case 1:05-cv-02860-rjh document23 filed 02/16/2007 page...

Case 1:05-cv-02860-RJH Document 23

UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK

In re Elan Corp . Securities Litigation

Filed 02/16/2007 of 153

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Master File No. 05 Civ. 2860 (RJH)

CLASS ACTION

JURY TRIAL DEMANDEDX

CONSOLIDATED CLASS ACTION COMPLAINT FORVIOLATIONS OF THE FEDERAL SECURITIES LAWS

Case 1:05-cv-02860-RJH Document 23 Filed 02/16/2007 of 153

TABLE OF CONTENTS

1. NATURE OF THE ACTION ................................................................................. ............ 1

II. JURISDICTION AND VENUE ............................................................................. .......... 12

III. PARTIES ................................................................................................................ .......... 15

A. Lead Plaintiffs ............................................................................................. .......... 15

B. Defendants .................................................................................................. .......... 17

C. Control Person Liability .............................................................................. .......... 19

D. Group Pleading ........................................................................................... .......... 20

E. Duties Of The Individual Defendants ......................................................... .......... 21

IV. CLASS ACTION ALLEGATIONS ....................................................................... .......... 22

V. BACKGROUND AND FACTS UNDERMINING THE VERACITY OFDEFENDANTS' CLASS PERIOD REPRESENTATIONS .................................. .......... 25

A. Multiple Sclerosis Is A Severe Autoimmune Disease ................................ . ......... 25

B. Progressive Multifocal Leukoencephalopathy ............................................ .......... 26

C. TysabriO ..................................................................................................... .......... 27

D. Elan Was In Dire Financial Straights .......................................................... .......... 29

E. Elan Collaborated With Biogen On The Marketing , Development AndCommercialization Of Tysabri®O ................................................................ .......... 31

F. The Tysabri « Clinical Trials ...................................................................... .......... 34

1. FDA Requirements Regarding Clinical Trial Testing .................... .......... 34

2. FDA Requirements For "Fast-Track " Approval, Priority ReviewAnd Accelerated Approval OfNew Drug Applications ................. .......... 35

a. The Priority Review Process ............................................... .......... 36

b. Accelerated Approval ......................................................... .......... 36

3. The MS Clinical Trials Of Tysabrig .............................................. .......... 37

4. The Crohn' s Disease Clinical Trials Of TysabriOO ......................... .......... 38

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5. The Rheumatoid Arthritis Clinical Trials Of Tysabri® ...................... ...... 39

6. The Suspension Of All Clinical Trials Of Tysabri® UponDefendants' Withdrawal Of The Drug From The Market ........................ 39

G. Defendants Knew Or Recklessly Disregarded Numerous Warnings OfTysabri'sg Severe Immunosuppressive Effects ............................................. ...... 40

1. Defendants Knew That Tysabrig Is A Highly DangerousImmunosuppressive Drug That Would Unequivocally CauseSerious Opportunistic Infections ......................................................... ...... 41

2. Animal Studies Warned Defendants That Tysabrig Is A Highly

Immunosuppressive Drug That Could Cause Potentially Life-Threatening Opportunistic Infections ................................................. ...... 42

3. Scientific And Medical Publications And Industry ConferencesIndicated Tysabri's M Severe Immunosuppressive Effects ................. ...... 45

4. Defendants Were Aware Of Serious Adverse Events OccurringDuring The Tysabri iz Clinical Trials, Confirming Prior Warnings

Of Tysabri's M Severe Immunosuppressive Effects And Failed ToDisclose Those Adverse Events To The FDA .................................... ...... 48

a. FDA Adverse Event Reporting Requirements .............................. 48

b. Defendants Failed To Disclose Opportunistic Infections ToThe FDA, Prior To Receiving Fast-Track Approval Of

Tysabri® ....................................................................................... 52

i. Facts Ultimately Admitted At The March 2006 FDA

Hearing .................................................................................... 53

ii. Elan and Biogen Admittedly Communicated Regularly

Concerning Issues Related To Tysabri Pursuant To The

Collaboration Agreement ........................................................ 56

iii. Confidential Sources Have Confirmed That Defendants

Knew That Serious Opportunistic Infections Occurred

During The Tysabrig Clinical Trials ...................................... 56

H. The FDA Adverse Event Report Contained Numerous OpportunisticInfections That Occurred In Patients On Tysabri@ Therapy, ConfirmingPrior Warnings That Such Infections Were Certain To Occur ............................. 59

1. Defendants' History Of Bad Conduct ................................................................... 64

ii


VI. DEFENDANTS' MATERIALLY FALSE AND MISLEADING STATEMENTS

AND OMISSIONS DURING THE CLASS PERIOD ..................................................... 65

A. Two Tysabri Patients Are Diagnosed With PML ............................................... 115

VII. THE TRUTH BEGINS TO EMERGE ........................................................................... 117

VIII. POST CLASS-PERIOD EVENTS ................................................................................. 122

A. The Aftennath ..................................................................................................... 122

B. The FDA Approves Tysabri0 To Re-Enter The Market With RestrictedDistribution ......................................................................................................... 129

IX. CAUSATION ALLEGATIONS ..................................................................................... 135

X. DEFENDANTS ACTED WITH SCIENTER ................................................................ 136

A. Defendants Directly Participated In, And/Or Had Direct Knowledge OfOr Recklessly Disregarded The Numerous Warnings And Evidence OfThe Severe Immunosuppressive Effects Of Tysabri0 And ResultingSerious Opportunistic Infections And Deaths ..................................................... 137

B. Defendants Were Motivated To Commit The Fraud Alleged Herein ................ 138

1. The Individual Defendants Were Motivated To Commit The FraudAlleged Herein To Enable Them To Target A Larger MS MarketAnd Return Elan To Profitability ............................................................ 138

2. The Individual Defendants Were Motivated To Commit The FraudAlleged Herein To Successfully Consummate An Offering OfSenior Notes ............................................................................................ 139

3. Defendants Were Motivated To Commit The Fraud Alleged HereinTo Maximize Their Year-End Bonuses .................................................. 140

XI. FRAUD ON THE MARKET ALLEGATIONS ............................................................. 141

XII. NO STATUTORY SAFE HARBOR.............................................................................. 143

COUNT I Violations Of § 10(b) Of The Exchange Act And Rule 1 Ob-5 PromulgatedThereunder Against All Defendants ............................................................................... 144

COUNT II Violations of § 20(a) Of The Securities Exchange Act Of 1934 Against TheIndividual Defendants ..................................................................................................... 146

JURY DEMAND ........................................................................................................................ 148

ill


Lead Plaintiffs, by their undersigned attorneys, for their Consolidated Class Action

Complaint for Violations of the Federal Securities Laws (the "Complaint"), make the following

allegations against Defendants based upon an investigation conducted by and under the

supervision of Co-Lead Counsel for Lead Plaintiffs, which has included , among other things:

(i) interviews of former employees of Elan Corporation PLC ("Elan" or the "Company") and

Biogen IDEC, Inc. ("Biogen"); and (ii) review and analyses of. Defendants' public filings,

including filings with the Securities and Exchange Commission ("SEC"); press releases issued

by Defendants; news articles and analysts' reports concerning Defendants; transcripts from

conference calls Defendants held with analysts; official records of regulatory actions taken by

government agencies concerning Elan; official records in other relevant legal actions; scientific

publications and studies ; and information received from Freedom of Information Act ("FOIA")

requests to the Food and Drug Administration ("FDA").'

2. Except as alleged herein, the underlying information relating to Defendants'

misconduct and the particulars thereof is not available to Lead Plaintiffs or the public, but lies

within the possession and control of Defendants and other Elan insiders, thus preventing Lead

Plaintiffs from further detailing Defendants' misconduct at this time. Lead Plaintiffs believe that

substantial additional evidentiary support exists for the allegations set forth herein and will be

available to Lead Plaintiffs after a reasonable opportunity for discovery.

1. NATURE OF THE ACTION

3. Lead Plaintiffs bring this action , pursuant to Rule 23 of the Federal Rules of Civil

Procedure on behalf of themselves and all similarly situated persons and entities (collectively,

I The FDA is an agency within the U.S. Department of Health and Human Services.


the "Class") who purchased Elan American Depository Shares ("ADSs"),2 traded on the New

York Stock Exchange ("NYSE"), and Elan common stock , traded on the London and Dublin

exchanges, from February 18, 2004 through and including February 28, 2005 (the "Class

Period"), seeking to pursue remedies under the Securities Exchange Act of 1934 (the "Exchange

Act")

4. This securities class action is predicated upon serious misstatements and omissions

of material fact by the Defendants herein concerning the purported safety, commercial viability

and projected market share of Tysabri®,3 a drug that Elan needed to become a "blockbuster"

drug in order to save the Company from a potentially imminent bankruptcy. Defendants

developed Tysabri to treat multiple sclerosis ("MS"), a neurological disease that attacks the

central nervous system, as well as Crohn's disease (a type of inflammatory bowel disease) and

Rheumatoid Arthritis ("RA") (an inflammatory autoimmune disorder that attacks the joints).

Throughout the Class Period, Defendants falsely marketed Tysabri® as a "blockbuster" drug. As

the drug progressed through expedited FDA approval, Defendants aggressively represented to

investors that it was an innovative therapy with virtually no serious side effects.

5. As Defendants would later admit, they were aware of numerous undisclosed

serious opportunistic infections and deaths, indicative of severe immunosuppression, that had

occurred during the Tysabri® clinical trials, prior to Defendants' application to, and approval by,

Each ADS traded on the NYSE is equivalent to one share of common stock traded on theDublin and London exchanges.

Tysabri® was formerly known as Antegren® until the FDA caused Elan and Biogen to

change the name to avoid confusion with other drugs with similar names. The terms Tysabri®,

Antegren® and Natalizumab® all refer to the same drug, which is now commonly known as

Tysabri®. These terms are used interchangeably throughout this Complaint.

2


the FDA.4 By failing to disclose these opportunistic infections and related deaths to the FDA

and investors , the Defendants were able to obtain "fast-track " approval of Tysabri®, allowing

them to accelerate the introduction of the drug to the market with the broadest label possible.

6. Tysabri' s® widespread success was critical to Elan ' s ability to remain a viable

company and avoid an otherwise imminent bankruptcy because, over the past several years, Elan

had been plagued with serious financial troubles. Specifically, the Company had suffered

repeated net losses and negative cash flows, mounting debt levels and SEC and shareholder

lawsuits challenging the propriety of Elan's accounting practices. In 2002, Elan was forced to

withdraw its pivotal Alzheimer's drug, AN-1792®, because the drug reportedly caused brain

inflammation with at least five deaths in patients taking AN-1792®, after the study was halted.

Thus, with no other drugs in the Company's drug pipeline with blockbuster potential, Tysabri's®

success was critical to Elan's ability to return the Company to profitability and escape

bankruptcy. Accordingly, Defendants bet on Tysabri® and divested Elan of $2 billion of its

assets to focus almost exclusively on the development and marketing of the drug.

7. To further fund the development of Tysabri® and quell Elan's failing financial

condition and serious cash flow problems, Defendants consummated a $1.15 billion offering of

Senior Notes in November 2004, which, as Defendant Cooke admitted, allowed the Company to

"focus all of [its] energies on executing the launch of Antegren." Thus, by engaging in the fraud

Opportunistic infections occur when ordinarily benign organisms infect individuals with

severely impaired immune systems. These ordinarily benign organisms may be viruses, bacteria,

fungi or parasites that very rarely produce disease in healthy humans with intact immune

systems. Thus, the occurrence of opportunistic infections in a group of patients is a strong

indication of severe immunosuppression and a cause for great concern. Indeed, the Acquired

Immune Deficiency Syndrome ("AIDS") epidemic was first identified by the occurrence of

serious opportunistic infections in patients infected with Human Immunodeficiency Virus

("HIV").

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alleged herein, Defendants were able to raise $1.15 billion of cash from Elan's debt offering and

continue funding the development and marketing of Tysabri.

Defendants were ultimately forced to withdraw Tysabri® from the market on

February 28, 2005, only three months after FDA approval, when Elan and Biogen reported that a

patient taking Tysabri® had died from an opportunistic infection, progressive multifocal

leukoencephalopathy ("PML"),5 which is also directly linked to severe immunosuppression.

Defendants further revealed that another patient in the clinical trials had also contracted PML as

a result of the drug's severe immunosuppressive effects. Defendants subsequently admitted that

these two patients had actually begun exhibiting signs and symptoms ofPML as early as

October 2004.

9. The stock market reaction to the February 28, 2005 withdrawal of Tysabri® was

swift and severe, erasing approximately $ 7.5 billion, or 70% ofshareholder value. On the

NYSE, Elan's ADS value fell $18.90 per ADS to close at $8.00 per ADS, trading on unusually

high volume of 167 million shares, nearly twenty-nine times the average daily trading volume

during the Class Period and the highest trading volume ever in Elan's history. Elan's stock also

plummeted on the Dublin Exchange, falling €13.81 per share, or 68%, to close at €6.49 per

share. Kevin McConnell, head of research for Bloxham Stockbrokers in Dublin, described

Defendants' withdrawal of Tysabri® as "a major body-blow for Elan."

10. Shortly after the withdrawal of TysabriOO, Defendants further revealed that Elan

and Biogen were the subject ofan ongoing investigation by the SEC primarily relating to events

surrounding the February 28, 2005 announcement of the decision to voluntarily suspend the

5 PML is an almost invariablyfatal disease of the central nervous system specifically

associated with severe immunosuppression such as persons with AIDS. Indeed, investors were

ultimately told after the Class Period that Tysabri reduced the immune system of patients taking

the drug to the level of an AIDS patient.

4


marketing and clinical dosing of Tysabri. The SEC investigation continues to probe the

Defendants' lack of disclosure to investors concerning the life-threatening effects of Tysabri®

and its extremely limited marketability.

11. The SEC also filed a settlement enforcement action against Thomas Bucknum,

Executive Vice President and General Counsel of Biogen , for violating the federal securities

laws when Bucknum sold 89,700 shares ofBiogen stock, reaping approximately $1.9 million in

proceeds from such sale on February 18, 2005, after learning that day at a meeting with other

Biogen senior officers that a patient taking Tysabri in the clinical trials had been diagnosed with

PML. Shortly thereafter, on March 9, 2005, Bucknum entered into a settlement agreement with

the SEC to pay $3 million in disgorgement, interest andpenalties andprohibiting Bucknum

from serving as an officer or director ofa public companyforfive years.

12. In reaction to the withdrawal of Tysabri from the market, Dr. Lawrence Steinman,

a physician and the co -inventor of Tysabri®, who had previously criticized Tysabri® as being

too dangerous, and communicated his views on the drug to the Defendants prior to the Class

Period , declared in a March 1 , 2005 New York Times article that , with respect to the three cases

of PML that occurred in Tysabri-treated patients , "I knew it was going to happen sooner or

later."

13. Despite Defendants' knowledge throughout the Class Period that, because of the

significant risks associated with TysabriOO, the drug would not be the blockbuster drug that Elan

needed, Defendants made false and misleading statements and omissions concerning the

Company's current business and performance and prospects, as well as the market for, and safety

profile of, Tysabri®.


14. Among Defendants' materially false and misleading statements are the following:

May 13, 2004 conference call - Defendant Martin toutedTysabri® as "a product that's twice as efficacious at leastas any currently therapy with no side effects ... which isobviously a major or the major driving fact ofthe fact thatwe would view Antegren as a mono-therapy product."[Emphasis added]

October 28, 2004 earnings release - Defendant Martinreassured investors that, despite another quarter of negativefinancial results: "We are optimistic that the dedication,commitment andfinancial resources we have in vested inthese products [Tysabri and Prialt] will be reflected in areturn to profitability in the 2006 timeframe." [Emphasisadded]

November 24, 2004 conference call - Defendants stated:

"We feel strongly that TYSABRI is the most powerful

treatment ever developed for MS and will raise the efficacy

bar in the treatment of MS ... We certainly believe that

TYSABRI will move quickly in the first line therapy and

become the number one MSproduct worldwide."

[Emphasis added]

November 24, 2004 conference call - Defendant Martindeclared: We believe [Tysabri] will be a top line therapyfor a disease that has a very high unmet medical need. Thefuture growth in the marketplace is substantial both in theUS andparticularly in Europe , so we are very excitedwith where we are and we are very pleased with thepartnership with Biogen and the collaborative effort wehave to get to this point and the future is very significantlygreat." [Emphasis added]

January 11, 2005 conference call - Defendant Martin

continued to proclaim that: "The safety data is as

impressive as the efficacy data. Highlight on three things,

TYSABRI appears to be with all that we see, safe and very

well tolerated. Serious infections, 1.3% rate in placebo

versus 2.1 % for Tysabri trials, no opportunistic

infections." [Emphasis added]

February 8, 2005 earnings release - Defendant Martinstated : "While it is early days, the initial take-up sincelaunch of Tysabri is exceeding all our expectations and we

6


remain optimistic that we will return to profitability by the

end of2006." [Emphasis added]

February 17, 2005 press release - Defendant Ekman

declared: "These two-year data strengthen our belief that

TYSABRI will become the leading therapy for MS

patients." [Emphasis added]

15. For the reasons set forth herein, the foregoing statements were each materially false

and misleading because, among other reasons: (i) Tysabri® had serious, undisclosed side effects

that occurred as a result of the drug's severe suppression of the immune system, leaving patients

vulnerable to life-threatening infections, including PML; and (ii) due to its substantial risks to

patients , Tysabri® would be limited to patients in only the most advanced stages of MS and,

thus, the potential market for Tysabri® was only a fraction of the purported $4 billion market

that Defendants represented.

16. Defendants failed to disclose the serious side effects and deaths associated with

Tysabri to investors or the FDA. Indeed , documents submitted to the FDA confirm that

Defendants concealed numerous known opportunistic infections from the FDA, prior to applying

for, and receiving, fast-track approval of Tysabri®. Specifically, according to a November 23,

2004 memorandum to Karen Weiss, M.D., Director at the FDA, from David Ross, M.D., Ph.D.,

Deputy Director on the FDA committee that approved Tysabri®, the data that the Company

submitted to the FDA did not include any evidence of opportunistic infections resulting from the

drug. In this regard, Dr. Ross stated in his memo that: "[t]he events reported do not appear to

represent infections due to opportunistic pathogens." [Emphasis added] Moreover, the FDA

documents that outline the scope of Tysabri® approval , made no mention of any opportunistic

infections, or associated risks. These documents clearly demonstrate that the FDA was not fully

informed with respect to the opportunistic infections that occurred in the Tysabri® clinical trials.

7


Based upon the limited information presented to the FDA, the drug was approved on November

23, 2004, for the broadest possible market.

17. On March 7-8, 2006, the FDA Advisory Committee held a hearing to determine

whether Tysabri® should be returned to the market (the "March 2006 FDA Hearing"). During

the March 2006 FDA Hearing, Defendants revealed that the two patients who contracted PML in

the MS trials, had actually begun exhibiting signs of PML as early as October 2004. However,

Defendants did not disclose these facts to the public or withdraw the drug until February 28,

2005, nearly three months later and after one patient had already died . Moreover, at the March

2006 FDA Hearing, the Defendants finally admitted that numerous other patients had developed

serious opportunistic infections from the drug, which were previously not disclosed to the

investment community or the FDA.

18. On June 5, 2006, the FDA announced that it had approved the return of Tysabri®

to the market for treating MS, but recommended that Tysabri® only be used as a last resort

therapy for MS patients in which no other therapy was tolerable or effective. Not surprisingly,

however, the FDA imposed landmark protocols which now serve to severely limit and restrict

usage of the drug, including significant restrictions on the label and monitoring of patients taking

Tysabri®. Specifically, the FDA required Defendants to include a "black-box" warning, its

strictest warning, on the Tysabri® label and required Defendants to implement a stringent risk

management plan, as detailed herein. These requirements extinguished any possibility of the

widespread market distribution of Tysabri® that Defendants had promised throughout the Class

Period.

19. In reaction to the significant restrictions imposed on Tysabri®, analysts sharply cut

their ratings and substantially lowered their future estimates of Tysabri®. According to one


analyst, " it appears that, despite [Tysabri's®] efficacy, the safety concerns shrouding Tysabri

are likely to have bulldozed its potential indefinitely." [Emphasis added] Moreover, another

analyst for Piper Jaffray, who slashed her estimate for worldwide Tysabri® sales to just $21

million for 2006, down 83% from $123 million, noted that physicians she had spoken with

confirmed that they were adopting Tysabri® at a much slower rate than expected, because of

safety concerns and patient-monitoring requirements. In reaction to the significant restrictions

imposed on Tysabri, the value of Elan's ADSs dropped $2.46 per ADS, or 13%, to close at

$16.52 per ADS on June 5, 2006.

20. The following charts compare Elan's ADS price movement on the NYSE and

common stock price movement on the Dublin Exchange to significant events that occurred

during the Class Period, including Defendants' false and misleading statements:6

° In addition to the following graphs, Elan's common stock that traded on the London Exchangereacted in a comparable manner to its stock trading on the Dublin Exchange, as the Company'sstock essentially traded in tandem on those exchanges.

9

Elan Corp.Key Class Period Events

February 18, 2004 - March 31, 2005Elan ADSs Trading on the NYSE

$35.00

$30.00

$25.00

$20.00

$15.00

$10.00

$5.00

$0.00

Class Period

2/18/04 - 2/28/05

6/28/04 - Elan and Biogenannounce the FDADesignated Tysabri forPriority Review as treatmentfor MS. I

♦ 5/25/04 - Elan and

T

Biogen announcesubmission of

5/13/04 - Q1 '04 Elan application to European

earnings release reaffirming Medical Agency for

timing to launch Tysabn onapproval of Tysabri.

track.

3/23/04 - Elan and Biogenannounce intention to seekfast - track approval ofTysabri for treating MS inEurope.

2/18/04: Elan and Biogenannounce intention to submitapplication to FDA for fast-trackapproval of Tysabri.

11/8/04: Defendants release One -year data from phase III . AFFIRMstudy "showed compelling results inmeeting primary end point in MultipleSclerosis."

10/28/04 - Elan issues Q3'04 earnings and reaffirmsthat Elan would return toprofitability in 2006.

2/18/04 3/18/04 4/18/04 5/18/04 6/18/04 7/18/04 8/18/04 9/18/04 10/18/04 11/18/04 12/18/04 1/18/05 2/18/05

10

2/28/05: Biogen and Elan pullTysabri from the market aftertwo reported cases of PML.

$35.00

$30.00

$25.00

$20.00

C-

$15.00

$10.00

$5.00

$0.00

Elan Corp.Key Class Period Events

February 18, 2004 - March 31, 2005 WElan Common Stock Trading on the Dublin Exchange CD

Class Period2/18/04 - 2/28/05

11/8/04: Defendants release One - Dyear data from phase III . AFFIRM N

study "showed compelling results in 00

meeting primary end point in MultipleC)Sclerosis."

6/28/04 - Elan and Biogen C-announce the FDA Designated =Tysabri for Priority Review as 2/28/05: Biogen and Elan pulltreatment for MS. Tysabri from the market after two

reported cases of PML. v

00

3CD

t 5/25/04 -Elan and10/28/04 - Elan issues Q3

'04 earnings and reaffirmsBiogen announcesubmission of

that Elan would return tof l 006itabi ity in 2 .

application topro

-n=

5/13/04 - Q1 '04 ElanEuropean MedicalAgency for approval of CD

earnings release reaffirming Tysabri. Q'timing to launch Tysabri on

C)track. N

\61-3/23/04 - Elan and Biogen 0)announce intention to seek fast - Ntrack approval of Tysabri for Otreating MS in Europe. O

V v7

2/18/04 : Elan and Biogen announceintention to submit application to FDA forfast-track approval of Tysabri. CD

2/17/200 4 3/17/2004 4/17/2004 5 /17/2004 6/17/2004 7/17/2004 8 / 17/2004 9/17/2004 10/17/200 11/17/2004 12/17/200 1/17/2005 2/17/2005 3/ 17/2005 0

01

11


II. JURISDICTION AND VENUE

21. This action arises under Sections 10(b) and 20(a) of the Exchange Act, as

amended, 15 U.S.C. §§ 78j(b), 78(n) and 78t ( a), and SEC Rule lOb-5, 17 C.F.R. § 240.10b-5,

promulgated thereunder.

22. This Court has jurisdiction over this subject matter pursuant to 28 U.S.C. §§ 1331

and 1337, and Section 27 of the Exchange Act, 15 U.S.C. § 78a.

23. Pursuant to the judicially prescribed "effect test" for asserting extraterritori al

jurisdiction, this Court may properly exercise subject matter jurisdiction over the claims of. (a)

all investors who purchased or acquired Elan securities traded on the U.S. markets, and/or (b)

American investors who purchased or acquired Elan securities in European markets.

24. This Court may also properly exercise jurisdiction over the claims of foreign Class

members who acquired Elan securities on foreign markets, including the London Exchange and

the Dublin Exchange, under the "conduct test" articulated by the Second Circuit (and other

courts), which provides that a federal court has jurisdiction over the claims of foreign purchasers

who acquired their securities abroad if: (1) the Defendant's activities in the United States were

more than "merely preparatory" to a securities fraud conducted elsewhere; and (2) these

activities or culpable failures to act within the United States "directly caused" the claimed losses.

The acts alleged herein show that substantial activity in furtherance of Defendants' fraud

occurred within the United States and damaged Class members worldwide.

25. Defendants engaged in extensive fraud-related conduct in the United States, which

was part of a single fraudulent scheme. The domestic conduct was not merely "preparatory" or

perfunctory acts, but led directly to the losses by both foreign and domestic investors.

26. Throughout the Class Period, Elan's shares predominantly traded on the NYSE in

the form of ADSs. There was a single worldwide and informationally efficient market for Elan

12


securities and information concerning the Company was accessible globally at the same time to

investors worldwide through electronic financial news reporting media. Elan securities were

priced based on trades reported from various exchanges in the United States and Europe. The

market was defrauded by Defendants' conduct, causing extensive effects on domestic purchasers

of Elan securities, as well as on those who purchased Elan securities on exchanges abroad. In

November 2004, the Company also availed itself of the United States debt market by issuing

$1.15 billion of senior notes.

27. In addition, Defendants' materially false and misleading statements disseminated to

the investing public alleged herein were issued in the United States and were contained in the

Company's annual financial statements filed with the SEC, quarterly press releases in conference

calls aired in the United States. Moreover, the Company's annual and quarterly financial

statements filed with the SEC were prepared in accordance with United States federal securities

laws and United States Generally Accepted Accounting Principles ("GAAP"). The Company's

independent auditor , KPMG Peat Marwick LLP, is also based in the United States.

28. In addition to issuing false and misleading statements to the investing public, Elan

conducts a substantial portion of its regular business activities in the United States. For example,

Elan's partner in developing and marketing Tysabri® is Biogen , whose corporate headquarters

are located in the United States. As discussed further below, Elan and Biogen's senior

executives regularly conversed about the development and marketing of Tysabri® and related

adverse events that occurred during the Tysabri® clinical trials. Tysabri® was primarily

manufactured at Biogen's plants in Cambridge, Massachusetts and Research Triangle Park,

North Carolina. All phases of all of the Tysabri® clinical trials for MS occurred in the United

States and some of the clinical trials for Crohn's disease occurred in the United States. A

13


significant portion of the adverse events that occurred during the Tysabri clinical trials occurred

in the United States and were aggregated and reported to Elan and Biogen in the United States.

A substantial amount of research related to Tysabri also occurred in the United States by U.S.

neurologists and scientists.

29. Defendants were also subject to regulation in the United States concerning

approval of new drugs to the market. Specifically, Defendants were required to obtain approval

of Tysabri® from the FDA, which is a U.S governmental agency located in the United States.

Moreover, four out of seven (more than half) of what Elan describes as its "Principal Properties"

are located in the United States in San Diego, California; San Francisco, California; Gainesville,

Georgia and King of Prussia, Pennsylvania. According to the Company's 2003 Annual Report

on Form 20-F (the "2003 20-F"), the majority of Elan's products are "U.S. Promoted Products."

For the years-ended 2004 and 2003, Elan generated approximately 83% and 71 %, respectively,

of its external revenue from sales in the United States. In Elan's public filings with the SEC, the

Company describes the U.S. market as "Elan's most important market."

30. The above facts fully justify the exercise of subject matter jurisdiction over the

claims of foreign Class members that purchased Elan securities on foreign exchanges.

31. Venue is proper in this district pursuant to Section 27 of the Exchange Act and 28

U.S.C. § 1391(b). Many of the acts alleged herein , including the dissemination of materially

false and misleading information in connection with the purchase or sale of a security, occurred

in this district.

32. In connection with the acts alleged in this complaint, Defendants, directly or

indirectly, used the means and instrumentalities of interstate commerce, including but not limited

to the mails, interstate telephone and internet communications , and the facilities of the NYSE.

14


III. PARTIES

A. Lead Plaintiffs

33. Lead Plaintiff MN Services, based in Rijswijk, manages approximately €30 billion

in assets and is the third largest institutional asset manager in the Netherlands. MN Services

administers pension funds, manages their assets and provides relevant research capabilities.

During the Class Period, MN Services purchased Elan securities at artificially inflated prices and

has been damaged by Defendants' wrongdoing. MN Services previously filed a certification in

this Court in connection with the Motion of the Institutional Investor Group for Consolidation,

Appointment as Lead Plaintiff and Approval of Selection of Lead Counsel (the "Lead Plaintiff

Motion") reflecting its transactions in Elan securities during the Class Period which is

incorporated by reference herein.

34. Lead Plaintiff Activest Investmentgesellschaft mbH ("Activest") is a financial

services group specializing in asset management . Activest is ranked among the top 20

institutional holders of asset -backed securities in the world . It is the investment subsidiary of

Hypovereinsbank, Germany's second largest bank, and is headquartered in Unterfohring near

Munich, Germany. Activest purchased Elan securities at artificially inflated prices during the

Class Period and has been damaged by Defendants' wrongdoing. Activest previously filed a

certification in this Court in connection with the Lead Plaintiff Motion reflecting its transactions

in Elan securities during the Class Period which is incorporated by reference herein.

