oncology Drugs Advisory Committee (“ODAC”) for approval as a treatment for malignant melanoma. The ODAC recommended against approval, based on the failure of a comprehensive multicenter randomized “MO1” Phase III study. In January of 2001, the FDA issued Maxim a rejection letter for the use of Ceplene as a treatment for malignant melanoma.
The complaint alleges that during the Class Period, defendants artificially inflated the price of Maxim shares by issuing a series of false and misleading statements about the utility of Ceplene in the treatment of malignant melanoma. Despite expert review by the FDA and others of the dismal results of their failed Phase III trial, defendants sought to convince investors that Ceplene still held promise as a treatment for malignant melanoma. According to the complaint, the true facts which were known by each of the defendants, but concealed from the investing public during the Class Period, were as follows: (a) positive reports of survival rates and the status of malignant melanoma patients treated with Ceplene during the original MO1 Phase III study were rooted in a failed, fundamentally flawed and deficient trial and were therefore false and misleading in nature; (b) defendants’ representation during the Class Period that “Maxim Pharmaceuticals Receives FDA Approval” was intended to convey to the investing public the false and misleading impression that Ceplene was safe, effective and approved for use in accordance with detailed instructions for dosage and administration for a marketed drug; (c) under the Food, Drug and Cosmetic Act, it was illegal to publicly promote Ceplene as a safe and effective treatment for any type of disease, including malignant melanoma; (d) even though the Company represented to investors that the FDA 'Approved' Ceplene, no new clinical data or information demonstrating that the drug was effective in the treatment of malignant melanoma had been provided to the agency since it rejected the drug in 2001; (e) the later 'confirmatory' Phase III study was in fact designed to refute key negative results in the MO1 study as interpreted by panel experts at the ODAC in December of 2000 (results that explained why the drug did not work); (f) negative results were again the likely outcome of the later 'confirmatory' Phase III study, while positive results would create controversy and alone could not support approval of the drug for the treatment of malignant melanoma; and (g) disclosure of the highly material negative results of the later trial were delayed, affording insiders with knowledge of the undisclosed material information an opportunity for trading in Company securities. On September 19, 2004, defendants shocked the market by announcing the resounding failure of Ceplene to demonstrate an improvement in overall patient survival, the primary endpoint. Based on this disclosure, the stock imploded, closing the next trading day at $3.04, for a loss of $2.90 or 48.8% of its value, on volume of over 17 million shares.