In re EDAP TMS S.A. Securities Litigation 14-CV-06069-Lead ...securities.stanford.edu › ... ›...

Case 1:14cv-06069-LGS Document 39 Filed 12/22/14 of 45

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

In re EDAP TMS S.A. Securities Litigation : Case No.: 14 Civ. 6069 (LGS)

CLASS ACTION THIS DOCUMENT RELATES TO:

All Actions

LEAD PLAINTIFF'S FIRST AMENDED CLASS ACTION COMPLAINT

Lead Plaintiff Ryan H. Tennebar ("Lead Plaintiff'), individually and on behalf of all

other persons similarly situated, by his undersigned attorneys, for his complaint against

defendants, alleges the following based upon personal knowledge as to himself and his own acts,

and information and belief as to all other matters, based upon, inter al/a, the investigation

conducted by and through his attorneys, which included, among other things, a review of the

defendants' public documents, conference calls and announcements made by defendants, United

States Securities and Exchange Commission ("SEC") filings, wire and press releases published

by and regarding EDAP TMS S.A., ("EDAP" or the "Company"), the FDA Executive Summary

Prepared for the July 30, 2014 Meeting of the Gastroenterology and Urology Devices Advisory

Panel relating to Ablatherm Integrated Imaging High Intensity Focused Ultrasound ("Briefing

Document"); the transcripts of the July 30, 2014 FDA Panel meeting relating to the Ablatherm

PMA ("Panel Meeting"), analysts' reports and advisories about the Company, and information

readily obtainable on the Internet. Plaintiff believes that substantial evidentiary support will

exist for the allegations set forth herein after a reasonable opportunity for discovery.

Case 1:14cv-06069-LGS Document 39 Filed l2/22/14 of 45

NATURE OF THE ACTION

1. This is a federal securities class action brought on behalf of a class consisting of

all persons and entities, other than Defendants (defined below) and their affiliates, who

purchased American Depositary Receipts ("ADR") of EDAP on the NASDAQ Exchange

("NASDAQ") from February 1, 2013 to July 30, 2014, inclusive (the "Class Period"). Plaintiff

seeks to pursue remedies against Defendants for violations of the federal securities laws under

the Securities Exchange Act of 1934 (the "Exchange Act").

2. Defendant EDAP TMS S.A., through its subsidiaries, designs and manufactures

medical equipment. EDAP is incorporated and headquartered in France and its ADR's trade on

the NASDAQ under the ticker symbol "EDAP." The Company develops minimally invasive

therapeutic ultrasound solutions for urology, tumor removal, localized prostate cancer, and

related infectious diseases. EDAP purports to serve patients and medical professionals

worldwide.

3. One of the most important therapeutic solutions in the Company's pipeline is

Ablatherm, a HIFU-based device for the treatment of organ-confined prostate cancer, referred to

as T1-T2 stage. The Ablatherm system is intended to treat prostate cancer by ablating the entire

prostate gland via high intensity focused ultrasound ("HIFU"), which generates heat of around

200 degrees Fahrenheit. There are no other HIFU devices on the market. Most men with the

condition are treated with radical prostatectomy surgery, cryotherapy, radiation or regular

monitoring with delayed surgery if needed.

4. Throughout the Class Period, Defendants made false and/or misleading

statements, and failed to disclose material adverse facts about the status of its Premarket

Approval ("PMA") Application for Ablatherm and prospects for FDA approval. Specifically,

during the Class Period, Defendants made false and/or misleading statements and/or failed to

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disclose that: (i) the Company failed to disclose that shortly after it filed its PMA with the FDA

in early 2013, it received a major deficiency letter from the FDA that apprised it of significant

deficiencies in the clinical data it had submitted in support of approval; (ii) the Company was

overstating the efficacy and safety of Ablatherm by using faulty statistical methods and

presenting misleading data; (iii) the Company touted the safety and low morbidity of the device

even though it had high incidences of adverse events in its trials for Ablatherm including erectile

dysfunction, urinary incontinence, and urethral and bowel injury.

5. On July 28, 2014, a U.S. Food and Drug Administration ("FDA") staff report was

released in anticipation of a July 30, 2014 meeting of the Gastroenterology and Urology Devices

Panel Advisory Committee meeting (the "Briefing Document"). In the Briefing Document, the

FDA strongly questioned whether EDAP's methods for testing the device were adequate.

Specifically, FDA staff questioned EDAP's safety and effectiveness data because the Company

compared patients in two different studies to gather evidence, rather than a head-to-head trial.

EDAP relied on a registry of patients in Europe who were subjected to Ablatherm, and compared

their data to a subgroup of patients in a U.S. Department of Veterans Affairs trial who underwent

surgery called radical prostatectomy. The FDA concluded that this methodology was deficient in

significant respects.

6. The Briefing Document also noted high rates of adverse events associated with

Ablatherm, including erectile dysfunction and urinary incontinence, clinically significant rates of

stricture, urethral injury and bowel injury, which the Company had not properly presented in a

clinically meaningful way. Specifically, the Briefing Document stated:

FDA Comment: Several of the separately-reported adverse event categories are related, and may be more clinically meaningful for interpretation when combined, as follows: "voiding symptoms" (e.g., bladder/urinary urgency, urinary frequency, hesitancy, incomplete bladder

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emptying, irritative symptoms, nocturia, lower urinary tract symptoms, etc.), "urinary retention" (e.g., urinary restriction, retention, obstruction, etc.), "stricture" (e.g., urinary stricture, urethral stenosis, bladder neck contracture, etc.), "bowel dysfunction" (e.g., constipation, diarrhea, hemorrhoidal pain, nausea, vomiting, ischemic bowel, rectal bleeding, etc.), and "urethral injury" (e.g., urethral perforation, sloughing, submucosal hematoma, etc.).

7. On July 28, 2014, in response to the release of the FDA Briefing Document,

EDAP was downgraded to "Market Perform" from "Outperform" at Northland Securities by

equity analyst Suraj Kalia.

8. On the news, EDAP stock fell $1.23 in unusually heavy volume, or over 25%, to

close at $3.65 on July 28, 2014.

9. On July 30, 2014, after the close of trading, the Company issued a press release

and filed a Form 6-K with the SEC, which disclosed that the FDA Panel had voted against

approval of Ablatherm. The press release stated, in part:

[T]he U.S. Food and Drug Administration's (FDA) Gastroenterology and Urology Devices Panel (GUDP) voted 3 yes, 5 no with 1 abstention on the question of safety, 9 no on the question of efficacy, and 8 no with 1 abstention for the risk/benefit ratio for the use of its Ablatherm-HIFU device for the treatment of low-risk, localized prostate cancer.

Marc Oczachowski, EDAP's Chief Executive Officer, commented, "We are disappointed by the Committee's recommendation regarding Ablatherm-HIFU for the treatment of low-risk, localized prostate cancer and we appreciate the dialogue during today's meeting. We look forward to subsequent discussion with the FDA. We will continue to work diligently with the FDA as it carefully completes its final review for Ablatherm-HIFU's PMA."

10. On the news, EDAP stock fell $1.50 on unusually heavy volume, or almost 44%,

to close at $1.92 on July 31, 2014.

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11. On November 6, 2014, the Company disclosed that it had received a non-

approvable letter from the FDA stating that the Ablatherm application was not approvable in its

current form, and would require additional data submissions to warrant further review.

JURISDICTION AND VENUE

12. The claims asserted herein arise under and pursuant to §10(b) and 20(a) of the

Exchange Act (15 U.S.C. §78j(b) and 78t(a)) and Rule lOb-S promulgated thereunder by the

SEC (17 C.F.R. §240. lOb-5).

13. This Court has jurisdiction over the subject matter of this action under 28 U.S.C.

§133 1 and §27 of the Exchange Act.

14. Venue is proper in this District pursuant to §27 of the Exchange Act (15 U.S.C.

§78aa) and 28 U.S.C. §1391(b) as a significant portion of the Defendants' actions, and the

subsequent damages, took place within this District.

15. In connection with the acts, conduct and other wrongs alleged in this Complaint,

Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,

including but not limited to, the United States mail, interstate telephone communications and the

facilities of the national securities exchange.

PARTIES

16. Plaintiff, as set forth in the accompanying Certification, which is incorporated by

reference herein, purchased EDAP ADRs at artificially inflated prices during the Class Period

and was damaged upon the revelation of the alleged corrective disclosures.

17. Defendant EDAP is a French corporation with its principal executive offices

located at 4 Rue du Dauphine Pare d'Activites la Poudrette Vaulx-en-Velin, 69120. ADR's of

EDAP trade on the NASDAQ under the ticker symbol "EDAP."

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18. Defendant Marc Oczachowski ("Oczachowski") has served at all relevant times as

the Company's Chief Executive Officer ("CEO").

19. The Defendant referenced above in ¶J 20 is sometimes referred to herein as the

"Individual Defendant."

20. Defendant EDAP and the Individual Defendant are referred to herein,

collectively, as the "Defendants."

