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In re Adolor Corp. Securities Litigation

May 8, 2009

IN RE ADOLOR CORPORATION SECURITIES LITIGATION


The opinion of the court was delivered by: Surrick, J.

MEMORANDUM

Presently before the Court is Defendants' Motion to Dismiss Plaintiffs' Amended Class Action Complaint in its Entirety. (Doc. No. 42.) For the following reasons, the Motion will be granted.

I. BACKGROUND

Adolor ("Adolor" or "the Company") is a bio-pharmaceutical company engaged in the development of pharmaceutical products for the treatment of pain. (Doc. No. 40¶ 2 (hereinafter, "Am. Compl.").) In the early 2000s, Adolor's lead product was a drug called Entereg, also known as alvimopan, which Adolor developed to treat post-operative ileus ("POI"), a serious complication that occurs in connection with abdominal and other surgeries. (Id. ¶¶ 3-4.) POI is a major cause of post-surgical death for which there was no Food and Drug Administration approved treatment at the time. (Id. ¶ 4.) In order to market and sell Entereg in the United States, Adolor had to conduct clinical trials in accordance with FDA regulations. (Id. ¶ 3.) The Central Laborers' Pension Fund and the Greater Pennsylvania Carpenters Pension Fund (collectively, the "Plaintiffs") filed this lawsuit against Adolor and its individual officers and directors for making misleading public statements regarding the Entereg clinical trials.*fn1 The Amended Complaint contains class action claims asserted on behalf of all purchasers of Adolor Corporation Common Stock between April 2, 2003, and December 22, 2004 (the "Class Period"), and sets forth three claims for relief. The first claim alleges that Defendants violated Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Securities and Exchange Commission Rule 10b-5, 17 C.F.R. § 240.10b-5. The second claim alleges that Defendants violated Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a). The third claim alleges that the Individual Defendants violated Section 11 of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. § 77k.*fn2

Plaintiffs contend that statements made by Defendants regarding the results of a series of four clinical trials for Entereg were misleading.*fn3 The Company conducted the trials during Phase III of the drug's development in collaboration with GlaxoSmithKline ("Glaxo") pursuant to a incentive-based Collaboration Agreement (the "Agreement").

A. The Glaxo Agreement

Adolor signed the Agreement with Glaxo in April 2002 to collaborate on the global development and commercialization of Entereg. (Id. ¶ 4.) Under the Agreement, Adolor received a $50 million non-refundable licensing fee from Glaxo. Adolor also stood to earn as much as $220 million in additional payments if it met certain objectives, including a $10 million bonus payment if the FDA accepted the Entereg NDA. (Id. ¶ 34.) Under the Agreement, Glaxo had the right to terminate the arrangement if Adolor failed to meet certain milestones, including steps in product development and regulatory events. (Doc. No. 43, Ex. 5 at 8.) Glaxo and Adolor were to divide the costs of developing and marketing Entereg, with Adolor taking responsibility for the development activities in the United States and Glaxo taking responsibility for development activities in Europe. (Id.) In 2002, Glaxo's payments to Adolor comprised 96% of the Adolor's total consolidated revenue. (Id. at 19.) By the end of the Phase III trials in 2004, Adolor and Glaxo had spent over $100 million in the research and development of Entereg.(Id. at 37.)

B. The Phase III Trials

Adolor had completed the first two phases of its testing of Entereg and was set to begin Phase III by the end of 2001. (Id. at 8.) The Phase III trials involved four different studies, three of which tested Entereg's effectiveness on patients undergoing various gastrointestinal procedures, while the fourth tested only its safety. (Id.) The three studies dealing with the efficacy of Entereg were labeled 14CL302, 14CL313 and 14CL308 ("302," "313," and "308," respectively).*fn4 (Am. Compl. ¶¶ 5, 36.) These studies were to be "double-blinded," "randomized,"*fn5 and "placebo-based." (Am. Compl. ¶ 36 (quoting Adolor Corp., Annual Report (Form 10-K), at 8 (Mar. 18, 2003)).) Patients were placed into three categories, one receiving placebo, one receiving a 6 mg dosage of Entereg, and one receiving a 12 mg dosage of Entereg. (Id.) The information collected in the studies would be used to measure the time of recovery of gastrointestinal functions for patients at each dosage level. (Id.)

1. Study 302

Study 302 enrolled patients from March 2001 to December 2002 and included patients undergoing partial colectomies, simple hysterectomies, and radical hysterectomies. (Id. ¶ 37.) On April 2, 2003, Adolor announced the top-line results*fn6 for Study 302 in a press-release that stated in pertinent part:

Adolor corporation announced today top-line results of its first Phase 3 clinical study (14CL302) for its novel product candidate, alvimopan, in the management of postoperative ileus.

