FOR THE EASTERN DISTRICT OF PENNSYLVANIA...

Case 2:12cv07152WY Document 40 Filed 07/19113 of 69

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

STEPHANIE FRATER, Individually and On Behalf Of All Others Similarly Situated,

Plaintiffs,

CIVIL ACTION NO. 2:12-CV-07152 WY

HEMISPHERX BIOPHARMA, INC., WILLIAM A. CARTER, DAVID STRAYER AND WAYNE PAMBIANCHI,

Defendants.

ORDER

AND NOW, this ____ day of , 2013, upon consideration of

Defendants' Motion to Dismiss Amended Complaint for failure to state a claim upon which

relief can be granted, and any opposition and reply thereto, it is hereby ORDERED that

Defendants' Motion is GRANTED. It is further ORDERED that the Amended Complaint is

DISMISSED WITH PREJUDICE.

BY THE COURT:

William H. Yohn, Jr. United States District Judge




Plaintiffs,

CIVIL ACTION NO. 2:12-CV-07152 WY

HEMISPHERX BIOPHARMA, INC., WILLIAM A. CARTER, DAVID STRAYER AND WAYNE PAMBIANCHI,

Defendants.

DEFENDANTS' MOTION TO DISMISS AMENDED COMPLAINT

Defendants Hemispherx Biopharma, Inc., William A. Carter, M.D., David R.

Strayer, M.D., and Wayne Pambianchi ("defendants"), by their attorneys, respectfully move this

Court to dismiss with prejudice Lead Plaintiff Hemispherx Investor Group's Consolidated

Amended Class Action Complaint for Violations of Federal Securities Laws ("Amended

Complaint") pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b) and the Private

Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4(b) ("PLSRA") forthe reasons set

forth below and in the accompanying memorandum of law:

1. The Amended Complaint fails to plead a misstatement or omission of

material fact with the specificity mandated by the PSLRA and Federal Rule of Civil Procedure

9(b);


2. The Amended Complaint fails to state a claim under Section 10(b) of the

Securities Exchange Act of 1934 ("Exchange Act") and Rule lOb-5 promulgated thereunder

because most of the allegedly fraudulent statements are forward-looking statements protected by

the PSLRA's safe harbor provisions, non-actionable statements of belief or opinion, or irrelevant

statements of optimism;

3. The Amended Complaint fails to meet the PSLRA's heightened pleading

requirements for alleging a "strong inference of scienter;" and

4. The Amended Complaint's claims under Section 20(a) of the Exchange

Act are purely derivative of its Section 10(b) claims and therefore are deficient as a matter of

law.

Respectfully submitted,

/s/ Robert L. Hickok Robert L. Hickok Gay Parks Rainville Michele C. Zarychta Alejandro Salicrup PEPPER HAMILTON LLP 3000 Two Logan Square Eighteenth & Arch Streets Philadelphia, PA 19103 (215) 981-4000

-2-

Attorneys for Defendants Hemispherx Biopharma, Inc., William A. Carter,

Dated: July 19, 2013 David Strayer, and Wayne Pambianchi




Plaintiffs,

V. CIVIL ACTION

NO. 2:12-CV-07152 WY HEMISPHERX BIOPHARMA, INC., WILLIAM A. CARTER, DAVID STRAYER AND WAYNE PAMBIANCHI,

Defendants.

MEMORANDUM OF LAW IN SUPPORT OF DEFENDANTS' MOTION TO DISMISS AMENDED COMPLAINT

Robert L. Hickok Gay Parks Rainville Michele C. Zarychta Alejandro Salicrup PEPPER HAMILTON LLP 3000 Two Logan Square Eighteenth & Arch Streets Philadelphia, PA 19103 (215) 981-4000




TABLE OF CONTENTS

Page

I. INTRODUCTION ..................................2

II. FACTUAL BACKGROUND .............................................................................. .6 A. Overview Of Prescription Drug Approval Process .................................. .6 B. Relevant Regulatory History Of The Ampligen NDA ........................... .7

1. Clinical Development Of Ampligen For The Treatment Of CFS .7 2. The FDA's 2009 Complete Response Letter .............................. .9 3. Hemispherx's Actions To Address The 2009 CRL ..................... .9

(a) Hemispherx's Post-Hoc Analyses Of AMP 516 Data ..... 11 (b) June 8, 2013 Guidance Meeting With FDA..................... 12

4. Hemispherx's Complete Response Resubmission....................... 13 5. December 20, 2012 Arthritis Advisory Committee Meeting...... 13 6. Arthritis Advisory Committee Vote............................................. 14

III. ARGUMENT ............................................................................................................ 15 A. Applicable Pleading Standards .................................................................... 15 B. The Amended Complaint Fails To Adequately Plead A Misstatement Or

Omission Of Material Fact........................................................................... 17 1. The Amended Complaint Does Not Adequately Allege That

Hemispherx's Statements Regarding The Company's Complete Response Resubmission Were False and Misleading....................... 18

2. The Amended Complaint Does Not Adequately Allege Any Misleading Omissions Regarding The PLoS ONE Article............... 23

3. Mr. Pambianchi's Statements Are Immaterial.................................. 24 4. Hemispherx's Statements Regarding The Possibility Of

Accelerated Approval Under FDASIA Were Not False ................... 26 C. Defendants' Forward-Looking Statements, Statements Of Belief, And

Statements Of Optimism Are Not Actionable Under Rule lob-S ................ 27 1. Hemispherx's Forward-Looking Statements Regarding the

Ampligen NDA's Prospects For FDA Approval Qualify For Protection Under The PSLRA's Safe Harbor And, Therefore, Do Not Violate Rule lob-S ..................................................................... 29 (a) The Challenged Statements Are Forward-Looking .............. 30 (b) Hemispherx's Forward-Looking Statements Were

Identified As Such And Accompanied By Meaningful Cautionary Language ............................................................ 31

(c) Defendants Are Immune From Liability Under The Safe Harbor For The Separate And Independent Reason That Plaintiff Has Failed To Plead A Strong Inference That Defendants Acted With Actual Knowledge.......................... 37

(d) Hemispherx Had No Duty To Update Its Forward-Looking Statements............................................................................. 38

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2. Hemispherx's Statements Of Belief And Opinion Regarding The Ampligen NDA's Prospects For FDA Approval Do Not Violate RulelOb-5 ........................................................................................ 38

3. Hemispherx's Forward-Looking Statements And Statements Of Belief And Opinion That Plaintiff Claims Violate Rule lOb-5 Constitute Immaterial Puffery And Are Not Actionable For This Separate And Independent Reason ................................................... 41

I,]

The Amended Complaint Fails To Meet The PSLRA's Heightened Pleading Requirements For Alleging A Strong Inference Of Scienter......... 43 1. The Amended Complaint Fails To Plead Actual Knowledge........... 44 2. The Amended Complaint Fails To Plead Recklessness.................... 47 3. Plaintiff's Allegations Of Motive From Raising Capital Through A

Public Offering And Receipt of Incentive Bonuses Do Not Support A Strong Inference Of Scienter........................................................ 55

E. Plaintiff's Section 20(a) Claim Is Purely Derivative Of Its Rule lOb-5 Claim And Must Be Dismissed.................................................................... 57

IV. CONCLUSION.................................................................................................................58

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TABLE OF AUTHORITIES

Page(s)

CASES

Acito v. IMCERA Group, 47 F.3d 47 (2d Cir. 1995) ..................................................................... 45

In reAdolor Corp. Securities Litigation, 616 F. Supp. 2d 551 (ED. Pa. 2009)..........17, 23, 49, 56

In reAdvanta Corp. Securities Litigation, 180 F.3d 525 (3d Cir. 1999)...............................passim

In reAetna, Inc. Securities Litigation, No. 07-4451, 2009 U.S. Dist. LEXIS 48910 (E.D. Pa. June 9, 2009)......................................................................................................................30

In reAlpharma, Inc. Securities Litigation, 372 F. 3d 137 (3d Cir. 2004) ................................17, 23

In reAstea International, Inc. Securities Litigation, No. 06-1467, 2007 U. S. Dist. LEXIS 58238 (E.D. Pa. Aug. 9, 2007).................................................................................................44

In reAstraZeneca Securities Litigation., 559 F. 5upp. 2d 453 (S.D.N.Y. 2008) ........41, 50, 51, 55

Basic Inc. v. Levinson, 485 U.S. 224 (1988). 17

Bauer v. Prudenti al Financial, Inc., No. 09-1771, 2010 U.S. Dist. LEXIS 64384 (D.N.J. June29,2010) ............................................................................................................................ 5

In re Bayer AG Securities Litigation, No. 03 Civ. 1546, 2004 U.S. Dist. LEXIS 19593 (S.D.N.Y. Sept. 30, 2004) ........................................................................................................51

Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007).... 15

Building Trades UnitedPension Trust Fund v. Kenexa Corp., No. 09-2642, 2010 U.S. Dist. LEXIS 102729 (E. D. Pa. Sept. 27, 20 10) ........................................................... 30, 43, 44

In re Bristol-Myers Squibb Securities Litigation, 312 F. Supp. 2d 549 (S.D.N.Y. 2004) .......39, 42

In reBurlington Coat Factory Securities Litigation 114 F.3d 1410 (3d Cir. 1997)..............passim

California Public Employees 'Retirement System v. Chubb Corp., 394 F.3d 126 (3d Cir. 2004) ........................................................................................................................................17

California Public Employees 'Retirement System v. Chubb Corp., No. 00-4285, 2002 U.S. Dist. LEXIS 27189 (D.N.J. June 26, 2002) .....................................................................16

In re CDNow, Inc. Securities Litigation, 138 F. Supp. 2d 624 (E.D. Pa. 2001)...................... 55, 58

In re Columbia Laboratories, Inc. Securities Litigation, 144 F. Supp. 2d 1362 (S.D. Fla. 2001) ..................................................................................................................................31,32

-111-


Cozzarelli v. Inspire Pharmaceuticals, Inc., 549 F.3d 618 (4th Cir. 2008)...................................57

In re Credit Suisse First Boston Corp. Analyst Reports Securities Litigation, 431 F.3d 36 (1st Cir. 2005) ..........................................................................................................................39

In re Cryomedical Sciences Securities Litigation, 884 F. Supp. 1001 (D. Md. 1995) .......

In re Cybershop.com Securities Litigation, 189 F. Supp. 2d 214 (D.N.J. 2002) .................

DeMarco v. DepoTech Corp., 149 F. Supp. 2d 1212 (S.D. Cal. 2001) ..............................

In re Digital Island Securities Litigation, 357 F.3d 322 (3d Cir. 2004) ..............................

In re Discovery Laboratories Securities Litigation, 276 Fed. App'x 154 (3d Cir. 2008)

In re Discovery Laboratories Securities Litigation, No. 06-1820, 2006 U.S. Dist. LEXIS 79823 (E.D. Pa. Nov. 1, 2006).......................................................................................

42

42

16

17,47

17,30

45

In re Discovery Laboratories Securities Litigation, No. 06-1820, 2007 U.S. Dist. LEXIS 18163 (E.D. Pa. Mar. 15, 2007) .......................................................................31, 32, 36, 37, 44

In reDonaldJ. Trump Casino Securities Litigation, 7 F.3d 357 (3d Cir. 1993) ..........................38

Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976)........................................................................16

In re Ford Motor Co. Securities Litigation, 381 F.3d 563 (6th Cir. 2004)..............................38, 39

In re Genzyme Corp. Securities Litigation, Nos. 09-11267-GAO, 09-11299-GAO, 2012 U.S. Dist. LEXIS 44336 (D. Mass. Mar. 30, 2012)..................................................... 48

Globis Capital Partners, L.P. v. Stonepath Group, Inc., 241 Fed. App'x 832 (3d Cir. 2007) ......................................................................................................................... 17,47

In re Great Atlantic & Pacific Tea Co., Inc. Securities Litigation, 103 Fed. App'x 465 (3d Cir. 2004) ...........................................................................................................................17, 56

GSC Partners CDOFundv. Washington, 368 F.3d 228 (3d Cir. 2004)

passim

Harris v. Ivax Corp., 182 F.3d 799 (11th Cir. 1999)

29, 30, 32

Hemphill v. Meyerson, 65 Fed. App'x 776 (3d Cir. 2003) ............................................................17

Institutional Investors Group. v. Avaya, Inc., 564 F.3d 242 (3d Cir. 2009) ..........................passim

Jones v. Conagra Foods, Inc., 912 F. Supp. 2d 889 (ND. Cal. 2012) ............................................ 5

Kalnit v. Eichler, 264 F.3d 131 (2d Cir. 2001) ........................................................................51, 55

Key Equity Investors, Inc. v. Sel-Leb Marketing Inc., 246 Fed. App'x 780 (3d Cir. 2007).... 17,30

-iv-


Klein v. Autek Corp., 147 Fed. App'x 270 (3d Cir. 2005).............................................................17

Kovtun v. Vivus, Inc., No. C 10-4957 PJH, 2012 U.S. Dist. LEXIS 139548 (N.D. Cal. Sept. 27, 2012) .................................................................................................................passim

Lasalle v. Medco Research, 54 F.3d 443 (7th Cir. 1995)

41

Mayer v. Sonex Research, Inc., 541 F. Supp. 2d 693 (E.D. Pa. 2008) ...........................................44

Matrixx Initiatives, Inc. v. Siracusano, 131 S. Ct. 1309 (2011).. 17

In reMedlmmune, Inc., Securities Litigation, 873 F. Supp. 953 (D. Md. 1995)...................passim

In re Merck & Co., Inc. Securities Litigation, 432 F.3d 261 (3d Cir. 2005) ...............17, 29, 30, 31

Morse v. LowerMerion School District, 132 F.3d 902 (3d Cir. 1997) .........................................15

In reNAHC, Inc. Securities Litigation, 306 F.3d 1314 (3d Cir. 2002)..............................16, 17,45

In reNAHC, Inc. Securities Litigation, No. 00-4020, 2001 U.S. Dist. LEXIS 16754 (ED. Pa. Oct 17, 2001) ........................................................................................................21, 56, 57

Nami v. Fauver, 82 F.3d 63 (3d Cir. 1996). 15

Noble Asset Management v. Allos Therapeutics, Inc., No. 04-CV-1030, 2005 U.S. Dist. LEXIS 24452 (D. Cob. Oct. 20, 2005) .................................................................16, 49, 50, 53

In re Nutri system, Inc. Securities Litigation, 653 F. Supp. 2d 563 (E.D. Pa 2009)...............passim

Oran v. Stafford, 226 F.3d 275 (3d Cir. 2000) ............................................................17, 25, 26, 45

Payne v. DeLuca, 433 F. Supp. 2d 547 (W.D. Pa. 2006)

29

Payne v. DeLuca, No. 2:02-cv-1927, 2006 U.S. Dist. LEXIS 89251 (W.D. Pa. Dec. 11, 2006) ........................................................................................................................................16

In re Pfizer, Inc. Securities Litigation, 538 F. Supp. 2d 621 (S.D.N.Y. 2008)........................23, 45

Podany v. Robertson Stephens, Inc., 318 F. Supp. 2d 146 (S.D.N.Y. 2004) ...........................38, 39

In re Radian Securities Litigation, 612 F. Supp. 2d 594 (ED. Pa. 2009) .....................................44

In re Rigel Pharmaceuticals., Inc. Securities Litigation, 697 F.3d 869 (9th Cir. 2012)................56

In re Rockefeller Center Properties, Inc. Securities Litigation, 311 F.3d 198 (3d Cir. 2002) ..................................................................................................................................17, 18

Sara/In v. BioMimetic Therapeutics, Inc., No. 3:11-0653, 2013 U.S. Dist. LEXIS 4909 (M.D. Tenn. Jan. 10, 2013) ................................................................................................54, 57

Case 2:12cv07152WY Document 40 Filed 07/19/13 of 69

Stengel v. Medtronic Inc., 676 F.3d 1159 (9th Cir. 2012) ............................................................... 5

In re Syntex Corp. Securities Litigation, 95 F.3d 922 (9th Cir. 1996)...........................................42

In re Techni chal Chemicals Securities Litigation, No. 98-7334, 2001 U.S. Dist. LEXIS 4851 (S.D. Fla. Mar. 20, 2001) ................................................................................................32

Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U. S. 308 (2007) .........................................16, 43

In re Vertex Pharmaceuticals, Inc. Securities Litigation, 357 F. Supp. 2d 343 (D. Mass. 2005) ........................................................................................................................................49

In re Wellbutrin SR/Zyban Antitrust Litigation, 281 F. Supp. 2d 751 (E.D. Pa. 2003) .................16

Wilson v. Bernstock, 195 F. Supp. 2d 619 (D.N.J. 2002) ..............................................................56

Winer Family Trusty. Queen, 503 F.3d 319 (3d Cir. 2007)..............................................16, 17, 18

Winer Family Trusty. Queen, No. 03-4318, 2004 U.S. Dist. Lexis 19244 (ED. Pa. Sept. 27, 2004) ..................................................................................................................................24

In re Yukos Oil Co. Securities Litigation, No. 04 Civ. 5243, 2006 U.S. Dist. LEXIS 78067 (S.D.N.Y. Oct. 25, 2006) ..............................................................................................16

Zucker v. Quasha, 891 F. Supp. 1010 (D.N.J. 1995).....................................................................45

STATUTES AND RULES

15 U.S.C. § 78j ...............................................................................................................................15

15 U.S.C. § 78u-4 ..................................................................................................................passim

15 U.S.C. § 78u-5 ..................................................................................................................passim

21 U.S.C. § 355 ................................................................................................................................6

Fedral Rule of Civil Procedure 9(b)...........................................................................................1, 16

Federal Rule of Civil Procedure 12(b)(6) ............................................................................1, 15, 16

17 C.F.R. § 240.lOb-5 ....................................................................................................................15

21C.F.R.314 ................................................................................................................................6

OTHER AUTHORITIES

H.R. Conf. Rep. No. 104-369 (1995), reprinted in 1995 U.S.C.C.A.N ........................................16

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In its Consolidated Amended Class Action Complaint for Violations of Federal

Securities Laws ("Amended Complaint"), 1 Lead Plaintiff Hemispherx Investor Group

("plaintiff') seeks damages for alleged violations of Section 10(b) of the Securities Exchange

Act of 1934 ("Section 10(b)"), Rule lob-S promulgated thereunder by the Securities and

Exchange Commission ("SEC"), and Section 20(a) of the Exchange Act ("Section 20(a)").