SUBSTANTIVE ALLEGATIONS

Background

21. EDAP TMS S.A., through its subsidiaries, develops, produces, and markets

minimally invasive medical devices for the treatment of urological diseases. The Company

operates in two divisions: High Intensity Focused Ultrasound (HIFU), and Urology Devices and

Services. The High Intensity Focused Ultrasound division develops, manufactures, and markets

devices for the minimally invasive destruction of various types of localized tumors using HIFU

technology. The Urology Devices and Service division develops, markets, manufactures, and

services medical devices for the minimally invasive diagnosis or treatment of urological

disorders, primarily urinary stones and other clinical indications.

22. The Company markets and sells its products through its direct marketing and sales

organization, as well as through third-party distributors and agents under Conformité Européene

("CE"). CE approval means the product has met the essential requirements of the relevant

European health, safety, and environmental protection legislation. EDAP's customers include

public and private hospitals, urology clinics, and research institutions worldwide. The Company

was founded in 1979 and is based in Vaulx-en-Velin, France.

23. One of the most important therapeutic solutions in the Company's pipeline is

Ablatherm, a HIFU-based device for the treatment of organ-confined prostate cancer. The

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Ablatherm system is intended to treat early stage prostate cancer by ablating the entire prostate

gland via high intensity focused ultrasound (HIFU), which generates heat of around 200 degrees

Fahrenheit. There are no other HIFU devices on the market. Most men with the condition are

treated with radical prostatectomy surgery, cryotherapy, radiation or regular monitoring with

delayed surgery if needed, according to the FDA.

The FDA Approval Process

24. The FDA requires rigorous scientific testing to ensure that a device or drug is safe

and effective for its intended use before the Agency will permit it to be marketed in the United

States. Before considering approval, the Agency requires a "sponsor" to submit a PMA for

consideration, which contains data from preclinical studies, clinical trials, and manufacturing

information that supports the product's safety and efficacy.

25. Generally, in order for the FDA to approve a PMA, valid data of a drug's safety

and efficacy must be supported by at least two randomized, well-controlled clinical trials, each

convincing on their own. See 21 U.S.C. § 355(d); 21 C.F.R. 314.126.

26. In rare instances, the FDA may accept one well-controlled trial in support of

approval, where the conduct and results of the trial are sufficiently robust to give the FDA

confidence in the new device's safety and efficacy. According to the FDA's published guidance:

It should also be appreciated that reliance on a single study of a given use, whether alone or with substantiation from related trial data, leaves little room for study imperfections or contradictory (nonsupportive) information. (Emphasis added).

27. Consistent with this demand for a higher level of confidence, whereas "statistical

significance" is the generally accepted standard for demonstrating efficacy, the FDA requires a

"statistically very persuasive finding" when a single study trial is submitted in support of a PMA.

Guidance for Industry: Providing Clinical Evidence of Effectiveness for Human Drugs and

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Biological Products, U.S. Dept of Health & Human Servs., Food & Drug Admin. (May 1998), at

6, 13, 15, available at

http ://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatorylnformation/Guidances/u

cm078749.pdf; Transcript of the meeting of the Reproductive Health Drugs Advisory Committee

(Jan. 20, 2012), at 24, available at

http ://www.fda.gov/downloads/AdvisoryCommittees/CommitteesMeetingMaterials/Drugs/Repro

ductiveHealthDrugsAdvisoryCommittee/UCM292006.pdf.

28. Thus, the FDA will only approve a PMA based upon one clinical trial if the

following criteria are met: (1) the study is well-designed, and the demonstration of efficacy is

very convincing from a statistical perspective; (2) there is a lack of contradictory efficacy

findings in the data; (3) there is no evidence that a few sites drive the efficacy results; and (4)

there is consistency across key patient subsets. Id. Significantly, the FDA will generally only

consider a PMA based upon a single trial if efficacy is demonstrated by statistical significance at

the 99% threshold. The standard 95% threshold for establishing statistical significance is simply

insufficient for a PMA premised on a single clinical trial.

The Company's Efforts to Secure FDA Approval for Ablatherm

29. In 2007, the Company initiated its U.S. ENLIGHT study of Ablatherm for

treatment of low risk, localized prostate cancer began in 2007. This was a comparison of

Ablatherm to cryotherapy. However, the Company was unable to find a sufficient amount of

patients in the cryotherapy arm in order to conduct the studies according to protocols approved

by the FDA. In 2009, facing patient enrollment issues on the cryoablation comparative arm of

the U.S. ENLIGHT study, the Company met with the FDA to propose alternatives to the

approved protocol and its prospective comparative study.


30. A Gastroenterology and Urology Devices Panel of the Medical Devices Advisory

Committee (the "Panel") was convened by the FDA on December 11, 2009 ("2009 Panel

Meeting"). The 2009 Panel Meeting, which was a general meeting, made clear that any

application for FDA approval of a treatment for prostate cancer should (i) be based on

prospective data for endpoint evaluation of treatments for localized prostate cancer, and (ii)

include follow-up data for a minimum five-year period.

31. In January 2010 the Company met with the FDA regarding "options and

alternatives" to move forward with the HIFU trial in the U.S. The FDA confirmed the Panel's

recommendation for a prospective study and reiterated the Panel's concerns regarding the

concept of patient randomization and the follow-up period.

32. In April 2010, EDAP decided to discontinue enrollment of patients who were to

be treated with cryotherapy in the HIFU comparative arm of the study and informed the FDA of

its decision. The Company completed the treatment of 134 patients treated with Ablatherm in

June 2010 and these subjects were followed up for two years.

33. On January 31, 2013, the Company submitted its PMA application to the FDA for

the Ablatherm-HIFU for treatment of low risk, localized prostate cancer. Even though the

Company had very limited enrollment in the ENLIGHT study, it nonetheless included data from

the ENLIGHT U.S. Phase Il/Ill clinical trial, as well as data from a worldwide database of

treatment information and follow-up data from patients who have undergone HIFU therapy for

prostate cancer.

34. On March 26, 2013 the Company received FDA filing acceptance of its pre-

market approval application for Ablatherm.

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Case 1:14cv-060694GS Document 39 Filed l2/22/14 of 45

35. According to Plaintiffs' FDA Consultant, Dr. Richard A. Guarino ("Guarino"): 1

The FDA's decision to accept a PMA means only that the application contains all the necessary data points and documents to conduct a full review. It signifies nothing about the NDA's chances of receiving FDA approval. Indeed, it is conceivable that the FDA could accept a PMA that fails to achieve statistical significance at the less robust 95% level required for two study submissions, only to reject it after its substantive review.

FDA's "Malor" Deficiency Letter

36. After reviewing the Company's PMA, the FDA issued a major deficiency letter

("Major Deficiency Letter") to the Company, stating, amongst other things, that (i) the

application lacked sufficient evidence to assess effectiveness based in part on the use of an

unvalidated endpoint (the Company used metastasis-free survival as the primary endpoint, but in

the judgment of the FDA, the proper primary endpoint was overall survival), and (ii) the FDA

had significant concerns about the comparability of the safety profiles of HIFU and alternative

treatments.

37. According to Dr. Guarino, a major deficiency letter from the FDA signifies that

the FDA has identified significant issues within the underlying PMA that may require additional

data submissions from the sponsor, and will therefore very likely delay the FDA approval

process.

38. Although the exact timing of the Major Deficiency Letter is not publicly

available, in Dr. Guarino's estimation the Company would have received the letter no later than

1 Dr. Guarino is President of Oxford Pharmaceutical Resources, Inc., author of the definitive text on FDA clinical and regulatory standards New Drug Approval Process (5th edition) - and an eminent professor and advisor to the pharmaceutical and medical device industry on FDA applications for over 40 years. Dr. Guarino based this and other analyses on his review of documents related to the Ablatherm PMA, including: (1) the Briefing Document; (2) slide presentations given by the FDA to the Advisory Panel, and (3) the transcript of the FDA Panel Meeting. Dr. Guarino's analysis is incorporated in the allegations of this complaint.

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Case 1:14cvM60694GS Document 39 Filed l2/22/14 of 45

early May, 2013, because on May 16, 2013 the Company announced it had scheduled its 100-day

meeting with the FDA. Thus, it is highly likely that by that date the Company was in receipt of

the Deficiency Letter and requested the 100-day meeting in order to discuss the issues raised

therein.

39. The Company held its 100-day meeting with the FDA in early June, 2013, in

which the concerns raised in the Major Deficiency Letter were addressed.

40. EDAP thereafter submitted an amendment to its PMA which consisted of long-

term 8 year metastasis-free survival follow-up data obtained from a European registry on

Ablatherm HIFU, which was compared to the low risk subgroup of patients in the radical

prostatectomy (RP) arm of the U.S. Veterans Administration-based Prostate Cancer Intervention

versus Observation Trial (PIVOT). These data were submitted to the PMA in response to FDA's

major deficiency letter to address shortcomings with the IDE study and supporting clinical data.

41. The Sponsor submitted safety data from various patient populations, including the

original IDE population, the meta-analysis of the HIFU and cryotherapy literature, prospectively

collected safety data from the 79 Free State Reporting, Inc. 1378 Cape St. Claire Road

Annapolis, MD 21409 (410) 974-0947 79.

