UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

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NOAM BARDIN and JACOB DAVIDSON
on behalf of themselves and all
others similarly situated,

                      Plaintiffs,

           -against-

INTERNEURON PHARMACEUTICALS,
INC., AND LINDSAY A. ROSENWALD,
M.D. AND GLEN L. COOPER, M.D.,

                      Defendants.
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CIVIL ACTION NO.
[97-12254-REK]
[filed Oct. 15, 1997]

CLASS ACTION COMPLAINT

PLAINTIFF DEMANDS A
TRIAL BY JURY

INTRODUCTION

Plaintiffs, for their class action complaint (the "Complaint"), allege upon information and belief (said information and belief being based, in part, upon the investigation conducted by and through their undersigned attorneys), including examination of public filings and articles in the public media, except as to those paragraphs relating to the plaintiffs, their purchases of Interneuron Pharmaceuticals, Inc. ("Interneuron" or the "Company") common stock, and their suitability to serve as class representatives, which is alleged upon personal knowledge, the following:

JURISDICTION AND VENUE

1. This Court has jurisdiction over the subject matter of this action pursuant to Section 27 of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78aa.

2. The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange Act, 15 U.S.C. §§ 78j(b) and 78t(a); and Rule 10b-5 promulgated thereunder by the Securities and Exchange Commission (the "SEC"), 17 C.F.R. § 240.10b-5.

3. Venue is proper in this District pursuant to Section 27 of the Exchange Act and 28 U.S.C. § 1391(b) because many of the alleged acts, transactions and conduct constituting violations of law, including the issuance and dissemination to the investing public of materially false and misleading information, occurred, at least in part, in this District and because defendant Interneuron has its corporate headquarters in this District.

4. In connection with the acts alleged in this Complaint, defendants, directly and indirectly, used the means and instrumentalities of interstate commerce, including the mails, telephone communications and the facilities of the national securities exchanges.

NATURE OF ACTION

5. This action is brought as a class action on behalf of all persons or entities who purchased the common stock of Interneuron during the Class Period, defined below, to recover damages caused to plaintiffs and the Class, defined below, by defendants' violations of the federal securities laws.

6. During the Class Period, defendants engaged in a course of conduct that was designed to, and which did, inflate the price of Interneuron common stock by failing to disclose evidence of heart valve abnormalities in patients taking Interneuron's weight loss medication Redux (dexfenfluramine) and the severe negative impact which such discovery would certainly have on Interneuron's sales and earnings; as a consequence, plaintiffs and other members of the Class purchased their Interneuron common stock at inflated prices. In furtherance, of this plan and course of conduct, defendants took the actions set forth herein.

THE PARTIES

7. During the Class Period, plaintiffs and each member of the Class purchased shares of Interneuron common stock in the open market without knowledge of the misconduct of defendants alleged in this Complaint and suffered damages as a result. Plaintiffs and each member of the Class directly or indirectly relied upon the individual defendants' and Interneuron's public reports, press releases, and other public statements, as more fully described below, and/or upon the integrity of the market for Interneuron's common stock.

8. Plaintiff Noam Bardin ("Bardin") purchased shares of Interneuron common stock during the Class Period as set forth in the attached schedule.

9. Plaintiff Jacob Davidson ("Davidson") purchased 3,000 shares of Interneuron common stock on May 7, 1997 at $13.25 per share.

10. Defendant Interneuron was originally incorporated in New York in October 1988 and in March 1990 was reincorporated in Delaware. Its principal offices and corporate headquarters are located at One Ledgemont Center, 99 Hayden Avenue, Suite 340, Lexington, Massachusetts 02173. In 1996, Interneuron's first pharmaceutical product, Redux, was approved by the Food and Drug Administration ("FDA"). Since Redux has been marketed, it has provided approximately 86% of Interneuron's total revenue, with the remainder coming from contract and license fees. Interneuron currently has no other FDA approved drug on the market.

11. Defendant Lindsay A. Rosenwald, M.D. ("Rosenwald") was a co-founder and since February 1989 has been Chairman of the Board of Directors of the Company.