Plaintiff purports to represent a class of all purchasers of Hemispherx common stock between

March 14, 2012 and December 20, 2012 (the putative "Class Period"). 3

Defendants Hemispherx Biopharma, Inc. ("Hemispherx" or "the Company"),

William A. Carter, M.D., David R. Strayer, M.D., and Wayne Pambianchi (collectively "the

individual defendants" and, with Hemispherx, "defendants ,),4 by their attorneys, hereby submit

this memorandum of law in support of their motion to dismiss the Amended Complaint pursuant

to Federal Rules of Civil Procedure 12(b)(6) and 9(b), and the Private Securities Litigation

Reform Act of 1995 ("PSLRA"), 15 U.S.C. § 78u-4(b).

A copy of the Amended Complaint is included in the Appendix being filed herewith as Exhibit "1 Hereinafter, each document cited herein and contained in the Appendix is accompanied by an "Exh." reference.

2 On March 14, 2013, the Court entered an Order (Docket Entry 22) appointing Hemispherx Investor Group as Lead Plaintiff. Hemispherx Investor Group consists of the following Hemispherx shareholders: Ronald Van Och, Marc Verheyen, and Shradanand Lalbihari. (EXh. 1, Am. Compl. ¶J 21-23.)

3 See, e.g.,Exh. 1, Am. Compl. atJ1.

4lndividual defendant William M. Carter, M.D. serves as Hemispherx's President, Chief Executive Officer, Chief Scientific Officer, and Chairman of the Board of Directors; individual defendant David R. Strayer, M.D., serves as the Company's Medical Director and Chief Medical Officer; and individual defendant Wayne Pambianchi has served from time to time as a senior advisor to Dr. Carter. (See Exh. 1, Am. Compl. ¶J 26-28.)

Case 2:12cv07152WY Document40 Filed 07/19/13 of 69

I. INTRODUCTION

Hemispherx is a small biopharmaceutical company headquartered in Philadelphia,

Pennsylvania. Founded in the early 1970s, Hemispherx develops new drug therapies based on

natural immune system enhancing technologies for the treatment of viral and immune based

chronic disorders. One of the Company's core products is Ampligen, an experimental drug

being developed for the treatment of Chronic Fatigue Syndrome ("CFS"), a "complex,

debilitating disorder of unknown etiology characterized by profound fatigue lasting for 6 or more

consecutive months that is not improved by bed rest and that may be worsened by physical or

mental activity." (Exh. 26, FDA Br. Doc. at 2; see also Exh. 28, Hemispherx Br. Doc. at 11.)

Hemispherx originally filed its New Drug Application ("NDA") for Ampligen

with the United States Food and Drug Administration (the "FDA" or "Agency") in 2007. In

2009, the Company received a "Complete Response Letter" ("CRL") from the FDA in which the

Agency advised that it could not approve the application in its present form and provided

specific recommendations to address the outstanding issues. 6

After receiving two extensions on its deadline for filing its complete response,

Hemispherx met with the FDA on June 8, 2012 to "obtain the Agency's guidance regarding the

path forward to respond to the [2009 CLR]. „ 7 According to the FDA's own minutes of that

meeting, the Company asked whether "a complete response submission based on post-hoc

analyses from a subset of the population enrolled in the initial Phase III programs support

approval of Ampligen for CFS?,” and, in response:

The Factual Background, Section II below, describes the events outlined in this Introduction in more detail, providing citations to the Amended Complaint and documents the Court may consider on a motion to dismiss. See infra Section ILA & n.27.

6 See infra Sections II.B.2, III.B.3.

7 EXh. 27, FDA Guid. Mtg. Mm. (Cover letter).

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The Agency stated that new analyses of data from Trial 516 could be submitted as data to support efficacy for a complete response The Agency noted that it would be unusual for this type of data to provide adequate evidence of efficacy, as typically post-hoc analyses are hypothesis generating. However, the adequacy of the data will ultimately be a review issue, and it is reasonable for the Sponsor to submit such post-hoc analyses as the basis of their complete response.

Accordingly, after it received these minutes, Hemispherx issued a press release on

July 11, 2012, reporting, in pertinent part, that at the June 8, 2012 Guidance Meeting:

[T]he Company and its consultants met with the FDA to discuss certain aspects of the CRL relating to its NDA for Ampligen ® for the treatment of severely debilitated patients with CFS. At this time, the Company believes the key points from the meeting to be undertaken by the Company in conjunction with its complete response include the following:

• The FDA agreed to accept, for review, in Hemisph erx 's complete response new analyses of data from the AMP-516 Trial. Whether these data provide adequate evidence of efficacy will ultimately be a review issue, and there can be no assurance the FDA will conclude the data are adequate to support approval of the Ampligen ® NDA. 9

On December 18, 2012 —two days before the FDA's Arthritis Advisory

Committee ("AAC") was to meet for the purpose of reviewing the Ampligen NDA, the FDA

posted the briefing materials the Agency and Hemispherx had submitted to the AAC. In the

FDA's briefing document, the Agency reported that, at the June 8, 2012 Guidance Meeting, the

Agency advised Hemispherx:

You propose new post-hoc analyses of data from Trial 516 and a post-marketing trial (AMP-520) to support approval. It would be unusual for this type of data to provide adequate evidence of efficacy. However, the adequacy of the data will ultimately be a review issue, and it is reasonable for you to submit a complete response. 10

8 Id at 4-5 (emphasis added).

Exh. 19, 7/11/12 Press Release (emphasis added).

° Exh. 26, FDA Br. Doc. at 5 (quoting Exh. 27, FDA Guid. Mtg. Mm. at 3) (italics omitted).

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What the FDA did not explain in its briefing document is that, as set forth in its own minutes, it

also told Hemispherx that "it is reasonable for the Sponsor to submit such post-hoc analyses as

the basis of their complete response. "11

Immediately after the Agency posted the AAC briefing materials on its website, a

financial blogger named Adam Feuerstein published an article on TheStreet.com , entitled

"Hemispherx Lied To Investors And SEC About Ampligen," which is primarily based on the

FDA's selected quotation from its minutes of the June 8, 2012 Guidance Meeting, "It would be

unusual for this type of data to provide adequate evidence of efficacy." 12 Mr. Feuerstein's

article was followed by a similar article published on Minyanville.com . 13 Not surprisingly, after

these articles were published on the internet, Hemispherx's stock price dropped from a closing

price of $0644 on December 17, 2012 to a closing price of $0368 on December 18, 2012. (See

Exh. 1, Am. Compl. ¶ 14; Exh. 35, Hemispherx Daily Stock Prices.)

Predictably, three days after these articles were published, this lawsuit was filed.

Plaintiff's claims, now embodied in the Amended Complaint, are largely based on the purported

discrepancy between the advice the FDA gave Hemispherx at the June 8, 2012 Guidance

Meeting and the Company's public disclosures regarding that advice. 14 In fact, as revealed by

the FDA's own minutes, the Agency's advice was completely consistent with the summaries of

Exh. 27, FDA Guid. Mtg. Mm. at 5.

12 See Exh. 41, Adam Feuerstein, Hemispherx Lied To Investors And SEC AboutAmpligen, TheStreet.com (Dec. 18, 2012) (emphasis in original) ("Feuerstein 12/18/12 article"); Exh. 1, Am. Compl. ¶ 114 (quoting entire article).

" See Exh. 39, Brett Chase Hemispherx Chronic Fatigue Drug Scn4tinizedAhead of PaneiReview, Minyanville.com (Dec. 18, 2012) ("Chase 12/18/12 article"); Exh. 1, Am. Compl. ¶ 115 (quoting article at length).

14 See Exh. 1, Am. Compl. ¶J 11, 93, 95, 97, 99, 103, 105, 109, 114, 115, 119 (quoting Exh. 26, FDA Br. Doc. at 5 ("It would be unusual for this type of data to provide adequate evidence of efficacy.").

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that advice set forth in Hemispherx's public disclosures. 15 And while the AAC ultimately voted

against approval of the Ampligen NDA at this time, five AAC members voted in favor of

Ampligen's safety and efficacy and eight members of the AAC voted in favor of Ampligen's

safety profile as adequate to support approval. (Exh. 25, AAC Tr. at 111, 114.) This outcome

further demonstrates that it was "reasonable" for Hemispherx to base its complete response

resubmission on its new post-hoc analyses.

Because plaintiff claims that defendants violated the federal securities laws by

allegedly misrepresenting or failing to disclose material information regarding Hemispherx's

communications with the FDA during the putative Class Period and the Ampligen NDA's

prospects for FDA approval, this memorandum provides an overview of Ampligen's recent

regulatory history. 16 The memorandum then presents the following grounds on which plaintiff's

claims must be dismissed:

First, the Amended Complaint fails to plead a misstatement or omission of

material fact with the particularity required under the PSLRA. Not only does the Amended

Complaint allege no contemporaneous facts showing that the statements in question were false or

misleading when made, but most of the allegedly omitted information was promptly and fully

disclosed by defendants before or during the putative Class Period. 17

15 Because the Amended Complaint relies heavily on statements from the FDA's minutes of the June 8, 2012 Guidance Meeting that the FDA selectively quoted in its AAC briefing document, "the full text of those statements is properly considered by the Court for purposes of the present motion[] to dismiss." Bauerv. Prudential Fin., Inc., No. 09-1771, 2010 U.S. Dist. LEXIS 64384, at *17 (D.N.J. June 29, 2010) (considering full text of statements referenced in complaint). The Court may also take judicial notice of the FDA's minutes since the authenticity of documents issued by government agencies cannot reasonably be disputed. See, e.g., Stengel v. Medtronic Inc., 676 F.3d 1159, 1167 (9th Cit. 2012) (taking judicial notice of FDA record); Jones v. Conagra Foods, Inc., 912 F. Supp. 2d 889, 2012 U. S. Dist. LEXIS 178352, at *24 n.6 (ND. Cal. 2012) (taking judicial notice of FDA letter). See also infra Section ILA & n. 27.

16 See infra Section II.

17 See infra Section TuB.

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Second, most of the allegedly fraudulent statements are forward-looking

statements protected by the PSLRA's safe harbor provisions, non-actionable statements of belief

or opinion, or irrelevant statements of optimism. 18

Third, the Amended Complaint fails to meet the PSLRA's heightened

requirements for pleading a strong inference of scienter. 19

For each of these separate and independent reasons, plaintiff's Section 10(b)

claim, set forth in Count I of the Amended Complaint, must be dismissed in its entirety. And

because plaintiff's Section 20(a) claim is purely derivative of its Section 10(b) claim, 20 Count II

must be dismissed as well.

II. FACTUAL BACKGROUND 2 '

A. Overview Of Prescription Drug Approval Process

Before a biotechnology company, pharmaceutical company or other drug sponsor

(hereinafter "sponsor" or "applicant") can legally market or sell a new prescription drug in the

United States, the sponsor must obtain approval from the FDA pursuant to the requirements of

the Federal Food, Drug, and Cosmetic Act ("the Act") and FDA regulations promulgated

thereunder. See, e.g., 21 U.S.C. § 355 (2013); 21 C.F.R. § 314 (2012). Defendants refer the

Court to paragraphs 29-45 of the Amended Complaint for a general overview of the FDA

approval process. (See Exh. 1, Am. Compl. ¶J 29-45.)

18 See infra Section III. C.

19 See infra Section hID.

20 See infra Section TIlE.

21 This Factual Background is drawn from the Amended Complaint's factual allegations, which are accepted as true solely for purposes of this motion, and from documents contained in the accompanying Appendix, which materials, as explained infra in Section lIlA, the court may consider when deciding defendants' motion to dismiss.

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B. Relevant Regulatory History Of The Ampligen NDA

1. Clinical Development Of Ampligen For The Treatment Of CFS

Ampligen is a highly-selective Toll-like receptor 3 (TLR-3) activator that

activates innate immunity and effectively alters the balance of the energy metabolism in patients

with CFS. (Exh. 28, Hemispherx Br. Doc. at 32.) As the FDA has acknowledged, CFS clinical

trials "are severely hampered by lack of consensus about the definition of the disease as well as

by lack of outcome measures." (Exh. 26, FDA Br. Doe. at 3.) Therefore, therapies generally

have focused on treating the symptoms rather than the disease itself. (Id.) With the constantly

evolving scientific research on the causes and treatments of CFS, Hemispherx has spent nearly

twenty years researching and understanding CFS, culminating in its filing of the AmpligenNDA

in 2007. Ampligen is the first drug in the class of RNA (nucleic acid) molecules under FDA

review to treat CFS specifically and not just the symptoms of the illness. (See Exh. 2, 2011

Form 10-K at 3 (filed 3/14/12).)

The Ampligen NDA is supported by, inter al/a, a Phase II clinical trial (AMP

502), a Phase III clinical trial (AMP 516), and a crossover extension study (AMP 516C). AMP

502 was conducted as a randomized, multi-center, placebo-controlled, double-blind study of 92

patients meeting the CDC's case definition of CFS, to measure the response of several laboratory

and clinical variables to Ampligen. (See, e.g., Exh. 28, Hemispherx Br. Doc. at 15, 47, 52.)

AMP 502 was originally designed as a 48-week study, but after an interim analysis and first

protocol amendment on March 23, 1991, it was shortened to 24 weeks. (Id. at 52.) The primary

endpoint was physical performance as demonstrated by Karnofsky Performance Score ("KPS")

and the secondary endpoints included Treadmill Exercise Tolerance Testing ("ETT") duration,

quality of life evaluated by the Activities of Daily Living ("ADL") index score and SF-36, and

use of concomitant medication for relief of CFS symptoms. (Id.)

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AMP 516 was a multi-center, double-blind, randomized, placebo-controlled Phase

III pivotal study of the efficacy and safety of Ampligen, given twice weekly versus placebo in

patients with severely debilitating CFS. (See, e.g., Ed. at 50.) The clinical trial randomized 234

patients at 12 centers across the United States to assess the effects of 40 weeks of treatment with

Ampligen in patients suffering from CFS. (Id. at 50-5 1.) The prospectively defined primary

endpoint was improved physical performance as measured by ETT. (See Ed. at 51.)

Between the completion of AMP 502 and the initiation of AMP 516, the FDA and

medical community began focusing more on cardio-pulmonary function and ambulation as

measured by ETT improvement as a quantitative measurement. (Id. at 67.) Therefore, the FDA

and Hemispherx agreed - as reflected in the AMP 516 protocol - to measure the percent increase

in mean intra-group ETT duration so that it could be compared with ETT improvement seen in

other debilitating chronic diseases. (Id. at 67.) Hemispherx based the >6.5% benchmark on two

drugs that had been approved around that time for congestive heart failure (Fosinopril and

Captopril). (Id. at 19, 67.) Hemispherx included this benchmark in its AMP 516 protocol dated

1/24/97. (See Ed. at 67 & 68.) "Iii agreement with the FDA and the FDA Antiviral Advisory

Committee, ETT was chosen as the primary endpoint for AMP-516" and KPS became a

secondary endpoint. (Id. at 59.)

The following is a summary of the AMP 516 clinical trial results:

• Ampligen improved placebo-adjusted intra-patient ETT by 21.3% and intragroup ETT by 11.8% (p=0.047) in Intent To Treat ("ITT") subjects.

• Medically significant improvement over pre-defined intra-group placebo-adjusted benchmark: 11.8% (Ampligen) vs. 6.5% (benchmark) in ITT subjects.

• Medically significant improvement over pre-declared intra-group placebo-adjusted benchmark: 14.3% vs. 6.5% in subjects without significant dose reductions (pre-declared subset).

in


• Proportion of patients with ETT improvement of at least 25%: Ampligen (39.0%) vs. placebo (23.1%) (p=0.013).

• Correcting for subjects with reduced dosing compliance increased placebo-adjusted mean intra-patient ETT improvement to 28% (p=0.022).

(Id. at 17.)

AMP 516C was a six-month open-label double-blind crossover study of 24 weeks

that followed the 40-week AMP 516 study to evaluate the long-term safety and efficacy of

Ampligen. (Id. at 15, 50-51.) "In AMP 516C, all of the participants from AMP 516 received

Ampligen regardless of whether they were randomized to the Ampligen arm or the placebo arm

of the initial AMP 516 trial." (Exh. 1, Am. Compl. ¶ 58.) AMP 516C study showed that patients

on placebo improved in ETT duration on Ampligen. (Exh. 28, Hemispherx Br. Doc. at 52.)

2. The FDA's 2009 Complete Response Letter

On December 1, 2009, Hemispherx issued a press release announcing that the

Company had received a CRL from the FDA. (Exh. 6, 12/1/09 Press Release.) As the press

release explained, in accordance with Complete Response procedures, "the FDA reviewers

determined that they cannot approve the application in its present form and provided specific

recommendations to address the outstanding issues." (Id.) The contents of the 2009 CRL are

described more fully in Section III.B.I., infra.