42. The PMA amendment did not assuage the FDA's concerns, as the Company was

still relying on data that utilized the wrong primary endpoint, and did not have sufficient data to

validate the device's efficacy under either the primary or secondary endpoint.

43. Moreover, the data EDAP submitted in its PMA amendment was plagued with

serious comparability issues, discussed herein below. Despite knowing all these deficiencies and

impediments to FDA approval, Defendants failed to disclose the contents of the Major

Deficiency Letter to investors, continued to tout the progress made in the FDA review process,

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and stated that Ablatherm was an effective and safe treatment for prostate cancer with low

morbidity.

The Advisory Panel Meeting

44. Pursuant to FDA regulations, the FDA may authorize to convene an Advisory

Panel consisting of industry experts to opine on the advisability of approval of a PMA.

45. The decision to convene an Advisory Panel in no way indicates the likelihood of

receiving FDA approval. To the contrary, Advisory Panel meetings are often convened to

reinforce the recommendation of the FDA. Indeed, FDA regulations provide that an advisory

panel meeting should be convened when, among other things, there are significant issues

regarding safety and/or effectiveness of the drug, device or biologic, or the application raises

significant public health questions regarding the role of the drug, device or biologic in the

treatment or prevention of a disease.

46. In this case, the FDA Panel Meeting was scheduled for July 30, 2014. In advance

of the Panel Meeting, the FDA published its Briefing Document that detailed its findings

regarding the Ablatherm PMA. Its conclusions were highly negative, and revealed for the first

time the numerous misconclusions in the Study's clinical data.

47. The specific issues flagged by the FDA included:

• The clinical meaningfulness of comparing Ablatherm HIFU effectiveness to the low risk subgroup of the radical prostatectomy arm of the PIVOT trial using metastasis rates at 8 years;

• The impact of the positive biopsy and salvage therapy rates following Ablatherm HIFU on the ability to interpret the effectiveness data;

• Limitations in making cross-study comparisons; and

The safety profile and comparisons of the HIFU device.

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The FDA Briefing Document Confirms Serious Deficiencies in the PMA

48. EDAP had submitted two groups of clinical studies in support of its PMA:

Long-Term Clinical Studies ("LTC Studies") and Intermediate-Term Clinical Studies ("ITC

Studies").

49. The LTC Studies were the primary basis of the efficacy claims. The primary basis

for the safety claims was a combination of data from both the LTC Studies and ITC Studies. As

detailed below, the FDA seriously questioned whether this data provided a sufficient basis to

show the efficacy or safety required to obtain FDA approval.

The Company Failed To Establish Ablatherm's "Efficacy"

50. For the LTCS, the efficacy claims in the PMA were flawed because (1) The HIFU

Long-Term Refined Cohort study (the "HIFU LTRC study"), was not a prospective study and

therefore, there was an unknown amount of missing patient data; (2) the Company relied on a

"cross-comparison" of the HIFU LTRC study to the PIVOT low risk RP Subgroup, but failed to

adjust for a number of differing variables that biased the PMA; and (3) the nature of the data

provided in the PMA could not support a finding of clinical benefit in the Primary Effectiveness

Analyses, Secondary Effectiveness Analyses, or the Exploratory Effectiveness Analyses.

1) The PMA's Reliance on a Cross-Comparison of Data was Flawed in Major Respects.

Missing Data

51. As already described, EDAP had been unable to complete its IDE study because it

was unable to enroll a sufficient amount of patients to demonstrate a meaningful statistical

endpoint. As a result, EDAP resorted to a cross-comparison of data from the HIFU LTRC Study

and the Pivot Low Risk RP subgroup. However, the HIFU LTRC Study was not a prospective

study, but instead relied upon information obtained from existing clinic records, by contacting

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referring urologists, and/or sending mail-survey/letters directly to patients. The Briefing

Document emphasized that this process of data collection resulted in an "unknown" amount of

missing data. Thus, there was insufficient patient data to enable the Company to perform an

adequate cross-comparison to support efficacy or safety.

The PMA Failed to Account and Adjust for Variables that Biased the Study Results.

52. The difficulty with using cross-study comparison is that there are known and

unknown differing variables among the studies which are likely to introduce bias. The Briefing

Document cited several such variables: (i) in the PIVOT study patient assessments were

performed according to a specified schedule, while in the HIFU study, patient assessments were

merely performed as part of the standard of care for prostate cancer. For example, in the PIVOT

study, patients had bone scans at five, ten, and fifteen years, while in the HIFU study, patients

underwent bone scans at physician discretion only; and (ii) many variables, such as age, baseline

PSA, cancer stage, and tumor size, were not uniform between the two studies. These distinctions

among patient groups made it difficult to draw adequate comparisons and properly assess

efficacy.

53. While differences in variables between two studies can typically be statistically

adjusted to avoid bias so that a cross-comparison of studies may be warranted, here, however

EDAP failed to adjust for these variables. In fact, one of the reasons that EDAP did not adjust

for the variables it it lacked the data that would be required.

2) The Company Used An Invalid Primary Endpoint in Support of its Efficacy Analysis.

54. According to Dr. Guarino, "in any Clinical Research Study, whether it be for a

Drug, Device or Biologic, the study must define a primary endpoint in order to confirm the

objective of the study." In addition:

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Once the patient selection defines the primary diagnosis, usually based on inclusion and exclusion criteria as set forth in the clinical protocol, the next step is to evaluate the safety and efficacy of the primary endpoint. If the clinical data does not demonstrate an improvement of the primary endpoint selected, usually agreed upon by the FDA, a review of the Guidelines and the FDA's protocol review, an approval of a NDA, PMA or BLA submission will not gain approval by the FDA. Surrogate endpoints that demonstrate improvement and are not compliant with Guidelines for a clinical study with specific criteria to evaluate safety and efficacy of a diagnosis, will not substitute for an approval for an experimental pharmaceutical product.

55. The Company was warned by FDA early on in the Major Deficency Letter that it

was using an "unvalidated endpoint" and thus lacked evidence to show effectiveness. The

primary objective selected by EDAP was long term freedom from metastasis following treatment

with Ablatherm. However, this was an incorrect primary endpoint, as the FDA pointed out in its

Major Deficiency Letter. FDA believed that "overall survival" should be the primary endpoint;

however, EDAP used "overall survival" only as its secondary objective in the PMA. This was a

significant problem that led to the decision not to approve Ablatherm in its current form. In fact,

the FDA made it abundantly clear that it considered the PMA's primary objective of long term

freedom from metastasis to be a "surrogate for the gold standard endpoint of overall survival." 2

In addition, the Briefing Document further stated that, "[e]ven though metastasis-free survival is

a potentially useful endpoint in prostate cancer, the use of this endpoint is challenging due to the

low event rate in the low risk group."

2 This was especially true here, because the PMA utilized "comparison to historical controls or cross-study comparisons using a time-to-event endpoint" and in those types of studies, "endpoint[s] such as metastasis-free survival, are extremely problematic due to variations in both frequency and interpretation of imaging studies." EDAP ignored the suggested primary endpoint and instead used an unproven primary endpoint. Moreover, even had EDAP used the suggested primary endpoint, the PMA would have failed because for each objective, the FDA stated in the Briefing Document that "the clinical benefit of the HIFU treatment was unclear."

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56. In addition, EDAP was comparing Ablatherm to treatments received by patients

in the PIVOT radical prostatectomy (RP) arm. In the PIVOT study itself, the patients treated

with RP were compared to patients that were merely observed but did not receive any treatment.

In order for EDAP's "non-inferiority comparison" of Ablatherm vs. radical prostatectomy to be

valid, it had to be clear that in the PIVOT trial itself, RP proved to be a more effective treatment

for patients than if they had simply remained untreated.

57. However, according to the FDA, the PIVOT trial failed to show that RP showed

any statistical superiority to no treatment at all. Thus, data suggesting that Ablatherm was no

worse than RP, was inconclusive. Indeed, the Briefing Document noted that "the clinical benefit

of [Ablatherm] in the treatment of the low risk population is unclear."

58. Indeed, the FDA questioned the superiority of Ablatherm because the nature of

the low risk prostate cancer is such that patients generally survive for a long time with the

disease and would generally not have to seek treatment of any kind during the early observation

period. Therefore, even if Ablatherm is shown to be numerically superior to the other treatment

using metastasis rates, "the use of this endpoint is challenging due to the low event rate in the

low risk group," and any numerical superiority was deemed inconclusive.

3) The Company's Secondary Effectiveness Analysis of Overall Survival Was Not Persuasive

59. As noted, EDAP designated "overall survival" as the secondary objective for the

treatment. For overall survival and prostate cancer specific survival rates, the HIFU LTRC study

did show an improvement over the PIVOT low risk RP subgroup at 8 years. However, the FDA

found this data unpersuasive since (i) the PIVOT study itself failed to show that treatment of the

RP participants was superior to no treatment at all; and (ii) the PMA was for the treatment of the

low risk group, and the nature of low risk prostate cancer is such that patients generally survive

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for a long time with the disease and would generally not have to seek treatment of any kind

during the early observation period. Therefore, the numerical improvement was still not

clinically significant.

4) The Company Did Not Have Sufficient Data to Support Its Other Identified Objectives.

