Post on 11-Mar-2020
Case 1:13-cv-24162-JAL Document 1 Entered on FLSD Docket 11/15/2013 Page 1 of 25
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA
Civil Case No. District Judge:
Magistrate Judge:
LUIS VIZCAY, Individually and on Behalf of all Others Similarly Situated,
Plaintiff, CLASS ACTION COMPLAINT
v. FOR VIOLATIONS OF FEDERAL SECURITIES LAWS
CATALYST PHARMACEUTICAL PARTNERS, INC., PATRICK J. MCENANY, HUBERT E. HUCKEL and STEVEN R. MILLER,
Defendants.
JURY TRIAL DEMANDED
Plaintiff Luis Vizcay (“Plaintiff”), by and through his undersigned attorneys, alleges the
following upon information and belief, except as to those allegations concerning Plaintiff, which
are alleged upon personal knowledge. Plaintiff’s information and belief is based upon, among
other things, his counsel’s investigation, which includes without limitation: (a) review and
analysis of regulatory filings made by Catalyst Pharmaceutical Partners, Inc. (“Catalyst” or the
“Company”) with the United States Securities and Exchange Commission (“SEC”); (b) review
and analysis of press releases and media reports issued by and disseminated by Catalyst; and (c)
review of other publicly available information concerning Catalyst.
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SUMMARY OF THE ACTION
1. This is a securities class action on behalf of all purchasers of Catalyst securities
between October 31, 2012 and October 18, 2013, inclusive (the “Class Period”), seeking to
pursue remedies under the Securities Exchange Act of 1934 (the “Exchange Act”).
2. Catalyst is a development-stage specialty pharmaceutical company focused on the
development and commercialization of novel prescription drugs targeting rare neuromuscular
and neurological diseases and disorders. The Company’s lead product candidate for U.S. Food
and Drug Administration marketing approval is Firdapse, which is currently in Phase III clinical
trials for treatment of Lambert-Eaton Myasthenic Syndrome (“LEMS”), a rare and sometimes
fatal autoimmune disease characterized by muscle weakness.
3. Plaintiff alleges that defendants issued materially false and misleading statements
or failed to disclose material adverse facts throughout the Class Period concerning Catalyst’s
business, operations and financial prospects. Specifically, defendants failed to disclose that a
privately owned competitor company has been providing 3,4-DAP – a drug that is equivalent to
Firdapse – free of charge to LEMS patients for approximately the past two decades.
4. On October 18, 2013, the financial website TheStreet published an article titled
Catalyst Pharma: Orphan Drug Poseur, Profiteer,” which examines Catalyst’s development of
Firdapse and alleges that “Catalyst Pharmaceuticals Partners is considered an orphan drug stock
because that's the story management spins.” According to TheStreet , one of the Company’s
competitors, the New Jersey-based Jacobus Pharmaceutical Company, has been manufacturing
an equivalent drug – 3,4-DAP – and providing it to LEMS patients, free of charge, for the past
20 years. The article further alleges that “[d]ig deeper into Catalyst and you'll discover
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allegations of profiteering off a small group of vulnerable, sick patients and a ton of clinical and
regulatory risk. "
5. Following this news, the price of Catalyst stock dropped the next trading day by
20%, or $0.38 per share, to a closing price of $1.52 per share on October 21, 2013, thereby
damaging investors.
JURISDICTION AND VENUE
6. Jurisdiction is conferred by §27 of the Exchange Act. The claims asserted herein
arise under §§10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. This
Court has jurisdiction over the subject matter of this action under 28 U.S.C. §1331 and §27 of the
Exchange Act.
7. Venue is proper in this District pursuant to §27 of the Exchange Act and 28
U.S.C. §1391(b) as the Company conducts business in this district.
8. In connection with the acts alleged in this complaint, defendants, directly or
indirectly, used the means and instrumentalities of interstate commerce, including, but not
limited to, the mails, interstate telephone communications and the facilities of the national
securities markets.
PARTIES
9. Plaintiff Luis Vizcay, as set forth in the accompanying certification, incorporated
by reference herein, purchased Catalyst securities during the Class Period, and suffered damages
as a result of the federal securities law violations and false and/or misleading statements and/or
material omissions alleged herein.
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10. Defendant Catalyst is a Delaware corporation with its principal executive offices
situated at 355 Alhambra Circle, Suite 1500, Coral Gates, Florida. Catalyst common stock is
traded on the NASDAQ under the symbol “CPRX.”
11. Defendant Patrick J. McEnany (“McEnany”) is a co-founder of Catalyst and was
at all relevant times the Company’s President and Chief Executive Officer.
12. Defendant Dr. Hubert E. Huckel (“Huckel”) is the Company’s co-founder and
was at all relevant times a Director.
13. Defendant Steven R. Miller (“Miller”) is and was at all relevant times the
Company’s Chief Operating Officer and Chief Scientific Officer.
