Richard Gregory, Et Al. V. Chiron Corporation, Et Al. 04-CV-04293
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1 MILBERG WEISS BERSHAD & SCHULMAN LLP 2 JEFF S. WESTERMAN (SBN 94559) ELIZABETH P. LIN (SBN 174663) 3 355 S. Grand Avenue, Suite 4170 Los Angeles, CA 90071-3172 4 Telephone: (213) 617-1200 Facsimile: (213) 617-1975 5 MILBERG WEISS BERSHAD 6 & SCHULMAN LLP MELVYN I. WEISS 7 ELAINE S. KUSEL One Pennsylvania Plaza 8 New York, NY 10119 Telephone: (212) 594-5300 9 Facsimile: (212) 868-1229 10 Lead Counsel for the Class 11 12 13 14 UNITED STATES DISTRICT COURT 15 NORTHERN DISTRICT OF CALIFORNIA 16 SAN FRANCISCO DIVISION 17 18 RICHARD GREGORY, On Behalf of Himself ) Case No. C-04-4293-VRW and All Others Similarly Situated, ) 19 ) CONSOLIDATED AMENDED Plaintiff, ) COMPLAINT FOR VIOLATIONS OF THE 20 ) FEDERAL SECURITIES LAWS vs. ) 21 ) DEMAND FOR JURY TRIAL CHIRON CORPORATION, HOWARD H. ) 22 PIEN, JOHN A. LAMBERT and DAVID V. ) SMITH, ) 23 ) Defendants. ) 24 ) 25 26 27 28 CONSOLIDATED AMENDED COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS CASE NO.: C-04-4293-VRW 1 TABLE OF CONTENTS 2 Page 3 NATURE OF THE ACTION AND SUMMARY OF ALLEGATIONS ........................................1 4 JURISDICTION AND VENUE ......................................................................................................6 5 PARTIES .........................................................................................................................................6 6 PLAINTIFF'S CLASS ACTION ALLEGATIONS ........................................................................9 7 BACKGROUND FACTS..............................................................................................................10 8 FACTS WITHIN DEFENDANTS’ KNOWLEDGE DURING THE CLASS PERIOD ..............12 9 The Liverpool Plant Producing Fluvirin Had a History of Contamination and Regulatory Compliance Problems...............................................................................13 10 Defendants Knew the Liverpool Plant Did Not Comply With Good Manufacturing Practices and that Contamination of Fluvirin Was Found 11 by the FDA Prior to the Acquisition of the Plant by Chiron .............................................15 12 Defendants Knew that the Fluvirin Produced for the 2004-2005 Flu Season Was Contaminated .....................................................................................................................21 13 The MHRA and the FDA Determined that Defendants Knew About the Fluvirin Contamination and Failed to Adequately Investigate the Root Cause and 14 Eliminate Potential Sources of the Contamination ............................................................26 15 MATERIALLY FALSE AND MISLEADING STATEMENTS ISSUED DURING THE CLASS PERIOD AND THE REASONS WHY THESE 16 STATEMENTS WERE FALSE AND MISLEADING WHEN MADE.......................................28 17 THE TRUTH BEGINS TO EMERGE ..........................................................................................40 18 POST-CLASS PERIOD EVENTS ................................................................................................41 19 ADDITIONAL SCIENTER ALLEGATIONS..............................................................................44 20 APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD-ON-THE-MARKET DOCTRINE ..................................................................................47 21 NO SAFE HARBOR .....................................................................................................................48 22 COUNT I 23 Violation Of Section 10(b) Of The Exchange Act And Rule 10b-5 Promulgated Thereunder Against All Defendants......................................................48 24 COUNT II 25 Violation Of Section 20(a) Of The Exchange Act Against the Individual Defendants.................................................................................................51 26 PRAYER FOR RELIEF ................................................................................................................52 27 JURY TRIAL DEMANDED.........................................................................................................53 28 CONSOLIDATED AMENDED COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS - i - CASE NO.: C-04-4293-VRW DOCS\273993v3 1 Plaintiff alleges the following based upon the investigation of plaintiff’s counsel regarding 2 Chiron Corporation (“Chiron” or the “Company”). Plaintiff’s counsel’s investigation included a 3 review of documents from the U.S. Food and Drug Administration (“FDA”), documents from the 4 Medicines and Healthcare Products Regulatory Agency (“MHRA”), Chiron’s regulatory filings and 5 reports, securities analyst reports and advisories, press releases and other public statements issued by 6 the Company, media reports about the Company, and interviews with former employees of the 7 Company. 