60. In its PMA, EDAP identified certain additional objectives - freedom from positive

biopsy, PSA Nadir, and biochemical failure. However, the Company had no data from PIVOT

concerning these objectives - thus there was no study showing a comparison between Ablatherm

and the alternative treatment, which tested for these objective. The FDA cited this as yet another

deficiency that prevented a finding of clinical significance for Ablatherm.

The Company Failed to Substantiate its Claims Concerning Ablatherm's Safety

61. To evaluate the safety of Ablatherm HIFU relative to RP, EDAP analyzed and

presented data from three groups: (1) the "HIFU Prospective Safety Cohort" which is a subgroup

of the HIFU Long Term Cohort; (2) the HIFU IDE cohort (an Intermediate Term study); and (3)

the PIVOT RP aim (the "PIVOT RP safety cohort").

62. This data was woefully insufficient to substantiate the claims of safety, because:

(1) the HIFU Prospective Safety Cohort did not have enough patients for the safety data to be

reliable, and the few patients that were included were compiled from three different studies,

which did not uniformly collect safety data; (2) the HIFU Prospective Safety Cohort was

different than the HIFU LTRC used for the efficacy analyses, and the collective impact of these

differences was unknown; (3) the PIVOT RP safety cohort was not the same as the PIVOT low

risk RP Subgroup, and included moderate and high risk prostate cancer patients; (4) the different

studies used in the cross-study comparison used different adverse event definitions; and (5) data

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from the HIFU Prospective Safety Cohort and the HIFU IDE cohort both showed significant

morbidity in patients subjected to the HIFU procedure.

63. In fact, the Company was well aware that the FDA had significant concerns about

the comparability of the safety profiles for Albatherm. This concern was communicated by the

FDA in the Major Deficiency Letter.

1) The HIFU Prospective Safety Cohort Did Not Contain Enough Patients to Properly Analyze Safety.

64. Only sixty-two patients were enrolled in the HIFU Prospective Safety Cohort, an

amount that the FDA considered insufficient "for a primary analysis of safety." Further

undermining the validity of the safety analysis is that the Company used patient data from three

different studies in Lyon, France. These three studies used different follow-up time durations

(ranging from three to twelve months), making the data inconsistent and unreliable.

65. Additionally, only 84% of the patients in this cohort were followed for two years

or more, thus exacerbating the problem of having too little patients included in the study.

2) The HIFU Prospective Safety Cohort Differed from the HIFU LTRC used for effectiveness analyses

66. The Briefing Document further found that the patient populations used to analyze

effectiveness differed in significant respects. This was yet another significant limitation on the

Company's attempt to use cross-study comparisons to support FDA approval.

67. Here, the HIFU Prospective Safety Cohort differed from the HIFU Long Term

Refined Cohort because the HIFU Prospective Safety Cohort patients were older and, in some

cases, were undergoing other therapies either at the time of the HIFU procedure or after the

HIFU procedure. The FDA was unable to discern the collective impact of these differences, and

found that these studies could not support a finding of safety for Ablatherm.

18


3) The PIVOT RP Safety Cohort Used a Different Patient Base than the PIVOT Low Risk RP Subgroup Used For Effectiveness Analyses

68. The Company's safety analyses for the PIVOT RP Safety Cohort was not limited

to low risk prostate cancer patients, but rather included all patients who underwent treatment.

The inclusion of moderate or high risk prostate cancer patients predictably increased the

likelihood that they would experience adverse events and made the comparison to the low-risk

HIFU Prospective Safety Cohort unsupportive of the claim that Ablatherm was safe.

4) The Studies Used In the Cross-Study Comparison had Different Definitions For "Adverse Events."

69. Further hindering the cross-study comparison and specifically the analysis of

adverse events is the fact that the different studies had varying definitions of "adverse events."

As noted in the Briefing Document, the HIFU and PIVOT Studies had different definitions for

adverse events, including the two most significant ones - erectile dysfunction and urinary

incontinence.

70. In addition, certain adverse events such as urinary retention, dysuria, and

hematuria data were not even collected in the PIVOT study. Lastly, there were differences

between the studies used in the analyses in the timing and frequency of data collection, reporting,

follow-ups, as well as differences in key patient characteristics (i.e., age, concomitant therapies,

and salvage treatment). Because of these differences, the study results were potentially biased

and made the rendered EDAP's data inconclusive.

5) The HIFU Prospective Safety Cohort and HIFU IDE Cohort Both Showed Significant Morbidity in Patients Who Were Treated with HIFU.

71. The Briefing Document revealed that "a safety analysis of Ablatherm HIFU in

both the HIFU IDE Cohort and the HIFU Prospective Safety Cohort demonstrate significant

19


morbidity of the HIFU procedure," (i.e., adverse events), and moreover, that the Company had

not properly presented this information in a "clinically meaningful" way.

72. The adverse events included "erectile dysfunction, voiding symptoms, urinary

retention, urinary incontinence, urinary tract infection, stricture, bowel dysfunction, and urethral

injury." Most notably, 67.4% and 29% of patients in the HIFU IDE Cohort and HIFU

Prospective Safety Cohort respectively experienced Erectile Dysfunction. In addition, 38.5% and

27.4% of patients in the HIFU IDE Cohort and HIFU Prospective Safety Cohort respectively,

experienced Urinary Incontinence.

Materially False and Misleadiiw Statements Issued Duriiw the Class Period

73. On February 1, 2013, the Company issued a press release and filed a Form 6-K,

announcing its submission to the FDA of a Pre-Market Approval Application for Ablatherm. In

the press release, the Company stated, in part:

EDAP TMS SA (Nasdaq: EDAP), the global leader in therapeutic ultrasound, announced today the submission of its Pre-Market Approval (PMA) application to the U.S. Food and Drug Administration (FDA) on January 31, 2013 for the Company's Ablatherm-HIFU (High Intensity Focused Ultrasound) for treatment of low risk, localized prostate cancer. EDAP's PMA submission includes data from the ENLIGHT study, a multi-center U.S. Phase Il/Ill clinical trial that completed the two year follow-up needed to evaluate its primary endpoint in August 2012, as well as data from the Company's extensive worldwide database of treatment information and follow-up data from patients who have undergone HIFU therapy for prostate cancer.

* * *

Marc Oczachowski concluded, "The PMA submission to the FDA represents a significant milestone in the U.S. regulatory process for Ablatherm-HIFU. The EDAP team, together with its clinical, regulatory and legal advisors, has devoted six years to conducting the U.S. clinical trial that studied Ablatherm-HIFU as a treatment for localized prostate cancer. I am very proud of the team, and we will continue to work closely with the agency during the final stages of the process."

20


74. On February 8, 2013, the Company issued a press release and filed a Form 6-K

announcing data demonstrating the safety and long-term efficacy of Ablatherm-HIFU, entitled

"EDAP's Ablatherm-HIFU Demonstrates Long-Term Efficacy and Safety Over Fourteen-Year

Period." The press release stated, in part:

Longest Retrospective Study of HIFU Patients to Date Published Confirms Benefits of Treatment

EDAP TMS SA, the global leader in therapeutic ultrasound, announced today new data demonstrating the safety and long-term efficacy of Ablatherm-HIFU, an ultrasound guided HIFU device for the treatment of localized prostate cancer. The data was electronically published in January 2013 by the British Journal of Urology, International.

Roman Ganzer, M.D., Primary Investigator and Associate Professor of Urology at the University of Regensburg in Germany, summarized, "We studied a large consecutive patient series that underwent primary HIFU for localized prostate cancer, gathering data over the longest follow-up period in current literature, with data extending out to 14 years. Our results improve the understanding of the long term cancer control of HIFU as a primary therapy for prostate cancer as well as the morbidity associated with the procedure. The study solidifies the fact that HIFU is a safe and effective therapeutic option for patients with localized prostate cancer of low and intermediate risk profile. The morbidity experienced by patients was reasonable and, specifically, the rate of serious side effects such as recto-urethralfistulae is very low."

John Rewcastle, Ph.D., Medical Director of EDAP TMS, remarked, "This is a landmark publication as it contains a report of 10 year biochemical outcomes with follow-up extending to 14 years. The biochemical disease free survival rates are comparable with those reported following other prostate cancer treatments and this is balanced with an attractive morbidity profile. This represents the longest follow-up of any series to date, and validates the outcomes of Ablatherm-HIFU as first line, whole gland treatment for prostate cancer."

75. The above statements were materially false and misleading because, contrary to

the Company's claim, it did not have sufficient data supporting its claim that HIFU was safe or

effective, and moreover, the morbidity experienced by patients treated with HIFU was not

"reasonable." In fact, as revealed in the Briefing Document, patients treated with HIFU

21


experienced high morbidity, which included significant amounts of adverse effects, including

erectile dysfunction and urinary incontinence. Furthermore, the data that EDAP was relying on

for its claims of safety and efficacy, as well as for its PMA, was plagued with numerous

deficiencies.