14. The defendants referenced above in ¶¶11-13 are sometimes referred to herein as
the “Individual Defendants.” The Individual Defendants, because of their positions with the
Company, possessed the power and authority to control the contents of Catalyst’s reports to the
SEC, press releases and presentations to securities analysts, money and portfolio managers and
institutional investors, i.e. , the market. The Individual Defendants were provided with copies of
the Company’s reports and press releases alleged herein to be misleading prior to, or shortly
after, their issuance and had the ability and opportunity to prevent their issuance or cause them to
be corrected. Because of their positions and access to material non-public information available
to them, the Individual Defendants knew that the adverse facts specified herein had not been
disclosed to, and were being concealed from, the public, and that the positive representations
which were being made were then materially false and/or misleading.
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SUBSTANTIVE ALLEGATIONS
Background
15. Catalyst operates as a development-stage specialty pharmaceutical company,
focused on the development and commercialization of novel prescription drugs targeting rare (or
“orphan”) neuromuscular and neurological diseases and disorders. The Company’s lead product
candidate for U.S. Food and Drug Administration market approval is Firdapse, a treatment for
Lambert-Eaton Myasthenic Syndrome (“LEMS”) -- a rare and sometimes fatal autoimmune
disease characterized by muscle weakness.
16. Jacobus Pharmaceutical Company is a privately owned pharmaceutical company
that has been manufacturing a treatment for LEMS known as “3,4-DAP,” and providing it to
LEMS patients through a so-called “compassionate use program” for the past 20 years.
Compassionate use programs allow seriously ill patients who meet certain criteria to gain access
to investigational drugs that have not yet been approved by the FDA.
Defendants’ False And Misleading Statements During The Class Period
17. On October 31, 2012, the Company issued a press release titled “Catalyst
Pharmaceutical Partners and BioMarin Pharmaceutical Enter Into Strategic Collaboration for
Firdapse(TM) in North America,” announcing a strategic collaboration with BioMarin
Pharmaceutical Inc. for the licensing rights to Firdapse in North America. Therein, the
Company, in relevant part stated:
BioMarin to Make $5 Million Strategic Equity Investment in Catalyst
Catalyst Licenses North American Rights to FirdapseTM, a Phase III Orphan Drug for the Treatment of Lambert-Eaton Myasthenic Syndrome (LEMS)
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Catalyst Expects Top-Line CPP-109 Phase II(b) Data During First Half of November
CORAL GABLES, Fla., Oct. 31, 2012 (GLOBE NEWSWIRE) -- Catalyst Pharmaceutical Partners, Inc. (Nasdaq:CPRX) and BioMarin Pharmaceutical Inc. (Nasdaq:BMRN) today announced that they have entered into a strategic collaboration for the rights to FirdapseTM in North America. FirdapseTM is an orphan product, which has been approved in the European Union (EU) and is undergoing a Phase III clinical trial in the United States, for the treatment of Lambert-Eaton Myasthenic Syndrome (LEMS), a rare, debilitating and sometimes fatal autoimmune disease with the primary symptoms of muscle weakness. The key components of the collaboration include Catalyst licensing the exclusive North American rights to FirdapseTM and BioMarin making a $5 million investment in Catalyst to rapidly advance the FirdapseTM program in the United States.
Patrick J. McEnany, Catalyst's Chief Executive Officer, stated: “As part of this arrangement, we are gaining access to a late-stage U.S. orphan drug targeting LEMS, a disease of the central nervous system for which there is not currently an effective treatment approved in the United States. Our existing product candidates are focused on addiction and central nervous system orphan indications like Infantile Spasms/West Syndrome and Tourette's Disorder, and adding FirdapseTM is consistent with our product development strategy. The relationship with BioMarin is exciting and strategically important, as it provides Catalyst with another orphan drug candidate and near-term funding towards the completion of the currently underway Phase III trial for FirdapseTM.”
Under the terms of the collaboration, Catalyst and BioMarin have entered into a:
Convertible Promissory Note and Note Purchase Agreement under which BioMarin has invested $5 million in Catalyst, which will convert on a mandatory basis into Catalyst common stock at a future date. The conversion price will be based on the dollar weighted average of Catalyst's common stock during the 15 business day period prior to the conversion date. Catalyst has covenanted to BioMarin that the $5 million investment will be used solely for the purpose of developing FirdapseTM in the United States.
License Agreement in which Catalyst receives the exclusive rights to FirdapseTM for all indications in North America. Catalyst will be responsible for all future costs of developing and commercializing FirdapseTM in North America, and will share equally the cost of various post-marketing studies in the EU, the data from which is also anticipated to be included in the FirdapseTM registration package in the United States. Subject to certain criteria, Catalyst will also owe royalty payments to BioMarin, and milestone and royalty payments to the former shareholders of Huxley Pharmaceuticals and to a third-party licensor of the rights being sublicensed to Catalyst.
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* * *
[Emphasis added.]