35. Lead Plaintiff Third Millennium Trading, LLP ("Third Millennium") is a limited

liability partnership, with offices located in Chicago, Illinois and New York, New York and

specializes in proprietary equity trading. Third Millennium is a fully reporting member of the

National Association of Securities Dealers, is registered with the SEC, and is a member of the

Chicago Board Options Exchange, the American Stock Exchange and the Chicago Mercantile

15


Exchange. Third Millennium purchased Elan securities at artificially inflated prices during the

Class Period and has been damaged by Defendants' wrongdoing. Third Millennium previously

filed a certification in this Court in connection with the Lead Plaintiff Motion reflecting its

transactions in Elan securities during the Class Period which is incorporated by reference herein.

36. Lead Plaintiff Electronic Trading Group LLC ("ETG") was, at all times during the

Class Period, a limited liability company, headquartered in New York, New York and

specializing in proprietary equity trading, among other disciplines. ETG purchased Elan

securities at artificially inflated prices during the Class Period and has been damaged by

Defendants' wrongdoing. ETG previously filed a certification in this Court in connection with

the Lead Plaintiff Motion reflecting its transactions in Elan securities during the Class Period

which is incorporated by reference herein.

37. Lead Plaintiff Horatio Capital LLC ("Horatio") is a limited liability company,

headquartered in Chicago, Illinois and a proprietary firm specializing in the trading of securities

products. Horatio is also a member of the NYSE Arca. Horatio purchased Elan securities at

artificially inflated prices during the Class Period and has been damaged by Defendants'

wrongdoing. Horatio previously filed a certification in this Court in connection with the Lead

Plaintiff Motion reflecting its transactions in Elan securities during the Class Period which is

incorporated by reference herein.

38. Lead Plaintiff Donald S. Frank purchased Elan securities at artificially inflated

prices during the Class Period and has been damaged by Defendants' wrongdoing. Mr. Frank

previously filed a certification in this Court in connection with the Lead Plaintiff Motion

reflecting his transactions in Elan securities during the Class Period which is incorporated by

reference herein.

16


39. By Order, dated August 8, 2005, the Court appointed MN Services, Activest, Third

Millennium, ETG, Horatio and Donald S. Frank as the "Lead Plaintiffs" in this action.

B. Defendants

40. Defendant Elan is a public limited company incorporated under the laws of Ireland

with its principal executive offices located at Treasury Building, Lower Grand Canal Street,

Dublin 2, Ireland. In its public filings with the SEC, Elan describes itself as "a world-class,

neuroscience-based biotechnology company" that discovers, manufactures and markets advanced

therapies in neurology, autoimmune diseases and severe pain. The Company describes its core

business as biopharmaceutical research and development, pharmaceutical commercial activities

and pharmaceutical manufacturing activities. The biopharmaceutical research and development

segment of Elan's business purportedly includes the discovery and development of products in

the therapeutic areas of neurology, autoimmune diseases (such as MS) and severe pain.

41. During the Class Period, Elan was dependent upon only three products to generate

the majority of its revenue -- Maxipime, Azactam and Myobloc -- all of which were "U.S.

Promoted Products." For the years-ended 2004 and 2003, Elan received 83% and 71%,

respectively, of its revenue from its U. S. sales. Although the Company's purported headquarters

are located in Dublin, Ireland, Elan's "Principal Properties" are reportedly located in Ireland,

California, Georgia, Pennsylvania and the United Kingdom. Accordingly, Elan maintains a

significant presence in the United States through its physical locations and by the substantial

amount of revenue generated in the United States.

42. Throughout the Class Period , Elan's shares predominantly traded on the NYSE in

the form of ADSs. Since Elan is a foreign issuer and its corporate insiders are not U.S. citizens,

Elan corporate insiders are not required to publicly disclose their purchases and sales of Elan

securities . 15 U.S.C. § 78p(e). Thus, Lead Plaintiffs do not have access to information

17


regarding any potential insider selling of Company securities engaged in by Elan insiders that

may have occurred during the Class Period.

43. Defendant G. Kelly Martin ("Martin'') was at all relevant times Elan's Chief

Executive Officer, President and an Elan director. Defendant Martin made public statements

during the Class Period in Elan's press releases, during quarterly earnings conference calls with

analysts and during healthcare conferences with analysts. Defendant Martin also signed the

Company's 2003 20-F.7 Defendant Martin was a former Merrill Lynch & Co. banker hired by

Elan in January 2003 to help return the Company to profitability.

44. Defendant Shane M. Cooke ("Cooke") was at all relevant times Elan 's Chief

Financial Officer and a director of Elan. Defendant Cooke made public statements during the

Class Period in Elan's press releases, during quarterly earnings conference calls with analysts

and during healthcare conferences with analysts. Defendant Cooke also signed the Company's

2003 20-F.

45. Defendant Lars Ekman ("Ekman") was at all relevant times Elan's Executive Vice

President and President of Research and Development. Defendant Ekman made public

statements during the Class Period in Elan's press releases, during quarterly earnings conference

calls with analysts and during healthcare conferences with analysts. Prior to joining Elan in

January 2001 , Defendant Ekman was Executive Vice President of Research and Development at

Schwarz Pharma AG and was employed in a variety of senior scientific and clinical positions at

Pharmacia (now Pfizer). Defendant Ekman is a board certified surgeon with a Ph.D. in

' Pursuant to Rule 13(a) of the Exchange Act, foreign private issuers, as defined by Rule 3b-4

of the Exchange Act, are required to file a Form 20-F rather than an Annual Report on Form 10-

K. 15 U.S.C. § 78m(a). A foreign issuer filing a Form 20-F is required to report on, and

disclose, essentially the same information as that contained in a Form 10-K, under U.S. GAAPand in accordance with U.S. federal securities laws.

18


experimental biology and has held several clinical and academic positions in both the United

States and Europe.

46. Defendants Martin, Cooke and Ekman are referred to collectively herein as the

"Individual Defendants."

C. Control Person Liability

47. During the Class Period, the Individual Defendants, as senior executive officers

and directors of Elan , were privy to confidential and proprietary information concerning Elan

and its business, operations, performance, and prospects, including its compliance with

applicable federal, state and local laws and regulations. Because of their high-level positions

with Elan, the Individual Defendants had regular access to non-public information about the

Company's regulatory compliance, business, operations, performance and prospects through

access to internal corporate documents and information, conversations and connections with

other corporate officers and employees, attendance at management meetings and the Company's

Board of Directors, and committees thereof, and reports and other information provided to them

in connection therewith.

48. Because of their possession of the information described above, the Individual

Defendants knew, or recklessly disregarded the significant risks associated with Tysabri's®

severe immunosuppressive effects and consequently, the liability that the Company faced as a

result of such serious opportunistic infections that were guaranteed to occur as a result.

Defendants knew or recklessly disregarded that these risks had not been disclosed to, and were

being concealed from the investing public and the FDA, and that, as a result of these serious

risks posed by Tysabri®, the potential market for the drug was only a fraction of what

Defendants represented to the public. Accordingly, Defendants knew, or recklessly disregarded

19


that the statements complained of herein were materially false and misleading and omitted

material facts when made.

49. Each of the Defendants is liable as a direct participant and primary violator with

respect to the wrongdoing complained of herein. In addition, the Individual Defendants, by

reason of their status as senior executive officers and directors, were "controlling persons" within

the meaning of § 20(a) of the Exchange Act and had the power and influence to cause the

Company to engage in the unlawful conduct complained of herein. Because of their positions of

control, the Individual Defendants were able to, and did, directly and indirectly, control the

conduct of Elan's business.

50. The Individual Defendants, because of their positions with the Company,

controlled and/or possessed the authority to control the content of the various SEC filings, press

releases, and other public statements made by the Company during the Class Period. By reason

of their respective high-level management and Board positions, the Individual Defendants had

the ability and opportunity to review copies of Elan's SEC filings, reports and press releases

alleged herein to be materially misleading, prior to, or shortly after their issuance, and to prevent

their issuance or cause them to be corrected.

D. Group Pleading

51. The Individual Defendants are liable for the materially false and misleading

statements pleaded herein that were issued by or in the name of the Company, as those

statements were each "group-published" information, the result of the collective actions of the

Individual Defendants, each of whom was intimately involved in the day-to-day operations of

Elan. It is appropriate to treat the Individual Defendants as a group and to presume that the

public filings, press releases, and other public statements complained of herein, are the product

of the collective actions of the narrowly defined group of Individual Defendants. The Individual

20


Defendants, by virtue of their high-level positions within Elan, directly and actively participated

in the management and day-to-day operations of the Company , and were privy to confidential

non-public information concerning the business and operations of Elan. In addition, the

Individual Defendants were involved in drafting, reviewing and/or disseminating the materially

false and misleading statements issued by Elan and approved or ratified those statements and

therefore, adopted them as their own.

E. Duties Of The Individual Defendants

52. Each of the Individual Defendants had the duty to make full, candid and timely

disclosures of all material facts relating to the business, operations, performance and prospects of

Elan. Among other things, Defendants were required to:

• conduct and supervise the business of Elan in accordancewith all applicable laws and regulations;

• supervise the preparation of the Company's SEC filings

and approve any reports concerning the financial reporting

and results of Elan;

• ensure that Elan established and followed adequate internalcontrols; and

• refrain from obtaining personal benefit, at the expense of

the public purchasers of Elan securities, by misusing

proprietary non-public information.

53. As senior officers and controlling persons of a publicly-held Company whose

securities were, during the relevant time, registered with the SEC pursuant to the Exchange Act,

traded on the NYSE, and governed by the provisions of the federal securities laws, the Individual

Defendants each had a duty to promptly disseminate accurate and truthful information with

respect to the Company's performance, operations, business and prospects, and to correct any

previously issued statements that were or had become materially misleading or untrue, so that the

21


market price of the Company's publicly-traded securities would be based upon truthful and

accurate information.

54. As a result of Defendants' failure to fulfill the foregoing obligations, Elan's

securities were artificially inflated during the Class Period. As the truth emerged, Lead Plaintiffs

and other members of the Class were damaged. In response to the emergence of the truth, Elan's

securities prices fell precipitously. As a direct and proximate result of Defendants' wrongdoing,

Lead Plaintiffs and other Class members were damaged.

IV. CLASS ACTION ALLEGATIONS

55. Lead Plaintiffs bring this class action under Rules 23(a) and 23(b)(3) of the Federal

Rules of Civil Procedure, on behalf of a Class of all persons who purchased or otherwise

acquired Elan securities during the Class Period (or their successors-in-interest). Excluded from

the Class are the Defendants named herein, members of the immediate families of the

Defendants, any firm, trust, partnership, corporation, officer, director or other individual or entity

in which a Defendant has a controlling interest or which is related to or affiliated with any of the

Defendants, and the legal representatives, heirs, successors-in-interest or assigns of any such

excluded party.

56. Also excluded from the Class are all Defendants named in the action captioned, In

re Biogen Idec, Inc. Securities Litigation, No. 05-CV-10400 (RCL), currently pending in the

District of Massachusetts, (the "Biogen Defendants") and members of the immediate families of

the Biogen Defendants, any firm, trust, partnership, corporation, officer, director or other

individual or entity in which the Biogen Defendants have a controlling interest or which is

related to or affiliated with any of the Biogen Defendants, and the legal representatives, heirs,

successors- in-interest or assigns of any such excluded party.

22


57. The Class is so numerous that joinder of all members is impracticable . During the

Class Period, there were approximately 388,695,832 Elan ordinary shares of common stock

issued and outstanding. Elan common shares were actively traded on the Dublin and London

exchanges and on the NYSE as ADSs . During the Class Period , the average daily volume of

Elan ADSs trading on the NYSE was approximately 6,443,765 shares. While the exact number

of Class members is unknown to Lead Plaintiffs at this time and can only be ascertained through

appropriate discovery, Lead Plaintiffs believe that there are thousands of geographically

dispersed Class members. Record owners and Class members can be identified from records

maintained by Elan or its transfer agent and can be notified of the pendency of this action by

mail and publication, using forms of notice similar to those customarily used in securities class

actions.

58. Lead Plaintiffs' claims are typical of the members of the Class, because Lead

Plaintiffs and all of the Class members sustained damages arising from the same wrongful

conduct complained of herein.

59. Lead Plaintiffs will fairly and adequately protect the interests of the members of

the Class, and Lead Plaintiffs have no interests which are contrary to, or in conflict with, the

interests of the Class members that they seek to represent . Lead Plaintiffs have retained

competent counsel experienced in class action litigation under the federal securities laws to

ensure such protection, and intend to prosecute this action vigorously.

60. Questions of law and fact common to the members of the Class predominate over

any questions that may affect only individual members in that Defendants have acted on grounds

generally applicable to the entire Class. Among the questions of law and fact common to the

Class are:

23


a) whether Defendants' acts violated the federal securitieslaws as alleged herein;

b) whether Defendants' publicly disseminated press releasesand statements during the Class Period omitted and/ormisrepresented material facts and whether Defendantsbreached any duty to convey material facts or to correctmaterial facts previously disseminated;

c) whether Defendants participated in and pursued thecommon course of conduct complained of herein;

d) whether Defendants acted with scienter in omitting and/or

misrepresenting material facts;

e) whether the price of Elan securities was artificially inflatedduring the Class Period as a result of the materialmisrepresentations and omissions complained of herein;

f) whether Defendants Martin, Cooke and Ekman werecontrolling persons as alleged herein; and

g) whether members of the Class have sustained damages and,

if so, the proper measure of such damages.

61. A class action is superior to all other available methods for the fair and efficient

adjudication of this controversy since joinder of all members is impracticable. Furthermore, as

the damages suffered by individual members of the Class may be relatively small, the expense

and burden of individual litigation make it impossible for the members of the Class to

individually seek redress for the wrongs done to them. There will be no difficulty in the

management of this action as a class action.

24

Case 1 : 05-cv-02860-RJH Document 23 Filed 02/16/2007 of 153

V. BACKGROUND AND FACTS UNDERMINING THE VERACITYOF DEFENDANTS ' CLASS PERIOD REPRESENTATIONS

A. Multiple Sclerosis Is A Severe Autoimmune Disease

62. MS is a severe autoimmnune disease 8 that affects the central nervous system

("CNS"), which consists of the brain, spinal cord and optic nerves . Surrounding and protecting

the nerve fibers of the CNS is a fatty tissue called myelin, which helps nerve fibers conduct

electrical impulses.

63. In patients with MS , immune cells migrate into the CNS causing inflammation.

Such inflammation destroys the myelin and nerve fibers themselves in multiple areas, leaving

scar tissue called sclerosis . These damaged areas are known as plaques or lesions.

64. Myelin not only protects nerve fibers, but is essential to their function. Thus, when

the myelin is destroyed or damaged, the ability of the nerves to conduct electrical impulses to

and from the brain is disrupted, and this disruption produces the various symptoms of MS,

including problems with coordination and balance, damaged vision and abnormal sensation.

65. The natural progression of MS varies among patients . Some patients are minimally

affected by the disease for many years, while other patients experience a rapidly progressive

disease leading to total disability or even death, within a few years. MS is classified into the

following categories, according to the stage and type of the disease:

Relapsing-remitting MS - This category of MS ischaracterized by acute exacerbations of disease(relapses) followed by periods of complete orincomplete recovery (remissions). In the initialstages of MS, approximately 80-90% of individualshave relapsing-remitting MS.

° Autoimmune diseases arises when the immune system in appropriately targets the cells,tissues and organs of one's own body.

25


Secondary progressive MS - This category of the

disease involves gradual neurological deterioration

with or without superimposed relapses.

Approximately 50% of those with relapsing-

remitting MS will enter the secondary progressive

phase of the disease within ten to fifteen years of

disease onset.

Primary progressive MS - This form of MS is

characterized by a steady progression of disability

with few or no exacerbations. Approximately 10%

of individuals with MS exhibit this form of the

disease.

Progressive relapsing MS - This category of the

disease is characterized by progressive MS from the

onset with infrequent superimposed relapses. This

form is relatively uncommon and occurs in less than

5% of patients.

66. There is no cure for MS and existing treatments provide only modest benefits to

patients. MS has conventionally been treated through the use of different types of drugs, such as

beta-interferons, glatiramer acetate, steroids and other immunosuppressive drugs. Proprietary

drugs currently available in the United States to treat MS patients include: (i) Avonex© (a beta-

interferon marketed by Biogen); ( ii) Betaseron® (a beta-interferon marketed by Schering AG);

(iii) Rebif® (a beta-interferon marketed by Serono Pharma); (iv) Copaxone® (glatiramer acetate

marketed by Teva Neuroscience); and (v) Novantrone® (an antineoplastic marketed by Serono

Pharma). All of these therapies, however, have proven to be marginally effective in most MS

patients and often carry intolerable side effects such that some patients choose to forego any

treatment.

B. Progressive Multifocal Leukoencephalopathy

67. PML is an almost always fatal disease of the nervous system caused by a

polyomavirus (the "JC Virus") that typically strikes people with severely impaired immune

systems, such as persons with AIDS. PML presents symptoms such as impaired cognition,

26


cortical blindness and weakness on one side of the body. PML usually results in death within

one to four months of the onset of the disease.

68. The JC virus, which causes PML, is latent in the kidneys of almost all adults

following infection in childhood or adolescence. JC virus only invades the brain when the

immune system is severely impaired, which allows the virus to replicate uncontrollably in the

CNS.

C. Tysabri®

69. Tysabri® is scientifically referred to as a "humanized monoclonal antibody" and

the "first alpha -4 integrin antagonist in the new selective adhesion molecule ('SAM') inhibitor

class." Tysabri® works by binding to a specific receptor present on most white blood cells

including lymphocytes, thereby preventing such white blood cells' normal migration in the body

and suppressing both inflammation and normal immune responses in the body. Thus, Tysabri®,

by its very nature, is a highly immunosuppressive drug.

70. Tysabri® was developed in the early 1990's by Dr. Lawrence Steinman, Professor

of Neurology and Immunology at Stanford University and Dr. Ted Yednock of Athena

Neurosciences (acquired by Elan in 1996), among others, as part of a collaborative academic

experiment. Drs. Steinman and Yednock studied the effects of Tysabri® in mice with

experimental autoimmune encephalomyelitis ("EAE"), a condition pathologically similar to MS,

and concluded that Tysabri® successfully prevented migration of lymphocytes and monocytes

(another type of white blood cell) to the brain, thus preventing inflammation in the brains of

mice with EAE. These results indicated that Tysabri® might be effective in treating MS.

71. The results of Dr. Steinman's study were published in a March 5, 1992 article

entitled, "Prevention of Experimental Autoiminune Encephalomyelitis by Antibodies Against

a4(31 Integrin," in the journal, Nature, (356:63-6, 1992), well before the Class Period.

27


72. During a July 2005 conference call with Co-Lead Counsel for Plaintiffs herein (the

"July 2005 Conference Call") Dr. Steinman stated that he had concluded, based upon the results

of the animal study described above, that Tysabri® prevented migration of lymphocytes and

monocytes to other organs as well. According to Dr. Steinman, by preventing migration of

these white blood cells -- the body's primary defense mechanism for fighting infections --

Tysabrig left the patient's bodily organs other than the brain defenseless to fight the infection.

73. For these reasons, the widespread application of the drug posed serious concerns to

Dr. Steinman. Indeed, Dr. Steinman stated during the July 2005 Conference Call that his most

significant concern was that, since Tysabri® prevented white blood cells from migrating to all

organs in the body, its effects could not be localized to only the CNS. As a result, according to

Dr. Steinman , patients taking Tysabri® would be vulnerable to serious , potentially life-

threatening opportunistic infections because white blood cells could not reach the infected area

to fight the infection.

74. During the July 2005 Conference Call, Dr. Steinman further explained that people

with MS are not unusually susceptible to infectious diseases, but generally handle infections

quite well . However, according to Dr. Steinman , when MS patients begin taking Tysabri®, they

become much more susceptible to opportunistic infections because the patient's immune system

is severely suppressed by use of the drug.

75. Accordingly, as described above, Tysabri® is an extremely dangerous drug that

virtually "turns off' the immune system . This result can lead to the onslaught of PML by

allowing the JC virus (discussed above) to replicate in the CNS of patients taking Tysabri®®. As

indicated above, Defendants were forced to withdraw Tysabri® from the market on February 28,

28


2005 because , among other reasons, two patients in the MS Tysabri® clinical trials were

diagnosed with PML, one of whom died.

D. Elan Was In Dire Financial Straights

76. Prior to and throughout the Class Period, Elan was in deep financial trouble as a

result of the Company being forced in 2002 to withdraw its pivotal Alzheimer's drug, AN-

1792®, the only potential blockbuster drug in Elan's drug pipeline, when nineteen people

reportedly suffered from brain inflammation caused by the drug. Five of those died. Moreover,

Elan had reported net losses and negative cash flows for several years, while continuing to incur

substantial amounts of debt to cover its cash shortfalls. Specifically, Elan recorded net losses of

$2.9 billion, $3.6 billion and $887.2 million for the years ended December 31, 2003, 2002 and

2001, respectively, and negative cash flows of $256.5 million and $518.7 million for 2003 and

2002, respectively. As of December 31, 2003, Elan reported total debt of approximately $2

billion, representing approximately two-thirds of the Company's total asset value in 2003.

77. Moreover, Elan was dependant on only three drugs for essentially all of its

revenue. Since the Company had no other drugs in its pipeline with purported "blockbuster"

potential , Tysabri® was Elan's only hope of returning the Company to profitability. As a result

of Elan's financial troubles and public skepticism regarding senior management's credibility

stemming from earlier SEC and shareholder lawsuits alleging accounting improprieties

(discussed below), analysts predicted that Elan would likely have to file for bankruptcy unless

Tysabri® was successful . In this regard, analysts commented as follows:

March 1, 2005 New York Times article described Elan'sfinancial status as being on the brink of "bankruptcy" as aresult of financial troubles beginning in 2002, from whichElan had not yet recovered.

29


• March 1 , 2005 research report by Canaccord stated that

Elan would face "dire consequences ," including "possible

bankruptcy" unless Tysabri® was a blockbuster.

• March 31, 2005 research report issued by A.G Edwards

declared that "[a]bsent Tysabri, we believe Elan effectively

belongs to its debt holders."

• April 28, 2005 Citigroup research report opined that

without Tysabri®, Elan may be forced to partially or fully

dissolve the Company.

78. Confidential sources confirmed Elan's need for a successful launch of Tysabri®.

For example, a former Director of Marketing for Elan Pharmaceuticals who assisted in the

marketing research preparation for Tysabri ("CS 1 "), a former Administrative Director in the

Department of Neurology for Caritas St. Elizabeth's Medical Center in Boston, MA from 2004

through May 2006 who established a Multiple Sclerosis Clinic where this witness worked with

Tysabri ("CS 2"), and a former Vice President of Drug Metabolism and Pharmacokinetics for

Elan Pharmaceutical from June 2003 to April 2004 ("CS 3"), all confirmed that Elan's future

was dependant upon on approval and a successful launch of Tysabri® to remain a viable

company. CS 1, CS 2 and CS 3 highlighted the fact that the Company was forced to withdraw

its Alzheimer's drug, AN-1792®, from the market in 2002 and had no other potential

blockbuster drugs in its pipeline, as well as the Company's enormous debt load, as the reasons

why Elan was in financial trouble.

79. In light of the fact that Tysabri® was Elan's only potential blockbuster drug,

Defendants decided to divest the Company of $2.1 billion of other assets in 2002 and 2003,

including, among other things, its European sales and marketing business, pain products

portfolio and other products to allow the Company to focus on the development and marketing of

Tysabri®.

30


E. Elan Collaborated With Biogen On The Marketing,Development And Commercialization Of Tysabri®

80. On August 17, 2000, Elan and Biogen announced in a joint press release, that they

had entered into an Antegren Development and Marketing Collaboration Agreement (the

"Collaboration Agreement" or "Agreement"), for the "exclusive" and mutual benefit of both, to

work collaboratively to expedite the development, regulatory approval and commercialization of

Tysabri0, under which the parties would share revenue and costs equally ( the "August 17, 2000

Press Release" ). In the August 17, 2000 Press Release, James Mullen , Biogen 's CEO, described

Tysabri® as a drug with "blockbuster potential."

81. At the time of the Collaboration Agreement, Elan and Biogen contemplated use of

Tysabri® for treating MS, Crohn' s disease and RA. The Collaboration Agreement required that

Elan and Biogen "work exclusively with each other to research , Develop, manufacture and

Commercialize Licensed Products in the Field ...." According to CS 3, Elan joined forces with

Biogen to obtain access to Biogen ' s manufacturing facilities and its expertise in MS, which

Biogen had achieved through developing and marketing its premier MS drug, Avonex g.

82. The Collaboration Agreement established a Joint Steering Committee (the "JSC")

to "oversee and manage the Development and Commercialization activities contemplated by

[the] Agreement." As discussed below, the Collaboration Agreement required two teams that

reported to the JSC, the Joint Project Team ("JPT") and the Joint Commercialization Team

("JCT") to implement the development and marketing of Tysabri®. Thus, information and

results learned by either Biogen or Elan concerning positive or negative results of the drug was

shared with the other company pursuant to the Agreement.

83. The JSC was comprised of six members, three representatives from Elan and three

from Biogen. At least two representatives from each party were required to be senior members

31


of management, either a "vice-president or more senior officer." The third representative was

required to be someone of a "suitable authority and seniority who has significant experience or

expertise in biophannaceutical drug research, development commercialization or marketing."

CS 3 confinned that pursuant to the Collaboration Agreement, Elan and Biogen created a

committee comprised primarily of senior management from both companies to monitor the

progress of Tysabri®.

84. In addition to its general responsibilities to oversee and coordinate the development

of Tysabri®O according to the Development Plan, pursuant to the Collaboration Agreement, the

JSC was also charged with the responsibility to: (1) direct "the overall strategy, timing, goals and

direction of Development activities ... and provide direction to the Joint Project Team;" (ii)

"review and approve global regulatory and clinical strategies;" (iii) "approve the Development

Plan and each Annual Workplan/Budget;" (iv) "review and approve the determinations of the

Joint Project Team with respect to the calculations of the presence or absence of a Commercially

Significant Indication;" and (v) "perform such other functions as are allocated to it...."

85. According to the Collaboration Agreement, before each meeting, JSC members

received written copies of materials used at JSC meeting presentations. The JSC could also

request, at any time, "information related to Development or Commercialization activities or that

a written report be prepared in advance of any meeting summarizing certain material data....

86. As stated above, the Collaboration Agreement also called for the JPT, which

consisted of representatives from Elan and Biogen with technical scientific expertise, who were

responsible for, among other things, preparing and executing Development activities, preparing

the Development Plan and Annual Work Plan/Budget (as outlined in the Collaboration

Agreement ) and selecting the criteria for developing Tysabri®, including decisions on design

32


and implementation of research programs and clinical trials. The JPT was also required to

submit various written reports to the JSC concerning its duties and progress of Tysabri's®

development.

87. The JCT was comprised of three to five members from Elan and Biogen with

experience in the commercialization and marketing of pharmaceutical products. The JCT was

responsible for preparing the Commercialization Plan and each Annual Commercialization

Budget, as outlined in the Collaboration Agreement, overseeing and implementing

commercialization activities , and "coordinating with the [JPT] in developing and implementing

standard operating procedures for adverse event reporting and compliance with regulatory

requirements ....

88. Pursuant to Article 3.5 of the Collaboration Agreement - Meetings of Chief

Executive Officers, Defendant Martin and James Mullen, Biogen 's CEO, were required to "meet

two (2) times per year during the term of [the] Agreement" to review the progress of the

development and commercialization of Tysabri and any important issues that arose. As Mullen

admitted during conference calls for the second and third quarters of 2004 "Kelly Martin and I

are in frequent communications. We believe these investments will provide healthy returns to

the business, given ANTEGREN's blockbuster potential ." [emphasis added]

89. The Collaboration Agreement - Article 4.3 - Clinical Trials - requires that "all

clinical data and reports related to the clinical trials ... shall be jointly owned by the Parties

[Elan and Biogen], and each Party shall have full use...."

90. Article 13 governs adverse event reporting and requires , in relevant part:

13.1 INFORMATION. Biogen and Elan willdisclose and make available to each other in atimely manner all preclinical , clinical , regulatory,

33


commercial and other information concerningLicensed Products and constituting Know-how ...

13.3 ADVERSE EVENTS. Each Party will be

responsible for the safety surveillance and

pharmacovigilance regulatory obligations with

respect to the Licensed Product in those territories

where it is the sponsor of non-clinical or clinical

development ... or where it is the license holder of

the Licensed Product's Regulatory Approval. Each

party shallprovide to the responsible Party under

this Section with data on all adverse drug

experience reports related to the Licensed Product

in each case in accordance with procedures

established by the JJPTJ or the IJCTJ or pursuant

to an adverse event reporting agreement entered

into by the Parties. Elan and Biogen agree to

fulfill all their safety surveillance and

pharmacovigilance regulatory obligations with

respect to the Licensed Product . [Emphasis added]

91. Thus, under the Collaboration Agreement , senior executives at Elan and Biogen,

including Defendant Kelly and James Mullen, were charged with approving and closely

monitoring the progress of the development and marketing of Tysabri ®, including the manner in

which clinical trials were designed and conducted, the tracking of adverse events, the resolution

of issues as they arose and communication of issues and findings to one another.

F. The Tysabri® Clinical Trials

1. FDA Requirements Regarding Clinical Trial Testing

92. Before a drug may be marketed and sold commercially in the United States, FDA

regulations require that it first be tested for safety and efficacy in animals to determine its

potential toxicity and usefulness. Drugs that demonstrate acceptable safety profiles and benefits

may be approved by the FDA for testing in clinical trials using human volunteers . According to

the FDA, "[i]t's important ... that people make their decision to participate in a clinical trial

34


only after they have a full understanding of the entire process and the risks that may be

involved."

93. The FDA requires a company to conduct three phases of clinical trials using human

volunteers before a drug may be approved and then marketed and sold to the general population.