3. Hemispherx's Actions To Address The 2009 CRL

Contrary to plaintiffs' bald assertion, upon receipt of the 2009 CRL, Hemispherx

did not "devise a strategy" to avoid the FDA's request for an additional clinical trial. (See

Exh. 1, Am. Compl. ¶ 62.) Instead, the Company took the CRL seriously and immediately

began addressing the FDA's concerns. On January 14, 2010, Hemispherx provided the FDA

with additional preclinical reports which found no evidence of an increase in certain undesirable

cytokines at clinically used doses of Ampligen. (See Exh. 7, 1/14/10 Press Release.) On May 3,

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2010, Hemispherx announced the creation of an Independent Data Monitoring Committee to

oversee the Company's various drug development programs and perform interim analyses of

clinical outcome data to ensure the safety of patients in clinical trials. (See Exh. 8, 5/3/10 Press

Release.)

Following a peer reviewed paper that was published in October 2009 by

investigators from Whittemore Peterson Institute, the National Cancer Institute and the

Cleveland Clinic in which the authors found that the retrovirus XMRV (xenotrophic murine

leukemia related virus) was found in 67% of CFS patients compared to 3.7% in normal healthy

controls, Hemispherx began a relationship with Whittemore Peterson to determine if the XMRV

retrovirus could be used as a biomarker for determining whether a patient had CFS. (See

Exh. 31, 11/16/10 Conf. Call. Tr. at 3, 8-11; Exh. 9, 5/7/10 Press Release; Exh. 10, 8/6/10 Press

Release; Exh. 11, 9/8/10 Press Release.)

In November 2010, Hemispherx announced the publication of a peer-reviewed

article providing new analyses of data from the AMP 516 trial showing that patients on

Ampligen reduced their use of concomitant medications that may prolong the QT interval.

(Exh. 12, 11/22/10 Press Release (citing article); Exh. 20, 8/1/12 Press Release (same).) Also in

November 2010, Hemispherx announced that it requested an extension of up to 12 months for

time to respond to the CRL because it was "actively continuing to evaluate new information

concerning the potential viral etiology of CFS, as that information may profoundly affect the

design, conduct, and interpretation of clinical trial(s) (including those already conducted), as well

as any supportive laboratory studies responsive to the [CRL]." (Exh. 13, 11/29/10 Press

Release.) The Company also announced that it had "submitted a protocol to prospectively

-10-


analyze samples from our Phase III study, AMP-516, for markers of the retrovirus commonly

known as XMRV." (Exh. 2, 2011 Form 10-K at 5; Exh. 13, 11/29/10 Press Release.)

In December 2010, the FDA granted Hemispherx a one-year extension to respond

to the CRL "based on the submission of new data concerning the potential viral etiology of

CFS." (Exh. 2, 2011 Form 10-K at 5; see also Exh. 14, 12/14/10 Press Release.) The Company

later reported, however, that "the results of a number of studies by various experts in this area

have been unable to duplicate the original study findings of the Peterson Whittemore Institute

and Dr. Mikovits." (Exh. 33, 10/27/11 Conf. Call. Tr. at 3; see also Exh. 2, 2011 Form 10-K at

5.)

On March 2, 2011, Hemispherx and Chronix Biomedical ("Chronix") jointly filed

a provisional patent application on a potential blood test for CFS. (Exh. 2, 2011 Form 10-K at 5;

Exh. 15, 3/3/11 Press Release; Exh. 33, 10/27/11 Conf. Call Tr. at 2.) In September 2011,

Hemispherx announced that it presented its initial findings at the IACFS/ME Biennial

Conference held on September 22-25, 2011. (Exh. 16, 9/26/11 Press Release; Exh. 33, 10/27/11

Conf. Call. Tr. at 2.) Citing the new data it presented at this conference, Hemispherx sought, and

received in January 2012, another extension to respond to the CRL. (Exh. 17, 1/11/12 Press

Release; Exh. 2, 2011 Form 10-K at 5.)

(a) Hemispherx's Post-Hoc Analyses Of AMP 516 Data

On March 19, 2012, Hemispherx announced results of a peer review published

article in an online journal, PLoS ONE, entitled, "A Double-Blind, Placebo-Controlled,

Randomized, Clinical Trial of the TLR-3 Agonist Rinatolimod in Severe Cases of Chronic

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Fatigue Syndrome" ("PL0S ONE Article")." (Exh. 18, 3/19/12 Press Release.) The article

explained that

the proportions of Ampligen patients with exercise improvements of at least 25% and at least 50% were, respectively, 1.7 and 1.9-fold greater than those patients on placebo. A continuous responder analysis which examined response improvements from 25% to 50% in 5% increments showed a greater improvement in exercise tolerance for patients receiving Ampligen versus placebo at every 5% increment above 25%.

(Exh. 4, Q2 2012 Form 10-Q at 23; see also Exh. 42, PLOS ONE Article at 3.) In addition, the

article explained that the Ampligen cohort also reduced dependence on medications used by CFS

patients to mitigate their symptoms of CFS as compared to the placebo group (p<0.05).

(Exh. 42, PLoS ONE Article at 5; Exh. 18, 3/19/12 Press Release.)

On March 22, 2012, Hemispherx held an investor conference call, during which

Dr. Carter explained, inter alia, that because the FDA questioned in the 2009 CRL whether the

AMP 516 results were an "arbitrary slice of the data," the Company went "deeper into the

database [to] find that it's not an arbitrary slice it's a uniform finding and I believe we can now

also show one of the reasons of the 700 patients of course." (Exh. 34, 3/22/12 Conf. Call Tr. at

8; see also id. at 3.)

(b) June 8, 2013 Guidance Meeting With FDA

On June 8, 2012, Hemispherx met with the FDA to "obtain the Agency's

guidance regarding the path forward to respond to the [2009 CLR] ." (Exh. 27, FDA Guidance

Meeting Minutes (Cover letter).) The salient details of the FDA's minutes of that meeting, and

Hemispherx's public disclosures of the Agency's minutes, are presented in Section I, above, and

Sections 111.13 and III.D below.

22 Exh. 42, David R. Strayer, et al., A Double-BlincZ Placebo-ControllecZ RandomizecZ Clinical Trial of the TLR-3 AgonistRintatolimod in Severe Cases of Chronic Fatigue Syndrome, PbS ONE, vol. 7, issue 3 (March 2012), available at http://www.pbosone.org/articbe/info:doi%2F1 0.1371 %2Fjoumab.pone.003 1334 (last visited July 19, 2013).

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4. Hemispherx's Complete Response Resubmission

On August 1, 2012, Hemispherx announced that on July 31, 2012, it filed its

complete response to the CRL. (Exh. 20, 8/1/12 Press Release.) The Company's press release

also reported that the new Food and Drug Administration Safety and Innovation Act

("FDASIA"), which the President signed into law on July 9, 2012, authorizes the FDA to

"approve an application for approval of a product for a serious or life-threatening disease or condition, including a fast track product, under section 505(c) or section 351(a) of the Public Health Service Act upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments."

(Id. (quoting Public Law 112-144, Section 901).) Hemispherx stated in the release that it

"believes that the data and analyses provided in its complete response may be relevant to the

potential for approval of Ampligen under this expanded statutory authority. There can be no

assurance, however, how the FDA will implement the new FDASIA provisions." (Id.

(emphasis added).)

5. December 20, 2012 Arthritis Advisory Committee Meeting

On October 22, 2012, the Company announced that the FDA scheduled a meeting

of the Arthritis Advisory Committee ("AAC") for December 20, 2012, and that the purpose of

the meeting was to review the Ampligen NDA. (Exh. 22, 10/22/12 Press Release.) On

December 18, 2012, the FDA published on its website, its briefing document in preparation for

the upcoming December 20, 2012 AAC Meeting. (See generally Exh. 26, FDA Br. Doc.) The

FDA also published Hemispherx's briefing document on the FDA webpage. (See generally Exh.

28, Hemispherx Br. Doc.) Details regarding the FDA briefing document's selective quotation

-13-


from the Agency's minutes of to the June 8, 2012 Guidance Meeting, and the subsequent internet

articles discussing that quotation, are set forth above in Section I.

6. Arthritis Advisory Committee Vote

At the close of its December 20, 2012 meeting, the AAC voted on several issues

regarding the Ampligen NDA. As Hemispherx reported in its December 21, 2012 press release:

On the question: "Considering the totality of the data, is there substantial evidence of efficacy for Ampligen for the treatment of patients with [CFS]?," the AAC voted 9 no, 4 yes and 1 AAC member left the room and did not vote.

On the question: "Has the safety of Ampligen been adequately assessed and characterized for the treatment of [CFS]?," the AAC voted 9 no, 4 yes, and 1 AAC member left the room and did not vote.

On the questions: "Is the safety profile of Ampligen adequate for approval for the treatment of CFS?," the AAC voted 8 yes, 5 no and 1 non-vote.

On the question: "Based on the information included in the briefing materials and presentations, has the applicant provided sufficient efficacy and safety data to support marketing of Ampligen for the treatment of CFS?," the AAC voted 8 no, 5 yes and 1 non-vote.

(Exh. 23, 12/21/12 Press Release; see Exh. 25, AAC Tr. at 105, 110, 111, 114.)

On February 4, 2013, Hemispherx announced that it had received a Complete

Response Letter from the FDA requesting an additional confirmatory trial. (Exh. 24, 2/4/13

Press Release.) In that press release, the Company explained, inter alia: "The Agency stated

that the submitted data do not provide substantial evidence of efficacy of Ampligen ® for the

treatment of CFS and that the data do not provide sufficient information to determine whether

the product is safe for use in CFS due to the limited size of the safety database and multiple

discrepancies within the submitted data." (Id.)

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III. ARGUMENT

To state a claim under Section 10(b) 23 and Rule lOb-5, 24 a plaintiff must allege

that the defendant "(1) made a misstatement or omission of material fact (2) with scienter (3) in

connection with the purchase or sale of a security (4) upon which the plaintiffs reasonably relied

and (5) the plaintiffs' reliance was the proximate cause of their injury." GSC Partners CDO

Fund v. Washington, 368 F.3d 228, 236 (3d Cir. 2004). The failure to adequately plead any one

of these essential elements necessarily precludes a securities fraud claim. See In reAdvanta

Corp. Sec. Litig., 180 F.3d 525, 531 (3d Cir. 1999).

For each of the separate and independent reasons set forth in Subsections B-E,

below, the Amended Complaint fails to state a Rule lob-S claim and should be dismissed.

A. Applicable Pleading Standards

To decide defendants' motion to dismiss, the Court must determine, not only

whether plaintiff's allegations state a claim upon which relief can be granted under Federal Rule

of Civil Procedure 12(b)(6), 25 but also whether the averments comply with the heightened

pleading requirements of the PSLRA, 15 U.S.C. § 78u-4(b), which has replaced Rule 9(b) as the

primary pleading standard for private Rule lob-S actions. See Institutional Investors Grp. v.

23 Section 10(b) prohibits the "use or employ[ment], in connection with the purchase or sale of any security, . . . [of] any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [SEC] may prescribe ....15 U.S.C. § 78j(b).

24 Under Rule 1 Ob-5, it is unlawful to "make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading . . . in connection with the purchase or sale of any security." 17 C.F.R. § 240.1 0b-5.

25 To survive a motion to dismiss under Rule 12(b)(6), a complaint must plead "enough facts to state a claim to relief that is plausible on its face." Bell AtL Corp. v. Twombly, 550 U.S. 544, 570(2007). Thus, factual allegations that fail "to raise a right to relief above the speculative level" or merely state a "conceivable" claim will not suffice. Id at 555, 570. And though a court must accept as true a complaint's well-pleaded factual allegations and draw all reasonable inferences therefrom in the light most favorable to the plaintiff, Nami v. Fauver, 82 F.3d 63, 65 (3d Cit. 1996), it need not give credence to "bald assertions" or "legal conclusions," In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1429 (3d Cit. 1997), or "sweeping legal conclusions in the form of factual allegations," Morse v. LowerMerion Sch. Dist., 132 F.3d 902, 906 n.8 (3d Cit. 1997).

-15-


Avaya, Inc., 564 F.3d 242, 253 (3d Cir. 2009)26 Both Rule 12(b)(6) and the PSLRA require that

the Court "consider the complaint in its entirety, as well as documents incorporated into the

complaint by reference, and matters of which a court may take judicial notice." Avaya, 564

F. 3d at 252 (quoting Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U. S. 308, 322 (2007)). 27

The PSLRA imposes on plaintiffs asserting securities law violations "two distinct

pleading requirements, both of which must be met in order for a complaint to survive a motion to

dismiss." Avaya, 564 F.3d at 252. First, the complaint must "specify each allegedly misleading

statement, [and] why the statement was misleading." Id. at 252-53 (citation omitted). second,

the complaint must, "with respect to each act or omission alleged to violate this chapter, state

with particularity facts giving rise to a strong inference that the defendant acted with the required

state of mind." Id. at 253 (quoting 15 U.S.C. § 78u-4(b)(2)). For Rule lob-S actions, the

required state of mind is scienter - "the defendant's intention 'to deceive, manipulate, or

defraud." Tellabs, 551 U.S. at 313 (quotingErnst & Ernst v. Hochfelder, 425 U.S. 185, 194 &

n.12 (1976), and citing 15 U.S.C. § 78u-4(b)(1), (2) (2007)). 28

26 Congress adopted the PSLRA's "stringent" pleading requirements to "curtail the filing of meritless lawsuits." H.R. Conf. Rep. No. 104-369, at 41 (1995), reprinted in 1995 U.S.C.C.A.N. 730, 740. See WinerFamily Trusty. Queen, 503 F.3d 319, 326 (3d Cit. 2007) ("One of the purposes of the PSLRA's heightened pleading requirements is to limit abusive securities class-actions suits.").

27 Specifically, the Court may take judicial notice of documents whose authenticity is not in dispute, such as the full text of a defendant company's SEC filings, press releases, and investor conference call transcripts; documents issued by government agencies such as the FDA; newspaper articles, and stock price data. See, e.g., In re NAHC, Inc. Sec. Litig., 306 F.3d 1314, 1331 (3d Cit. 2002) (SEC filings and stock price data); Noble Asset Mgmt. v. Altos Therapeutics, Inc., No. 04-CV-1030, 2005 U.S. Dist. LEXIS 24452, at *58 20-21 (ID. Cob. Oct. 20, 2005) (FDA guidance documents); Cal Pub. Emps. 'Ret Sys. v. Chubb Corp., No. 00-4285, 2002 U.S. Dist. LEXIS 27189, at *20.25 (D.N.J. June 26, 2002) (news articles and investor conference call transcripts); In re Wellbutrin SRlZyban Antitrust Litig., 281 F. Supp. 2d 751, 754-55 n.2 (ED. Pa. 2003) (FDAreports); DeMarco v. DepoTech Corp., 149 F. Supp. 2d 1212, 1218 (S.D. Cal. 2001) (FDA advisory committee meeting transcript). The Court, however, "need not accept as true any allegations that are contradicted by documents deemed to be part of the complaint, or materials amenable to judicial notice." In re Yukos Oil Co. Sec. Litig., No. 04 Civ. 5243, 2006 U.S. Dist. LEXIS 78067, at *35 (S.D.N.Y. Oct 25, 2006). AccordPayne v. DeLuca, No. 2:02-cv-1927, 2006 U.S. Dist. LEXIS 89251, at *28 n5 (W.D. Pa. Dec. 11, 2006).

28 Although the "with particularity" language of the PSLRA "echoes precisely Fed. R. Civ. P. 9(b)" and therefore "requires plaintiffs to plead the who, what, when, where and how: the first paragraph of any newspaper

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Where, as here, a complaint fails to comply with the PSLRA's heightened

pleading requirements, "the court shall, on the motion of any defendant, dismiss the

complaint .... 15 U.S.C. § 78u-4(b)(3)(A) (2007) (emphasis added). 29

B. The Amended Complaint Fails To Adequately Plead A Misstatement Or Omission Of Material Fact

A statement is considered false or misleading under Rule lob-S if

it is factually inaccurate, or additional information is required to clarify it. Misrepresentative statements of fact clearly satisfy this requirement. In addition, misleading statements of subjective analysis or extrapolation, such as opinions, motives or intentions, or forward looking statements, such as projections, estimates and forecasts may be actionable if the speaker does not genuinely and reasonably believe them when made. An omission can also satisfy this element where silence would make other statements misleading or false.

In reAdolor Corp. Sec. Litig., 616 F. Supp. 2d 551, 565 (ED. Pa. 2009) (internal quotation

marks and citation omitted). However, "silence, absent a duty to disclose, is not misleading

under Rule lob-S." Matrixx Initiatives, Inc. v. Siracusano, 131 S. Ct. 1309, 1322 (2011)

(quoting Basic Inc. v. Levinson, 485 U.S. 224, 239 n. 17(1988)). °

story," the PSLRA's standard for pleading scienter "marks a sharp break with Rule 9(b)," as the plaintiff must plead the defendant's state of mind, i.e., scienter, "with particularity" and not "generally." Avaya, 564 F.3d at 253 (quotation marks and internal citations omitted).