18. On February 11, 2013 the Company issued a press release titled "Catalyst
Pharmaceutical Partners Provides Update on Research and Development Pipeline. " Therein, the
Company, in relevant part stated:
CORAL GABLES, Fla., Feb. 11, 2013 (GLOBE NEWSWIRE) -- Catalyst Pharmaceutical Partners, Inc. (Nasdaq:CPRX), a specialty pharmaceutical company focused on the development and commercialization of novel prescription drugs targeting rare (orphan) neurological diseases and disorders, today provided an update on its research and development pipeline.
"We are providing this information today to update our shareholders, patients, physicians, key opinion leaders and the financial community on our drug development activities. We are primarily focused on rapidly advancing the development of FirdapseTM for the treatment of Lambert-Eaton Myasthenic Syndrome (LEMS), which is our lead product candidate, " said Patrick J. McEnany, Chief Executive Officer of Catalyst.
Portfolio update
Firdapse
In October 2012, Catalyst acquired the North American rights to Firdapse, a proprietary form of amifampridine phosphate (3-4 diaminopyridine or 3-4 DAP), from BioMarin Pharmaceutical Inc. ( "BioMarin "). Firdapse was approved in December 2009 by the European Medicines Agency for the treatment of Lambert-Eaton Myasthenic Syndrome (LEMS), a rare and sometimes fatal autoimmune disease characterized by muscle weakness. Firdapse has been granted orphan drug designation by the U.S. Food & Drug Administration, (FDA) for the treatment of LEMS, making the product eligible to obtain seven-year marketing exclusivity, if Catalyst is the first pharmaceutical company to obtain approval of an NDA for its formulation of amifampridine.
As part of its license agreement with BioMarin, Catalyst is taking over the sponsorship of their ongoing Phase III clinical trial evaluating amifampridine phosphate for the treatment of LEMS. The trial:
• is designed as a randomized double-blind, placebo-controlled discontinuation trial as recommended by FDA to BioMarin;
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• has a goal to enroll approximately 30 LEMS patients (approximately one third enrolled currently);
• currently has 7 active sites (expected to be increased to approximately 25 in the near future);
• has defined as a primary endpoint-change in muscle strength during the 2- week, double-blind discontinuation period as determined using a validated questionnaire (Quantitative Myasthenia Gravis score); and
• has defined as a secondary endpoint-change in walking speed (timed 25- foot walk test) during the discontinuation period.
* * *
[Emphasis added.]
19. On March 27, 2013 the Company issued a press release titled “Catalyst
Pharmaceutical Partners Announces Recommendation of Data Monitoring Committee for Pivotal
Phase III Clinical Trial for Firdapse(TM).” Therein, the Company, in relevant part stated:
Catalyst Pharmaceutical Partners, Inc. (Nasdaq: CPRX), a specialty pharmaceutical company focused on the development and commercialization of novel prescription drugs targeting rare (orphan) neuromuscular and neurological diseases and disorders, announced today that, on March 25, 2013, the independent Data Monitoring Committee (DMC) overseeing the Company’s ongoing pivotal Phase III clinical trial in the United States and Europe evaluating FirdapseTM for the treatment of Lambert-Easton Myasthenic Syndrome (LEMS) recommended that the Company continue the trial as planned based on the committee’s review of safety and clinical data from the trial.
The DMC is a group of experts responsible for the independent review of accumulated clinical safety and efficacy data obtained in our clinical trial, in order to safeguard the interests and safety of participants and future patients. The DMC considers study-specific data, as well as relevant background knowledge about the disease, test agent or patient population under study.
The FirdapseTM Phase III clinical trial is designed as a randomized, double-blind, placebo-controlled, discontinuation trial enrolling 30 patients diagnosed with LEMS at sites in the U.S. and Europe. Catalyst anticipates that it will be adding up to 20 additional sites in the U.S., Europe, Canada and South America. Catalyst expects to complete enrollment in the trial by the end of the fourth quarter of 2013 and to announce top line data from the trial during the second quarter of 2014.
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20. On October 15, 2013 the Company issued a press release titled “Catalyst
Pharmaceutical Partners Announces Recommendation of Data Monitoring Committee to
Continue Pivotal Phase III Clinical Trial for Firdapse(TM).” Therein, the Company, in relevant
part stated:
CORAL GABLES, Fla., Oct. 15, 2013 (GLOBE NEWSWIRE) ---- Catalyst Pharmaceutical Partners, Inc. (Nasdaq:CPRX), a specialty pharmaceutical company focused on the development and commercialization of novel prescription drugs targeting rare (orphan) neuromuscular and neurological diseases and disorders, announced today that, at a recently held meeting, the independent Data Monitoring Committee (DMC) overseeing the Company's ongoing pivotal Phase III clinical trial in the United States and Europe evaluating FirdapseTM for the treatment of Lambert-Eaton Myasthenic Syndrome (LEMS) recommended that the Company continue the trial as planned based on the committee's review of safety and clinical data from the trial.
The DMC is a group of experts responsible for the independent review of accumulated, unblinded clinical safety and efficacy data obtained in the Company's clinical trial, in order to safeguard the interests and safety of participants and future patients. The DMC considers study-specific data, as well as relevant background knowledge about the disease, test agent or patient population under study.
