Eshelman v. Auerbach et al
Filing
445
ORDER denying 397 Motion for Attorney Fees; granting 403 Motion for Bill of Costs; denying 414 Order on Motion for Disallowance of Costs; denying 416 Motion for New Trial; granting 418 Motion to Alter Judgment; denying 441 Motion fo r Hearing. The court AWARDS Eshelman $205,903.55 in costs under28 U.S.C. § 1920 and Local Civil Rule 54.1. Finally, the court ALTERS the judgment to include $3,984,646.58 in prejudgment interest under N.C. Gen. Stat. § 24-5(b). Signed by District Judge James C. Dever III on 3/2/2020. (Sellers, N.)
THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTII CAROLINA
SOUTHERN DMSION
/No. 7:16-CV-18-D
FREDRIC N. ESHELMAN,
Plaintiff,
v.
PUMA BIOTECHNOLOGY, INC.,
Defendant.
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ORDER
On October 28, 2015, Fredric N. Eshelman ("Eshleman" or ''plaintiff"), a pharmacist and
venture capitalist, submitted a proposal to the shareholders of Puma Biotechnology, Inc. ("Puma"
or "defendant'') to increase the size of Puma's board of directors from five to nine seats, while
nominating himself and ~ee other people to the additional four seats. See [D.E. 370.; 1] ff 46--50.
Puma vigorously opposed Eshelman's proposal and published an investor presentation about
I
Eshleman in January 2016 on its own website and the website of the Securities and Exchange
Commission ("SEC"). See id. at
ff
51, 55, 58, 130-45. One of Puma's slides stated that
''Eshelman's misrepresentations are no surprise given his history," that Eshelman was the Chief
Executive Officer ("CEO") of Pharmaceutical Product Development, LLC {''PPD'') ''when it
managed a clinical trial during the development of the antibiotic drug Ketek," that "[f]raud was
uncovered in this trial by the FDA's Office of Criminal Investigation," that "[a]s [CEO]" of PPD,
Eshelman was "forced to testify before Congress regarding PPD' s involvement in this clinical trial
fraud in 2008," and that "Eshelman was replaced as CEO for PPD in 2009." Id. at 158. Another
slide stated that "Puma's Board does not believ~ that someone who was involved in clinical trial
I
fraud that was uncovered by the FDA should be on the Board of Directors of a public company;
particularly a company that is in the process of seeking FDA approval." Id. at ,r 58.
On January 20, 2016, Eshleman wrote Puma and demanded a retraction and requested an
apology. See id. at ,r 143. Puma refused in a letter that it published with the SEC. See id. at fl
144--45. On February 3, 2016, Eshleman sued Puma for defamation. See id. at ,r 146; [D.E. 1] 5.
In this diversity action, North Carolina law applies. On September 28, 2018, the court
granted in part and denied in part Eshelman's motion for partial summary judgment and denied
Puma's motion for summary judgment [D.E. 304]. The court held that Puma's allegedly defamatory
statements concerned Eshelman and that Puma published the allegedly defamatory statements. See
[D.E. 306] 20. The court also held that two of Puma's statements were libelous~ se. See id. at
20--24.
As for Puma's statement that Eshelman was "involved in clinical trial fraud," the court held
that the statement is libel~ se because fraud is an infamous crime that involves dishonesty. Id. at
23; see Badame v. Lampke, 242 N.C. 755, 757, 89 S.E.2d 466, 468 (1955); Boyce & Isley, PLLC
v. Cooper, 153 N.C. App. 25, 30, 568 S.E.2d 893, 898 (2002); Raymond U v. Duke Univ., 91 N.C.
App. 171, 182, 371 S.E.2d 701, 709 (1988); Gibby v. Mmphy, 73 N.C. App. 128, 131-32, 325
S.E.2d 673, 675-76 (1985). When Puma said that "Puma's Board does not believe that someone
who was involved in clinical trial fraud that was uncovered by the FDA should be on the Board of
Directors of a public company'' as part of a series of slides impugning Eshelman's integrity, Puma
accused Eshelman of fraud. [D.E. 370-1] ,r 58. The court also held that whether this statement was
false and made with actual malice were jury questions, but as a matter of law the statement that
Eshelman was "involved in clinical trial fraud" is libel~ se. See [D.E. 306] 23; Badame, 242 N. C.
at 757, 89 S.E.2d at 468; Boyce & Isley, PLLC, 153 N.C. App. at 30, 568 S.E.2d at 898; Raymond
U, 91 N.C. App. at 182,371 S.E.2dat709; Gibby, 73 N.C. App. at 131-32, 325 S.E.2dat675-76.
