The original complaint charges Axonyx 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. 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 Company's only viable drug candidate, Phenserine, a acetylcholinesterase ("AChE") inhibitor, failed to curb symptoms of Alzheimer's disease; (2) that the Company knew or recklessly disregarded the fact that Phenserine failed to partially block the effects of AChE, an enzyme that breaks down a neurotransmitter in the brain important for memory and cognition; (3) that as a consequence of the foregoing, the Company would not be able to commercialize Phenserine, currently its only potential source of revenue; and (4) that as a result the Company's positive statements about the development and potential approval of Phenserine were lacking in all reasonable basis when made.
Further, on or around February 7, 2005, Axonyx announced that Phenserine did not achieve significant efficacy in Phase III Alzheimer's Disease trial. The news shocked the market. As a result, shares of Axonyx fell $3.04 per share, or 62.68 percent, on February 7, 2005, to close at $1.81 per share.
According to the Company’s FORM 10-Q for the quarterly period ended September 30, 2006, several lawsuits were filed against the Company in February, 2005, in the U.S. District Court of the Southern District of New York asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. These actions were consolidated into a single class action lawsuit in January 2006. On April 10, 2006 the plaintiff filed an amended consolidated complaint. The Company filed its answer to that complaint on May 26, 2006. The Company’s motion to dismiss the consolidated amended complaint was filed on May 26, 2006 and will be submitted to the court for a decision following the parties’ filing of their legal briefs.
On March 31, 2009 the U.S. District Court for the Southern District of New York dismissed the proceedings. On April 24, 2009, an appeal was filed with the United States Court of Appeals for the Second Circuit by the class action plaintiffs.