The FirdapseTM Phase III clinical trial is designed as a randomized, double-blind, placebo-controlled, discontinuation trial enrolling 36 patients diagnosed with LEMS at sites in the U.S. and Europe. To accomplish this, the Company, in addition to the 7 active sites at the time of acquisition, has initiated 12 additional sites and expects to initiate shortly an additional 6 sites in the U.S., Europe, Canada and South America. The Company expects to complete enrollment in the trial about the end of the fourth quarter of 2013 and to announce top line data from the trial during the second quarter of 2014.
21. Defendants’ statements described in ¶¶17-20, above, were materially false and/or
misleading when made because defendants failed to disclose that: (1) Jacobus Pharmaceuticals
has been providing 3,4-DAP – a drug that is equivalent to Firdapse – free of charge to LEMS
patients for approximately the past two decades; and (2) as a result, the Company’s Class-Period
statements concerning Catalyst’s business, operations and financial prospects were materially
false and misleading at all relevant times.
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Disclosures At The End Of The Class Period
22. On October 18, 2013, the financial website TheStreet published an article titled
“Catalyst Pharma: Orphan Drug Poseur, Profiteer ,” which stated the following, in relevant part:
CORAL GABLES, Fla. (TheStreet) ---- Catalyst Pharmaceuticals Partners (CPRX_) is considered an orphan drug stock because that's the story management spins. Dig deeper into Catalyst and you'll discover allegations of profiteering off a small group of vulnerable, sick patients and a ton of clinical and regulatory risk.
* * *
The company's lead drug candidate is Firdapse for the treatment of Lambert-Eaton Myasthenic Syndrome (LEMS) ---- a rare, neuromuscular disease which causes progressive muscle weakness. Untreated, LEMS patients -- usually in their 40s or 50s ---- lose mobility and suffer other complications which can lead to shortened life expectancy. About half of LEMS diagnoses are associated with small cell lung cancer, the rest from autoimmune disease.
There are only a few thousand LEMS patients in the U.S. so the disease qualifies for orphan status. Firdapse is already approved in Europe where it is marketed by Biomarin Pharmaceuticals (BMRN _). Catalyst licensed Firdapse from Biomarin for the U.S. market. The drug is not FDA approved here, so Catalyst is conducting a phase III study in LEMS patients (Biomarin started the study, Catalyst took it over) with top-line results expected in the middle of 2014. If the Firdapse study is positive (high odds, see Europe), Catalyst plans to submit the drug for U.S. approval in 2015 and start selling it in 2016. The company has not disclosed Firdapse pricing, but some analysts guesstimate a price tag exceeding $60,000 per year. Even with “moderate” orphan drug pricing, Firdapse could generate $200- 500 million in peak sales, the company claims. [This includes treating another 2,000 patients or so with rare diseases similar to LEMS.]
This “We're an orphan drug company, too! ” pitch that Catalyst makes to investors has been effective. The stock's performance this year is stellar:
[...] There is
another, troubling side to the Catalyst story.
For the past 20 years, Jacobus Pharmaceuticals, a small, private, family-owned pharmaceutical company in New Jersey, has provided LEMS patients in the U.S. (and some in Europe) with an effective drug known as 3,4-Dap free of charge. [...] One more thing: 3,4-Dap is Firdapse. The two drugs are equivalent. The same. Even Catalyst acknowledges that 3,4-Dap is an effective treatment for LEMS. In other words, Catalyst is developing Firdapse for LEMS and will likely charge U.S. patients more than $60,000 per year even though the same drug is already available to U.S LEMS patients for free.
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You can understand why Catalyst doesn't like to discuss this part of the story. I had the chance to speak with David and Laura Jacobus, the father-daughter team who run Jacobus Pharmaceuticals. The company was founded by David Jacobus in 1977. Today, it sells a couple of drugs in addition to manufacturing and supplying 3,4-Dap to LEMS patients through numerous compassionate use programs set up at leading academic medical centers like Duke, Cleveland Clinic and the Mayo Clinic.
3,4-Dap has been around for decades but has never been formally reviewed or approved by the FDA. As Laura Jacobus tells the story, 20-odd years ago, the Muscular Dystrophy Association approached her father about manufacturing 3,4- Dap. At that time, doctors were interested in studying 3,4-Dap as a promising treatment for LEMS but a reliable, high-quality supply of the drug was unavailable.
Jacobus agreed to manufacture 3,4-Dap at the MDA's request. In the ensuing decades, the company has built an efficient and trusted relationship with LEMS patients and their doctors. LEMS patients in need of treatment are referred to medical centers with investigator-sponsored IND programs, also known as expanded access or compassionate use programs. [A couple of examples can be found here and here.] Paperwork is filled out and submitted to the FDA, which grants the doctor permission to treat the LEMS patient with 3,4-Dap .
Once FDA approval is granted, Jacobus is notified and 3,4-Dap is shipped to the doctor free of charge.
“We have a great relationship with the FDA. Before he retired, Rusty Katz used to call me personally to give the okay for these compassionate use cases,” said David Jacobus. [Katz was the head of the FDA division which reviews and regulates neurologic drugs.]
