In Re: OSI, Inc. Securities Litigation 04-CV-05505...

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

x In re OSI, Inc. Securities Litigation.

This Document Relates To: All Actions

: : : : : : : : : x

Master File No. 2:04-cv-05505-JS-WDW

CONSOLIDATED AMENDED CLASS ACTION COMPLAINT FOR VIOLATIONS OF FEDERAL SECURITIES LAWS

DEMAND FOR JURY TRIAL

CLASS ACTION

Case 2:04-cv-05505-JS-WDW Document 44 Filed 02/17/2006 of 59

- 1 -

Lead Plaintiff Matt Brody, by his undersigned attorneys, on behalf of himself and the Class

he seeks to represent, for his Consolidated Amended Class Action Complaint, makes the following

allegations against Defendants (defined below), based upon the investigation conducted by and

under the supervision of Lead Plaintiff’s counsel, which included a review of filings submitted by

OSI Pharmaceuticals, Inc. (“OSI” or “the Company”) to the Securities and Exchange Commission

(“SEC”), as well as regulatory filings and reports, securities analysts’ reports and advisories about

the Company, press releases, filings and correspondence with the Food and Drug Administration

(“FDA”) and other public statements issued by and about the Company. Except as alleged herein,

underlying information relating to Defendants’ misconduct and the particulars thereof is not

available to Lead Plaintiff and the public and lies within the sole possession and control of

Defendants and other OSI insiders, thus preventing Lead Plaintiff from further detailing Defendants’

misconduct at this time. Lead Plaintiff believes that substantial additional evidentiary support will

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

NATURE OF THE ACTION

1. This is a class action on behalf of all persons who purchased or otherwise acquired

the common stock of OSI during the period from April 26, 2004 through November 22, 2004 (the

“Class Period”), including those who acquired the shares pursuant to the Company’s November 10,

2004 follow-on public offering (the “Offering”). The claims brought on behalf of those who

purchased shares in the Offering pursuant and/or traceable to a false and misleading Registration

Statement are brought under §11 of the Securities Act of 1933 (the “Securities Act Claims”), and the

Securities Act Claims involve solely strict liability and negligence claims.

2. OSI claims that it is a biotechnology company focused on the discovery, development

and commercialization of oncology products that both extend life and improve the quality of life for

cancer patients. OSI’s flagship drug was to be Tarceva, which OSI claimed would increase the


- 2 -

overall survival of lung cancer patients. The financially successful launch of Tarceva was of the

utmost importance to the future prospects of the Company.

3. Lung cancer is characterized by malignancies of two general types: small cell and

non-small cell. In 2004, it was estimated that 75% of people with lung cancer in the United States

were suffering from non-small-cell lung cancer (“NSCLC”). Front-line treatments, like

chemotherapy, typically fail to control the cancer. OSI touted Tarceva as the wonder drug that

would extend these patients’ lives.

4. In particular, OSI claimed that Tarceva would control cancer by blocking a particular

protein called epidermal growth factor receptor (“EGFR”) that spurs the growth of cancer cells.

Cancer patients are categorized as either EGFR protein positive, protein negative or unknown.

5. To test whether Tarceva actually worked, prior to the Class Period, Defendants

enrolled a total of 731 patients in “BR.21,” a purported, randomized, international, double-blind

controlled study comparing the use of 150mg/day Tarceva versus a placebo for the treatment of

patients with advanced NSCLC following the failure of first or second-line chemotherapy. The

Company divided the patients into several subgroups for analysis.

6. Unbeknownst to investors, OSI’s BR.21 study demonstrated that Tarceva had no

survival benefit in patients who were EFGR negative. Rather, the undisclosed clinical results

actually showed that EGFR negative patients lived longer when they took a placebo instead of

Tarceva. In other words, Tarceva shortened the lives of EGFR negative patients.

7. Moreover, OSI’s internal clinical study demonstrated that Tarceva did not provide a

statistically significant extension of the lives of lung cancer patients who were current or former

smokers - approximately 80% of the lung cancer population. This fact was never revealed to

investors either before or during the Class Period.


- 3 -

8. In January 2004, OSI initiated a “rolling” New Drug Application (“NDA”)

submission for Tarceva by providing the FDA with the preclinical and CMC (a.k.a. chemistry,

manufacturing, and controls) sections of the application.

9. During the Class Period, without disclosing the disappointing results of OSI’s clinical

trial indicating that Tarceva provided little or no benefit to smokers and failed to work on EGFR

negative patients, Defendants issued a series of false and misleading statements concerning

Tarceva’s survival benefits and the size of Tarceva’s potential market upon FDA approval.

10. For example, on April 26, 2004 – the start of the Class Period – Defendants

announced that Tarceva had met its primary end-points and that the Company would be seeking

FDA approval for Tarceva based upon the findings in OSI’s clinical trials. Defendants falsely stated

that the study showed that patients who took Tarceva lived longer than patients who took a placebo.

Given Defendants’ representations that Tarceva increased overall survival, in addition to providing

the same benefit of drugs already on the market, OSI’s stock soared, increasing $52.96 per share in

one day – a one day price increase of 139%.

11. Shortly thereafter, in the beginning of June 2004, Defendants falsely announced that

the results of the BR.21 Tarceva trial were “noteworthy in that they demonstrated a survival benefit

in essentially all subsets of lung cancer patients.”

12. Defendants repeated these statements throughout the Class Period.

13. Defendants’ false statements concerning Tarceva caused OSI’s stock to trade at

artificially inflated prices which enabled the Individual Defendants to sell their personally-held OSI

shares to the unknowing investing public for proceeds of over $13 million.

14. In addition, on November 17, 2004, with the Company’s stock price materially

inflated based on Defendants’ concealment of the size of Tarceva’s expected market and the drug’s


- 4 -

profitability, Defendants issued and sold 6.9 million shares of the Company’s stock at $64.50 per

share generating approximately $445 million in proceeds.

15. The very next day, on November 18, 2004, Defendants began to reveal the truth about

Tarceva. In particular, on that day, Defendants admitted that in connection with its approval of the

drug, the FDA required OSI to include on the package insert a statement indicating that the drug did

not work on patients who were EGFR protein negative. This disclosure caused OSI’s stock price to

decline dramatically by $6.09 per share – a one-day decline of approximately 10%.

16. Then, on November 22, 2004, the Company issued a press release announcing the

launch of Tarceva. For the first time, OSI admitted that Tarceva’s effectiveness was much lower in

smokers. The press release, stated, in pertinent part, as follows:

The sub-group of smokers also had a survival benefit (hazard ratio = 0.87) despite the fact that this group was also seen to have a 24 percent higher rate of Tarceva(TM) clearance (higher clearance rates lead to lower levels of exposure to drug).

17. Upon this news, shares of the Company’s stock fell another $3.94 per share, or

approximately 7%, to close at $54.22 per share.

JURISDICTION AND VENUE

18. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C.

§§1331, 1337 and 1367, and §27 of the Securities Exchange Act of 1934 (the “Exchange Act”) (15

U.S.C. §78aa) and §22 of the Securities Act of 1933 (the “Securities Act”) (15 U.S.C. §77v).

19. This action arises under §§10(b) and 20(a) of the Exchange Act (15 U.S.C. §§78j(b)

and 78t(a)), §§11 and 15 of the Securities Act (15 U.S.C. §§77k and 77o) and Rule 10b-5

promulgated thereunder (17 C.F.R. §240.10b-5).

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

§78aa), §22 of the Securities Act and 28 U.S.C. §1391(b) and (c). Substantial acts in furtherance of


- 5 -

the alleged fraud and/or its effects have occurred within this district and OSI maintains its corporate

headquarters in this district at 58 South Service Road, Suite 110, Melville, NY 11747.

21. In connection with the acts and omissions 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 common

stock markets.

PARTIES

22. By Court Order dated December 12, 2005, Matt Brody was appointed Lead Plaintiff

to represent the Class. As set forth in his certification previously filed with the Court, Lead Plaintiff

purchased the securities of OSI during the Class Period and suffered substantial damages as a result

of the wrongful acts of Defendants, as alleged herein.

23. (a) Defendant OSI, a company based in Melville, New York, is a

biopharmaceutical company focused on the development and commercialization of therapies for

oncology indications.

(b) Defendant Colin Goddard (“Goddard”) was at all relevant times hereto Chief

Executive Officer and a director of OSI.

(c) Defendant Robert L. Van Nostrand (“Nostrand”) was at all relevant times

hereto Vice President and Chief Financial Officer of OSI.

(d) Defendants Goddard and Van Nostrandare collectively referred to herein as

the “Individual Defendants.”

(e) Defendant Robert A. Ingram (“Ingram”) was at all relevant times hereto the

Chairman of the Board of OSI.

(f) Defendant Michael G. Atieh (“Atieh”) was at all relevant times hereto a

director of the OSI.


- 6 -

(g) Defendant G. Morgan Browne (“Browne”) was at all relevant times hereto a

director of OSI.

(h) Defendant Edwin A. Gee (“Gee”) was at all relevant times hereto a director of

OSI.

(i) Defendant Daryl K. Granner (“Granner”) was at all relevant times hereto a

director of OSI.

(j) Defendant Walter M. Lovenberg (“Lovenberg”) was at all relevant times

hereto a director of OSI.

(k) Defendant Viren Mehta (“Mehta”) was at all relevant times hereto a director

of OSI.

(l) Defendant Herbert Pinedo (“Pinedo”) was at all relevant times hereto a

director of OSI.

(m) Defendant Sir Mark Richmond (“Richmond”) was at all relevant times hereto

a director of OSI.

(n) Defendant John P. White (“White”) was at all relevant times hereto a director

of OSI.

(o) Defendants Ingram, Atieh, Browne, Gee, Granner, Lovenberg, Mehta, Pinedo,

Richmond and White are collectively referred to herein as the “Director Defendants.”

24. During the Class Period, each of the Individual Defendants, as senior executive

officers and/or directors of OSI, was privy to non-public information concerning the Company’s

business, finances, products, markets and present and future business prospects via access to internal

corporate documents, conversations and connections with other corporate officers and employees,

attendance at management and Board of Directors meetings and committees thereof and via reports


- 7 -

and other information provided to them in connection therewith. Because of their possession of such

information, the Individual Defendants knew or recklessly disregarded the fact that adverse facts

specified herein had not been disclosed to, and were being concealed from, the investing public.

25. Because of the Individual Defendants’ positions with the Company, they had access

to the adverse undisclosed information about the Company’s business, operations, operational

trends, financial statements, markets and present and future business prospects via access to internal

corporate documents (including the Company’s operating plans, budgets and forecasts and reports of

actual operations compared thereto), results of the Company’s clinical trials, conversations and

connections with other corporate officers and employees, attendance at management and Board of

Directors meetings and committees thereof and via reports and other information provided to them in

connection therewith.

26. It is appropriate to treat the Individual Defendants as a group for pleading purposes

and to presume that the false, misleading and incomplete information conveyed in the Company’s

public filings, press releases and other publications as alleged herein are the collective actions of the

narrowly defined group of Defendants identified above. Each of the above officers and directors of

OSI, by virtue of their high-level positions with the Company, directly participated in the

management of the Company, was directly involved in the day-to-day operations of the Company at

the highest levels and was privy to confidential proprietary information concerning the Company and

its business, operations, growth, financial statements, and financial condition, as alleged herein. Said

Defendants were involved in drafting, producing, reviewing and/or disseminating the false and

misleading statements and information alleged herein, were aware, or recklessly disregarded, that the

false and misleading statements were being issued regarding the Company.


- 8 -

27. As officers, directors and controlling persons of a publicly-held company whose

securities were, and are, registered with the SEC pursuant to the Exchange Act, and were traded on

the NASDAQ Stock Market (“NASDAQ”) and governed by the provisions of the federal securities

laws, the Individual Defendants each had a duty to disseminate promptly, accurate and truthful

information with respect to the Company’s financial condition and performance, growth, operations,

financial statements, business, markets, management, earnings and present and future business

prospects, and to correct any previously-issued statements that had become materially misleading or

untrue, so that the market price of the Company’s publicly-traded securities would be based upon

truthful and accurate information. The Individual Defendants’ misrepresentations and omissions

during the Class Period violated these specific requirements and obligations.

28. The Individual Defendants participated in the drafting, preparation, and/or approval

of the various public and shareholder and investor reports and other communications complained of

herein and were aware of, or recklessly disregarded, the misstatements contained therein and

omissions therefrom, and were aware of their materially false and misleading nature. Because of

their Board membership and/or executive and managerial positions with OSI, each of the Individual

Defendants had access to the adverse undisclosed information about OSI, as particularized herein,

and knew (or recklessly disregarded) that these adverse facts rendered the positive representations

made by or about OSI and its business issued or adopted by the Company materially false and

misleading.