29 Indeed, the Third Circuit has consistently upheld the dismissal of federal securities fraud claims that fail to meet the PSLRA's heightened pleading requirements. See Institutional Investors Grp. v. Avaya, 564 F.3d 242 (3d Cit. 2009); In re Discovery Labs. Sec. Litig., 276 Fed. App'x 154 (3d Cit. 2008); Winer Family Trusty. Queen, 503 F.3d 319 (3d Cit. 2007); Key Equity Investors, Inc. v. Sel-LebMktg. Inc., 246 Fed. App'x 780 (3d Cit. 2007); Ulobis Capital Partners, L.P. v. Stonepath Grp., Inc., 241 Fed. App'x 832 (3d Cit. 2007); In re Merck & Co., Inc. Sec. Litig., 432 F.3d 261 (3d Cit. 2005); Klein v. Autek Corp., 147 Fed. App'x 270 (3d Cit. 2005); Cal. Public Emps.' Ret. Sys. v. Chubb Corp., 394 F. 3d 126 (3d Cit. 2004); In re Great An. &Pac. Tea Co., Inc. Sec. Litig., 103 Fed. App'x 465 (3d Cit. 2004); In re Alpharma Inc. Sec. Litig., 372 F.3d 137 (3d Cit. 2004); USC Partners CDO Fundv. Washington, 368 F.3d 228 (3d Cit. 2004); In re Digital Island Sec. Litig., 357 F.3d 322 (3d Cit. 2004); Hemphill v. Meyerson, 65 Fed. App'x 776 (3d Cit. 2003); In re Rockefeller Ctr. Props., Inc. Sec. Litig., 311 F.3d 198 (3d Cit. 2002); In re NAHC, Inc. Sec. Litig., 306 F.3d 1314 (3d Cit. 2002); Oran v. Stafford, 226 F.3d 275 (3d Cit. 2000); In reAdvanta Corp. Sec. Litig., 180 F.3d 525 (3d Cit. 1999); In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410 (3d Cit. 1997).

30 As the Supreme Court explained inMatrin, Section 10(b) and Rule lob-S "do not create an affirmative duty to disclose any and all material information. Disclosure is required under these provisions only when necessary 'to make . . . statements made, in the light of the circumstances under which they were made, not misleading." Id. at 1321 (quoting 17 C.F.R. § 240.1Ob-5(b)).

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To adequately plead a false statement or omission of material fact under the

PSLRA, a plaintiff must "specify with particularity all statements alleged to have been

misleading and the reasons why each statement was misleading." In re Nutri system, Inc. Sec.

Litig., 653 F. Supp. 2d 563, 576-77 (ED. Pa 2009) (citing 15 U.S.C. § 78u-4(b)(1)(B) & Winer

Family Trust v. Queen, 503 F.3d 319, 326 (3d Cir. 2007)). Where, as here, a plaintiff asserts

Rule lOb-S claims against multiple defendants, the complaint "must specify the role of each

defendant and their connection to the misstatements or omissions." Id. at 577 (citing Winer

Family Trust, 503 F. 2d at 336). Moreover, "[a]t a minimum, Rule 9(b) requires that the plaintiff

support allegations of securities fraud with the essential factual background accompanying 'the

first paragraph of any newspaper story,' i.e., the 'who, what, when, where and how' of the events

in question." Id. (quoting Rockefeller Or., 311 F. 3d at 217). In addition, "Rule 9(b) requires

that a plaintiff show that the person responsible for the misstatement or omission alleged had

knowledge of its false or misleading character at the time." Id. (citing Rockefeller, 311 F.3d at

216).

As explained below, the Amended Complaint fails to meet these fundamental

pleading requirements.

1. The Amended Complaint Does Not Adequately Allege That Hemispherx's Statements Regarding The Company's Complete Response Resubmission Were False and Misleading

In its Amended Complaint, plaintiff contends that Hemispherx's statements

regarding the Company's use of post-hoc analyses of AMP 516 trial data as the basis of the

Ampligen NDA complete response resubmission were materially false and misleading because

Hemispherx (a) allegedly did not disclose the FDA's criticisms regarding the sufficiency of the

data from the AMP 502 and AMP 516 clinical trials to show Ampligen's safety and efficacy, and

(b) allegedly misrepresented the FDA's agreement that Hemispherx could submit its post-hoc

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analyses of AMP 516 data as the basis of the Company's complete response resubmission. (See

Exh. 1, Am. Compl. ¶J 79-80, 81-82, 83-84, 87-88, 90-91, 92-93, 94-95, 96-97, 98-99, 100-101,

102-103, 104-105, 108, 109.) Plaintiffs allegations fail to plead falsity for two fundamental

reasons.

First, beginning with its December 1, 2009 press release in which it announced

the FDA's 2009 CRL and continuing throughout the putative Class Period, Hemispherx had fully

and repeatedly disclosed the FDA's prior conclusions that the AMP 502 and AMP 516 clinical

trials did not provide adequate evidence of Ampligen's efficacy, that safety needed to be

confirmed, that the Company should conduct a confirmatory Phase III clinical trial with 300

patients that would assess dose ranging, and that the Company's request for a waiver of rodent

carcinogenicity studies had not been granted. As the Company's December 1, 2009 press release

explained:

In accordance with [FDA] 2008 "Complete Response" procedure, the FDA reviewers determined that they cannot approve [the Ampligen NDA] in its present form and provided specific recommendations to address the outstanding issues. .

Most notably, the FDA stated that the two primary clinical studies submitted with the NDA did not provide credible evidence of efficacy of Ampligen ® and recommends at least one additional clinical study which shows a convincing effect and confirms safety in the target population. The FDA indicated that the additional study should be of sufficient size and sufficient duration (6 months) and include appropriate monitoring to rule out the generation of autoimmune disease. In addition, patients in the study should be on more than one dose regimen, including at least 300 patients on dose regimens intended for marketing. Finally, the additional study must incorporate both a well-controlled QT interval study and pharmacokinetic evaluations.

In the Non-Clinical area, the FDA is recommending that the Company complete rodent carcinogenicity studies in two species. As part of the NDA submission, the Company had requested that these studies be waived, but the waiver has not been granted. Certain additional non-clinical studies and additional data to support non-clinical studies already submitted with the NDA are also recommended by the FDA. .

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(Exh. 6, 12/1/09 Press Release; see also, e.g., Exh. 2, 2011 Form 10-K at 3; Exh. 3, Qi 2012

Form 10-Q at 19 (filed 5/7/12); Exh. 4, Q2 2012 Form 10-Q at 22 (filed 8/8/12); Exh. 5, Q3 2012

Form 10-Q at 22 (filed 11/2/12).)"

Hemispherx also repeatedly disclosed that its 2012 resubmission was based, not

on a confirmatory Phase III clinical trial, but on new post-hoc analyses of data from the AMP

516 clinical trial, and that "there can be no assurance that the FDA will conclude the data are

adequate to support the approval of the Ampligen NDA." (Exh. 19, 7/11/12 Press Release; see

also Exh. 4, Q2 2012 Form 10-Q at 18-19, 23 (same); Exh. 5, Q3 2012 Form 10-Q at 23 (same).)

Second, Hemispherx's statements regarding the FDA's agreement to accept the

Company's post-hoc analyses of data from the AMP 516 trial are consistent with and fairly

summarize the FDA's own minutes of the June 8, 2012 Guidance Meeting. According to the

FDA's minutes:

[Hemispherx's] question (a) was clarified to be:

a) Could a complete response submission based on post-hoc analyses from a subset of the population enrolled in the initial Phase III programs support approval of Ampligen for CFS?

The Agency stated that new analyses of data from Trial 516 could be submitted as data to support efficacy for a complete response The Agency noted that it would be unusual for this type of data to provide adequate evidence of efficacy, as typically post-hoc analyses are hypothesis generating. However, the adequacy of the data will ultimately be a review issue, and it is reasonable for the Sponsor to submit such post-hoc analyses as the basis of their complete response.

Hemispherx referred to the handout of post-hoc data entitled "Targeted Population for Treatment with Ampligen" to introduce data and justify the validity of previous data. The FDA acknowledged the handout and emphasized that new analyses could be submitted as the basis of their complete response,

" In its briefing document, the FDA confirmed that these were the "key deficiencies" identified in the 2009 CRL. (See Exh. 26, FDA Br. Doc. at 1-2 ("Key deficiencies include inadequate evidence of effectiveness or safety, inadequacy of drug-drug interaction studies, lack of carcinogenicity assessment, lack of anti-drug antibody determination, and inadequate analytical methods and drug product specifications. Hemispherx was asked to conduct at least one additional controlled clinical trial showing a convincing effect in the target population.").)

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but the Sponsor should clearly explain the justification for the analyses and focus on endpoints that are clinically meaningful to CFS patients.

(Exh. 27, FDA Guidance Meeting Minutes at 4-5 (emphasis added).)

Similarly, Hemispherx reported in its July 11, 2012 press release, inter alia, that

at the June 8, 2012 Guidance Meeting:

The FDA agreed to accept, for review, in Hemispherx's complete response new analyses of data from the AMP- S 16 Trial. Whether these data provide adequate evidence of efficacy will ultimately be a review issue, and there can be no assurance the FDA will conclude the data are adequate to support approval of the Ampligen ® NDA.

The FDA requires that the Company's complete response include all information necessary for review at the time of filing and that it address all deficiencies identified in the CRL.

(Exh. 19, 7/11/12 Press Release (emphasis added); see also Exh. 4, Q2 2012 Form 10-Q at 18-

19, 23 (same); Exh. 5, Q3 2012 Form 10-Q at 23 (same).)

Not only are the FDA's own minutes of the June 8, 2012 Guidance Meeting

consistent with Hemispherx's public disclosures, but plaintiff has averred no facts suggesting

that defendants knew at the time these disclosures were made that the FDA would not accept the

Company's new analyses as providing sufficient evidence of Ampligen's efficacy and safety. To

violate the securities laws, the alleged misstatement or omission of a material fact "must have

been misleading at the time it was made; liability cannot be imposed on the basis of subsequent

events." In reNAHC, Inc. Sec. Litig., No. 00-4020, 2001 U.S. Dist. LEXIS 16754, at *36 (E.D.

Pa. Oct. 17, 2001), aff'd, 306 F.3d 1314 (3d Cir. 2002) ("Corporate officials need not be

clairvoyant; they are only responsible for revealing those material facts reasonably available to

them." (internal quotation marks and citation omitted)); see also Kovtun v. Vivus, Inc., No. C 10-

4957 PJH, 2012 U.S. Dist. LEXIS 139548, *3637 (N.D. Cal. Sept. 27, 2012) ("To say that

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Case 2:12cv07152WY Document4O Filed 07/19/13 of 69

investors were defrauded by defendants' statements about what a third party (the FDA) was

going to do in the future is simply not plausible.").

Furthermore, soon after Hemispherx's investor presentation at the Rodman &

Renshaw Annual Global Investment Conference on September 11, 2012 (see infra Section

III.B.3.), a Senior Columnist for the financial blog TheStreet.com , Adam Feuerstein - whom

plaintiff quotes at length in the Amended Complaint (see Exh. 1, Am. Compl. ¶ 114) - published

a highly critical article in which he questioned Hemispherx's ability to obtain FDA approval of

the Ampligen NDA based solely on post-hoc analyses of data from the AMP 516 clinical trial.

Mr. Feuerstein opined then that it would be "highly unusual" for the FDA to approve the

Ampligen NDA based on such post-hoc analyses:

FDA is likely to reject Ampligen again because Hemispherx ignored the agency's demand to run a new clinical trial in chronic fatigue syndrome. Instead, Hemispherx has spent three years doing essentially nothing but re-analyzing data from the old Ampligen Phase III trial completed in 2004. FDA reviewed the original study already, deeming it "lacking credible evidence of efficacy of Ampligen." It would be highly unusual - unprecedented, even - for FDA to reverse itself and find a retrospective rehash of old Ampligen data more compelling this time around. .

(Exh. 40, Adam Feuerstein, Heniispherx 's Anipligen Rehash Unlikely to Impress FDA,

TheStreet.com (Sept. 27, 2012) ("Feuerstein 9/27/12 article") (emphasis added).)

Acknowledging that Hemispherx's disclosures cautioned that " [w]hether these data provide

adequate evidence of efficacy will ultimately be a review issue, and there can be no assurance

the FDA will conclude the data are adequate to support approval of the Ampligen NDA," Mr.

Feuerstein alerted investors that they "would be wise to take that warning seriously." (Id.

(quoting Hemispherx press release) (emphasis added); see also Exh. 34, 3/22/12 Conf. Call Tr. at

9-10 (investor questioning why Hemispherx was not doing the requested Phase III study because

"the FDA is asking for confirmation of the results, and. . . they want 300 patients on the drug [in

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a new trial] to prove that. And you're thinking with new data in your old 516 clinical trial that

you can beat the FDA on that. . . . if you're asking me this is not at all going to work.")

(emphasis added) and Exh. 1, Am. Compl. ¶ 90.)

In short, there is no question that the uncertainty of whether the FDA would

accept Hemispherx's post-hoc analyses of the AMP 516 data as sufficient proof of efficacy to

support approval of the Ampligen NDA was "part of the total mix of information available to the

market" during the putative Class Period. See, e.g., In re Pfizer Inc., Sec. Litig., 538 F. Supp. 2d

621, 632 (S.D.N.Y. 2008) (finding no material omission where conflicting evidence of a drug's

efficacy was already "part of the total mix of information available to the market" because

analysts' reports acknowledged the conflicting evidence on efficacy); Adolor, 616 F. Supp. 2d at

570 n. 17 (finding no duty to disclose information about the efficacy of a drug in a subgroup and

noting that investment community was aware that the positive results announced by the company

were limited to top-line results and citing question by investor during a conference call on the

issue).

In sum, the Amended Complaint fails to allege that Hemispherx made any false or

misleading statements regarding the Ampligen NDA's prospects for FDA approval. 32

2. The Amended Complaint Does Not Adequately Allege Any Misleading Omissions Regarding The PLoS ONE Article

Plaintiff also contends that Hemispherx's disclosures regarding the March 2012

PLoS ONE Article are misleading because the Company did not explain that the journal charges

32 The Amended Complaint's averments regarding the viability of a diagnostic tool for CFS are equally unavailing. Plaintiff claims that Hemispherx "minimized the importance of the Chronix biomarker technology" and the need for an accurate diagnostic test for CFS because the Company allegedly had not reached an agreement with the FDA for a Phase III study with a diagnostic analysis and had not been able to show that Chronix or another diagnostic served as a valid biomarker for CFS. (See Exh. 1, Am. Compl. ¶J 79-80, 89-90.) Yet, plaintiff has not cited any facts regarding the "who, what, when where, and how" of this claim; therefore, its allegations regarding a CFS diagnostic test fail to meet the pleading requirements of both Rule 9(b) and the PSLRA and should be dismissed. See, e.g., In reAlpharma Inc. Sec. Litig., 372 F.3d 137, 148 (3d Cit. 2004).

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a publication fee and did not state plaintiff's opinion that the March 2012 article was not actually

"peer-reviewed" because the journal employs only a minimal level of scrutiny. (Exh. 1, Am.

Compl. ¶J 87, 88(b).) Yet, PLoS ONE's website spells out the journal's "publication fees" and

peer review process. 33 Because this information is publicly available, Hemispherx had no duty

to disclose it. 34

3. Mr. Pambianchi's Statements Are Immaterial

On September 11, 2012, Hemispherx participated in the Rodman & Renshaw

Annual Global Investment Conference in New York. Introducing himself as an advisor to Dr.

Carter, individual defendant Wayne Pambianchi narrated Hemispherx's slide presentation. (See

Exh. 37, 2012 Rodman & Renshaw Conference Tr. ("R&R Tr.") at 1; Exh. 1, Am. Compl. ¶ 98.)

Slide 4 stated "FDA to review further analyses in lieu of additional Phase III study originally

called for" and cross-referenced Hemispherx's July 11, 2012 press release. (Exh. 36,

Hemispherx PowerPoint Presentation (Sept. 9-11, 2012) ("R&R Slides") at 4.) Slide 9 stated

that "FDA has agreed to accept, for review, further analyses of data from Hemispherx's

completed clinical trials in lieu of additional confirmatory Phase III study originally called for in

the Agency's CRL," and that "[w]hether these data provide adequate evidence of efficacy will be

a review issue, and there can be no assurance the FDA will conclude the data are adequate to

support approval of Ampligen." (Id. at 9.) Referring to these statements on Slide 9, Mr.

See Exh. 38, PLoS ONE, Publication Fees, athttp://www.plos.org/publish/pricing-policy/publication-fees/ (last visited July 19, 2013); see also Exh. 38, PLoS ONE, Journal Information, Publication Charges, at http://www.plosone.org/static/information.action (last visited July 19, 2013); Exh. 38, PLoS ONE, Journals, at http://www.plos.org/publications/journals/ (last visited July 19, 2013); Exh. 38, PLoS ONE, Journal Information, Editorial and Peer-Review Process, at http://www.plosone.org/static/information.action (last visited July 19, 2013).

' Because this information "was part of the total mix of information available to the market," plaintiffs allegations should be dismissed under the truth-on-the market doctrine as well. The "truth on the market" doctrine "recognizes that a statement or omission is materially misleading only if the allegedly undisclosed facts have not already entered the market." Winer Family Trust v. Queen, No. 03-4318, 2004 U. S. Dist. Lexis 19244, at *1213 (ED. Pa. Sept. 27, 2004).

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Pambianchi provided his interpretation of how the FDA would review the post-hoc studies being

submitted by the Company:

This is a result of interactions with the FDA including a pivotal meeting on June 8th in which the FDA shared with Hemispherx its intent to withdraw the request that was in the complete response letter the company received in 2009. Part of that complete response letter requested that the company conduct another study. In lieu of another study now the FDA is examining data in a new way and newly submitted data, some of which is in publications that have been offered by Hemispherx in the last year or so.