76. On March 28, 2013 the Company issued a press release and filed a Form 6-K,

announcing that it received FDA filing acceptance of its pre-market approval application for

Ablatherm. In the press release, the Company stated, in part:

EDAP TMS SA (Nasdaq:EDAP), the global leader in therapeutic ultrasound, announced today that the U.S. Food and Drug Administration has provided a positive Filing Review Notification on the Company's Pre-Market Approval (PMA) application for its Ablatherm Integrated Imaging HIFU (High Intensity Focused Ultrasound) device for the treatment of low-risk, localized prostate cancer. The FDA conducted a filing review of EDAP's PMA, and found it to contain all of the information needed to proceed with the substantive review, in which the FDA will evaluate the safety and effectiveness of Ablatherm Integrated Imaging HIFU device, as well as EDAP's engineering, manufacturing and quality systems.

Marc Oczachowski, Chief Executive Officer of EDAP TMS, commented, "Receiving FDA filing acceptance for our PMA in less than two months is both very timely and a major milestone. We are moving forward in the PMA Review Process as the agency commences its substantive review. We will continue to work closely with the FDA review team."

(Emphasis supplied).

77. On April 2, 2013, the Company issued a press release and filed a Form 6-K,

announcing its financial and operating results for the fourth quarter and full year ended

December 31, 2012. hi the press release, the Company stated, in part:

Mr. Oczachowski continued, "Our PMA application for Ablatherm-HIFU is steadily moving forward through the U.S. FDA review process. Last week we received notification that our PMA had been accepted for Filing Review, less than two months after we submitted the complete application to the FDA. With this significant milestone completed, we have now entered the substantive review phase, and we are looking forward to a continuing dialog with the agency as the review process advances."

22


78. The above statements were materially false and/or misleading because receiving

FDA filing acceptance for the PMA was not a "significant" or "major" milestone but rather

signified only that the application contained the necessary data points and documents to conduct

a full review. It signified nothing about the PMA's chances of receiving FDA approval.

79. On May 16, 2013, the Company issued a press release and filed a Form 6-K with

the SEC, announcing its financial and operating results for the first quarter ended March 31,

2013. In the press release the Company stated:

Mr. Oczachowski continued, "The FDA process for our Ablatherm-HIFU is on track as we submitted our Pre-Market Approval (PMA) application that was reviewed and approved for filing in late March. We continue working and communicating smoothly with the agency and we have a 100-day meeting scheduled with the FDA for early June to discuss our file."

80. The above statement that the FDA process for Ablatherm was "on track" was

materially false and/or misleading because by this date the Company had received the Major

Deficiency Letter alerting it to significant deficiencies in its PMA submission, casting

considerable doubt on the viability of its PMA application. Specifically, the FDA had conveyed

its concern that the PMA lacked sufficient evidence to assess effectiveness because the Company

was using an invalid primary endpoint, and the FDA had significant concerns about the

comparability of the safety profiles of HIFU with the alternative treatments. Further, the

Company was overstating the efficacy and safety of Ablatherm in its PMA by using faulty

statistical methods, presenting incomplete data, and because patients treated with Ablatherm

were experiencing a high incidence of adverse events.

81. On May 21, 2013, the Company issued a letter to shareholders and filed a Form 6-

K with the SEC, stating in part:

Turning to our HIFU ("High Intensity Focused Ultrasound") division and our US ENLIGHT clinical trial, in 2012 we completed the 2-year patient

23


follow-up phase and conducted in-depth analysis of the data and resulting statistics in order to provide the U.S. Food and Drug Administration ("FDA") with the most comprehensive data. On January 31, 2013, we submitted our Pre-Market Approval ("PMA") file to the FDA for our Ablatherm device and on March 26, 2013, we received confirmation from the FDA that our PMA submission contained all of the information needed to proceed with the substantive review. With this major milestone completed, we have now entered the substantive review phase for Ablatherm-HIFU.

* * *

Also, we very recently launched a $ 12 million fund raise which will allow us to further strengthen our financial profile, as well to accelerate our investments in preparation for our market entry in the U.S. with Ablatherm-HIFU.

82. The above statement was materially false and/or misleading because by this date

the Company had received the Major Deficiency Letter alerting it to significant deficiencies in its

PMA submission, casting considerable doubt on the viability of its PMA application.

Specifically, the FDA had conveyed its concern that the PMA lacked sufficient evidence to

assess effectiveness because the Company was using an invalid primary endpoint, and the FDA

had significant concerns about the comparability of the safety profiles of HIFU with the

alternative treatments. Further, the Company was overstating the efficacy and safety of

Ablatherm in its PMA by using faulty statistical methods, presenting incomplete data, and

because patients treated with Ablatherm were experiencing a high incidence of adverse events.

83. On May 21, 2013 the Company announced in a Form 6-K and press release that it

had entered into definitive agreements with certain institutional investors for a registered direct

placement of $12 million of ordinary shares in the form of American Depositary Shares

("ADS5") at a price of $4.00 per share, with warrants attached.

84. In a prospectus supplement filed on May 22, 2013, the Company stated about

Ablatherm, in part:

24


We market the Ablatherm® for high-intensity focused ultrasound (HIFU) treatment of localized prostate cancer. HIFU treatment is shown to be a minimally invasive and effective treatment option with a low occurrence of side effects. Ablatherm-HIFU is generally recommended for patients with localized prostate cancer (stages T1-T2) who are not candidates for surgery or who prefer an alternative option, or for patients who failed radiotherapy treatment. Ablatherm-HIFU is approved and commercialized in Europe as a treatment for prostate cancer and is currently under regulatory review in the U.S. following submission of the Pre-Market Approval Application in January 2013 after the completion of a multi-center U.S. Phase 111111 clinical trial under an Investigational Device Exemption (IDE) granted by the FDA. The Company also develops its HIFU technology for the potential treatment of certain other types of tumors. EDAP TMS SA also produces and commercializes medical equipment (the Sonolith® range) for treatment of urinary tract stones using extra-corporeal shockwave lithotripsy (ESWL).

85. The above statement was materially false and/or misleading because, while

stating that Albatherm was "under regulatory review" in the U.S., it omitted the fact that the

Company had received a Major Deficiency Letter from the FDA, which advised the Company

that its PMA application lacked sufficient evidence to assess effectiveness because the Company

was using the wrong primary endpoint, and the FDA had significant concerns about the

comparability of the safety profiles of HIFU with the alternative treatments.

86. On August 28, 2013, the Company issued a press release and filed a Form 6-K

with the SEC, announcing its financial and operating results for the second quarter ended June

30, 2013. That day, the Company held an earnings call to discuss the financial results for the

second quarter. During that call, Defendant Oczachowski stated:

[T]hree major clinical papers from three different sites in two different countries were accepted for publication in three of the most respected journals, including the American Journal of Urology. These papers cover more than 2,000 patients with 10-year follow up after Ablatherm-HIFU.

This is noteworthy recognition of our technology as a standard of care treatment for prostate cancer. It is also quite unique as most of the other treatment modalities do not have such papers covering these many patients with such long-term follow up.

25


We believe this is key as it shows excellent results in the efficacy of Ablatherm-HIFU in the treatment of prostate cancer with very high level results in terms of free survival and metastatic-free rates.

This will certainly contribute to our ability to move forward into different regulatory program and pass around the world and in the U.S. [Mostly, these publications can certainly be provided on request.

Finally, in early June we had our 100-day meeting with the FDA regarding our Ablatherm-HIFU MPA application. This is the standard meeting with the FDA in which we discuss the progress and points of the application following the first set of questions and remarks, while the attempt to review our accepted file submission. This is an opportunity for the company to ask questions in response to the agencies remarks later.

We can't disclose too much information on our ongoing discussion with the agency as this is highly confidential, but we can say that it was a very constructive meeting. Again, this is a first time the FDA has run a PMA for approving a technology to treat prostate cancer and as such, it makes it a type of [out of the buck] project. Therefore, we are working with the FDA as a team in accordance with the rules and regulations as we move forward in the different stages of the approval process.

87. The aforementioned statements were materially false and misleading because this

data was not contributing to the Company's PMA application in the U.S. Moreover, this

particular 100-day meeting with the FDA was not simply "standard," but in fact addressed the

significant issues the FDA had identified in its Major Deficiency Letter to the Company.

88. On November 21, 2013, the Company issued a press release and filed a Form 6-K

with the SEC, announcing its financial and operating results for the third quarter ended

September 30, 2013. At an earnings conference call that same day, analysts questioned

Defendant Oczachowski directly on the Company's communications with the FDA and whether

the FDA had questions regarding the efficacy of Ablatherm:

89. Marc Oczachowski (Chief Executive Officer):

Today we believe we are moving through the approval process in a timely manner, and we are doing all we can to ensure that we receive a response on our PMA application as soon as possible. Based on data such as that presented recently at the World Congress of Endourology and in clinical

26


studies published in leading medical journals, we believe there is substantial evidence to validate the use of HIFU as a non-invasive treatment for prostate cancer. In the US, there is a significant portion of the population that is diagnosed with prostate cancer on an annual basis.

There are also hundreds of American patients traveling internationally to get the prostate cancer treated with HIFU. This clearly demonstrates the need and demand for both the urologist and patient communities to have this technology available as part of their therapeutic options and choices. In addition to working towards FDA approval for Ablatherm-HIFU, we continue to structure our US operations via the [Indiscernible].