29. The Individual Defendants, because of their positions of control and authority as

officers and/or directors of the Company, were able to and did control the content of the various SEC

filings, press releases and other public statements pertaining to the Company during the Class

Period. Each Individual Defendant was provided with copies of the documents alleged herein to be


- 9 -

misleading prior to or shortly after their issuance and/or had the ability and/or opportunity to prevent

their issuance or cause them to be corrected. Accordingly, each of the Individual Defendants is

responsible for the accuracy of the public reports and releases detailed herein and is therefore

primarily liable for the representations contained therein.

30. Each of the Defendants is liable as a participant in a fraudulent scheme and course of

business that operated as a fraud or deceit on purchasers of OSI securities by disseminating

materially false and misleading statements and/or concealing material adverse facts. The scheme: (i)

deceived the investing public regarding OSI’s business, operations, prospects and the intrinsic value

of OSI securities; (ii) enabled the Company to issue and sell 6.9 million shares of OSI common stock

for $445 million in proceeds; (iii) enabled the Individual Defendants to sell their artificially inflated

personally-held shares for gross proceeds of over $13 million; (iv) caused Lead Plaintiff and other

members of the Class to purchase OSI securities at artificially inflated prices; (v) caused the price of

the stock to decline as a direct and proximate result of the revelation of the truth; and (vi) caused

Lead Plaintiff and other members of the Class to suffer damages.

PLAINTIFFS’ CLASS ACTION ALLEGATIONS

31. Plaintiffs bring 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 persons who purchased or

otherwise acquired OSI common stock between April 26, 2004 and November 22, 2004, inclusive,

including those who acquired shares pursuant and/or traceable to the Offering and who were

damaged thereby. Excluded from the Class are defendants, members of the immediate families of

each of the Individual Defendants, any subsidiary or affiliate of OSI and the directors, officers and

employees of OSI or its subsidiaries or affiliates, or any entity in which any excluded person has a

controlling interest, and the legal representatives, heirs, successors and assigns of any excluded

person.


- 10 -

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

impracticable. While the exact number of Class members is unknown to plaintiffs at this time and

can only be ascertained through appropriate discovery, plaintiffs believe that there are thousands of

members of the Class located throughout the United States. As of November 2004, there were

reportedly more than 49 million shares of OSI stock outstanding. Throughout the Class Period, OSI

common stock was actively traded on the NASDAQ (an open and efficient market) under the symbol

“OSIP.” Record owners and other members of the Class may be identified from records maintained

by OSI and/or its transfer agents and may be notified of the pendency of this action by mail, using a

form of notice similar to that customarily used in common stock class actions.

33. Plaintiff’s claims are typical of the claims of the other members of the Class as all

members of the Class were similarly affected by defendants’ wrongful conduct in violation of

federal law that is complained of herein.

34. Plaintiff will fairly and adequately protect the interests of the members of the Class

and have retained counsel competent and experienced in class and common stock litigation.

35. 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 and

omissions as alleged herein;

(b) whether defendants participated in and pursued the common course of conduct

complained of herein;


- 11 -

(c) whether documents, press releases, and other statements disseminated to the

investing public and the Company’s shareholders during the Class Period misrepresented material

facts about the business, finances, financial condition and prospects of OSI;

(d) whether statements made by defendants to the investing public during the

Class Period misrepresented and/or omitted to disclose material facts about the business, finances,

value, performance and prospects of OSI;

(e) whether the market price of OSI common stock during the Class Period was

artificially inflated due to the material misrepresentations and failures to correct the material

misrepresentations complained of herein; and

(f) the extent to which the members of the Class have sustained damages and the

proper measure of damages.

36. 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 suit as a class action.

SUBSTANTIVE ALLEGATIONS

Background and Summary

37. OSI is a biotechnology company purportedly focused on the discovery, development

and commercialization of oncology products that both extend life and improve the quality of life for

cancer patients. OSI’s flagship drug was to be Tarceva. Tarceva was designed to increase the

overall survival of lung cancer patients by blocking a particular protein called EGFR that spurs the

growth of cancer cells. EGFR status can be expressed as either protein positive, protein negative or

unknown.


- 12 -

38. In January of 2001, OSI partnered with Genentech, Inc. in the United States and with

Roche in the rest of the world for the development of Tarceva.

39. Lung cancer is characterized by malignancies of two general types: small cell and

non-small cell. In 2004, it was estimated that 75% of people with lung cancer in the United States

were suffering from non-small-cell lung cancer (“NSCLC”).

40. NSCLC is further classified by stage depending on degree of metastasis. Earlier-

stage NSCLC, including I, II, and IIIA are generally treated with surgery and adjuvant therapy with

radiation or chemotherapy. Patients suffering from stages IIIB and IV, the most prevalent stages of

NSCLC, have a more negative prognosis. Only since the mid-1990’s has chemotherapy been

formally indicated for treatment for those patients. However, front-line treatments, like

chemotherapy, typically fail to control the cancer.

41. OSI sought FDA approval for Tarceva as a cancer treatment for patients with

advanced NSCLC who failed at least one prior chemotherapy regimen. Tarceva was designed to be

used by patients in the second- and third-line setting with lung cancer. The financially successful

launch of Tarceva was of the utmost importance to the future prospects of the Company.

OSI’s Randomized Study of Tarceva Demonstrated That the Drug Did Not Work on EGFR Negative Patients

42. Prior to the Class Period, Defendants enrolled a total of 731 patients in “BR.21,” a

purported, randomized, international, double-blind controlled study comparing the use of 150mg/day

Tarceva versus a placebo for the treatment of patients with advanced NSCLC following the failure of

first or second-line chemotherapy. The Company divided the patients into several subgroups for

analysis.

43. According to the results of OSI’s clinical trials conducted prior to the Class Period,

only 33%, or 238 of the 731 patients, were tested for EGFR. Of those EGFR negative patients,


- 13 -

Tarceva showed no apparent survival benefit. In fact, EGFR negative patients had better survival

results on a placebo. In other words, the EGFR negative patients were actually better off without

Tarceva.

44. Thus, the results of OSI’s own study of Tarceva clearly put the Defendants on notice

that Tarceva did not work on patients who were EGFR negative.

45. Tarceva’s lack of effectiveness on EGFR negative patients was not lost on the FDA.

Indeed, throughout the Class Period, the FDA expressed great concern to the Defendants that

Tarceva’s benefit was linked to the patient’s EGFR status.

46. In particular, in August 2004, officials from the FDA spoke to employees at OSI

regarding the EGFR status of the patients in OSI’s study. During the conversation, the FDA

requested that OSI provide the EGFR status of all patients on the BR.21 study “as soon as possible.”

47. The FDA’s project manager reiterated that request for the pivotal EGFR data in

writing following that conversation. The FDA also specifically requested that if OSI was not able to

provide the EGFR status for each patient, OSI should provide the FDA with a list of those patients

and the reason why the EGFR status was not available.

48. Later that month, the FDA’s project manager again wrote to OSI’s senior director of

Global Regulatory Affairs and again requested “all additional EGFR data from the BR.21 study as

soon as possible.” Because of the importance of this information, the FDA requested that OSI

provide it with the earliest date by which OSI could begin to provide the information on EGFR

status, even if that information was incomplete.

49. The following week, on August 31, 2004, four people from the FDA engaged in a

telephone conference with Christine Boisclair, Darshan Wariabharaj, Robert Simon, Gary Clark,

Sandra Nino, Pam Kline, and others from OSI and Genentech. According to FDA records, during


- 14 -

that conference, OSI informed the FDA that it expected to submit EGFR data to the FDA concerning

additional patients within 6 to 8 weeks.

50. Approximately one month later, on September 29, 2004, the FDA’s project manager

further highlighted the critical importance of the relationship between EGFR status and the

effectiveness of Tarceva. The FDA directed OSI to propose specific clinical trials where the

relationship of EGFR status to treatment effect on survival and tumor response rate would be

assessed.

OSI’s Randomized Study of Tarceva Demonstrated That the Drug Did Not Work on Current or Former Smokers

51. As part of the BR.21 study, the Company divided patients into subgroups of “never

smokers” and “current or former smokers” to test whether the drug worked on smokers.

52. The Company’s study showed that those patients who smoked - approximately 80%

of the lung cancer population - had little to no survival benefit when using Tarceva. In fact, patients

who never smoked and who were treated with Tarceva survived twice as long as those patients who

were treated with a placebo; while patients who smoked and who were treated with Tarceva only

survived, on average, less than a month longer than those patients who were treated with a placebo.

However, that raw number of a one-month benefit is misleading.

53. Specifically, patients enrolled in the BR.21 study who were classified as “current or

former smokers” survived, on average, 5.5 months when taking Tarceva as compared to those

patients on placebo who survived 4.6 months. Although, “current or former smokers” had an

average Risk Ratio or HR of .865, the HR range was between .714 and 1.05 - meaning that the true

HR could be 1.05. An HR score above 1.00 indicates no survival benefit when using Tarceva. In

other words, for a substantial number of “current or former smokers,” Tarceva provided no

significant difference in survival compared to the patients who took a placebo.


- 15 -

54. Once again, the lack of survival benefit on smokers was not lost on the FDA. In fact

the FDA’s statistical reviewer stated that the “analyses suggest no apparent survival advantage with

[Tarceva] treatment compared to placebo in the subgroups of patients ... who had smoking history.”

DEFENDANTS’ FALSE AND MISLEADING STATEMENTS DURING THE CLASS PERIOD

OSI Issues Blanket Statements That Tarceva Improves Overall Survival in Patients with NSCLC Without Revealing the Drug’s Severe Limitations – Causing the Stock to Soar

139%

55. The Class Period begins on April 26, 2004. On that date, Defendants issued a press

release announcing the results of the Company’s BR. 21 study. According to that press release, “a

Phase III study of Tarceva(TM) (erlotinib HCl), an investigational HER1/EGFR-inhibitor agent in

previously treated patients with non-small cell lung cancer (NLSCL), met its primary endpoint of

improving overall survival, with patients receiving Tarceva(TM) living longer than those in the

placebo arm of the study. The trial also met secondary endpoints including improving time to

symptomatic deterioration, progression-free survival and response rate.”

56. Defendant Goddard, commenting on the trial results, stated, in pertinent part, as

follows:

We are extremely pleased with the results of this trial. This is the first controlled Phase III study of a HER1/EGFR-targeted agent which has shown an improvement in survival in any disease setting. Because Tarceva™ was granted Fast Track designation from the FDA, we will work with the agency to make Tarceva™ available as quickly as possible to patients. [Emphasis added.]

57. The press release continued, in pertinent part, as follows:

The results of this controlled trial of Tarceva™ represent a significant advancement in treating patients with relapsed non-small cell lung cancer because Tarceva™ was shown to both extend life and provide symptomatic improvement.

* * *

Approximately 173,000 Americans will be diagnosed with lung cancer this year, said Hal Barron, M.D., Genentech’s senior vice president of Development and chief


- 16 -

medical officer. We are excited that pending FDA approval, patients with relapsed non-small cell lung cancer will have a new treatment alternative that has clinically demonstrated the ability to prolong survival.

58. Due to this announcement, several analysts issued reports that dramatically increased

OSI’s stock price targets. Specifically:

(a) Morgan Stanley issued an analyst report and changed its price target from $34

per share to $112 per share. The Morgan Stanley report stated, in relevant part, as follows:

“Importantly, the [Phase III] study did not pre-screen for EGF receptor expression, meaning that the

label will likely include all 175,000 patients that die of NSCLC annually.”

(b) Lehman Brothers raised its price targets on OSI common stock to $68 per

share from $48 per share. The analyst report cited “stunning success in achieving its primary

survival endpoint” in the Phase III trial of Tarceva.

(c) Deutsche Bank – North America raised its price targets on OSI common stock

from $33 per share to $82 per share. The analyst report stated that it “did not expect” OSI to

demonstrate a survival benefit in NSCLC.

(d) Bear Stearns increased its 2004 year end price target to $111 per share, up

from $42 per share.

59. On this news, the stock soared a dramatic 139%, hitting its all time high of $98 per

share in mid-day trading on April 26, 2004. The stock closed at $91.10 per share on April 26, 2004,

representing a one-day price increase of $52.96 per share on extremely high trading volume of over

45 times the previous days’ volume.

60. On May 11, 2004, the Company issued a press release announcing its financial results

for the fiscal second quarter of 2004, the period ended March 31, 2004. With regard to the alleged

purported positive outcome of the Phase III study for Tarceva, Defendant Goddard commented as

follows:


- 17 -

We believe that this top-line data firmly anchors Tarceva(TM) as the flagship clinical product around which we can continue to build a premier biotechnology organization delivering sustained growth and value creation for our shareholders. We look forward to working closely with the FDA to make this important new medicine available to cancer patients as soon as possible.


A significant component of the Company’s spending over the last several years has been the clinical development program for the Company’s flagship product, Tarceva(TM). Subsequent to completion of the quarter, the Company announced a positive outcome in the pivotal Phase III study of Tarceva(TM) in lung cancer patients. Top-line results indicated that this Phase III study of Tarceva(TM) in previously treated patients with non-small cell lung cancer (NSCLC) met its primary endpoint of improving overall survival, with patients receiving Tarceva(TM) living longer than those in the placebo arm of the study. In addition, the trial also met secondary endpoints including improving time to symptomatic deterioration, progression-free survival and response rate. [Emphasis added.]