(Exh. 37, R&R Tr. at 2; see also Ed. at 4 ("There was this pivotal meeting with the FDA on June

8 where they decided to accept in lieu of another study, an examination of data in a new

department within the FDA."); Exh. 1, Am. Compl. ¶ 98.)

Even assuming Mr. Pambianchi's interpretation was an inexact description of the

FDA's position, it was nonetheless not material. During the week before September 11, 2012,

Hemispherx's stock price ranged from a closing price of $0.71 to a high of $0.88 on September

10. Immediately after Mr. Pambianchi's presentation, however, the Company's stock price

dropped to $0.85 and continued to fall to as low as $0.76 on September 17. (See Exh. 35,

Hemispherx Daily Stock Prices (showing $0.85 closing price on 9/11/12; $82 closing price on

9/12/12; $0.83 closing price on 9/13/12; $0.80 closing price on 9/14/12; $0.76 closing price on

9/17/12; and $0.80 closing price on 9/18/12).)

Because Hemispherx's stock price did not increase - and, in fact, fell - after Mr.

Pambianchi's presentation, his statements are immaterial as a matter of law. As the Third

Circuit explained in Oran v. Stafford:

In [In re Burlington Coat Factory Securities Litigation, 114 F.3d 1410 (3d Cir. 1997)], however, this Court fashioned a special rule for measuring materiality in the context of an efficient securities market. This rule was shaped by the basic economic insight that in an open and developed securities market like the New York Stock Exchange, the price of a company's stock is determined by all available material information regarding the company and its business. In such an efficient market, "information important to reasonable investors . . . is

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immediately incorporated into the stock price." As a result, when a stock is traded in an efficient market, the materiality of disclosed information may be measured post hoc by looking to the movement, in the period immediately following disclosure, of the price of the firm's stock. Because in an efficient market "the concept of materiality translates into information that alters the price of the firm's stock," if a company's disclosure of information has no effect on stock prices, "it follows that the information disclosed. . . was immaterial as a matter of law."

Oran v. Stafford, 226 F.3d 275, 282 (3d Cit. 2000) (citing Burlington, 114 F.3d at 1425)

(emphasis added, internal citations omitted).

Thus, under the Oran-Burlington standard alone, the Court should dismiss

plaintiff's claims that Mr. Pambianchi's statements were false or misleading (see Exh. 1, Am.

Compl. ¶ 99 (b), (0).

4. Hemispherx's Statements Regarding The Possibility Of Accelerated Approval Under FDASIA Were Not False

The Amended Complaint asserts that Hemispherx's statements regarding the

possibility of accelerated approval of the Ampligen NDA under FDASIA were false or

misleading because the Company had been denied fast-track status under other statutes. (Exh. 1,

Am. Compl. ¶J 90-91(a)-(c), 94-95(d)-(f), 98-99(c),(d), 100-101(a), 102-103(d), (1).) As with its

post-hoc analyses claims (see supra Section III. B. 1.), however, plaintiff does not allege any

contemporaneous facts suggesting that Hemispherx knew the FDA would deny the Company's

request for accelerated approval of the Ampligen NDA under the newly enacted FDASIA.

That the FDA had denied Hemispherx fast-track status under other statutes did not

render unreasonable the Company's belief that it could rely on FDASIA, which the Agency had

yet to interpret. Indeed, as late as September 2012, both FDA representatives and industry

In addition, as explained in Section TuB. 1., supra, later that same month, Adam Feuerstein opined that "[i]t would be highly unusual - unprecedented, even - for FDA to reverse itself and find a retrospective rehash of old Ampligen data more compelling this time around ...... and that the "FDA is likely to reject the Ampligen NDA again." (Exh. 40, Feuerstein 9/27/12 article.)

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commentators opined during the Class Period that CFS is the type of illness for which the

FDASIA may apply. (See Exh. 30, 9/13/12 FDA Conf. Call Tr. at 6 (assurances by Dr. Sandra

Kweder, FDA Deputy Director of the Office of New Drugs, during the FDAICDER, patient

advocacy teleconference, that the FDA considers CFS/ME to be a "serious and life threatening

condition" and that the FDA is "committed to making promising drugs available to individuals

with serious diseases as quickly as possible for the rapid development and review of these types

of therapy"); Exh. 43, Sue Sutter, Chronic Fatigue Syndrome Drug Development Efforts Get a

Boost from FDA, "The Pink Sheet" Daily (Sept. 13, 2012) (referring to Dr. Kweder's comments

on accelerated approval and stating that "[by suggesting the accelerated approval route as an

option [for CFS], the agency appears to be following the directive laid out in the [FDASIA],

which was signed into law on July 9.").) "To say that investors were defrauded by defendants'

statements about what a third party (the FDA) was going to do in the future is simply not

plausible." Kovtun, 2012 U.S. Dist. LEXIS 139548 at *3637.36

Thus, the Amended Complaint fails to adequately allege that defendants'

statements regarding FDASIA were materially false or misleading.

C. Defendants' Forward-Looking Statements, Statements Of Belief, And Statements Of Optimism Are Not Actionable Under Rule lOb-S

The Amended Complaint alleges that the following statements violate Rule 1Ob-5:

• "We believe that continued efforts to understand existing data and to advance the development of new data and information, will ultimately support a re- filing of the NDA." (Exh. 1, Am. Compl. ¶ 79.)

36 Moreover, as discussed in Section III.C. infra, each of these statements were mere expressions of hope accompanied by cautionary language and thus are not actionable. See, e.g., In re Medimmune, Inc., Sec. Litig., 873 F. Supp. 953, 964 (ID. Md. 1995) ("Mere expressions of hope or expectation regarding future approval, not worded as guarantees, are not actionable.").

-27-


"While we believe that finding an accurate diagnostic test for CFS is useful, it is not essential for FDA approval of CFS treatment including Ampligen®." (Exh. 1, Am. Compl. ¶J 79, 89.)

"[TI/ic Company believes the key points from the meeting to be undertaken by the Company in conjunction with its complete response include. . . The FDA agreed to accept, for review, in Hemispherx's complete response new analyses of data from the AMP 516 Trial." (Exh. 1, Am. Compl. ¶J92, 96, 104.)

• "Hemispherx believes the data show that patients who were able to continue on a treadmill for at least 25% longer than at baseline achieved significantly greater improvement in [secondary endpoints] ....(Exh. 1, Am. Compl. ¶ 94.)

• "The Company believes the data show that [discussing results of AMP 516q....(Am. Compl. ¶ 94.)

• "Hemispherx believes that the data and analyses provided in its complete response may be relevant to the potential for approval of Ampligen® under this expanded statutory authority. (Exh. 1, Am. Compl. ¶ 94.) 37

• "I think [FDASIA] sets the stage for a favorable outcome at the PDUFA date, but once again, we can't make that prediction with 100 percent certainty (Exh. 1, Am. Compl. ¶ 98.)

• "Hemispherx also believes that the FDA's recently expanded statutory authority under [FDASIA] may be relevant to the potential for approval of Ampligen®, although there can be no assurance how the FDA will implement the new FDASIA provisions." (Exh. 1, Am. Compl. ¶ 102.)

As explained below, none of these statements can give rise to a Rule lob-S claim

because they are (a) forward-looking and protected under the PSLRA's safe harbor; (b) non-

actionable statements of belief or opinion; and (c) irrelevant statements of optimism.

See also Exh. 1, Am. Compl. ¶ 100 (quoting Exh. 43, 9/13/12 Pink Sheet Daily ("We believe we have met the new statutory requirements which would logically lead to an acceleration of an approval.") (emphasis added)).

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1. Hemispherx's Forward-Looking Statements Regarding the Ampligen NDA's Prospects For FDA Approval Qualify For Protection Under The PSLRA's Safe Harbor And, Therefore, Do Not Violate Rule lOb-S

To encourage public companies to disclose their own assessment of their future

potential without fear of liability should their predictions turn out to be inaccurate, Congress

included in the PSLRA a "safe harbor" for forward-looking information. See Payne v. DeLuca,

433 F. Supp. 2d 547, 560 (W.D. Pa. 2006) (citing In re Merck & Co. Sec. Litig., 432 F.3d 261,

272 (3d Cir. 2005), S. Rep. No. 104-98, at 16, reprinted in 1995 U.S.C.C.A.N. 679, 695 (1995)).

See also Harris v. Ivax Corp., 182 F.3d 799, 806(11th Cir. 1999) ("Congress enacted the safe-

harbor provision in order to loosen the 'muzzling effect' of potential liability for forward-looking

statements, which often kept investors in the dark about what management foresaw for the

company."). This safe harbor "immunizes from liability any forward-looking statement,

provided that: the statement is identified as such and accompanied by meaningful cautionary

language; or is immaterial; or the plaintiff fails to show the statement was made with actual

knowledge of its falsehood." Institutional Investors Grp. v. Avaya, Inc., 564 F.3d 242, 254 (3d

Cir. 2009). Thus, statements meeting any of these criteria, as a matter of law, cannot support a

Rule lob-S claim, and the Amended Complaint, to the extent it is based on any such statements

must be dismissed. See 15 U.S.C. § 78u-5(e) ("On any motion to dismiss based upon subsection

"Under the safe harbor, a reporting company and its officers, directors and employees may not, as a matter of law, be held liable for any prediction or other forward-looking statement which later prove to be inaccurate

(1) The forward-looking statement is "identified as a forward-looking statement, and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement" (15 U.S.C. § 78u-5(c)(1)(A)(i));

(2) The forward-looking statement is "immaterial" (15 U.S.C. § 78u-5(c)(1)(A)(ii)); at

(3) The plaintiff fails to prove the forward-looking statement was made, or approved by an executive officer of the company, with actual knowledge that the statement was false or misleading. (15 U.S.C. § 78u-5(c)(1)(B)).

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(c)(1), the court shall consider any statement cited in the complaint and any cautionary statement

accompanying the forward-looking statement, which are not subject to material dispute, cited by

the defendant.").

In accordance with the PSLRA's mandate, the Third Circuit has consistently

upheld the dismissal of Rule lob-S claims that are based on forward-looking statements

protected by the safe harbor. See Avaya, 564 F.3d at 257-58; In re Discovery Labs. Sec. Litig.,

276 Fed. App'x 154, 155 (3d Cir. 2008); Key Equity Investors, Inc. v. Sel-LebMktg. Inc., 246

Fed. App'x 780, 785-86 (3d Cir. 2007); In reMerck& Co. Sec. Litig., 432 F.3d 261, 273 n. 11

(3d Cir. 2005); GSC Partners CDOFundv. Washington, 368 F.3d 228, 242-43 (3d Cir. 2004); In

reAdvanta Corp. Sec. Litig., 180 F.3d 525, 536 (3d Cir. 1999).

(a) The Challenged Statements Are Forward-Looking

The PSLRA's safe harbor defines the term "forward-looking statement" to

include, inter alia, "a statement of the plans and objectives of management for future operations,

including plans or objectives relating to the products or services of the issuer;" and "any

statement of the assumptions underlying or relating" to the aforementioned statements.

15 U.S.C. § 78u-5(i)(l)(B), (D). A "statement is not forward-looking if its accuracy can be

determined at the time it is made." Nutrisysteni, 653 F. Supp. at 579 (citing Ivax, 182 F.3d at

805).

Plaintiff contends that Hemispherx's statements regarding the Company's plans

for its complete response resubmission, delineated on pages 27-28 above, were false and

misleading. Yet, all of these challenged statements, on their face, qualify as forward-looking

Following Third Circuit precedent, courts in this District routinely dismiss claims based on forward-looking statements. See, e.g., Bldg. Trades UnitedPension Trust Fund v. Kenexa Corp., No. 09-2642, 2010 U. S. Dist. LEXI5 102729, at *55 (ED. Pa. Sept 27, 2010); In re Nutrisystem, Inc. Sec. Litig., 653 F. Supp. 2d 563, 578-79 (ED. Pa. 2009);In re Aetna, Inc. Sec. Litig., No. 07-4451, 2009 U.S. Dist LEXI5 48910, at *62.67 (ED. Pa. June 9, 2009).

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statements in that they include words of futurity or belief. See, e.g., Nutrisystem, 653 F. Supp. at

578-80 (holding that statement using "believe" was forward-looking); In re Discovery Labs. Sec.

Litig., No. 06-1820, 2007 U.S. Dist. LEXIS 18163, at *56 (ED. Pa. Mar. 15, 2007) (holding

that a statement which "expressed the belief' that the drug in development would have a longer

shelf-life than the drugs currently on the market was a forward-looking statement that could not

support liability); In re Columbia Labs., Inc. Sec. Litig., 144 F. Supp. 2d 1362, 1368 (S.D. Fla.

200 1) (holding that a statement prefaced by "believed" was forward-looking).

(b) Hemispherx's Forward-Looking Statements Were Identified As Such And Accompanied By Meaningful Cautionary Language

As explained above, forward-looking statements qualify for protection under the

PSLRA's safe harbor so long as they are identified as forward-looking and "accompanied by

meaningful cautionary statements identifying important factors that could cause actual results to

differ materially from those in the forward-looking statement." 15 U.S.C. § 78u-5(c)(1)(A)(i).

Specifically, "[t]he cautionary language should be directly related to the alleged

misrepresentations, but it does not have to actually accompany the alleged misrepresentation."

GSC Partners, 368 F.3d at 243 n.3 (citations and internal quotation marks omitted). Therefore, a

company's press releases and investor conference calls may incorporate by reference cautionary

language contained in its SEC filings. See, e.g., Avaya, 564 F.3d at 257 (finding that cautionary

statements contained in corporate defendant's Form 10-Q, which were cross-referenced in

defendant's conference calls and press releases, were sufficiently extensive and specific); Merck,

432 F.3d at 273 n. 11 (finding that "[t]he cautionary language was sufficient because the press

release incorporated by reference the cautionary statements in Merck's 2000 Form 10-K ....);

Nutri system, 653 F. Supp. 2d at 579 ("Cautionary language must be related to the forward-

looking statements but need not actually accompany them.").

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Moreover, while the cautionary language "must be extensive and specific,"

Avaya, 564 F.3d at 256 (citation omitted), a company need not warn against every possible risk

or provide "a listing of all factors," Ivax, 182 F. 3d at 807 (emphasis in original). As Congress

explained, a "failure to include the particular factor that ultimately causes the forward-looking

statement not to come true will not mean that the statement is not protected by the safe harbor."

Id. (quoting H.R., No. 104-369, at 44 (1995)).

For biotech companies like Hemispherx courts have held that meaningful

cautionary language includes warnings of risk factors such as the possible failure to successfully

or timely complete clinical trials or to obtain approvals by regulatory authorities. See, e.g.,

Discovery Labs., 2007 U. S. Dist. LEXIS 18163, at *20 (holding language regarding possibility

of failure or delay due to regulatory approvals is meaningful cautionary language); Columbia

Labs., 144 F. Supp. 2d at 1369 (holding that warning language regarding the timely completion

of studies was meaningful cautionary language); In re Tech. Chems. Sec. Litig., No. 98-7334,

2001 U.S. Dist. LEXIS 4851, at *2324 (S.D. Fla. Mar. 20, 2001) (citing Ivax, 182 F.3d at 807)

(noting that the cautionary language need not explicitly mention the factor that ultimately belies

the forward-looking statement).

Here, Hemispherx identified all of the challenged statements listed on pages 27-

28 above as "forward-looking" and ensured that they were accompanied by meaningful

cautionary language. In the July 11, 2012 press release challenged by plaintiff, for example,

Hemispherx stated:

On June 8, 2012, the Company and its consultants met with the FDA to discuss certain aspects of the CRL relating to its NDA for Ampligen ® for the treatment of severely debilitated patients with CFS. At this time, the Company believes the key points from the meeting to be undertaken by the Company in conjunction with its complete response include the following:

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The FDA agreed to accept, for review, in Hemispherx's complete response new analyses of data from the AMP 516 Trial. Whether these data provide adequate evidence of efficacy will ultimately be a review issue, and there can be no assurance the FDA will conclude the data are adequate to support approval of the Ampligen ® NDA.

• Hemispherx will include in the complete response a request for postponement of rodent carcinogenicity study requirements and a justification for this request.

(Exh. 1, Am. Compl. ¶ 92 (quoting Exh. 19, 7/11/12 Press Release) (emphasis added).)

The press release clearly warned investors that its statements of belief were

"forward-looking" and subject to the PSLRA's safe harbor provisions:

Forward-Looking Statements

To the extent that statements in this press release are not strictly historical, all such statements are forward-looking, and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as "believes," "plans," "anticipates," and similar expressions are intended to identify forward-looking statements. These statements are based on the company's current beliefs and expectations and represent the Company's judgment as of the date of this release The inclusion offorward-looking statements should not be regarded as a representation by Hemispherx that any of its plans will be achieved These forward-looking statements are neither promises nor guarantees offuture performance, and are subject to a variety of risks and uncertainties, many of which are beyond Hemispherx 's control, which could cause actual results to differ materially from those contemplated in these forward-looking statements. Examples of such risks and uncertainties include those set forth in the Disclosure Notice, above, as well as the risks described in Hemispherx's filings with the Securities and Exchange Commission, including the most recent reports on Forms 10-K, 10-Q and 8-K. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof, and Hemispherx undertakes no obligation to update or revise the information contained in this press release, whether as a result of new information, future events or circumstances or otherwise revise or update this release to reflect events or circumstances after the date hereof.

(Exh. 19, 7/11/12 Press Release (emphasis added).)