* * *
“Firdapse is not a new compound. It's the same drug we make. What Catalyst is doing is not the same as a company profiting from a new invention. What Catalyst is doing is making money off LEMS patients. They don't want to help LEMS patients, they just want to make money. If I worked for Catalyst, I wouldn't be able to sleep at night,” she says.
Jacobus is working to stop Catalyst from gaining FDA approval for Firdapse. After years of supplying 3,4-Dap for free through compassionate use programs, Jacobus decided to conduct its own clinical trial with the intent of getting the drug formally approved by the FDA.
The Jacobus pivotal study of 3,4-Dap in LEMS patients is underway, competing directly with Catalyst’s Firdapse study.
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Laura Jacobus wouldn't disclose how many patients are enrolled to date but said enrollment is going “very well” and the study is “getting close to the end.” The company's long relationship with U.S. doctors who treat LEMS patients has helped greatly, she added. [The Wikipedia entry for 3,4-Dap even encourages LEMS patients not to enroll in Catalyst's Firdapse study.]
Jacobus hopes to complete the 3,4-Dap study and submit the data to the FDA for approval in LEMS before Catalyst can do the same with Firdapse. If that happens, Jacobus will have orphan drug exclusivity in the U.S.
If Catalyst manages to submit Firdapse to FDA ... and win approval, Laura Jacobus says they may seek an alternative strategy to get 3,4-Dap approved, perhaps in a disease related to LEMS, perhaps with a modified version of the drug.
Whatever happens, Laura Jacobus says she and her father don't want Catalyst to profit off the LEMS patients they've been helping for 20-plus years.
I reached out to Catalyst CEO Patrick McEnany for a response to the criticisms leveled by David and Laura Jacobus. In particular, I wanted to know why Catalyst chose to take on the development of Firdapse in LEMS given the free supply of 3,4-Dap available for so long.
McEnany responded via email:
Catalyst is seeking to develop this drug in order to make an FDA approved treatment available to all patients suffering from LEMS in a relatively short period of time. Catalyst recently acquired the development program and North American marketing rights for this drug. The development program was a phase III program that was well underway and was discussed with the FDA. Catalyst feels that we will be able to complete the development, seek FDA approval, and make an FDA approved therapy available to patients in a relatively short period of time, perhaps before 2016. Catalyst has observed that 3,4-Dap has been known to be effective in the treatment of LEMS for over 20 years and yet there is still no FDA approved version of this drug. Catalyst believes this is an opportunity to develop a new drug for an underserved population of patients. [Emphasis added.]
Is there something different about Firdapse compared to the 3,4-Dap made by Jacobus that will benefit LEMS patients?
McEnany:
Firdapse contains the phosphate salt of 3,4-Dap. This pharmaceutical drug substance is more stable than the free base form of the 3,4-Dap that is available
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from Jacobus. Catalyst believes that Firdapse will have superior stability at room temperature which will provide patients with the assurance that their drug has the correct potency and purity throughout its shelf life, even when stored in a medicine cabinet or carried on the patients person for an extended period of time. Catalyst's Firdapse tablets, and its active ingredient, are produced on a commercial scale using validated processes and under all requirements of GMPs (this is a requirement for phase III clinical trial medications.
I really wanted to know what McEnany thought about being called a profiteer who doesn't care about the well being of LEMS patients. His response:
To state they [Jacobus] are giving it [3,4-Dap ] away for free doesn't fully describe the added burden placed on patients and their treating physicians and does not make it clear they are required under federal law to provide it for free under these circumstances. It is also stated above that the patient population is well served. First, because of the way in which the drug must be provided it is unlikely that all of the patients in need of the drug are in fact receiving it. The fact that Catalyst is able to recruit trial subjects in the United States in spite of Jacobus providing the drug for 20 years would seem to support this point. Second, the drug has not undergone the rigors of FDA review in which both the safety and efficacy of the drug would have to be demonstrated and specific dosing instructions provided. The current safety information and dosing instructions are likely insufficient, limiting the prescribing of this drug to a few experts in the use of the drug and the treatment of LEMS and is not suitable for broader use by the neuromuscular physician community. In short, these burdens limit access to patients that may need the drug, but do not have access to a physician willing to file an IND, or to become a clinical trial site. The best solution is clearly an FDA approved drug.
On that last point, Jacobus agrees, which is why the small drugmaker is in a race to get 3,4-Dap approved before Catalyst can do the same with Firdapse. This is a risk not widely recognized by investors who have bought Catalyst shares with the belief that it's an up-and-coming orphan drug developer.
23. Following this news, on the next trading day the price of Catalyst stock dropped
20%, or $0.38 per share, to a closing price of $1.52 per share on October 21, 2013.
CLASS ACTION ALLEGATIONS
24. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3) on behalf of a class, consisting of all those who purchased Catalyst
securities during the "Class Period and who were damaged thereby (the "Class"). Excluded from
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the Class are Defendants, the officers and directors of the Company, at all relevant times,
members of their immediate families and their legal representatives, heirs, successors or assigns
and any entity in which Defendants have or had a controlling interest.