12. Glenn L. Cooper, M.D. ("Cooper") has been President, Chief Executive Officer and a director of the Company since May 1993. Cooper was also President and Chief Executive Officer of Interneuron subsidiary Progenitor, Inc. ("Progenitor")from September 1992 to June 1994, is a director of each of the Interneuron subsidiaries, described more fully below, and currently serves as acting President and Chief Executive Officer of Interneuron subsidiary Transcell Technologies, Inc. ("Transcell"). Prior to joining Progenitor, Cooper was Executive Vice President and Chief Operating Officer of Sphinx Pharmaceuticals Corporation from August 1990.

13. The above defendants, (the "Individual Defendants"), by reason of their direct and substantial management positions and responsibilities during the time relevant to this Complaint, were "controlling persons" of Interneuron within the meaning of Section 20 of the Exchange Act, and had the power and influence to control Interneuron and exercised such control to cause the Company to engage in the violations and improper practices complained of herein. As President, CEO and Director of Interneuron, Cooper personally reviewed and authorized Interneuron's press releases and public statements, personally made statements to the press regarding Interneuron and signed Interneuron's SEC Forms 10-K, 10-Q and 8-K. As Chairman of the Board, Rosenwald signed Interneuron's SEC Forms 10-K and participated in decisions regarding disclosure of information to the public.

14. The Individual Defendants, because of their positions as Chairman, President and CEO of Interneuron had access to adverse non-public information about the business and future prospects of Interneuron and acted to conceal and misrepresent such material information in violation of their duties and responsibilities under the federal securities laws.

CLASS ACTION ALLEGATIONS

15. Plaintiffs bring this action as a class action pursuant to Rule 23 of the Federal Rules of Civil Procedure on behalf of a class (the "Class") consisting of all persons and entities who purchased Interneuron common stock between March 1, 1997, and September 15, 1997, inclusive (the "Class Period") and were damaged thereby. Excluded from the Class are the Individual Defendants, members of their immediate families, any entity in which the Individual Defendants have a controlling interest, and the legal representatives, heirs, successors, predecessors in interest, affiliates or assigns of the Individual Defendants.

16. The Class is so numerous that joinder of all Class members is impracticable. As of August 12, 1997, there were 41 million shares of Interneuron common stock outstanding held by thousands of shareholders of record throughout the United States and the world.

17. Plaintiffs' claims are typical of the claims of the members of the Class since all members of the Class purchased shares of Interneuron common stock during the Class Period and sustained damages arising out of defendants' wrongful conduct in violation of federal securities laws as alleged herein.

18. Plaintiffs will fairly and adequately protect the interests of the members of the Class. Plaintiffs have retained counsel competent and experienced in class action and securities litigation and plaintiffs have no interests antagonistic to or in conflict with the other members of the Class.

19. A class action is superior to other available methods for the fair and efficient adjudication of this controversy. Joinder of all Class members is impracticable. The likelihood of individual Class members prosecuting separate claims is remote. Since the damages suffered by individual Class members may be small relative to the expense and burden of individual litigation, it is impracticable for Class members individually to seek redress for the wrongs done to them. It is desirable for all concerned to concentrate this litigation in this particular forum. No unusual difficulties are likely to be encountered in the management of this class action.

20. There are questions of law and fact common to the members of the Class which predominate over any questions affecting any individual members. These common questions of law and fact include, among others:

21. Plaintiffs will rely, in part, upon the presumption of reliance established by the fraud-on-the-market doctrine in that:

22. Based upon the above, plaintiffs are entitled to a presumption of reliance upon the integrity of the market for the purposes of class certification. Similarly, plaintiffs are also entitled to a presumption of reliance with respect to the omissions alleged in this Complaint.

INAPPLICABILITY OF THE EXCHANGE ACT'S
SAFE HARBOR PROVISION

23. The Exchange Act's safe harbor provision for forward-looking statements under certain circumstances does not apply to any of the statements alleged to be false and misleading in this Complaint. The statements complained of herein were not forward-looking as defined by the Exchange Act. To the extent that any of the statements alleged herein are deemed forward-looking, all of those statements are material and none of those statements was accompanied by meaningful cautionary statements specifically identifying factors that could cause actual results to differ materially from those in the putative forward-looking statements. Alternatively, to the extent that the statutory safe harbor does apply to any statements pleaded herein, the Defendants are liable for those false statements because, at the time each of those statements was made, they knew that the statement was false and the corporate defendant, Interneuron, is liable because the statements were authorized and/or approved by executive officers and at least one director of Interneuron who knew that those statements were false when made.