In its "Disclosure Notice," the July 11, 2012 press release further states:

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DISCLOSURE NOTICE: The information in this press release includes certain "forward-looking" statements (explained below), including statements about the remaining steps to potentially gain FDA approval of the Ampligen ® NDA for the treatment of Chronic Fatigue Syndrome. The final results of these and other ongoing activities could vary materially from Hemisph erx's expectations and could adversely affect the chances for approval of the Ampligen ® NDA. These activities and the ultimate outcomes are subject to a variety of risks and uncertainties, including but not limited to risks that (i) the complete response Hemispherx ultimately submits in support of the Ampligen ® NDA may not be accepted by the FDA or such acceptance maybe delayed- (ii) the FDA may ask for additional data, information or studies to be completed or provided prior to approval; (iii) the FDA may require additional work related to the commercial manufacturing process to be completed prior to approval or may, in the course of the inspection of manufacturing facilities, identify issues to be resolved; and (iv) the FDA may determine that the complete response ultimately submitted by Hemispherx is not "complete, "potentially requiring the Company to conduct additional activities before it can re-file, if at all, the complete response. Any failure to satisfy the FDA's requirements could significantly delay, or preclude outright, approval of the Ampligen ® NDA.

(Id. (emphasis added).)

The above cautionary language, set forth directly in the July 11, 2012 press

release itself, was "extensive and specific" and "directly related" to the alleged defects in

Hemispherx's forward-looking statements. GSC Partners, 368 F.3d at 243 n.3. Hemispherx's

most recent Form 10-K and From 10-Q as of the date of the press release also contained

extensive and specific cautionary language. (See Exh. 2, 2011 Form 10-K at 1 ("Special Note

Regarding Forward Looking Statements"), 19-20, 32-34 (listing numerous relevant risk factors);

Exh. 3, Qi 2012 Form 10-Q at 17 ("Special Note Regarding Forward Looking Statements"), 27-

28, 40-42 (listing numerous relevant risk factors).)

Plaintiff also challenges the following statements set forth in Hemispherx's

August 1, 2012 press release:

Included in the additional AMP 516 study analyses [Hemispherx] submitted to the FDA is an examination of the quality of life parameters in patients who either met or failed the primary endpoint (exercise treadmill testing or "ETT"). Hemispherx believes the data show that patients who were able to continue on a treadmill for at least 25% longer than at baseline achieved significantly greater improvement in

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vitality, general health perception, Karnofsky performance score, and activities of daily living compared to those that improved less than 25% in ETT.

Patients who participated in the 40-week AMP 516 study were permitted to enroll in a 24-week extension study; all patients during the extension study received Ampligen® but were not informed of the treatment they received during the initial 40-week study period. The Company believes the data show that

1) the patients who received Ampligen(V over the entire 64 weeks continued to improve during the 24-week extension study, experiencing a mean improvement of 23% in treadmill duration;

2) patients who crossed over from placebo to Ampligen® experienced a mean improvement of 39% over the 24 weeks of Ampligen(V treatment; and

3) the proportion of patients who improved by at least 25% in exercise duration from baseline was significantly greater for the patients who switched from placebo to Ampligen® during the last 24 weeks (30%) compared to the patients who remained on Ampligen® (11% during the last 24 weeks).

The Food and Drug Administration Safety and Innovation Act (the "FDASIA" statute), which was signed into law by President Obama on July 9, 2012, includes new provisions for the "enhancement of accelerated patient access to new medical treatments." Specifically, the FDA is authorized by these new provisions to "approve an application for approval of a product for a serious or life-threatening disease or condition, including a fast track product, under section 505(c) or section 351(a) of the Public Health Service Act upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments." (Public Law 112-144, Section 901)

Hemispherx believes that the data and analyses provided in its complete response may be relevant to the potential for approval of Ampligen ® under this expanded statutory authority. There can be no assurance, however, how the FDA will implement the new FDASIA provisions.

(Exh. 1, Am. Compl. ¶ 94 (quoting Exh. 20, 8/1/12 Press Release) (emphasis added).)

As in Hemispherx's July 11, 2012 press release, the Company's August 1, 2012

press release fully explained that "[w]ords such as 'believes' . . . are intended to identify

forward-looking statements" and provided extensive and specific cautionary language (Exh. 20,

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8/1/12 Press Release (emphasis added)), which cautionary language supplements the detailed

"risk factors" set forth in the most recent reports on Form 10-K and Form 10-Q at that time. (See

Exh. 2, 201110-K at 1 ("Special Note Regarding Forward Looking Statements"), 19-20, 32-34

(listing numerous relevant risk factors); Exh. 3, Qi 2012 Form 10-Q at 17 ("Special Note

Regarding Forward Looking Statements"), 27-28, 40-42 (listing numerous relevant risk factors).)

All of the other forward-looking statements delineated on pages 27-28 above also were identified

as forward-looking and accompanied by meaningful cautionary language in the relevant

Hemispherx public disclosures. 40

In sum, cautionary language that accompanied Hemispherx's forward-looking

statements is sufficiently meaningful under the PSLRA's safe harbor because it is "substantive,

extensive and tailored to the future-looking statements [it] reference[s]." Avaya, 564 F.3d at 258

(citation and internal quotation marks omitted). As the court found in In re Discovery Labs.,

with such extensive and specific disclosures, "we are unable to dream up any more meaningful

and cautionary statement" that could have been included in Hemispherx's disclosures. 2007 U. S.

Dist. LEXIS 18163, at *2021 (discussing disclosure that "[if] the FDA does not accept the

40 For the meaningful cautionary language accompanying the challenged statement "We believe that continued efforts to understand existing data and to advance the development of new data and information, will ultimately support a re-filing of the NDA" (Exh. 1, Am. Compl. ¶ 79 (emphasis added)), see Exh. 18, 3/19/12 Press Release; Exh. 2, 2011 Form 10-K at 1 ("Special Note Regarding Forward Looking Statements"), 19-20, 32-34 (listing numerous relevant risk factors). For the statement "While we believe that finding an accurate diagnostic test for CFS is useful, it is not essential for FDA approval of CFS treatment including Ampligen" (Exh. 1, Am. Compl. ¶ 89 (emphasis added)), see Exh. 34, 3/22/12 Conf. Call Tr. at 4; Exh. 2, 2011 Form 10-K at 1 ("Special Note Regarding Forward Looking Statements"), 19-20, 32-34 (listing numerous relevant risk factors). For the statement "I think [FDASIA] sets the stage for a favorable outcome at the PDTJFA date, but once again, we can't make that prediction with 100 percent certainty ...... (Exh. 1, Am. Compl. ¶ 98 (emphasis added)), see Exh. 37, R&R Tr. at 1; Exh. 2, 201110-K at 1 ("Special Note Regarding Forward Looking Statements"), 19-20, 32-34 (listing numerous relevant risk factors); Exh. 4, Q2 2012 Form 10-Q at 19 ("Special Note Regarding Forward Looking Statements"), 33-35, 49-51 (listing numerous relevant risk factors)). Lastly, for the statement "Hemispherx also believes that the FDA's recently expanded statutory authority under [FDASIA] may be relevant to the potential for approval of Ampligen®, although there can be no assurance how the FDA will implement the new FDASIA provisions" (Exh. 1, Am. Compl. ¶ 102 (emphasis added)), see Exh. 21, 9/24/12 Press Release; Exh. 2, 201110-K at 1 ("Special Note Regarding Forward Looking Statements"), 19-20, 32-34 (listing numerous relevant risk factors); Exh. 4, Q2 2012 Form 10-Q at 19 ("Special Note Regarding Forward Looking Statements"), 33-35, 49-51 (listing numerous relevant risk factors).

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cOMP Action plan, or we. . . do not adequately address the initiatives set forth therein, the FDA

may delay its approval of our NDA fl or reject our NDA").

Because Hemispherx's cautionary language is sufficiently "meaningful" under the

PSLRA, defendants' forward-looking statements are immune from liability under Rule lob-S.

Accordingly, the Amended Complaint must be dismissed to the extent it relies on the forward-

looking statements listed on pages 27-28 above. See Nutrisysteni, 653 F. Supp. 2d at 578-80

(dismissing claims based on certain statements under safe harbor provision of PSLRA).

(c) Defendants Are Immune From Liability Under The Safe Harbor For The Separate And Independent Reason That Plaintiff Has Failed To Plead A Strong Inference That Defendants Acted With Actual Knowledge

Even in the absence of meaningful cautionary language, a forward-looking

statement is not actionable under Rule lob-S where, as here, the plaintiff's allegations fail to

show that the defendant had "actual knowledge" that the challenged statement, when made, was

false or misleading. 15 U.S.C. § 78u-5(c)(l)(B); see Avaya, 564 F.3d at 274 (recognizing that

liability for forward-looking statements "attaches only upon proof of knowing falsity" (citations

omitted)); Discovery Labs., 2007 U.S. Dist. LEXIS 18163, at *6 ("the burden is on plaintiffs to

show that defendants knew the statement was false or misleading" (emphasis in original)). As

explained in Section 111. D. 1. below, plaintiff's conclusory assertions that defendants knew the

alleged falsity of their statements regarding Ampligen NDA's prospects for FDA approval fail to

meet the actual knowledge standard, which is even stricter than the "recklessness" scienter

pleading requirement for statements of current fact. See Avaya, 564 F.3d at 259 n.29, 274. Thus,

defendants are immune from liability for their forward-looking statements on this ground alone.

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(d) Hemispherx Had No Duty To Update Its Forward-Looking Statements

Once a company or its officers have made a forward-looking statement, they have

no duty to update it. 15 U.S.C. § 78u-5(d) ("Nothing in this section shall impose upon any

persona duty to update a forward-looking statement."). See, e.g., In re Burlington Coat Factory

Sec. Litig., 114 F.3d 1410, 1433 (3d Cir. 1997) ("the voluntary disclosure of an ordinary earnings

forecast does not trigger any duty to update"); accordAdvanta, 180 F.3d at 536-37 (holding that

the company had no duty to update a previously made forward-looking statement because it

subsequently changed its business strategy). Thus, Hemispherx had no duty to update its

forward-looking statements.

2. Hemispherx's Statements Of Belief And Opinion Regarding The Ampligen NDA's Prospects For FDA Approval Do Not Violate Rule lOb-S

Under the PSLRA's heightened pleading requirements, a plaintiff asserting a Rule

lob-S claim based upon an alleged false statement of belief or opinion "must allege with

particularity provable facts to demonstrate that the statement of opinion is both objectively and

subjectively false." Podany v. Robertson Stephens, Inc., 318 F. Supp. 2d 146, 153-54 (S.D.N.Y.

2004) (citation omitted) . 41 Accord In re Ford Motor Co. Sec. Litig., 381 F.3d 563, 572 (6th Cir.

2004) (in lob-S action, statements of opinion are only actionable if speaker does not sincerely

hold the opinion and the opinion is not factually well grounded). In other words, a plaintiff must

allege adequate facts showing both that the opinion had no basis in fact ("objective falsity") and

41 In Virginia Bankshares, Inc. v. Sandberg, cited by the court in Podany, the Supreme Court held that, in actions brought under Section 14(a) of the Exchange Act, statements of opinion are only actionable if they are objectively false and subjectively false. 501 U. S. 1083, 1095-96 (1991). The Third Circuit held in In re DonaldJ. Trump Casino Securities Litigation, 7 F.3d 357, 372 n. 14 (3d Cit. 1993), that although Virginia Bankshares involved Section 14(a) claim, its reasoning was equally applicable to Section 10(b) claims, though the Court did not actually reach the question of whether the "subjective and objective falsity" pleading requirement applies to statements of opinion.

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that the speaker did not sincerely hold the opinion ("subjective falsity"). See, e.g., In re Credit

Suisse First Boston Corp. AnalystReports Sec. Litig., 431 F.3d 36, 47-48 (1st Cir. 2005). if the

complaint fails to plead either one of these elements, it must be dismissed. See id. at 53

(affirming dismissal of Rule lob-S claims based upon opinions where plaintiffs failed to plead

sufficient facts showing subjective falsity); Ford Motor, 381 F.3d at 572 (affirming dismissal of

claims based on statements of opinion where plaintiffs failed to allege facts demonstrating that

speaker did not believe statements made); In re Bristol-Myers Squibb Sec. Litig., 312 F. Supp. 2d

549, 557-59 (S.D.N.Y. 2004) (dismissing Rule lob-S claims based on statements of opinion

regarding prospects of FDA approval of cancer drug); Podany, 318 F. Supp. 2d at 153-55

(dismissing claims for failure to plead alleged fraudulent opinion with particularity).

Here, plaintiff contends that the statements of belief or opinion delineated on

pages 27-28 above were materially false and misleading because defendants allegedly

never developed a valid biomarker, never developed a prospective or scientifically-meaningful analysis, and never reached an agreement with the FDA as to a protocol or endpoint that would justify approval. Lacking a valid biomarker or any reasonable basis to believe that a valid biomarker would be developed in the foreseeable future Hemispherx simply resorted to the same inappropriate post hoc "data dredging" that Carter told investors the Company would avoid, misrepresented FDA assent to their plan, and concealed study misconduct.

(Exh. 1, Am. Compl. ¶ 77.)

Plaintiff's assertions completely mischaracterize the facts set forth in the

Amended Complaint and documents incorporated therein. Hemispherx never guaranteed that the

FDA would accept the Company's interpretation of its Ampligen data, that approval would be

forthcoming, or that conditional approval was guaranteed. Similarly, Hemispherx never

guaranteed that its efforts to overcome the deficiencies cited by the FDA in the 2009 CRL would

be successful.

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Nor do any of the statements cited above reflect such guarantees. To the contrary,

throughout the putative Class Period Hemispherx repeatedly warned investors that "there can be

no assurance the FDA will conclude the data are adequate to support approval of the Ampligen

NDA" (Exh. 19, 7/11/12 Press Release (emphasis added); see also Exh. 20, 8/1/12 Press Release;

Exh. 4, Q2 2012 Form 10-K at 18; Exh. 5, Q3 2012 Form 10-Q at 23), and that "there can be no

assurance, however, how the FDA will implement the new FDASIA provisions" (Exh. 20, 8/1/12

Press Release; see also Exh. 21, 9/24/12 Press Release; Exh. 34, 3/22/12 Conf. Call. Tr. at 9

("whether or not we fall into that category [of FDASIA] of course as you point out remains to be

seen"); Exh. 37, R&R Tr. at 3 ("[W]e can't make that prediction with a hundred percent

certainty.")).

"Mere expressions of hope or expectation regarding future approval, not worded

as guarantees, are not actionable" especially when accompanied by cautionary language. See In

reMedlniniune, Inc., Sec. Litig., 873 F. Supp. 953, 964 (D. Md. 1995). No reasonable investor

would interpret Hemispherx's repeated, consistent, and cautious statements of opinion or belief

on the status of the FDA's review of the Ampligen NDA in the manner that plaintiff alleges.

Moreover, the Amended Complaint avers no particularized facts showing that these statements

were objectively and subjectively false when made. 42 Because the Amended Complaint fails to

plead either element with respect to these statements, plaintiff's claims should be dismissed on

this separate and independent ground.

42 Moreover, nothing in the FDA's minutes of the June 8, 2012 Guidance Meeting indicates that Hemispherx's statements of belief and opinion were objectively or subjectively false when made. To the contrary, according to these minutes, the FDA advised Hemispherx that it was "reasonable for [the Company] to submit [its] post-hoc analyses as the basis of their complete response." (Exh. 27, FDA Guid. Mtg. Mm. at 5 (emphasis added).)

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3. Hemispherx's Forward-Looking Statements And Statements Of Belief And Opinion That Plaintiff Claims Violate Rule lOb-S Constitute Inunaterial Puffery And Are Not Actionable For This Separate And Independent Reason

In the Third Circuit, "vague and general statements of optimism constitute no

more than puffery and are understood by reasonable investors as such." Advanta, 180 F.3d at

538 (quotation marks omitted) (citing Burlington Coat Factory, 114 F.3d at 1428 n. 14).

Therefore, "[s]uch statements even if arguably misleading, do not give rise to a federal securities

claim because they are not material: there is no substantial likelihood that the disclosure of the

omitted fact would have been viewed by the reasonable investor as having significantly altered

the total mix of information made available." Id. (upholding dismissal of statements touting

quality of company's credit and expertise of company's management as non-actionable puffery)

(quotation marks and citations omitted, emphasis added).

Courts are particularly wary of Rule lob-S claims that are based on optimistic

statements regarding a drug's prospects for FDA approval. As the Seventh Circuit has pointed

out: "Everyone knows that the process of obtaining the FDA's approval for a new drug is

fraught with uncertainty." Lasalle v. Medco Research, 54 F.3d 443, 445 (7th Cir. 1995).

Moreover, investors expect corporate officers to express optimism about their company's

business prospects. Indeed, "people in charge of an enterprise are not required to take a gloomy,

fearful, or defeatist view of the future; subject to what current data indicates, they can be

expected to be confident about their stewardship and the prospects of the business they manage."

In reAstraZeneca Securities Litig., 559 F. Supp. 2d 453, 471 (S.D.N.Y. 2008) (citation omitted).

Although a pharmaceutical company cannot predict, much less guarantee, a

particular decision by the FDA, plaintiff seeks to hold defendants liable under Rule lob-S for

making hopeful statements regarding the Ampligen NDA's prospects for ultimate approval by

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the FDA. Because these statements are nothing more than general statements of optimism and

puffery that no reasonable investor would consider material, they are deemed immaterial as a

matter of law and cannot support a Rule lOb-S claim. See, e.g., In re Syntex Corp. Sec. Litig., 95

F.3d 922, 931, 933-34 (9th Cir. 1996) (dismissing claims based on "inactionable forecasts" and

recognizing that a pharmaceutical company's optimistic statements about the potential success of

its products must be viewed in context, including the fact that "drug companies are . . . subject to

the influence of other unpredictable forces because their business is highly regulated"); Bristol-

Myers Squibb, 312 F. Supp. 2d at 559 (holding that optimistic predictions of FDA approval were

"non-actionable opinion, personal or corporate optimism and puffery"); In re Cybershop.coni

Sec. Litig., 189 F. Supp. 2d 214, 232 (D.N.J. 2002) (defendant made "optimistic, possibly even

ambitious, statements that are necessarily immaterial as a matter of law. . . even if they reflect

'misguided optimism" (citation omitted)); Kovtun v. Vivus, Inc., No. C 10-4957 PJH, 2012 U.S.