2
As for Puma's statement that Eshelman was ''replaced as CEO of PPD in 2009 after being
forced to testify regarding fraud in 2008," the court rejected Puma's argument that the word
''replaced" in this statement does not mean ''fired." [D.E. 306] 23. Stating that a CEO was
''replaced" "after being forced to testify regarding fraud in 2008" impeaches that person in his trade
or profession. See id. at 23-24; Badame, 242 N.C. at 757, 89 S.E.2d at 468; Boyce & Isley, PLLC,
153 N.C. App. at 30, 568 S.E.2d at 898; Raymond U, 91 N.C. App. at 182, 371 S.E.2d at 709;
Gibby, 73 N.C. App. at 131-32, 325 S.E.2d at 675-76. The court also held that whether this
statement was false and made with actual malice were jury questions, but as a matter of law, the
court held that this statement is libel ~ se. See [D.E. 306] 23-24.
The trial began on March 11, 2019. Before trial, the parties entered 146 stipulations. See
[D.E. 370-1]. At trial, the court received the stipulations as a joint exhibit of stipulated facts. See
id. Additionally, Eshleman presented six witnesses, and the court received twenty-five exhibits from
Eshleman. Puma presented seven witnesses, and the court received eighteen exhibits from Puma.
See [D.E. 429-31 ]. During closing argument, Eshleman argued that the two statements at issue were
false and that Puma made them with actual malice and requested $52,000,000 in compensatory
damages. See [D.E. 431] 183-224. Puma argued in opposition.
On March 15, 2019, after extensive deliberations, the jury returned a verdict in favor of
Eshelman on his defamation claim against Puma. In its verdict, the jury answered three issues. Issue
one was, "When read in the context ofthe entire presentation, were defendant Puma Biotechnology,
Inc.' s statements that plaintiff Fredric N. Eshelman was 'replaced as CEO of PPD' after being
'involved in clinical trial fraud' false?" The jury answered, ''Yes" to issue one. See id. Issue two
'
was, ''Did defendant .Puma Biotechnology, Inc. act with actual malice when it accused plaintiff
.
Fredric N. Eshelman of being 'replaced as CEO of PPD' after being 'involved in clinical trial
_J
fraud'?" The jury answered, "Yes" to issue two. See id. Issue three was, "What amount of
compensatory damages is plaintiff Fredric N. Eshelman entitled to recover from defendant Puma
Biotechnology, Inc.?" The jury answered "$15,850,000." Id.
The jury then considered punitive damages. See [D.E. 433]. Eshleman introduced one
additional exhibit, and the court instructed the jury that it could consider the other trial evidence in
considering the issue ofpunitive damages. See id. at 22. Eshleman then argued in favor ofpunitive
damages and requested $100,000,000 in punitive damages. See id. at 22-28. Puma argued in
opposition. See id. at 29--35. After deliberating, the jury awarded Eshleman $6,500,000 in punitive
damages. See id. at 57-58; [D.E. 389]. On March 25, 2019, the court entered judgment pursuant
to the jury verdict. See [D.E. 395].
On April 3, 2019, Eshelman moved for an award of reasonable attorneys' fees under N.C.
Gen. Stat. § 1D-45 [D.E. 397]. On April 8, 2019, Eshelman filed a memorandum in support [D.E.
405]. On April 29, 2019, Punk responded in opposition [D.E. 426]. On May 13, 2019, Eshelman
replied [D.E. 435]. On May 17, 2019, Puma supplemented its response [D.E. 437]. On May 30,
2019, Eshelman replied to Puma's supplement [D.E. 438].
On April 8, 2019, Eshelman timely moved for $205,903.55 in costs [D.E. 403]. On April
22, 2019, Puma moved to disallow some ofthe costs [D.E. 414] and filed a memorandum in support
[D.E. 415]. On April 29, 2019, Eshelman responded in opposition [D.E. 425]. On April 22, 2019,
Puma moved for a new trial or, in the alternative, remittitur [D.E. 416]. On May 17, 2019, Puma
filed a memorandum in support [D.E. 436]. On June 7, 2019, Eshelman responded in opposition
[D.E. 439]. On June 21, 2019, Puma replied [D.E. 440]. On June 21, 2019, Puma moved for a
hearing concerning its motion for a new trial or, in the alternative, remittitur [D.E. 441 ]. Finally, on
April 22, 2019, Eshelman moved to amend the judgment to include prejudgment interest [D.E. 418]
4
and filed a memorandum in support [D.E. 419].