The first phase ("Phase I") is conducted using a small number of healthy people for the purpose

of determining the proper dosage of a drug, documenting how it is metabolized and excreted and

identifying acute side effects. The second phase ("Phase II") includes participants who have the

condition the product may potentially treat and seeks to gather further safety data and

preliminary evidence of the drug's efficacy. If Phase II trials indicate that the drug may be

effective in treating a disease, and the risks are acceptable given the observed efficacy and the

severity of the disease, the drug moves on to the third phase ("Phase III"), which tests the

product's effectiveness and monitors side effects in a larger population of patients and control

subjects.

94. Elan and Biogen conducted clinical trials purportedly to test the safety and efficacy

of Tysabri® as a treatment for MS, Crohn's disease and RA. Although under the Collaboration

Agreement, Elan and Biogen were both responsible for the trials and required to communicate all

details associated with the clinical trials to one another, Elan was primarily responsible for

running the Crohn's disease and RA trials and Biogen was primarily responsible for running the

MS trials.

2. FDA Requirements For "Fast-Track" Approval, Priority

Review And Accelerated Approval Of New Drug Applications

95. On May 25, 2004, Defendants announced that they had submitted a Biologics

License Application to the FDA for "fast-track approval" (defined below) of Tysabri® for

treating patients with MS, based upon only one year's worth of data from Phase III of the

35


Tysabri® MS clinical trials. On June 28, 2004, Defendants announced that the FDA had

designated Tysabri® for "priority review" and "accelerated approval" (defined below) for the

treatment of MS, which still required Defendants to complete Phase III testing of Tysabri®. On

November 23, 2004, Defendants announced that the FDA granted approval of Tysabri® based on

one-year's worth of data from two Phase III studies , the AFFIRM monotherapy trial and the

SENTINEL add-on trial , which combined Tysabri® with Avonex®O.

a. The Priority Review Process

96. "Priority Review" relates to the time frame the FDA targets for reviewing a

completed new drug application and is a designation for an application after it has been

submitted to the FDA for review and approval of a marketing claim. See

http://www.accessdata.fda.gov/scripts/cder/onctools/Accel.cfm#Priority. Under the Food and

Drug Administration Modernization Act ("FDAMA"), reviews for "new drug applications" are

designated as either standard or priority. A standard designation sets the target date for

completing all aspects of a review and for the FDA taking action on the application (approve or

not approve) at ten months after the date it was filed . A priority designation sets the target date

for the FDA action at six months. The FDA grants priority review status to products that are

considered to be potentially significant therapeutic advancements over existing therapies that

address an unmet medical need.

b. Accelerated Approval

97. "Accelerated Approval" is a program that is intended to make promising products

for life-threatening diseases available on the market on the basis of preliminary evidence prior to

formal demonstration of patient benefit. See http://www.accessdata.fda.gov/

scripts/cder/onctools/Accel.cfm#SubpartH . If accelerated approval is granted , the approval that

36


is granted may be considered a provisional approval with a written commitment to complete

clinical studies that formally demonstrate patient benefit.

3. The MS Clinical Trials Of Tysabri®

98. Pre-clinical animal studies to evaluate Tysabri® as a treatment for autoimmnune

diseases, like MS and Crohn's disease, were conducted beginning in the early 1990's. Phase I of

the Tysabri® clinical trials for use as a treatment for MS, Crohn 's disease and RA was

completed by Athena Neurosciences (acquired by Elan in 1996) in December 1995.

99. In September 2001, Elan and Biogen presented promising data from Phase II of the

Tysabri® MS trials at the annual meeting of the European Congress on Treatment and Research

in Multiple Sclerosis. The Phase II trials were purportedly double-blinded,9 placebo-controlled

studies that evaluated Tysabri's® effect on inflammatory lesions in the brain of patients with MS

and assessed the tolerability and clinical benefit of Tysabri®. According to Elan and Biogen, the

primary analysis was based on magnetic resonance imaging ("MRI") scans and purportedly

demonstrated that MS patients treated with Tysabri® for six months had fewer lesions known as

"gadolinium - enhancing lesions" ( characteristic of MS ) in their CNS's than patients treated with

placebo. The data also purportedly demonstrated that the number of MS relapses over the

treatment period, one of the pre-specified clinical endpoints in the trial, was also reduced.

Specifically, in the placebo group, there were thirty-four relapses as compared to the Tysabri 1z 3

mg/kg group and Tysabri® 6 mg/kg group, which had nineteen and fourteen reported relapses,

respectively.

A double-blinded study is "a study in which at least two separate groups receive theexperimental medication or procedure at different times, with neither group being made aware of

when the experimental treatment or procedure has been given." See http://www.medterms.com/

script/main/art.asp ? articlekey=11177.

37


100. Phase III of the Tysabri® MS testing began in December 2001 and consisted of

two trials: (1) the AFFIRM trial ; and (2 ) the SENTINEL trial. The AFFIRM trial was a two-

year, randomized, multi-center, placebo-controlled, double-blinded study of approximately 900

patients, designed to determine whether Tysabri ®t effectively slowed the rate of disability in MS

patients and reduced the rate of clinical relapses. The SENTINEL trial evaluated the safety and

efficacy of Tysabri® used in combination with Biogen ' s other MS drug, Avonex It (Interferon

beta-1 a), in patients with relapsing-remitting MS. The SENTINEL trial was also a two-year,

randomized, multi-center, placebo-controlled, double-blinded study of approximately 1,200

patients , designed to determine whether, in combination with Avonex®, Tysabri® was more

effective than Avonex® alone in slowing the rate of disability in MS and in reducing the rate of

clinical relapses.

101. On February 18, 2004, Defendants announced their intention to apply for fast-track

approval for treatment of Tysabri in MS patients after only one year of data in the Phase III

clinical trials, the results of which were finally disclosed to the public on November 8, 2004.

4. The Crohn' s Disease Clinical Trials Of Tysabri®

102. On May 23, 2001, Elan and Biogen issued a joint press release announcing that

Phase II of the Tysabri® Crohn' s disease trial was complete and indicated "promising results on

multiple endpoints." Phase III of the Crohn's disease trials, which began in December 2001,

consisted of two trials: (1) ENACT- I (to evaluate clinical responses to Tysabri® and its ability

to induce remission of disease); and (2 ) ENACT-2 (to evaluate the duration and effects of

Tysabri®). The ENACT-2 study only enrolled patients who participated in the ENACT-I study.

On July 24, 2003, Defendants announced that the ENACT-I study did not meet the primary

endpoint of "response." According to Defendants:

38


This result appears to be due to a larger than

expected placebo response rate. However, data

from the study indicate that the biological activity

of natalizumab was similar to that seen in the Phase

11 study published in the New England Journal of

Medicine earlier this year. Additionally, there were

no notable differences in the overall rates of side

effects between natalizumab and placebo treatment

groups through week 12.

103. On January 29, 2004, Defendants issued a press release announcing that the

ENACT-2 trial had "met its primary endpoint ." At the same time , Defendants began an

additional Phase III induction trial, the ENCORE trial , because the original Phase III induction

trial (ENACT- ]) did not meet its primary endpoint . The ENCORE trial was designed as a

double-blinded, placebo-controlled study of 510 patients at 114 sites to evaluate the safety and

efficacy of intravenous Tysabri® in patients with moderately to severely active Crohn's disease.

5. The Rheumatoid Arthritis Clinical Trials Of Tysabri®

104. During mid-2004, Defendants began the Phase II RA trials. This RA trial was a

multi-center, double-blinded, placebo-controlled study measuring the efficacy, safety and

tolerability of intravenous Tysabri® in patients with moderate to severe RA receiving

concomitant treatment with methotrexate, an antimetabolite drug, which blocks the metabolism

of cells and, thus, has been found useful in treating certain cancers and autoimmune diseases,

among other diseases.

6. The Suspension Of All Clinical Trials Of Tysabri® Upon

Defendants' Withdrawal Of The Drug From The Market

105. On February 28, 2005, Defendants suspended all of the on-going Tysabri© clinical

trials and withdrew the drug from the market, purportedly pending an investigation into two

patients enrolled in the MS trials who were diagnosed with PML. At the time of the February

28, 2005 announcement, the status of the clinical trials were as follows:

39


MS Clinical Trials - Phase III of the AFFIRM study was

completed and Phase III of the SENTINEL study was

substantially completed.

Crohn's Disease Clinical Trials - The Enact I and Enact II

studies were completed and the Encore Phase III Induction

trial was in progress.

RA Clinical Trials - Phase II had been underway for

approximately eight months.

106. As each of the phases in these clinical trials were completed and, thus, the results

unblinded, Elan and Biogen had exhaustively studied and analyzed the data. Thus, by at least

February 2004, when Elan and Biogen announced their intention to apply to the FDA for fast-

track approval of Tysabri® for treatment of MS, Defendants had conducted a thorough analysis

of the completed phases of the clinical trials, including Phase I, Phase II and one year of data

from Phase III of the MS trials and all phases of the Crohn' s disease trials (except the ENCORE

study).

G. Defendants Knew Or Recklessly Disregarded Numerous

Warnings Of Tysabri's® Severe Immunosuppressive Effects

107. As a result of Elan's status as a purported "world - class neuroscience-based

biotechnology company" as well as the Individual Defendants' significant experience and

education in the biotechnology industry, Defendants had the ability to, and did, keep themselves

apprised of all facts and information concerning the drugs that they were developing in order to

market and sell them commercially. Defendants were particularly focused on Tysabri®, which

they claimed would be the next "blockbuster" drug that would "revolutionize " the treatment of

MS, because Tysabri 's® success as a blockbuster drug was critical to Elan's ability to return the

Company to profitability and avoid an otherwise imminent bankruptcy.

108. Prior to filing an application with the FDA for fast-track approval of Tysabri®,

Defendants knew or recklessly disregarded the following red flags, confinning that the market

40


for Tysabri® would be only a fraction of that disclosed by Defendants because of the significant

risks associated with Tysabri®: (i) Tysabri®, by its very nature because of the way it worked,

was an immunosuppressive drug that left patients vulnerable to serious opportunistic infections;

(ii) animal studies indicated that Tysabri1z was potentially, a highly immunosuppressive drug;

(iii) publications in scientific and medical journals warned about the severe iinmunosuppressive

effects of Tysabri®; ( iv) scientific meetings were held where top scientists discussed the serious

and inherent risks of Tysabri®; and (v) numerous serious opportunistic infections that had

already occurred in patients participating in TysabriRO clinical trials, confirmed prior data

indicating how dangerous Tysabri® actually is. Moreover , several confidential sources have

corroborated that Defendants knew of the severe immunosuppressive effects of Tysabri®, and of

the resulting adverse events and deaths that occurred during the Tysabri® clinical trials, before

the Class Period, which Defendants never disclosed to the investing public or the FDA.

1. Defendants Knew That Tysabri® Is A Highly Dangerous

Immunosuppressive Drug That Would Unequivocally

Cause Serious Opportunistic Infections

109. Unbeknownst to Class members during the Class Period, Tysabri® is a highly

dangerous immunosuppressive drug that prevents white blood cells from migrating to an infected

area of the body. Accordingly, patients taking Tysabri® are highly vulnerable to developing

serious opportunistic infections . According to CS 2, Tysabri® raised a red flag when it comes to

the issue of vulnerability to infection.

110. Thus, given that Tysabri 8, by its very nature, is a highly immunosuppressive drug,

Defendants knew or recklessly disregarded that Tysabri1z, carried the substantial risk that

patients taking the drug would develop serious, frequently life-threatening opportunistic

infections. Accordingly, Defendants also knew or recklessly disregarded that the market for

Tysabri® would, at best, only be a fraction of the purported $4+ billion market represented to

41


investors, and limited to only those in the most advanced stages of MS for which no other MS

therapy worked.

2. Animal Studies Warned Defendants That Tysabri® Is

A Highly Immunosuppressive Drug That Could Cause

Potentially Life-Threatening Opportunistic Infections

111. Animal studies beginning in the early 1990's conducted by Defendants,

themselves, as well as by renowned scientists, revealed that Tysabn® was a highly dangerous

drug that posed serious, life-threatening, risks to patients taking the drug.

112. Defendants, along with Biogen, conducted several animal studies demonstrating

that Tysabri® was potentially a highly iinmunosuppressive. As discussed below, these animal

studies resulted in numerous, unexplained deaths in animals injected with as little as one dose of

Tysabri®. These animal studies, the results of which were made available to senior executives at

both Elan and Biogen, include the following:

Athena NeuroSciences Study #AL077 ( 8/10/95) --Two unexplained deaths in Tysabri ®-treated guineapigs.

Athena NeuroSciences Study #961011

(1/8/97) -- One Tysabri®-treated cynomolgusmonkey died of undetermined causes. Pathologyreported hepatorenal failure possibly due to fatalfatty liver-kidney syndrome, although the monkeydid not fit such a diagnosis.

Biogen Study # 309-010-01(9/24/01) -- Unexplained deaths among Tysabri®O -

treated guinea pigs attributed to hypersensitivity

reactions . Masses were noted under the skin of

these animals , but no pathological examination was

performed to check for malignancies that might be

due to severe immunosuppression.

Elan Study #309-008-01 ( 11/21/01) -- Unexplaineddeaths of pregnant female guinea pigs after takingTysabri®O, attributed to the process of giving birth,

42


although there were no such deaths among control

guinea pigs.

Elan Study #309-007-01 (1/22/02) -- Unexplaineddeaths of a number of male guinea pigs after aninitial dose of Tysabri®, attributed to anaphylaxis (asudden , severe, potentially fatal , systemic allergicreaction ). However , anaphylaxis was extremelyunlikely because the guinea pigs had never beenexposed to Tysabri®.

Elan Study #309-028 -02 (12/28 /02) -- Unexplaineddeaths of pregnant female guinea pigs treated withTysabri0. Technicians vaguely concluded that thedeaths were "not related to test article."

113. In addition, as discussed above, Dr. Lawrence Steinman concluded that, based

upon an animal study that he conducted in 1992, Tysabrig prevented migration of white blood

cells to other organs in the body, leaving the body defenseless to fight serious and potentially

life-threatening opportunistic infections. In light of these conclusions, Dr. Steinman stated

during the July 2005 Conference Call with Co-Lead Counsel for Plaintiffs herein, that some of

the potential opportunistic infections that he was concerned might occur, which he characterized

as "horrendous infectious diseases," included atypical pneumonias, tuberculosis and brain

abscesses . Accordingly, Dr. Steinman opined that , in light of the fact that Tysabri® is not a cure

for MS, and its severe immunosuppressive effects, Tysabri® should not be used as a first-line

therapy, but rather limited to only the most severe cases of MS.

114. Also during 1999, Dr. Steve Adam of Biogen, in charge of developing and testing

Tysabri at Biogen , contacted Dr . Stephen D . Miller seeking Dr. Miller's assistance in

conducting animal studies to test the effects of Tysabri®. According to Dr. Miller, he was

employed by Biogen from 1999 to 2001, during which time Dr. Miller conducted animal studies

on behalf of Elan and Biogen. Dr. Miller stated that he maintained close and frequent

communications and held regular meetings with high-ranking officials at Biogen, including Dr.

43


Adam and Dr. Eric Whally, during which Dr. Miller orally discussed his findings and made

recommendations based upon those findings.

115. During his involvement with Biogen, Dr. Miller also co-authored an article with

Biogen scientist Carol L. Vanderlugt, which was contributed to by Dr. Cheryl Nickerson-Nutter,

a Biogen researcher, among others, published in April 2001 in the Journal of Clinical

Investigation , entitled "Discordant Effects of Anti-VLA-4 Treatment Before And After Onset of

Relapsing Experimental Autoimmune Encephalomyelitis," (107:995-1006, 2001) [hereinafter the

"JCI Article"]. In that article, Dr. Miller concluded that, based upon the effects of Tysabri®O in

treated animals, "these results suggest that treatment with anti-VLA-4 Ab has multiple effects on

the immune system and may be problematic in treating established autoimmnune diseases such as

MS." [Emphasis added] The study further indicated that Tysabri® treatment either at the peak

of the acute disease or during remission, actually "exacerbated relapses ....

116. Moreover, according to the JCI Article:

[O]ur results indicate that caution must be used

when attempting to treat established Thl -mediated

autoimnmune diseases such as MS with intact mAb

to VLA-4 [Antegren®]. The exacerbation of R-

EAE [the equivalent of MS in humans] in animals

in which treatment [with Antegren®] is initiated

during the acute phase or during remission ....

Caution regarding the potential use of intact anti-

VLA-4 in human disease is also suggested by recent

clinical trials on MS patients. Although designed

specifically to only examine magnetic resonance

imaging MRI lesions, relapse rates in patients

treated with an anti-VLA-4 mAb were increased

over controls, even though the therapy appeared to

inhibit short-teen development of new MRI

lesions . .. Continued examination ofthe multiple

effects ofanti-VLA-4 and VLA -4 inhibitors have

on the immune system will be required to resolve

these important issues. [Emphasis added]

44


117. Dr. Miller found the results of his research "alarming" and, thus, directly

recommended to senior Biogen officials that they should conduct additional animal studies

before Tysabri 1z was tested in humans . Specifically, Dr. Miller, recommended to Biogen

officials that they test Tysabri® in another animal model of MS that uses Theiler's virus (a virus

that infects the CNS) to produce lesions in mice similar to those of MS patients. However,

Defendants ignored Dr. Miller's warnings because of their dissatisfaction with the results of his

studies, which called into question the safety and efficacy of Tysabri®, and failed to conduct the

additional recommended animal studies.

118. In addition to concluding that Tysabri® was a highly immunosuppressive drug, the

August 1999 Study and the JCI Article also concluded that patients on Tysabri 1z therapy who

then discontinue the therapy, develop "rebound disease ," where MS progresses at a more rapid

pace than that prior to taking Tysabri®. In other words, although Tysabri® acts to slow-down

the progression of MS, once the patient discontinues Tysabri® therapy, MS progresses at a much

faster pace, as if to catch up to the point where the disease would have progressed, if the patient

had never been on Tysabri® therapy.

119. In 2001, shortly after the JCI Article was published , Biogen terminated Dr. Miller's

research because his findings were unfavorable to Elan and Biogen.

3. Scientific And Medical Publications And Industry Conferences

Indicated Tysabri's® Severe Immunosuppressive Effects

120. In addition to the numerous animal studies described above, several scientific and

medical publications, as well as physicians and other experts who spoke at industry conferences,

warned of the severe immunosuppressive effects of Tysabri®. These publications were reviewed

and industry conferences were attended by a close-knit group of physicians, scientists and other

biotechnology experts.

45


121. For example , in another article published on July 9, 2004 in the journal , Science,

(305:212-216, 2004), entitled "Immune Therapy for Autoimmune Diseases ," Dr. Steinman

reiterated his well-founded concerns about the serious risks that Tysabri® posed to patients

stating: "[c]linical trials of drugs with unknown safety profiles should aim to exclude patients

with normal or near-normal neurological examination and target those patients with relapsing-

remitting multiple sclerosis at greater risk of disability...." According to Dr . Steinman,

Tysabri 1z had:

at least a theoretical concern that recipients of the

therapy would become generally compromised in

their ability to fight infection. This concern has

been borne out in a phase 2 trial in MS, in which an

increased rate of pharyngitis, a form of upper

respiratory tract infection, was observed.

[Emphasis added]

122. After this article was published , senior officials at Biogen, asked Dr. Steinman to

"tone down " his criticism of Tysabri. [Emphasis added] Indeed, Defendants did not want Dr.

Steinman ' s warnings to the medical and scientific communities to adversely affect the

Company's targeted market for Tysabri®O.

123. Similarly, a study funded by Elan and published in an August 11, 1999 article in

the journal , Neurology, published by the American Academy ofNeurology, (53:466-472, 1999),

entitled "The Effect of Anti-[alpha]4 Integrin Antibody on Brain Lesion Activity in MS," (the

"August 1999 Study") concluded that given the potential risks of Tysabri® , "[f]urther studies

will be required to determine the longer effect of this treatment ... " The article also questioned

Tysabri's 1z overall efficacy, as follows:

[It] is important to note a significant increase in

relapses in the treatment group compared to placebo

during the second 12 weeks ... our findings raise

the possibility that there may be a rebound

increase in the relapse rate after stopping

46


treatment . .. The preliminary efficacy of Antegren(3mg/kg) in the treatment of MS has been shown inthe study but the effect was modest and transient.[Emphasis added]

124. In 2004, prior to Tysabri's approval by the FDA, Dr. Elliott Obi-Tabot wrote a

research paper for Serono Phanna International, a Swiss biotechnology company that competes

with Elan and Biogen, where he was employed as a consultant, raising concerns about the potent

immunosuppressive properties of Tysabri® and concluded that serious opportunistic infections

were a possible side effect of Tysabri®.

125. In addition , a May 23, 2003 article, entitled "VLA-4 Antagonists: Potent Inhibitors

of Lymphocyte Migration. Yang GX, Hagrnann WK," Med. Res. Rev., at 369-92 (2003), warned

that drugs like Tysabri® block thefunction ofthe immune system and interfere with normal

inflammatory responses to infection.

126. Similarly, a May 2006 article by Dr. Olaf Stuve, et al. in the journal Annals of

Neurology, (59:743-747, 2006), entitled "Immune Surveillance in Multiple Sclerosis Patients

Treated with Natalizumab ," [hereinafter, the "Stuve Study"] concluded that Tysabri® therapy

reduced a patient's immune system in the CNS to that of an AIDS patient. This study also found

that, even if physicians could run tests to determine whether certain patients were at risk of

subsequent opportunistic infections, "stopping [Tysabri®] therapy at that time may not prevent

the risk of a subsequent clinically evident infection" because Tysabri® remains in the patient's

system for a prolonged period after therapy is discontinued.

127. In the Stuve Study, Dr. Stuve and his colleagues found that low lymphocyte counts

persisted in the CNS six months after discontinuing Tysabri®. A neurologist who participated in

and, thus, was intimately involved with the MS Tysabri® clinical trials ("CS 4") confirmed that,

before Tysabri® was approved by the FDA, senior management at Elan and Biogen were aware

47


that Tysabri® persisted in the body bound to lymphocytes for months after administration,

leaving the patient vulnerable to opportunistic infections for a prolonged period, far longer than

most immunosuppressive drugs.

128. Top Elan and Biogen scientists and physicians also frequently attended analyst

conferences held within the scientific community where scientists and physicians discussed

current events and key issues, including the risks of Tysabri®. At one conference held in

Venice, Italy in September 2004, Dr. Steinman warned about the risks of opportunistic infections

from Tysabri®. Similarly, Dr. Steinman made the same strong warnings about the risk of

opportunistic infections caused by Tysabri®O in a formal scientific presentation at the Keystone

Symposium, held in January 2005 in Montana, which Biogen co-sponsored.

129. As discussed earlier, Dr. Steinman was in a unique position to offer such warnings

given his expertise and status as a co-inventor of Tysabri®. Moreover, opportunistic infections

that occurred as a result of Tysabri® therapy validated Dr. Steinman ' s earlier concerns.

4. Defendants Were Aware Of Serious Adverse Events Occurring

During The Tysabri® Clinical Trials, Confirming Prior

Warnings Of Tysabri's® Severe Immunosuppressive Effects

And Failed To Disclose Those Adverse Events To The FDA

a. FDA Adverse Event Reporting Requirements

130. Defendants have now admitted, at the March 2006 FDA Hearing to determine

whether to allow Tysabri® to re-enter the market (discussed below), that serious opportunistic

infections and deaths occurred in patients on Tysabri® therapy during the Tysabri®O clinical

trials, well before they applied.for, and received fast-track approvalfrom the FDA to market

and sell Tysabri®. These opportunistic infections and deaths confirmed the prior warning

discussed above, that Tysabri® was a severely immunosuppressive drug that was certain to, and

did, cause serious and sometimes life-threatening opportunistic infections. These opportunistic

48


infections qualify as "serious adverse events" or "serious adverse drug events" according to FDA

guidelines, and should have been disclosed to the public as well as the FDA when they occurred,

prior to FDA approval.

131. The FDA defines an "adverse event" or an "adverse drug experience" as:

Any adverse drug experience occurring at any dose

that results in any of the following outcomes:

Death, a life-threatening adverse drug experience,

inpatient hospitalization or prolongation of existing

hospitalization, a persistent or significant

disability/incapacity, or a congenital anomaly/birth

defect. Important medical events that may not result

in death, be life-threatening, or require

hospitalization may be considered a serious adverse

drug experience when, based upon appropriate

medical judgment, they may jeopardize the patient

or subject and may require medical or surgical

intervention to prevent one of the outcomes listed in

this definition. Examples of such medical events

include allergic bronchospasm requiring intensive

treatment in an emergency room or at hone, blood

dyscrasias or convulsions that do not result in

inpatient hospitalization, or the development of

drug dependency or drug abuse.

21 C.F.R. § 314.80.10

132. A life-threatening adverse drug experiences is defined as:

Any adverse drug experience that places the patient,

in the view of the initial reporter, at immediate risk

of death from the adverse drug experience as it

occurred, i.e., it does not include an adverse drug

experience that, had it occurred in a more severe

10 The FDA's Adverse Event Reporting System ("AERS") "is a computerized information

database designed to support the FDA's post-marketing safety surveillance program for all

approved drug and therapeutic biologic products. The ultimate goal of AERS is to improve the

public health by providing the best available tools for storing and analyzing safety reports." See

http://www.fda.gov/cder /aers/default . htm. "The FDA receives adverse drug reaction reports

from manufacturers as required by regulation ." Id. "Health care professionals and consumers

also send reports voluntarily through the MedWatch program , which become part of a database."

Id.

49


form, might have caused death. Id. [Emphasisadded]

133. According to FDA regulations, Defendants were required to keep written

documentation of all adverse events that occurred during the Tysabri® clinical trials. 21 C.F.R.

§ 310.305(a) -- "Records and Reports Concerning Adverse Drug Experiences on Marketed

Prescriptions Drugs for Human Use Without Approved New Drug Applications"

("manufacturers, packers, and distributors of marketed prescription drug products that are not the

subject of an approved new drug ... application" must "establish and maintain records" of all

adverse events); see also 21 C.F.R. § 312.32(b) (with respect to Investigational New Drug

Applications, the sponsor "shall promptly review all information relevant to the safety of the

drug obtained or otherwise received by the sponsor from any source .... ").

134. Pursuant to FDA regulations, Defendants were also required to promptly report

adverse events to the FDA. See 21 C.F.R. § 312.50 -- "Responsibilities of Sponsors" ("Sponsors

are responsible for . .. ensuring that FDA and allparticipating investigators are promptly

informed ofsignificant new adverse effects or risks with respect to the drug") [Emphasis

added ]; 21 C.F.R. § 310.305( a) -- "Records and Reports Concerning Adverse Drug Experiences

on Marketed Prescriptions Drugs for Human Use Without Approved New Drug Applications''

("manufacturers, packers, and distributors of marketed prescription drug products that are not the

subject of an approved new drug ... application" must report to the FDA "all serious,

unexpected adverse drug experiences associated with the use of their drug products."); 21 C.F.R.

§ 314.80 ( same); 21 C.F.R. § 600.80 (same).

135. With respect to the time a company has to report an adverse event to the FDA, the

sponsor must report an adverse event associated with the drug "that is both serious and

unexpected ... as soon as possible and in no event later than 15 calendar days after the sponsor's

50


initial receipt of the information .'' Id., § 312.32( c)(1)(i) [Emphasis added]. Moreover, the

sponsor must notify the FDA of any "unexpected fatal or life- threatening" experience associated

with the use of the drug as soon as possible but in no event later than 7 calendar days after the

sponsor ' s initial receipt of the information ." Id., § 312.32(c)(2).

136. Despite Defendants' disclosure and reporting obligations under FDA regulations

and the federal securities laws, as discussed below, Defendants failed to disclose any of the

"opportunistic" infections that occurred during the Tysabri® clinical trials to the FDA or to the

public until after they received fast-track approval of Tysabri® in November 2004. Defendants

were motivated to conceal these serious opportunistic infections from the FDA in order to

receive fast-track approval of Tysabri® with the broadest label possible. Indeed, had the FDA

had all of the data concerning the serious adverse events that occurred in patients taking

Tysabri ®, including the substantial number of serious opportunistic infections that occurred, the

FDA would not have approved Tysabri® at that time without additional extensive testing and

would most certainly have required Defendants to include a prominent safety warning, as they

have with other similar drugs, and have now required for Tysabri®. Such additional testing

however would have been very expensive and time consuming and would have resulted in

delaying the introduction of Tysabri® to the U.S. market.

137. Moreover, a prominent safety warning, such as a black-box warning, would have

been devastating to Elan because it would have limited the future market for Tysabri® to only a

fraction of that promised to investors and certainly would have been much less than the "4+

billion dollars" in revenue that Defendants had promised investors throughout the Class Period.

138. Notably, other drugs like Tysabri, that are immunosuppressive monoclonal

antibodies , typically have prominent black-box warnings in their FDA approved labels

51


cautioning about the severe immnunosuppressive effects of those drugs and their potential serious

side effects.

b. Defendants Failed To Disclose Opportunistic Infections To The

FDA, Prior To Receiving Fast-Track Approval Of Tysabri®

139. As discussed below, Defendants knew of the serious opportunistic infections that

occurred during the Tysabri® clinical trials , but failed to disclose them to the FDA prior to

receiving approval in November 2004. An exhaustive search of the FDA website revealed no

evidence indicating that Defendants disclosed these serious opportunistic infections to the FDA

until after they received fast-track approval of Tysabri V in November 2004. In fact , documents

obtained from the FDA's website confirm that Defendants concealed numerous known

opportunistic infections from the FDA, prior to applying for, and receiving, fast-track approval

of Tysabri®.