62. OSI further discussed Tarceva in its Form 10-Q for the fiscal second quarter of 2004,

the period ended March 31, 2004 filed with the SEC on or about May 14, 2004, which was signed by

defendants Goddard and Van Nostrand. In its Management’s Discussion and Analysis, the Form 10-

Q stated, in pertinent part, as follows:

OVERVIEW

We are a leading biotechnology company focused on the discovery, development and commercialization of high−quality oncology products that both extend life and improve the quality−of−life for cancer patients worldwide. We have established a balanced pipeline of oncology drug candidates around our flagship product, Tarceva(TM) (erlotinib HCl), that includes both novel mechanism based, targeted therapies in the areas of signal transduction and apoptosis and next−generation cytotoxic chemotherapy agents....

On April 26, 2004, we announced that Tarceva(TM) met its primary endpoint of improving survival in a 731−patient, double blind, randomized Phase III trial, or the BR.21 trial, which tested the drug as a single agent against placebo in relapsed non−small cell lung cancer, or NSCLC, patients. Tarceva(TM) also met its key secondary endpoints including time to symptom deterioration, progression−free survival and response rate. The results of this trial represent the first time that an HER1/EGFR targeted agent has demonstrated a survival benefit in a controlled study in any disease setting. Additionally, the BR.21 trial represents the first time that an agent which is not a chemotherapy drug has demonstrated a survival benefit in a randomized study in relapsed NSCLC patients.


- 18 -

* * *

We believe that the successful results from the BR.21 trial have significant financial and strategic implications for our company. While there continues to be some degree of regulatory risk associated with Tarceva(TM), we have effectively removed the technical risk associated with this flagship product and with it the principal near−term risk of a downside to our financial and business prospects. We believe we are, therefore, in a strong position strategically to deliver growth over the next several years. In the near term, we recognize that the principal driver of value creation for our stockholders continues to be Tarceva(TM) and our highest priority will be on maximizing, together with our partners, the value of our flagship product. [Emphasis added.]

63. The statements referred to in ¶¶56, 57, 60-62 were each materially false and

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

were known to Defendants, or recklessly disregarded by them:

(a) that the Company’s pre-Class Period clinical data indicated that Tarceva only

provided a survival benefit to patients whose tumors were EGFR positive, but did not provide a

benefit to patients with EGFR negative tumors;

(b) that the Company’s own clinical data showed that Tarceva actually shortened

the lives of EGFR negative patients;

(c) that the FDA required the Company to do further studies on Tarceva’s effect

on EGFR status;

(d) that patients in the Company’s study demonstrated that Tarceva did not have a

statistically significant impact on lung cancer patients who smoked - approximately 80% of the lung

cancer population;

(e) that, as a result, improvement in survival was not achieved in “any disease

setting”; and

(f) that the Company’s future prospects and profitability were in serious doubt.


- 19 -

OSI Releases Results From its Phase III Study of Tarceva at the ASCO Conference, But Purposely Conceals Key Results Regarding Tarceva Effect in Relation to Smoking and

EGFR Status

64. On June 5, 2004, the Company issued a press release announcing the statistical results

from OSI’s Phase III Study of Tarceva at the American Society of Clinical Oncology (“ASCO”)

Conference in New Orleans, Louisiana. Defendant Goddard, commenting on the results, stated, in

pertinent part as follows:

Tarceva™ is the first and only epidermal growth factor receptor (EGFR) inhibitor and the first targeted non-chemotherapy agent to demonstrate an improvement in overall survival and exhibit symptom related benefits in a large randomized study in lung cancer patients. We believe that the association of these benefits with a favorable safety profile will provide an important potential treatment option for lung cancer patients.


OSI, Inc., Genentech, Inc., and Roche today announced that the pivotal Phase III trial of Tarceva™ (erlotinib HCl) in advanced non-small cell lung cancer (NSCLC) demonstrated a 42.5 percent improvement in median survival and a 41 percent improvement in one-year survival rates compared to placebo.

* * *

“These results represent an important medical advance in the treatment of advanced lung cancer patients,” stated Study Chair, Frances A. Shepherd, M.D., FRCPC, Scott Taylor Chair in Lung Cancer Research at the Princess Margaret Hospital, Professor of Medicine at the University of Toronto. “The outcome of the study is particularly noteworthy considering the broad spectrum of advanced lung cancer patients enrolled in the study. The observations concerning symptoms are also particularly meaningful to these patients.”

The study was conducted by the National Cancer Institute of Canada Clinical Trials Group based at Queen’s University, Ontario in collaboration with OSI Pharmaceuticals.

Study Results

This trial of Tarceva™ met the pre-determined primary study endpoint of improvement in overall survival and demonstrated significant effects in all secondary endpoints including time to symptom deterioration, progression-free survival and response rate....


- 20 -

Patients receiving Tarceva™ had a median survival of 6.7 months compared to 4.7 months in patients who received placebo (a 42.5 percent improvement). A hazard ratio of 0.72 and a p-value of 0.001 were determined for comparisons of overall survival (a hazard ratio (HR) of less than one indicates a reduction in the risk of death and a p-value of less than 0.05 indicates statistical significance). In addition, 31 percent of patients receiving Tarceva™ in the study were alive at one year versus 22 percent in the placebo arm (a 41 percent improvement). Statistically significant improvements in time to symptom deterioration were observed for key lung cancer symptoms of cough, pain, and dyspnea. The objective response rate in patients treated with Tarceva™ was 9 percent versus less than 1 percent in the placebo arm.

Approximately 50 percent of the patients in the study had previously received one prior regimen while the remainder had received two prior regimens. In addition, the study enrolled a relatively large proportion of patients with poor performance status (PS2: 25% and PS3: 9%). Despite these unfavorable pre-treatment characteristics, treatment benefit was documented in the majority of patients.

“This trial is important because a survival treatment benefit was achieved among a broad group of patients who were not selected for factors such as EGFR status, gender, smoking history or type of non-small cell lung cancer,” said Hal Barron, M.D., Genentech’s senior vice president, development and chief medical officer. “We are grateful to the hundreds of patients and their families around the world who volunteered for this study and contributed to this landmark research.” [Emphasis added.]

66. On June 7, 2004, CNBC conducted an interview with Defendant Goddard from the

ASCO conference. With regard to the overall survival benefit of Tarceva, the interview revealed, in

pertinent part, as follows:

HUCKMAN: Dr. Goddard, how do you explain the upside, if you will, to the unexpected survival benefit?

COLIN GODDARD, CEO, OSI PHARMACEUTICALS: Well, the exciting thing about this study, this result, this event, is this is a very meaningful change in the treatments that are available for lung cancer. Here we have in Tarceva a drug, a targeted therapy, a new type of drug that doesn’t carry with it the side effect burdens of traditional chemotherapy, that’s producing an improvement in survival in the very sickest lung cancer patients. And along with that improvement in survival, has given us some very nice quality of life data as well. So I think Dr. Frances Shepherd, the principal investigator in the study, said it best when she said not only is Tarceva extending these patient’s lives; it’s giving them better lives as well. And the result surely did exceed the expectation, and it’s, I think, a real landmark breakthrough as a result.


- 21 -

HUCKMAN: Dr. Goddard, if you’re fortunate enough to get this drug approved, as you know, you would be competing head to head with AstraZeneca’s Iressa. The CEO of AstraZeneca has already said we’re doing our own late-stage trial, and we’re going to have comparable survival data, he thinks, in about a year from now. So as one analyst described it, he thinks this is a Coke versus Pepsi battle, because these drugs work in much the same away. How is OSI Pharmaceuticals going to differentiate Tarceva from Iressa, to convince doctors to use it?

GODDARD: Well, we beg to differ. And I think one of the things that’s new to the world of oncology is this phenomenon where you’ve got classes of similar drugs. But if you look elsewhere in medicine, for example, one would have Lipitor and Novacor, two closely related drugs with quite different properties. And what we’ve done here with Tarceva, which has different properties in the way it behaves in the body than Iressa, has been to show a survival benefit, show that we are able to deliver that in a very well-tolerated and safe manner. And quite frankly, the burden of proof now switches to AstraZeneca to prove that they can do the same thing.

67. On June 8, 2004, the Company issued a press release announcing a summary of the

data presented at the ASCO conference which included the treatment benefit observed in various

subsets of patients treated with Tarceva in the BR.21 study. Defendant Goddard, commenting on the

data, stated, in pertinent part, as follows:

The results of the BR.21 trial were noteworthy in that they demonstrated a survival benefit in essentially all subsets of lung cancer patients that we examined. Previous research on other EGFR inhibitors had suggested that any Tarceva(TM) benefit may have been restricted to certain subsets of patients....[Emphasis added.]


The BR.21 trial of Tarceva(TM) met the pre-determined primary study endpoint of improvement in overall survival and demonstrated significant effects in all secondary endpoints including time to symptom deterioration, progression—free survival and response rate.

Patients receiving Tarceva(TM) had a median survival of 6.7 months compared to 4.7 months in patients who received placebo (a 42.5 percent improvement). A hazard ratio of 0.72 and a p-value of 0.001 were determined for comparison of overall survival (a hazard ratio (HR) of less than one indicates a reduction in the risk of death and a p-value of less than 0.05 indicates statistical significance). In addition, 31 percent of patients receiving Tarceva(TM) in the study were alive at one year versus 22 percent in the placebo arm (a 41 percent improvement).

As would be expected from historical data on the relative prognosis for survival in different subsets of lung cancer patients, patients treated with Tarceva(TM) who


- 22 -

were female, had tumors with adenocarcinoma histology or were never smokers lived longer than patients treated with Tarceva(TM) who were male, had tumors with squamous cell carcinoma histology or were smokers, respectively. However, importantly, Tarceva(TM) improved survival in essentially all subsets of patients in the study including males, patients with squamous cell carcinoma and smokers. [Emphasis added.]

69. On June 29, 2004, the Company issued a press release announcing that the NDA for

Tarceva had been accepted into the FDA’s Pilot 1 Program. Defendant Goddard, commenting on the

FDA acceptance, stated, in pertinent part, as follows:

We are pleased that Tarceva™ has been accepted as one of the first drugs to be reviewed under the new Pilot Program. We are committed to working closely with the FDA to help demonstrate that this innovative program can help companies work together with the FDA to ensure a timely review of agents like Tarceva™ that represent a meaningful step forward in the treatment of diseases for which there is an unmet medical need.

70. On August 2, 2004, the Company issued a joint press release announcing the

completion of the submission of the NDA for the FDA. Defendant Goddard, commenting on the

completed submission, stated, in pertinent part, as follows:

This submission completes the Tarceva™ NDA filing and is a major milestone in our commitment to providing relapsed lung cancer patients with this potential new treatment option as quickly as possible. We are proud of the efforts of our internal clinical and regulatory teams in completing our first NDA in a timely manner and we appreciate the support of the Genentech team in this process. We will continue to work closely with the FDA as it reviews the Tarceva™ application.


OSI, Inc. and Genentech, Inc. announced today that OSI completed the submission of a New Drug Application (NDA) with the U.S. Food and Drug Administration (FDA) for Tarceva™ (erlotinib HCl), as a monotherapy for the treatment of patients with advanced non-small cell lung cancer (NSCLC) for whom chemotherapy has failed.

“The improvement in survival observed in the Tarceva™ pivotal trial represents an important medical advance in the treatment of non-small cell lung cancer,” said Hal Barron, M.D., Genentech’s senior vice president, development and chief medical officer. “Of note, Tarceva™ showed improvement in survival across a broad spectrum of patients in the pivotal study and we believe, if approved, it will provide an important potential treatment option.”


- 23 -

The NDA has been granted Pilot 1 Status under the FDA’s Pilot 1 Program for Continuous Marketing Applications, a new program designed for investigational products that have been given Fast Track status, such as Tarceva™, and that have demonstrated significant promise in clinical trials as a therapeutic advance over available therapy for a disease or condition.

The NDA filing is based on a pivotal Phase III double-blind, placebo-controlled trial that included 731 patients and that compared Tarceva™ to placebo in the treatment of patients with relapsed non-small cell lung cancer who had previously received chemotherapy. Tarceva™ demonstrated a 42 percent improvement in median survival and improved one-year survival by 45 percent. The study also demonstrated statistically significant improvement in all secondary endpoints of the trial including time to symptom deterioration, progression-free survival and response rate. The study results make Tarceva™ the first and only targeted therapy to demonstrate an improvement in survival for non-small cell lung cancer patients....[Emphasis added.]