The court has reviewed the entire record. As explained below, the court denies Eshelman' s
motion for attorneys' fees, grants Eshelman's motion for costs, denies Puma's motion to disallow
- costs, denies Puma's motion for a new trial or remittitur, grants Eshelman's motion to amend the
judgment to include prejudgment interest, and denies Puma's motion for a hearing.
I.
Eshelman seeks $3,075,897.85 in attorneys' fees under N.C. Gen. Stat. § 1D-45. · See [D.E.
405] 1. UnderN.C. Gen. Stat.§ 1D-45, "[t]hecourtshallawardreasonableattorney[s'] fees against
(
a defendant who asserts a defense in a punitive damages claim that the defendant knows ~r should
have known to be frivolous or malicious." N.C. Gen. Stat. § 1D-45. "A defense is frivolous if a
proponent can present no rational argument based upon the evidence or law in support of it." Rhyne
v. K-Mart Com., 149 N.C. App. 672, 689, 562 S.E.2d 82, 94 (2002) (alteration and quotation
omitted),aff'd, 358N.C. 160,594 S.E.2d 1 (2004); seeRaynorv. G4S Secure Sols. (USA)Inc., 327
F. Supp. 3d 925,946 (W.D.N.C. 2018); Bryan v. Bry8!1, No.1:11CV141, 2013 WL 1010481, at'-*l
(W.D.N.C. Mar. 14, 2013) (unpublished); cf. Messerv. Pollack, 809 S.E.2d 375, 2018 WL 710051,
at *2 (N.C. Ct. App. Feb. 6, 2018) (unpublished table decision); Fed. Point Yacht Club Ass'n v.
Moore, 244N.C. App. 543, 781 S.E.2d351, 2015 WL 8755698, at *7 (Dec. 15, 2015) (unpublished
· table decision); Philips v. Pitt C1y. Mem'l Hosp .. Inc., 242 N.C. App. 456,458, 775 S.E.2d 885, 884
(2015). "A defense is malicious ifit is wrongful and done intentionally without just cause or excuse
or as a result of ill will." Rhyne. 149 N.C. App. at 689, 562 S.E.2d at 94 (quotation omitted); see
Raynor, 327 F. Supp. 3d at 946.
Because ''punitive damages are intended to punish a litigant for conduct that had already
occurred by the time that the litigation had commenced," a court ''focuses on the conduct ofthe party
5
during litigation" to determine whether to award reasonable attorneys' fees under N.C. Gen. Stat.
§ 1D-45. Raynor, 327 F. Supp. 3d at 946 (quotations omitted). Courts applying N.C. Gen. Stat. §
1D-45 have awarded attorneys' fees when a party "[k]nowingly and intentionally commit[s] perjury
on the stand on matters related to the punitive damages defense" and when a party "persistently
den[ies] a fact alleged byplaintiffbutthenlaterconfess[es] to such acts." Id.; see Fed. Point Yacht
Club Ass'n. 2015 WL 8755698, at *7-8; Philips, 242 N.C. App. at 458, 775 S.E.2d at 884; Bey~
2013 WL 1010481, at *1. At the same time, courts distinguish between a party engaging in
''malicious acts or practices as a corporation," which do not warrant awarding attorneys' fees under
N.C. Gen. Stat § 1D-45, and~ party asserting a malicious or frivolous defense. Rhyne,' 149 N.C.
App. at 689, 562 S.E.2d at 95.
Eshelman argues that he is entitled to an award ofreasonable attorneys' fees under N.C. Gen.
.
Stat. § 1D-45. In support, Eshelman alleges that Puma only stipulated to certain facts on ''the eve
oftrial after three years oflitigation," concealed facts during discovery, ''malicious[ly]" denied facts
at summary judgment, did not make a good faith effort to resolve the claim at mediation, and refused
\
to stipulate to certain facts. [D.E. 405] 3-10. Additionally, Eshelman alleges that Puma's Chief
Executive Officer Alan Auerbach ("Auerbach") "repeatedly contradicted the stipulated facts and his
own prior sworn deposition testimony'' (i.e., committed perjury) when Auerbach testified at trial.
Id. at 10-15.