25. The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period Catalyst securities were actively traded on the
NASDAQ Stock Exchange (the “NASDAQ”). While the exact number of Class members is
unknown to Plaintiff at this time and can only be ascertained through appropriate discovery,
Plaintiff believes that there are hundreds or thousands of members in the proposed Class.
Millions of Catalyst shares were traded publicly during the Class Period on the NASDAQ. As of
April 1, 2013, approximately 41.4 million shares of Catalyst common stock were outstanding.
Record owners and other members of the Class may be identified from records maintained by
Catalyst or its transfer agent and may be notified of the pendency of this action by mail, using
the form of notice similar to that customarily used in securities class actions.
26. Plaintiff’s claims are typical of the claims of the members of the Class as all
members of the Class are similarly affected by Defendants’ wrongful conduct in violation of
federal law that is complained of herein.
27. Plaintiff will fairly and adequately protect the interests of the members of the
Class and has retained counsel competent and experienced in class and securities litigation.
28. Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
(a) Whether the federal securities laws were violated by Defendants’ acts as
alleged herein;
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(b) Whether statements made by Defendants to the investing public during the
Class Period omitted and/or misrepresented material facts about the business, operations, and
prospects of Catalyst; and
(c) To what extent the members of the Class have sustained damages and the
proper measure of damages.
29. A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as
the damages suffered by individual Class members may be relatively small, the expense and
burden of individual litigation makes it impossible for members of the Class to individually
redress the wrongs done to them. There will be no difficulty in the management of this action as
a class action.
UNDISCLOSED ADVERSE FACTS
30. The market for Catalyst securities was open, well-developed and efficient at all
relevant times. As a result of these materially false and/or misleading statements, and/or failures
to disclose, Catalyst securities traded at artificially inflated prices during the Class Period.
Plaintiff and other members of the Class purchased or otherwise acquired Catalyst securities
relying upon the integrity of the market price of the Company’s securities and market
information relating to Catalyst, and have been damaged thereby.
31. During the Class Period, Defendants materially misled the investing public,
thereby inflating the price of Catalyst securities, by publicly issuing false and/or misleading
statements and/or omitting to disclose material facts necessary to make Defendants’ statements,
as set forth herein, not false and/or misleading. Said statements and omissions were materially
false and/or misleading in that they failed to disclose material adverse information and/or
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misrepresented the truth about Catalyst’s business, operations and financial prospects as alleged
herein.
32. At all relevant times, the material misrepresentations and omissions particularized
in this Complaint directly or proximately caused or were a substantial contributing cause of the
damages sustained by Plaintiff and other members of the Class. As described herein, during the
Class Period, Defendants made or caused to be made a series of materially false and/or
misleading statements about Catalyst’s business, operations and financial prospects. These
material misstatements and/or omissions had the cause and effect of creating in the market an
unrealistically positive assessment of the Company and its financial well-being and prospects,
thus causing the Company’s securities to be overvalued and artificially inflated at all relevant
times. Defendants’ materially false and/or misleading statements during the Class Period resulted
in Plaintiff and other members of the Class purchasing the Company’s securities at artificially
inflated prices, thus causing the damages complained of herein.
LOSS CAUSATION
33. Defendants’ wrongful conduct, as alleged herein, directly and proximately caused
the economic loss suffered by Plaintiff and the Class. During the Class Period, Plaintiff and the
Class purchased Catalyst securities at artificially inflated prices and were damaged thereby. The
price of the Company’s securities significantly declined when the misrepresentations made to the
market, and/or the information alleged herein to have been concealed from the market, and/or the
effects thereof, were revealed, causing investors’ losses.
SCIENTER ALLEGATIONS
34. As alleged herein, Defendants acted with scienter in that Defendants knew that
the public documents and statements issued or disseminated in the name of the Company were
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materially false and/or misleading; knew that such statements or documents would be issued or
disseminated to the investing public; and knowingly and substantially participated or acquiesced
in the issuance or dissemination of such statements or documents as primary violations of the
federal securities laws. As set forth elsewhere herein in detail, Defendants, by virtue of their
receipt of information reflecting the true facts regarding Catalyst, their control over, and/or
receipt and/or modification of Catalyst’s allegedly materially misleading misstatements and/or
their associations with the Company which made them privy to confidential proprietary
information concerning Catalyst, participated in the fraudulent scheme alleged herein.
APPLICABILITY OF PRESUMPTION OF RELIANCE (FRAUD-ON-THE-MARKET DOCTRINE)
35. The market for Catalyst securities was open, well developed and efficient at all
relevant times. As a result of the materially false and/or misleading statements and/or failures to
disclose, Catalyst securities traded at artificially inflated prices during the Class Period . Plaintiff
and other members of the Class purchased or otherwise acquired the Company’s securities
relying upon the integrity of the market price of Catalyst securities and market information
relating to Catalyst, and have been damaged thereby.
