Q,^.IGiNAL &&,iN 2i 4- L UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK -_DOF x Consolidated Civil Action IN RE BAYER AG SECURITIES No. 03 CV 1546 (WHP) LITIGATION Class Action x 71 :n = SECOND CONSOLIDATED AMENDED COMPLAINT Jury Trial Demand MILBERG WEISS BERSHAD & SCHULMAN LLP Melvyn I. Weiss (MW-1392) Michael C . Spencer (MS-8874) Lee A. Weiss (LW-1130) Jennifer Sclar (JS-7313) One Pennsylvania Plaza New York, NY 10119 (212) 594-5300 Attorneys for Lead Plaintiff January 14, 2005 i • ' Table of Contents Page SUMMARY OF CLAIMS ...............................................................................................................2 JURISDICTION AND VENUE ...................................................................................................... 8 A. General Jurisdiction and Venue ............................................................................... 8 B. Subject Matter Jurisdiction Over Claims of Foreign Purchasers on Foreign Exchanges ................................................................................................................ 8 PARTIES .......................................................................................................................................12 RELEVANT EVENTS ..................................................................................................................14 A. Background of the Statin Market ...........................................................................14 B. FDA Approval and Introduction of Baycol; Early Safety Warnings .....................15 C. The FDA Approves an 0.4 mg Dosage, as Defendants Fail to Disclose the Dangers Associated with Baycol ...........................................................................22 D. Bayer Seeks and Obtains Approval of an 0.8 mg Dosage Despite Overwhelming Evidence ofBaycol's Link to Rhabdomyolysis ............................27 E. Bayer Is Compelled to Withdraw Baycol ..............................................................40 F. Defendants Continue to Withhold Material Facts Concerning the Dangers Associated With Baycol .........................................................................................43 G. Bayer AG Registers Its ADRs with the SEC .........................................................48 H. Defendants' Knowledge of Baycol's Dangers Is Made Public .............................53 BAYER'S MATERIALLY FALSE AND MISLEADING FINANCIAL STATEMENTS .........56 A. U.S. GAAP, IAS and SEC Violations ...................................................................57 B. German Stock Exchange Rule Violations ..............................................................62 INDIVIDUAL DEFENDANTS' LIABILITY; DUTY ................................................................. 63 THE MARKET FOR BAYER SECURITIES ; APPLICABILITY OF PRESUMPTION OF RELIANCE; FRAUD-ON-THE-MARKET DOCTRINE ......................................................65 CLASS ACTION ALLEGATIONS ..............................................................................................67 - i - NO STATUTORY SAFE HARBOR.............................................................................................69 CLAIMS FOR RELIEF .................................................................................................................71 COUNT I - Violations of Section 10(b) and Rule lob-5 By All Defendants .................... 71 COUNT II - Violations of Section 20(a) By the Individual Defendants ...........................73 JURY TRIAL DEMAND ..............................................................................................................76 ii 1 ? Lead Plaintiff, Alan Hevesi, Comptroller of the State ofNew York, as Administrative Head of the New York State and Local Retirement Systems and as the sole trustee of the New York State Common Retirement Fund ("NYSCRF"), individually and on behalf of all other persons similarly situated, by the undersigned attorneys, makes the following allegations for his Second Consolidated Amended Complaint. Defendants named in this complaint are Bayer AG (also referred to herein as the "Company"); Bayer Corporation; David Ebsworth; and Wolfgang Plischke. Lead Plaintiff's allegations as to himself and his own acts are made upon personal knowledge, and as to all other matters are based upon an investigation made by his attorneys, which included, among other things: (i) interviews of former employees of Bayer AG and Bayer Corp.; (ii) review and analysis of the public filings of Bayer AG, including its filings with the Securities and Exchange Commission ("SEC") and stock exchanges in Europe; (iii) review and analysis of news articles, press releases and analysts' reports by or relating to Bayer AG and Bayer