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In re ViroPharma Inc. Sec. Litig.

United States District Court, E.D. Pennsylvania

May 15, 2014

IN RE VIROPHARMA INCORPORATED SECURITIES LITIGATION

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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For VIROPHARMA INCORPORATED SECURITIES LITIGATION, IN RE: STEVEN A. REED, MORGAN LEWIS, PHILADELPHIA, PA.

For PETE CASTRO, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, Plaintiff: CAROL C. VILLEGAS, LEAD ATTORNEY, LABATON SUCHAROW LLP, NEW YORK, NY; BRIAN D. PENNY, GOLDMAN SCARLATO KARON & PENNY PC, WAYNE, PA; CAROLE A. BRODERICK, SHERRIE R. SAVETT, BERGER & MONTAGUE, P.C., PHILADELPHIA, PAJEREMY A. LIEBERMAN, POMERANTZ HAUDEK GROSSMAN & GROSS LLP, NEW YORK, NY.

For CARPENTERS' LOCAL 27 BENEFIT TRUST FUNDS, Plaintiff: CAROL C. VILLEGAS, JONATHAN GARDNER, LEAD ATTORNEYS, IONA EVANS, LEAD ATTORNEY, PRO HAC VICE, LABATON SUCHAROW LLP, NEW YORK, NY; BRIAN D. PENNY, GOLDMAN SCARLATO KARON & PENNY PC, WAYNE, PA.

For VIROPHARMA INCORPORATED, VINCENT J. MILANO, Defendants: J. GORDON COONEY, JR., MARC J. SONNENFELD, STEVEN A. REED, MORGAN, LEWIS,& BOCKIUS LLP, PHILADELPHIA, PA.

For CHARLES A. ROWLAND, THOMAS F. DOYLE, JOHN P. WOLF, Defendants: MARC J. SONNENFELD, STEVEN A. REED, MORGAN, LEWIS,& BOCKIUS LLP, PHILADELPHIA, PA.

OPINION

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MEMORANDUM

Jones, II, J.

I. Introduction

The instant motion relates to the consolidated class action in which lead Plaintiff Carpenters' Local 27 Defined Benefit Fund asserts that Defendants ViroPharma Incorporated (" ViroPharma" ), Vincent J. Milano, Charles A. Rowland, Thomas F. Doyle, and John P. Wolf violated Section 10(b) of the Securities Exchange Act of 1934 (the " Exchange Act" ), 15 U.S.C. § 78j(b) (" Section 10(b)" ); Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5 (" Rule 10b-5" ); and Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a) (" Section 20(a)" ). Plaintiff filed this litigation on behalf of all persons who purchased ViroPharma securities between December 14, 2011 and April 9, 2012 (the " Class Period" ).

Having considered the motion, the pleadings, and the oral arguments made in open court on June 10, 2013, for the reasons set forth below, Defendant's Motion is denied.

II. Factual Background

ViroPharma Incorporated (" ViroPharma) is a publicly traded biotechnology company that maintains a principal place of business in Exton, Pennsylvania. ViroPharma markets and sells a number of products, one of which is the antibiotic Vancocin, which treats the gastrointestinal infection, Clostridium difficile associated diarrhea (" CDAD" ). Vancocin was a lucrative property for ViroPharma, and comprised a substantial portion of ViroPharma's revenues from 2005-2011.

The Complaint alleges that the patent for Vancocin expired in 1996. The FDA's requirement that a generic version of Vancocin be tested on humans, however, created a barrier for generics to enter the market. In 2006 the FDA changed its position regarding the proof necessary to establish bioequivalence, allowing for laboratory testing instead of testing on human subjects. The Complaint alleges that this change substantially lowered any barriers to entry and threatened ViroPharma's hold on the Vancocin Market. As a challenge to the FDA's decision, ViroPharma filed a Citizen's Petition [1] with the FDA, which

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was amended twenty times between 2006 and 2011. A generic drug could not be introduced while the Citizen's Petition was pending.

In 2008, Congress passed the QI Program Supplemental Funding Act of 2008 (the " QI Act" ), which permits the FDA to grant an additional three years of marketing exclusivity for " Old Antibiotics" --such as Vancocin--under the Hatch-Waxman Act [2] if a company can demonstrate that the " Old Antibiotic" can be administered for a new " condition of use." [3]

In an effort to stave off the arrival of generics from other companies and to gain three years of statutory exclusivity under the QI Act,[4] and to market Vancocin for a new " condition of use," ViroPharma licensed a study conducted by Genzyme Corporation (" Genzyme Study" ), to support a supplemental New Drug Application (" sNDA" ) that ViroPharma would file with the FDA.

The Genzyme Study compared tolamer--a Genzyme experimental drug used to treat CDAD--with Vancocin. Though the Genzyme study was ultimately a failure, in that Genzyme could not gain approval for tolamer, ViroPharma sought to use this data. Based on analysis of the licensed data in the Genzyme study, ViroPharma submitted an sNDA to the FDA on April 23, 2010, even though ViroPharma " knew, based on FDA policy statements, that the FDA would not accept such an analysis as evidence of effectiveness for any use." In February 2011, the FDA rejected the sNDA, which ViroPharma then amended and resubmitted in June 2011.[5]

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On December 14, 2011, the FDA approved the sNDA for Vancocin's new label.[6] Plaintiff alleges that despite approving the label change, " the FDA was clearly stating that ViroPharma's new label did not support a new active ingredient, a new indication, a new dosing regime, or a new route of administration." Plaintiff alleges that the FDA was warning ViroPharma that the labelling change would not be sufficient for a grant of the additional three year exclusivity. Nevertheless, on that same day, ViroPharma issued a press release announcing the approved label change and also that " [a]s a result of today's sNDA approval, ViroPharma believes Vancocin meets the requirements for, and thus has, three years of [marketing] exclusivity, and that generic vancomycin capsules will not be approved during this period." Plaintiff alleges that " market accepted Defendants' statements [regarding the prospect of exclusivity] and believed that the additional three years of marketing exclusivity for Vancocin was a fait accompli. " In turn, ViroPharma stock jumped 17.85% on the day of the announcement. Notwithstanding warning signs from prior communications with the FDA, on December 22, 2011 ViroPharma nevertheless supplemented their Citizen's Petition to the FDA and asserted that the new label provided several new " conditions of use" and this qualified for the additional three years of marketing exclusivity.

During the Class Period, and before the FDA ultimately made a decision on ViroPharma's Citizen's Petition, Plaintiff alleges that ViroPharma continued to make materially false and misleading statements to the public, and omit crucial information from public statements and documents regarding the FDA's indication that Vancocin would not be approved for a " new condition of use." [7]

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On April 9, 2012, the FDA formally denied ViroPharma's Citizen's Petition, stating that:

Notably, ViroPharma's position that [the Genzyme] studies were essential to the approval of a new indication and new dosing regimen are inconsistent with the contents of the sNDA that contained those studies, and the letter detailing the approval of the sNDA. As indicated in the approval letter, the Agency determined that the supplement supported " updates to the prescribing information" and " conversion of the current label into the [PLR] format." In addition, had you intended to seek approval for a new indication or a new dosing regimen (or a new active ingredient, new dosage form, or new route of administration), you would have been required by statute to have conducted an assessment of the safety and effectiveness of the product for the claimed indication in the pediatric patients under the Pediatric Research Equity Act (PREA). You did not submit any such assessments in your sNDA or otherwise reference PREA's requirements by seeking a deferral or waiver of this requirement. Moreover, your approval letter to ...

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