72. On August 11, 2004, the Company issued a press release. With regard to Tarceva, the

press release stated, in pertinent part, as follows:

Tarceva(TM)

In April, the Company announced that the pivotal Phase III Tarceva(TM) trial, Study BR.21, met all of its pre-determined study endpoints (including survival, progression free-survival, time to symptom deterioration, and objective tumor response). This was a 731-patient, double-blind, placebo-controlled trial which compared single—agent Tarceva(TM) to placebo in the treatment of patients with advanced non-small cell lung cancer (NSCLC) following the failure of first or second-line chemotherapy. These results make Tarceva(TM) the first and only targeted therapy to demonstrate an improvement in survival for NSCLC patients. Detailed results of the BR.21 study as well as results from earlier clinical studies examining Tarceva(TM) in various indications and combinations including the combination of Tarceva(TM) and Avastin(R) in the treatment of metastatic renal cell carcinoma and relapsed NSCLC were presented in June 2004 at the 40th Annual American Society of Clinical Oncology (ASCO) meeting in New Orleans, LA.

In June, OSI announced that Tarceva(TM) was granted Pilot 1 Status under the U. S. Food and Drug Administration’s (FDA) Pilot 1 Program for Continuous Marketing Applications. The Pilot 1 Program is designed to expedite the review process for investigational products, such as Tarceva(TM), that have been given Fast Track status and that have demonstrated significant promise in clinical trials as a therapeutic advance over available therapy for a disease or condition. Tarceva(TM) is one of the first drugs to be reviewed under this new Pilot 1 Program. Subsequent to the quarter, OSI announced on August 2, 2004 that it completed the submission of the New Drug Application (NDA) for FDA approval of Tarceva(TM). Assuming a full six-month review by the FDA, the Company would project a possible approval in the United States in the first quarter of calendar 2005.


- 24 -

73. OSI further commented on Tarceva in its Form 10-Q for the fiscal third quarter of

2004, the period ended June 30, 2004, filed with the SEC on or about August 16, 2004, which was

signed by defendants Goddard and Van Nostrand. In its Management’s Discussion and Analysis, the

Form 10-Q stated, in pertinent part, as follows:

Tarceva(TM)

On April 26, 2004, we announced that Tarceva(TM) met its primary endpoint of improving overall survival and its key secondary endpoints of progression−free survival, time−to−symptom deterioration and objective tumor response rate in a 731−patient randomized, double−blinded placebo controlled Phase III trial, or the BR.21 study. The trial compared Tarceva(TM) to placebo in the treatment of patients with advanced NSCLC following the failure of first or second−line chemotherapy. The data demonstrates a 42% improvement in median survival and a 45% improvement in the one−year survival rate relative to placebo. The results revealed a survival benefit in essentially all subsets of patients examined, including males, smokers and patients with squamous cell carcinoma histology (subsets that, consistent with previous studies with EGFR inhibitors, had a relatively low rate of tumor response in our study), as well as females, non−smokers and patients with adenocarcinoma (subsets with higher rates of tumor response). We believe that these results are particularly noteworthy in that they demonstrate a meaningful, broad−based clinical benefit in a very advanced population of lung cancer patients.

* * *

The successful execution of a strategy to expand FDA−approved Tarceva(TM) indications post−launch is a clear priority. We intend to broaden the use of Tarceva(TM) to earlier stage lung cancer patients, both in the first−line and adjuvant settings. The first part of this strategy has been initiated with an ongoing randomized Phase II trial evaluating monotherapy Tarceva(TM) against chemotherapy in patients who have received no prior chemotherapy and have poor performance status. We also intend to explore the use of Tarceva(TM) in combination with other targeted therapies, particularly the anti−angiogenic antibody, Avastin(R). Data from Phase II studies has revealed potentially promising activity for the combination of Tarceva(TM) and Avastin(R) in renal cell carcinoma and in advanced NSCLC patients with adenocarcinoma. Additionally, we intend to expand the use of Tarceva(TM) to other disease settings in oncology. To date, tumor responses have been documented in Phase II studies for monotheraphy Tarceva(TM) in bronchioalveolar cell carcinoma, glioblastoma multiforme, head and neck cancer, hepatocellular carcinoma, breast cancer and ovarian cancer. Approximately 100 clinical trials of Tarceva(TM), including both registration oriented and publication only studies, are either ongoing or planned. [Emphasis added.]


- 25 -

74. The statements referred to in ¶¶64-73 were each materially false and misleading

because they failed to disclose and/or misrepresented the following adverse facts which were known

to Defendants, or recklessly disregarded by them:






(c) that the FDA required the Company to do further studies on Tarceva’s effect

on EGFR status;

(d) that the Company’s pre-Class Period study demonstrated that Tarceva did not

have a statistically significant impact on lung cancer patients who smoked - approximately 80% of

the lung cancer population; and

(e) that Tarceva did not result in a statistically significant survival benefit among

a “broad spectrum of lung cancer patients,” “a broad group of patients,” “essentially all subsets of

lung cancer patients,” or “smokers;”

(f) that the Company’s BR.21 study did not demonstrate a “broad-based clinical

benefit;” and

(g) that the Company’s future prospects and profitability were in serious doubt.

OSI Sets the Stage to Capitalize on its Concealment of the Full Results From the Tarceva Clinical Trials

75. On September 22, 2004, the Company issued a press release announcing that it

intended to file a registration statement with the SEC for an offering of up to 5.5 million shares of

OSI common stock, not including the underwriter’s overallotment option.


- 26 -

76. On September 23, 2004, the Company issued a press release announcing that:

“it has filed a registration statement for a follow-on offering of 5,500,000 shares of its common stock. All of the shares will be offered by OSI Pharmaceuticals. OSI also expects to grant the underwriters an option to purchase an additional 825,000 shares to cover overallotments, if any. OSI anticipates that the expected net proceeds of the offering will be used to support the ongoing development and future commercialization of Tarceva(TM) in the United States, if regulatory approval is received, research and development, strategic acquisitions and in-licensing opportunities, working capital and general corporate purposes.”

77. On November 10, 2004, OSI issued a press release announcing that it priced its

previously announced offering of common stock. The press release revealed, in pertinent part, as

follows:

OSI has agreed to sell 6,000,000 shares of its common stock at $64.50 per share. OSI has also granted the underwriters an option to purchase up to an additional 900,000 shares of common stock to cover over-allotments, if any. All of such shares are being offered by OSI.

78. On November 12, 2004, the Company filed its Form 424B4 which contained the

Prospectus and Registration Statement filed by OSI and signed by Defendants Ingram, Goddard, Van

Nostrand, Atieh, Browne, Gee, Granner, Lovenberg, Mehta, Pinedo, and Richmond. With regard to

Tarceva, OSI made the following representations:

OUR STRATEGY FOR FUTURE GROWTH. Our objective going forward is to build upon Tarceva(TM)’s significant market potential and to capitalize on the experienced management team and the comprehensive set of capabilities from discovery to commercialization that we have established over the last several years in order to create a premier biotechnology organization and drive value creation for our stockholders. To accomplish this, we intend to:

- maximize Tarceva(TM)’s value with a timely registration and an effective launch in the United States, the EU and Japan, and an effective product growth strategy

79. In the Form 424B4, OSI made the following representations concerning the scientific

data available on their flagship drug, Tarceva:

TARCEVA(TM). Tarceva(TM) is a small molecule drug designed to target the HER1/EGFR signaling pathway. The EGFR gene is known to be over-expressed,


- 27 -

mutated or amplified in approximately 40% to 60% of the approximately 1.3 million new cases of cancer diagnosed in the United States each year. According to the American Cancer Society, lung cancer is the leading cause of cancer related deaths in the United States each year with an estimated 160,000 deaths in 2004. Patients with NSCLC, the initial target indication of Tarceva(TM), account for approximately 80% of these deaths. The American Cancer Society also estimates that 31,000 cancer patients in the United States will die from pancreatic cancer in 2004. Effective treatment of both NSCLC and pancreatic cancer remains a major unmet need.

* * *

In April 2004, we announced that Tarceva(TM) met its primary endpoint of improving overall survival and its key secondary endpoints of progression-free survival and objective tumor response rate in a 731-patient randomized, double-blind placebo controlled Phase III trial in NSCLC patients, referred to as the BR.21 study. Tarceva(TM) also delayed the deterioration of selected lung cancer symptoms in the BR.21 study. The trial compared Tarceva(TM) to placebo in the treatment of patients with advanced NSCLC following the failure of first or second-line chemotherapy. The data demonstrates a 42% improvement in median survival and a 45% improvement in the one-year survival rate relative to placebo. The results revealed a survival benefit in essentially all subsets of patients examined, including males, smokers and patients with squamous cell carcinoma histology (subsets that, consistent with previous studies with EGFR inhibitors, had a relatively low rate of tumor response in our study), as well as females, non-smokers and patients with adenocarcinoma (subsets with higher rates of tumor response).

* * *

We believe our BR.21 results are particularly noteworthy in that they demonstrate a meaningful, broad-based clinical benefit in a very advanced population of lung cancer patients. The cytotoxic chemotherapy agents, Taxotere(R) and Alimta(R), showed similar survival results in a recent Phase III study comparing the two drugs; however, these agents exhibited a severe side-effect profile and were tested in a less advanced patient population. In contrast, Tarceva(TM) has a relatively benign side-effect profile and the BR.21 study enrolled second and third-line patients, many of whom were in poorer overall health. [Emphasis added.]

80. On November 17, 2004, OSI announced that it completed its previously announced

public offering of 6,000,000 shares of its common stock and completed the additional sale of

900,000 shares of common stock pursuant to the full exercise by the underwriters of their over-

allotment option. The 6.9 million shares were sold to the public at a price of $64.50 per share.

Gross proceeds from this offering were approximately $445 million.


- 28 -

81. The statements referred to in ¶¶78, 79 were each materially false and misleading

because they failed to disclose and/or misrepresented the following adverse facts which were known

to Defendants, or recklessly disregarded by them:






(c) that the Company had committed to post marketing studies with the FDA

using EGFR status as a criteria;

(d) that the Company’s study demonstrated that Tarceva did not have a

statistically significant impact on lung cancer patients who smoked - approximately 80% of the lung

cancer population; and

(e) that Tarceva did not result in a statistically significant survival benefit among

a “broad spectrum of lung cancer patients,” “a broad group of patients,” “essentially all subsets of

lung cancer patients,” or “smokers;”

(f) that the Company’s BR.21 study did not demonstrate a “broad-based clinical

benefit;” and

(g) that the Company’s future prospects and profitability were in serious doubt.

The Truth Begins To Be Revealed

82. After the market closed on November 18, 2004, the Company issued a press release

announcing that it received FDA approval for Tarceva for the treatment of patients with locally

advanced or metastatic NSCLC after failure of at least one prior chemotherapy regimen.


- 29 -

83. After the issuance of the November 18, 2004 press release, OSI made the packaging

insert available to the public via its Web site, www.tarceva.com. The package insert is the label that

the FDA requires OSI to use in the distribution of its product. The package insert revealed for the

first time that there was a distinct difference in effectiveness of the drug depending on whether

patients were EGFR protein positive or not. The data showed that in OSI’s Phase III Study of

Tarceva for use in NSCLC, conducted prior to the Class Period, Tarceva only prolonged survival

only in those patients whose tumors tested positive for the protein EGFR. The study demonstrated

that Tarceva did not extend the lives of patients whose tumors were EGFR protein negative. In fact,

EGFR negative patients had better survival results on a placebo. Thus, the EGFR negative patients

were actually better off without Tarceva.

84. The package insert also showed that OSI’s study of Tarceva involved 731 people of

which the EGFR status was only known for 238 patients or 33%. In that subgroup, a little over half

of the patients, or 127 people, tested positive for the EGFR protein while the remaining 111 people

tested negative for the protein.

85. The package insert revealed, in pertinent part, as follows:

Relation of Results to EGFR Protein Expression Status (as Determined by Immunohistochemistry)

Analysis of the impact of EGFR expression status on the treatment effect on clinical outcome is limited because EGFR status is known for only 238 study patients (33%). EGFR status was ascertained for patients who already had tissue samples prior to study enrollment. However, the survival in the EGFR tested population, and the effect of TARCEVA were almost identical to that in the entire study population, suggesting that the tested population was a representative sample. A positive EGFR expression status was defined as having at least 10% of cells staining for EGFR in contrast to the 1% cut-off specified in DADO EGFR pharmDx™ kit instructions. The use of the pharmDx kit has not been validated for use in non-small cell lung cancer.

TARCEVA prolonged survival in the EGFR positive subgroup (N = 127; HR = 0.65; 95% CI = 0.43 – 0.97)(Figure 3) and the subgroup whose EGFR status was unmeasured (N = 493; HR = 0.76; 95% CI = 0.61 – 0.93)(Figure 5), but did not


- 30 -

appear to have an effect on survival in the EGFR negative subgroup (N = 111; HR = 1.01; 95% CI = 0.65 – 1.57)(Figure 4).

* * *

Tumor responses were observed in all EGFR subgroup: 11.6% in the EGFR positive subgroup, 9.5% in the EGFR unmeasured subgroup and 3.2% in the EGFR negative subgroup. An improvement in progression free survival was demonstrated in the EGFR positive subgroup (HR = 0.49; 95% CI = 0.33 – 0.72), the EGFR unmeasured subgroup (HR = 0.56; 95% CI = 0.46 – 0.70), and less certain in the EGFR negative subgroup (HR = 0.91; 95% CI = 0.59 – 1.39). [Emphasis added.]