SUBSTANTIVE ALLEGATIONS

24. Interneuron is a diversified biopharmaceutical company engaged in the development and commercialization of a portfolio of products and product candidates primarily for neurological and behavioral disorders, including obesity, stroke, anxiety and insomnia. The Company focuses primarily on developing products that mimic or affect neurotransmitters, which are chemicals that carry messages between nerve cells of the central nervous system ("CNS") and the peripheral nervous system. The Company is also developing products and technologies, generally outside the CNS field, through four subsidiaries (the "Subsidiaries"): Intercardia, Inc. ("Intercardia") focuses on cardiovascular disease; Progenitor focuses on functional genomics using developmental biology; Transcell focuses on carbohydrate-based drug discovery; and InterNutria, Inc. ("InterNutria") focuses on dietary supplement products.

25. The Company was originally incorporated in New York in October 1988 and in March 1990 was reincorporated in Delaware.

26. On April 29, 1996, Interneuron's first pharmaceutical product, Redux (dexfenfluramine), was approved by the FDA for marketing as a twice daily prescription therapy to treat obesity.

27. Redux was licensed to Les Laboratories Servier ("Servier"), a French pharmaceutical company by Dr. Richard J. Wurtman ("Wurtman"), professor of brain and cognitive science at Massachusetts Institute of Technology ("M.I.T."), who had discovered that dexfenfluramine had weight-loss capabilities and who received a use patent for dexfenfluramine.

28. Interneuron obtained U.S. rights to Redux from Servier to treat abnormal carbohydrate craving and obesity.

29. Redux was marketed in the United States, under license and co-promotion agreements, by Wyeth-Ayerst Laboratories ("Wyeth-Ayerst") and co-promoted by Interneuron.

30. Interneuron had a close working relationship with American Home Products ("AHP"), the parent of Wyeth-Ayerst. The Company had sublicensed its exclusive U.S. rights to market Redux to AHP while retaining co-promotion rights. The Company had relied on AHP to target the obesity market and for distribution, advertising and promotional activities.

31. In addition, under agreements with AHP, through September 30, 1996, the Company received $5 million in milestone payments, $3.5 million in equity investments and approximately $1.7 million in research and development funding. As of December 13, 1996, AHP owned shares of Interneuron Preferred Stock convertible into an aggregate of 622,222 shares of Common Stock. AHP was obligated to make additional payments and purchase additional shares of Preferred Stock pursuant to the AHP agreements with the Company, upon the achievement of specified milestones, including de-scheduling of dexfenfluramine - removal from listing as a controlled substance under the Controlled Substances Act - prior to April, 1997 or the achievement of specified levels of net sales if dexfenfluramine was not descheduled. AHP was also responsible for reimbursing the Company for 50% of certain expenditures related to the clinical development, Phase 4 studies, and market surveillance for abuse potential. The Company and AHP agreed to confer with respect to the allocation of the obligation to manufacture Redux capsules between themselves and third parties and AHP approved Boehringer Ingelheim Pharmaceuticals, Inc. ("Boehringer")as a third party supplier.

32. In 1996, Interneuron entered into a three-year co-promotion agreement with Wyeth-Ayerst, under which Interneuron would promote Redux and AHP would reimburse Interneuron for certain costs. In addition, Interneuron agreed to promote other products of Wyeth-Ayerst if requested.

33. Interneuron's revenues relating to Redux are derived from: (1) royalties paid by AHP to the Company based on net sales of Redux capsules by AHP to distributors; (2) profit sharing between the Company and AHP on Redux sales by the Company's sales force and financial support of the Company's sales force provided by AHP; and (3) sales of Redux capsules to AHP.

34. Interneuron has a manufacturing agreement with Boehringer under which Boehringer manufactures finished dosage formulation of Redux capsules on behalf of the Company for sale to AHP.

35. In 1996, an FDA advisory committee recommended, by a vote of 6 to 5, the approval of Redux to treat obesity. One FDA panel member, Dr. D. Roger Illingworth, however, was quoted as saying in September, 1997, after the withdrawal of Redux from the market, as described more fully below, that "we didn't have data about the valvular-heart-disease problems, [and that] if we had, I would have voted no."