* * *

Suraj Kalia (Northland Securities):

So, Marc, forgive me, I joined a couple of minutes late on the call, what was the nature or what is the nature of the questions that FDA is asking on the PMA docket?

Marc Oczachowski (Chief Executive Officer):

Obviously it is all about the [Indiscernible] I would say it is a mix of technical and chemical.

Suraj Kalia (Northland Securities):

And does -- do any of the questions have to do with efficacy of Ablatherm or the HIFU product?

Marc Oczachowski (Chief Executive Officer):

No. I would say it is more clarification questions. You need to clarify points, and you have to get them to kind of evaluate and integrate the file. So, it is more on methods and it is more -- it is quite variable and it is quite mixed as well.

(Emphasis supplied)

90. The above statements were materially false and misleading because Defendants

had been well aware for months, since at least May 2013, that the Albatherm PMA lacked

sufficient evidence to assess effectiveness because the Company was using the wrong primary

endpoint, and the FDA had significant concerns about the comparability of the safety profiles of

HIFU with the alternative treatments. Further, the Company was overstating the efficacy and

27


safety of Ablatherm in its PMA by using faulty statistical methods, presenting incomplete data,

and because patients treated with Ablatherm were experiencing a high incidence of adverse

events. Thus, contrary to Defendants' representations, the FDA did have questions concerning

the efficacy of Ablatherm.

91. That same day, the Company issued a press release and filed a Form 6-K with the

SEC, announcing that it completed its response to questions from the FDA regarding the

Company's Ablatherm-HIFU Pre-Market Approval ("PMA") application, closing this step

within the FDA review process. In the press release, the Company stated, in part:

Marc Oczachowski, Chief Executive Officer of EDAP TMS SA, commented, "This is another significant milestone within the FDA approval process for our Ablatherm-HIFU device. As per the standard FDA review timeframe, the next step is an advisory committee meeting that we expect to be held within the next four to six months. We do not believe there will be any further questions related to the filing or additional requests from the FDA prior to the panel meeting. With this step behind us, we are focusing our efforts to be fully prepared for the upcoming panel meeting."

92. During a March 11, 2014 interview with Wall Street Transcript, in response to a

question asking about the advantages of Ablatherm relative to other technologies for prostate

cancer, Defendant Oczachowski responded:

That's the low morbidity profile and the retreatment capability as well. HIFU brings about the same efficacy as a radical treatment, like surgery or radiation, but the morbidity profile, the side effects are much lower, because it's a non-invasive technology and because it's very precise.

93. During the same interview, Oczachowski further stated that:

So there is a strong need today for an option between not doing anything [to treat prostate cancer] and doing too much. That's exactly where HIFU is - as it brings a very high level of efficacy based on publications of more than 10 years of data, and it has a very low morbidity profile - so it preserves the quality of life of the patient, and that's very interesting for younger patients who are early-stage.


28


94. The above statements were false and misleading because, in fact, (i) Defendants

were aware of significant concerns from the FDA cited in the Major Deficiency Letter about the

Company's ability to demonstrate Ablatherm's efficacy based on the data it had submitted in its

PMA; (ii) Ablatherm did not have a "low morbidity profile," but in fact generated a high number

of adverse events, including erectile dysfunction and urinary incontinence; and (iii) the

Company was overstating the efficacy and safety of Albatherm by using faulty statistical

methods and presenting incomplete data in its PMA.

95. On April 3, 2014, the Company issued a press release and filed a Form 6-K,

announcing its financial and operating results for the fourth quarter and full year ended

December 31, 2013. In the press release, the Company stated, in part:

Marc Oczachowski, EDAP's Chief Executive Officer, stated, "We are pleased with the continued progress that our PMA submission has made over the past year. Just last month, we completed the question and answer phase with the FDA. We are now advancing towards the FDA advisory panel meeting."

96. On April 3, 2014, the Company filed an annual report on Form 20-F with the

SEC, which was signed by Defendant Oczachowski, and reiterated the Company's previously

announced quarterly and year-end financial results and financial position. In addition, the Form

20-F contained SOX certifications signed by Defendant Oczachowski, stating that the financial

information contained in the Form 20-F was accurate and disclosed any material changes to the

Company's internal control over financial reporting.

97. In the Form 20-F, the Company stated, in part:

On January 31, 2013, we submitted our PMA application to the FDA for our Ablatherm for treatment of low risk, localized prostate cancer. Our submission included data from the ENLIGHT U.S. Phase Il/Ill clinical trial, as well as data from our extensive worldwide database of treatment information and follow-up data from patients who have undergone HIFU therapy for prostate cancer. On June 3, 2013 we held our 100-day meeting with the FDA to discuss our PMA file with the reviewing team. Since then

29


we have been providing all the requested additional information on our PMA file.

* * *

On June 3, 2013 we held our 100-day meeting with the FDA to discuss our PMA file with the reviewing team. Since then we have been providing all the requested additional information on our PMA file and on March 19, 2014, we completed our set of answers to the FDA's questions.

98. On April 24, 2014, the Company held an earnings call conference. During the

conference, Oczachowski stated, in part:

Let me start by saying that EDAP has achieved several key milestones in 2013 in advancing the PMA application for Ablatherm HIFU device through the FDA review process.

To start with, we submitted a full and complete PMA application to the FDA in late January of last year. We received administrative acceptance in February 2013, obtained filing acceptance in late March 2013. This filing acceptance is a very important step and milestone in the review process.

When you look at reported statistics approximately one-third of the PMA applications on file are rejected at that stage. EDAP's file continued to make progress as the 100-day review meeting with the FDA was held in early June.

The purpose of this meeting is to discuss items that may need clarification and to start reviewing questions and requests from the FDA on our application. We then continue to interface very closely with the FDA, while compiling the answers and adding some requested information and data to our file. We finally completed our answers, comments and information file and it was delivered to the agency two weeks ago in March of this year.

* * *

We are very pleased and extremely excited that we were able to advance this process significantly throughout 2013 and during the first quarter of 2014. We remained in ongoing communications with the agency as the next step will be the tabling and preparation for the Advisory Committee Meeting.

* * *

In aggregate, these results were first very consistent and stable from one paper to the other, and second, they showed a very high efficacy level with

30


98% of cancer specific survivor rate and 95% of metastasis-free rate at 10 years following treatment with Ablatherm HIFU.

These are very positive results and showed much not inferiority in efficacy based on more than 10 year of results as compared on [surgeries] [ph]. These results also showed a very low morbidity profile and reproducibility of the treatment which confirmed again that Ablatherm HIFU is continuing to demonstrate its advantages as a non-invasive robotic device that offers men a better quality of life as compared to the standard-of-care radical surgical prostatectomy and radiation therapy. In addition, this body of clinical evidence is continuing to drive interest from U.S. patients who are traveling overseas to obtain HIFU treatments.

99. On May 22, 2014, the Company issued a press release and filed a Form 6-K,

announcing the confirmation of an FDA Panel Meeting to review Ablatherm. In the press

release, the Company stated, in part:

LYON, France, May 22, 2014 (GLOBE NEWSWIRE) -- EDAP TMS SA (Nasdaq:EDAP), the global leader in therapeutic ultrasound, today announced that the U.S. Food and Drug Administration (FDA) Gastroenterology and Urology Devices Panel of the Medical Devices Advisory Committee will review the Pre-Market Approval ("PMA") application for EDAP's Ablatherm-HIFU device for the treatment of localized prostate cancer on July 30, 2014.

Marc Oczachowski, EDAP's Chief Executive Officer, said, "Confirmation of this important milestone is great news for the Company and its PMA application. The FDA provided us with a worksheet that details the deadlines and documents to be prepared and sent to the panel members for review ahead of the advisory committee meeting on July 30, 2014. We are very excited to now have a much clearer path toward FDA approval and the entire team at EDAP is diligently preparing for this major event in the PMA application process."

100. On May 28, 2014, the Company issued a press release and filed a Form 6-K,

providing an outline of key events that were scheduled in the Ablatherm-HIFU PMA Process. In

the press release the Company stated, in part:

In addition to the previously announced panel of experts that is scheduled to review the Ablatherm-HIFU device and provide a recommendation based on the clinical data submitted to the FDA, the Company has additional milestones to achieve as part of the PMA application process. The first relates to an engineering, manufacturing and quality assessment

31


of EDAP's factory, which consists of a routine inspection by the FDA. This has now been confirmed and scheduled to take place June 23 to June 26, 2014. In parallel there is a clinical data validation process, which includes an FDA audit of the investigation sites. The Company has received confirmation and scheduling of the "foreign" site's audit which will be conducted in the course of July 2014.

Marc Oczachowski, EDAP's Chief Executive Officer, said, "Having dates con/I rmed for these additional milestones is further great news for EDAP, as it demonstrates how quickly the FDA process is moving for our Ablatherm-HIFU PMA application. We are very enthusiastic to see the progression of events since our last complete submission in March of this year and consider this to be a very exciting time in the Company's history. Our experienced team is fully committed to preparing for these upcoming events so that we can execute these optimally. EDAP has successfully met the requirements of all of our previous FDA inspections and audits and is professionally organized in compliance with major quality assurance systems."


