Stockholders v OSI Pharmaceuticals, Inc.
OSI Pharmaceuticals Seek $360M in Lost Stock Value
A class action has been filed in the Eastern District Court of New York against OSI Pharmaceuticals, Inc.(NASDAQ: OSIP), a New York based biopharmaceutical company, and certain of its officers and directors by stockholders who purchased the company's common stock between April, 26 2004 and November 18, 2004. The action claims that the defendants violated federal securities laws by issuing a series of material misrepresentations to the market over this time period, thereby artificially inflating the price of the company's securities. The stockholders seek to recover compensatory damages for the loss of value of their stock.
Specifically, the complaint alleges that throughout the Class Period, OSI Pharmaceuticals issued false and misleading statements concerning Tarceva (a drug to treat lung cancer and the Company's flagship drug) and the survival benefits and size of Tarceva's potential market upon FDA approval of the drug. This caused OSI Pharmaceuticals' stock to trade at artificially inflated prices and allowed the Company to access the capital markets by completing a public offering of 6.9 million shares of common stock, receiving proceeds of $445 million one week before the truth about Tarceva's limited marketability would be disclosed.
On April 26, 2004 defendants announced that Tarceva had met its primary end-points and that the Company would be seeking FDA approval for Tarceva based upon its findings in its clinical trials of Tarceva. Defendants stated that the study showed that patients who took Tarceva lived on average two months longer than patients who took a placebo. Given defendants' representations that Tarceva increased survival by two months, in addition to shrinking tumors as well as lower-priced drugs already on the market, OSI Pharmaceuticals' stock soared, increasing $52.96 in one day. Throughout the Class Period, defendants continued to publicize positive findings concerning Tarceva's survival benefits, causing the stock to trade at inflated prices.
According to the complaint, defendants' statements about the survival benefits attributable to Tarceva were materially false and misleading in that they concealed that according to OSI Pharmaceuticals' own clinical trials the much touted survival benefits would be limited only to those patients whose tumors were determined to be EGFR protein positive. Importantly, the Company's internal trials indicated that Tarceva had no effect on the survival of patients whose tumors were determined to be EGFR negative. As a result, many EGFR protein negative patients could not use the drug and many more whose EGFR protein status was unknown would not be willing to pay Tarceva's high premium price.
On November 17, 2004, defendants issued and sold 6.9 million shares of the Company's stock for $445 million in proceeds. Then, on the evening of November 18, 2004, OSI Pharmaceuticals announced that the FDA had approved Tarceva for use in the treatment of patients with advanced lung cancer. However, in addition to this news, the market learned for the first time about the severe limitations on the number of patients who could use Tarceva and obtain the survival benefits of the drug. This disclosure caused OSI Pharmaceuticals' stock price to decline dramatically by $6.09 per share, or 10.5%.