36. The Advisory Committee also recommended, and the Company agreed, that Phase 4, or post-marketing, studies be conducted and that certain labeling guidelines be implemented. Included in the FDA-approved labeling for Redux are references to certain risks, including primary pulmonary hypertension and certain neurochemical changes in the brain, that may be associated with dexfenfluramine and which were highlighted during the FDA's review of the drug.

37. Competition for Redux came primarily from AHP's Pondimin (flenfluramine), a drug which is biochemically similar to Redux, and which had been used with phentermine ("fen/phen"), although the combination had not been approved by the FDA.

38. In March, 1997, in a four-hour meeting in Rochester, Minnesota AHP received a detailed report from alarmed Mayo clinic doctors on cases of heart valve problems observed in patients taking fen/phen. At the time there were five known cases of heart valve problems. Mayo clinic cardiologist Heidi M. Connolly, the lead author in an article published subsequently in the August, 1997 issue of the New England Journal of Medicine ("NEJM"), told the two AHP officials who visited that she had never seen that type of valve damage except in patients with rare cancers or in those who had taken ergotamine, a migraine drug that - like the diet drugs - affects the brain transmitter serotonin.

39. AHP heard about more cases later that month in a meeting with doctors at MeritCare Medical Center in Fargo, North Dakota ("MeritCare"). That group had seen more than a dozen patients who had developed heart valve problems after taking diet drugs. Dr. Jack L. Cary, interventional cardiologist at MeritCare, said that he thought there should be a moratorium on the sale of Redux and Pondimin, but that AHP officials decided simply to obtain more information.

40. On July 8, 1997, as a further signal that the heart valve problems associated with Pondimin and Redux were extremely serious, the NEJM decided to allow early dissemination of the Mayo clinic findings on heart valve problems in users of fen/phen. At the same time, the FDA issued a health advisory on fen/phen in which it disclosed that, in addition to the 24 cases reported by the Mayo clinic, an additional thirty-three cases of heart valve problems in fen/phen users had been reported to the agency. As a result, the FDA alerted physicians and urged them to notify patients and "to report any cases of cardiac valvular disease or other serious toxicities associated with the use of flenfluramine, dexfenfluramine [Redux], or phentermine to the FDA's MEDWATCH program. . . ." Finally, the FDA indicated that the agency was "notifying manufacturers to meet with FDA to discuss possible labeling changes." Thus, it is certain that by July 8 Interneuron knew of the heart valve problems associated with fen/phen, and also knew that the FDA included Redux in its concern. Nevertheless, Interneuron remained silent about the problem until July 25 when it announced, with Wyeth-Ayerst, a labeling change, described below.

41. On August 28, 1997, the results of the Mayo Clinic study were published in the NEJM. Along with the article, the Journal included a letter from the FDA in which 28 additional cases were reported. Of these 28 cases, 6 involved the use of Redux - 4 involved the use of Redux alone and 2 involved the use of Redux with phentermine. When questioned about the FDA letter, Bill Boni, Interneuron spokesman, tried to downplay the results saying that "[t]his is a very limited number of cases that may or may not have anything to do with the drug and may be related to the underlying condition of obesity."

42. Thus, between July 8, 1997 and August 28, 1997, Interneuron certainly knew of valve problems associated with the use of Redux. Yet, it was not until September 15, 1997, that Interneuron disclosed that it knew of the association between Redux and heart valve abnormalities and that, at the urging of the FDA, it was with drawing Redux from the market.

43. On September 15, 1997, the FDA also issued a press release in which it disclosed that, in addition to the 52 cases of heart valve problems associated with Redux and Pondimin disclosed on August 28, 1997, an additional 92 patients on diet drugs, one third of 291 tested, displayed abnormal echocardiograms even though they had no symptoms of heart valve problems such as shortness of breath. Of these 291 patients, 20 were using Redux alone or Redux with phentermine. Of these 20, 6, or 30%, had abnormal echocardiograms, the same proportion as those using Pondimin. Thus, not only was the number of observed cases of actual heart valve problems, as well as echocardiogram abnormalities, growing at an alarming pace over the summer of 1997, but the problems appeared in the same proportions among users of Pondimin and Redux. It was for that reason that both drugs were withdrawn from the market on September 15, 1997.