86. The market soon realized that despite the Company’s prior assurances that the drug

provided benefits to all subgroups of patients, the population of potential Tarceva users was

significantly narrowed because not every patient with NSCLC has the protein and thus would not

obtain the survival benefits from the drug. In fact, Tarceva would be harmful to patients who were

EGFR negative.

87. In the FDA approval letter, the FDA again asked OSI to further study the link

between EGFR status and Tarceva’s survival benefit by initiating a trial study in which OSI

segregates patients into two groups – those who test positive for the EGFR protein and those who

test negative for the protein – before administering Tarceva. According to the FDA approval letter,

OSI previously committed to conducting these post marketing studies, among others:

We remind you of your post marketing study commitments in your submissions dated October 26, 2004 and November 16, 2004. These commitments are listed below.

1. STUDY DESCRIPTION: A double-blind randomized Phase 3 study to evaluate the efficacy of Tarceva or placebo following 4 cycles of platinum-based chemotherapy in patients with histologically documented advanced or recurrent (stage IIIB and not amenable for combined modality treatment) or metastatic (Stage IV) non-small cell lung cancer (NSCLC) who have not experienced disease progression or unacceptable toxicity during chemotherapy. The primary endpoint will be PFS. The study will also be sized to detect a realistic difference in survival. For eligibility all patients must have EGFR expression status determined by Dako Kit pror to randomization. Analyses of results will include assessment of treatment effect in the subgroup with EGFR expression status positive and the subgroup with EGFR expression status negative.


- 31 -

Protocol submission date: March, 2005 Study Start: June, 2005 Final Report Submission: December, 2008

2. STUDY DESCRIPTION: A randomized Phase 3 study to evaluate the efficacy of Tarceva or chemotherapy (Alimta or Taxotere) following 4 cycles of platinum-based chemotherapy in patients with histologically documented advanced or recurrent (Stage IIIB and not amenable for combined modality treatment) or metastatic (Stage IV) non-small cell lung cancer (NSCLC) who have experienced disease progression or unacceptable toxicity during chemotherapy. The primary endpoint will be overall survival (subject to FDA agreement during SPA review). For eligibility all patients must have EGFR expression status determined by Dako Kit prior to randomization. Analyses of results will include assessment of treatment effect in the subgroup with EGFR expression status positive and the subgroup with EGFR expression status negative.

Protocol submission date: Study Start: June, 2005 Final Report Submission: December, 2008

88. On this news, the Company’s stock price dramatically declined by $6.09 per share to

close at $58.16 – a one-day decline of approximately 10% on extremely high trading volume.

89. Although the FDA approved Tarceva, the FDA reviewers of OSI’s NDA had

concerns regarding the trial results with regard to EGFR status. Specifically:

(a) the FDA’s Clinical Team Leader Reviewer stated, in pertinent part, as

follows:

Survival Results By EGFR Status – Univariate Analyses

* * *

Tarceva targets the EGF receptor. Thus there is great interest in whether Tarceva treatment effect is impacted by EGFR status. The following univariate analyses in the 238 (33%) patients with known EGFR status indicate that Tarveva clearly prolongs survival in EGFR positive patients (median Tarceva 10.7 mo vs Placebo 3.8 mo, HR = 0.646). In EGFR negative patients there is no apparent Tarceva effect on survival (median Tarceva 5.4 mo vs Placebo 7.5 mo, HR = 1.01).

* * *

In the Tarceva treatment group the superior survival of EGFR positive patients to EGFR negative patients indicates that EGFR status is a treatment DEPENDENT


- 32 -

factor. The two univariate analyses of treatment effect in the EGFR positive and EGFR negative subgroups also indicate that EGFR status is a treatment DEPENDENT factor. [Emphasis added.]

(b) the FDA’s Clinical Pharmacology and Biopharmaceutics Reviewers stated, in

pertinent part, as follows:

Because of the similarities of putative mechanisms of action and indications between TARCEVA and IRESSA, and the literature that supports that EGFR status may predict for response to IRESSA, there is interest in whether EGFR status may predict for response to TARCEVA.

(c) the FDA’s Statistical Reviewer stated, in pertinent part, as follows:

Statistical Issues:

1. The primary analysis of the primary endpoint overall survival was based on stratified log-rank test including randomization stratification factors and EGFR status. In 67% of the patients EGFR status was not evaluated. An adjusted analysis including these 67% patients with missing data on EGFR status is questionable.

2. The results of exploratory analyses in the subgroups suggest a significant survival benefit due to erlotinib in the EGFR positive patients and suggest no survival benefit in the EGFR negative population.

* * *

Reviewer’s Comments:

1. There were imbalances observed between the treatment arms in the EGFR positive population. Specifically, imbalances in proportion of females, patients <60 years, patients with adenocarinoma and patients who had received only one prior treatment, appear to favor the placebo arm. Imbalances in proportion of patients with ECOG PS 0-1 and patients who had CR/PR to prior therapy appear to favor erlotinib arm.

2. There were also imbalances observed between the treatment arms in the EGFR negative population. Specifically, imbalances in proportion of patients with ECOG PS 0-1, patients who had CR/PR to prior therapy, and patients who had received only one prior treatment appear to favor the placebo arm. Imbalances in proportion of females, non-smokers and patients with adenocarcinoma appear to favor erlotinib arm.

3. Results of unadjusted analysis comparing survival distributions between the two treatment arms in the EGFR positive, negative and unknown (EGFR status not assessed) are presented in Tables 9-11 and Figures 2-4. The results of these exploratory analyses in the subgroups, suggest a significant survival benefit in the


- 33 -

EGFR positive patients. With this limited data and exploratory analysis, survival benefit due to erlotinib in the EGFR negative population is not observed, although benefit in this subgroup can not ruled out.

4. This reviewer further conducted exploratory analyses adjusting for the stratification factors and imbalances observed in the two subgroups of EGFR positive and negative patients. The results of these adjusted analyses are presented in Tables 12-19. The observed survival benefit due to erlotinib in the EGFR positive patients even after adjusting for imbalances appears to be significant. However, adjusted models in the EGFR negative patients are sensitive to addition or deletion of covariates and erlotinib effect appears to be marginal.

5. To further explore the differences in EGFR positive and negative patients, survival analysis comparing EGFR positive to negative patients in the erlotinib and placebo treated groups was conducted separately (Tables 20 and 21). Although statistically not significant, EGFR positive patients appear to have better survival than the EGFR negative patients in erlotinib treated patients. However EGFR negative patients appear to have better survival compared to EGFR positive patients in the placebo treated patients.

6. Because of the apparent opposite trend observed between erlotinib and placebo patients with respect to EGFR status, Cox regression analysis including an interaction term was conducted in patients with known EGFR status (Tables 22-24). Although the treatment effect was present in all the models, the treatment HR changed by more than 14% when the interaction term was included, suggesting significant interaction effect. [Emphasis added.]

(d) the FDA’s Medical/Clinical Reviewer stated, in pertinent part, as follows:

A. Recommendation on Approvability

The clinical reviewer of the Division of Oncology Drug Products (DODP), Center for Drug Evaluation and Research (CDER), FDA recommends regular approval of NDA 21-743 (Erlotinib, OSI-774, Tarceva™). Tarceva is indicated for the treatment of patients with locally advanced or metastatic non-small cell lung cancer after failure of at least one prior chemotherapy regimen.

Erlotinib (OSI-774, Tarceva™) as second- and third-line therapy for advanced/metastatic NSCLC, significantly increased survival relative to placebo (best supportive care). This was associated with delay deterioration in lung cancer symptoms along with no increased need for palliative medications and radiation. Erlotinib also demonstrated favorable effects on response rate (8.9% versus 0.9%) and on progression free survival (9.86 weeks versus 7.86 weeks). The major drug-related adverse events of erlotinib were rash and diarrhea, which were of mild to moderate intensity (NCI-CTC Grade 1 or 2) in the majority of affected patients.


- 34 -

Of concern is whether these results apply only to EGFR positive patients. Study patients with EGFR-positive tumors seem to derive more survival benefit than patients with EGFR-negative tumors (10.7 months versus 5.2 months). The problem is that pathology blocks or slides to determine EGFR expression status (DAKO EGFR pharmDx™kit) were available and the results were interpretable only for 31% of the patients in the erlotinib arm and for 35% of the patients in the placebo arm.

The small number of patients with evaluable EGFR expression status product estimates of hazard ratios (HR) with wide confidence intervals (CI). For example, although the HR among EGFR-negative patients is 1.01, the lower bound of the 95% CI is 0.65, which is the point estimate of the HR among EGFR-positive patients. The 95% CIs for these two subsets are overlapping. Further, there appear to be differences in prognostic factors among EGFR positive and negative patients suggesting that EGFR may be a favorable prognostic marker in NSCLC, similar to a positive estrogen receptor status in breast cancer,

It is of importance to obtain additional data to resolve this question. Because interpretable immunohistochemical EGFR expression results will be available only for approximately 40 additional patients in study BR.21 it is unlikely that the EGFR question can be answered at this time. The sponsor will be asked to collect EGFR status data for patients who have received, or will receive erlotinib in ongoing and future studies.

B. Recommendation on Phase 4 Studies and/or risk Management Steps

The sponsor will be required to obtain pathology blocks to determine EGFR status in the current study, BR.21, and in future studies. [Emphasis added.]

90. Notably, although the Company finally disclosed the fact that Tarceva did not work

on EGFR negative patients, the Company failed to disclose that Tarceva did not work on the vast

majority of lung cancer patients, i.e. those patients who smoked.

The Company Discloses That Tarceva Was Ineffective on Smokers

91. On November 22, 2004, the Company issued a press release announcing the launch of

Tarceva. For the first time, OSI admitted that Tarceva’s effectiveness was much lower in smokers.

The press release, stated, in pertinent part, as follows:

The sub-group of smokers also had a survival benefit (hazard ratio = 0.87) despite the fact that this group was also seen to have a 24 percent higher rate of Tarceva(TM) clearance (higher clearance rates lead to lower levels of exposure to drug). [Emphasis added.]


- 35 -

92. Upon this news, shares of the Company’s stock fell $3.94 per share, or approximately

7%, to close at $54.22 per share.

UNDISCLOSED ADVERSE INFORMATION

93. The market for OSI common stock was open, well developed and efficient at all

relevant times. As a result of these materially false and misleading statements and material

omissions, OSI common stock traded at artificially inflated prices during the Class Period. The

artificial inflation continued through and including the disclosures contained in the package insert

concerning Tarceva’s limited use and these admissions were communicated to, and/or digested by,

the common stock markets. Plaintiffs and other members of the Class purchased or otherwise

acquired OSI common stock relying upon the integrity of the market price of OSI common stock and

market information relating to OSI, and have been damaged thereby pursuant to their claims arising

under §10(b)of the Exchange Act (the “Exchange Act Claims”).

94. During the Class Period, defendants materially misled the investing public, thereby

inflating the price of OSI common stock, by publicly issuing false and misleading statements and

omitting to disclose material facts necessary to make defendants’ statements, as set forth herein, not

false and misleading. Said statements and omissions were materially false and misleading in that

they failed to disclose material adverse information and misrepresented the truth about the Company,

its business and operations.

95. 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 plaintiffs 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 or misleading

statements about OSI Pharmaceutical’s business, prospects and operations. These material

misstatements and omissions had the cause and effect of creating in the market an unrealistically


- 36 -

positive assessment of OSI and its business, prospects and operations, thus causing the Company’s

common stock to be overvalued and artificially inflated at all relevant times. Defendants’ materially

false and misleading statements during the Class Period resulted in plaintiffs and other members of

the Class purchasing the Company’s common stock at artificially inflated prices, thus causing the

damages complained of herein.

Additional Scienter Allegations

96. 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

materially false and 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 OSI, their control over, and/or receipt and/or

modification of OSI’s allegedly materially misleading misstatements and/or their associations with

the Company which made them privy to confidential proprietary information concerning OSI,

participated in the fraudulent scheme alleged herein.

97. Defendants were further motivated to continue this scheme in order to allow the

Individual Defendants to sell over 193,000 shares of their personally-held shares at artificially

inflated prices during the Class Period for gross proceeds in excess of $13 million. The Individual

Defendants sold stock at an opportune time. Prior to the sale of their personally held OSI shares,

each insider knew that: (i) Tarceva had little or no effect on smokers; and (ii) Tarceva shortened the

lives of EGFR negative patients.

98. The sales were suspicious in timing and amount in that the Defendants sold a majority

of their personally-held, artificially inflated stock prior to the release of some of the results at the


- 37 -

ASCO conference in June 2004. Moreover, the Individual Defendants continued to sell their shares

within weeks of the Offering. In fact, the Individual Defendants sold a material percentage of the

shares that they held during the Class Period; for example: (i) Defendant Goddard sold

approximately 60% of his holdings; (ii) Defendant Van Nostrand sold over 80% of his holdings; (iii)

Defendant Browne sold approximately 30% of his holdings; (iv) Defendant Gee sold over 80% of

his holdings; (v) Defendant Granner sold over 80% of his holdings; (vi) Defendant Lovenberg sold

almost 30% of his holdings; (vii) Defendant Mehta sold over 80% of his holdings; (viii) Defendant

Richmond sold over 70% of his holdings; and (ix) Defendant White sold over 56% of his holdings.