101. On June 10, 2014, the Company published a letter sent to shareholders on June 3,

2014, stating in part:

The PMA review process for our Ablatherm HIFU device progressed well with the FDA and we continue to maintain ongoing communications with the FDA to advance to the next step which is the preparation for the upcoming advisory committee meeting scheduled for July 30, 2014.

* * *

Three major clinical papers on Ablatherm-HIFU were published in the most prestigious urology journals, including the American Journal of Urology. These papers highlighted patient treatment follow-up data from more than 2,000 patients over a period of 10 years after receiving Ablatherm HIFU therapy. This is a noteworthy recognition of our technology as a standard of treatment for prostate cancer. We believe this data demonstrates the excellent efficacy results ofAblatherm HIFU in the treatment of prostate cancer with very high cancer-free survival and metastasis-free rates.


102. The statements referenced in the above paragraphs were materially false and/or

misleading because they misrepresented and failed to disclose the following adverse facts, which

32


were known to Defendants or recklessly disregarded by them, including that: (i) while touting

supposed significant milestones in the approval process and the overall progress of the PMA, the

Company was aware of, but failed to disclose, significant deficiencies in its PMA submission

that were identified by the FDA in its Major Deficiency Letter, namely, the Company's failure to

use the correct primary endpoint for effectiveness and its reliance on safety data that had serious

comparability limitations; and (ii) the Company was overstating the efficacy and safety of

Ablatherm in its PMA by using faulty statistical methods, presenting incomplete data, and

because patients treated with Ablatherm were experiencing a high incidence of adverse events.

The Truth Emerges

103. On July 28, 2014, the FDA staff released its Briefing Document in anticipation of

the July 30, 2014 FDA Panel Meeting. As already detailed herein, in the Briefing Document, the

FDA seriously questioned the adequacy of EDAP's testing methods, including the use of the

wrong primary endpoint, as well as the sufficiency of the data it had submitted in the PMA.

104. An article published by Bloomberg News on July 28, 2014 summarized some of

the FDA's main concerns:

• [The] FDA staff report raises concerns about "clinical meaningfulness" of EDAP's data and safety of its Ablatherm Integrated Imaging device to treat low-risk, localized prostate cancer.

• FDA cites concerns about how efficacy data were interpreted in application, limitations in cross-study comparisons, safety profile and comparisons of the non-surgical device.

105. The Briefing Document also documented high rates of adverse events associated

with Ablatherm, including erectile dysfunction and urinary incontinence, clinically significant

rates of stricture, urethral injury and bowel injury, which the Company had not properly

presented in a clinically meaningful way:

33


FDA Comment: Several of the separately-reported adverse event categories are related, and may be more clinically meaningful for interpretation when combined, as follows: "voiding symptoms" (e.g., bladder/urinary urgency, urinary frequency, hesitancy, incomplete bladder emptying, irritative symptoms, nocturia, lower urinary tract symptoms, etc.), "urinary retention" (e.g., urinary restriction, retention, obstruction, etc.), "stricture" (e.g., urinary stricture, urethral stenosis, bladder neck contracture, etc.), "bowel dysfunction" (e.g., constipation, diarrhea, hemorrhoidal pain, nausea, vomiting, ischemic bowel, rectal bleeding, etc.), and "urethral injury" (e.g., urethral perforation, sloughing, submucosal hematoma, etc.).

106. In response to news of the negative Briefing Document, EDAP was downgraded

to "Market Perform" from "Outperform" at Northland Securities by equity analyst Suraj Kalia.

Northland cut its price target for EDAP stock from $3.50 down to $2. In doing so, analyst Kalia

explained that the Briefing Document was a "total surprise" given that the Company was

previously represented it had a "productive" interaction with the FDA suggestive of positive

results.

107. On the news, EDAP stock fell $1.23 in unusually heavy volume, or over 25%, to

close at $3.65 on July 28, 2014.

108. On July 30, 2014, after the close of trading, the Company issued a press release

which disclosed that the FDA Panel had voted against approving Ablatherm. In the press

release, the Company stated, in part:

[T]he U.S. Food and Drug Administration's (FDA) Gastroenterology and Urology Devices Panel (GUDP) voted 3 yes, S no with 1 abstention on the question of safety, 9 no on the question of efficacy, and 8 no with 1 abstention for the risk/benefit ratio for the use of its Ablatherm-HIFU device for the treatment of low-risk, localized prostate cancer.

109. On this news, EDAP stock fell $1.50 in unusually heavy volume, or almost 44%,

to close at $1.92 on July 31, 2014.

110. In explaining their decision to vote no, panelists found fault with the study design

and the Company's choice of primary endpoint used to demonstrate its effectiveness in the trial,

34


and the fact that EDAP compared 2-year biochemical survival rates for patients treated with

Ablatherm to a performance goal derived from cryotherapy literature. The panel said that this

was not adequate to show that the device is effective, saying that prostate cancer is often a slow-

developing disease that can take up to 20 years to pose a mortality risk.

111. In an article titled, "FDA advisory committee rejects Ablatherm application," the

authors stated, "one honestly has to wonder whether senior management at EDAP TMS had been

listening seriously to anything they had been told by the FDA about this application." See

2014 1 cc -rejects

112. The article continued to state:

Whether Ablatherm will "get the message" and do better studies in order to seek approval of newer forms of the Ablatherm HIFU technology is unknown at this time, but it is extremely clear that the company hadn't done any of the types of clinical trial that could reasonably be expected to be necessary to seek such an approval in the USA today; nor were the data that the company did submit even close to showing a compelling rationale for approval of this form of HIFU technology for the proposed use.


113. On November 6, 2014, the Company disclosed that it had received a letter from

the FDA stating that the Ablatherm PMA was not approvable in its current form.

PLAINTIFF'S CLASS ACTION ALLEGATIONS

114. 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 or

otherwise acquired EDAP ADRs on the NASDAQ during the Class Period (the "Class"); and

were damaged upon the revelation of the alleged corrective disclosures. Excluded from the

Class are Defendants herein, the officers and directors of the Company, at all relevant times,

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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.

115. The members of the Class are so numerous that joinder of all members is

impracticable. Throughout the Class Period, EDAP securities were actively traded on the

NASDAQ. While the exact number of Class members is unknown to Plaintiff at this time and

can be ascertained only through appropriate discovery, Plaintiff believes that there are hundreds

or thousands of members in the proposed Class. Record owners and other members of the Class

may be identified from records maintained by EDAP 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.

116. 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.

117. 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.

Plaintiff has no interests antagonistic to or in conflict with those of the Class.

118. 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:

• whether the federal securities laws were violated by Defendants' acts as alleged herein;

• whether statements made by Defendants to the investing public during the Class Period misrepresented material facts about the business, operations and management of EDAP;

. whether the Individual Defendant caused EDAP to issue false and

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misleading financial statements during the Class Period;

• whether Defendants acted knowingly or recklessly in issuing false and misleading financial statements;

• whether the prices of EDAP securities during the Class Period were artificially inflated because of the Defendants' conduct complained of herein; and,

• whether the members of the Class have sustained damages and, if so, what is the proper measure of damages.

119. 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 make 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.

120. Plaintiff will rely, in part, upon the presumption of reliance established by the

fraud-on-the-market doctrine in that:

• Defendants made public misrepresentations or failed to disclose material facts during the Class Period;

• the omissions and misrepresentations were material; • EDAP securities are traded in efficient markets;

• the Company's shares were liquid and traded with moderate to heavy volume during the Class Period;

• the Company traded on the NASDAQ, and was covered by multiple analysts;

• the misrepresentations and omissions alleged would tend to induce a reasonable investor to misjudge the value of the Company's securities; and

• Plaintiff and members of the Class purchased and/or sold EDAP securities between the time the Defendants failed to disclose or misrepresented material facts and the time the true facts were disclosed, without

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knowledge of the omitted or misrepresented facts.

121. Based upon the foregoing, Plaintiff and the members of the Class are entitled to a

presumption of reliance upon the integrity of the market.

122. Alternatively, Plaintiffs and the members of the Class are entitled to the

presumption of reliance established by the Supreme Court in Affiliated Ute Citizens of the State

of Utah v. United States, 406 U.S. 128, 92 S. Ct. 2430 (1972), as Defendants omitted material

information in their Class Period statements in violation of a duty to disclose such information,

as detailed above.

COUNT I

(Against All Defendants For Violations of Section 10(k) And Rule lOb-S Promulgated Thereunder)

123. Plaintiff repeats and realleges each and every allegation contained above as if

fully set forth herein.

124. This Count is asserted against Defendants and is based upon Section 10(b) of the

Exchange Act, 15 U.S.C. § 78j(b), and Rule lOb-S promulgated thereunder by the SEC.