44. Despite learning of the heart valve problem in March 1997, through its extensive connections and communications with Wyeth-Ayerst and AHP, and despite continuing to receive communications directly from the FDA throughout the summer of 1997, Interneuron failed to disclose any of this information until September 15, 1997, and failed to disclose the severely negative impact on sales and earnings of Redux as a result of the discovery of heart valve problems associated with Redux and Pondimin as described above.

45. Between March 1997, when defendants first learned of the heart valve problem associated with fen/phen, and September 15, 1997 when it finally announced the withdrawal of Redux from the market, defendants issued no less than seven SEC Forms 8-K and two SEC Forms 10-Q. In none of these reports did defendants ever disclose that they had information from the Mayo Clinic and MeritCare, concerning serious heart valve problems associated with Redux, nor did they communicate the extreme concern expressed to AHP, Wyeth-Ayerst and Interneuron by medical doctors at both the Mayo Clinic and MeritCare in the spring of 1997. Defendants also failed to disclose, with one exception in late August, 1997, the commencement of Class Action lawsuits related to problems generally associated with diet drugs. Finally, defendants failed to disclose that, as a result of the heart valve problems, there was a reasonable possibility that they would have to withdraw Redux from the market as urged by Dr. Jack L. Cary of MeritCare in March, 1997.

46. On May 5, 1997, in an SEC Form 8-K, Interneuron announced that the United States Drug Enforcement Agency ("DEA") had published a recommendation for the removal of flenfluramine and its isomers, including dexfenfluramine, from Schedule IV and all other controls of the Controlled Substances Act.

47. In a Form 8-K on June 19, 1997, Interneuron announced that it had entered into an agreement with Eli Lilly and Company ("Lilly") relating to the licensing by Lilly from the Company of a use patent for Lilly's anti-depressant Prozac (fluoxetine hydrochloride). Lilly licensed from the Company a United States patent and worldwide patent application rights covering the use of fluoxetine to treat disturbances of appetite and mood associated with premenstrual syndrome ("PMS"). Prozac is not currently approved to treat this indication.

48. In a Form 8-K on July 15, 1997 Interneuron announced preliminary results of the company's recently completed Phase 3 clinical trial for its product Citicoline, to be used in the treatment of ischemic stroke.

49. In a July 25, 1997 Form 8-K, in response to the release of the Mayo Clinic and FDA reports on July 8, 1997, as well as the direct communication from the FDA urging manufacturers to issue appropriate warnings for Pondimin and Redux, Interneuron reprinted and incorporated by reference a press release from Wyeth-Ayerst, disclosing that Wyeth-Ayerst had written to health care providers to inform them that the company was working with the FDA to develop appropriate warning language which would reflect "heightened concerns about potential serious side effects which had been reported with concomitant use of flenfluramine and phentermine ('fen/phen')". The Company indicated that the revised label for AHP's Pondimin (flenfluramine) would include a box warning about a "possible serious heart valve disorder which had been reported with concomitant use of flenfluramine and phentermine ('fen/phen')". While the Company also said that the revised labeling would include a boxed warning for Redux "because it is a related chemical compound to flenfluramine," at no time in this Form 8-K, or in any other public statement prior to September 15, 1987, did Interneuron disclose that Redux was associated with cases of heart valve problems.

50. Defendants attempted to downplay the seriousness of the problem, moreover, by referring only to the "possible association between the concomitant use of flenfluramine (Pondimin)and phentermine . . . and a serious and unusual valvular heart disease." The Company also attempted to downplay the seriousness of the problem by suggesting that "[e]vidence of a causal relationship between the treatment of obesity with flenfluramine and phentermine combination therapy and valvular heart disease is inconclusive." The Company nowhere suggested that it might have to withdraw Redux from the market.

51. At no point in the Form 8-K of July 25, 1997, moreover, did defendants disclose that they had learned that Wyeth-Ayerst and AHP had been told by cardiologists at the Mayo Clinic and MeritCare in March, April and May of 1997 that there were, in fact, cases of heart valve disorders in at least 24 patients taking Redux and Pondimin.