Eshelman concedes that Puma's defenses were not frivolous. See [D.E. 438] 1-2. As for
whether Puma's defenses were malicious, the decision to go to trial by itself does not constitute a
malicious defense. Although Eshelman cites examples of allegedly malicious conduct, the co~
declines to find Puma's conduct malicious. Cf. Rhyne, 149 N.C. App. at 689-90, 562 S.E.2d at 95.
Moreover, although Eshelman vigorously cross-examined Auerbach and exposed Auerbach as anon6
i
credible witness, the court declines to find that Auerbach's testimony rises to the level ofperjury that
would justify awarding attorneys' fees to Eshelman. Accordingly, the court denies Eshelman's
motion for attorneys' fees under N.C. Gen. Stat. § lD-45.
II.
Federal Rule of Civil Procedure 54(d)(l) governs a post-judgment motion for an award of
costs. See Fed. R. Civ. P. 54(d)(l). Rule 54(d)(l) provides that "costs----other than attorney's
fees-should be allowed to the prevailing party." Id. A ''prevailing party" is "a party in whose favor
a judgment is rendered" or "one who has been awarded some relief by the court." Buckhannon Bd.
& Care Home, Inc. v. W. Va Dta>'tofHealth&HumanRes., 532 U.S. 598,603 (2001) (quotation
and alteration omitted). Rule 54(d)(l) creates "a presumption in favor of an award of costs to the
prevailing party." Teague v. Bakker, 35 F.3d 978, 996 (4th Cir. 1994); see Delta Air Lines, Inc. v.
August, 450 U.S. 3)46, 352 (1981); Cherry v. Champion Int'l Corp., 186 F.3d 442, 446 (4th Cir.
1999).
Federalcourtsmayassessonlythosecostslistedin28U.S.C. § 1920. See28U.S.C. § 1920;
Arlington Cent. Sch. Dist. Bd. of Educ. v. Mur,phy. 548 U.S. 291,301 (2006); Crawford Fitting Co.
v. J.T. Gibbons, Inc., 482 U.S. 437, 441-43 (1?87), superseded on other grounds hy statute, 42
U.S.C. § 1988(c);Herold v.HajocaCom .• 864F.2d317, 323 (4thCir.1988). 1 Loca1Civi1Rule54.1
1
Taxable costs under section 1920 include:
(1)
Fees of the clerk and marshal;
(2)
Fees for printed or electronically recorded transcripts necessarily obtained for
use in the case;
(3)
Fees and disbursements for printing and witnesses;
(4)
Fees for exemplification and the costs of making copies of.any materials
where the copies are necessarily obtained for use in the case;
7
"furtherrefines the scope ofrecoverable costs." Howard v. College ofthe Albemarle, No. 2: 15-CV39-D, 2017 WL 3754620, at *1 (E.D.N.C. Aug. 29, 2017) (unpublished) (quoting Earp v. Novartis
Phann. Cotp .• No. 5:11-CV-680-D, 2014 WL 4105678, at *1 (E.D.N.C. Aug~ 19, 2014)
(unpublished)); see Local Civil Rule 54.1.2
Eshelman lists various costs totaling $205,903'.55 on his bill of costs: fees of the clerk
(5)
Docket fees under section 1923 ... ; ,
(6)
Compensation of court appointed experts, compensation of interpreters, and
salaries, fees, expenses, and costs of special interpretation services ....
28 u.s.c. § 1920.
2
Local Civil Rule 54.1 (c)(1) provides a non-exhaustive list of normally recoverable costs:
(a)
those items specifically listed on the bill of costs form. The costs incident to
the taking of depositions (when allowable as necessarily obtained for use in
· the litigation) normally include only the reporter's fee and charge for the
original transcript of the deposition;
(b)
premiums on required bonds;
(c)
actual mileage, subsistence, and attendance allowances for necessary
witnesses at actual costs, but not to exceed the applicable statutory rates,
whether they reside in or out of the district;
(d)
one copy of the trial transcript for each party represented by counsel,
Local Civil Rule 54.l(c)(l). Local Civil Rule 54.l(c)(2) also identifies items ''normally not taxed,
without limitation" as
(a)
witness fees, subsistence, and mileage for individual parties, real parties in
interest, parties suing in representative capacities, and the officers and
directors of corporate parties;
(b)
multiple copies of depositions;
(c)
daily copy of trial transcripts, unless prior court approval has been obtained.
Local Civil Rule 54.l(c)(2).