99. Moreover, Defendants Gee, Mehta and White never sold any of their personally-held

OSI common stock in the 7 months prior to the Class Period. Defendant Goddard sold three times

more shares during the Class Period than he did in the 7 months prior to the Class Period. Defendant

Granner sold almost two times more shares during the Class Period than he did in the 7 months prior

to the Class Period. Defendant Van Nostrand sold 5,425 more shares during the Class Period than he

did in the 7 months prior to the Class Period.

100. The details of the Individual Defendants’ and other insider’s stock sales are set forth

in the chart below:

Name Date Shares Price Proceeds Colin Goddard, CEO 5/3/2004 3,622 $73.50 $266,217.00 5/3/2004 1,363 $73.51 $100,194.13 5/3/2004 779 $73.42 $57,194.18 5/3/2004 237 $72.51 $17,184.87 5/3/2004 234 $72.93 $17,065.62 5/3/2004 206 $72.50 $14,935.00 5/3/2004 117 $72.55 $8,488.35 5/3/2004 117 $72.62 $8,496.54 6/1/2004 1,376 $81.00 $111,456.00 6/1/2004 912 $81.00 $73,872.00 6/1/2004 906 $81.50 $73,839.00 6/1/2004 601 $81.50 $48,981.50 6/1/2004 421 $81.06 $34,126.26 6/1/2004 420 $81.30 $34,146.00 6/1/2004 279 $81.06 $22,615.74


- 38 -

6/1/2004 278 $81.30 $22,601.40 6/1/2004 259 $81.34 $21,067.06 6/1/2004 243 $81.70 $19,853.10 6/1/2004 195 $81.55 $15,902.25 6/1/2004 172 $81.34 $13,990.48 6/1/2004 161 $81.70 $13,153.70 6/1/2004 130 $81.55 $10,601.50 6/1/2004 50 $81.52 $4,076.00 6/1/2004 49 $81.20 $3,978.80 6/1/2004 49 $81.80 $4,008.20 6/1/2004 32 $81.20 $2,598.40 6/1/2004 32 $81.80 $2,617.60 6/1/2004 32 $81.81 $2,617.92 6/1/2004 31 $81.52 $2,527.12 6/1/2004 22 $81.81 $1,799.82 7/1/2004 4,920 $69.95 $344,154.00 7/1/2004 1,084 $69.52 $75,359.68 7/1/2004 510 $69.96 $35,679.60 7/1/2004 107 $69.97 $7,486.79 7/1/2004 54 $70.00 $3,780.00 8/2/2004 1,625 $58.33 $94,786.25 8/2/2004 1,413 $57.75 $81,600.75 8/2/2004 1,010 $58.20 $58,782.00 8/2/2004 663 $58.50 $38,785.50 8/2/2004 577 $58.61 $33,817.97 8/2/2004 346 $57.81 $20,002.26 8/2/2004 317 $58.10 $18,417.70 8/2/2004 144 $58.16 $8,375.04 8/2/2004 87 $58.23 $5,066.01 8/2/2004 87 $58.52 $5,091.24 8/2/2004 58 $57.76 $3,350.08 8/2/2004 58 $57.82 $3,353.56 8/2/2004 58 $58.14 $3,372.12 8/2/2004 58 $58.22 $3,376.76 8/2/2004 58 $58.24 $3,377.92 8/2/2004 29 $57.80 $1,676.20 8/2/2004 29 $58.12 $1,685.48 8/2/2004 29 $58.17 $1,686.93 8/2/2004 29 $58.21 $1,688.09 9/1/2004 2,498 $59.12 $147,681.76 9/1/2004 913 $59.00 $53,867.00 9/1/2004 895 $59.18 $52,966.10 9/1/2004 771 $59.02 $45,504.42 9/1/2004 555 $59.45 $32,994.75 9/1/2004 494 $59.40 $29,343.60 9/1/2004 308 $59.16 $18,221.28 9/1/2004 123 $58.98 $7,254.54 9/1/2004 62 $58.99 $3,657.38 9/1/2004 31 $59.01 $1,829.31 10/1/2004 3,739 $60.96 $227,929.44 10/1/2004 971 $61.10 $59,328.10 10/1/2004 872 $61.00 $53,192.00


- 39 -

10/1/2004 598 $61.60 $36,836.80 10/1/2004 337 $61.83 $20,836.71 10/1/2004 299 $61.55 $18,403.45 10/1/2004 187 $60.80 $11,369.60 10/1/2004 156 $60.75 $9,477.00 10/1/2004 150 $61.07 $9,160.50 10/1/2004 150 $61.18 $9,177.00 10/1/2004 150 $61.30 $9,195.00 10/1/2004 112 $61.05 $6,837.60 10/1/2004 112 $61.09 $6,842.08 10/1/2004 106 $60.76 $6,440.56 10/1/2004 75 $60.77 $4,557.75 10/1/2004 75 $60.81 $4,560.75 10/1/2004 75 $61.75 $4,631.25 10/1/2004 38 $60.83 $2,311.54 10/1/2004 37 $60.78 $2,248.86 10/1/2004 37 $61.11 $2,261.07 10/1/2004 37 $61.19 $2,264.03 10/1/2004 37 $61.25 $2,266.25 11/1/2004 3,619 $64.25 $232,520.75 11/1/2004 2,193 $64.30 $141,009.90 11/1/2004 577 $64.20 $37,043.40 11/1/2004 548 $64.60 $35,400.80 11/1/2004 520 $64.83 $33,711.60 11/1/2004 231 $64.52 $14,904.12 11/1/2004 144 $64.21 $9,246.24 11/1/2004 144 $64.49 $9,286.56 11/1/2004 115 $64.40 $7,406.00 11/1/2004 87 $64.32 $5,595.84 11/1/2004 58 $64.31 $3,729.98 11/1/2004 57 $64.53 $3,678.21 11/1/2004 57 $64.54 $3,678.78 50,025 $3,325,617.13 Robert Van Nostrand, CFO 4/26/2004 630 $80.70 $50,841.00 4/26/2004 255 $82.30 $20,986.50 4/26/2004 162 $81.61 $13,220.82 4/26/2004 156 $80.90 $12,620.40 4/26/2004 47 $80.50 $3,783.50 5/3/2004 1,492 $73.50 $109,662.00 5/3/2004 562 $73.51 $41,312.62 5/3/2004 321 $73.42 $23,567.82 5/3/2004 112 $72.51 $8,121.12 5/3/2004 95 $72.93 $6,928.35 5/3/2004 71 $72.50 $5,147.50 5/3/2004 49 $72.62 $3,558.38 5/3/2004 48 $72.55 $3,482.40 6/1/2004 946 $81.00 $76,626.00 6/1/2004 623 $81.50 $50,774.50 6/1/2004 293 $81.30 $23,820.90 6/1/2004 289 $81.06 $23,426.34 6/1/2004 178 $81.34 $14,478.52


- 40 -

6/1/2004 167 $81.70 $13,643.90 6/1/2004 135 $81.55 $11,009.25 6/1/2004 33 $81.52 $2,690.16 6/1/2004 33 $81.80 $2,699.40 6/1/2004 31 $81.20 $2,517.20 6/1/2004 22 $81.81 $1,799.82 7/1/2004 1,997 $69.95 $139,690.15 7/1/2004 447 $69.52 $31,075.44 7/1/2004 240 $69.96 $16,790.40 7/1/2004 48 $69.97 $3,358.56 7/1/2004 18 $70.00 $1,260.00 8/2/2004 670 $58.33 $39,081.10 8/2/2004 582 $57.75 $33,610.50 8/2/2004 416 $58.20 $24,211.20 8/2/2004 273 $58.50 $15,970.50 8/2/2004 238 $58.61 $13,949.18 8/2/2004 143 $57.81 $8,266.83 8/2/2004 131 $58.10 $7,611.10 8/2/2004 60 $58.16 $3,489.60 8/2/2004 36 $58.23 $2,096.28 8/2/2004 36 $58.52 $2,106.72 8/2/2004 24 $57.76 $1,386.24 8/2/2004 24 $57.82 $1,387.68 8/2/2004 24 $58.22 $1,397.28 8/2/2004 24 $58.24 $1,397.76 8/2/2004 21 $58.14 $1,220.94 8/2/2004 12 $57.80 $693.60 8/2/2004 12 $58.12 $697.44 8/2/2004 12 $58.17 $698.04 8/2/2004 12 $58.21 $698.52 9/1/2004 1,035 $59.12 $61,189.20 9/1/2004 377 $59.00 $22,243.00 9/1/2004 370 $59.18 $21,896.60 9/1/2004 320 $59.02 $18,886.40 9/1/2004 230 $59.45 $13,673.50 9/1/2004 204 $59.40 $12,117.60 9/1/2004 125 $59.16 $7,395.00 9/1/2004 51 $58.98 $3,007.98 9/1/2004 26 $58.99 $1,533.74 9/1/2004 12 $59.01 $708.12 10/1/2004 1,231 $60.96 $75,041.76 10/1/2004 320 $61.10 $19,552.00 10/1/2004 287 $61.00 $17,507.00 10/1/2004 197 $61.60 $12,135.20 10/1/2004 111 $61.83 $6,863.13 10/1/2004 99 $61.55 $6,093.45 10/1/2004 62 $60.80 $3,769.60 10/1/2004 49 $60.75 $2,976.75 10/1/2004 49 $61.07 $2,992.43 10/1/2004 49 $61.18 $2,997.82 10/1/2004 49 $61.30 $3,003.70 10/1/2004 38 $60.76 $2,308.88


- 41 -

10/1/2004 37 $61.05 $2,258.85 10/1/2004 37 $61.09 $2,260.33 10/1/2004 25 $60.77 $1,519.25 10/1/2004 25 $60.81 $1,520.25 10/1/2004 25 $61.75 $1,543.75 10/1/2004 12 $60.78 $729.36 10/1/2004 12 $60.83 $729.96 10/1/2004 12 $61.11 $733.32 10/1/2004 12 $61.19 $734.28 10/1/2004 12 $61.25 $735.00 11/1/2004 1,192 $64.25 $76,586.00 11/1/2004 722 $64.30 $46,424.60 11/1/2004 190 $64.20 $12,198.00 11/1/2004 181 $64.60 $11,692.60 11/1/2004 171 $64.83 $11,085.93 11/1/2004 75 $64.52 $4,839.00 11/1/2004 48 $64.21 $3,082.08 11/1/2004 48 $64.49 $3,095.52 11/1/2004 38 $64.40 $2,447.20 11/1/2004 29 $64.32 $1,865.28 11/1/2004 19 $64.53 $1,226.07 11/1/2004 19 $64.54 $1,226.26 11/1/2004 18 $64.31 $1,157.58 20,500 $1,386,446.79 G. Morgan Browne, Director 6/1/2004 3,440 $81.00 $278,640.00 6/1/2004 2,267 $81.50 $184,760.50 6/1/2004 1,052 $81.06 $85,275.12 6/1/2004 1,052 $81.30 $85,527.60 6/1/2004 648 $81.34 $52,708.32 6/1/2004 608 $81.70 $49,673.60 6/1/2004 489 $81.55 $39,877.95 6/1/2004 123 $81.20 $9,987.60 6/1/2004 121 $81.80 $9,897.80 6/1/2004 118 $81.52 $9,619.36 6/1/2004 82 $81.81 $6,708.42 10,000 $812,676.27 Edwin Gee, Director 5/14/2004 5,170 $78.50 $405,845.00 5/14/2004 2,000 $78.05 $156,100.00 5/14/2004 2,000 $78.20 $156,400.00 5/14/2004 730 $78.52 $57,319.60 5/14/2004 100 $78.51 $7,851.00 8/13/2004 2,300 $55.00 $126,500.00 8/13/2004 1,100 $55.01 $60,511.00 8/13/2004 900 $54.90 $49,410.00 8/13/2004 700 $55.40 $38,780.00 8/13/2004 500 $54.80 $27,400.00 8/13/2004 400 $54.82 $21,928.00 8/13/2004 300 $54.81 $16,443.00 8/13/2004 300 $55.06 $16,518.00 8/13/2004 200 $54.85 $10,970.00