52. In another attempt to downplay the problem, defendants quoted the World Health Organization, saying that obesity is considered the "biggest, global, chronic health problem in adults. If action is not taken to stem the pandemic, millions will develop related diseases such as diabetes and heart disease." The clear implication is that whatever the risk of taking defendants' weight loss drug, the risk was justified.

53. Defendants also had an opportunity, which they failed to take, to disclose the Mayo Clinic and MeritCare findings on the incidence of heart valve disease, in their two SEC Forms 10-Q filed during the Class Period. In their SEC Form 10-Q filed on May 15, 1997, defendants did discuss the "references to certain risks that may be associated with dexfenfluramine [Redux]" which were included in the FDA-approved labeling for Redux. The Form 10-Q then cites only the "association between appetite suppressants, including dexfenfluramine [Redux], and the development of primary pulmonary hypertension ("PPH")," and the "discussion as to whether dexfenfluramine is associated with certain neurochemical changes in the brain." In addition to downplaying the danger of brain damage from Redux - "the Company has presented data relating to the lack of neurocognitive effects in patients taking Redux to the FDA" - defendants failed to mention the heart valve problem or the fact that they learned in March, April and May of 1997, either directly or indirectly, from the Mayo Clinic and MeritCare, of at least 24 cases of heart valve disease associated with taking Redux and Pondimin.

54. In their August 14, 1997 SEC Form 10-Q, three weeks after their July 25, 1997 8-K disclosing the heart valve problems associated with fen/phen, defendants again disclosed only the fen/phen heart valve problem without any reference to the heart valve cases associated with Redux which they certainly knew by that time as a result of their direct communications with the FDA. In fact, defendants again misleadingly referred only to the risks of primary pulmonary hypertension and neurochemical changes in the brain, problems known since the FDA approval of Redux. In regard to the heart valve problem, defendants attempted to minimize the problem, sow doubt and limit the heart valve problem to fen/phen:

The Company has been working with the FDA regarding revised labeling for Redux (dexfenfluramine, the "left-handed" isomer of flenfluramine) in response to a recent description by the Mayo Clinic of potential serious heart valve disorders that have been reported with the combined use of Pondimin(R) (flenfluramine) and phentermine. The revised labeling may include a highlighted ("boxed") warning about such possible serious heart valve disorders which have been reported with the combined use of flenfluramine and phentermine. In addition, the boxed warning may include a warning regarding the previously-mentioned association between Redux and PPH.

55. The "recent description by the Mayo Clinic", of course, as later admitted, occurred in March, 1997. Moreover, unlike the July 25, 1997 8-K, which spoke of a "revised labeling including a boxed warning for Redux," with no reference to any particular problem, the August 10-Q misleadingly focused on the "association between Redux and PPH," still with no mention of heart valve problems associated with the use of Redux.

56. Defendants' repeated references to the hypertension and neurochemical problems associated with Redux, without mention of the heart valve problems, was a deliberate attempt to appear to be forthcoming while actually failing to disclose the most serious problem. Since the public had heard about the problems of hypertension and neurochemical changes associated with Redux almost since its approval by the FDA in 1996, and since neither problem had resulted in a withdrawal of Redux from the market, and since there was significant scientific disagreement about the seriousness of the neurochemical problems, the Company could repeatedly disclose these problems without fear of a stock sell off, while, at the same time, failing to disclose the heart valve problem which constituted the most serious threat to the continued sale of Redux, Interneuron's only product on the market.

57. It is clear that defendants failed to disclose the particular information which they had known since March, 1997 about the Mayo Clinic and MeritCare cases of heart valve disorders associated with the use of Redux or Pondimin. They failed to do so because they feared that sales of Redux would collapse completely.

58. On September 15, 1997, in a joint press release with Wyeth-Ayerst, Interneuron disclosed that it was withdrawing Redux from the market and that Wyeth-Ayerst was withdrawing Pondimin (flenfluramine) from the market. The move is financially disastrous for Interneuron since Redux is the Company's only product on the market. Interneuron's sales revenue from Redux in 1997, prior to the recall, were approximately $32 million. In 1996 total revenue for Redux and Pondimin, which were also sold by AHP, a contractual partner of Interneuron, was approximately $250 million. Moreover, as William B. Boni, an Interneuron spokesman explained, the idea of using dexfenfluramine for weight loss was "one of the keystones on which the company was founded."