8
($593.00), fees for service of summonses and subpoenas ($3,819.75), fees for printed or
I
electronically recorded transcripts necessarily obtained for use in the case ($53,953.01), fees and
disbursements for printing ($43,078.76), fees for witnesses ($80.00), fees for exemplification and
the costs of making copies of any materials where the copies are necessarily obtained for use in the
case ($97,116.53), docket fees under 28 U.S.C. § 1923 ($22.50), and costs as shown on Mandate of
Court of Appeals ($1,840.00). See [D.E. 403] 1-2. Such fees are recoverable. See 28 U.S.C. §
1920; Local Civil Rule 54.1; Howard, 2017 WL 3754620, at *1 (collecting cases); Silicon Knights,
Inc. v. Epic Games.Inc., 917F. Supp. 2d503, 511-15 (E.D.N.C. 2012),aff'd, 551 F.1App'x646 (4th
Cir. 2014) (per curiam) (unpublished). Accordingly, the court grants Eshelman's motion for costs,
denies Puma's motion to disallow costs, and awards Eshelman $205,903.55 in costs under section
1920 and Local Civil Rule 54.1.
m.
A court ''may, on motion, grant a new trial on all or some ofthe issues ... for any reason for
which a new trial has heretofore been granted in an action at law in federal court." Fed. R. Civ. P.
59(a)(l)(A). Rem.ittitur "is the established method by which a trial judge can review a jury award
for excessiveness" and order "a new trial unless the plaintiff accepts a reduction in an excessive jury
award." Atlas Food Sys. & Servs., Inc. v. Crane Nat'l Vendors, Inc., 99 F.3d 587, 593 (4th Cir.
1996); see Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 430-31 (1996); Sociedad Espanola
de Electromedicinay Calidad, S.A. v. Blue Ridge X-Ray Co., 226 F. Supp. 3d 520, 527 (W.D.N.C.
2016). A district court may, in its discretion, grant a new trial if the verdict "(1) is against the clear
weight of the evidence; (2) is based upon false evidence; or (3) will result in a miscarriage of
justice." U.S. EqualEmp'tOpportunityComm'nv. Consol Energy, Inc., 860F.3d 131,145 (4th Cir.
\
2017); see Fed. R. Civ. P. 59(a)(l)(A); Gasperini, 518 U.S. at438-39; Huskeyv. Ethicon. Inc., 848
9
F.3d 151, 158 (4th Cir. 2017); see also Knussman v. Maryland, 272 F.3d 625,639 (4th Cir. 2001);
Cline v. Wal-Mart Stores, Inc., 144 F.3d 294,301 (4th Cir. 1998); Atlas Food Sys. & Servs., Inc.,
99 F.3d at 594; Variety Stores, Inc. v. Wal-Mart Inc., 359 F. Supp. 3d 315,325 (E.D.N.C. 2019);
. Sociedad Espanolg, 226 F. Supp. 3d at 527; SAS Inst., Inc. v. World Programming Ltd., No. 5:10CV-25-FL, 2016 WL 3435196, at •2 (E.D.N.C. June 17, 2016) (unpublished). A district court may
"weigh evidence and assess credibility in ruling on a motion for a new trial." Bristol Steel & Iron
'
Works v. Bethlehem Steel Cor,p., 41 F.3d 182, 186 (4th Cir. 1994) (quotation omitted); see Finch
v. Covil Cor,p .• 388 F. Supp. 3d 593, 608--09 (M.D.N.C. 2019).
Puma argues that the court should grant its motion because the jury's award of compensatory
and punitive damages was excessive and unlawful, ''the jury's liability finding~ were against the
clear weight of the evidence, and the verdict was marred by instructional, evidentiary, and other
errors that prejudiced Puma and impeded a fair trial." [D.E. 436] 3.
A.
Before the court addresses Puma's motion, the court recites the 146 stipulated facts in this
case. See [D.E. 370-1 ]. These stipulated facts provide necessary background information and help
to explain the jury's verdict.
EXHIBIT OF STIPULATED FACTS
Puma Biotechnology, Inc.
1. Defendant Puma Biotechnology, Inc. ("Puma") is a publicly-traded for profit
biopharmaceutical corporation incorporated in Delaware with its principal place of
business in Los Angeles, California.
2. Puma's lead product is neratinib (branded as NERLYNX), which is for the
extended adjuvant treatment of early stage, HER2-positive breast cancer.
