On March 28, 2007, the Court entered the Orders signed by U.S. District Judge George A. O'Toole Jr. granting the Defendants’ motion to dismiss the Consolidated Amended Class Action Complaint. The case is now closed.
According to the Company’s FORM 10-Q For the quarterly period ended June 30, 2006, on February 7, 2005, a motion was filed to consolidate the three actions and to appoint lead plaintiffs and lead counsel. On February 18, 2005, the Company and the individual defendants filed a brief response to that motion, reserving their rights to challenge the adequacy and typicality, among other things, of the proposed lead plaintiffs in connection with class certification proceedings, if any. On April 13, 2005, the Court entered an Order granting the plaintiffs’ motion to consolidate the three actions (as well as each case that relates to the same subject matter that may be subsequently filed in or transferred to the United States District Court for the District of Massachusetts), appoint lead plaintiffs and approve such plaintiffs’ selection of co-lead counsel. On August 1, 2005, lead plaintiffs filed a consolidated amended complaint. Lead plaintiffs generally allege securities fraud during the period from November 25, 2003 through December 6, 2004. The consolidated amended complaint purports to assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and alleges that the Company and the individually named defendants made materially false and misleading public statements concerning the Company’s business and financial results, particularly relating to statements regarding the commercialization of Plenaxis®, thereby allegedly causing plaintiffs to purchase the Company’s securities at artificially inflated prices. On September 12, 2005, the Company and the individual defendants filed a Motion to Dismiss the consolidated amended complaint in its entirety. On October 24, 2005, lead plaintiffs filed an Opposition to the Company’s Motion to Dismiss and the defendants filed a reply on November 14, 2005. On January 17, 2006, the Court heard oral argument on the Motion to Dismiss and took the matter under advisement.
The original complaint charges Praecis and certain of its officers with violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The complaint alleges that the company, its officer and directors violated securities laws by issuing false and misleading statements that caused the stock to inflate.
More specifically, the Complaint alleges that the Company failed to disclose and misrepresented the following material adverse facts which were known to defendants or recklessly disregarded by them: (1) that the distribution of the Company's flagship drug, Plenaxis, had been severely restricted by the FDA, which significantly reduced the potential market for the therapy; (2) that the Company failed to establish effective messaging to educate physicians about the product's indication and the appropriate patient population; (3) that the Company, despite impressive enrollment numbers in the PLUS program, had difficulties convincing physicians to prescribe the product due to uncertainty over use and concerns over reimbursement; (4) that the Company lacked adequate internal control; and (5) that as a result of the above, the defendants' fiscal 2004 projections were lacking in any reasonable basis when made.
The complaint further alleges that on December 6, 2004, Praecis provided an update on the Company's commercialization of Plenaxis in the United States. In the update, the Company stated that its had decided to remove its previous short- and long- term sales and earnings guidance, and that it did not anticipate providing further guidance until a consistent trend for Plenaxis sales emerges. The company said it has had trouble educating doctors and convincing them to prescribe the therapy due to concerns over insurance reimbursement. News of this shocked the market. Shares of Praecis fell $.56 per share, or 25.8 percent on December 6, 2004, to close at $1.61 per share.