140. Specifically, according to a November 23, 2004 memorandum to Karen Weiss,

M.D., Director at the FDA, from David Ross, M.D., Ph.D., Deputy Director on the FDA

committee that approved Tysabri®, the data that the Company submitted to the FDA did not

include any evidence of opportunistic infections resulting from the drug. In this regard, Dr. Ross

stated in his memo that: "[t]he events reported do not appear to represent infections due to

opportunistic pathogens ." [Emphasis added] Moreover, the FDA documents that outline the

scope ofTysabri® approval, made no mention of any opportunistic infections, or associated

risks. These documents clearly demonstrate that the FDA was not fully informed with respect to

the opportunistic infections that occurred in the Tysabri® clinical trials. Based upon the limited

52


and/or inaccurate information presented to the FDA, the drug was approved to treat MS patients

for the broadest possible market.' 1

141. Defendants' knowledge of these serious opportunistic infections is evidenced by

the following (discussed below): ( i) Defendants ' own admissions at the March 2006 FDA

Hearing; (ii) the Collaboration Agreement required Defendants to closely monitor and

exhaustively review all aspects of all phases of the clinical trials. which revealed such infections;

(iii) the Tysabri® clinical trials for Crohn 's disease and MS were substantially completed by

early 2004 and thus, Defendants had access to, and exhaustively reviewed the data results; and

(iv) confidential sources confirm Defendants knew of adverse events that were reported during

Tysabri® clinical trials , before the Class Period.

i. Facts Ultimately Admitted AtThe March 2006 FDA Hearing

142. During the March 2006 FDA Hearing to review Elan and Biogen's application for

the return of Tysabri® to the market, Defendants admitted that they were aware of numerous

serious opportunistic infections that occurred during the Tysabri® clinical trials , prior to FDA

approval, which were not previously disclosed to the FDA.

143. Dr. Alice Hughes, an FDA participant, disclosed that the Tysabri® clinical trial

data showed seventeen deaths that had occurred in patients participating in the Tysabri® clinical

11 The FDA Medical Review approving Tysabri for commercial use in November 2004 lists one

infection, pulmonary aspergillosis, which was later determined at the March 2006 FDA Hearing

to be an opportunistic infection. Aspergillus is a non-pathogenic fungus that may produce

limited infections in the lungs or sinuses of normal people and cause minimal other symptoms.

In immunosuppressed individuals, however, aspergillosis is much more serious and the fungus

may grow rapidly in the body and aggressively invade the bloodstream producing a fungal

septicemia and death without prompt treatment. A thorough analysis of the Medical Review,

however, indicates that Defendants did not provide the FDA with any data that would have

alerted the FDA that this infection was opportunistic and not simply a minor infection.

Otherwise, Dr. Ross certainly would have cited this case of pulmonary aspergillosis as an

opportunistic infection in his memo.

53


trials, thirteen of which were in patients taking Tysabri 1z . FDA Tr., 185. Among the causes of

death were PML (two cases), malignant melanoma (one case), pulmonary aspergillosis (one

case), and pneumocystis carinii pneumonia (one case) - all but the melanoma being a serious

opportunistic infection . FDA Tr., 185.

144. Dr. Michael Panzara, employed by Biogen, who presented safety data for Elan and

Biogen, and Dr. Hughes, also explained that the Tysabri® clinical trial data had revealed at least

the following opportunistic infections that occurred during the Tysabri® clinical trials: PML,

herpes virus infections, cryptosporidial gastroenteritis, pneumocystis carinii pneumonia,

pulmonary aspergillosis , CMV colitis, mycobacterium avium intracellular pneumonia, lower

respiratory tract infections, pulmonary tuberculosis, lung abscess and Burkholderia cepacia

pneumonia. FDA Tr., 62-64, 180-81, 203-4. According to Dr. Hughes, these infections suggest

"the possibility of a compromise in cell -mediated immunity ." FDA Tr., 180.

145. During the March 2006 FDA Hearing, Dr. Panzara noted that herpes infections had

occurred with greater frequency in Tysabri® treated patients, particularly those using

combination therapy and that this was true for both MS and Crohn' s Disease patients on

Tysabri®. FDA Tr., 58-60, 66. Defendants directly attributed the increase in herpes infections

to suppression of cell mediated immunity - the very risk that Defendants had been warned about

for well over a decade. FDA Tr., 58.

146. According to Dr. Panzara, a herpes infection was the type of opportunistic infection

that Elan and Biogen "chose to study to evaluate potential effects of natalizumab on cell-

mediated immunity ." FDA Tr., 54. Dr. Hughes echoed similar concerns related to the

significant number of herpes-type infections, stating that the "types of infections that we

observed suggest the possibility of a compromise in cell -mediated immunity. " Id., 180.

54


147. Dr. Panzara's concerns were correct . After Tysabri V was approved in November

2004, two MS patients developed recrudescent herpes virus consistent with severe

immunosuppression. One patient, who received a single dose of Tysabri® in February 2005,

developed herpes simplex type 2 encephalitis (a brain infection) and died as a result of the

infection three months thereafter . FDA Tr., 57. The second case involved a patient who

contracted herpes simplex type I encephalitis after taking a single dose of Tysabri®. Id. That

patient fortunately is reported to have survived after appropriate treatment for the infection. Id.

148. During the March 2006 FDA Hearing, Dr. Hughes also expressed concerns that

Tysabri® "has the potential to increase the risk of cancer ." FDA Tr., 175. Dr. Hughes was

particularly alarmed with the data in the Crohn's Disease clinical trials, which demonstrated that

malignancies were more frequent in Tysabri® treated patients as compared to placebo treated

patients. Id. Dr. Hughes's concern arose from her knowledge that severely immunosuppressed

individuals are at greater risk for developing certain malignancies.

149. Moreover, Dr. Panzara reported on a third case of PML that occurred in a patient in

the Crohn's Disease trial, who was purportedly misdiagnosed in July 2003 with malignant

astrocytoma (a type of brain cancer). FDA Tr., 61. After the two reported PML cases in the MS

trials, Elan and Biogen re-reviewed this patient's medical records and determined that the patient

died in December 2003 of PML, not malignant astrocytoma.

150. Dr. Panzara concluded that, based upon the data from pre and post clinical trials,

"natalizumab®" [Tysabr]®] treatment is associated with an increased risk of PML" and that

"[t]here may also be an increased risk of other opportunistic infections ." FDA Tr., 65.

55


ii. Elan and Biogen Admittedly CommunicatedRegularly Concerning Issues Related To Tysabri

Pursuant To The Collaboration Agreement

151. According to the Collaboration Agreement, Defendants were charged with closely

monitoring the Tysabri® clinical trials and reporting any adverse events that occurred during the

trials. Indeed, James Mullen, Biogen's CEO, admitted in a July 28, 2004 Biogen earnings

release that "[w]e and our partner Elan have been meeting regularly to formulate the launch plan

[of Tysabri®]. Kelly Martin and I are in frequent communication on a variety of issues."

152. Accordingly, senior executives at Elan, including the Individual Defendants, knew

about serious opportunistic infections that occurred in any of the Tysabri® clinical trials by

virtue of their duties under the Collaboration Agreement and their positions at Elan.

iii. Confidential Sources Have Confirmed That Defendants

Knew That Serious Opportunistic Infections Occurred

During The Tysabri® Clinical Trials

153. By January 2004, one month prior to Defendants announcing Elan and Biogen's

intention to seek fast-track approval of Tysabri®, the Crohn's disease trials and Phase II of the

MS trials were completed. By mid-year 2004, one-year data from Phase III of the MS trials had

been analyzed. Since the data from the completed trials was unblinded, Defendants had access

to, and conducted as a matter of course, an exhaustive analysis of the results in those trials.

Accordingly, Defendants knew or recklessly disregarded the opportunistic infections and deaths

that occurred during the Tysabri® clinical trials, indicative of severe immunosuppression,

discussed above.

154. Confidential sources confirm that Defendants knew of the serious opportunistic

infections that occurred during the Tysabri® clinical trials. For example, a neurologist formerly

affiliated with the Yale University School of Medicine who was directly involved in the

Tysabri® clinical trials for MS ("CS 5") confirmed that several serious opportunistic infections

56


occurred during the MS and Crohn's disease clinical trials. Among the opportunistic infections

that CS 5 recalled, was a cryptosporidiosis infection (an opportunistic infection caused by a

parasite) that occurred during the MS trials and pneumocystis carinii pneumonia and atypical

mycobacterial infections that occurred during the Crohn's disease trials. In CS 5's opinion, these

earlier opportunistic infections constituted significant warnings to the Defendants about how

immunosuppressive Tysabri® actually is. None of these opportunistic infections, however, were

disclosed to investors or the FDA prior to Tysabri's® approval in November 2004.

155. CS 5 also confirmed that Defendants had had access to the data in the MS trials

that were run by Biogen and, thus, were fully aware of opportunistic infections that had arisen

during both the MS and the Crohn's Disease trials. CS 4, who participated in the MS trials,

similarly confirmed that this witness was informed of serious opportunistic infections that

occurred during the Tysabri® Crohn's disease clinical trials as well, including pneumocystis

carinii pneumonia and atypical mycobacterial infections. None of these opportunistic infections

were disclosed to the public or the FDA prior to Tysabri's® approval in November 2004.

156. Moreover, in CS 5's opinion, many of the problems that occurred with Tysabri®

were the result of executives of Elan and Biogen being excessively aggressive in getting

Tysabri® to the market . According to CS 5, Biogen executives pushed hard to get fast track

designation and initial approval of Tysabri by the FDA with limited safety data.

157. A neurologist involved in the SENTINEL Phase II trial in Glasgow ("CS 6") noted

that, during the clinical trials, it became obvious that continued use of Tysabri® compromised

the immune system . According to CS 6, the Crohn's disease clinical trials revealed that

Tysabri® increased the risk of patients developing cancer. CS 6 recalled that five clinical trial

participants contracted cancer as compared to one patient in the placebo group. CS 6 was

57


particularly concerned with the types of cancer that patients had contracted. For example, CS 6

recalled one patient in the Crohn' s disease clinical trials taking Tysabri® who developed

malignant melanoma, a type of skin cancer, which was particularly unusual because MS patients

do not typically get malignant melanoma. Moreover, according to CS 6, another patient taking

Tysabri 12 in the clinical trial developed cervical cancer, which is caused by human

polyomavirus, a virus closely related to the JC virus that causes PML. CS 6 believed that if a

disease such as MS was not curable, life-threatening treatments such as Tysabri® were not

appropriate. Again, none of the opportunistic infections were disclosed to the FDA prior to

Tysabri's® approval in November 2004.

158. Moreover, a former Data Entry Clerk for Randstad from May 2004 to December

2004 assigned to work with Biogen to track clinical trial data ("CS 7"), confirmed that a

approximately fifty to sixty adverse events , on average , were reported daily during the MS

clinical trials. CS 7 recalled that in June 2004 and just before Tysabri® was approved in

November 2004, the volume of adverse events was extremely high, particularly when compared

to other clinical trials in which this witness was involved. CS 7 recalled that just before

Tysabri® was approved , there were approximately sixty to seventy adverse events reported

daily.

159. CS 7 also recalled that many of the adverse events reported in 2004 were serious

adverse events, including an increase in the size of tumors that resulted in patients being

admitted to the hospital because of a loss in motor skills and complaints suggesting symptoms of

PML. CS 7 recalled that approximately five to ten of every fifty adverse events were reported

from a doctor's office via a physician's note or a call from the nurse. CS 7 was certain that

Defendants were aware ofany concerns relating to the Tysabri® clinical trials. Moreover,

58


according to CS 7 , this witness would have sold her stock if she owned any, based upon the

reported adverse event data that Defendants were receiving.

160. According to CS 2, there was a concern at Biogen that Tysabri® might leave

people unable to deal with other infections and that was something about which the scientific

team was generally aware. Similarly , CS 7 recalled concerns about the fast-tracking of

Tysabri®.

161. Thus, by Defendants ' own admission at the March 2006 FDA Hearing and

corroborating confidential witness statements, Defendants clearly knew of the serious

opportunistic infections and deaths that occurred during the Tysabri® clinical trials. However,

Defendants never disclosed these severe infections to investors, and instead, touted Tysabri® as

a "blockbuster" drug that would "revolutionize" the treatment of MS throughout the Class

Period.

H. The FDA Adverse Event Report Contained Numerous Opportunistic

Infections That Occurred In Patients On Tysabri® Therapy,

Confirming Prior Warnings That Such Infections Were Certain To Occur

162. A review of the Adverse Event Report data concerning Tysabri® dated November

24, 2004, immediately after Tysabri® was approved, through March 2006, received from the

FDA (the "Adverse Event Report") pursuant to Plaintiffs ' FOIA request, confirms that patients

on Tysabri® therapy were vulnerable to developing serious and sometimes life-threatening

opportunistic infections because Tysabri® effectively turns off their immune systems leaving

patients defenseless to fight such infections.

163. As summarized in the table below, a review of the Adverse Event Report

concerning Tysabri©, which contains adverse events reported after Tysabri® was approved for

public consumption, reveals that at least 60 opportunistic infections or potential opportunistic

59


infections related to severe immunosuppression were reported in patients taking Tysabri®

between November 2004 and March 2006.

InfectionNumberReported

Progressive Multifocal Leukoencephalopathy 3

Sepsis 11

Meningitis Herpes 11

Encephalitis Herpes 5

Pneumocystis Jiroveci Pneumonia 5

Gangrene 4

Pyelonephritis 3

Escherichia Sepsis 3

Septic Shock 2

Pneumocystis Jiroveci Infection 2

JC Virus Infection 2

Cryptogenic Organizing Pneumonia 2

Tuberculosis Gastrointestinal I

Systemic Mycosis I

Pyelonephritis Acute I

Pseudomonas Infection I

Oral Fungal Infection I

CFS Virus Identified I

Candidiasis I

Total 60

164. A review of the Adverse Event Report further revealed the following additional

163 severe infections that occurred in patients taking Tysabri®O that could be considered seriousI

opportunistic infections associated with severe immunosuppression, although additional

information would be required to make that determination.

60


Infection

Number

Reported

Pneumonia 29

Diarrhea 29

Fungal Infection 10

Kidney Infection 8

Herpes Simplex 8

Infection 7

Viral Infection 6Herpes Zoster 5

Pneumonia Bacterial 4

Pericarditis 4

Respiratory Tract Infection 4

Gastroenteritis Viral 4Bronchopneumonia 4

Stomatitis 3Respiratory Tract Infection Viral 3

Lobar Pneumonia 3

Hepatitis 3

Escherichia Infection 3Abscess Limb 2

Aphthous Stomatitis 2Infectious Mononucleosis 2Infected Cyst 2

Pneumonia Viral 2

Streptococcal Infection 1Staphylococcal Infection 1Staphylococcal Abscess 1Septic Arthritis Staphylococcal 1

Purulent Discharge 1

Oral Infection 1Meningitis Viral 1

Lower Respiratory Tract Infection 1

Herpes Virus Infection 1Fungal Skin Infection 1

Febrile Infection 1Eye Infection 1Epstein-Barr Virus Test Positive I

Epstein-Barr Virus Infection 1

Empyema 1

Arthritis Bacterial 1

Total 163

61


165. With respect to malignancies , six cases of malignant melanoma and at least two

cases of lymphoma, which are associated with severe immunosuppression , appeared on the

Adverse Event Report. In addition , the Adverse Event Report disclosed the following other

reported malignancies: (i) eight reports of ovarian cancer; (ii) two reports each of the following

malignancies : astrocytoma malignant, neoplasm malignant, metastases to lymph nodes,

metastases to liver, lung neoplasm ; and (iii ) one report of each of the following malignancies:

papillary thyroid cancer , metastatic malignant melanoma, metastases to skin , metastases to

peritoneum, malignant pleural effusion, malignant neoplasm progression, gastric neoplasm,

gastric cancer, endoinetrial cancer and colon cancer.

166. Moreover, a Professor of Neurology with expertise in immunology of the CNS as

well as MS ("CS 8"), commented on the purported misdiagnosis of a Crohn' s disease patient

who was diagnosed in July 2003 with malignant astrocytoma (brain cancer) and died in

December 2003. Relying on his expertise as a neurologist, CS 8 drew the conclusion that the

misdiagnosis was highly suspicious. In this witness's opinion, a neuropathologist with even a

few months training would not have misdiagnosed this patient. Similarly, according to a senior

scientist at the National Institute of Health specializing in the JC virus ("CS 9"), PML and

malignant astrocytoma are completely dissimilar and any neuropathologist with any skill would

not have made this purported misdiagnosis.

167. According to CS 8, the neuropathologist who re-examined the case in March 2005

only needed to examine the CNS specimens from the Crohn' s disease patient for approximately

ten minutes before determining that it was PML rather than a malignant astrocytoma. CS 8

suggested that the purported misdiagnosis of the Crohn' s disease patient was the result of either

an effort to conceal the true diagnosis or malpractice on the part of the neuropathologist because

62


in CS 8's opinion, there was no way a competent neuropathologist would confuse PML with

brain cancer. Thus, CS 8 was concerned that there could be other similar incidents that had been

concealed or misdiagnosed.

168. Given that Tysabri® was removed from the market in February 2005 after one

reported death from PML, it can be inferred that , had the proper diagnosis been made in

December 2003 that this Crohn's disease patient had actually died of PML, Tysabri® would

almost certainly not have received fast-track approval from the FDA and the FDA would have

required the black-box warning that Tysabri® has today.

169. An August 29, 2005 Wall Street Journal article (the "August 29 WSJ Article'")

analyzing adverse events associated with Tysabri® obtained from the FDA pursuant to a FOIA

request similarly concluded that the FDA adverse event data contained "numerous" accounts of

serious, opportunistic infections that "suggest again that the toll from Tysabri extends beyond

PML." [Emphasis added]

170. According to the August 29 WSJ Article, at least seven non-PML deaths in patients

taking Tysabri® "appear[ed] to be related to immunosuppression." The August 29 WSJ Article

further observed that one death resulted from pneumocystis carinii pneumonia, an infection that

only patients with severely debilitated immune systems contract; another death was attributed to

herpes encephalitis, a rare infection of the CNS; and four other deaths appeared to be caused by

sepsis, an uncontrolled bacterial infection spreading throughout the body.

171. As discussed below, despite the numerous serious opportunistic infections that

occurred during the Tysabri® clinical trials, and the other numerous warnings discussed above,

Defendants continued to report a stellar safety profile for Tysabri® with purportedly only

common, non-life threatening, treatable infections that occurred in the clinical trials and

63


throughout the relevant period. Defendants also continually touted Tysabri® as a blockbuster

drug when, in fact, Defendants already knew of the serious side effects that resulted from

Tysabri® and thus, it would not be even close to a blockbuster drug.

1. Defendants' History Of Bad Conduct

172. This is not the first time Elan investors have been victimized by Defendants'

fraudulent conduct. For example, in 1999, an SEC review forced Elan to restate its earnings.

Only approximately two years later, in February 2002, Defendants faced a wave of shareholder

lawsuits and another SEC investigation into Defendants' deceptive alleged accounting practices.

Specifically, Elan was alleged to have defrauded investors and artificially inflated earnings by

failing to disclose that it had created off-balance entities to hold stakes in biotech firms where it

had set up partnerships.

173. In reaction to the 2002 restatement, a pharmaceutical analyst with Goodbody

Stockbrokers Ian Hunter, called for changes at the senior management level of the company.

According to Mr. Hunter, "[t]here has to be some change at the top to restore credibility.

There has been a lot lost." [Emphasis added] When asked to elaborate, Mr. Hunter stated that

Elan needed to beef up its senior management team with a heavyweight from the pharmaceutical

industry. Similarly, a London-based Prudential analyst Tim Anderson stated in a broker's note

that: "Elan's long-standing history of accounting aggressiveness has finally caught up with it."

On October 25, 2004, Elan announced that it had settled the shareholder class action for $75

million. Then, on February 8, 2005, Elan announced a "Final Settlement of SEC Investigation"

in which the Company agreed to pay a civil penalty of $15 million.

174. Now, approximately two years later, Elan has, once again, undertaken to defraud

investors, as alleged herein.

64


VI. DEFENDANTS' MATERIALLY FALSE AND MISLEADINGSTATEMENTS AND OMISSIONS DURING THE CLASS PERIOD

175. As discussed above, Defendants knew, or recklessly disregarded, numerous facts

known to them well before the Class Period began, and well before applying for, and receiving

FDA approval, informing them that Tysabri® was a highly immunosuppressive drug that would

inevitably result in serious, sometimes life-threatening, opportunistic infections. Specifically,

Defendants were aware of the following results and events that occurred prior to the beginning of

the Class Period:

1992 - 2002 -- Animal studies, indicating that Tysabri® is a

highly immunosuppressive and, thus, dangerous drug, were

conducted from at least 1992 to 2002 and the results of

those studies were published during that time. Thus, the

results of the animal studies were known to Defendants

well before the Class Period and well before they applied

for, and received approval of TysabriR in November 2004

(¶¶ 111-22);

1995 - January 2004 -- Numerous serious opportunistic

infections and related deaths had occurred in patients taking

Tysabri® during the Defendants' Tysabri® clinical trials.

The infections were unblinded by January 2004, and thus,

known to Defendants by at least January 2004, prior to

submitting an application to the FDA for approval of

Tysabri® (¶¶ 139-52, 162-71);

1995 - January 2004 -- Confidential sources intimately

involved with the development and testing of Tysabri®

confirmed that Defendants knew that Tysabri® was a

highly dangerous drug, from at least 1995 through January

2004, well before the Class Period and well before they

received FDA approval (¶¶ 153-61); and

September 2004 - January 2005 -- Senior Elan officials

attended scientific meetings prior to, and during the Class

Period where top scientists in the field discussed the serious

and inherent risks of Tysabri® (¶¶ 128-29).

176. Notwithstanding the numerous warnings above concerning the serious risks

associated with Tysabri®, Defendants , throughout the Class Period , continually touted Tysabri®

65


as the next "blockbuster drug" with a "reassuring safety profile" that would result in "4+ billion

dollars" of additional revenue for Elan and Biogen. In this regard, Defendants made the

following materially false and misleading statements and omissions to the investing public

during the Class Period.

177. On February 18, 2004, the beginning of the Class Period. Defendants issued a press

release (the "February 18, 2004 Press Release") communicating their "Intention to Submit

Antegren® for Approval for Multiple Sclerosis Based on One-year Data." The February 18,

2004 Press Release stated in relevant part:

The decision to file a Biologics License Application

(BLA) was made after discussions with the FDA of

one-year data from the two ongoing two-year Phase

III trials in MS. The companies are committed to

completing the two-year trials. To protect the

integrity of the trials, the companies are not

disclosing the one-year data at this time.

178. In the February 18, 2004 Press Release, Defendants described the Tysabri® clinical

trials as follows:

About the ANTEGREN MS Clinical Trials

The AFFIRM (natalizumab safety and efficacy in

relapsing-remitting MS) trial is a two-year,

randomized , multi-center, placebo-controlled,

double-blind study of approximately 900 patients,

evaluating the ability of natalizumab to slow the

progression of disability in MS and reduce the rate

of clinical relapses. The SENTINEL (safety and

efficacy of natalizumab in combination with

AVONEX(T (Interferon beta-I a)) trial is a two-year,

randomized, multi-center , placebo-controlled,

double-blind study of approximately 1,200 patients

with relapsing -remitting MS, evaluating the effect

of the combination of natalizumab and AVONEX

compared to treatment with AVONEX alone in

slowing the progression of disability and reducing

the rate of clinical relapses. Both studies have

protocols that included a one-year analysis of the

66


data. The primary endpoints for both Phase III two-

year trials in MS are based on the Expanded

Disability Status Scale (EDSS) and relapse rates.

The pre-specified primary endpoint of the one-year

analysis was relapse rates.

179. With respect to the adverse events that occurred during the Tysabri®O clinical trials,

Defendants reported in the February 18, 2004 Press Release that:

the following adverse events occurred more

commonly with natalizumab when compared to

placebo: headache, nausea, abdominal pain,

infection, urinary tract infection, pharyngitis and

rash. Serious adverse events have included

infrequent hypersensitivity -like reactions.

[Emphasis added]

180. On February 18, 2004, Defendants also issued a press release announcing the

Company's financial results for the fourth quarter and year-ended December 31, 2003 (the

"February 18, 2004 Earnings Release"). The February 18, 2004 Earnings Release repeated the

same false and misleading statements as those contained in the February 18, 2004 Press Release

with respect to the Tysabri® clinical trials. In addition, in the February 18, 2004 Earnings

Release, Defendant Kelly Martin, reassured investors that Elan would achieve "key R&D

Milestones ," set forth for the commercialization of Tysabri:

The expected one-year filing for MS, the recent

positive Phase III maintenance results in Antegren

for Crohn's disease and the successful Phase III trial

for Pri alt confirms the potentialfor our world class

science to reach those patients who sufferfrom

these diseases.

Such execution momentum is the result of focus,

dedication and the extraordinary efforts of the Elan

employees around the world who remain dedicated

to positioning us for success and working towards

bringing our scientific innovation to patients.

[Emphasis added]

67


181. On February 18, 2004, Defendants also held a conference call with analysts

discussing the Company's financial results for the year-ended December 31, 2003 and

Defendants' intention to file for approval of Tysabri®O as a treatment for MS with one-year data

(the "February 18, 2004 Conference Call"). During the February 18, 2004 Conference Call,

Defendant Cooke reiterated the Company' s intention to "file a BLA for ANTEGREN MS by

mid-2004 with the potential launch of this product in 2005" and assured investors that there was

a huge market for ANTEGREN , stating:

We're currently working with Biogen to determine

the additional investments which will be required

this year to ensure successful launch of

ANTEGREN and to ensure it reaches its full

potential which we think is enormous.

182. During the February 18, 2004 Conference Call, Defendant Martin made several

representations concerning Elan's stellar research capabilities, characterizing them as: "world-

class," "innovative," and "distinctive," and boldly asserted that: "now with the recent successes

in the marketplace [Elan's research] is now proven." Moreover, according to Defendant Martin,

"I think the key to our research is now that it's proven in certain areas to be not just successful

but potentially explosively successful."' With respect to the one-year data from the Tysabri®

clinical trials, Defendant Martin boasted "I believe this tangibly demonstrates the type of success

that Elan will demonstrate across the board and I also believe it sets the bar within the industry, a

new standard for product execution and development."

183. Throughout the February 18, 2004 Conference Call, Defendants made numerous

representations concerning the success of the Tysabri® clinical trials. Specifically, Defendant

Lars Ekman, President, Research & Development, Biopharmaceuticals at Elan, stated: "we

believe that our one-year data is sufficient to support a filing," and "we are extremely

encouraged by the extraordinary development over the last two months." [Emphasis added]

68


Defendant Martin echoed Defendant Ekman's comments, stating "we believe that we have

significant execution momentum across all parts of the company."

184. When questioned by analysts during the February 18, 2004 Conference Call about

the Company' s intended marketing of Tysabri® as a monotherapy or a combination therapy,

Defendant Ekman represented that MS was "an enormous potential market and we are going to

make sure that we invest what is required to get the full potentialfrom this

product . ..." [Emphasis added] Defendant Martin affirmatively stated that, with respect to the

market for MS:

It's a 4-plus billion dollar market . There's also, as

you know, a large number of patients with whom

current therapy does not work or has side effects

that are too significant. So, as Shane said, it's a

very significant market in the current space. It's

also a very significant market from a development

point of view, and we and Biogen, based on the data

and based on further discussions with the agency

[FDA], will -- we will make sure that the necessary

investment to capture maximum amount ofthat

market is made .... [Emphasis added]

185. Following Defendants' affirmative statements, Elan's stock price soared, climbing

$3.00 per ADS on the NYSE, or 34%, to close at $11.80 per ADS, on trading volume of 60.6

million shares, far in excess of the average daily trading volume of 6,443,765 shares. Similarly,

Elan's shares on the Dublin Exchange rose €1.85 per share, or 27%, to close at €8.77 per share.

186. Analysts praised the Company's purported success with Tysabri® and issued the

following statements on February 18, 2004:

Morgan Stanley -- "Home Run on Antegren."

Davy -- "[t]his is hugely positive news as it

indicates that the FDA found one-year data

compelling enough to begin a review process, based

on the pre-specified one-year endpoint of relapse

rates."

69


Goodbody Analyst Dr. Ian Hunter -- "[t]his is a

highly significant boost to the stock, given the

importance of Antegren in bringing the company

back to profitability."

Richard Barnett, a Los Angeles-based Fund

Manager for Northern Trust Corp. -- "[t]his event

definitely removes some uncertainty from a

potential blockbuster drug...

Deutsche Bank -- As a result of fast-trackingTysabri, "management now anticipates a return toprofitability sometime in 2H05."

187. The next day, as investors were still digesting Defendants' positive statements

detailed above, Elan's shares rose another $ 1.53 per ADS on the NYSE, or 12%, to close at

$13.33 per ADS. Elan's shares rose €1.92 per share on the Dublin exchange, or 22% to close at

€10.65 per share. Ian Hunter of Goodbody commented that "fyjesterday's announcement

increases our confidence that Antegren willprovide such an effective therapy that it will

trigger significant patient switch from existing treatments plus drive market expansion."

[Emphasis added]

188. The February 18, 2004 Press Release, February 18, 2004 Earnings Release, and

February 18, 2004 Conference Call were materially false and misleading because, once

Defendants chose to speak about the Company and the success of Tysabri®, they had a duty to

speak fully and accurately concerning the true risks of Elan's business, operations, performance

and prospects and thus, the true risks of Tysabri®. These statements identified above were also

materially false and misleading at the time they were made because:

a) Tysabri® had serious, undisclosed side effects that were

inherent in the nature of the drug and the way it worked to

suppress the immune system, leaving patients vulnerable to

life-threatening infections, including PML, pulmonary

aspergillosis, pneumocystis carinii pneumonia, atypical

mycobacterial infections and various herpes virus

infections associated with immunosuppression;

70


b) Tysabri's® severe immunosuppressive effect was likely to,and did, cause numerous serious opportunistic infectionsand even death;

c) clinical trials of Tysabri® failed to include the full range of

medical tests necessary to timely detect symptoms of

serious opportunistic infections, such as lumbar punctures,

routine blood tests and neurological examinations;

d) the one-year data from Tysabri RO clinical trials was not assuccessful as Defendants led investors to believe because itdid not disclose that Tysabri® had already caused seriousopportunistic infections and deaths;

e) the "severe adverse events" that occurred during the trialsextended far beyond the purported "infrequenthypersensitivity-like reactions" or minor infections thatDefendants disclosed;

f) because of its substantial risks to patients, Tysabri® would

have a very limited use, in patients in the most advanced

stages ofMS where alternative treatments were

unsuccessful, and thus the potential market for Tysabri®

was only a fraction of the potential purported $ 4 billion

MS market that Defendants represented and Tysabri®

would contribute only marginally to Elan's earnings;

g) Defendants had no reasonable expectation that Tysabriwould "return the Company to profitability;" and

h) Elan's research was not "world class," as represented.