3. Since founding Puma in 2010, Alan Auerbach has been Puma's President, Chief
Executive Officer ("CEO"), Secretary, and Chairman of its. Board of Directors.
10
)
4. From 2012 to 2014, Puma paid Mr. Auerbach compensation valued at more than
$52 million.
5. From 2012 to 2017, Puma paid Mr. Auerbach compensation valued at more than
$73 million.
6. In 2018, Mr. Auerbach received base pay of $757,260.
7. Between 2011 and 2013, Mr. Auerbach recommended that Puma shareholders
elect Jay Moyes and Troy Wilson to Puma's Board of Directors.
8. Before he !ecomm.ended that Puma's shareholders elect Mr. Moyes to the Board,
Mr. Auerbach and Mr. Moyes had been good friends for years, and it was Mr.
Auerbach who first asked Mr. Moyes ifhe was interested in joining Puma's Board.
9. Mr. Auerbach introduced Troy Wilson to Puma's Board of Directors in October
2013, and Mr. Wilson was approved to join Puma as a director shortly thereafter.
'
'
10. In April 2015, Adrian Senderowicz joined Puma's Board at Mr. Auerbach's
request.
11. In September 2015, FrankZavrljoined Puma's Board at Mr. Auerbach's request.
12. Before joining Puma's board, Mr. Zavrl had been a partner at Adage Capital
Management ("Adage Capital''), Puma's largest initial stockholder.
13. Mariann Ohanesian has been the senior director ofinvestment relations for Puma
since November 2011.
14. Charles Eyler has been the senior vice president and finance, admjnj !d:ration, and
corporate treasurer for Puma Biotechnology, Inc. since September 2011.
Dr. Fredric Eshelman
15. Plaintiff Dr. Fredric Eshelman is a resident o±: and is domiciled in, Wilmington,
North Carolina.
16. Dr. Eshelman has spent more than forty years working in the pharmaceutical
profession, developing medicines and bringing them to market, monitoring clinical
trials, and investing in new pharmaceutical products.
17. In 1985, Dr. Eshelman founded Pharmaceutical Product Development ("PPD"),
a North Carolina based contract research organization ("CRO"). A "CRO" is a group
that helps companies run clinical trials or preclinical trials.
11
18. From 1990 to 2009, Dr. Eshelman served as CEO of PPD.
19. Dr. Eshelman served as the Executive Chairman ofPPD's board ofdirectors from
2009-2011, when PPD was sold to two private equity firms.
20. Dr. Eshelman was the founding chairman of Furiex Pharmaceuticals, Inc.
(''Furiex''), and served as the Chairman ofthe board of directors ofFuriex from 2009
to 2014.
21.Jn 2014, Dr. Eshelman founded Eshelman Ventures, LLC, a company focused on
investing in healthcare companies.
Puma's Dealings W'ith Dr. Eshelman and Other Stockholders
22. Puma reported in its March 3, 2014 10-K, "We believe that there are
approximately 36,000 patients in the United States and 34,000 patients in the
European Union, or EU, with newly diagnosed HER2-positive breast cancer,
representing an estimated total market opportunity between $1 billion and $2
billion."
23. On August 11, 2014, Puma announced that it expected to file a New Drug
Application (''NDA") with the United States Food and Drug Administration ("FDA")
for neratinib during 201 S.
/
24. On November 10, 2014, Puma announced that it would increase its research and
development budget to support the development of neratinib and preparation of its
NDA
25. On December 2, 2014, Puma announced that it intended to "delay its proposed
timeline for filing the NDA [for neratinib] until the first quarter of 2016."
26. After the "first quarter of 2016" arrived and passed Puma announced that it
"anticipate[d] submittingaNewDrugApplication(NDA)totheFDAinm.id-2016."
27. Puma did not submit its NOA.for neratinib to the FDA until July 21, 2016.
28. On July 21, 2014, Puma's stock price was less than $60 per share.
29. On July 22, 2014, Puma and Mr. Auerbach represented that the drug and placebo
disease-free survival rates were "in line" with prior Herceptin Adjuvant Studies, i.e.,
clinical trials for an FDA approved early-stage breast cancer treatment.
30. On July 23, 2014, Puma's stock price exceeded $230 per share.
12
31. On July 23, 2014, the value ofAdage Capital's investment in Puma increased by
approximately $950 million.
32. Mr. Zavrl remembers July 23, 2014 "[k]ind of like the birth of [his] children"
because he was out on a fishing trip with his son and "came back $100 million
richer" as a result of his stockholdings in Pwna.