Corp.; and (iv) review of the documents made public by attorneys for plaintiffs who are suing Bayer AG, Bayer Corp. and Bayer's marketing partner, GlaxoSmithKline PLC, for products liability and personal injuries related to the drug Baycol. Lead Plaintiff believes that further evidentiary support for the allegations set forth below will exist after a reasonable opportunity for discovery. On September 30, 2004, the Court issued a Memorandum and Order dismissing certain portions of Lead Plaintiffs' Consolidated Amended Complaint. To the extent allegations dismissed from the Consolidated Amended Complaint are not repleaded herein, Lead Plaintiff expressly preserves his right to appeal the dismissal of these allegations, including (without limitation) dismissal of claims against Werning Wenning and Manfred Schneider. SUMMARY OF CLAIMS 1. This is a class action on behalf of a proposed Class of all persons who purchased securities of Bayer AG between August 4, 2000 and February 21, 2003, inclusive (the "Class Period") and have been damaged thereby, to recover damages caused by defendants ' violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"). 2. Defendants made repeated statements to the public before and during the Class Period extolling the safety and commercial potential of cerivastatin, a prescription statin (cholesterol- and triglyceride-reducing) drug produced and marketed by Bayer under the brand names Baycol in North America and Lipobay elsewhere (usually referred to as Baycol herein). Bayer introduced Baycol commercially in 1997 and portrayed it as a "sleeping blockbuster" pharmaceutical product that would capture substantial market share from Lipitor, a competitive statin sold by Warner-Lambert that held approximately 40 percent of the worldwide market and surpassed $1 billion in sales in the first eleven months it was on the market. Defendants repeatedly. stated that Baycol was safe and that its success was essential in driving Bayer's future profitability. By August 2001, Baycol had become Bayer's third-best-selling prescription drug. Securities analysts called Baycol the "key growth product" and a "major strategic pillar" in Bayer's healthcare business. Internally, a memo sent to defendant Ebsworth, President of Bayer Corp.'s Pharmaceutical Division, in May 1998, noted that Baycol "must carry the company for the short and long haul." 3. Throughout the period that Bayer was depicting Baycol as safe, and was seeking regulatory approval for higher dosages, evidence was being accumulated inside Bayer and its marketing partner in the United States, SmithKline Beecham (now called GlaxoSmithKline), that Baycol was unsafe, particularly at higher doses and particularly when used in conjunction with the drug gemfibrozil, with which it was often prescribed. As early as June 1997, when Baycol 2 1 S first received U.S. regulatory approval, defendant Ebsworth was notified in writing by a SmithKline Beecham officer that "[s]imple and safe no longer appears to be a viable promotional platform." By early 1998, Bayer learned that a serious medical condition, rhabdomyolysis, was afflicting patients taking Baycol. Rhabdomyloysis is a disease that causes acute damage to skeletal muscle and tissue, leading to kidney failure, heart failure, muscle tissue degeneration, liver lesions, other organ damage, and often death. Bayer resisted disclosing the severity of the problem and continued to insist that Baycol had a "proven safety profile" for several years, so as to continue profiting from the drug. 4. In order to turn Baycol into the blockbuster drug the Company needed it to be, at the beginning of 2000, Bayer deployed the majority of its marketing efforts toward increasing Baycol sales in the U.S. By this time, Baycol had been a relative failure in the U.S., as Bayer had only received FDA approval for relatively weak dosages . Thus, to increase Baycol's market share, Bayer sought FDA approval of a larger dosage (0.8 mg), without regard for the known safety risks. One Bayer officer observed, for example, that there was a company strategy to "get by that July hurdle" - referring to anticipated regulatory approval of a 0.8 mg dosage for Baycol, which in fact was granted in July 2000. On August 4, 2000, less than two weeks after the FDA approved the 0.8 mg dosage, a meeting in the U.S. among senior members of Bayer's Global Drug Safety group, including defendant Wolfgang Plischke, General Manager of Bayer AG's Pharmaceutical Business Group, reached the conclusion that Baycol's dangers were putting the brand at risk and posing serious problems with the FDA.1 No action resulted, however, except that defendant Ebsworth, upon hearing about the meeting, told his senior marketing personnel 1 The date of this