8 NATURE OF THE ACTION AND SUMMARY OF ALLEGATIONS 9 1. This is a class action brought on behalf of persons who purchased the securities of 10 Chiron between July 23, 2003 through October 5, 2004, inclusive (the “Class Period”), and who 11 were damaged thereby, seeking to pursue remedies under the Securities Exchange Act of 1934 (the 12 “Exchange Act”). 13 2. During the Class Period, defendants engaged in a fraud which artificially inflated the 14 price of Chiron stock. The fraud enabled Chiron to raise approximately $885 million through sales 15 of convertible debentures on terms favorable to the Company during the Class Period. Also, by 16 engaging in the fraud, defendants hoped to increase their bonuses, which were tied to meeting 17 revenue and earnings targets and which amounted up to 200% of their salary. 18 3. Chiron, headquartered in Emeryville, California, is a global pharmaceutical company 19 focused on developing products for cancer and infectious diseases. It commercializes its products 20 through three business units: blood testing, vaccines and biopharmaceuticals. Chiron’s vaccine unit 21 produces more than 30 types of vaccines, including a flu vaccine marketed under the name Fluvirin. 22 4. Fluvirin is manufactured in a plant near Liverpool, England (“Liverpool Plant” or 23 “Plant”). Chiron acquired the Liverpool Plant in the purchase of PowderJect Pharmaceuticals in 24 July, 2003 in an effort to obtain a foothold in the U.S. vaccines market through sales of Fluvirin and 25 to fuel its growth. In 2003, Chiron sold $219 million worth of Fluvirin for the 2003-2004 flu season, 26 which represented approximately 19% of the Company’s revenue in third quarter 2003 and 27 approximately 12% of the Company’s overall revenues that year. Chiron was expected to provide its 28 flu vaccine to the United States for the 2004-2005 flu season, and defendants publicly represented CONSOLIDATED AMENDED COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS - 1 - CASE NO.: C-04-4293-VRW DOCS\273993v3 1 that it would provide the U.S. market with more Fluvirin in 2004 than in 2003. The Company, 2 which already increased Fluvirin production by 50% in 2003, told investors that it would increase 3 production by 30% more in 2004. 4 5. However, unbeknownst to investors, the Liverpool Plant producing Fluvirin had a 5 history of severe and pervasive contamination and regulatory compliance problems. These serious 6 problems prevented Chiron from providing Fluvirin for the 2004-2005 flu season. Problems with 7 the Plant have been documented since 1999. In 1999, FDA inspectors found unusually high levels 8 of bioburden, or bacteria and other organisms, in partially processed Fluvirin vaccine at the Plant. 9 At that time, the FDA specifically warned Medeva, the then owner of the Plant, that if corrective 10 action was not taken, it could suspend or revoke the Plant’s license without further notice. This 11 warning letter was available to Chiron before it acquired the Liverpool Plant through its due 12 diligence. In addition, in October 2000, millions of oral polio vaccines produced at the Plant were 13 recalled after it was discovered that they may have been contaminated with protein associated with 14 mad cow disease. In 2001, hepatitis A vaccines being filled into syringes at the Plant were found to 15 have been ruined by contamination. In July 2002, the Irish Medicines Board suspended the Plant’s 16 license to supply BCG tuberculosis vaccine after it inspected the Plant. 17 6. In June 2003, just one month before Chiron acquired PowderJect, the FDA conducted 18 an inspection of the Liverpool Plant. In the June 2003 inspection, the FDA found that the Plant did 19 not follow good manufacturing practices essential to ensuring the safety of the product, that Plant 20 managers failed to correct problems identified by the FDA in its prior inspections even though the 21 FDA had warned it could suspend or revoke the Plant’s license if the problems were not corrected, 22 that Plant managers failed to investigate the high levels of bioburden since year 2000, and that there 23 was contamination at various stages in the Fluvirin production for the 2003-2004 flu season. The 24 Liverpool Plant’s problems were so severe that FDA inspectors recommended official action be 25 taken. Despite the fact that FDA inspectors found horrific, ongoing and uncorrected conditions at 26 the Plant, John Lambert, President of Chiron Vaccines, misrepresented during the Class Period that 27 the FDA’s 2003 inspection “confirmed that the facilities were really in very good order.” 28 CONSOLIDATED AMENDED COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS - 2 - CASE NO.: C-04-4293-VRW DOCS\273993v3 1 7. During the Class Period, defendants also represented