33. On July 30, 2014, Forbes reported that Puma's and Auerbach's July 22, 2014
announcement had caused Puma's stock price to increase significantly, making Mr.
Auerbach an "Overnight Billionaire," in an article for which Mr. Auerbach was
interviewed and did not dispute the reported numbers.
34. Between May 18 and 19, 2015, Dr. Fredric Eshelman invested nearly $9 million
inPwna.
35. On June 1, 2015, two weeks after Dr. Eshelman purchased Puma's shares, the
American Society of Clinical Oncology ("ASCO'') held a conference. During the
conference, it was revealed that the disease-free survival rates for neratinib were far
inferior to the Herceptin Adjuvant Studies, rather than "in line" with them, as Mr.
Auerbach had previously claimed.
36. An investor blog later reported:
Puma has a reputation of being very selective with data releases and
allegedly denied attendance to an investor event taking place around
the time of ASCO to those that were not bulls on the stock. The
company additionally allegedly selectively released data to a number
of sell-side analysts after a negative reaction to an ASCO abstract
release as a way to provide support to the company's poor performing
stock ... these seem to me to display a pattern of secrecy that makes
an investor question if management is being fully honest with
shareholders and disclosing all information (including negative
clinical information) when it .should. Some in the investment
community would note that this reputation is one thing that makes
them especially concerned about the data from the NSABP FB-7 trial
that Puma had originally stated it would release to investors back in
Q4 2013. These investors would suggest that Puma has avoided
releasing this data, as it is poor.
37. On June 1, 2015, when Puma announced the clinical data related to the"extent of
the benefit for ExteNET in the trial" at the ASCO conference, investors were
disappointed with the results.
38. Mr. Gross, the founder of Puma's then-largest stockholder, Adage Capital, was
disappointed with the June 1, 2015 ASCO conference data release, which had wiped
13
out $250 million of the value of Adage ,Capital's investment in Puma. But when he
asked to speak with Mr. Auerbach at the ASCO conference, Mr. Auerbach said, ''you
have 30 seconds" and then "started to count, one, two, three." That was "a very, very
difficult conversation," and Adage Capital was ''very, very frustrated with Alan."
39. When confronted with.Mr. Gross's video testimony about Mr. Auerbach counting
"one, two, three" at the ASCO conference, Mr. Auerbach yelled, "FALSE! FALSE!
FALSE!" while the video of Mr. Gross's testimony played on.
40. Mr. Gross explaiiled that,_ with Puma, "it happens quite frequently that, the
company sets expectations, and they're disappointed-investors are disappointed by
the actual results. It happens all the time." Mr. Gross testified that ''this was a
recurring pattern with Alan Auerbach, in his ... disclosures to investors, and then the
actual results when we saw them."
41. Adage Capital offered to restrict its stock (remove its ability to trade its shares in
-order to gain access to nonpublic information) so that it could review Mr. Auerbach's
slide decks prior to presenting them to the public to help Mr. Auerbach better manage
investors' expectations, but Mr. Auerbach ''want[ed] no part of that."
42. Frustrated with Puma's stock price and Mr. Auerbach's mismanagement, Dr.
Eshelman began speaking about Puma to Mr. Gross, whom he had previously met
because of Dr. Eshelman's positions as the CEO ofFuriex Pharmaceuticals, Inc. and
as a director for The Medicines Company.
43. Mr. Gross, who understood Dr. Eshelman to have a reputation for caring ''more
about shareholders getting a good return on their investment than he cares about
management remaining entrenched and in charge of the company," spoke with Dr.
Eshelman several times about Puma.
44. Beginning in June 2015, Puma and Mr. Auerbach were repeatedly sued for
securities fraud in publicly-filed complaints alleging that they had ''made false and/or
misleading statements" regarding the clinical trial for their flagship drug, neratinib,
on July 22, 2014.
45. On February 4, 2019, a unanimous jury found that Puma and Mr. Auerbach had
committed securities fraud on July 22, 2014 by knowingly misleading the public
about the effectiveness of neratinib.
The Consent Solicitation
46. On July 16, 2015, Dr. Eshelman sent a stockholder's "books and records" request
to Puma pursuant to Delaware Code section 220.
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47. Puma's outside counsel, Latham & Watkins, advised Puma regarding Dr.
Eshelman's books and records request.