59. Still trying to minimize the heart valve problem, the Company claimed that it was taking the action "based on new, preliminary information regarding heart valve abnormalities in patients using these medications, most often in combination with phentermine, another weight loss medication." The Company also claimed that "this information is not derived from a thorough clinical study and is difficult to evaluate." The Company stated that the FDA, on September 12, 1997, had provided Interneuron with "new summary information" concerning abnormal echocardiogram findings in patients with no symptoms of heart valve disease." Those patients had been treated with flenfluramine or dexfenfluramine (Redux) for up to 24 months most often in combination with phentermine. As discussed above, abnormal echocardiogram findings were reported in 92 of 291 subject evaluated. Two hundred seventy-one of the 291 patients had taken flenfluramine in combination with phentermine, and 20 of the 291 patients had taken dexfenfluramine (Redux) or a combination of dexfenfluramine and phentermine. Of these 20, six, or 30%, had abnormal cardiograms, and two of the six took Redux alone.

60. There are now 100 known cases of patients who developed heart valve problems after taking Redux or Pondimin. Twenty-five have had surgery and three have died, according to Mayo Clinic cardiologist Heidi M. Connolly, the lead author of the article on the subject in the August, 1997 NEJM discussed above.

61. In an attempt to downplay the problem further, even while withdrawing the drug completely from the market, Interneuron claimed that "(t)hese observations reflect a preliminary analysis of pooled information rather than results of a formal clinical investigation, and are difficult to evaluate because of the absence of matched controls and pretreatment base line data for these patients."

62. As a result of the September 15, 1997 announcement, Interneuron's stock fell from $18.56 to $16.875 on a volume of 4.8 million shares, almost ten times the prior three month average daily trading volume. On September 17, 1997, the price of Interneuron stock fell from $16.5 to $13.68, a drop of 26% from the pre-announcement price, with a trading volume of 7.5 million shares, almost twenty times the average daily volume for the prior three months. By September 30, 1997, the price of Interneuron stock had fallen to 12, just above its 52 week low of 10 .

63. In a New York Times article of September 17, 1997, Dr. Marc Deitch, Medical Director of Wyeth-Ayerst admitted that AHP and, presumably, Interneuron as well, had gotten the first word of heart valve problems from a cardiologist at the Mayo Clinic in March 1997. The company "followed up with Mayo in March, April and May," he said, "to define the problem and understand it better."

64. Despite the fact that defendants had learned of heart valve problems associated with the use of Redux as early as March 1997, from reports of Wyeth-Ayerst's and AHP's admitted meetings with cardiologists at the Mayo Clinic and MeritCare in March, April and May of 1997, and were aware of their consequences to the Company, whose income and future were almost entirely dependent on Redux, defendants made no disclosure at all about the problem until July 25, 1997 at which time they issued a misleading half-disclosure. It was not until September 15, 1997 that defendants admitted that Redux was associated with heart valve problems as they withdrew Redux from the market. Investors responded as expected by dumping Interneuron shares in record volumes.

COUNT I

VIOLATION OF SECTION 10(b) OF THE EXCHANGE
ACT AND RULE 10b-5 AGAINST ALL DEFENDANTS

65. Plaintiffs incorporate by reference all of the allegations of all prior paragraphs, as though fully set forth herein.

66. This claim is asserted by plaintiffs and the Class against all defendants and is based upon Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder.

67. During the Class Period, these defendants, individually and in concert, directly and indirectly, engaged and participated in a continuous course of conduct to conceal adverse material information regarding Interneuron as specified herein. Defendants recklessly employed devices, schemes, and artifices to defraud and recklessly engaged in acts, practices, and a course of conduct as herein alleged in an effort to maintain artificially high market prices for the common stock of defendant Interneuron. This included the formulation, making of and/or participating in the making of untrue statements of material facts and the omission to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.

68. Defendants' acts and practices operated as a fraud and deceit upon plaintiffs and other members of the Class by creating expectations of optimism for the ongoing financial performance of the Company which were unrealistically favorable in light of their knowledge or reckless disregard of the truth concerning Interneuron's weight loss drug Redux, in connection with the purchase of Interneuron publicly traded securities by plaintiffs and the other members of the Class.