Dist. LEXI5 139548, *3637(N.D. Cal. Sept. 27, 2012) ("In the absence of any facts indicating

that defendants made statements about the trial results that were false at the time they were

made, the statement that defendants expected that the FDA would approve Qnexa can at most be

considered a reflection of a bad guess about an event that had not yet occurred."); Medlniniune,

873 F. 5upp. at 964 ("Mere expressions of hope or expectation regarding future approval, not

worded as guarantees, are not actionable."); In re Cryoniedical Sciences Sec. Litig., 884 F. 5upp.

1001, 1020 (D. Md. 1995) ("hopeful statements" about medical device's "potential success"

were non-actionable puffery). For this reason alone, plaintiff's claims based on the statements

listed on pages 27-28 above should be dismissed.

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D. The Amended Complaint Fails To Meet The PSLRA's Heightened Pleading Requirements For Alleging A Strong Inference Of Scienter

The Court should dismiss the Amended Complaint for the separate and

independent reason that it fails to meet the PSLRA's exacting pleading standard. The PSLRA

requires that a Rule lob-S complaint "state with particularity [the] facts giving rise to a strong

inference" that the defendant acted with required state of mind or scienter, 15 U. S. C. § 78u-

4(b)(2), which the Supreme Court has defined as the intention "to deceive, manipulate, or

defraud." Tellabs, 551 U. S. at 319. To survive a motion to dismiss, the inference of scienter

must be cogent and at least as compelling as any competing nonculpable inference plausibly

drawn from the facts alleged and taken as a whole. Id. at 321-22.

Tellabs established a three-step process for a court evaluating a motion to dismiss

a Section 10(b) claim. First, a court must accept all factual allegations in the complaint as true.

Second, the complaint, in addition to documents incorporated by reference and matters of which

a court may take judicial notice, must be taken and analyzed in its entirety. Finally, the court

must take into account plausible nonculpable opposing inferences in determining whether the

plaintiff's proposed inference of scienter is "strong" or cogent and at least as compelling as any

opposing inference one could draw from the facts alleged. Id. at 314-15.

In addition, "[a]fter Tellabs, allegations of motive and opportunity to commit

fraud, or facts constituting strong circumstantial evidence of fraud, are still relevant, but courts

must take a more holistic approach and consider these allegations in relation to opposing

inferences suggested by defendants." Bldg. Trades United Pension Trust Fund v. Kenexa Corp.,

No. 09-2642, 2010 U.S. Dist. LEXIS 102729, at *2324 (E.D. Pa. Sept. 27, 2010) (mandating

dismissal when complaint's confidential witnesses, internal reports, and insider stock sales failed

to raise a strong inference of scienter); accord Nutri system, 653 F. Supp. 2d at 574-75

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(mandating dismissal on scienter grounds based on lack of actual knowledge, constructive

knowledge, or unusual stock trades).

Here, plaintiff attempts to plead an inference of scienter with conclusory

assertions of (a) defendants' alleged actual knowledge that Hemispherx's complete response

resubmission did not provide evidence of efficacy and safety sufficient for FDA approval of the

Ampligen NDA, (b) the alleged desire of defendants Hemispherx, Strayer, and Carter to conceal

alleged "study misconduct," and (c) defendants' alleged motive to raise capital for Hemispherx,

to provide incentive bonuses to defendants Carter and Pambianchi and non-party Thomas

Equels, and "in the case of Pambianchi, to garner business and incentive bonuses for his

consultancy and for himself personally." (See Exh. 1, Am. Compl. ¶J 139-40.) As explained

below, the Amended Complaint does not adequately allege actual knowledge, but, instead,

impermissibly attempts to plead "fraud by hindsight." Nor does its generalized motive

averments satisfy the PSLRA's rigorous pleading requirements. Taken in its entirety, the

Amended Complaint falls far short of pleading facts sufficient to give rise to a strong inference

of scienter in light of competing nonculpable inferences. Thus, all of plaintiff's claims should be

dismissed for failure to adequately plead the essential element of scienter. 43

1. The Amended Complaint Fails To Plead Actual Knowledge

To plead "actual knowledge," plaintiff cannot merely aver in conclusory terms

that defendants "knew" the statements in question were false when made. See, e.g., GSC

Partners CDO Fund v. Washington, 368 F.3d 228, 239 (3d Cir. 2004); Nutri system, 653 F. Supp.

2d at 578 (dismissing complaint where "many of the allegations in the complaint fail to identify

See, e.g., Kenexa, 2010 U.S. Dist. LEXIS 102729, at *44.45 (dismissing amended complaint for failure to plead scienter); Nutrisystem, 653 F. Supp. at 573-74 (same); In re Radian Sec. Litig., 612 F. Supp. 2d 594, 608 (ED. Pa. 2009) (same); Mayer v. SonexResearch, Inc., 541 F. Supp. 2d 693, 712 (ED. Pa. 2008) (same); Discovery Labs., 2007 U.S. Dist. LEXIS 18163, at *23-24, reAstealnt'l Inc. Sec. Litig., No. 06-1467, 2007 U.S. Dist. LEXIS 58238, at *62.63 (ED. Pa. Aug. 9, 2007) (Yolm, J.) (same).

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false statements with specificity"). Yet, this is precisely the kind of bare allegation plaintiff

makes in the Amended Complaint. (See Exh. 1, Am. Compl. ¶J 139-40 ("deliberately

misrepresented the truth" and "intentionally misrepresent the truth.") Furthermore, "generalized

imputations of knowledge" based on "defendants' position with the company," such as those in

the Amended Complaint (J 139), are inadequate and routinely rejected. See, e.g., Oran v.

Stafford, 226 F.3d 275, 290 (3d Cir. 2000); In reAdvanta Corp. Sec. Litig., 180 F.3d 525, 539

(3d Cir. 1999).

The Amended Complaint contains no particularized allegations regarding

defendants' alleged actual knowledge that any of the alleged statements and omissions were false

and misleading at the time they were made. Instead of presenting factual allegations showing

defendants' actual knowledge of falsity, the Amended Complaint relies on impermissible "fraud

by hindsight" which attempts to use presently known information to prove the falsity of past

statements. Yet, "[flo be actionable, a statement or omission must have been misleading at the

time it was made; liability cannot be imposed on the basis of subsequent events." In re NAHC,

Inc. Sec. Litig., 306 F.3d 1314, 1330 (3d Cir. 2002) (emphasis added). See also Acito v.

IMCERA Grp., 47 F.3d 47, 53 (2d Cir. 1995) ("Defendants' lack of clairvoyance simply does not

constitute securities fraud." (citation omitted)); In re Discovery Labs. Sec. Litig., No. 06-1820,

2006 U.S. Dist. LEXIS 79823, at *30 (ED. Pa. Nov. 1, 2006) ("Because plaintiffs have not

alleged any facts known to defendants that they withheld, they have failed to adequately plead a

securities fraud claim ...) (emphasis added); Zucker v. Quasha, 891 F. Supp. 1010, 1017

(D.N.J. 1995) ("Omissions that create a misleading impression - particularly one that is

misleading only in hindsight - are not sufficient") (emphasis added); In re Pfizer Inc., Sec.

Litig., 538 F. Supp. 2d 621, 634 (S.D.N.Y. 2008) ("Fraud-by-hindsight is not sufficient to

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establish liability under Rule lOb-S."). To avoid pleading fraud-by-hindsight, the Amended

Complaint must allege contemporaneous facts showing that, at the same time Hemispherx made

the statements at issue, defendants possessed information showing that the statements were

untrue or misleading. Plaintiff has not made, and cannot make, any such factual allegations here.

Plaintiff attempts to meet its pleading burden with bald assertions that defendants

had access to information contradicting Hemispherx's public statements - information allegedly

contained in documents exchanged between the Company and the FDA long before the

beginning of the putative Class Period. (See Am. Compl. ¶ 139.) Yet plaintiff has made no

factual allegation suggesting that any of the defendants obtained from these documents actual

knowledge that the FDA would not approve the Ampligen NDA. Nor has plaintiff identified any

other evidence (e.g., confidential witness statements) of such alleged knowledge. To the

contrary, the most recent of the listed communications from the FDA - the FDA's minutes of the

June 8, 2012 Guidance Meeting (appended hereto as Exhibit 27)— contradicts any such

inference. According to the Agency's minutes, the FDA advised Hemispherx at the meeting

that, although "it would be unusual for this type of data to provide adequate evidence of

efficacy," it was "reasonable for [the Company] to submit such post-hoc analyses as the basis of

their complete response." (Exh. 27, FDA Guidance Meeting Minutes at 5 (emphasis added).)

Because the Amended Complaint does not allege any facts showing that Dr.

Carter, Dr. Strayer, or Mr. Pambianchi 44 had actual knowledge that their statements were

allegedly false or misleading when made, plaintiff must meet the PSLRA's heightened

'' With respect to Mr. Pambianchi, the Amended Complaint does not allege any facts suggesting that he had actual knowledge that the Ampligen NDA would not receive FDA approval. (See, e.g., Exh. 1, Am. Compl. ¶ 139 (asserting mere boilerplate and generalized allegations that Mr. Pambianchi had "access to these documents by virtue of his relationship with Carter and Hemispherx" and that Carter entrusted him to speak publicly on facts relating to the NDA).)

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requirements for pleading scienter by alleging facts showing that defendants acted recklessly

when making the statements at issue.

2. The Amended Complaint Fails To Plead Recklessness

The Third Circuit has instructed that recklessness involves "not merely simple, or

even inexcusable negligence, but an extreme departure from the standards of ordinary care, and

which presents a danger of misleading buyers or sellers that is either known to the defendant or

is so obvious that the actor must have been aware of it." GSC Partners, 368 F.3d at 239; see

also Glob/s Capital Partners, L.P. v. Stonepath Grp., Inc., 241 F. App'x 832, 835 (3d Cir. 2007)

("We employ a demanding standard of recklessness to ensure that 'the culpability attaching to

such conduct closely approaches that which attaches to conscious deception.") (quoting In re

Digital Island Sec. Litig., 357 F.3d 322, 332 (3d Cir. 2004)). Plaintiff's conclusory allegations

that the defendants recklessly disregarded the truth of the information (see Exh. 1, Am.

Compl.fl 139-40) do not meet the heightened pleading standard of the PSLRA. See, e.g., GSC

Partners, 368 F.3d at 239 ("[I]t is not enough for plaintiffs to merely allege that defendants

'knew' their statements were fraudulent or that defendants 'must have known' their statements

were false.").

Nor does plaintiff's blanket assertion that defendants Hemispherx, Strayer, and

Carter had a desire to conceal alleged "study misconduct" support a strong inference of scienter.

(Exh. 1, Am. Compl. ¶ 140.) That the FDA did not ultimately accept Hemispherx's post-hoc

analyses as providing sufficient evidence of Ampligen's efficacy in the treatment of CFS simply

does not equate "study misconduct" by Hemsipherx, as plaintiff contends, but rather reflects a

scientific debate between the Agency and Hemispherx regarding how the data should be

interpreted. In fact, five AAC members voted in favor of Ampligen's safety and efficacy and

eight members of the AAC voted in favor of Ampligen's safety profile as adequate to support

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approval. (Exh. 25, AAC Tr. at 114, 111.) In addition, numerous patients testified at the AAC

meeting that Ampligen had "tremendously" impacted their lives. (Id. at 63-86.) In light of

positive vote by several members of the AAC and the strong showing of patient support, it was

entirely reasonable for Hemispherx to believe in the Ampligen NDA and its potential for FDA

approval.

In addition, as explained above, Hemispherx disclosed both before and throughout

the putative Class Period that, in the 2009 CRL, the FDA concluded, inter al/a, that the

Ampligen clinical trials did not show adequate evidence of efficacy, safety needed to be

confirmed, the FDA wanted a new clinical trial with 300 patients that would assess dose ranging,

and Hemispherx's carcinogenicity waiver had not been granted. (See supra Section III.B. 1.)

Hemispherx also repeatedly disclosed during the Class Period that, instead of conducting a

confirmatory Phase III trial, the Company's complete response resubmission would be based on

post-hoc analyses of the AMP 516 clinical trial data. (Id.) Moreover, Hemispherx consistently

warned investors that "there can be no assurance that the FDA will conclude the data are

adequate to support the approval of the Ampligen NDA." (See, e.g., Exh. 19, 7/11/12 Press

Release.) "These repeated and timely disclosures of material information seriously undermine

an inference of intent to deceive." In re Genzynie Corp. Sec. Litig., Nos. 09-11267-GAO, 09-

11299-GAO, 2012 U.S. Dist. LEXIS 44336, at *35 (D. Mass. Mar. 30, 2012) (discussing

disclosure of warning letters, Form 483, and CRLs).

Furthermore, courts routinely hold that companies going through the FDA

approval process "as a general proposition, haLvel no duty to report [their] ongoing discussions

with FDA during the review process." In reMedlniniune, Inc., Sec. Litig., 873 F. Supp. 953, 966

(D. Md. 1995). Therefore, defendants had no reason to believe that non-disclosure of the

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Company's scientific discussions and debates with various FDA personnel over the years would

mislead investors. Nor has plaintiff pointed to any facts suggesting that the statements it claims

were false and misleading were inconsistent with defendants' "honest belief' at the time the

statements were made.

InMedlmmune, the plaintiffs alleged that the defendants' public statements

regarding the efficacy of the drug Respivir were false or misleading because the FDA and its

Advisory Committee had criticized the design of the defendants' clinical trial of the drug. Id. at

965, 966-67. The court held that the plaintiffs failed to adequately plead that the defendants

acted recklessly in regard to the validity of the data and instead found that the defendants had a

good faith belief that their test was accurate. Id. at 966. As the court explained:

Medical researchers may well differ over the adequacy of given testing procedures and in the interpretation of test results. Although the Advisory Committee may have disagreed, there is nothing to suggest that Defendants could not reasonably have entertained the opinion, for example, that the concentration of test results at the Denver site was a function of either or both the altitude or the higher proportion of bronchopulmonary dysplasia patients at that site. Simply to aver that the Advisory Committee, based on theoretical (not to say inappropriate) statistical concerns, eventually challenged the company's opinion, is not to say that Defendants should have had knowledge of the theoretical statistical limitation on their assumptions.

Id. at 966-67; accordAdolor, 616 F. Supp. 2d at 576 ("We will not second guess the

methodology employed by Defendants during the Phase III trial, regardless of whether Plaintiffs

agree with the Defendants' interpretation of the FDA guidelines."); In re Vertex Pharm., Inc.,

Sec. Litig., 357 F. Supp. 2d 343, 355 (D. Mass. 2005) ("The existence of scientific disagreement

within a company as to the potential viability of a drug in development, without more details

about the substance of the debate, cannot provide the necessary strong showing of scienter.").

Similarly, in Noble Asset Management. v. Allos Therapeutics, Inc., the court held

that defendants' positive statements about clinical trial results were not misleading, despite the

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fact that the FDA had expressed concerns over efficacy, because defendants had no duty to

disclose the FDA's questions. No. 04-CV-1030, 2005 U.S. Dist. LEXIS 24452, at *2122 (D.

Cob. Oct. 20, 2005). As the court there explained:

Interpretations of scientific data are not misleading where the interpretation finds reasonable support in the data. . . . The interpretation of the data from the Allos clinical trials is a matter on which reasonable minds could differ, as shown by the debate within the [Advisory Committed. Commenting on Allos' test results, several [the Advisory Committed] members acknowledged that "there was something there.". . . The fact that the [Advisory Committed] ultimately did not recommend approval does not mean that the defendants' statements about the results or design of the study were false.

Id. at *3132 (citations omitted). The court held that, given this context, the complaint failed to

plead a strong inference of scienter. Id. at *3738.

Likewise, in the case In reAstraZeneca Securities Litigation, the plaintiffs cited

to an FDA briefing document released before an advisory committee meeting as evidence that

the defendants knew all along that the FDA had voiced serious concerns over AstraZeneca's

NDA for the experimental drug Exanta. 559 F. Supp. 2d 453, 471 (S.D.N.Y. 2008) (noting also

that the FDA did not ultimately approve the NDA, which the advisory committee had voted

against by a vote of 11 to 1). The court explained that, while the FDA briefing document was

"as a whole. . . unfavorable to Exanta," the analyses contained in AstraZeneca's briefing

document were favorable to Exanta on the risk-benefit issue "and its conclusions [were] backed

up by a large body of details from AstraZeneca's research." Id. at 470-71. According to the

court, it was "impossible to read the FDA document and the AstraZeneca document without

concluding that both present the honest analysis and conclusions of their authors," there was

nothing in the "long recital" of information about Exanta given to the public that would indicate

that the authors did not have an honest belief in the statements, and there were no red flags to

show that the defendants were reckless in issuing such statements. Id. at 471. Thus, the court

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concluded that "[nothing appears in the complaint showing that there was a consensus of the

management that the risks of Exanta made the drug unlikely to be approved." Id. (citing Kal nit

v. Eichler, 264 F.3d 131, 142(2d Cir. 200 1) and In re BayerAG Sec. Litig., 2004 U. S. Dist.