48. By October 22, 2015, Dr. Eshelman.had invested considerable money to purchase
shares of Puma
49. As of October 28, 2015, Dr. Eshelman had served as the Non-Executive
Chairman ofthe Medicines Company and on the Boards ofthe following companies:
AeroMD Inc.; Cellective Biotherapy, Inc.; Dignify Therapeutics, Inc.; Eyenovia, Inc.;
GI Therapeutics, Inc.; Innocrin Pharmaceuticals, Inc.; Medikidz USA, Inc.; Meryx,
Inc. and Neoantigenics LLC. As of October 28, 2015, Dr. Eshelman also served on
the advisory Board of Auven Therapeutics.
50. On October 28, 2015, Dr. Eshelman filed a PreJiminary Consent Statement with
the United States Securities and Exchange Commission ("SEC"), proposing that
Puma's stockholders vote to increase the size of Puma's Board from five to nine
directors and elect Dr. Eshe~ James Daly, Seth Rudnick, and Ken Lee to fill the
proposed additional four director seats (the "Consent Solicitation").
51. Mr. Auerbach expressed his frustrations, to both Puma's Board and Charles Eyler
that Dr. Eshelman's Consent Solicitation was "a major distraction," and "utterly
ridiculous."
52. In early November 2015, Ms. Ohanesian asked Benjamin Matone ofNASDAQ
Corporate Solutions to obtain "sell-side notes" (industry research) to gather
information on Dr. Eshelman and PPD.
53. On November 12, 2015, Ms. Ohanesian sent an email calling Dr. Eshelman
"quite annoying."
54. On November 17, 2015, Ms. Ohanesian sent an email calling Dr. Eshelman a
''fool."
55. Puma's outside counsel, Latham & Watkins, advised Puma regarding Puma's
response to Dr. Eshelman's Consent Solicitation.
56. On December 23, 2015, Institutional Shareholder Services ("ISS") issued its
recommendation against Dr. Eshelman's Consent Solicitation, while acknowledging
'
that "[m]uch of [Puma's] stock price volatility driving the consent solicitation
appears to have resulted from two specific events: Puma's stock shot up nearly 300
percent in July 23, 2014, following the company's announcement that trial results
'demonstrated that treatment with neratinib resulted in 33% disease-free survival
versus placebo,' and in the first week of June 2015, Puma stock dropped nearly 30%
following the presentation of neratinib data at the American Society of Clinical
Oncology (ASCO) Annual Meeting. Since then the company's stock price has
15
continued a gradual decline." The ISS report also acknowledged that Dr. Eshelman' s
"assertion that Puma's board composition is still not optimal may hold some truth."
57. After ISS-issued its recommendation, Mr. Gross texted Mr. Zavrl: "We :finally
had contact [with ISS] yesterday, hence you see their recommendation today...."
Puma's Research Regarding and Publication of the Presentation
58. On January 7, 2016 Puma published an investor presentation entitled, "Continued
Focus on Developing Shareholder Value" ("Presentation"), which included the
following slides:
, A whistleblower from PPD, Ann Marie Cisneros - a clinical trial associate for PPD - testified
that she sent evidence of fraud to PPD management, which was ignored
, "[b]ased upon what I observed and learned in monitoring the Kirkman-Campbell site, Dr.
Kirkman-Campbell indeed had engaged in fraud ... I knew it, PPD knew it"
, Cisneros' Testimony: http://www.circare.org/foiaS / cisneros testimony. 20070213. pdf*
• Eshelman denied before Congress that fraud had occurred at the time despite Cisneros' e-mail
to PPD management summarizing fraudulent practices and "red flags"
, Fshehnan's Video Testimony:
, Part 1: hllps:L(www.youtube.com/watch?v=rnzOBlX7hLMs•
, Part 2: htlps:l(www.youtube.com/watch?v=GeM9ZDMBc0M*
, Part 3: https://www.voutube.com/watch?v=FhEOvN8ceAE*
, Eshelman's Statement and Testimony:
, https://www.gpo.gov/fdsvs/pkg/ CHRG-11 0hhrg48587 /htrnl/CHRG-11 0hhrg48587.htm•
, Puma's Board does not believe that someone who was involved in clinical trial fraud that was
uncovered by the FDA should be on the Board of Directors of a public company; particularly a
company that is in the process of seeking FDA approval
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• Eshelman was Chief Executive Officer (CEO) of Pharmaceutical Product Development (PPD)
when it managed a clinical trial during the development of the antibiotic drug l
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