189. On March 23, 2004, Defendants issued a press release concerning their intention to

seek regulatory approval of Tysabri in Europe , under the headline, "Biogen Idec and Elan

Announce Intention to Submit Antegren for Approval for Multiple Sclerosis in Europe" (the

"March 23, 2004 Press Release"). With respect to the purported adverse events that occurred

during the Tysabri clinical trials, Defendants represented in the March 23, 2004 Press Release

that "the following adverse events occurred more commonly with natalizumab when compared

to placebo: headache, nausea, abdominal pain, infection, urinary tract infection, pharyngitis and

rash . Serious adverse events have included infrequent hypersensitivity-like reactions."

71


190. That same day, Morgan Stanley issued a research report, interpreting Defendants'

materially false and misleading representations as "feedback [that] suggests to us that Antegren

will be a paradigm shift in the MS market." Similarly, according to analyst Davy in a March 23,

2004 research report, "[t]he signs are positive that Antegren will become a gold standard in the

MS market, with a superior safety and efficacy profile to existing therapies on the market at

present."

191. Following Defendants' announcement, Elan's ADSs closed at $19.70 per ADS on

the NYSE, up $1.30 per ADS, or 7%, from the previous day's closing price of $18.40 per ADS,

on trading volume of 16.9 million shares.

192. The statements identified above in the March 23, 2004 Press Release were

materially false and misleading when made for the reasons set forth in paragraph 188 above.

193. In a March 29, 2004 research report, Deutsche Bank praised Tysabri's® potential

to treat MS, commenting that "Antegren offers the opportunity to significantly alter the MS

market - likely becoming best in class." Moreover, with respect to its financial forecast for the

Company, Deutsche Bank stated that "[s]ince Antegren is expected to be the principal driver of

Elan's growth outlook over the next several years, this near-term forecast understates the real

potential impact to Elan."

194. On April 2, 2004, ING issued a "buy" recommendation for Elan' s securities,

explaining that "our analysis suggests launch of Elan's Antegren could transform the MS market.

We therefore upgrade our recommendation to Buy from Sell" and characterized Tysabri® as a

potential "blockbuster" drug. Similarly, on April 16, 2004, Moody confirmed Elan's "positive"

outlook.

72


195. On April 29, 2004, Elan filed its 2003 20-F with the SEC, signed by Defendants

Martin and Cooke. In the 2003 20-F, Defendants repeated the same false and misleading

statements regarding the Tysabri clinical trials as those contained in the February 18, 2004 Press

Release, February 18, 2004 Earnings Release and February 18, 2004 Conference Call.

196. In his letter to shareholders, Garo Armen, Elan's Chairman, praised Elan's

successes in 2003, particularly with respect to Tysabri® and Elan-s scientific accomplishments,

stating:

Throughout 2003, we made steady progress in the

research and development of novel treatments in

our core therapeutic focus areas of neurology,

autoimmune diseases and severe pain, bringing the

Company to a new threshold in each.

^C X :F

In autoimmune diseases, we earned the interest -

and admiration - of the entire industry with our

news concerning Antegren, whose unique

inflammatory-inhibiting characteristics werereported in announcements concerning Crohn'sdisease, multiple sclerosis and rheumatoid arthritis.

^C X Je

Today, our financial and scientific accomplishments

speak clearly of a company that has been

successfully transformed. This transformation

encompassed more than our business and scientific

ventures; equally important was how we executed

against our plans, delivered on our pledge of

transparency, and were guided by strong principles

and strong leaders.

197. Defendant Martin, in his letter to shareholders, characterized Elan's purported

success in 2003 as a "transformation into a world-class neuroscience-based biotechnology

company....

73


198. Defendants also touted the success of the Tysabri® clinical trials in the Company's

2003 20-F, as follows:

To date, approximately 2,800 patients have been

treated with Antegren in clinical trials. Elan and

Biogen Idec are encouraged by results thus far and

believe that, due to its unique mechanism of action,

Antegren may provide a meaningful advancement

for patients with debilitating autoimmune diseases.

199. With respect to the Company's publicly announced intention to fast-track Tysabri,

Defendants stated "[i]t is important to note that no other MS therapy currently on the market has

been approved with less than two years of data."

200. In the 2003 20-F, Defendants went on to describe two publications in January 2003

in the New England Journal ofMedicine regarding Phase II studies in MS and Crohn's disease as

follows:

The first publication reported on the results of the

Phase II MS study and noted a greater than 90%

reduction in the volume of new inflammatory brain

lesions in Antegren-treated patients. For patients

with relapsing forms of MS, the study showed an

approximate 50% reduction in the number of

patients experiencing relapse in the natalizumab

group compared to placebo. The second publication

reported the results of the Antegren Phase II

Crohn's disease study. That study showed

promising data on patient response rate, disease

remission, and quality of life for patients with

Crohn's disease, as determined by the Crohn's

Disease Activity Index ("CDAI") and the

Inflammatory Bowel Disease Questionnaire

("IBDQ").

201. Moreover, Exhibits 12(a)(1) and 12(a)(2) to the 2003 20-F contained certifications

signed by Defendants Martin and Cooke, pursuant to section 302 of the Sarbanes Oxley Act of

2002 ("Sarbanes Oxley"), stating that the 2003 Form 20-F did not contain any material

misrepresentations and that the Company maintained adequate internal controls, as follows:

74


CERTIFICATION PURSUANT TO SECTION 302OF THE SARBANES OXLEY ACT OF 2002

I, Shane Cooke, certify that:

1. I have reviewed this Annual Report on Form

20-F of Elan Corporation , plc (the "registrant");

2. Based on my knowledge, this annual report

does not contain any untrue statement of'a

materialfact or omit to state a materialfact

necessary to make the statements made, in light of

the circumstances under which such statements

were made, not misleading with respect to the

period covered by this annual report [Emphasis

added];

3. Based on my knowledge, the financial

statements, and other financial information included

in this annual report, fairly present in all material

respects thefinancial condition , results of

operations and cash flows ofthe registrant as of,

and for, the periods presented in this annual report

[Emphasis added];

4. The registrant's other certifying officer and I

are responsible for establishing and maintaining

disclosure controls and procedures (as defined in

Exchange Act Rules 13a-15(e) and 15d-15(e)) for

the registrant and have:

(a) Designed such disclosure controls and

procedures, or caused such disclosure controls and

procedures to be designed under our supervision, to

ensure that material information relating to the

registrant, including its consolidated subsidiaries, is

made known to us by others within those entities,

particularly during the period in which this annual

report is being prepared;

JC J^C Jk

(c) Evaluated the effectiveness of theregistrant's disclosure controls and procedures andpresented in this annual report our conclusionsabout the effectiveness of the disclosure controlsand procedures, as of the end of the period coveredby this annual report based on such evaluation; and

75


(d) Disclosed in this annual report any changein the registrant's internal control over financialreporting that occurred during the period covered bythis annual report that has materially affected, or isreasonably likely to materially affect, theregistrant's internal control over financial reporting;and

5. The registrant's other certifying officer and Ihave disclosed, based on our most recent evaluationof internal control over financial reporting, to theregistrant's auditors and the audit committee of theregistrant's board of directors (or personsperforming the equivalent functions):

(a) All significant deficiencies and materialweaknesses in the design or operation of internalcontrol over financial reporting which arereasonably likely to adversely affect the registrant'sability to record, process, summarize and reportfinancial information; and

(b) Any fraud, whether or not material, thatinvolves management or other employees who havea significant role in the registrant's internal controlover financial reporting.

Date: April 28, 2004

/s/ Shane Cooke

Shane CookeExecutive Vice President andChief Financial Officer

CERTIFICATION PURSUANT TO SECTION 302OF THE SARBANES OXLEY ACT OF 2002

I, Kelly Martin, certify that:

I have reviewed this Annual Report on Form20-F of Elan Corporation, plc (the "registrant");

2. Based on my knowledge, this annual report

does not contain any untrue statement ofa

materialfact or omit to state a materialfact

necessary to make the statements made, in light of

the circumstances under which such statements

76


were made, not misleading with respect to theperiod covered by this annual report [Emphasisadded];

3. Based on my knowledge, the financial

statements, and other financial information included

in this annual report, fairly present in all material

respects thefinancial condition , results of

operations and cash flows ofthe registrant as of,

and for, the periods presented in this annual report

[Emphasis added];

4. The registrants other certifying officer and I

are responsible for establishing and maintaining

disclosure controls and procedures (as defined in

Exchange Act Rules 13a-I5(e) and 15d-15(e)) for

the registrant and have:

(a) Designed such disclosure controls and

procedures, or caused such disclosure controls and

procedures to be designed under our supervision, to

ensure that material information relating to the

registrant, including its consolidated subsidiaries, is

made known to us by others within those entities,

particularly during the period in which this annual

report is being prepared;

***

(c) Evaluated the effectiveness of theregistrant's disclosure controls and procedures andpresented in this annual report our conclusionsabout the effectiveness of the disclosure controlsand procedures, as of the end of the period coveredby this annual report based on such evaluation; and

(d) Disclosed in this annual report any change

in the registrant's internal control over financial

reporting that occurred during the period covered by

this annual report that has materially affected, or is

reasonably likely to materially affect, the

registrant's internal control over financial reporting;

and

5. The registrant ' s other certifying officer and I

have disclosed , based on our most recent evaluation

of internal control over financial reporting, to the

77


registrant's auditors and the audit committee of theregistrant's board of directors (or personsperforming the equivalent functions):

(a) All significant deficiencies and materialweaknesses in the design or operation of internalcontrol over financial reporting which arereasonably likely to adversely affect the registrant'sability to record, process, summarize and reportfinancial information; and

(b) Any fraud , whether or not material, that

involves management or other employees who have

a significant role in the registrant ' s internal control

over financial reporting.


/s/ Kelly Martin

Kelly MartinPresident and Chief Executive Officer

202. Exhibits 12(a)(3) and 12(a)(4) to the 2003 20-F contained certifications signed by

Defendants Martin and Cooke, pursuant to section 906 of Sarbanes Oxley, stating that the 2003

20-F did not contain any material misrepresentations , as follows:

CERTIFICATION PURSUANT TO 18 U.S.C.SECTION 1350, AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEYACT OF 2002

In connection with the Annual Report of Elan

Corporation, plc (the "Company") on Form 20-F for

the period ending December 31, 2003, as filed with

the Securities and Exchange Commission on the

date hereof (the "Report"), I, Shane Cooke,

Executive Vice President and Chief Financial

Officer of the Company, certify, pursuant to 18

U.S.C. Section 1350, as adopted pursuant to Section

906 of the Sarbanes-Oxley Act of 2002, that to my

knowledge:

78


(1) the Report fully complies with the

requirements of section 13(a) or 15(d) of the

Securities Exchange Act of 1934; and

(2) the information contained in the Report

fairly presents, in all material respects, the financial

condition and results of operations of the Company.

Dated : April 28, 2004

/s/ Shane Cooke

Shane CookeExecutive Vice President

and Chief Financial Officer

CERTIFICATION PURSUANT TO 18 U.S.C.SECTION 1350, AS ADOPTEDPURSUANT TO SECTION 906 OF THESARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Elan

Corporation, plc (the "Company") on Form 20-F for

the period ending December 31, 2003, as filed with

the Securities and Exchange Commission on the

date hereof (the "Report"), I, Shane Cooke,

Executive Vice President and Chief Financial

Officer of the Company, certify, pursuant to 18

U.S.C. Section 1350, as adopted pursuant to Section

906 of the Sarbanes-Oxley Act of 2002, that to my

knowledge:

(1) the Report fully complies with the

requirements of section 13(a) or 15 (d) of the

Securities Exchange Act of 1934; and

(2) the information contained in the Reportfairly presents, in all material respects, the financialcondition and results of operations of the Company.


/s/ Kelly Martin

Kelly Martin

President and Chief Executive Officer

79


203. With respect to Elan's internal controls, the 2003 20-F further disclosed that:

Item 15. CONTROLS AND PROCEDURES

1. At the end of the period covered by this

2003 Annual Report on Form 20-F, the Company,

under the supervision and with the participation of

the Company's management, including G. Kelly

Martin, president and chief executive officer, and

Shane M. Cooke, executive vice president and chief

financial officer, evaluated the effectiveness of the

design and operation of the Company's "disclosure

controls and procedures" (the "Disclosure

Controls"). Disclosure Controls are procedures

designed to ensure that information required to be

disclosed in the Company's reports filed under the

Securities Exchange Act of 1934, as amended (the

"Exchange Act"), such as its Annual Report on

Form 20-F, is recorded, processed, summarized and

reported within the time periods specified in the

Securities and Exchange Commission rules and

forms. Disclosure Controls are also designed to

ensure that the information is accumulated and

communicated to the Company's management,

including Mr. Martin and Mr. Cooke, as

appropriate, to allow timely decisions regarding

required disclosure.

2. The evaluation of the Company's Disclosure

Controls included a review of the controls'

objectives and design, the implementation of the

controls and the effect of the controls on the

information generated for use in the Company's

Annual Report on Form 20-F. During the

evaluation, management sought to identify data

errors, control problems or acts of fraud and

confirm that appropriate corrective actions,

including process improvements, were being

undertaken. This type of evaluation is performed by

the Company on a regular basis. The overall goals

of these evaluation activities are to monitor the

Company's Disclosure Controls and to modify them

as necessary.

3. Based upon their evaluation ofthe

Company's Disclosure Controls, Mr. Martin and

80


Mr. Cooke have concluded that the Company's

Disclosure Controls are effective in alerting

management, including Mr. Martin and Mr. Cooke,

in a timely manner, to material information

required to be disclosed in the Company's reports

filed with the Securities and Exchange Commission

[Emphasis added]

4. There were no significant changes in the

Company's internal controls or in other factors that

could significantly affect the Company's Disclosure

Controls subsequent to the date of the evaluation

activities described above, nor were there any

significant deficiencies or material weaknesses in

the Company's internal controls. Accordingly, no

corrective actions were required or undertaken.

204. The statements identified above in Elan's 2003 20-F were materially false and

misleading when made for the reasons set forth in paragraph 188 above. The statements made in

the 2003 20-F were further materially misstated because: (i) Defendants lacked the necessary

controls to ensure that adverse events were reported to the FDA in a timely manner;

(ii) Defendants violated Sarbanes Oxley, 18 U.S.C. § 1350, as adopted pursuant to § 302 and

§ 906 by issuing the false certifications above; and (iii) Defendants violated Section 13(b)(2)(B)

of the Exchange Act by misrepresenting that Elan maintained adequate internal controls, when,

in fact, Elan's controls were deficient, allowing Defendants to engage in the fraud alleged herein.

205. On May 13, 2004, Defendants issued a press release announcing the Company's

earnings for the first quarter 2004 and touting the continued success of the Tysabri® clinical

trials (the "May 13, 2004 Earnings Release"). In the May 13, 2004 Earnings Release, Defendant

Martin assured investors that the Company was on track to launch Tysabri 1z , stating:

In the first quarter of 2004, we continued ourexecution momentum across our core therapeuticareas of neurodegenerative diseases, autoimmunediseases and severe pain. Our key second-quarterfilings are on track - Antegren for multiple sclerosisin the United States and Europe, and Pnalt for

81


severe pain in the United States - and we continuediscussions with the United States and Europeanregulators regarding potential filings for Antegrenas a treatment in Crohn's disease. Operationally, weare preparing for the anticipated launches ofAntegren and Prialt, with specific targetedinvestments in the specialized infrastructure andpersonnel required for successful product launches.

206. That same day, Defendants held a conference call with analysts reiterating the

same false and misleading statements with respect to Tysabri' s® anticipated launch remaining

on track as those contained in the May 13, 2004 Earnings Release (the "May 13, 2004

Conference Call"). Additionally, Defendant Martin informed investors in the May 13, 2004

Earnings Release that "we don't view Antegren for MS as a product that is going to be a

combination therapy at all." Moreover, despite numerous known serious opportunistic infections

developed by patients taking Tysabri® in the MS clinical trials, Defendant Martin represented

that, according to the Phase II data, Antegren was "a product that's twice as efficacious at least

as any current therapy with no side effect ... which is obviously a major or the major driving

factor of the fact that we would view Antegren as a mono-therapy product." [Emphasis added]

Furthermore, according to Defendant Martin:

[I]t would be hard for me to imagine that the payer

community ... is going to pay for combination

therapy if ... there is an alternative product out

there as strong as Antegren for MS. So, while there

may be some combination therapy, we certainly

don't think that Antegren will be positioned with

that regard. We think that Antegren will clearly be

positioned as mono-therapy, first linefor MS on a

global basis Period. [Emphasis added]

207. During the May 13, 2004 Conference Call, Defendant Ekman reassured investors

about the Company's intention to market Tysabri® as a mono-therapy, stating that:

[Elan's] objective is to publish the one-year data onmono-therapy. We would then look at how many

82


patients are left in the study for combination, and ifwe can disclose that data at that date withoutharming the two - the two-year data, we will have aconversation with the agency and we will notdisclose any data without having a good interactionwith the agency.

208. Defendant Martin also emphasized the importance of Tysabri® to Elan ' s cash flow

as follows:

With regard to sort of broad commentary on the

cash flow for `04, negative sort of $175 - 200

million, it 's obviously all in anticipation of what we

would view as the need to have an extraordinarily

successful launch ofAntegren .... [Emphasis

added]

209. Upon the news, on May 13, 2004, ING Financial Markets issued a "buy" rating in a

research report entitled "Antegren on Track." In that report, ING analysts forecasted growth of

the MS market from $3.5 billion today to more than $6 billion by 2008 and forecasted Tysabri®

sales to reach $2.2 billion by 2008. On May 13, Deutsche Bank issued a "buy" rating and

commented that the key valuation driver of Tysabri® "obviously remains MS," forecasting

worldwide Tysabri® sales of $2.3 billion by 2009. Moreover, according to Deutsche Bank,

when adding forecasted revenue from Crohn' s disease , total forecasted Tysabri® revenue for

2009 was $3. 1 billion , "which would make this therapy one of the largest-selling biologics on the

market." Following Defendants' affirmative misrepresentations, Elan's ADSs closed at $22.25

per ADS on May 14. 2004 on the NYSE, up $2.06 per ADS, or 10%, from the previous day's

closing price of $20.19 per ADS, on trading volume of 7.7 million shares.

210. The statements identified above in the May 13, 2004 Press Release and May 13,

2004 Conference Call were materially false and misleading when made for the reasons set forth

in paragraph 188 above. Moreover, Defendants' statements were further materially false and

misleading because the one-year data from the Tysabri® clinical trials was not nearly as

83


successful as Defendants led investors to believe because many serious adverse events and even

deaths had occurred in both the MS and Crohn's disease Trials, indicating Tysabri'so severe

immunosuppressive effects. Furthermore, contrary to Defendants' material misrepresentations,

Elan and Biogen fully intended Tysabri® to be used as a combination therapy with Biogen's

other MS drug, Avonex®O, and not solely as a monotherapy.

211. On May 25, 2004 , Defendants issued a press release announcing that "Biogen Idec

and Elan Submit Biologics License Application to the FDA for Approval of Antegren for

Multiple Sclerosis Based on One-Year Data" the ("May 25, 2004 Press Release"). In the May

25, 2004 Press Release, Defendants included statements made by Biogen executives, thereby

adopting those statements as their own. Specifically, Dr. Adelman of Biogen stated in the May

25, 2004 Press Release that:

Based on the one-year analysis from our Phase III

studies, which include more than 2,100 patients, we

believe that natalizumab has the potential to become

an important new therapy for MS. Natalizumab's

novel mechanism of action represents an innovative

approach to treating MS.

212. Defendant Ekman echoed Dr. Adelman' s sentiments in the May 25, 2004 Press

Release stating:

This submission represents a significant milestone

for Elan and Biogen Idec and demonstrates our

continued commitment to providing a new

treatment option for the more than one million

patients experiencing the debilitating effects of MS.

We look forward to working with the FDA

throughout the review process to make natalizumab

available to patients who may be in need.

213. Defendants described the Tysabri® clinical trials as follows:

About the MS Clinical Trials for ANTEGREN:

84




randomized, multi-center, placebo-controlled,




of clinical relapses. The SENTINEL ( safety and


AVONEX® (Interferon beta-I a)) trial is a two-year,

randomized , multi-center , placebo - controlled,


with relapsing-remitting MS, evaluating the effect




the rate of clinical relapses. Both study protocols

provided for a one-year analysis of the data. The

primary endpoints for both Phase III two-year trials

in MS are based on the Expanded Disability Status

Scale (EDSS ) and relapse rate. The pre-specified

primary endpoint of the one-year analysis was

relapse rate.

214. With respect to adverse events, Defendants further represented in the May 25, 2004

Press Release that "[t]o date, approximately 2,800 patients have received natalizurnab in clinical

trials, and the safety profile continues to supportfur°ther° development. [Emphasis added] In

placebo-controlled trials to date, in both Crohn's disease (CD) and MS, the most commonly

reported adverse events in either group were headache, fatigue and nasopharyngitis."

215. On May 25, 2004, Defendants issued a similar news release announcing that

"Biogen Idec and Elan Submit Application to the European Medicines Agency for Approval of

ANTEGREN for Multiple Sclerosis Based on One-Year Data" (the "May 25, 2004 News

Release"). In the May 25, 2004 News Release, Defendant Ekman repeated his earlier statements

made in the May 25, 2004 Press Release regarding the market for Tysabri as a treatment for MS.

216. Analysts, as well as investors, continued to be fooled by Defendants' false and

misleading representations . In the May 25, 2004 News Release, analyst Scott H. Fullman of

85


Investec was quoted as rating Elan a "buy and Jennifer Chao, an analyst with RBC Capital

Markets in New York was quoted as rating Elan an "outperform."

217. Following Defendants' affirmative misrepresentations , Elan's ADSs on the NYSE

rose $0.67 per ADS, or 3%, to close at $19.96 per ADS, on trading volume of 5.8 million shares.

218. The statements identified above in the May 25, 2004 Press Release and May 25,

2004 News Release were materially false and misleading when made for the reasons set forth in

paragraph 188 above.

219. On June 4 , 2004, Defendants issued a news release entitled "Biogen Idec and Elan

Submit Application to the European Medicines Agency for Approval of ANTEGREN for

Multiple Sclerosis Based on One-Year Data" (the "June 4, 2004 Press Release"), announcing

that the Company had submitted a Marketing Authorization Application ("MAA") to the

European Medicines Agency (the equivalent of the FDA in the U.S.) for approval of Tysabri® as

a treatment for MS.

220. Like the filing with the FDA, Elan's submission was based upon only one-year

data from two ongoing Tysabri® Phase III MS clinical trials, the results of which they refused to

disclose, purportedly "to protect the integrity of the trials."

221. In the June 4, 2004 Press Release, Defendants stated (by adopting a statement by

Dr. Adelman) that "[biased on the promising results in previous clinical trials and the one-year

analysis from our Phase III studies, we believe natalizumab has the potential to meet a

significant unmet needfor MSpatients around the world . Natalizumab's novel mechanism of

action represents an innovative approach to treating MS." [Emphasis added]

222. Defendant Ekman echoed Dr. Adelman's comments in the June 4, 2004 Press

Release, stating: "[t]his submission represents a significant milestone for Elan and Biogen Idec

86


and demonstrates our ongoing commitment to new therapies for MS patients. We will continue

to work with European regulators during the review process to bring natalizuinab to patients as

quickly as possible."

223. With respect to the MS Clinical Trials for Tysabri g, Defendants represented that



randomized , multi -center , placebo-controlled,






AVONEX(R) (Interferon beta-1 a)) trial is a two-

year, randomized , multi -center , placebo-controlled,


with relapsing -remitting MS, evaluating the effect

of the combination of natalizurnab and AVONEX



the rate of clinical relapses . Both study protocols




Scale (EDSS) and relapse rate. The pre-specified


relapse rate.

224. Defendants also reiterated the same false and misleading statements as those

contained in prior releases about the purported success of the Tysabri® clinical trials , as follows:

To date, approximately 2,800 patients have received

natalizumab in clinical trials, and the safety profile

continues to support further development. In

placebo-controlled trials to date, in both Crohn's

disease (CD) and MS, the most commonly reported

adverse events in either group were headache,

fatigue and nasopharyngitis.

225. The statements identified above in the June 4, 2004 Press Release were materially

false and misleading when made for the reasons set forth in paragraph 188 above.

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226. On June 15, 2004, Davy and ING Financial Markets issued a "buy" rating on

Elan's ADSs.

227. On June 28, 2004, Defendants issued a press release under the headline, "FDA

Designates Antegren Biologics License Application for Priority Review as a Treatment for

Multiple Sclerosis; Application Under Accelerated Approval Guidelines" (the "June 28, 2004

Press Release"). In the June 28 , 2004 Press Release , Defendant Ekman declared:

The Priority Review designation underscores the

significant unmet medical need in the area of MS.

We believe natalizumab will offer a new approach

to treating MS and will bring hope to patients living

with this disease.

The BLA for natalizumab is being evaluated by the

FDA under Accelerated Approval guidelines. This

review will be based on one-year data from two

ongoing Phase III trials. The companies are

committed to completing these two-year trials. In

order to protect the integrity of the trials, the

companies are not disclosing the one-year data at

this time.

228. With respect to the Tysabri® clinical trials the June 28 , 2004 Press Release stated:

About the MS Clinical Trials for ANTEGREN



randomized , multi-center , placebo-controlled,






AVONEX(R) (Interferon beta-I a)) trial is a two-

year, randomized , multi-center, placebo-controlled,


with relapsing-remitting MS , evaluating the effect




the rate of clinical relapses. Both study protocols

88





Scale (EDSS) and relapse rate. The pre-specified


relapse rate.

229. Defendants also reiterated the same false and misleading statements in the June 28,

2004 Press Release as those made in prior releases about the adverse events that occurred during

the Tysabri® trials, stating:








230. The statements identified above in the June 28, 2004 Press Release were materially


231. On June 28, 2004, in reaction to Defendants' positive statements , ING Direct

issued a research report rating Elan a "buy." In that research report, ING analysts concluded that

since Elan and Biogen applied to the FDA for Priority Review of Tysabri®, "the drug must have

demonstrated it had the potential to treat a serious aspect (in this case disease relapse) of an

unmet medical need. We believe this indicates that data presented to the FDA must, as we

expected, demonstrate a significant advance on current therapy." Accordingly, ING upgraded

their Tysabri® revenue estimates from $125 million to $225 million . That same day,

ThinkEquitySales issued an "overweight" rating (expects the stock to outperform that of

comparable stocks) and raised its revenue target for Tysabri® for 2005 from $349 million to

$443 million.

89


232. On June 29, 2004, Deutsche Bank issued a "buy"' recommendation, noting that

Elan's stock had increased 241 % since the beginning of 2004, as compared to the NASDAQ

Biotech Index, which gained only 3%. Similarly, NCB Stockbrokers issued a "buy" rating that

same day and increased projected revenues from Tysabri ® in 2005 from $ 191 million to $320

million and for 2006 from $635 million to $866 million.

233. As investors digested the news, Elan ' s ADS price climbed over the following days

to close at $25.39 per ADS on July 2, 2004 on the NYSE, up $1.42 per ADS, or 5%, from the

closing price of $23.97 per ADS on June 25, 2004, the last business day before the

announcement.

234. On July 26, 2004, Elan issued a news release under the headline , "FDA Accepts

Biologics License Application for ANTEGREN for Multiple Sclerosis" (the "July 26, 2004 Press

Release"). The July 26, 2004 Press Release stated, in relevant part:

The FDA's review of natalizumab will be based on

one-year data from two ongoing Phase III trials,

AFFIRM (natalizumab safety and efficacy in

relapsing-remitting MS) and SENTINEL (safety

and efficacy of natalizumab in combination with

AVONEX(R) (Interferon beta-1 a)), which evaluate

the ability of natalizumab to slow the progression of

disability and reduce the rate of clinical relapses in

patients with relapsing-remitting MS. The

companies are committed to completing these two-

year trials.

235. Defendants again, reiterated the same false and misleading statements regarding

the purported safety of Tysabri® as evidenced in the clinical trials, as follows:


natalizuinab in clinical trials, and the safety profile






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236. On July 26, NCB issued a "buy' rating.

237. The statements identified above in the July 26, 2004 Press Release were materially


238. On July 29, 2004, Elan issued a press release (the "July 29, 2004 Earnings

Release"), announcing its second quarter financial results and continuing to tout the Company's

success with respect to the development and commercialization of Tysabri® as follows:

We continue to focus and align resources against

the commercialisation of Antegren for multiple

sclerosis and Crohn's disease, working with our

partner Biogen Idec. Having achieved designation

for priority review and accelerated approval for MS

in the U.S. further enhances our focus on execution

and operating discipline. Overall we continue to

strengthen our core therapeutic areas in

neurodegenerative diseases, autoimmune, and pain.

We continue to evaluate growth opportunities to

enhance our presence in these specific areas.

239. That same day, Defendants held a conference call with analysts (the "July 29, 2004

Conference Call"), during which Defendant Martin reassured investors that, based upon results

of the clinical data and the FDA's designation of Tysabri® for priority review, the Company's

plans to sell Tysabri® to the public "remains on track" and that Defendants "remain[ed] very

comfortable and confident that Antegren will provide significant improvement in disease therapy

across multiple indications going forward."

240. When confronted during the July 29 Conference Call with a statement Defendants

made in a Pfizer Q&A that Tysabri® was hampered by a lack of long term safety and efficacy

data, Defendant Martin responded as follows:

First of all, my understanding is the FDA is in

charge of assessing safety, not the industry ....

Secondly, you know this business is all about

innovation and bringing innovation to patients.

Again Elan's core belief has been over the last 15

91


years, certainly embedded within the Athena

Neurosciences world, that they did not want to work

on "me, too" drugs. They wanted to work on

changing the treatment paradigm in certain areas.

Antegren is the first of what, we think will be

others, but certainly the first breakthrough in

treatment paradigm for autoimmune related diseases

and that - therefore is a significant change in

technology and a significant change in the way

patients are going to look at treatment alternatives.