A statistically significant difference was achieved in the primary endpoint of the study, time to recovery of gastrointestinal function, in patients in the alvimopan 6 mg treatment group compared to patients in the placebo group (Coz proportional hazard model; hazard ratio = 1.47; P<0.01). time="" to="" recovery="" of="" gastrointestinal="" function="" was="" a="" composite="" measure="" of="" the="" time="" to="" recovery="" of="" both="" lower="" and="" upper="" gastrointestinal="" function="" as="" defined="" by="" time="" to="" first="" flatus="" or="" bowel="" movement="" and="" time="" to="" tolerability="" of="" solid="" foods,="" whichever="" occurred="" last.="" a="" difference="" in="" favor="" of="" the="" alvimopan="" 6="" mg="" treatment="" group="" versus="" placebo="" was="" observed="" from="" a="" secondary="" endpoint,="" including="" time="" to="" hospital="" discharge="" order="" written.="" a="" positive="" trend="" was="" observed="" in="" the="" primary="" endpoint="" of="" the="" study="" for="" the="" alvimopan="" 12="" mg="" treatment="" group;="" however="" the="" difference="" from="" placebo="" was="" not="" statistically="" significant="" (cox="" proportional="" hazard="" model,="" hazard="" ratio="1.23;" p="0.11)." .="" .="" .="" "we="" are="" delighted="" to="" have="" completed="" a="" major="" milestone="" in="" our="" alvimopan="" phase="" 3="" clinical="" program="" in="" postoperative="" ileus.="" we="" believe="" the="" results="" of="" this="" study="" support="" our="" goal="" of="" submitting="" a="" new="" drug="" application="" for="" alvimopan="" in="" 2003.="" we="" look="" forward="" to="" completing="" the="" accrual="" of="" our="" additional="" alvimopan="" postoperative="" clinical="" studies,="" which="" will="" need="" to="" confirm="" the="" results="" of="" the="" study="" in="" order="" to="" file="" a="" new="" drug="" application,"="" commented="" bruce="" a.="" peacock,="" president="" and="" chief="" executive="" officer="" of="" adolor.="" (id.="" ¶="" 37="" (quoting="" adolor="" corp.,="" current="" report="" (form="" 8-k),="" ex.="" 99.1="" (apr.="" 2,="" 2003)).)="" that="" same="" day,="" adolor="" conducted="" a="" conference="" call="" with="" market="" analysts="" to="" discuss="" the="" results.="" (id.="" ¶="" 38.)="" during="" the="" call,="" adolor's="" senior="" vice-president="" of="" research="" and="" development,="" david="" jackson,="">

The next two studies refer to studies 308 and 313 are similar in design to Study 302. . . . The main difference from Study 302 is in the patient population but 308 and 313 will enroll patients undergoing large or small bowel resections or radical hysterectomies. In study 308, similar to 302, simple hysterectomies are to exceed 20% of the total enrollment. Patients undergoing simple hysterectomies are not included in Study 313. (Doc. No. 43, Ex. 11 at 8.) Afterwards, six analysts questioned Defendants about the results of Study 302. (Id. at 9-21.) No analyst asked why Adolor excluded simple hysterectomy patients in Study 313. (Id. at 9-21.) That day, Adolor's stock price closed at $12.95, up 31.34% from the day before, on volume of 6.9 million shares.*fn7 (Am. Compl. ¶ 41.) The Amended Complaint does not allege that any of Defendants sold Adolor stock after the April 2, 2003 price increase, and the Company's public filings indicate that the Individual Defendants did not engage in any prohibited insider trading in the period leading up to or after results of Study 302 were announced.

2. Study 313

Study 313 enrolled patients from February 2002 to June 2003 and included only patients undergoing bowel resections and radical hysterectomies. (Id. ¶ 42.) Patients undergoing simple hysterectomies were not included in this study. On September 23, 2003, Adolor issued a press release announcing that the results of Study 313 were statistically significant at both the 6 mg and 12 mg dosage levels. See Adolor Corp., Current Report (Form 8-K), Ex. 99.1 (Sept. 23, 2003). Defendant Bruce Peacock then conducted a conference call with analysts and answered a number of questions concerning the use of simple hysterectomy patients in Study 313 and Study 308, including this exchange:

Analyst: Do you think you're gonna need a confirmatory study at 12 mg to file at that dose. And if so, do you have any concerns about the confounding impact of simple hysterectomies in the other trial?

