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Liang v. Berger

United States District Court, District of Massachusetts

March 9, 2015

YU LIANG, Plaintiff,
v.
HARVEY J. BERGER, et al., Defendants. ARKADY LIVITZ, Plaintiff,
v.
HARVEY J. BERGER, et al., Defendants.

MEMORANDUM & ORDER

Indira Talwani United States District Judge

I. Introduction

Plaintiff brings this shareholder suit derivatively on behalf of ARIAD Pharmaceuticals, Inc. ("ARIAD"), against eleven directors and officers of ARIAD (collectively, "Defendants") for alleged breaches of fiduciary duty, misappropriation of confidential information and insider trading, and a violation of the Securities Exchange Act. In their Motion to Dismiss the Verified First Amended/Consolidated Shareholder Derivative Complaint [#29], Defendants contend that Plaintiff may not bring this suit to enforce rights of the corporation because he has not made a demand on the board of directors and has not sufficiently alleged that demand would have been futile. For the reasons set forth herein, Defendants' motion is ALLOWED.

II. Procedural History

Yu Liang initiated this action on November 6, 2013, and on December 6, 2013, Arkady Livitz initiated a related action, which was consolidated with this case [#8]. Liang and Livitz subsequently designated Liang's complaint as the operative complaint [#17]. After the Defendants filed their first motion to dismiss [#19], Liang filed his Amended Complaint [#21]. Defendants' Motion to Dismiss the Verified First Amended/Consolidated Shareholder Derivative Complaint [#29] is now before this court.

III. Background[1]

A. The Parties

Plaintiff has been a holder of ARIAD common stock. Verified 1st Am./Consol. S'holder Derivative Compl. ¶ 23 [#21] [hereinafter Am. Compl.].

Defendant Harvey J. Berger was ARIAD's Chairman of the Board, President and Chief Executive Officer. Id. ¶ 25. He served on ARIAD's Board of Directors together with Defendants Jay R. LaMarch, Athanese Lavidas, Massimo Radaelli, Norbert Riedel, Sarah Schlesinger, Robert M. Whelan, Jr., and Wayne Wilson. Id. ¶¶ 25-32, 37. Five of these Defendants-Berger, LaMarche, Radaelli, Whelen and Wilson-also served on the Audit Committee. Id. ¶¶ 26, 28-29, 31, 32, 38.

Defendants Timothy P. Clackson, Frank G. Haluska and Edward M. Fitzgerald are not members of the Board of Directors. Clackson was ARIAD's President of Clinical Research and Development and Chief Scientific Officer. Id. ¶ 34. Haluska was ARIAD's Senior Vice President of Clinical Research and Development and Chief Medical Officer. Id. ¶ 33. Fitzgerald was the Company's Executive Vice President, Chief Financial Officer and Treasurer. Id. ¶ 35.

All of the Defendants, except Schlesinger, are also named in a securities class action pending in this district. Id. ¶ 19 (citing In re ARIAD Pharm., Inc. Sec. Litig., No. 13-cv-12544- WGY (alleging securities fraud against ARIAD and Defendants Berger, Clackson, Fitzgerald, and Haluska and strict liability claims for violations of sections 11 and 15 of the Securities Exchange Act against Berger, Fitzgerald, LaMarche, Lavidas, Radelli, Riedel, Whelan, and Wilson)).

B. The Statements and Disclosures

ARIAD's focus is the discovery, development, and commercialization of medicines to treat cancer patients. Id. ¶ 1. For years, ARIAD's primary focus has been on the development and commercialization of Iclusig (also known by its generic name, ponatinib), a medicine developed to treat certain forms of leukemia. See id. ARIAD has spent hundreds of millions of dollars developing Iclusig and has run increasingly large accumulated deficits in the process. See id. ¶ 4. ARIAD has repeatedly acknowledged that the commercial success of Iclusig is critical to ARIAD's success and viability. See id. ¶¶ 4 & n.1, 12.

ARIAD announced the development of Iclusig in March 2010. See id. ¶ 50. From mid- 2010 through mid-2012, ARIAD shepherded Iclusig through a Phase I clinical study and the Phase II "PACE" clinical trial-necessary steps toward gaining FDA approval of the product. See id. ¶¶ 52, 53, 68. In July 2012, ARIAD announced its submission of a rolling New Drug Application to the FDA for Iclusig. Id. ¶¶ 10, 63; see id. ¶¶ 58, 61. With its New Drug Application, ARIAD submitted clinical data, including safety data, from the PACE trial collected through July 2012. See id. ¶¶ 10, 58, 61, 63.

On October 25, 2012, ARIAD's Director of Regulatory Affairs (who is not a defendant in this action) learned that the FDA harbored serious concerns regarding the safety of Iclusig. See id. ¶¶ 2, 8, 66. The FDA requested a face-to-face meeting to discuss its concerns "regarding the risks including liver failure, arterial occlusive and thromboembolic events observed in the safety population." Id. ¶¶ 66, 70. In its pre-meeting materials, the FDA explained that it "has taken the approach of labeling all clinically significant [treatment-emergent adverse events] regardless of attribution in prior approvals based on single-arm clinical trial(s), " id. ¶ 66, and recommended to ARIAD that it "should designate arterial thromboembolic events, vascular stenosis, or any other requirement for a vascular diagnostic or therapeutic procedure as adverse events of special interest, which would require enhanced data collection and submission of narratives for ongoing or planned clinical trials with ponatinib, " id. ¶ 67.

On November 1, 2012, the FDA met with at least ten senior ARIAD representatives, including Defendants Clackson and Haluska. Id. ¶ 69; see id. ¶¶ 8, 66, 70. At the meeting, the FDA requested that the labeling for Iclusig be revised to address the FDA's safety concerns. See id. ¶¶ 8, 66, 70.

On November 5, 2012, ARIAD's Director of Regulatory Affairs submitted to the FDA a revised draft Iclusig label that had no box warning. Id. ¶ 71; see id. ¶ 9. The FDA responded the next day, reiterating its position that the label must include a box warning for arterial thromboembolic events, arterial stenosis, and hepatic toxicity. The FDA stated: "The Division's position regarding the inclusion of box warnings is firm. We refer you to our discussion during our face-to-face meeting on November 1, 2012." Id. ¶ 71; see id. ¶ 9.

On November 9, 2012, ARIAD filed with the SEC its Form 10-Q for the third quarter of 2012 without disclosing the FDA's concerns about Iclusig's safety and the box warnings required by the FDA. Id. ¶¶ 10, 72. Instead, the Form 10-Q represented that the FDA was continuing to review ARIAD's Iclusig New Drug Application and that there had been no material changes to the risk factors included in ARIAD's 2011 Annual Report and second quarter 2012 Form 10-Q. See id. ¶¶ 72–75. Defendants Berger and Fitzgerald signed and certified this filing. Id. ¶ 72. The Audit Committee, which included outside directors/Defendants LaMarche, Radaelli, Whelan and Wilson, approved the Form 10-Q. See id. ¶¶ 10, 18, 75; see also id. ¶¶ 72–74.

Between December 9 and 11, 2012-over a month after the FDA had communicated its safety concerns and box warning requirements for Iclusig-ARIAD issued three press releases about Iclusig.[2]See id. ¶¶ 54–55, 76–79. Each of these press releases included safety profiles. See id. None of these press releases, however, mentioned any of the FDA's safety concerns from the previous ...


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