- 42 -

8/13/2004 100 $54.84 $5,484.00 8/13/2004 100 $55.04 $5,504.00 8/13/2004 100 $55.12 $5,512.00 17,000 $1,168,475.60 Daryl Granner, Director 4/26/2004 9,987 $80.70 $805,950.90 4/26/2004 4,098 $82.30 $337,265.40 4/26/2004 2,577 $81.61 $210,308.97 4/26/2004 2,499 $80.90 $202,169.10 4/26/2004 839 $80.50 $67,539.50 5/3/2004 1,658 $73.50 $121,863.00 5/3/2004 613 $73.51 $45,061.63 5/3/2004 350 $73.42 $25,697.00 5/3/2004 145 $72.51 $10,513.95 5/3/2004 102 $72.93 $7,438.86 5/3/2004 56 $72.62 $4,066.72 5/3/2004 53 $72.50 $3,842.50 5/3/2004 53 $72.55 $3,845.15 6/1/2004 258 $81.00 $20,898.00 6/1/2004 173 $81.50 $14,099.50 6/1/2004 79 $81.06 $6,403.74 6/1/2004 77 $81.30 $6,260.10 6/1/2004 49 $81.34 $3,985.66 6/1/2004 46 $81.70 $3,758.20 6/1/2004 37 $81.55 $3,017.35 6/1/2004 10 $81.20 $812.00 6/1/2004 9 $81.80 $736.20 6/1/2004 6 $81.52 $489.12 6/1/2004 6 $81.81 $490.86 10/15/2004 1,228 $63.60 $78,100.80 10/15/2004 1,101 $63.64 $70,067.64 10/15/2004 588 $63.62 $37,408.56 11/1/2004 1,264 $64.25 $81,212.00 11/1/2004 766 $64.30 $49,253.80 11/1/2004 202 $64.20 $12,968.40 11/1/2004 193 $64.60 $12,467.80 11/1/2004 181 $64.83 $11,734.23 11/1/2004 81 $64.52 $5,226.12 11/1/2004 50 $64.21 $3,210.50 11/1/2004 50 $64.49 $3,224.50 11/1/2004 40 $64.40 $2,576.00 11/1/2004 30 $64.32 $1,929.60 11/1/2004 20 $64.31 $1,286.20 11/1/2004 20 $64.53 $1,290.60 11/1/2004 20 $64.54 $1,290.80 29,614 $2,279,760.96 Walter Lovenberg, Director 10/8/2004 1,667 $61.90 $103,187.30 11/1/2004 722 $64.25 $46,388.50 11/1/2004 438 $64.30 $28,163.40 11/1/2004 115 $64.20 $7,383.00 11/1/2004 108 $64.60 $6,976.80


- 43 -

11/1/2004 104 $64.83 $6,742.32 11/1/2004 46 $64.52 $2,967.92 11/1/2004 29 $64.21 $1,862.09 11/1/2004 29 $64.49 $1,870.21 11/1/2004 23 $64.40 $1,481.20 11/1/2004 17 $64.32 $1,093.44 11/1/2004 12 $64.31 $771.72 11/1/2004 12 $64.53 $774.36 11/1/2004 12 $64.54 $774.48 3,334 $210,436.74 Viren Mehta, Director 9/15/2004 10,600 $62.25 $659,850.00 9/15/2004 5,000 $62.00 $310,000.00 9/15/2004 4,200 $62.10 $260,820.00 9/15/2004 3,400 $62.48 $212,432.00 9/15/2004 2,000 $62.40 $124,800.00 9/15/2004 1,200 $62.43 $74,916.00 9/15/2004 1,100 $62.35 $68,585.00 9/15/2004 900 $62.42 $56,178.00 9/15/2004 600 $62.29 $37,374.00 9/15/2004 600 $62.41 $37,446.00 9/15/2004 300 $62.01 $18,603.00 9/15/2004 100 $62.26 $6,226.00 30,000 $1,867,230.00 Mark Richmond, Director 5/3/2004 787 $73.50 $57,844.50 5/3/2004 296 $73.51 $21,758.96 5/3/2004 169 $73.42 $12,407.98 5/3/2004 59 $72.51 $4,278.09 5/3/2004 51 $72.93 $3,719.43 5/3/2004 38 $72.50 $2,755.00 5/3/2004 25 $72.55 $1,813.75 5/3/2004 25 $72.62 $1,815.50 6/1/2004 499 $81.00 $40,419.00 6/1/2004 327 $81.50 $26,650.50 6/1/2004 153 $81.06 $12,402.18 6/1/2004 153 $81.30 $12,438.90 6/1/2004 93 $81.34 $7,564.62 6/1/2004 87 $81.80 $7,116.60 6/1/2004 71 $81.55 $5,790.05 6/1/2004 20 $81.52 $1,630.40 6/1/2004 18 $81.80 $1,472.40 6/1/2004 17 $81.20 $1,380.40 6/1/2004 12 $81.81 $981.72 7/1/2004 1,099 $69.95 $76,875.05 7/1/2004 235 $69.52 $16,337.20 7/1/2004 81 $69.96 $5,666.76 7/1/2004 20 $69.97 $1,399.40 7/1/2004 15 $70.00 $1,050.00 8/2/2004 353 $58.33 $20,590.49 8/2/2004 307 $57.75 $17,729.25 8/2/2004 219 $58.20 $12,745.80


- 44 -

8/2/2004 144 $58.50 $8,424.00 8/2/2004 125 $58.61 $7,326.25 8/2/2004 75 $57.81 $4,335.75 8/2/2004 70 $58.10 $4,067.00 8/2/2004 31 $58.16 $1,802.96 8/2/2004 19 $58.23 $1,106.37 8/2/2004 19 $58.52 $1,111.88 8/2/2004 14 $58.14 $813.96 8/2/2004 13 $57.76 $750.88 8/2/2004 13 $58.22 $756.86 8/2/2004 13 $58.24 $757.12 8/2/2004 12 $57.82 $693.84 8/2/2004 6 $57.80 $346.80 8/2/2004 6 $58.17 $349.02 8/2/2004 6 $58.21 $349.26 8/2/2004 5 $58.12 $290.60 9/1/2004 545 $59.12 $32,220.40 9/1/2004 199 $59.00 $11,741.00 9/1/2004 195 $59.18 $11,540.10 9/1/2004 167 $59.02 $9,856.34 9/1/2004 121 $59.45 $7,193.45 9/1/2004 108 $59.40 $6,415.20 9/1/2004 67 $59.16 $3,963.72 9/1/2004 27 $58.98 $1,592.46 9/1/2004 13 $58.99 $766.87 9/1/2004 8 $59.01 $472.08 10/1/2004 223 $60.96 $13,594.08 10/1/2004 57 $61.10 $3,482.70 10/1/2004 52 $61.00 $3,172.00 10/1/2004 37 $61.60 $2,279.20 10/1/2004 19 $61.83 $1,174.77 10/1/2004 18 $61.55 $1,107.90 10/1/2004 11 $60.80 $668.80 10/1/2004 9 $61.07 $549.63 10/1/2004 9 $61.18 $550.62 10/1/2004 9 $61.30 $551.70 10/1/2004 8 $60.75 $486.00 10/1/2004 7 $60.76 $425.32 10/1/2004 7 $61.05 $427.35 10/1/2004 7 $61.09 $427.63 10/1/2004 5 $60.77 $303.85 10/1/2004 4 $60.81 $243.24 10/1/2004 4 $61.25 $245.00 10/1/2004 4 $61.75 $247.00 10/1/2004 3 $60.83 $182.49 10/1/2004 3 $61.11 $183.33 10/1/2004 2 $60.78 $121.56 10/1/2004 2 $61.19 $122.38 7,750 $526,224.65 John White, Director 8/19/2004 3,500 $58.10 $203,350.00 8/19/2004 3,000 $58.27 $174,810.00


- 45 -

8/19/2004 2,100 $58.25 $122,325.00 8/19/2004 1,200 $58.15 $69,780.00 8/19/2004 100 $58.13 $5,813.00 8/19/2004 100 $58.16 $5,816.00 9/15/2004 4,167 $62.50 $260,437.50 9/15/2004 800 $62.50 $50,000.00 9/15/2004 100 $62.60 $6,260.00 9/15/2004 100 $62.61 $6,261.00 10/1/2004 2,314 $60.96 $141,061.44 10/1/2004 603 $61.10 $36,843.30 10/1/2004 540 $61.00 $32,940.00 10/1/2004 370 $61.60 $22,792.00 10/1/2004 208 $61.83 $12,860.64 10/1/2004 185 $61.55 $11,386.75 10/1/2004 116 $60.80 $7,052.80 10/1/2004 93 $60.75 $5,649.75 10/1/2004 93 $61.07 $5,679.51 10/1/2004 93 $61.18 $5,689.74 10/1/2004 93 $61.30 $5,700.90 10/1/2004 69 $60.76 $4,192.44 10/1/2004 69 $61.05 $4,212.45 10/1/2004 69 $61.09 $4,215.21 10/1/2004 46 $60.77 $2,795.42 10/1/2004 46 $60.81 $2,797.26 10/1/2004 46 $61.75 $2,840.50 10/1/2004 23 $60.78 $1,397.94 10/1/2004 23 $61.11 $1,405.53 10/1/2004 23 $61.19 $1,407.37 10/1/2004 23 $61.25 $1,408.75 10/1/2004 22 $60.83 $1,338.26 11/1/2004 2,239 $64.25 $143,855.75 11/1/2004 1,357 $64.30 $87,255.10 11/1/2004 357 $64.20 $22,919.40 11/1/2004 339 $64.60 $21,899.40 11/1/2004 321 $64.83 $20,810.43 11/1/2004 143 $64.52 $9,226.36 11/1/2004 89 $64.21 $5,714.69 11/1/2004 89 $64.49 $5,739.61 11/1/2004 70 $64.40 $4,508.00 11/1/2004 55 $64.32 $3,537.60 11/1/2004 36 $64.31 $2,315.16 11/1/2004 36 $64.53 $2,323.08 11/1/2004 36 $64.54 $2,323.44 25,501 $1,552,948.48 Grand total: 193,724 $13,129,816.62


- 46 -

STATUTORY SAFE HARBOR

101. The federal statutory safe harbor provided for forward-looking statements under

certain circumstances does not apply to any of the allegedly false statements pleaded in this

Complaint. Further, none of the statements pleaded herein which were forward-looking statements

were identified as “forward-looking statements” when made. Nor was it stated that actual results

“could differ materially from those projected.” Nor were the forward-looking statements pleaded

accompanied by meaningful cautionary statements identifying important factors that could cause

actual results to differ materially from the statements made therein. Defendants are liable for the

forward-looking statements pleaded because, at the time each of those forward-looking statements

was made, the speaker knew the forward-looking statement was false and the forward-looking

statement was authorized and/or approved by an executive officer of OSI who knew that the

statement was false when made.

APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD-ON-THE MARKET DOCTRINE

102. At all relevant times, the market for OSI common stock was an efficient market for

the following reasons, among others:

(a) OSI common stock met the requirements for listing, and was listed and

actively traded, on the NASDAQ, a highly efficient market;

(b) As a regulated issuer, OSI filed periodic public reports with the SEC and the

NASD;

(c) OSI stock was followed by common stock analysts employed by major

brokerage firms who wrote reports which 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; and


- 47 -

(d) OSI regularly issued press releases which were carried by national newswires.

Each of these releases was publicly available and entered the public marketplace.

103. As a result, the market for OSI common stock promptly digested current information

with respect to OSI from all publicly available sources and reflected such information in OSI’s stock

price. Under these circumstances, all purchasers of OSI common stock during the Class Period

suffered similar injury through their purchase of stock at artificially inflated prices and a

presumption of reliance applies to their Exchange Act Claims.

LOSS CAUSATION/ECONOMIC LOSS

104. During the Class Period, as detailed herein, Defendants engaged in a scheme to

deceive the market and a course of conduct that artificially inflated OSI’s common stock price and

operated as a fraud or deceit on Class Period purchasers of OSI common stock by concealing the full

trial results of Tarceva on specific subgroups. Specifically, Defendants withheld information

regarding Tarceva’s effect on “current or former smokers” and EGFR negative patients. When

Defendants’ prior misrepresentations and fraudulent conduct were disclosed and became apparent to

the market, OSI common stock fell precipitously as the prior artificial inflation came out of OSI’s

common stock price. As a result of their purchases of OSI common stock during the Class Period,

Plaintiffs and the other Class members suffered economic loss, i.e., damages under the federal

securities laws.

105. By failing to disclose and making affirmative misrepresentations concerning the full

effect of Tarceva on all subgroups, Defendants presented a misleading picture of OSI’s business and

prospects. Thus, instead of truthfully disclosing during the Class Period the true risks that OSI was

exposed to, Defendants concealed and misrepresented the existence of the full test results.


- 48 -

106. Defendants’ false and misleading statements had the intended effect and caused OSI

common stock to trade at artificially inflated levels throughout the Class Period, reaching as high as

$91.10 per share on April 26, 2004.

107. As a direct result of Defendants’ admissions and the public revelations regarding the

adverse trial results of Tarceva in relation to “current or former smokers” and EGFR negative

patients, the market realized that this determination would: (i) significantly narrow the field of

potential Tarceva patients; (ii) cause insurance companies and other payors to likely force patients to

be tested for the EGFR protein prior to agreeing to pay for Tarceva to treat their cancer; and (iii)

influence clinicians/physicians, who would use this data, to select optimal candidates for therapy,

among other things. As a result, on November 18, 2004, OSI’s common stock price plummeted

approximately 10%, falling from $64.25 per share. Then, on November 22, 2004, OSI’s common

stock continued to decline, falling another 7%, to close at $54.22 per share when the Company

admitted that Tarceva’s effectiveness was much lower in smokers.