Peacock: Well, I'm not sure there's a confounding impact of simple hysterectromies in the other trial. I think we haven't spoken about the information from Study 302 broken out by patient types. What we have seen in prior studies is clearly the duration of ileus in the simple hysterectomy patient is shorter than in the patient that's undergoing bowel resection surgery. However, as we've indicated before, there are patients who undergo a simple hysterectomy, who go into an extended ileus. You can't predict up front who they're going to be so we certainly believe there's a potential for alvimopan there. In terms of picking dose, again I have to go back and say, you really need to get all of the data from all of the studies pulled together and then sit down and make an intelligent decision about that. . . .

Analyst: I think there was a question before about confounding data with respect to simple hysterectomies. Can you just take us through the 308 study? If I remember correctly right around the 450 patient mark or so you changed the enrollment criteria to exclude simple hysterectomy patients. Is that correct?

Peacock: [O]riginally with the 450 patients we had that there wouldn't be any more than 20% of the simple hysterectomies which would get you to a number about 90. We then made a decision to, as you know, expand enrollment in that study to go from the 450 up to the 660. I'm pretty confident, David and/or Bruce, that we would expect a few simple hysterectomies to be in that additional patient group. So if that's the case, then, if you just do the simple math, it seems to me that this study is more highly powered for non-simple hysterectomy patients than the 313.

Analyst: So we shouldn't be concerned at all about the confounding for simple hysterectomies?

Peacock: Yeah. I would say that I think the important point there is that there, you know, we're pleased with the results from 313 with the 510 patients enrolled and as you just said there will be more bowel resection surgery patients enrolled in 308 than even what was seen in 313.

(Doc. No. 43, Ex. 10 at 16, 22). That afternoon, Adolor's stock price closed at $19.75, an increase of nearly 33%.*fn8 (Am. Compl. ¶ 51.) Again, the Amended Complaint does not allege that any Defendants sold Adolor stock after the price increased, and the Company's public filings do not indicate that the Individual Defendants engaged in any prohibited insider trading in that timeframe.

3. Adolor's Public Offering

Shortly after Adolor announced the results of Study 313, the Company made a public offering of 6 million shares of common stock that raised a total of $119 million. (Am. Compl. ¶ 52.) The details of Study 302 and Study 313 were disclosed in Adolor's Offering Prospectus, which included the following statements:

We have completed three Phase II clinical trials studying the use of Entereg for the management of POI that frequently follows abdominal surgery in which opioids are used in pain relief. Subsequently we initiated our Entereg POI Phase III program consisting of four studies. Three of these studies (POI 14CL302, POI 14CL308 and POI 14CL313) are double-blind, placebo-controlled multi-center studies each designed to enroll patients scheduled to undergo certain types of major abdominal surgery and receiving opioids for pain relief . . . .

Study 302. In April 2003, we announced top-line results of our first POI Phase III clinical study, Study 302. Study 302 enrolled 451 patients, and was designed to include large bowel resection patients and radical hysterectomy patients, as well as simple hysterectomy patients (22% enrolled patients). A statistically significant difference was achieved in the primary endpoint of the study, time to recovery of GI function, in patients in the Entereg 6 mg treatment group compared to patients in the placebo group. . . . A positive trend was observed in the primary endpoint of the study for the Entereg 12mg treatment group; however, the difference from placebo was not statistically significant . . . .

Study 313. In September 2003, we announced top-line results of our second POI Phase III clinical study, Study 313. Study 313 enrolled 510 patients and was designed to include large bowel resection patients, small bowel resection patients and radical hysterectomy patients, and exclude simple hysterectomy patients. A statistically significant difference was achieved in the primary endpoint of the study, time to recovery of GI function, in both the Entereg 6 mg and 12 mg treatment groups compared to the placebo group . . . .

(Id. ¶ 53 (quoting Adolor Corp., Prospectus Supp., S-3 (Oct. 29, 2003)).)

4. Study 308

Study 308 enrolled patients from February 2002 to November 2003 and included patients undergoing bowel resections and simple and radical hysterectomies. (Am. Compl.¶ 55.) On January 13, 2004, Adolor announced the results of Study 308. (Id.) The study failed at both the 6 mg and 12 mg dosage levels. Consequently, Adolor's stock price deceased by 37%, closing at $13.73 per share on a volume of 12.7 million shares. (Id.) During a conference call that day, Defendant Peacock indicated that the results had not been analyzed by subgroups, stating:

[J]ust to clarify that, [the analysis] is a prospectively defined subgroup analysis, it's not a prospectively defined subgroup for purposes of primary analysis. But it's not as though we went and post[ed] the data, and said, let's call that a subgroup. Our SAP, we say up front, that's a subgroup we're going to look at. But again, I also want to be clear to say that it was not a ...


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