69. The market price of Interneuron common stock was artificially inflated throughout the Class Period by defendants' omissions and misrepresentations.

70. The statements particularized above were false and misleading when made by the Individual Defendants, and/or in the name of Interneuron. By making these statements, the defendants recklessly created a false and misleading impression which artificially inflated the market price of Interneuron's common stock throughout the Class Period. Defendants recklessly disregarded the fact that Interneuron's weight loss drug Redux had been associated with heart valve abnormalities. Defendants, who were under a duty to make truthful and complete disclosures, instead misrepresented or concealed material facts throughout the Class Period.

71. During the Class Period, Interneuron made the statements identified above which were materially false and misleading in violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. These statements were materially false and misleading 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.

72. With reckless disregard for the true prospects of Interneuron, the Individual Defendants caused Interneuron to make the statements containing misstatements and omissions of material fact as alleged herein.

73. In direct or indirect reliance on the aforesaid false and misleading statements, plaintiffs and the other members of the Class purchased Interneuron common stock during the Class Period at artificially inflated prices and were damaged thereby.

74. Relying upon the integrity of the marketplace and the market price of Interneuron's common stock, plaintiffs and the other members of the Class purchased Interneuron common stock at artificially inflated prices and were damaged thereby. Defendants' conduct as alleged has damaged plaintiffs and the other members of the Class in an amount which cannot presently be ascertained.

75. Had plaintiffs and the other members of the Class known of the materially adverse information which was not disclosed by defendants, they would not have purchased Interneuron common stock at all, or not at the artificially inflated prices they did, and would not have sustained damages.

COUNT II

VIOLATION OF SECTION 20 OF THE EXCHANGE
ACT AGAINST THE INDIVIDUAL DEFENDANTS

76. Plaintiffs incorporate by reference all of the allegations of all prior paragraphs as though fully set forth herein.

77. This Count is asserted against the Individual Defendants and is based on Section 20(a) of the Exchange Act. The Individual Defendants acted as controlling persons of Interneuron within the meaning of Section 20 of the Exchange Act. By reason of their positions as Chairman, President and CEO of Interneuron, the Individual Defendants had the power and authority to cause or to prevent the wrongful conduct complained of herein.

78. The Individual Defendants reviewed the press releases issued and the public documents filed by Interneuron, supervised the compilation of information contained in those documents, supplied information to Interneuron's public relations personnel who issued Interneuron's press releases, and ultimately, took the responsibility for the veracity of those documents by commenting on them.

79. By reason of such wrongful conduct, and their responsibility as the highest ranking executives of Interneuron, the Individual Defendants are liable to plaintiffs and the Class pursuant to Section 20 of the Exchange Act. As a direct and proximate result of defendants' wrongful conduct, plaintiffs and the other members of the Class suffered damages in connection with their purchases of Interneuron common stock during the Class Period.

PRAYER FOR RELIEF

WHEREFORE, plaintiffs pray for judgment as follows:

A. An order certifying the Class as set forth herein and designating plaintiffs as the representatives thereof;

B. A judgment declaring the conduct of the defendants to be in violation of law as set forth herein;

C. A judgment awarding plaintiffs and the other members of the Class compensation for the damages which they have sustained as a result of the defendants' unlawful conduct stated above;

D. A judgment awarding plaintiffs reasonable attorneys' fees, experts' fees, interest and cost of suit; and

E. Granting such other and further relief as this Court may deem just.

PLAINTIFFS DEMAND A JURY TRIAL

Dated: September , 1997

BERMAN DEVALERIO & PEASE


           /s/
By: _______________________________
     Glen DeValerio
     One Liberty Square
     Boston, Massachusetts 02109
     (617) 542-8300

           -and-

WOLF HALDENSTEIN ADLER
FREEMAN & HERZ LLP
Daniel W. Krasner (DK-6381)
Robert Abrams (RA-7559)
270 Madison Avenue
New York, NY 10016
(212) 545-4600

Attorneys for Plaintiff




inquiries@securities.stanford.edu

Source: Diskette file and paper copy of court-stamped document from Wolf Haldenstein Adler Freeman & Herz LLP