Antegren isfundamentally going to change, to a

very large degree, the way patients are treated in

many ofthese disease areas and our focus is with

Biogen to deliver that. I think, a change in

technology will cause some other strategic issues

for some of the competitors who have very

significant MS practices, and that's for them to deal

with. We are going to stay focused on Antegren

with Biogen and delivering it to the patients the

right way . [Emphasis added]

241. On July 29, 2004, Deutsche Bank issued a research report entitled "Slightly Wider

Q2 Loss - It's All About Antegren in 2Q04" and maintained, its "buy" rating on Elan's shares.

Analysts for Deutsche Bank estimated revenues from Tysabri of $475 million , $ 890 million and

$1.455 billion in 2005, 2006 and 2007, respectively, and stated that Tysabri® was "potentially

positioned to become the therapy of choice for relapsing-remitting MS, ultimately reaching

combined US and European MS Sales of $2.6B by 2009."

242. The statements identified above in the July 29, 2004 Earnings Release and July 29,

2004 Conference Call were materially false and misleading when made for the reasons set forth

in paragraph 188 above.

243. The day after the Company released its second quarter 2004 earnings, ING

Financial Markets issued a "buy" rating on Elan's shares. Similarly, on August 3, 2004,

Goodbody issued a buy rating on the Company' s shares.

92


244. On August 17, 2004, Defendants provided a status update on the progress of

Tysabri to investors in a press release entitled "Biogen Idec and Elan Announce Update on

Global Filings and Data Release for ANTEGREN® for Multiple Sclerosis" (the "August 17,

2004 Press Release"). In the August 17, 2004 Press Release, Defendants disclosed that Elan and

Biogen submitted an application for approval of Tysabri® as a treatment for MS in Canada and

expected to submit applications in Australia and Switzerland, based on one-year data from the

ongoing Phase III trials. The August 17, 2004 Press Release also revealed that "[t]he companies

also anticipate that the first release of the one-year data from these trials will be upon approval of

natalizumab by the U.S. Food and Drug Administration (FDA)."

245. With respect to the safety of Tysabri®O, Defendants repeated the same false and

misleading disclosures as those in earlier press releases as follows:




placebo-controlled trials to date, in both Crohn'sdisease (CD) and MS, the most commonly reportedadverse events in either group were headache,fatigue and nasopharyngitis.

246. In reaction to the news, on August 17, 2004, Deutsche Bank issued a "buy" rating,

stating: "[w]e continue to think that Antegren is potentially positioned to become the therapy of

choice for relapsing-remitting MS, ultimately reaching combined US and European MS sales of

$2.6B by 2009." Deutsche Bank noted that the "potential risks to" the target stock price of $31

per ADS "being achieved primarily relates to FDA approval for Antegren."

247. Following the news, Elan 's ADS price closed at $21.96 per ADS on the NYSE, up

$1.39 per ADS, or 6%, from the previous day's closing price of $21.96 per ADS, on trading

volume of 10.5 million shares.

93


248. The statements identified above in the August 17, 2004 Press Release were


249. On September 8, 2004, Morgan Stanley issued another research report entitled

"Still Bullish on Antegren" stating that Morgan Stanley was still bullish because "given

managements' comments at Elan and Biogen Idec, we can't imagine that the [Phase III] data will

disappoint." Morgan Stanley analysts stated that they were "resuming coverage on our favorite

stock." In that research report, Morgan Stanley also predicted Tysabri® sales of $250 million,

$900 million and $1.7 billion in 2005, 2006 and 2007, respectively.

250. On October 20, 2004, Piper Jaffray issued a research report entitled "Antegren

Infuses Us With Bullishness; Initiating With An Outperform." In that research report, Piper

Jaffray characterized Tysabri® as Elan's "potential blockbuster" and the key to returning Elan to

profitability by the end of 2005. Moreover, Piper Jaffray attributed $25 per ADS of the total

estimated $30 per ADS value, or 83%, to Tysabri® alone. In its October 20, 2004 research

report, Piper Jaffray also commented that the combination of fast-tracked approval by the FDA

and results from the Phase II trials, "give us confidence in the drug's uptake." Piper Jaffray

predicted Tysabri® worldwide revenues of $1 billion by 2006.

251. The next day, on October 26, 2006, two days before Elan was scheduled to release

earnings, NCB Stockbrokers Ltd issued a "buy" rating in its report entitled "Q3 Results Preview

- Focus Squarely on Antegren."

252. On October 28, 2004, Defendants issued Elan's third quarter 2004 earnings release

over the Business Wire (the "October 28, 2004 Earnings Release" ) in which they attempted to

offset disclosures of continuing and widening net losses with positive statements about the

94


prospects for Tysabri®. Specifically, Defendant Martin stated in the October 28, 2004 Earnings

Release that:

All of our energies are focused on delivering our

science to patients with unmet medical needs.

Today, our emphasis on preparing for a successful

launch of Antegren in multiple sclerosis exemplifies

our commitment to bringing innovative therapies

from the lab to patients around the world.

253. Similarly, Defendant Cooke was quoted as follows:

We continued to report net losses this quarter as we

resolve outstanding legacy issues, streamline the

balance sheet and, most importantly, invest for a

successful launch of Antegren and Prialt. We are

optimistic that the dedication, commitment and

financial resources we have invested in these

products will be reflected in a return to

profitability in the 2006 timeframe . [Emphasis

added]

254. That same day, Defendants held a conference call with analysts during which they

repeated the same material false and misleading statements as those made in the October 28,

2004 Earnings Release concerning the Company's financial results and plans to return to

profitability (the "October 28, 2004 Conference Call")

255. Following Defendants' materially false and misleading statements, Elan shares,

which rose 10% over the previous week on rumors of merger talks with Biogen, rose another

€0.62 per share, or 3.2%, to €20.28 per share on the Dublin exchange.

256. The statements identified above in the October 28, 2004 Earnings Release and

October 28, 2004 Conference Call were materially false and misleading at the time they were

made for the reasons set forth in paragraph 188 above. Defendants' statements were further

materially false and misleading because Defendants had no reasonable basis to state that Elan

could return to profitability from the revenues it would purportedly receive from Tysabri®O sales

95


because Tysabri® would not result in significant future revenues for the Company given its

significant undisclosed risks.

257. That same day, the Company issued a news release over the Business Wire in

which it announced that it intended to offer US $850 million in aggregate principal amount of

senior fixed rate notes due 2011 and senior floating rate notes due 2011 in a private placement.

258. Upon the news , analysts applauded Tysabri and estimated significant revenue

figures for Tysabri ®® as follows:

Piper Jaffray 10/28/04 -- issued report entitled

"Antegren Remains the Focus" and estimating

Tysabri® revenues worldwide in 2006 of $1 billion.

Deutsche Bank 10/28/04 -- issued "buy" rating and

noted the importance of Tysabri® to Elan, stating,

"[g]iven the significance of this new product

[Tysabri®] to Elan, FDA approval in MS is

absolutely critical for Elan to return to sustainable

profitability over the next several years...."

Deutsche Bank forecasted revenue from Tysabri®

sales in 2005 of $300 million, noting "Antegren is

potentially positioned to become the therapy of

choice for relapsing-remitting MS, ultimately

reaching combined US and European MS sales of

$2.6 billion in 2009."

Morgan Stanley 10/28/04 -- issued report , entitled

"Uneventful Q3; All Eyes on Antegren," rated Elan

"Overweight" and forecasted Tysabri® revenue of

$251 million, $913 million, $1 .7 billion, $2.5

billion and $2.9 billion in 2005, 2006, 2007, 2008and 2009, respectively.

Davy -- 10/29/04 - issued an Equity Note entitled

"Waiting on Antegren" and stating that "[w]e

continue to believe, in light of the strong Phase II

data and the positive FDA signals to date, that full

approval will be granted to Antegren." Davy

forecasted Elan's share of revenue in 2005 from

Tysabri to be $205 million.

96


259. On November 8, 2004, Elan and Biogen issued a joint news release over the

Business Wire (the "November 8, 2004 Press Release") in which they announced that the one-

year data from the Phase III Antegren® (natalizumab) AFFIRM trial "met the primary endpoint

of clinical relapse rate reduction" and that in the international study of 942 patients with

relapsing-remitting multiple sclerosis (RRMS), Tysabri reduced the rate of relapses by 66

percent compared to placebo, a statistically significant result . All secondary endpoints were also

met".

260. In the November 8, 2004 Press Release, Defendants described the Tysabri®

clinical trials, as follows:

The AFFIRM trial is a two-year, randomized, multi-

center, placebo-controlled, double-blind study of

942 patients evaluating the effect of natalizumab

monotherapy on the progression of disability in MS

and the rate of clinical relapses. Secondary

endpoints at one year included the number of new

or newly enlarging T2-hyperintense lesions, the

number of gadolinium-enhancing lesions and the

proportion of patients who were relapse free. To

enroll, patients had to be diagnosed with a relapsing

form of MS and had to have experienced at least

one relapse in the previous year. Patients were

randomized to receive a 300 mg IV infusion of

natalizumab (n=627) or placebo (n=315) once a

month.

***

A second Phase III trial, SENTINEL, is a two-year

randomized , multi-center , placebo-controlled,


with relapsing-remitting MS , evaluating the effect

of the combination of natalizumab and AVONEX®

(Interferon beta-1 a) compared with AVONEX alone

on the progression of disability and the rate of

clinical relapses.

97


261. With respect to adverse events in the clinical trials, Defendants further represented

that "[s]erious infections occurred in l percent of placebo-treated patients and 2 percent of

natalizuinab-treated patients. Serious hypersensitivity-like reactions occurred in approximately 1

percent of natalizumab-treated patients."

262. In the November 8, 2004 Press Release, Defendants included a statement made by

Burt Adelman, Biogen's Executive Vice President of Development, thereby adopting Dr.

Adelman's statement. Specifically, Dr. Adelman stated:

These data demonstrate that natalizumabdramatically reduced the rate of relapses at one

year," said Burt Adelman, MD, executive vice

president, Development, Biogen Idec. "We believe

natalizumab, with its novel mechanism of action,

has the potential to be a significant step forward in

the treatment ofMS. [Emphasis added]

263. Defendant Ekman echoed Dr. Adelman's sentiments, assuring investors of

Tysabri'sO imminent launch and success:

Natalizumab has the potential to make a realdifference in the lives of MS patients. We areworking closely with regulatory authorities to makenatalizumab available to patients in need as soon aswe can.

264. The reaction to this announcement in the investment community was positive, as

evidenced by an article published the same day on the Bloomberg Wire ("November 8, 2004

News Article"), reporting that "the results, after a year of final-stage tests exceed rates seen in

studies of existing MS treatments," and that:

Elan and Biogen are using the results to back their

U.S. and European applications for the drug, which

may enter the market that Lehman Brothers values

at $5 billion. Biogen, the No. 3 U.S. biotechnology

company, is looking to Antegren as growth slows in

older medicines such as its top-selling Avonex MS

drug. Elan needs a successful product to help return

98


to profit after selling about $2 billion in assets topay down debt.

265. In the November 8, 2004 News Article, James Mullen, Biogen's CEO, informed

investors that he "expects Antegren to capture as much as 50 percent of the MS market."

[Emphasis added]

266. The November 8, 2004 News Article applauded the results of the AFFIRM trial

stating that "[t]he 66 percent reduction in relapses exceeds results from an earlier trial which

showed Antegren cut the rate by 50 percent. Results also topped the 30 percent reduction rate of

the interferon medicines."

267. Following Defendants' affirmative misrepresentations, Elan's ADS price closed at

$29.00 per ADS on the NYSE, up $2.50 per ADS, or 9%, from the closing price on November 4,

2006, of $26.50 per ADS, on trading volume of 11.3 million shares. Similarly , on the Dublin

exchange, Elan's shares closed at €22.98 per share, up €2.54 per share, or 12%, from the closing

price on November 4, 2004 of €20.44 per share.

268. The statements identified above in the November 8, 2004 Press Release and

November 8, 2004 News Release were materially false and misleading at the time made for the

reasons set forth in paragraph 188 above.

269. On November 11, 2004, Defendants issued a release over the Business Wire in

which they announced the pricing of the Senior Notes offering by Elan's wholly-owned

subsidiaries, Elan Finance Public Limited Company and Elan Finance Corp., and that Elan had

increased the size of its debt offering from that previously announced of $850 million aggregate

principal amount to $1 .15 billion. On November 17, 2004, the Company reported that the

offering had been completed. As a result of the offering, S&P increased its rating of Elan to B

with a positive outlook and Moody's increased its rating of Elan to B3 with a stable outlook.

99


270. On November 17, 2004, Defendants also held a conference call with analysts, in

part, to tout the success of the Tysabri clinical trials and the anticipated market for Tysabri® (the

"November 17, 2004 Conference Call"). Demonstrating the analysts' enthusiasm for Tysabri®,

the session host from Ian & Cowen introduced the Company as follows: "Elan probably can

simply be introduced with one word, and that is Antegren ...." Defendant Ekman responded

that "Elan is not only the Antegren Company, although Antegren is important at this point."

[Emphasis added]

271. During the November 17, 2004 Conference Call, Defendant Martin, again , stressed

Elan's purported superior research and development platform and the significant market for

Tysabri®, stating:

We have three broad focus areas, one isautoimmune, the amount of disease areas in theautoimmune space that still have very significantun-met medical needs are significant, we believenot just with Antegren but with our basic researchtechnology platform, that [t]here are many parts ofthe autoimmune space that we will participate in thefuture.

272. Defendant Martin further stated:

This is the way we at Biogen and Elan look at, the

MS patient flow. The current market today is about

350,000 patients that equates, from a revenue pie

point of view, commercially to something around

$3.5 billion. Furthermore, there's another 100,000

patients roughly that have discontinued treatments .

.. for a number of reasons ...[s]o there is a large

group of patients who [have] discontinued and then

there is even a larger group of patients, many of

whom are in Europe who are currently untreated.

X * *

Europe as all of you know the MS therapy has some

reimbursement to it but by and large the

reimbursement treatment of current MS therapy is

100


significantly incomplete in Europe. So there [are]

large groups of patients in Europe who are currently

untreated. In addition to these patients flows there

is also 10-20,000 new patients a year. In the green,

what we've outlined here is Antegren initial

opportunity.

The current markets 350,000 people that's based on

current prices, current price of therapy is

somewhere between $12,000 to $16,000, as far as

gross prices but Biogen and ourselves have said

repeatedly that Antegren will be priced at a

premium to those price ranges. So therefore you

can see, as many analysts have reported, that the

total MS revenue pool over time could grow and it

could grow substantially . If you incorporate the

100,000 patients who are currently untreated but

used to be on treatment, and you accrue [ph] over

time some slice of an increased European patient

population at slightly higher prices, you could come

up with very very large numbers over time and

again with Antegren and with the data and with our

focus on working with the medical community and

patients over time we see this as a very very

significant opportunity for us in delivering what we

think will be terrific product to the patients.

[Emphasis added]

273. In the November 17, 2004 Conference Call, Defendant Cooke, Elan's CFO,

reiterated Defendants' promise to "return to profitability" on an EPS basis by the end of 2006.

274. With respect to specific disclosures regarding Tysabri®, Defendant Ekman

reaffirmed that Tysabri® was "key" to Elan's achieving its stated goals in 2004 and that the

results from Phase III of the Tysabri® clinical trials showed that Tysabri® had "reduced the rate

of relapses by 66%, relative to placebo" and "[a]ll secondary end points were met."

275. The statements identified above in the November 17, 2004 Conference Call were


101


276. On November 23, 2004, the Company announced that the FDA's "Approval of

TYSABRI® Marks A Major Advancement in the Treatment of MS Phase III Trials at One Year

Demonstrate New Level of Efficacy - 66% Reduction in Rate of Relapses Seen in AFFIRM

Monotherapy Trial" (the "November 23, 2004 Press Release"). With respect to Tysabri, the

November 23, 2004 Press Release disclosed that:

TYSABRI, the first humanized monoclonal

antibody approved for the treatment of MS, inhibits

adhesion molecules on the surface of immune cells.

Research suggests TYSABRI works by preventing

immune cells from migrating from the bloodstream

into the brain where they can cause inflammation

and potentially damage nerve fibers and their

insulation.

277. The November 23, 2004 Press Release also quoted James C. Mullen , Biogen's

CEO, as follows:

TYSABRI is a powerful and innovative therapy that

offers new hope for hundreds of thousands of

people living with MS. We believe TYSABRI will

revolutionize the treatment of MS and become the

leading choice for patients and physicians.

[Emphasis added]

278. Defendant Martin echoed Mullen's sentiment as follows:

TYSABRI is a significant breakthrough for patients

with MS. The approval of TYSABRI, with its

unique mechanism of action and new level of

efficacy, has the potential to make a genuine

difference in the lives of patients and families who

struggle with the debilitating effects of this disease.

[Emphasis added]

279. The November 23, 2004 Press Release also provided essentially the same false and

misleading description of the two Tysabri® MS clinical trials as the earlier press releases above.

280. With respect to the safety of Tysabri, Defendants represented that:

SAFETY

102


Common adverse events associated with TYSABRI

include headache , fatigue , urinary tract infection,

depression , lower respiratory tract infection, joint

pain and abdominal discomfort . The rate of

infection in both studies was approximately one per

patient -year in both TYSABRI-treated patients and

placebo-treated patients.

Serious infections occurred in 1.3 percent of

placebo-treated patients and 2.1 percent of

TYSABRI-treated patients. Serious infections

included bacterial infections such as pneumonia and

urinary tract infection, which responded

appropriately to antibiotics. TYSABRI has been

associated with hypersensitivity reactions, including

serious systemic reactions, which occurred at an

incidence of less than 1 percent of patients.

281. Like the November 23, 2004 Press Release, the Tysabri package insert that was

provided to patients taking Tysabri made no mention of how severely immunosuppressive

Tysabri really is. For example, the Tysabri package insert contained only the following safety

disclosures:

PRECAUTIONS

Immunosuppression

In Studies I and 2, concomitant treatment of

relapses with a short course of corticosteroids was

not associated with an increased rate of infection.

The safety and efficacy of TYSABRI® in

combination with other immunosuppressive agents

have not been evaluated. Patients receiving these

agents should not receive concurrent therapy with

TYSABRI ® because of the possibility of increased

risk of infections.

ADVERSE REACTIONS

General

The most frequently reported serious adversereactions with TYSABRI® were infections (2.1 %

103


versus 1.3% in placebo, including pneumonia[0.6%]), hypersensitivity reactions (1.3%, includinganaphylaxis/anaphylactoid reaction [0.8%]),depression (.08%, including suicidal ideation[0.5%]), and cholelithiasis (0.8%).

282. Similarly, in Table 3 of the Tysabri package insert, Defendants reported infections

such as urinary tract infections and lower respiratory tract infections, but made no mention of

serious, opportunistic infections that had occurred during clinical trials, such as pneumocystis

carinii pneumonia, atypical mycobacterial infections or Burkholderia cepacia pneumonia.

283. The statements identified above in the November 23, 2004 Press Release were


Moreover, Defendants' statements were further materially false and misleading because

Defendants had no reasonable basis for claiming that the potential market for MS could grow

"substantially ," given the known severe immunosuppressive effects of Tysabri, which, because

of its severe side effects, would likely only be used to treat a small population of patients as a last

resort therapy.

284. On November 24, 2004, Elan and Biogen held a joint conference call with

analysts to discuss the recent FDA approval of Tysabri® (the "Joint November 24, 2004

Conference Call"). During the Joint November 24 Conference Call, James C. Mullen, Biogen's

CEO, described Tysabri® as follows:

This is a great day for people living with MS.

TYSABRI is the first major advance in nearly a

decade, we expect, that it will revolutionize the

treatment for multiple sclerosis. This innovating is

clearly a breakthrough therapy for patients suffering

with MS.

We feel strongly that TYSABRI is the most

powerful treatment ever developed for MS and will

104


raise the efficacy bar in the treatment of MS. The

magnitude of the effect for TYSABRI in relapses

and placebo control trials is twice that achieved in

pivotal trials of current therapies .... We certainly

believe that TYSABRI will move quickly in the

first line therapy and become the number one MS

product worldwide. [Emphasis added]

285. With respect to the label, Dr. Gordon S. Francis, M.D., Vice President of

Neurology at Elan, boasted that "[t]he FDA gave us the broadest possible label, there were no

restriction, they specifically said it could be used as monotherapy or as add-on therapy."

286. During the November 24, 2004 Conference Call, Dr. Francis also reassured the

public about the safely of Tysabri®:

I think that's in addition to the very strong efficacy

result that were just described and as important is

that TYSABRI appears to be safe and well

tolerated and have a reassuring safety profile ...

The AFFIRM study fielded the bulk of the safety

information in the package insert and the safety

profile in SENTINEL was similar. [Emphasis

added]

287. In describing the commercialization of Tysabri in the Joint November 24, 2004

Conference Call, Robert Hamm, Biogen's Senior Vice President of Immunology Business Unit,

described the expected Tysabri® market as follows:

The SENTINEL trial as you referred demonstrates

the benefit of adding TYSABRI , a new therapy with

the different mechanism of action onto the current

standard of care, which is AVONEX. We believe

this will result in expanding the market. There are

approximately 350,000 patients with relapsing

forms of MS in the US today. About 190,000

patients on therapy, which represents a penetration

of approximately 55%. But after a decade of

available treatment , many patients remain untreated

and that ' s due to the high unmet need, which means

the current therapies are partially effective , require

frequent injections and many patients are intolerant

of the side effect profile . TYSABRI meets these

105


needs with a new way to fight MS with great

efficacy data, dosing every 4 weeks, and with a

good tolerability and safety profile. This growth

comes from bringing back the quitters. We estimate

that over 50,000 patients in the US have left

therapy, and another 50,000 worldwide. TYSABRI

will be first-line for new patients and TYSABRI

willpick up switchersfrom all current therapies.

In summary ... [t]he goal is for TYSABRI to be the

number one MS product worldwide, and we are

very confident the MS franchise will continue to

grow. [Emphasis added]

288. When asked during the Joint November 24, 2004 Conference Call to provide

some clarity regarding the marketing strategy of Tysabri, Defendants engaged in the following

exchange:

Q: Sohan Handia: [M]y question relates to the fact

that you did say that you were going to have sort of

one sales force for promoting AVONEX as well as

Antegren. Can you just comment what sort of the

marketing message is going to be? Are you going

to stress the results from the SENTINEL trial, can

you please provide some clarity on that?

A: James Mullen : Our goal is for TYSABRI to be

the number I product in MS, and we will be

stressing the advantage of TYSABRI AS

MONOTHERAPY. However, as I indicated there

is portion of population that's quite satisfied with

the AVONEX treatment today and we don't want

to lose sight of servicing them and we want to stress

the fact that for certain patients that are not well

controlled today adding TYSABRI is a very viable

option for physicians . [ Emphasis added]

289. When asked about disclosure relating to immunosuppression on the Tysabri label

as it related to use of Tysabri in combination with Avonex it , Defendants downplayed the

dangers of Tysabri and attributed the lack of disclosures to a lack of data, which, unbeknownst to

the public, Defendants did have as a result of the numerous warnings discussed above, including

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adverse events reporting serious opportunistic infections and deaths caused by Tysabri® therapy.

Dr. Adelman engaged in the following exchange during the Joint November 24, 2004

Conference Call:

Lehman Brothers Q: [T]he section of the package

insert referring to immunosuppression and any

comment that patients ... who do not receive

concurrent therapy because of the possibility of

increased risk of infection. Can you elaborate on

that?

Burt Adelman A: That really reflects the lack of

data at the moment on that... So, you know, I think

this is an appropriate warning at the moment in light

of the data that are available, but I think over the

nextfew years that the language there will

hopefully change as we better understand the

value ofadding those 2 products and adding those

two products and TYSABRI and other

immunodulators. [Emphasis added]

290. Another similar exchange went as follows:

Prudential Q: I took interest in the label and drug

interactions that when you use the drug together, I

guess, AVONEX reduces TYSABRI clearance by

about 30% and it seems to do so without any real

safety ramifications. I guess in my mind that raises

all kinds of intriguing dose - related questions and

the one I'll ask is, with the higher dose interferon

products might you see even a higher reduction in

clearance and might that actually be a positive?

James Mullen A: Interesting question. This is an

observation and barely outside of the conventional

limits of the bioequivalent being that, you can say 2

products are bioequivalent if their pharmacokinetic

profile is plus or minus about 20% to 25%. So, the

30% number with an arrow curve around it is barely

outside of the conventional bioequivalent limits,

and therefore, I am not sure exactly how to even

interpret those data ... And we'll be doing some

additional work indirectly around some of the issues

you suggest because we are certainly going to try to

help physicians and patients understand how to add

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this product on to any of the existing therapies or

how to transition from one existing therapy to

TYSABRI.

291. At the end of the November 24, 2004 Conference Call, Defendant Kelly Martin

again reemphasized that "the unmet medical need is significant and TYSABRI will help meet

that significantly and grow the marketplace both in the US, in Europe , and potentially other parts

of the world very significantly over the near term."

292. Later that morning, on November 24, 2004, Elan held its own, separate

conference call with analysts, reiterating the successes of Tysabri (the "Second November 24,

2004 Conference Call"). Specifically, Defendant Martin stated:

We believe [Tysabri] will be a top line therapy for a

disease that has a very high unmet medical need.

The future growth in the marketplace is substantial

both in the US and particularly in Europe, so we are

very excited with where we are and we are very

pleased with the partnership with Biogen and the

collaborative effort we have to get to this point and

the future is very significantly great. [Emphasis

added]

293. During the Second November 24, 2004 Conference Call, Defendant Martin

reiterated Defendants' promise that Elan would return to profitability by the end of 2006 "and

that would obviously include ANTEGREN ....

294. Analysts applauded Defendants' success in getting Tysabri approved with only

one-year's worth of data, particularly with such a broad label. For example, on November 24,

2004, ING stated that "[t ] he approval of Tysabri together with the label they have received

reaffirms our belief that Tysabri will transform the MS market." Moreover, ING noted of

particular importance, the fact that "the safety profile of the drug looks as good as expected."

108


295. The statements identified above in the Joint November 24, 2004 Conference Call

and Second November 24 Conference Call were materially false and misleading when made for

the reasons set forth in paragraph 188 above.

296. On December 8, 2004, JP Morgan stated in a report that "[t]he results were

extremely encouraging and support our belief that Tysabri will quickly become the #1 treatment

for MS."

297. On January 6, 2005, Defendants held another conference call with analysts to

primarily discuss the status of Tysabri (the "January 6, 2005 Conference Call"). During that call,

Defendant Martin reiterated the same statements as in prior calls regarding the significant market

for Tysabri®, stating:

The two hardest things in the equation areidentifying patients that have a significant unmetmedical need. Arguably if you look at the entireMS population and how it's treated in a movementwithin different therapies and the significant amountof patients who are still untreated or unsatisfiedwith treatment, the unmet medical need is clear in

our view. TYSABRI , given the results on the data

is obviously going to be a very, very significant

therapy in the treatment of those things.

[Emphasis added]

298. On January 11, 2005, Defendants held another conference call with analysts,

touting the success and safety of Tysabri (the "January 11, 2005 Conference Call"). Specifically,

during the January 11, 2005 Conference Call, Defendant Martin reiterated the results of the

mono-therapy and combination therapy trials and commented on the safety of Tysabri, stating:

"[TJlze safety data is as impressive as the efficacy data. Highlight on three things, TYSABRI

appears to be with all that we see, safe and very well tolerated. Serious infections, 1.3% rate in

placebo versus 2.1 % for Tysabri trials, no opportunistic infections ." [Emphasis added]

109


299. The statements identified above in the January 6, 2005 Conference Call and

January 11, 2005 Conference Call were materially false and misleading for the reasons set forth

in paragraph 188 above. Moreover, Defendants' statements were further materially false and

misleading because Tysabri was not, as Defendants represented, "safe and well tolerated' and,

as alleged herein, there were numerous reported serious opportunistic infections and not "no"

opportunistic infections.

300. On February 7, 2005, Dr. Daniel Pelletier of the University of California, San

Francisco, admitted a Tysabri® trial subject to the hospital with what purportedly appeared to be

a brain infection. The patient had weakness on one side, slurred speech and cognitive

impairment. While other neurologists said the symptoms could be caused by multiple sclerosis,

Dr. Pelletier said these symptoms were not typical of MS. Dr. Pelletier further stated that he

immediately informed Biogen that the symptoms were not typical of MS but rather, PML.

However, Elan and Biogen did not at that time, or for three weeks thereafter, disclose the

incident to the investing public. Moreover, Defendants have now admitted that this patient

began exhibiting signs of PML as early as October 2004. See ¶¶ 312-13, 315 below.

301. On February 8, 2005, Defendants issued a news release in which they announced

Elan's financial results for the fourth quarter and year ended December 31, 2004, provided

updated guidance, and highlighted the purportedly successful launch of Tysabri® (the "February

8, 2005 Earnings Release''). In the February 8, 2005 Earnings Release, Defendant Martin touted

Elan's annual financial results and performance of Tysabri®, declaring:

2004 was an extraordinary year for Elan, with two

Elan innovations, Tysabri for multiple sclerosis and

Prialt for severe chronic pain, approved in the US,

with both therapies advancing in the regulatory

process in Europe. For 2005, we look forward to

continued growth across the Tysabrifranchise,

110


working with our collaborator Biogen Idec;

continued clinical progress in the Alzheimer's

immunotherapy program in collaboration with

Wyeth; ongoing advancements in our strategic

pipeline; and disciplined investment aligned to our

core therapeutic areas of autoimmune diseases and

neurodegenerative diseases. Our company and our

people remain steadfastly focused on our

commitment to discover and deliver novel

therapeutic approaches for patients with significant

unmet medical needs - and to bring sustainable

growth and value creation to our shareholders.