36. During the Class Period, the artificial inflation of Catalyst stock was caused by
the material misrepresentations and/or omissions particularized in this Complaint causing the
damages sustained by Plaintiff and other members of the Class. As described herein, during the
Class Period, Defendants made or caused to be made a series of materially false and/or
misleading statements about Catalyst’ business, operations and financial prospects. These
material misstatements and/or omissions created an unrealistically positive assessment of
Catalyst and its business and financial condition, thus causing the price of the Company’s
securities to be artificially inflated at all relevant times, and when disclosed, negatively affected
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the value of the Company stock. Defendants’ materially false and/or misleading statements
during the Class Period resulted in Plaintiff and other members of the Class purchasing the
Company’s securities at such artificially inflated prices, and each of them has been damaged as a
result.
37. At all relevant times, the market for Catalyst securities was an efficient market for
the following reasons, among others:
(a) Catalyst stock met the requirements for listing, and was listed and actively
traded on the NASDAQ, a highly efficient and automated market;
(b) As a regulated issuer, Catalyst filed periodic public reports with the SEC
and/or the NASDAQ;
(c) Catalyst routinely communicated with public investors via established
market communication mechanisms, including through regular dissemination of press releases
on the national circuits of major newswire services and through other wide-ranging public
disclosures, such as communications with the financial press and other similar reporting services;
and/or
(d) Catalyst was followed by securities analysts employed by brokerage firms
who wrote reports about the Company, and these reports were distributed to the sales force and
certain customers of their respective brokerage firms. Each of these reports was publicly
available and entered the public marketplace.
38. As a result of the foregoing, the market for Catalyst securities promptly digested
current information regarding Catalyst from all publicly available sources and reflected such
information in Catalyst’s stock price. Under these circumstances, all purchasers of Catalyst
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securities during the Class Period suffered similar injury through their purchase of Catalyst
securities at artificially inflated prices and a presumption of reliance applies.
COUNT I
For Violations of §10(b) of the Exchange Act and Rule 10b-5 Against All Defendants
39. Plaintiff repeats and realleges each and every allegation contained above as if
fully set forth herein.
40. Plaintiff repeats and realleges each and every allegation contained above as if
fully set forth herein.
41. During the Class Period, Defendants carried out a plan, scheme and course of
conduct which was intended to and, throughout the Class Period, did: (i) deceive the investing
public, including Plaintiff and other Class members, as alleged herein; and (ii) cause Plaintiff and
other members of the Class to purchase Catalyst securities at artificially inflated prices. In
furtherance of this unlawful scheme, plan and course of conduct, Defendants, and each of them,
took the actions set forth herein.
42. Defendants (i) employed devices, schemes, and artifices to defraud; (ii) made
untrue statements of material fact and/or omitted to state material facts necessary to make the
statements not misleading; and (iii) engaged in acts, practices, and a course of business which
operated as a fraud and deceit upon the purchasers of the Company ' s securities in an effort to
maintain artificially high market prices for Catalyst securities in violation of Section 10(b) of the
Exchange Act and Rule 10b-5. All Defendants are sued either as primary participants in the
wrongful and illegal conduct charged herein or as controlling persons as alleged below
43. Defendants, individually and in concert, directly and indirectly, by the use, means
or instrumentalities of interstate commerce and/or of the mails, engaged and participated in a
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continuous course of conduct to conceal adverse material information about Catalyst’s business
and financial prospects, as specified herein.
44. These defendants employed devices, schemes and artifices to defraud, while in
possession of material adverse non-public information and engaged in acts, practices, and a
course of conduct as alleged herein in an effort to assure investors of Catalyst’s value and
performance and continued substantial growth, which included the making of, or the
participation in the making of, untrue statements of material facts and/or omitting to state
material facts necessary in order to make the statements made about Catalyst and its business
operations and financial prospects in light of the circumstances under which they were made, not
misleading, as set forth more particularly herein, and engaged in transactions, practices and a
course of business which operated as a fraud and deceit upon the purchasers of the Company’s
securities during the Class Period.
45. Each of the Individual Defendants’ primary liability, and controlling person
liability, arises from the following facts: (i) the Individual Defendants were high-level executives
and/or directors at the Company during the Class Period and members of the Company’s
management team or had control thereof; (ii) each of these defendants, by virtue of their
responsibilities and activities as a senior officer and/or director of the Company, was privy to and
participated in the creation, development and reporting of the Company’s internal budgets, plans,
projections and/or reports; (iii) each of these defendants enjoyed significant personal contact and
familiarity with the other defendants and was advised of, and had access to, other members of the
Company’s management team, internal reports and other data and information about the
Company’s finances, operations, and sales at all relevant times; and (iv) each of these defendants
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was aware of the Company’s dissemination of information to the investing public which they
knew and/or recklessly disregarded was materially false and misleading.