125. During the Class Period, Defendants engaged in a plan, scheme, conspiracy and

course of conduct, pursuant to which they knowingly or recklessly engaged in acts, transactions,

practices and courses of business which operated as a fraud and deceit upon Plaintiff and the

other members of the Class; made various untrue statements of material facts 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; and employed devices, schemes and artifices to

defraud in connection with the purchase and sale of securities. Such scheme was intended to,

and, throughout the Class Period, did: (i) deceive the investing public, including Plaintiff and

other Class members, as alleged herein; (ii) artificially inflate and maintain the market price of

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EDAP securities; and (iii) cause Plaintiff and other members of the Class to purchase or

otherwise acquire EDAP securities and options 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.

126. Pursuant to the above plan, scheme, conspiracy and course of conduct, each of the

Defendants participated directly or indirectly in the preparation and/or issuance of the quarterly

and annual reports, SEC filings, press releases and other statements and documents described

above, including statements made to securities analysts and the media that were designed to

influence the market for EDAP securities. Such reports, filings, releases and statements were

materially false and misleading in that they failed to disclose material adverse information and

misrepresented the truth about EDAP's finances and business prospects.

127. By virtue of their positions at EDAP, Defendants had actual knowledge of the

materially false and misleading statements and material omissions alleged herein and intended

thereby to deceive Plaintiff and the other members of the Class, or, in the alternative, Defendants

acted with reckless disregard for the truth in that they failed or refused to ascertain and disclose

such facts as would reveal the materially false and misleading nature of the statements made,

although such facts were readily available to Defendants. Said acts and omissions of Defendants

were committed willfully or with reckless disregard for the truth. In addition, each defendant

knew or recklessly disregarded that material facts were being misrepresented or omitted as

described above.

128. Information showing that Defendants acted knowingly or with reckless disregard

for the truth is peculiarly within Defendants' knowledge and control. As the senior manager

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and/or director of EDAP, the Individual Defendant had knowledge of the details of EDAP's

internal affairs.

129. The Individual Defendant is liable both directly and indirectly for the wrongs

complained of herein. Because of his position of control and authority, the Individual Defendant

was able to and did, directly or indirectly, control the content of the statements of EDAP. As

officer and/or director of a publicly-held company, the Individual Defendant had a duty to

disseminate timely, accurate, and truthful information with respect to EDAP's businesses,

operations, and future prospects. As a result of the dissemination of the aforementioned false

and misleading reports, releases and public statements, the market price of EDAP securities was

artificially inflated throughout the Class Period. In ignorance of the adverse facts concerning

EDAP's business and financial condition which were concealed by Defendants, Plaintiff and the

other members of the Class purchased or otherwise acquired EDAP securities at artificially

inflated prices and relied upon the price of the securities, the integrity of the market for the

securities and/or upon statements disseminated by Defendants, and were damaged thereby.

130. During the Class Period, EDAP securities were traded on an active and efficient

market. Plaintiff and the other members of the Class, relying on the materially false and

misleading statements described herein, which the Defendants made, issued or caused to be

disseminated, or relying upon the integrity of the market, purchased or otherwise acquired shares

of EDAP securities at prices artificially inflated by Defendants' wrongful conduct. Had Plaintiff

and the other members of the Class known the truth, they would not have purchased or otherwise

acquired said securities, or would not have purchased or otherwise acquired them at the inflated

prices that were paid. At the time of the purchases and/or acquisitions by Plaintiff and the Class,

the true value of EDAP securities was substantially lower than the prices paid by Plaintiff and

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the other members of the Class. The market price of EDAP securities declined sharply upon

public disclosure of the facts alleged herein to the injury of Plaintiff and Class members.

131. By reason of the conduct alleged herein, Defendants knowingly or recklessly,

directly or indirectly, have violated Section 10(b) of the Exchange Act and Rule lOb-5

promulgated thereunder.

132. 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,

acquisitions and sales of the Company's securities during the Class Period, upon the disclosure

that the Company had been disseminating misrepresented financial statements to the investing

public.

Additional Sd enter Allegations

133. Ablatherm is considered a core product for the Company. In fact, the Company

has repeatedly emphasized the importance of U.S. FDA approval for Ablatherm as key to the

Company's financial success. For example, in the Company's 2012 Annual Report, the

Company stated:

[W]e depend on the success of our HIFU technology for future revenue growth and net income. In particular, we are dependent on the successful development and commercialization of other product lines, such as medical devices based on HIFU, particularly the Ablatherm to generate significant additional revenues and achieve and sustain profitability in the future.

134. In addition, Defendant Oczachowski has stated that U.S. FDA approval is key to

the Company's ability to gain general acceptance:

I would say that recognition of HIFU in Europe and in the U.S., and the acceptance of this as a standard of care treatment worldwide, will come once it has been cleared by the FDA. The FDA is the only regulatory authority in the world that really validates both the technical and the

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clinical aspect of a device. So everybody in the world looks at what the FDA approves. It is used in Europe now, but it is utilized mainly by research programs or investigations, and it will kind of scale if approved in the U. S.

135. Given the importance of Ablatherm to the Company's financial success, the

Individual Defendant can be deemed to be aware of material developments in the FDA approval

process.

136. Defendant Oczachowski was aware of material facts about the FDA PMA

approval process, including the Major Deficiency Letter and issues raised therein, the discussions

at the 100-day meeting, and the significant impediments to obtaining FDA approval given the

major deficiencies identified by FDA that the Company failed to cure. Oczachowski made clear

during earnings calls with analysts and in statements made in press releases that he was aware of

the specifics underlying the FDA's concerns with the PMA.

137. In addition, Defendants were motivated to conceal the true adverse facts

concerning their PMA because they needed to raise additional funds from investors to continue

funding the entry of Ablatherm into the U.S. market. As previously noted, on May 21, 2013 the

Company announced in a Form 6-K and press release that it had entered into definitive

agreements with certain institutional investors for a registered direct placement of $12 million of

ordinary shares in the form of American Depositary Shares ("ADS5") at a price of $4.00 per

share, with warrants attached.

COUNT II

(Violations of Section 20(a) of the Exchaiwe Act Against The Individual Defendant)

138. Plaintiff repeats and realleges each and every allegation contained in the

foregoing paragraphs as if fully set forth herein.

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139. During the Class Period, the Individual Defendant participated in the operation

and management of EDAP, and conducted and participated, directly and indirectly, in the

conduct of EDAP's business affairs. Because of his senior position, he knew the adverse non-

public information about EDAP's PMA submission for Ablatherm.

140. As officer and/or director of a publicly owned company, the Individual Defendant

had a duty to disseminate accurate and truthful information with respect to EDAP's future

prospects, and to correct promptly any public statements issued by EDAP which had become

materially false or misleading.

141. Because of his positions of control and authority as senior officer, the Individual

Defendant was able to, and did, control the contents of the various reports, press releases and

public filings which EDAP disseminated in the marketplace during the Class Period concerning

EDAP's PMA submission for Ablatherm. Throughout the Class Period, the Individual Defendant

exercised his power and authority to cause EDAP to engage in the wrongful acts complained of

herein. The Individual Defendant therefore, was a "controlling person" of EDAP within the

meaning of Section 20(a) of the Exchange Act. In this capacity, he participated in the unlawful

conduct alleged which artificially inflated the market price of EDAP securities.

142. The Individual Defendant, therefore, acted as a controlling person of EDAP. By

reason of his senior management position and/or being a director of EDAP, the Individual

Defendant had the power to direct the actions of, and exercised the same to cause, EDAP to

engage in the unlawful acts and conduct complained of herein. The Individual Defendant

exercised control over the general operations of EDAP and possessed the power to control the

specific activities which comprise the primary violations about which Plaintiff and the other

members of the Class complain.

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143. By reason of the above conduct, the Individual Defendant is liable pursuant to

Section 20(a) of the Exchange Act for the violations committed by EDAP.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff demands judgment against Defendants as follows:

A. Determining that the instant action may be maintained as a class action under

Rule 23 of the Federal Rules of Civil Procedure, and certifying Plaintiff as the Class

representative;

B. Requiring Defendants to pay damages sustained by Plaintiff and the Class by

reason of the acts and transactions alleged herein;

C. Awarding Plaintiff and the other members of the Class prejudgment and post-

judgment interest, as well as their reasonable attorneys' fees, expert fees and other costs; and

D. Awarding such other and further relief as this Court may deem just and proper.

DEMAND FOR TRIAL BY JURY

Plaintiff hereby demands a trial by jury.

Dated: December 22, 2014 Respectfully submitted,

POMERANTZ LLP

/s/Murielle Steven Walsh Jeremy A. Lieberman Murielle Steven Walsh Dovi Berger 600 Third Avenue, 20th Floor New York, New York 10016 Telephone: (212)661-1100 Facsimile: (212) 661-8665 Email: jaliebermanpomlaw.com

mjstevenpomlaw.com dbergerpomlaw.com

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POMERANTZ LLP Patrick V. Dahlstrom 10 South La Salle Street, Suite 3505 Chicago, Illinois 60603 Telephone: (312) 377-1181 Facsimile: (312) 377-1184 Email: [email protected]

BRONSTEIN, GEWIRTZ & GROSSMAN, LLC Edward N. Gewirtz 60 East 421K! Street, Suite 4600 New York, NY 10165 Telephone (212) 697-6484 Facsimile (212) 697-7296 Email: chonabgandg. com

Attorneys for Plaintiff

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