[Emphasis added]

302. Commenting on Elan's fourth quarter and year-end 2004 financial results,

Defendant Cooke echoed Defendants Martin's positive statements as follows:

2004 has proven to be a transitional year for Elan;

we reduced losses by 33% to $0.96 per share;

experienced double digit growth in revenues from

our remaining business; completed the repositioning

of our business and balance sheet with continued

disciplined and focused investment in our core

therapeutic areas; expanded our organization in

targeted areas by recruitment of key talent to

execute the successful launch of Tysabri and

Prialt; and we significantly strengthened ourfinancial position completing a $1 billion plus bondoffering. While it is early days, the initial take-upsince launch of Tysabri is exceeding all ourexpectations and we remain optimistic that we willreturn to profitability by the end of2006.[Emphasis added]

303. In the February 8, 2005 Press Release, Defendants provided earnings guidance as

follows:

2005 Outlook

Financial

Elan is providing guidance as to the potential

financial outcome for 2005, excluding the impact of

potential revenues from Tysabri and the impact of

expensing stock options. Tysabri was approved in

111


the U.S. as a treatment for all forms of relapsing

remitting MS in late November 2004. While Elan

expects Tysabri to become the market leader in

this indication it is too early in the launch to give

revenue guidance for this product. However, on

the basis of the initial take-up, Elan is optimistic

of a return to profitability by the end of2006.

x*^

Elan will record all of the U.S. sales of Tysabri in

revenue and will share the gross profit with Biogen

Idec. Elan's gross profit on Tysabri revenue is

expected to be in the range of 30% to 35%.

[Emphasis added]

304. On that same day, Elan held its fourth quarter 2004 conference call with analysts

(the "February 8, 2005 Conference Call"), repeating the same false and misleading statements as

those contained in their February 8, 2005 Press Release concerning the Company's financial

results. During the February 8, 2005 Conference Call, Defendant Cooke reaffirmed that he

"recognize[d] ... that Tysabri will have a very significant impact on our financial results for

2005... and assured investors that Elan "remain[ed] optimistic that we will return to profitability

by the end of 2006."

305. The statements identified above in the February 8, 2005 Earnings Release and

February 8, 2005 Conference Call were materially false and misleading for the reasons set forth

in paragraph 188 above. Moreover, Defendants' statements were also materially false and

misleading because Defendants' future earnings guidance lacked any reasonable basis in fact in

light of Tysabri' s® known risks.

306. The next day, on February 9, 2005, Piper Jaffray rated Elan an "outperform"

stating its rationale was because "we believe the Tysabri trajectory is on track to meet or exceed

our expectations in 2005...." On February 10, 2005, analyst Davy reiterated its financial

112


forecast for Elan, based on Defendants' public statements, affirming that "we still agree with

management guidance that Elan can achieve profitability towards the end of 2006."

307. On February 17, 2005, Defendants announced the results of the two-year

"monotherapy" trial of Tysabri® (i.e., Tysabri without Avonex) claiming that the results

demonstrated that Tysabri® has a "significant impact on disability progression and Relapse Rate

in Multiple Sclerosis" and that the adverse event trial was "consistent with previous results" (the

"February 17, 2005 Press Release")

308. With respect to the clinical trials, the February 17, 2005 Press Release stated, in

relevant part:

AFFIRM monotherapy trial achieved the two-year

primary endpoint of slowing the progression of

disability in patients with relapsing forms of

multiple sclerosis (MS). TYSABRI treatment led to

a 42 percent reduction in the risk of disability

progression relative to placebo. These data also

demonstrated a 67 percent reduction in the rate of

clinical relapses over two years, which was

sustained and consistent with the previously

reported one-year results.

Other data from AFFIRM at two years, including

MRI measures and immunogenicity were similar to

previously reported results.

The adverse event profile at two years was also consistent

with previously reported results. Common events included

headache, fatigue, urinary tract infection, depression,

lower respiratory tract infection, limb andjointpain, and

pharyngitis. The incidence of infections in TYSABRI-

treated andplacebo-treated patients was similar. Serious

infections occurred in 3.2 percent and 2.6 percent of

patients, respectively. These included bacterial infections

such as pneumonia and urinary tract infection, which

responded appropriately to antibiotics. TYSABRI has

also been associated with hypersensitivity reactions,

including serious systemic reactions that occurred at an

incidence of less than I percent ofpatients.

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TYSABRI, with its significant effect on slowing the

progression of disability, offers new hope for

patients with MS," said Burt Adelman, MD,

executive vice president, Development, Biogen

Idec. "With these data, we gain a more complete

understanding of the broad therapeutic benefit of

TYSABRI in MS. [Emphasis added]

309. According to Defendant Ekman, "[r]esults from the two-year monotherapy

clinical trial mark a major milestone in the treatment of MS. These two-year data strengthen

our belief that TYSABRI will become the leading therapy for MSpatients." [Emphasis added]

310. The February 17, 2005 Press Release further described the Tysabri® clinical trials

as follows:

AFFIRM is a two-year, randomized, multi-center,

placebo-controlled, double-blind study of 942

patients conducted in 99 sites worldwide, evaluating

the effect of TYSABRI on the progression of

disability as measured by the Expanded Disability

Status Scale (EDSS) and the rate of clinical

relapses. Patients were randomized to receive either

a 300 mg IV infusion dose of TYSABRI (n=627) or

placebo (n=315) every four weeks.

Based on one-year data from AFFIRM and the

SENTINEL add-on trial with AVONEX®

(Interferon beta-I a), the U.S. Food and Drug

Administration (FDA) granted Accelerated

Approval for TYSABRI on November 23, 2004, as

a treatment for relapsing forms of MS.

311. The statements identified above in the February 17, 2005 Earnings Release were

materially false and misleading for the reasons set forth in paragraph 188 above. Moreover, the

statements made in the February 17, 2005 Press Release were further materially false and

misleading because Defendants knew that, in addition to the other opportunistic infections that

occurred, as discussed above, two patients had developed symptoms consistent with PML and

Tysabri would never "become the leading therapy for MS patients" and rather would only be, at

114


best, a last resort therapy for MS patients who had failed all other therapies and whose disease

was progressing relentlessly.

Two Tysabri Patients Are Diagnosed With PML

312. Defendants have stated that they purportedly became aware that one patient in the

MS SENTINEL trial taking Tysabri® (combination therapy of Tysabri with Avonex) had been

diagnosed with PML and that there was another suspected case of PML in a patient taking

Tysabri® in the same clinical trial , on February 18, 2005. An internal memorandum from

Biogen and Elan to physicians participating in the Tysabri clinical trials dated February 28, 2005

(the "February 28, 2005 Internal Memo"), however, sets forth a markedly different timeline.

According to the February 28, 2005 Internal Memo , the two patients in the MS clinical trials who

developed PML, a "46-year-old female" and a "46-year-old male," showed neurological

problems as early as October 2004.

313. The February 28, 2005 Internal Memo further explained that the 46-year-old

female was hospitalized on February 12, 2005 where she underwent an MRI that "suggested a

differential diagnosis that included PML." A review of this patient's autopsy report revealed that

the patient actually began experiencing PML symptoms in October 2004, right around the time

Defendants were expecting to receive FDA approval of Tysabri®. The autopsy report further

revealed that, consistent with the February 28, 2005 Internal Memorandum , the patient's PML

symptoms had worsened by December 2004 and that the patient's MRI of the brain showed

lesions that were atypical of MS and were, in fact , typical of PML.

314. Moreover, according to CS 9, the 46 year-old patient's brain contained more JC

virus than this witness had ever seen in a PML patient. CS 9 has been researching JC virus and

PML for approximately twenty-five years. Indeed, according to CS 9, this patient's brain was

loaded with the JC virus.

115


315. With respect to the second patient, a 46-year-old male, the February 28, 2005

Internal Memo disclosed that, in December 2004 , the patient "developed slow thinking , slurred

speech and cognitive dysfunction ...." which, as discussed above, are symptoms consistent with

PML, such as impaired cognition and difficulty thinking. Moreover, according to a New

England Journal ofMedicine article dated June 9, 2005, this patient began exhibiting symptoms

of PML in October 2004 when the patient was found to have atypical frontal lesions. The article

further reported that, by November 2004, this patient 's physician noted "uncharacteristic,

inappropriate behavior during a routine study visit'" and, by December 2004, "new MRI lesions

were seen consistent with PML," at which point dosing of Tysabri was terminated by the

attending physicians in a desperate attempt to restore the patient's immune system as the only

possible treatment for presumptive PML.

316. Moreover, Dr. Adelman later admitted at an SG Cowen Annual Healthcare

Conference held on March 16, 2005, that, with respect to the two reported PML cases "it is very

clear thatfrom the signs and the symptoms the PML related symptoms started much earlier

than when the diagnosis was made. " Dr. Adelman further admitted, with respect to the second

PML case, that while "[t]he other case ...got this diagnos[is] much faster , [] the prudent action

was not taken ." [Emphasis added]

317. Defendants similarly acknowledged at the March 2006 FDA Hearing that,

consistent with the February 28, 2005 Internal Memo and biopsies, the two PML patients began

experiencing PML symptoms in October 2004 (FDA Tr., 150), right about the time Defendants

were expecting to receive FDA approval of Tysabri®. Yet Defendants concealed these serious

adverse events from the public and the FDA.

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VII. THE TRUTH BEGINS TO EMERGE

318. At 7:59 a.m. on February 28, 2005, prior to the opening of trading, Elan and

Biogen , in a joint press release, announced their "Voluntary Suspension of TYSABRF" and that

they had "suspended dosing in all clinical trials" (the "February 28, 2005 Press Release"). The

February 28, 2005 Press Release stated, in relevant part:

This decision is based on very recent reports of twoserious adverse events that have occurred in patientstreated with TYSABRI in combination withAVONEX® (interferon beta-1 a) in clinical trials.

These events involve one fatal, confirmed case and

one suspected case of progressive multifocal

leukoencephalopathy (PML), a rare and frequently

fatal, deinyelinating disease of the central nervous

system . Both patients received more than two years

of TYSABRI therapy in combination with

AVONEX.

The companies ' actions have been taken in

consultation with U.S. Food and Drug

Administration (FDA). Worldwide regulatory

agencies are being kept informed.

The companies will work with clinical investigators

to evaluate TYSABRI-treated patients and will

consult with leading experts to better understand the

possible risk of PML. The outcome of these

evaluations will be used to determine possible re-

initiation of dosing in clinical trials and future

commercial availability.

319. Defendants ' suspension of Tysabri required them to alert medical professionals,

and, accordingly, Defendants sent a "Dear Healthcare Professional" letter to physicians that same

day, signed by Defendant Ekman and Burt Adelman of Biogen, advising physicians of the

Company's decision to suspend sales of the drug, indefinitely . See Tysabri® website, available

at www.tysabri.com.

117


320. Later that morning, Defendants held a conference call with analysts to discuss the

suspension of Tysabri® (the "February 28, 2005 Conference Call"), during which Defendant

Martin stated: "the fact that we have one adverse event ... is something that we are taking very

seriously with Biogen." Despite Defendants' knowledge of the numerous serious adverse events

and deaths that occurred during the Tysabri® clinical trials (as described above) Defendant

Martin, in a desperate attempt to salvage Tysabri's® blockbuster potential, denied the occurrence

of virtually any adverse events, let alone serious opportunistic infections, stating: "It/here's

been no adverse events in Crohn 's, in RA, for the course ofseveral years. " [Emphasis added]

Moreover, according to Defendant Martin:

To date, we have had no issues or no signals in anyof the monotherapy MS trials. We have had nosignals, no issues currently in any of the Crohn'strials. And we have certainly had none in the RAtrials.

321. During the February 28, 2005 Conference Call, Defendant Martin admitted that

Elan and Biogen had conducted an extensive review of the Tysabri® clinical trial data, declaring:

"[w]e have had 3.5 to 4 years worth of data that has been reviewed extensively by ourselves and

Biogen . . . ." [Emphasis added]

322. With respect to PML, Defendant Ekman explained that PML "primarily affects

immune-compromised patients" and that "90 percent of the patien[ts] with PML are AIDS

patients." As discussed above, the Stuve Study found that Tysabri diminishes the immune-

system in the CNS to that of a patient with AIDS.

323. When asked during the February 28, 2005 Conference Call by analyst Ian Hunter

of Goodbody Stockbrokers about when Defendants first knew that there were signs of PML in

the two patients diagnosed with PML, Defendant Martin flatly denied knowledge of any adverse

event until February 18, 2005, stating "from notification of the first adverse event to the decision

118


between ourselves and Biogen and the FDA was a matter of days, 4 or 5 days." Despite this

statement, Defendants would later admit at the March 2006 FDA Hearing that they knew that

these patients showed signs of PML as far back as October 2004. As discussed above,

Defendants' knowledge is corroborated by several accounts from confidential sources.

324. As a result of Defendants ' announcement that they were withdrawing Tysabri®O

from the market, Elan's ADSs plummeted , erasing approximately $7.5 billion, or 70% of its

market value in only one day. Elan 's ADSs fell $18.90 per ADS on the NYSE, or 70%, to close

at $8.00 per ADS, trading on unusually high volume of 167 million shares, nearly twenty-nine

times the average trading volume during the Class Period and the highest trading volume in

Elan's history. Elan's stock also tumbled on the Dublin Exchange, falling €13.81 per share, or

68%, to close at €6.49 per share. Kevin McConnell, head of research for Bloxham Stockbrokers

in Dublin described it as "a major body-blow for Elan." Jennifer Chao, an analyst for Deutsche

cut her rating of Elan from "buy" to "sell."

325. Similarly, approximately $9.6 billion dollars of Biogen's shareholder value was

erased on February 28, 2005, leaving Biogen with market capitalization of only $13 billion.

Biogen shares plunged 42.5 percent, falling $28.63 per share to close at $38.65 per share on

trading volume of 118 million shares, more than thirty times the average daily trading volume

during the Class Period. Notably, this was nearly four times the highest trading volume in

Biogen 's history.

326. Comparatively, on that same day, the S&P 500 Index decreased only 2.6% and

the S&P Biotechnology Index increased 1.7%.

327. Neither Elan's nor Biogen's stock prices have returned to their previous Class

Period highs.

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328. Following Defendants' announcement on February 28, 2005 withdrawing

Tysabri®, analysts quickly downgraded Elan's ADS value. For example, Deutsche Bank

lowered the target price by two-thirds from $28 per ADS to $9 per ADS. According to

Citigroup, "we believe that Elan is worth more than $12.00 with Tysabri but little more than

$1.00 without it."

329. On March 1, 2005, a New York Times article cited Dr. Lawrence Steinman a

leading MS expert and the co-inventor of Tysabri®, as calling the PML deaths an

"unfortunately logical" result given that Tysabri® works by suppressing the immune system.

According to Dr. Steinman , as he previously warned on numerous occasions , Tysabri® should

not have been approved based upon only one year's data. Dr. Steinman was quoted in the article

as stating: "I'm shocked that it happened so soon, but I knew it was going to happen sooner or

later ." [Emphasis added] The New York Times article reported that, according to Dr. Steinman,

he had expressed his apprehensions about Tysabri® in speeches and in a July 2004 article in the

journal Science and was asked by Biogen executives to "tone down criticisms of the drug."

[Emphasis added]

330. Similarly, The New York Times ran an article from Dublin under the headline

"Elan Shares Fall After A Drug Is Withdrawn" in which it described the impact of the disclosure

on Elan:

To a company that spent three years recovering

from a crippling accounting scandal, Tysabri had

looked like the ticket to its resurgence.

The Elan Corporation, which developed Tysabri

with Biogen Idec, had looked to the drug, a multiple

sclerosis treatment, to catapult it into the ranks of

the world's top biotechnology companies. Since the

drug's introduction in November, Tysabri had

shown the patient response, and earnings potential,

that would make it a blockbuster.

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Instead, Elan's stock plunged 68 percent Mondaywhen the company withdrew Tysabri from themarket after a patient's death. Elan shares fell to6.49 Euros ($8.59) in Dublin, and dragged the smallIrish stock exchange's benchmark index down 6percent with it.

"It's a major body-blow for Elan," said KevinMcConnell, head of research for BloxhamStockbrokers in Dublin. "The question is, will wesee Tysabri back?"

Elan's current portfolio in the United Statesincludes just three products -- two intravenousantibiotics and a newly approved treatment forchronic pain. For several years, Elan has conductedresearch into Alzheimer's disease in a partnershipwith Wyeth, but that is far from yielding amarketable treatment.

That near-death experience humbled a company thathad previously dominated the Irish stock exchange.

Before Tysabri's withdrawal, Elan was the fourth-

largest company traded in Dublin by market

capitalization, representing more than 9 percent of

the value of the whole exchange; it fell to around 3

percent on Monday.

The steep tumble in its shares "has a huge

psychological impact, but people quickly realize

that it's not an economic story," Mr. McConnell

said.

331. A March 1, 2005 Wall Street Journal article described PML as a "devastating"

disease and reported that, contrary to analysts' expectations of Tysabri® "quickly becom[ing] a

blockbuster with annual sales of over $2 billion within a couple of years," there is "a lower

market potential" than originally thought.

332. Meanwhile, analysts continued to cut their ratings of Elan securities. On March 1,

2005 JP Morgan announced it was "cutting estimates" and Goodbody downgraded Elan to

"reduce."

121


333. As the market digested the news, Elan's ADSs continued to tumble, dropping

$1.29 per ADS on the NYSE, or 16.2% on March 3, 2005 to close at $6.65 per ADS , on trading

volume of 98.7 million shares.

VIII. POST CLASS-PERIOD EVENTS

A. The Aftermath

334. On March 4, 2005, an article issued on Bloomberg L.P. reported that the second

suspected PML case had been confirmed. Upon the announcement, Elan's ADSs closed at $5.71

per ADS on the NYSE, down $.94 per ADS, or 14% from the previous day's closing price of

$6.65 per ADS, on trading volume of approximately 104.6 million shares, more than sixteen

times the normal average daily trading volume during the Class Period. Similarly, on the Dublin

Exchange, Elan's share price closed at €4.80 per share, down €0.77 per share, or 13% from the

previous day's closing price of €5.57 per share.

335. Following the Company's announcement, analysts predicted that if Tysabri®

returned to the market, sales would be substantially less than Defendants previously represented.

For example, a March 4, 2005 Boston Herald article predicted that "if "Tysabri® returns to the

market, "it will be a much meeker performer than the $4 billion blockbuster" Elan and Biogen

had promised investors (the "March 4, 2005 Boston Herald Article"). Accordingly, the March 4,

2005 Boston Herald Article reported that the following analysts had reduced their Tysabri®

revenue estimates: (i) Eric Schmidt, an analyst for SG Cowen Securities Corp., estimated

Tysabri®O revenues would be between $300 million and $500 million; (ii) Merrill lynch reduced

its estimated Tysabri® revenues to $1.4 billion from $ 3.1 billion , assuming Tysabri would only

be used in patients who do not improve on other treatments; (iii) Goodbody Stockbrokers

estimated Tysabri® sales as low as $350 million in 2009 versus his original forecast of $2

122


billion ; and (iv ) Morgan Stanley cut sales Tysabri® sales estimates to $1.2 billion from $1.7

billion.

336. Moreover, according to the March 4, 2005 Boston Herald Article, several analysts

slashed their ratings of Elan. Specifically, of the seven analysts cited in this article, three issued

"buy" ratings, two issued "hold" ratings and two issued "sell" ratings. Piper Jaffray analyst

Deborah Knobelman expressed concerns that Elan would be unable to pay down its $2.5 billion

in debt.

337. On March 9, 2005, the Los Angeles Times published an article providing specifics

with respect to the infection rate associated with Tysabri and adding that FDA officials lacked

sufficient information about Tysabri's long-term effects. The article stated, in relevant part:

In hundreds of pages of documents that offered the

first detailed look at the FDA's handling of the

drug, reviewers noted that Tysabri appeared more

effective than existing drugs, reducing relapses in

patients by 66%, based on one year's data. The

reviewers said it was `reasonably likely' that the

drug would provide long-term benefits.

Nonetheless, the agency's drug reviewersacknowledged they were unsure about Tysabri'slong-term effects.

The clinical meaningfulness of a decrease in theincidence of relapses at one year is uncertain.

FDA reviewers found that Tysabri had anacceptable safety profile, though they noted thathealth risks beyond one year are not known.

Infections, including urinary and respiratory, were

seen with Tysabri, but they were `generally routine

and did not have a complicated course.'

Stanford University professor Dr. LawrenceSteinman, an MS specialist, had warned there was aclear risk of infection for patients taking such drugs,

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because they tend to suppress the body's immune

system.

Steinman had helped discover the active agents in

the drug, but later became concerned about potential

side effects, and is working on a competing drug.

He noted that the infection rate of Tysabri patients

in one tri al was 2.1 %, compared with l .3% in the

placebo group.

`There were hints of an increase in the infection

rate,' said Steinman . The FDA should have dug

deeper. [Emphasis added]

338. On March 31, 2005, before the market opened, the Boston Globe reported that a

third patient had diedfromn PML back in December 2003 . As reported by the Boston Globe,

the third case of PML resulted from a patient taking Tysabri® in the Crohn's disease trials, who

was previously misdiagnosed in June 2003 with malignant astrocytoma, a kind of brain cancer.

The patient reportedly had taken eight doses of Tysabri® over an 18-month period. Unlike the

two patients previously diagnosed with PML who were taking Tysabri® in combination with

Avonex®, the Crohn's disease patient had previously taken other immunosuppressive drugs but

had ceased doing so eight months prior to developing PML. Thus, this cast doubt on suspicions

that Tysabri®, taken with Avonex®, caused the PML and rather indicated that Tysabri® itself

was the real culprit.

339. Indeed, a healthcare strategist at New York-based Miller Tabak & Co., Les

Funtleyder, reportedly described the third confirmed case of PML as a "death blow" particularly

given that the patient was taking Tysabri 12 as a monotherapy , rather than in combination with

Avonex®, as in the other two PML-related deaths. [Emphasis added]

340. In reaction to the news, on March 31, 2005, analysts again slashed their ratings of

Elan. Deutsche Bank, ING and Canaccord cut their ratings to "sell," Morgan Stanley cut its

rating to "underweight " and Piper Jaffray downgraded Elan to "market perform." Analysts

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viewed the third PML death as highly damaging for Elan because Elan was counting on Tysabri

to return the Company to profitability.

341. An analyst for A.G. Edwards wrote in a research report on March 31, 2005 that

"[a]bsent Tysabri, we believe Elan effectively belongs to its debt holders ." Moreover, some

Wall Street analysts speculated that: We think it is unlikely that [Elan] will have the resources to

overcome a complete Tysabri failure."

342. Upon the announcement of the third case of PML, Elan's ADSs lost more than

half of their value, dropping $3.90 per ADS on the NYSE, or 56% to close at $3.08 per ADS, on

trading volume of 157.9 million shares . Elan's shares similarly plummeted on the Irish

Exchange, closing at €2.40 per share, down € 3.10 per share, or 56% from the previous day's

closing price of €5.5 per share. Elan's shares had lost 90% of their value since Tysabri was

withdrawn from the market on February 28, 2005.

343. Following the withdrawal of Tysabri, Elan and Biogen announced that the

companies had become the subject ofan ongoing investigation by the SEC into whether any

violations of the federal securities laws occurred in connection with the suspension of marketing

and commercial distribution of Tysabri. Specifically, in Elan' s annual report on Form 10-K for

the year-ended December 31, 2004 (the "2005 10-K") filed with the SEC on April 11, 2005, Elan

revealed:

In March 2005, we received a letter from the SEC

stating that the SEC's Division of Enforcement is

conducting an informal inquiry into actions and

securities trading relating to us. The SEC's inquiry

primarily relates to events surrounding the February

28, 2005 announcement of the decision to

voluntarily suspend the marketing and clinical

dosing of Tysabri.

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The SEC investigation continues to probe the Defendants' lack of disclosure to investors

concerning the life-threatening effects of Tysabri and its extremely limited marketability.

344. The SEC also filed a settlement enforcement action against Thomas Bucknuin,

Executive Vice President and General Counsel of Biogen, for violating the federal securities

laws when Bucknum sold 89,700 shares ofBiogen stock, reaping approximately $1.9 million in

proceeds from such sale on February 18, 2005, after learning that day at a meeting with other

Biogen senior officers that a patient taking Tysabri in the clinical trials had been diagnosed with

PML. Shortly thereafter, on March 9, 2005, Bucknum entered into a settlement agreement with

the SEC to pay $3 million in disgorgement, interest andpenalties and prohibiting Bucknuin

from serving as an officer or director ofa public companyforfive years.

345. On June 3, 2005, Elan's shares fell another $0.69 per ADS on the NYSE, or 9

percent, after a.fourth possible PML case was reported.

346. On July 21, 2005, the Boston Globe reported that the family of one of the PML

victims who died in February 2005 filed a wrongful death suit against Defendants alleging that

Elan and Biogen knew of the potential dangers associated with taking Tysabri® "yet recklessly

proceeded with tests in clinical trials" (the "Wrongful Death Suit"). Moreover, the Wrongful

Death Suit alleges that Elan and Biogen did not disclose the dangers and risks of Tysabri to the

patient . In further effort to keep Defendants ' knowledge of the serious risks posed by Tysabri

and the truth about when Defendants knew that Tysabri caused PML, Elan and Biogen entered

into a multi-billion dollar settlement to settled the Wrongful Death Suit, prior to any discovery

being taken.

347. A Boston Globe article, dated August 11, 2005, provided an update on the

screening of patients who took Tysabri® in the MS trials and noted no new cases of PML.

126


Nevertheless, analysts and physicians reportedly remained skeptical. For example, Dr. Aaron

Miller, Chief Medical Officer of the National Multiple Sclerosis Society and Medical Director at

Corinne Goldsmith Dickinson Center for Multiple Sclerosis in New York told the Boston Globe

that he thought it would be reasonable to use Tysabri ®® only "in patients who are seriously ill

and are not responding to other therapies ." [Emphasis added] Similarly, analysts stated that

"because of the higher risks associated with the drug, Tysabri may be reservedfor much

smaller subsets ofMS patients" and that Tysabri "would most likely be used for patients who

haven't responded to existing therapies and those,for whom the treatments no longer provide

significant benefits." [Emphasis added]

348. On September 26, 2005, Elan and Biogen reported that they had submitted their

supplemental biologics license application ("sBLA") to the FDA for Priority Review. The sBLA

contained a substantially more detailed and a stricter warning label and limited distribution than

that initially submitted. Elan disclosed its risk management plan as follows:

completion of final two-year data from the

Phase III AFFIRM monotherapy trial and

SENTINEL add-on trial with AVONEXOO

(Interferon beta-1 a) in MS;

integrated safety assessment of patientstreated with Tysabri previously in clinicaltrials; and

revised label and risk management plan.[Emphasis added]

349. According to Elan and Biogen, they planned to submit a similar data package to the

European Medicines Agency. In an October 2005 Reuters-Summit news article, Dr. Adelman

stated that Elan and Biogen were developing a package insert label for Tysabri that would

adequately explain potential risks of the drug, especially for patients who might already be

"immune-compromised." Dr. Adelman also disclosed that Biogen was advocating creating a

127


"registry of patients taking Tysabri" to track the safety of the medication and identify others who

were in danger of developing PML. According to Dr. Adelman, a registry of patients would

"slow the process down and ... make people think twice" about taking Tysabri®O . Dr. Adelman

predicted the demand for Tysabri would be "much more modest" if and when Tysabri® became

available.

350. On November 17, 2005, the FDA accepted Elan and Biogen's sBLA.

351. On February 15, 2006, Elan and Biogen announced that the FDA had removed the

hold on Tysabri®O clinical trials in the U.S. The companies reported that they "expect to begin an

open label, multi-center safety extension study of TYSABRI monotherapy in the U.S. and

internationally in the coming weeks. Patients who previously participated in the Phase III MS

program are eligible for entry."

352. On February 28, 2006, Piper Jaffray reported on a survey that they conducted

involving 140 neurologists (27% of whom prescribed Tysabri®), which revealed that only 59%

of neurologists thought Tysabri® should return to the market. According to the doctors

surveyed, they only expected to prescribe Tysabri® to 10% of their patients. Approximately

57% of those doctors believed Tysabri'sOO effectiveness was only worth the risk of opportunistic

infections, such as PML, with patients who have not responded to other MS drugs and only 6%

would use Tysabri®O as a first -line therapy on newly diagnosed patients.

353. Upon the news, on February 28, 2006, Elan's ADSs fell $1.25 per share on the

NYSE, or 8 %, to close at $12.70 per ADS. Similarly, Elan common shares fell €0.51 per share

on the Dublin Exchange, or 4.4%, to close at €11.19 per share.

354. On March 7-8, 2006, an FDA Advisory Committee met to hear Elan and Biogen's

revised safety plan and vote on whether Tysabri® should be returned to the market in any

128


capacity. The FDA Advisory Panel unanimously recommended reintroduction of Tysabri for

treatment in relapsing forms of MS in a 12-0 vote on March 8, 2006. The Panel , however, voted

7-5 to leave to the physicians, the decision for which MS patients to prescribe Tysabri®.

355. Investors were delighted with the FDA Advisory Panel ' s recommendation to return

Tysabri® to the market. Trading was suspended during the two-day FDA hearing. On March 9,

2006, however, the day following the FDA's announcement, Elan's shares rose $2.70 per ADS

on the NYSE, or 20%, to close at $15.80 per ADS. Elan's 7.75% note maturing in 2001 rose

$0.325 to $0.9625 on the dollar.

356. On April 28, 2006, Elan announced that a drug advisory panel to the European

Union recommended that Tysabri® should be approved only for patients with the severest

disease or those who have not been helped by other treatments.

B. The FDA Approves Tysabri® To Re-Enter

The Market With Restricted Distribution

357. On June 5, 2006, the FDA announced that it "approved an application for resumed

marketing of Tysabri (natalizumab) subject to a special restricted distribution program."

[Emphasis added] The final FDA approval was far more restrictive than the recommendations of

the FDA Advisory Panel that reviewed Biogen and Elan's request to return Tysabri® to the

market on March 7-8, 2006. Specifically, the FDA approval restricted use of Tysabri® to use as

only a monotherapy and not in combination with other drugs. Moreover, the FDA recommended

use of Tysabri® as a salvage therapy for "patients who have not responded adequately to, or

cannot tolerate, other treatments for MS."