46. The defendants had actual knowledge of the misrepresentations and/or omissions
of material facts set forth herein, or acted with reckless disregard for the truth in that they failed
to ascertain and to disclose such facts, even though such facts were available to them. Such
defendants’ material misrepresentations and/or omissions were done knowingly or recklessly and
for the purpose and effect of concealing Catalyst’s financial well-being from the investing public
and supporting the artificially inflated price of its securities. As demonstrated by Defendants’
overstatements and/or misstatements of the Company’s business, operations, financial
well-being, and prospects throughout the Class Period, Defendants, if they did not have actual
knowledge of the misrepresentations and/or omissions alleged, were reckless in failing to obtain
such knowledge by deliberately refraining from taking those steps necessary to discover whether
those statements were false or misleading.
47. As a result of the dissemination of the materially false and/or misleading
information and/or failure to disclose material facts, as set forth above, the market price of
Catalyst securities was artificially inflated during the Class Period. In ignorance of the fact that
market prices of the Company’s securities were artificially inflated, and relying directly or
indirectly on the false and misleading statements made by Defendants, or upon the integrity of
the market in which the securities trades, and/or in the absence of material adverse information
that was known to or recklessly disregarded by Defendants, but not disclosed in public
statements by Defendants during the Class Period, Plaintiff and the other members of the Class
acquired Catalyst securities during the Class Period at artificially high prices and were damaged
thereby.
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48. At the time of said misrepresentations and/or omissions, Plaintiff and other
members of the Class were ignorant of their falsity, and believed them to be true. Had Plaintiff
and the other members of the Class and the marketplace known the truth regarding Catalyst and
it business and prospects, which were not disclosed by Defendants, Plaintiff and other members
of the Class would not have purchased or otherwise acquired their Catalyst securities, or, if they
had acquired such securities during the Class Period, they would not have done so at the
artificially inflated prices which they paid.
49. By virtue of the foregoing, Defendants have violated Section 10(b) of the
Exchange Act and Rule 10b-5 promulgated thereunder.
50. As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff and
the other members of the Class suffered damages in connection with their respective purchases
and sales of the Company’s securities during the Class Period.
COUNT II
For Violations of §20(a) of the Exchange Act Against All Defendants
51. Plaintiff repeats and realleges each and every allegation contained in the
foregoing paragraphs as if fully set forth herein.
52. The Individual Defendant acted as a controlling person of Catalyst within the
meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of his high-level
positions, and his ownership and contractual rights, participation in and/or awareness of the
Company’s operations and/or intimate knowledge of the false statements filed by the Company
with the SEC and disseminated to the investing public, the Individual Defendant had the power
to influence and control and did influence and control, directly or indirectly, the decision making
of the Company, including the content and dissemination of the various statements which
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Plaintiff contends are false and misleading. The Individual Defendant was provided with or had
unlimited access to copies of the Company ' s reports, press releases, public filings and other
statements alleged by Plaintiff to be misleading prior to and/or shortly after these statements
were issued and had the ability to prevent the issuance of the statements or cause the statements
to be corrected.
53. In particular, the Individual Defendant had direct and supervisory involvement in
the day-to-day operations of the Company and, therefore, is presumed to have had the power to
control or influence the particular transactions giving rise to the securities violations as alleged
herein, and exercised the same.
54. As set forth above, Catalyst and the Individual Defendant each violated Section
10(b) and Rule 10b-5 by their acts and/or omissions as alleged in this Complaint. By virtue of his
positions as a controlling person, the Individual Defendant is liable pursuant to Section 20(a) of
the Exchange Act. As a direct and proximate result of Defendants ’ wrongful conduct, Plaintiff
and other members of the Class suffered damages in connection with their purchases of the
Company ' s securities during the Class Period.
PRAYER FOR RELIEF
WHEREFORE , Plaintiff prays for relief and judgment, as follows:
A. Determining that this action is a proper class action under Rule 23 of the Federal
Rules of Civil Procedure;
B. Awarding compensatory damages in favor of Plaintiff and the other Class
members against all Defendants, jointly and severally, for all damages sustained as a result of
Defendants ' wrongdoing, in an amount to be proven at trial, including interest thereon;
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C. Awarding Plaintiff and the Class their reasonable costs and expenses incurred in
this action, including counsel fees and expert fees; and
D. Such other and further relief as the Court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
Dated: November 15, 2013 SAXENA WHITE P.A.
By: /s/ Joseph E. White III. Joseph E. White III (FL Bar No. 621064) Lester R. Hooker (FL Bar No. 32242) 2424 N. Federal Highway, Suite 257 Boca Raton, FL 33431 Tel: 561 394-3399 Fax: 561 394-3382 Email: jwhite@saxenawhite.com Email: lhooker@saxenawhite.com
GLANCY BINKOW & GOLDBERG LLP Lionel Z. Glancy Michael Goldberg Robert V. Prongay Casey E. Sadler 1925 Century Park East, Suite 2100 Los Angeles, California 90067 Telephone: (310) 201-9150 Facsimile: (310) 201-9160
Attorneys for Plaintiff
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on November 15, 2013, I presented the foregoing to the Clerk
of the Court for filing and uploading to the CM/ECF system.
/s/Joseph E. White, III Joseph E. White, III
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