108. The approximate 40% decline in OSI’s common stock price from its Class Period

high was a direct result of the nature and extent of Defendants’ fraud finally being revealed to

investors and the market. The timing and magnitude of OSI’s common stock price declines negate

any inference that the loss suffered by Plaintiffs and the other Class members was caused by

changed market conditions, macroeconomic or industry factors or Company-specific facts unrelated

to the defendants’ fraudulent conduct. The economic loss, i.e., damages, suffered by Plaintiffs and

the other Class members was a direct result of Defendants’ fraudulent scheme to artificially inflate

OSI’s common stock price and the subsequent significant decline in the value of OSI’s common

stock when Defendants’ prior misrepresentations and other fraudulent conduct was revealed.


- 49 -

COUNT I

For Violations of Section 10(b) of the Exchange Act and Rule 10b-5 Promulgated Thereunder Against the Individual Defendants

109. Plaintiffs repeat and reallege the allegations set forth above as though fully set forth

herein. This claim is asserted against all defendants.

110. During the Class Period, OSI and the Individual 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 regarding OSI’s business, operations, prospects and the intrinsic value

of OSI securities; (ii) enable the Company to issue and sell 6.9 million shares of OSI common stock

for $445 million in proceeds; (iii) enable the Individual Defendants to sell their artificially inflated

personally-held shares for gross proceeds of over $13 million; (iv) cause Lead Plaintiff and other

members of the Class to purchase OSI securities at artificially inflated prices; (v) cause the price of

the stock to decline as a direct and proximate result of the revelation of the truth; and (vi) cause Lead

Plaintiff and other members of the Class to suffer damages.

111. These defendants: (a) employed devices, schemes, and artifices to defraud; (b) made

untrue statements of material fact and/or omitted to state material facts necessary to make the

statements made not misleading; and (c) engaged in acts, practices and a course of business which

operated as a fraud and deceit upon the purchasers of the Company’s common stock in an effort to

maintain artificially high market prices for OSI common stock in violation of §10(b) of the

Exchange Act and Rule 10b-5. These defendants are sued as primary participants in the wrongful

and illegal conduct charged herein. The Individual Defendants are also sued herein as controlling

persons of OSI, as alleged below.

112. In addition to the duties of full disclosure imposed on defendants as a result of their

making of affirmative statements and reports, or participation in the making of affirmative


- 50 -

statements and reports to the investing public, they each had a duty to promptly disseminate truthful

information that would be material to investors in compliance with the integrated disclosure

provisions of the SEC as embodied in SEC Regulation S-X (17 C.F.R. §210.01, et seq.) and S-K (17

C.F.R. §229.10, et seq.) and other SEC regulations, including accurate and truthful information with

respect to the Company’s operations, financial condition and performance so that the market prices

of the Company’s publicly traded common stock would be based on truthful, complete and accurate

information.

113. OSI and the Individual Defendants, individually and in concert, directly and

indirectly, by the use of means or instrumentalities of interstate commerce and/or of the mails,

engaged and participated in a continuous course of conduct to conceal adverse material information

about the business, business practices, performance, operations and future prospects of OSI as

specified herein. 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 OSI’s value and performance and

substantial growth, which included the making of, or the participation in the making of, untrue

statements of material facts and omitting to state material facts necessary in order to make the

statements made about OSI and its business, operations and future prospects in the 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 OSI’s common stock during the Class Period.

114. Each of the Individual Defendants’ primary liability, and controlling person liability,

arises from the following facts: (i) each of the Individual Defendants was a high-level executive

and/or director at the Company during the Class Period; (ii) each of the Individual Defendants, by


- 51 -

virtue of his responsibilities and activities as a senior executive 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) the Individual Defendants

enjoyed significant personal contact and familiarity with each other and were 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 financial condition and performance at all relevant times; and (iv)

the Individual Defendants were aware of the Company’s dissemination of information to the

investing public which they knew or recklessly disregarded was materially false and misleading.

115. These defendants had actual knowledge of the misrepresentations and 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 readily available to them. Such

defendants’ material misrepresentations and/or omissions were done knowingly or recklessly and for

the purpose and effect of concealing OSI’s operating condition, business practices and future

business prospects from the investing public and supporting the artificially inflated price of its

common stock. As demonstrated by their overstatements and misstatements of the Company’s

financial condition and performance throughout the Class Period, the Individual Defendants, if they

did not have actual knowledge of the misrepresentations and 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.

116. As a result of the dissemination of the materially false and misleading information

and failure to disclose material facts, as set forth above, the market price of OSI’s common stock

was artificially inflated during the Class Period. In ignorance of the fact that the market price of

OSI’s shares was artificially inflated, and relying directly or indirectly on the false and misleading


- 52 -

statements made by defendants, or upon the integrity of the market in which the common stock

trades, and/or on 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, plaintiffs and the other members of the Class acquired OSI common stock during the Class

Period at artificially inflated prices and were damaged thereby.

117. At the time of said misrepresentations and omissions, plaintiffs and other members of

the Class were ignorant of their falsity, and believed them to be true. Had plaintiffs and the other

members of the Class and the marketplace known of the true performance, business practices, future

prospects and intrinsic value of OSI, which were not disclosed by defendants, plaintiffs and other

members of the Class would not have purchased or otherwise acquired their OSI common stock

during the Class Period, or, if they had acquired such common stock during the Class Period, they

would not have done so at the artificially inflated prices which they paid.

118. By virtue of the foregoing, OSI and the Individual Defendants each violated §10(b) of

the Exchange Act and Rule 10b-5 promulgated thereunder.

119. As a direct and proximate result of defendants’ wrongful conduct, plaintiffs and the

other members of the Class suffered damages in connection with their purchases of the Company’s

common stock during the Class Period.

COUNT II

For Violations of Section 20(a) of the Exchange Act Against the Individual Defendants

120. Plaintiffs repeat and reallege the allegations set forth above as if set forth fully herein.

This claim is asserted against all defendants.

121. The Individual Defendants were, and acted as, controlling persons of OSI within the

meaning of §20(a) of the Exchange Act as alleged herein. By virtue of their high-level positions


- 53 -

with the Company, participation in and/or awareness of the Company’s operations and/or intimate

knowledge of the Company’s actual performance, the Individual Defendants 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 plaintiffs contend

are false and misleading. Each of the Individual Defendants was provided with or had unlimited

access to copies of the Company’s reports, press releases, public filings and other statements alleged

by plaintiffs 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.

122. In addition, each of the Individual Defendants had direct 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 common stock violations as alleged herein, and

exercised the same. OSI controlled the Individual Defendants and each of its employees.

123. As set forth above, OSI and the Individual Defendants each violated §10(b) and Rule

10b-5 by their acts and omissions as alleged in this Complaint. By virtue of their controlling

positions, the defendants are liable pursuant to §20(a) of the Exchange Act. As a direct and

proximate result of defendants’ wrongful conduct, plaintiffs and other members of the Class suffered

damages in connection with their purchases of the Company’s common stock during the Class

Period.

COUNT III

For Violation of §11 of the Securities Act Against All Defendants

124. Plaintiffs repeat and reallege the allegations set forth above as if set forth fully herein,

emphasizing that plaintiffs and the other members of the Class explicitly exclude any allegations

contained herein that could be construed to allege intentional or reckless misconduct. This Count is


- 54 -

brought on behalf of the Class under the Securities Act against all defendants. This Count is based

upon principles of strict liability and negligence only.

125. Each of the Individual Defendants is liable as a primary violator of federal securities

laws for making false and misleading statements in connection with OSI’s Registration Statement

filed on November 12, 2004.

126. The Individual Defendants each signed and issued OSI’s Registration Statement. OSI

was the issuer of the stock sold in the Offering.

127. By November 17, 2004, the defendants named in this Count completed an offering of

6.9 million shares of OSI stock at $64.50 per share, for total proceeds of $445 million.

128. The Registration Statement was false and misleading as it contained untrue statements

of material facts or omitted to state other facts necessary to make the statements made not

misleading, as detailed herein at ¶81.

129. The Individual Defendants each signed the Registration Statement. Because the

Registration Statement/Prospectus, when it became effective, contained untrue statements of fact or

omitted to state material facts required to be stated therein or necessary to make the facts stated

therein not misleading, each of these defendants is liable as a “person who signed the registration

statement” under §11(a)(1), 15 U.S.C. §77k(a)(1).

130. The Individual Defendants were officers and/or directors of OSI when the

Registration Statement/Prospectus became effective. Because the Registration Statement, when it

became effective, contained untrue statements of fact or omitted to state material facts required to be

stated therein or necessary to make the facts stated therein not misleading, each of these defendants

is liable under §11(a)(2), 15 U.S.C. §77k(a)(2).


- 55 -

131. Plaintiffs and other members of the Class purchased OSI common stock traceable to

the Registration Statement for the Offering without knowledge of the untruths or omissions alleged

herein, and sustained damages as a result. Plaintiffs and other members of the Class could not have

reasonably discovered the nature of defendants’ untruths and omissions.

132. In connection with the Offering, the Defendants, directly or indirectly, used the means

and instrumentalities of interstate commerce and the U.S. mails.

133. By reason of the conduct alleged herein, Defendants violated §11 of the Securities

Act and are strictly liable to plaintiffs and other members of the Class, each of whom has been

damaged by reason of such violations.

134. This action was brought within one year after the discovery of the untrue statements

and omissions and less than three years after the stock offering.

COUNT IV

For Violations of §15 of the Securities Act Against the Individual Defendants

135. Plaintiffs repeat and reallege the allegations set forth above as if set forth fully herein,

emphasizing that plaintiffs and the other members of the Class explicitly exclude any allegations

contained herein that could be construed to allege intentional or reckless misconduct. This Count is

brought on behalf of the Class under the Securities Act against the Individual Defendants. This

Count is based upon principles of strict liability and negligence only.

136. The Individual Defendants were each control persons of OSI, as defined in §15 of the

Securities Act, by virtue of their positions as OSI shareholders, directors and/or senior officers and

each is liable for violations of the Securities Act.


- 56 -

PRAYER FOR RELIEF

WHEREFORE, plaintiffs, on their own behalf and on behalf of the Class, pray for judgment

as follows:

(a) Declaring this action to be a class action pursuant to Rule 23(a) and (b)(3) of

the Federal Rules of Civil Procedure on behalf of the Class defined herein;

(b) Awarding plaintiffs and the other members of the Class damages in an amount

which may be proven at trial, together with interest thereon;

(c) Awarding plaintiffs and the members of the Class pre-judgment and post-

judgment interest, as well as their reasonable attorneys’ and experts’ witness fees and other costs;

and

(d) Such other relief as this Court deems appropriate.

JURY DEMAND

Plaintiffs demand a trial by jury.

DATED: February 17, 2006 LERACH COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP

/s/ Robert M. Rothman ROBERT M. ROTHMAN

SAMUEL H. RUDMAN (SR–7957) ROBERT M. ROTHMAN (RR-6090) MARIO ALBA JR. (MA-7240) 58 South Service Road, Suite 200 Melville, NY 11747 Telephone: 631/367-7100 631/367-1173 (fax)

Attorneys for Lead Plaintiff and the Class


CERTIFICATE OF SERVICE

I hereby certify that on February 17, 2006, I electronically filed the foregoing with the Clerk

of the Court using the CM/ECF system which will send notification of such filing to the e-mail

addresses denoted on the attached Electronic Mail Notice List, and I hereby certify that I have

mailed the foregoing document or paper via the United States Postal Service to the non-CM/ECF

participants indicated on the attached Manual Notice List.

LERACH COUGHLIN STOIA GELLER

RUDMAN & ROBBINS LLP

s/ Mario Alba, Jr.

58 South Service Road, Suite 200 Melville, NY 11747 Telephone: 631/367-7100 631/367-1173 (fax) E-mail:


Mailing Information for a Case 2:04-cv-05505-JS-WDW

Electronic Mail Notice List

The following are those who are currently on the list to receive e-mail notices for this case.

Mario Alba, Jr [email protected] [email protected];[email protected]

Nicholas Primer Crowell [email protected]

Carolyn H. Feeney [email protected]

David A. Rosenfeld [email protected]

Frank R. Schirripa [email protected]

Manual Notice List

The following is the list of attorneys who are not on the list to receive e-mail notices for this case (who therefore require manual noticing). You may wish to use your mouse to select and copy this list into your word processing program in order to create notices or labels for these recipients.

Michael L. Kichline Dechert LLP Cira Centre 2929 Arch Street Philadelphia, PA 19104

Page 1 of 1Eastern District of New York - Live Database Version 2.5 Release

2/17/2006https://ecf.nyed.uscourts.gov/cgi-bin/MailList.pl?112011928316165-L_701_0-1


In Re: OSI, Inc. Securities Litigation 04-CV-05505...

Documents

Transcript of In Re: OSI, Inc. Securities Litigation 04-CV-05505...