358. As a condition of allowing Tysabri® back on the market, the FDA required the

drug to carry the FDA's strictest black-box warning label and that Tysabri© be available only

under a restricted distribution program. The drug would also be subject to a comprehensive

129


safety and risk management plan and the strictest measures to monitor the side effects of

Tysabri®.

359. The main features of the risk management plan, called the TOUCH (Tysabri

Outreach Unified Committee to Health) Prescribing Plan, consisted of the following:

• Significantly revised labeling with prominent black-box warning of the

risk of PML and warning against concurrent use with chronic

immunosuppressive or immunomodulatory therapies or in patients who

are immunocompromised;

• Tysabri® will only be prescribed, distributed, and infused by prescribers,infusion centers, and pharmacies registered with the program;

• Tysabri® will only be administered to patients who are enrolled in theprogram;

• Prior to initiating the therapy, health care professionals are to obtain thepatient's MRI scan to help differentiate potential future multiple sclerosissymptoms from PML;

• Mandatory FDA review of educational tools for patients and physicians,

including a patient medication guide, TOUCH enrollment form, and a

monthly pre-infusion checklist;

• Patients on Tysabri® are to be evaluated at 3 and 6 months after the firstinfusion and every 6 months after that, and their status will be reportedregularly to Biogen and Elan; and

• A 5,000 patient cohort observational study, which will be performed overfive years, called the Tysabri® Global Observation Program in Safetystudy.

360. The new Tysabri® label, obtained from the FDA website, contains the following

prominent black-box warning:

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WARNING

TYSABRI® increases the risk of progressive multifocalleukoencephalopathy (PML), an opportunistic viral infection of the brainthat usually leads to death or severe disability.Although the cases of PML were limited to patients with recent or

concomitant exposure to immunomodulators or immunosuppressants, there

were too few cases to rule out the possibility that PML may occur with

TYSABRI® monotherapy.

Because of the risk of PML, TYSABRIOO is only available through a special

restricted distribution program called the TOUCHTM Prescribing Program.

Under the TOUCHTM Prescribing Program, only prescribers, infusion

centers, and pharmacies associated with infusion centers registered with the

program are able to prescribe, distribute, or infuse the product. In addition,

TYSABRI® must be administered only to patients who are enrolled and

meet all conditions of the TOUCHTM Prescribing Program (see

WARNINGS, Progressive Multifocal Leukoencephalopathy, and

Administration Program for TYSABRI®).

Healthcare professionals should monitor patients on TYSABRI® for any

new sign or symptom that may be suggestive of PML. TYSABRI® dosing

should be withheld immediately at the first sign or symptom suggestive of

PML. For diagnosis, an evaluation that includes a gadolinium-enhanced

magnetic resonance imagine (MRI) scan of the brain and, when indicated,

cerebrospinal fluid analysis for JC viral DNA are recommended (see

CONTRAINDICATIONS and WARNINGS, Progressive Multifocal

Leukoencephalopathy)

361. Tellingly, the WARNINGS and ADVERSE REACTIONS sections of the label

now contain warnings about specific serious opportunistic infections, such as PML, herpes virus

infections, cryptosporidial gastroenteritis, pneumocystis carinii pneumonia, pulmonary

mycobacterium avium intracellular, bronchopulmonary aspergillosis, and Burkholderia cepacia

infection , which were not contained in the original label for Tysabri® approved in November

2004. These opportunistic infections are the very same infections that occurred during the

Tysabri® clinical trials.

362. Moreover, the label included an extensive discussion of PML and the three

confirmed cases of PML. Under the heading "Immunosuppression," the new label, unlike the

original label, contains the following warnings:

131

Case 1:05-cv-02860-RJH Document 23 Filed 02/16/2007

Immunosuppression

The immune system effects of TYSABRI® may

increase the risk for infections . In Study 1, certain

types of infections, including pneumonias and

urinary tract infections (including serious cases),

gastroenteritis , vaginal infections , tooth infections,

tonsillitis , and herpes infections occurred more

often in TYSABRI®-treated patients than in

placebo -treated patients (see WARNINGS,

Progressive Multifocal Leukoencephalopathy

(PML); and ADVERSE REACTIONS , General

Infections). One opportunistic infection, a

cryptosporidial gastroenteritis with a prolonged

course was observed in a patient who received

TYSABRI® in Study 1.

Concurrent use of antineoplastic,immunosuppressant, or immunomodulating agents

may further increase the risk of infections, including

PML and other opportunistic infections, over the

risk observed with use of TYSABRI® alone (see

BOXED WARNING; WARNINGS, Progressive

Multifocal Leukoencephalopathy (PML); and

ADVERSE REACTIONS, Infections). The safety

and efficacy of the prior label did not disclose that

TYSABRI® in combination with antineoplastic,

immunosuppressant, or immunomodulating agents

have not been established.

of 153

Concurrent use of short courses, of corticosteroids was associated withincrease in infections in Studies I and 2. However, the increase ininfections in TYSABRI®-treated patients who received steroids wassimilar to the increase in placebo -treated patients who received steroids.

363. In July 2006, Tysabri® was re-introduced to the market for commercial

consumption, with substantial restrictions on its use and availability.

364. According to a June 5, 2006 Wall Street Journal article, "[t]he prospects of using

Tysabri with other MS treatments was a major reason the drug was originally thought to have

huge sales potential . Analysts now have dimmer expectations ." A June 6, 2006 article in Global

Insight echoed The Wall Street Journal article, predicting that the severe restrictions imposed on

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Tysabri® "look set to significantly dampen sales of Tysabri" particularly recognizing that the

impact was "likely to prove a greater problem for Elan than Biogen. Elan is more dependent on

Tysabri sales to improve its operating outlook ...." [Emphasis added]

365. Upon the news, investors expressed their disappointment in the limited approval of

Tysabri as essentially a last resort therapy with a significantly smaller market than Defendants

had promised. Elan's ADSs dropped $2.46 per ADS on the NYSE, or nearly 13%, to close at

$16.52 per ADS. On the Dublin exchange, Elan's shares closed at €12.06 per share, down €2.70

per share, or 18%, from the previous business day's closing price of €14.76 per share.

366. Following the FDA's announcement, analysts sharply cut their ratings of Elan.

Merrill Lynch, Citigroup Investment, and Canaccord Adams all issued a "sell" recommendation,

while Deutsche Bank, A.G. Edwards & Sons, and Merrion Stockbrokers issued "hold"

recommendations.

367. Moreover, analysts also reduced their future Tysabri® revenue estimates, well

below their original forecasts of $3.1 billion by 2009. For example, Christopher Raymond of

Robert W. Baird & Co. estimated Tysabri sales of several hundred million per year, much less

than that originally estimated in the billions. Similarly, Geoffrey C. Purges of Sanford C.

Bernstein & Co. estimated sales of only $35 million in 2006, rising to $946 million by 2008, and

RBC Capital Markets analyst Jason Kantor estimated U.S. Tysabri® sales of only $36 million,

$439 million and $806 million in 2006, 2007 and 2008, respectively.

368. While presenting an overview of Tysabri® at a meeting with fellow researchers on

June 19, 2006, Biogen 's Burt Adelman conceded that Biogen and Elan had not sufficiently

focused on the safety of Tysabri®, stating: "We have to make sure we fully understand the

mechanism of action that we're dealing with, and what the potential upsides and downsides of

133


that mechanism are." According to Dr. Adelman, more preclinical testing should be required.

As discussed above, neurologists such as Dr. Miller had previously recommended that Biogen do

just that and perform additional animal studies to fully determine Tysabri's® safety profile. Yet,

Defendants did not heed Dr. Miller's earlier warnings or advice concerning the risks of Tysabri.

369. On June 29, 2006, Elan and Biogen announced that "Tysabri was approved by

European regulators for patients with the severest cases of [MS]." Similar to the FDA, the

European Union also said that Tysabri® could be used by patients who haven't been helped by

older treatments."

370. In light of the FDA's limitations on the use of Tysabri®, analysts remain doubtful

of its revenue potential . For example, a July 26, 2006 DataMonitor article, entitled

"Elan/Biogen Idec: Tysabri Back on the Shelves; Elan and Biogen Idec's Multiple Sclerosis

Drug Tysabri Has Returned to the Market," reported that forecasts for future Tysabri sales have

"plummeted ." Moreover, according to DataMonitor, "it appears that, despite its efficacy, the

safety concerns shrouding Tysabri are likely to have bulldozed its marketpotential

indefinitely."' [Emphasis added] Similarly, a July 26, 2006 Market Watch article reported that,

according to Citigroup analyst Elise Wang, "'[w]e continue to expect a relatively slow ramp-up

in sales for Tysabri ...."'

371. Since reapproval by the FDA in June 2006, Tysabri® sales have been minimal.

For the third quarter ended September 30, 2006, Elan reported net revenue from Tysabri sales in

the U.S. of $5.4 million and negative net revenue from Tysabri sales in Europe of $5.7 million.

372. Moreover, according to one analyst at Piper Jaffray, Deborah Knobelman, the

feedback that she has received from physicians, thus far (November 2006), has shown that the

prescription rates of Tysabri® were slower than she had anticipated in the U.S. because of safety

134


concerns, reimbursement procedures, and patient-monitoring requirements. Accordingly,

Knobelman slashed her estimate for worldwide Tysabri®O sales to just $21 million for 2006,

down from her previous estimate of $123 million, a decrease of 83%.

373. As demonstrated herein, Tysabri is not, and was never going to be, the blockbuster

drug that Defendants promised investors throughout the Class Period.

IX. CAUSATION ALLEGATIONS

374. Elan 's common stock was traded on the London and Dublin stock exchanges and

on the NYSE in the form of ADSs at all relevant times . As described above, Defendants'

material misrepresentations and omissions had the effect of creating and maintaining an

artificially inflated price for Elan' s securities . Those misrepresentations and omissions that were

not immediately followed by an upward movement in the Company's stock price served to

maintain the share price at artificially inflated levels by maintaining and supporting the false

public perception of Elan's business, operations, performance and prospects, and particularly of

Tysabri® as a purported "blockbuster" drug.

375. Defendants had a duty to disseminate promptly accurate and truthful information

with respect to Elan's financial and operational condition and to cause and direct that such

information be disseminated and to promptly correct any previously disseminated information

that was misleading to the market. As a result of their failure to do so, the prices of Elan's

securities were artificially inflated during the Class Period. The price fell upon the ultimate

disclosure of the truth, damaging Lead Plaintiffs and the Class.

376. Defendants' false and misleading statements and omissions in their press releases

and other public statements directly caused losses to the Class. On the strength of these false

statements, misrepresentations and material omissions in its press releases, announcements and

other public statements concerning its financial condition, the Company's securities were

135


artificially inflated to a Class Period high of $30.45 per ADS on November 15, 2004, and

remained artificially inflated until the end of the Class Period. Thereafter, the ADS value fell to

$7.90 per ADS on February 28, 2005, thereby inflicting substantial damages on Lead Plaintiffs

and the Class.

377. Until shortly before Lead Plaintiffs filed their Complaint, they were unaware of all

of the facts, as described herein, and could not have reasonably discovered the Defendants'

fraudulent scheme by the exercise of reasonable diligence.

X. DEFENDANTS ACTED WITH SCIENTER

378. As alleged herein, Defendants acted with scienter in that Defendants knew or

recklessly disregarded that the public statements and documents issued and disseminated in the

name of the Company were materially false and misleading when made, knew or recklessly

disregarded that such statements or documents would be issued or disseminated to the investing

public, and knowingly and substantially participated or acquiesced in the issuance and

dissemination of such statements or documents as primary violators of the federal securities

laws.

379. Defendants had the opportunity to commit and participate in the wrongful conduct

complained of herein. Each was a senior executive officer and/or director of Elan and thus

controlled the information disseminated to the investing public in the Company's press releases,

SEC filings and communications with analysts. As a result , each could falsify the information

that reached the public about the Company's business and performance. With respect to non-

forward looking statements and/or omissions, Defendants knew and/or recklessly disregarded the

false and misleading nature of the information that they caused to be disseminated to the

investing public.

136


380. Throughout the Class Period, each of the Individual Defendants acted intentionally

or recklessly participated in and orchestrated the fraudulent schemes alleged herein to conceal

the true risks associated with Tysabri' s® and the resulting serious opportunistic infections and

deaths that occurred during the Tysabri RO clinical trials to obtain fast-track approval of Tysabri® ,

with the hope of returning Elan to profitability.

A. Defendants Directly Participated In, And/Or Had Direct KnowledgeOf Or Recklessly Disregarded The Numerous Warnings And EvidenceOf The Severe Immunosuppressive Effects Of Tysabri® And ResultingSerious Opportunistic Infections And Deaths

381. Elan is Ireland's fourth largest biotechnology company and Biogen is the third-

largest American biotechnology company. Working together, these two companies were world-

wide leaders in the biotech industry. As alleged herein, throughout the Class Period, Defendants

acted intentionally or recklessly disregarded numerous warnings and red flags identifying the

severe risks and resulting debilitating effects that Tysabri had on a patient ' s immune system,

leaving patients vulnerable to serious, often life-threatening, opportunistic infections.

382. As alleged herein, the Individual Defendants knew or recklessly disregarded at

least the following facts, alerting them to the dangers of Tysabri®: (i) Tysabri®, by its very

nature because of the way it worked, was an immunosuppressive drug that exposed patients to

serious opportunistic infections ; ( ii) animal studies indicated that Tysabri® was potentially a

highly immunosuppressive drug; ( iii) publications in scientific and medical journals warned of

Tysabri's® severe immunosuppressive effects; (iv) Defendant Kelly and James Mullen spoke

regularly about issues concerning Tysabri; (v) pursuant to the Collaboration Agreement, Elan

and Biogen held safety committee meetings discussing issues concerning Tysabri®, including

adverse events and deaths that occurred during the Tysabri® clinical trials ; ( vi) senior Elan

officials attended scientific meetings where top scientists discussed the serious and inherent risks

137


of Tysabri®; and (vii ) numerous serious opportunistic infections that had already occurred in

patients participating in Tysabri® clinical trials. Indeed, as discussed above , Defendants were

well aware of, or recklessly disregarded, the serious opportunistic infections that occurred during

clinical trials because the majority of the MS trials and the Crohn's Disease trials were

completed by January 2004. Thus, these studies were unblinded and Defendants were aware of

their results by that time.

383. Defendants were further aware of, or recklessly disregarded, the serious

opportunistic infections that occurred during the clinical trials through admittedly closely

monitoring the Tysabri® clinical trials in accordance with the Collaboration Agreement.

Moreover, as discussed above, several confidential sources confirmed Defendants" knowledge

and concern of the true risks of Tysabri® before the Class Period began. In light of the

foregoing, Defendants were aware of, or recklessly disregarded that Tysabri® was unlikely to

contribute to Elan's revenues and earnings to the extent they had led the market to believe.

B. Defendants Were Motivated To

Commit The Fraud Alleged Herein

1. The Individual Defendants Were Motivated To Commit

The Fraud Alleged Herein To Enable Them To Target

A Larger MS Market And Return Elan To Profitability

384. As alleged herein, the survival of Elan's business was dependant upon the

successful launch of Tysabri® as a blockbuster drug to capture its share of a purportedly $4

billion MS market and return the Company to profitability.

385. Elan had previously suffered a number of devastating setbacks in 2002 and 2003,

immediately preceding the Class Period, including being forced to withdraw its potential

blockbuster Alzheimer's drug from the market, as well as shareholder and SEC lawsuits,

mounting debt levels and consecutive quarters of negative cash flows and negative profitability.

138


Thus, on the brink of bankruptcy and desperately in need of a new blockbuster drug to save its

business , Elan divested itself of $2 billion worth of assets to focus substantially all of its

resources on developing and marketing Tysabri® -- the only drug in Elan's pipeline that had the

potential to become a blockbuster drug and Defendants' only hope of returning the Company to

profitability.

386. Moreover, anything short of Tysabri® becoming a blockbuster drug would

jeopardize the continued existence of Elan as well as Defendants' salaries and bonuses.

Therefore, the success of Tysabri® was crucial to the operating health of Elan and ensuring the

maximum financial benefit to the Defendants.

387. Accordingly, Defendants engaged in the fraudulent acts alleged herein to enable

Elan to capture a much larger market for Tysabri® than would otherwise be possible if they

disclosed the numerous risks and resulting serious opportunistic infections and deaths that had

occurred during the Tysabri® clinical trials, which would undoubtedly have resulted in the

black-box warning the Tysabri® label has today. Indeed, Defendants knew that if they publicly

disclosed the true immunosuppressive effects of Tysabri, the market for the drug would be only a

fraction of what Elan needed to return the Company to profitability.

388. Thus, as described above, Defendants knew or recklessly disregarded the true risks

of Tysabri®, but failed to publicly disclose them in hopes of obtaining a large portion of the MS

market.

2. The Individual Defendants Were Motivated To

Commit The Fraud Alleged Herein To Successfully

Consummate An Offering Of Senior Notes

389. As a result of several consecutive unprofitable quarters and years of negative cash

flows, Elan, desperately in need of cash to enable the Company to continue funding the

development and marketing of Tysabri®, pay down the Company's enormous debt load and

139


cover cash flow shortfalls, consummated a $1.15 billion offering of Senior Notes. Elan executed

the offering on November 17, 2004, offering senior notes consisting of $850 million aggregate

principal amount of 7 3/% Senior Fixed Rate Notes due 2011 and $300 million aggregate

principal amount of Senior Floating Rate Notes due 2011, guaranteed by Elan and certain of Elan

subsidiaries.

390. According to Defendant Cooke in a Press Release dated November 22, 2004:

"[w]ith this offering completed, we can now focus all of our energies on executing the launch of

Antegren."

391. By engaging in the fraud alleged herein, Defendants were able to use the cash

obtained in the offering to pay down high debt levels and continue to fund the development and

marketing of Elan's purported new wonder drug, Tysabri®, meanwhile concealing the true risks

of Tysabri® from investors and the FDA.

392. Moreover, using the proceeds from the offering, Defendants were able to pay down

the Company's debt and avoid an otherwise imminent bankruptcy.

3. Defendants Were Motivated To Commit The Fraud

Alleged Herein To Maximize Their Year-End Bonuses

393. Defendants were further motivated to artificially inflate the value of the

Company's stock, through the fraudulent scheme alleged herein , to maximize their annual

bonuses, which were based, in part, on the Company's financial performance.

394. According to the 2003 20-F, the Leadership Development and Compensation

Committee is responsible for determining "the compensation, terms and conditions of

employment of the chief executive officer and other executive directors and [] review[ing] the

recommendations of the chief executive officer with respect to the remuneration and terms and

conditions of employment of our senior management."

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395. According to the Company's compensation policy (disclosed in the 2003 20-F),

executive directors are compensated according to, among other things, the Company's overall

performance. Components of an executive's compensation package include basic salary and

benefits, annual cash incentive bonuses, pensions and participation in stock option plans. The

basic salary component is based upon personal performance, company performance and market

practice. Annual bonuses are based upon individual and companypeiformance.

396. For the period ended December 31, 2003, Defendant Martin received a cash bonus

of $800,000, more than 100% of his annual salary of $702,854 that year. Similarly, Defendant

Martin also received his full potential cash bonus in 2004 of approximately $900,000, which he

waived in exchange for 200,000 stock options at an exercise price of $7.47 per share, with an

estimated value of $900,000, presumably in anticipation that the price of Elan's securities would

increase substantially once Tysabri was introduced to the market.

397. Although the Company's policy for compensating officers, including Defendant

Cooke, was not disclosed publicly, it is likely that since Defendant Martin received one hundred

percent of his bonus, Defendants Cooke and Ekman similarly received the same, given the

purported successful launch of Tysabri®.

398. By marketing Tysabri® as the Company's next blockbuster drug and forecasting

substantial future revenues from Tysabri Ii without any reasonable basis, Defendants caused

Elan's securities to be artificially inflated throughout the Class Period. Accordingly,

Defendants' improper conduct allowed them to meet performance targets and receive their full

bonuses.

XI. FRAUD ON THE MARKET ALLEGATIONS

399. At all relevant times , the market for Elan securities was an efficient market for the

following reasons, among others:

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(a) Elan's ADSs were listed and actively traded on the NYSE and Elan

common shares were actively traded on the Dublin and London Stock Exchanges, all highly

efficient markets. Moreover , during the relevant period, Elan had approximately 388,695,832

shares issued and outstanding worldwide.

(b) As a registered and regulated issuer of securities , Elan filed periodic

reports with the SEC, in addition to the frequent voluntary dissemination of information

described in this Complaint.

(c) Elan regularly communicated with public investors through established

market communication mechanisms, including through regular dissemination of press releases

on the national circuits of major newswire services and through other wide-ranging public

disclosures such as communications with the financial press and other similar reporting services;

(d) Elan was followed by at least sixteen different securities analysts

employed by major brokerage firms, including JP Morgan, Lehman Brothers, Morgan Stanley,

Merrill Lynch, Piper Jaffray & Co., Smith Barney Citigroup and Goodbody (European analyst),

who followed Elan's business and wrote reports, which were distributed to the sales force and

customers of their respective brokerage firms. Those reports were publicly available and

affected the public marketplace.

400. As a result of the above, the market for Elan securities promptly digested current

information with respect to the Company from all publicly available sources and reflected such

information in Elan's securities' prices. Under these circumstances, all purchasers of Elan

securities during the Class Period suffered similar injury through their purchase of securities at

prices which were artificially inflated by the Defendants' misrepresentations and omissions.

Thus, a presumption of reliance applies.

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XII. NO STATUTORY SAFE HARBOR

401. The statutory safe harbor for certain forward- looking statements does not apply to

the misrepresentations and omissions alleged in this Complaint . Many of the statements were

not specifically identified as "forward-looking statements" when made. To the extent that there

were any properly identified forward-looking statements, there were no meaningful cautionary

statements identifying the important then-present factors that could, and did, cause actual results

to differ materially from those in the purportedly forward-looking statements . Alternatively, to

the extent that the statutory safe harbor does apply to any forward-looking statement pleaded

herein, Defendants are liable nonetheless because at the time each of the misrepresentations was

made, the particular speaker(s) knew that the statement was false or misleading at that time,

and/or the forward-looking statement was authorized and/or approved by an executive officer of

Elan who knew that the statement was false when made.

402. Any warnings or other cautionary language contained in the press releases and

other public statements described herein were generic, "boilerplate" statements of risk that would

affect any similar company, and misleadingly contained no factual disclosure of any of the

problems with the Company which placed the ability of the Company to accurately depict its

own financial situation into serious question . As such, any forward-looking statements

complained of herein were not accompanied by meaningful cautionary language.

403. Any relevant purported risk disclosures were, in fact, false and misleading in and

of themselves, by virtue of the fact that the events which the risk disclosures purported to warn

against as contingencies had frequently already become a reality or a certainty.

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COUNT I

Violations Of § 10(b) Of The Exchange Act AndRule IOb-5 Promulgated Thereunder Against All Defendants

404. Lead Plaintiffs incorporate by reference and reallege all preceding paragraphs as

though fully set forth herein.

405. During the Class Period, Defendants used the means and instrumentalities of

interstate commerce, the mails, and the facilities of national securities exchanges to: (i) deceive

the investing public, including Lead Plaintiffs and other Class members, as alleged herein; (ii)

artificially inflate and maintain the market price of Elan securities; and (iii) cause Lead Plaintiffs

and other members of the Class to purchase Elan securities at artificially inflated prices that did

not reflect their true value. As the truth became known at the end of the Class Period, the trading

price of Elan securities fell precipitously. In furtherance of their unlawful scheme, plan, and

course of conduct, Defendants took the actions set forth herein.

406. Defendants, individually and in concert, directly and indirectly, by the use of

means and instrumentalities of interstate commerce, the mails, and the facilities of national

securities exchanges: (a) employed devices, schemes, and artifices to defraud; (b) made untrue

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

statements made, in the light of the circumstances under which they were made, not misleading;

and (c) engaged in acts, practices, and a course of business which operated as a fraud and deceit

upon the purchasers of the Company's securities, in violation of § 10(b) of the Exchange Act and

Rule I Ob-5 promulgated thereunder. All Defendants are sued as primary participants in the

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

controlling persons of Elan, as alleged below.

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407. The Individual Defendants' primary liability , and controlling person liability, arises

from the following facts, among others: (i) the Individual Defendants were high-level executives

and directors at the Company during the Class Period; (ii) the Individual Defendants were privy

to and participated in the creation, development, and reporting of the Company's internal

budgets, plans, projections and reports; and (iii) the Individual Defendants were aware of the

Company's dissemination of information to the investing public they either knew, or recklessly

disregarded, was materially false and misleading.

408. Defendants had actual knowledge of the misrepresentations and omissions of

material facts set forth herein, or acted with reckless disregard for the truth in that they failed to

ascertain and to disclose such facts, even though such facts were readily available to them.

Defendants' material misrepresentations and omissions were done knowingly, or recklessly, and

for the purpose and effect of concealing the truth with respect to Elan's operations, business,

performance, and prospects from the investing public and supporting the artificially inflated

price of its securities.

409. The dissemination of the materially false and misleading information and failure to

disclose material facts, as set forth above, artificially inflated the market price of Elan's

securities during the Class Period. In ignorance of the fact that the market prices of Elan's

securities were artificially inflated, and relying directly or indirectly on the materially false and

misleading statements made by Defendants, or on the integrity of the market in which the

securities trade, or on the absence of material adverse information that was known to or

recklessly disregarded by Defendants but not disclosed in public statements by Defendants

during the Class Period, Lead Plaintiffs and other members of the Class purchased Elan

145


securities during the Class Period at artificially high prices. As the truth eventually emerged, the

price of Elan securities fell.

410. At the time of said misrepresentations and omissions , Lead Plaintiffs and other

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

Plaintiffs and other members of the Class and the marketplace known the truth with respect to

the business, operations, performance, and prospects of Elan, which was concealed by

Defendants, Lead Plaintiffs and other members of the Class would not have purchased Elan

securities or would not have purchased such securities at the prices they paid.

411. By virtue of the foregoing, Defendants have violated § 10(b) of the Exchange Act,

and Rule I Ob-5 promulgated thereunder.

412. As a direct and proximate result of Defendants' wrongful conduct, Lead Plaintiffs

and other members of the Class suffered damages in connection with their transactions in the

Company's securities during the Class Period.

COUNT 11

Violations of § 20(a) Of The Securities ExchangeAct Of 1934 Against The Individual Defendants

413. Lead Plaintiffs repeat and reallege each and every allegation contained above as

though fully set forth herein.

414. Each of the Individual Defendants acted as a controlling person of Elan within the

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

positions, participation in and/or awareness of the Company's operations and/or intimate

knowledge of the statements filed by the Company with the SEC and disseminated to the

investing public, the Individual Defendants had the power to influence and control and did

influence and control, directly or indirectly, the decision-making of the Company, including the

146


content and dissemination of the various statements Lead Plaintiffs contend are materially false

and misleading . The Individual Defendants were provided with or had unlimited access to

copies of the Company's reports, press releases, public filings, and other statements alleged by

Lead Plaintiffs to be misleading prior to and/or shortly after those statements were issued and

had the ability to prevent the issuance of the statements or to cause the statements to be

corrected.

415. In particular, the Individual Defendants had direct and supervisory involvement in

the day-to-day operations of the Company and, therefore, are presumed to have had the power to

control or influence the particular transactions giving rise to the securities violations as alleged

herein, and exercised the same.

416. As set forth above, Elan and the Individual Defendants each violated § 10(b) and

Rule I Ob-5 by their acts and omissions as alleged in this complaint. By virtue of their positions

as controlling persons, the Individual Defendants are also liable pursuant to § 20(a) of the

Exchange Act. As a direct and proximate result of Defendants ' wrongful conduct, Lead

Plaintiffs and other members of the Class suffered damages in connection with their purchases of

the Company' s securities during the Class Period.

WHEREFORE , Lead Plaintiffs pray for relief and judgment on behalf of

themselves and the Class:

a) Determining that this action is a proper class action and certifying Lead

Plaintiffs as Class representatives under Rule 23 of the Federal Rules of Civil Procedure;

b) Awarding compensatory damages in favor of Lead Plaintiffs and the other

Class members against all Defendants, jointly and severally, for all damages sustained as a result

147


of Defendants' wrongdoing, in an amount to be determined at trial, including pre-judgment and

postjudgment interest, as allowed by law;

c) Awarding Lead Plaintiffs and the Class their costs and expenses incurred

in this action, including counsel fees and expert fees; and

d) Such other and further relief as the Court may deem just and proper.

JURY DEMAND

Lead Plaintiffs hereby demand a trial by jury.

Dated: February 16, 2007

ENTWISTLE & CAPPUCCI LLP

Xiucci (VC-6864)

Stephen D. Oestreich (SD-8933)

Robert N. Cappucci (RC-2193)

Shannon L. Hopkins (SH-1887)

280 Park Avenue, 26th Floor WestNew York, New York 10017Telephone : (212) 894-7200Facsimile: (212) 894-7272

MILBERG WEISS & BERSHAD LLP

(f' ll G

7Sanford P. D ain (SD-8712)Richard Weiss (RW-9265)Ann E. Gittleman (AG-8367)

One Pennsylvania Plaza

New York, New York 10119-0165Telephone: (212) 594-5300Facsimile: (212) 868-1229

Co-Lead Counselfor Plaintiffs

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CERTIFICATE OF SERVICE

1, Vincent R. Cappucci, hereby certify that on this 16th day of February 2007, 1 caused

true and correct copies of the foregoing CONSOLIDATED CLASS ACTION COMPLAINT

FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS to be served upon defense

counsel listed below via Federal Express, overnight delivery.

Vincent R. C%app`uA( (VC-6864)

ENTWISTLE & CAPPUCCI LLP

280 Park Avenue, 26th Floor West

New York, New York 10017

Telephone: (212) 894-7200

Facsimile: (212) 894-7272

Defendants' Counsel:

SHEARMAN & STERLING LLPJaculin AaronPanagiotis Katsambas

599 Lexington Avenue

New York, New York 10022Tel: (212) 848-4000Fax: (212) 848-7179

DECHERT LLP

Frances S. Cohen

200 Clarendon Street

27"' Floor

Boston, Massachusetts 02116-5021

Tel: (617) 728-7100

Fax: (617) 426-6567

149

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