LEXIS 19593 at *44 (S.D.N.Y. Sept. 30, 2004)). As the court further explained:

As of the time when the FDA Advisory Committee met on September 10, AstraZeneca had its side of the case and the FDA staff had its side. The FDA staff view prevailed before the Advisory Committee. This does not mean that AstraZeneca was not conscientious in advocating the drug Exanta before the FDA, nor does it mean that the information issued publicly over the course of more than a year was dishonest or recklessly disseminated.

Id.

Here, Hemispherx's 135-page briefing document and 132 presentation slides

detail the Company's honest belief in its interpretation of the relevant data. Indeed, in its

briefing document and in its slide presentation and testimony at the FDA's Advisory Committee

meeting, Hemispherx backed up its belief with scientific data, scientific articles and journals,

prior FDA guidance from other FDA divisions in earlier stages of the approval process, and

procedures employed by other drug companies whose drugs had been approved by the Agency. 45

For example, the FDA's briefing document listed several issues with AMP 502. (See Exh. 1, Am. Compl. ¶ 108.) Hemispherx addressed the Agency's concerns in its briefing document and at the AAC meeting. (See, e.g., Exh. 25, AAC Tr. at 25-26, 31 (explaining why the Company eliminated seven patients from the AviIP 502 analysis and why the reduction in trial duration was made unblended).) The FDA also questioned Hemispherx's post-hoc analyses. (See Exh. 1, Am. Compl. ¶ 108.) Hemispherx explained that it relied on two scientific articles in creating the subgroup and relied on an FDA-approved drug that had been approved based on a retrospective study of a subset of patients from a phase three study initially deemed insufficient. (See Exh. 26, FDA Br. Doc. at 114, 127, Exh. 32, 4/6/11 Conf. Call. Tr. at 8, Exh. 33, 10/27/11 Conf. Call Tr. at 4.) The Company also explained that the subgroup analyses factored in a Type I error rate of 5%. (See Exh. 42, PLoS ONE Article at 2-3.) Furthermore, the FDA acknowledged that the post-hoc analyses using 25% and 50% produced p-values below 0.05. (See Exh. 26, FDA Br. Doc., Statistical Review at 27.) The Company also explained that the change from 20% for KPS to 25% for ETT was based on a request from the Antiviral Division in March 1997. (See Exh. 25, AAC Tr. at 22-23, Exh. 29, Hemispherx Slide CC-92.). Although the FDA and Hemispherx agreed that secondary endpoints had not been met in AND 516, Hemispherx explained that the post-hoc analyses showed improvements in secondary endpoints of KPS, ADL, Vitality, and GHP. (See Exh. 29, Hemispherx Slide CC-95.)

As to the FDA's criticisms of AIvIIP 516 (see Exh. 1, Am. Compl. ¶ 109(b)), Hemispherx explained that using a 6.5% improvement figure as evidence of efficacy was based on a 1998 protocol, that the Antiviral Division had asked the Company to evaluate the ETT benchmark, and that Hemispherx based the benchmark on two approved-drugs for congestive heart failure that were set at 6.5%. (See Exh. 29, Hemispherx Slide CC-84-89 and

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Contrary to plaintiff's allegations of potential falsity of safety data (Exh. 1, Am. Compl. ¶J 10,

85-86, 87-88(g)-(h), 112, 120), Hemispherx explained, in detail, its reasons for analyzing the

data the way that it did .46 Furthermore, when the FDA questioned Hemispherx in the final days

of the approval process in November 2012 about certain patient adverse events that Hemispherx

did not report as "serious adverse events" or "SAEs" (see Exh. 1, Am. Compl. ¶J 85-86

(criticizing Hemispherx's reporting of SAE5)), Hemispherx voluntarily conducted an audit,

found more SAEs and promptly notified the FDA accordingly. (Exh. 26, FDA Br. Doc. at 132,

135.) Hemispherx's good faith effort at transparency before the FDA raises a compelling

inference against scienter.

Based on the extensive scientific research Hemispherx conducted, it was

reasonable for Hemispherx to believe that its chosen course - the submission of post-hoc

analyses of the AMP 516 clinical trial data - would support approval, even though, in 2009, the

FDA had found the AMP 516 data to be deficient in the 2009 CRL. Indeed, as discussed above,

the FDA advised Hemispherx that, while "it would be unusual for this type of data to provide

adequate evidence of efficacy. . . . it is reasonable for [the Company] to submit such post-hoc

Slide CC-85; Exh. 25, AAC Tr. at 22; Exh. 28, Hemispherx Br. Doc. at 19.) Similarly, with respect to FDA criticism that Hemispherx did not use log transformation on the AMP 516 data (See Exh. 1, Am. Compl. ¶ 1090)), Hemispherx explained in detail that log transformation is to be used only in certain circumstances and that it was not necessary here. (See Exh. 25, AAC Tr. at 20, 91, Exh. 29, Hemispherx Slide CC-70-72, 76, 77-78, 79; see also Exh. 25, AAC Tr. at 91-92 (Hemispherx did not know for certain whether log transformation was unblinded because this issue was handed off to a biostatistician and the data came back to Hemispherx with an untransformed analysis).)

46 In response to FDA questions regarding the adequacy of Hemispherx's safety database (see Exh. 1, Am. Compl. ¶ 112), Hemispherx discussed, at the AAC Meeting, Ampligen's safety information, including how it determined and reported adverse events and SAEs, and explained the differences between its approach and the FDA's approach. (See Exh. 29, Hemispherx Slide CC-48 (differences in Hemispherx's and FDA's SOP for determining SAEs), Slide CC-49 (differences in counting AEs associated with SAEs), Slide CC-SO (example of difference in counting AEs and SAEs); Exh. 25, AAC Tr. at 17 (explaining differences in Hemispherx's and FDA's

UI approach in counting SAEs and AEs); at 27 (explaining differences in counting tumors)'id (disputing FDA's

comments on liver damage);

id that Ampligen meets life-threatening condition requirements and that non-life-threatening conditions "are not as applicable here"); kI at 13 (challenging FDA's safety analysis and comparing Hemispherx's safety profile to approved-drug Cervarix)

'id at 12-13 (explaining that animal tests in this

circumstance cannot predict human outcome); Exh. 29, Hemispherx Slide CC-i 19 (explaining that "[m]ore detailed review of CRFs will retire concerns").)

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analyses as the basis of their complete response." (Exh. 27, FDA Guidance Meeting Minutes at

5.)

Hemispherx's good faith belief in its Ampligen NDA is further demonstrated by

the fact that five AAC members voted in favor of Ampligen's safety and efficacy and eight

members of the AAC voted in favor of Ampligen's safety profile as adequate to support

approval. (Exh. 25, AAC Tr. at 111, 114.) In addition, several AAC members who voted

against the sufficiency of the data noted that some of the data were "encouraging." (Id. at 115

("But as everybody has said I think the opportunity with this drug might be substantial and I

certainly would encourage further well designed conducted studies."); see also Ed. at 106 ("to

summarize, I think that a number of members of the Committee felt that the data was promising

but not conclusive.").) 47

The reasonableness of Hemispherx's belief in the efficacy of its drug is also

supported by the numerous CFS patients who gave testimonials at the AAC meeting about their

positive experiences with Ampligen. (See generally Exh. 25, AAC Tr. at 63-86.) Patients

described their experiences with the drug as "incredible and wonderful;" "never [having] any

side effects;" "like rising from the dead;" "[regain[ing] a significant quality of life;" being able

to attend child's baseball games; "the only drug to help me;" "makes the difference between

being in a living hell and a happy, productive life;" for the first time in four and a half years did

not feel sick; Ampligen made a "huge improvement" in the quality of a CFS sufferer's life; "the

See Noble Asset Mgmt , 2005 U.S. Dist. LEXIS 24452, at *11 (noting that, although an FDA advisory committee voted against approval, "several [advisory committee] members acknowledged that 'there was something there."); cf Kovtun v. Virus, No. C 10-4957 PiE, 2012 U.S. Dist. LEXIS 139548, *28 (ND. Cal. Sept. 27, 2012) (in discussing falsity, the court stated that it was "important to note" that although the advisory committee voted 10-6 against recommending approval, some of the committee members made positive comments that the data showed that the drug was safe and should be approved).

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clinical benefits have been quite substantial;" and "benefited tremendously." (Exh. 25, AAC Tr.

at 65, 71, 69, 76, 77, 79, 83, 85, 73.)

Mindy Kitei, science reporter and author of "The AIDS Drug No One Can Have"

article, published in Philadelphia Magazine in 1994 and cited in the Amended Complaint

(Exh. 1, Am. Compl. ¶ 47 n.6) also testified at the AAC meeting: "[A]s FDA knows, some of

the data wasn't statistically significant. Every drug has nonresponders, but most of the patients I

interviewed said Ampligen made a huge improvement in the quality of their lives. Patients have

been trotted out before government committees for 20 years, but no one ever listens. Break the

cycle and listen to the patients. Approve Ampligen, because the patients are telling you the

truth." (Exh. 25, AAC Tr. at 83.)

In sum, the Amended Complaint does not allege any facts suggesting that

Hemispherx was unreasonable in relying on its post-hoc analyses in seeking approval for

Ampligen." See Sara/in v. BioMinietic Therapeutics, Inc., No. 3:11-0653, 2013 U.S. Dist.

LEXIS 4909, at *43.44 (M.D. Tenn. Jan. 10, 2013) ("[I]t will not always be clear to parties

setting out to seek FDA approval for their new product exactly which kinds of information, and

in what quantities, it will take to win that agency's approval.") (internal quotation marks and

citation omitted). As the courts found inMedlniniune, NobelAsset, and AstraZeneca, plaintiff

has merely alleged the existence of ongoing discussions between Hemispherx and the FDA

wherein the Agency expressed criticism of certain aspects of the design of the Ampligen clinical

trials - criticism that, under the case law, the Company had no duty to disclose. As in

AstraZeneca, plaintiff has "not alleged anything to negate the idea that defendants were

attempting to develop a drug they thought beneficial and were so describing to the public. Thus,

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plaintiffs have not alleged an inference of scienter as compelling as the opposing [nonculpable]

inference." AstraZeneca, 559 F. Supp. 2d at 471-72.

3. Plaintiffs Allegations Of Motive From Raising Capital Through A Public Offering And Receipt of Incentive Bonuses Do Not Support A Strong Inference Of Scienter

Plaintiff attempts to bolster its deficient recklessness averments with allegations

that defendants were motivated to recklessly disregard the purported "truth." According to the

Amended Complaint, defendants were motivated "to raise capital that was badly needed during a

uniquely dire and vulnerable period in Hemispherx's corporate history," to provide alleged

"unique personal kickbacks" to Dr. Carter and his alleged "lieutenant," non-party Thomas

Equels, and "in the case of Pambianchi, to garner business and incentive bonuses for his

consultancy and for himself personally." (Exh. 1, Am. Compl. ¶ 140.) None of these "motive"

allegations can save the Amended Complaint from dismissal, however.

To plead a strong inference of scienter, it is not enough to aver generalized

theories of motive which are widely held by corporations and their executives. GSC Partners,

368 F.3d at 237-38; see also Kalnit, 264 F. 3d at 139. Instead, a plaintiff must allege "that the

individual corporate defendants stood to gain in a 'concrete and personal' way from one or more

of the allegedly false or misleading statements and wrongful nondisclosures." GSC Partners,

368 F.3d at 237 (emphasis added); accord In re CDNow, Inc. Sec. Litig., 138 F. Supp. 2d 624,

642 (ED. Pa. 2001).

Plaintiff has not met this standard. Instead, it avers that defendants allegedly

mislead investors so that they could raise capital during a "uniquely dire and vulnerable period"

in Hemispherx's corporate history. (Exh. 1, Am. Compl. ¶ 140.) To plead a strong inference of

scienter, though, such allegations of "motives that are generally possessed by most corporate

directors and officers do not suffice; instead, plaintiffs must assert a concrete and personal

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benefit to the individual defendants resulting from this fraud." Avaya, 564 F.3d at 278-79

(rejecting scienter allegations based on defendant's desire to secure $400 million credit facility)

(internal quotation marks and citation omitted). "Corporate officers always have an incentive to

improve the lot of their companies, but this is not, absent unusual circumstances, a motive to

commit fraud." Id. at 279. See also GSC Partners, 368 F.3d at 238 (rejecting scienter claims

based on defendants' desire to raise money through public offerings); In re the GreatAtl. & Pac.

Tea Co., Inc. Sec. Litig., 103 Fed App'x 465, 469-70 (3d Cir. 2004) (same); Adolor, 616 F. Supp.

2d at 573 (rejecting scienter allegations based on defendants' desire to issue public stock offering

and enter into financing agreement with pharmaceutical company).

Similarly, plaintiff's averments regarding bonuses awarded to Dr. Carter 48 as a

result of capital raised are insufficient to support an inference of scienter because these bonuses

merely reflect general motives common to corporate officers. See, e.g., Kovtun, 2012 U.S. Dist.

LEXIS 139548 at *5455 (finding that allegations that CEO's compensation and bonus were tied

to the raising of financing and the status of the clinical trials for a drug were insufficient because

"it is common for executive compensation, including stock options and bonuses, to be based

partly on the executive's success in achieving key corporate goals." (quoting In re Rigel

Pharnis., Inc. Sec. Litig., 697 F.3d 869 (9th Cir. 2012)); Wilson v. Bernstock, 195 F. Supp. 2d

619, 636 (D.N.J. 2002) ("[C]ourts have uniformly held that incentive compensation alone cannot

provide a sufficient basis on which to support allegations of a motive to create the illusion of

corporate profitability, whether by active misrepresentation or wrongful nondisclosure of

materially adverse information."); In reNATIC, 2001 U.S. Dist. LEXIS 16754 at *61

48 Plaintiff has not alleged a single fact as to why a bonus awarded to non-party Thomas Equels would motivate Dr. Carter, Dr. Strayer, or Mr. Pambianchi to commit fraud. Because plaintiff's allegations regarding bonuses awarded to Mr. Equels are irrelevant, they do not raise any inference of scienter much less a compelling inference of scienter.

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("Allegations that the defendants benefitted from an alleged fraud by incentive compensation or

retention of their employment privileges have been held insufficient to plead motive under the

PSLRA standard.").

Likewise, the Amended Complaint fails to allege that any business activity or

incentive bonus for Mr. Pambianchi's consultancy benefited him in a concrete and personal way.

See GSC Partners, 368 F.3d at 237. Furthermore, as explained above, incentive compensation

alone does not support an inference of scienter.

Because plaintiff's motive theory defies economic reason, it simply cannot

support any inference of fraudulent intent, let alone a strong inference. See, e.g., also Cozzarelli

v. Inspire Pharni., Inc., 549 F.3d 618, 628 (4th Cir. 2008) ("It is improbable that Inspire would

stake its existence on a drug and a clinical trial that the company thought was doomed to failure.

Plaintiffs' inference of fraud based on the supposed impossibility of corneal clearing is thus not

even plausible, much less convincing."); Sara/In, 2013 U.S. Dist. LEXIS 4909 at *47 ("The

notion that BMTI would recklessly forego necessary tests and studies or hide adverse events

makes little sense, even disregarding Defendants' assertion that they poured their own money

into the company. Plaintiffs' own allegation is that Augument is BMTI's flagship product and

necessary to the companies [sic] success, begging the question why it would sabotage all of the

company's efforts to that point." (footnote omitted)).

E. Plaintiff's Section 20(a) Claim Is Purely Derivative Of Its Rule lOb-S Claim And Must Be Dismissed

Plaintiff asserts a claim under Section 20(a) of the Exchange Act against the

individual defendants. (Exh. 1, Am. Compl. ¶J 143-50.) To maintain its claim under Section

20(a), plaintiff must establish: (1) an underlying violation by a control person or entity; (2) that

the defendants are controlling persons; and (3) culpable participation in the fraud by the

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controlling persons "in some meaningful sense." See, e.g., In re CDNow, Inc. Sec. Litig., 138 F.

Supp. 2d 624, 644 (E. D. Pa. 2001).

Claims asserted under Section 20(a) are purely derivative. Avaya, 564 F.3d at

252. Therefore, absent an underlying violation of the securities laws, there can be no controlling

person liability. Id. at 280. Because plaintiff has failed to prove a claim under Section 10(b), its

derivative claim under Section 20(a) against Hemispherx and Dr. Carter must also fail. See

Advanta, 180 F.3d at 541 ("[Claims under Section 20(a) are derivative, requiring proof of a

separate underlying violation of the Exchange Act.").

IV. CONCLUSION

For all of the aforementioned reasons, the Amended Complaint should be

dismissed with prejudice.

/s/ Robert L. Hickok Robert L. Hickok Gay Parks Rainville Michele C. Zarychta Alejandro Salicrup PEPPER HAMILTON LLP 3000 Two Logan Square Eighteenth & Arch Streets Philadelphia, PA 19103 (215) 981-4000



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CERTIFICATE OF SERVICE

The undersigned certifies that, on July 19, 2013, a true and correct copy of

Defendants' Motion to Dismiss Amended Complaint, along with supporting Memorandum of

Law, Proposed Order and Appendix, was electronically filed with the Clerk of the Court for the

Eastern District of Pennsylvania using the CM/ECF system. Notice of this filing will be sent to

all parties by operation of the Court's electronic filing system. Parties may access this filing

through the court's CM/ECF system.

/s/ Mi chele C. Zarychta Michele C. Zarychta

FOR THE EASTERN DISTRICT OF PENNSYLVANIA...

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