Amgen Settles with Former Investors for $82 Million in Securities Fraud Case.

SEATTLE--(BUSINESS WIRE)--Feb. 18, 1998--

-- Suit Claimed Amgen Subsidiary Delayed Releasing Damaging Test

Results While Executives Sold Shares Worth More Than $12 million --

Amgen, the nation's largest biotech company, today agreed to pay an investment partnership group more than $17 million to settle a class action lawsuit against Synergen, one of its subsidiaries.

The suit, filed in U.S. District Court by Seattle attorney Kim Stephens of Tousley Brain PLLC, alleged that Synergen committed securities fraud by withholding negative test data involving a drug to treat sepsis, a blood infection, and other diseases. After the test data was made public, Synergen's stock dropped 67 percent, but not before key executives sold personal holdings netting more than $12 million.

Should the drug, Antril, ever make it to market for any indication, the settlement could be worth as much as $82 million. Amgen purchased Synergen in December 1994, and now owns the rights to Antril.

"Only after squandering millions of dollars of the partnership's money during trial after trial did Synergen finally admit that Antril provides no treatment benefit for sepsis," said Stephens. "Synergen misdesigned and misrepresented its clinical trials of Antril for all indications. It's clear to me these investors were defrauded, pure and simple."

Before a drug can reach the market in the United States, it must undergo a series of trials -- first on animals and then on humans -- to meet Food and Drug Administration (FDA) scrutiny. Stephens asserted that Synergen misrepresented results of Antril's trials for the duration of the drug's approval process, beginning with animal studies in 1989, with the intent of keeping investors interested in the project.

Stephens claimed that Synergen failed to disclose detrimental results from its animal studies to the partnership, and for the next several years repeatedly presented only the positive results of two small, limited studies on rabbits and baboons at dozens of meetings with potential investors.

Stephens also claimed that Synergen knew that drug trials on human sepsis patients showed no efficacy for the drug, but did not inform the partnership until after the investors had submitted payments in response to Synergen's capital calls. One week after the third capital call, Synergen announced cataclysmic results for Antril's Phase III trials on humans, and Synergen's stock plummeted from $42.13 per share on Friday, Feb. 19, to just $13.50 per share on Monday, Feb. 22.

As a result, the partnership's stock warrants were rendered worthless; their exercise price of $15.69 per share was now higher than the stock price. "While Synergen's executives repriced their stock options to ensure they were below the deflated stock price, the same executives refused to reprice the partnership's options," Stephens observed.

"As an investor, I don't mind losing money," said partnership investor and Seattle resident Mark Johnson, a named plaintiff in the Synergen lawsuit. "But the wholesale sell-off of stock by the insiders, combined with the way they repriced their own options while refusing to adjust ours, prompted me to bring in Kim Stephens.

"More than losing the money, I'm disgusted that the company squandered millions of dollars and years of work dedicated to finding a treatment for sepsis," added Johnson, who has personal experience in dealing with the often-fatal infection. All total, Synergen raised approximately $500 million from investors -- including $225 million in the largest biotech offering in history on Dec. 16, 1991 -- but never brought a product to market for any human disease.

The limited partnership group, arranged by PaineWebber, invested more than $52 million in Synergen, paid in four installments from Feb. 15, 1991 to Feb. 15, 1994. In return for a minimum investment of $25,000, each of the approximately 1,200 limited partners received a Synergen stock warrant for 2,500 shares and a stake in a licensing agreement that called for royalty payments based on future sales of Antril.

"It was Synergen's absolute duty to reassess Antril's progress and investment profile before each capital call and inform us if Antril was not on track for approval," said Johnson. "If Antril's efficacy was proven to be flawed, then Synergen should have terminated the project. There is no doubt in my mind that Synergen concealed Antril's test results from us."

Stephens stated that Antril's Phase II results, which seemed to indicate that Antril could lower the mortality rate of all sepsis patients, were at once misrepresented to the partnership, potential investors and the media. Synergen staged a media blitz on Nov. 7, 1991, in which company president and chief executive officer Jon Saxe declared that Antril would win FDA approval and be on the market by mid-1994, and that Synergen would be profitable soon thereafter. Analysts reacted favorably to the news, and the next day Synergen stock reached a new high of more than $65 per share.

However, Stephens pointed out that Synergen, in a Phase III protocol submitted to the FDA on Jan. 6, 1993, acknowledged that Phase II results did not demonstrate efficacy in patients without septic shock, a direct contradiction with Synergen's 1992 third quarter report that said Antril "benefited both patients in shock and not in shock."

"It was a creative use of information, that's for sure," said Stephens, commenting on Synergen's communications. "Synergen systematically misrepresented the Phase II results in a manner that greatly exaggerated not only Antril's efficacy, but also its market potential."

Stephens argued that based on the animal studies and the Phase II human trials, Synergen knew that disastrous Phase III results would follow.

Stephens also pointed out that the timing of trades by key executives raised concerns by some investors. "In a few short days in January 1992, nine of Synergen's senior executives sold more than 187,000 shares, pocketing $12 million in the process," he said. "Sure, it might have been a coincidence that almost every senior official decided independently to dump huge blocks of shares within days of one another and forego the future profits they were telling the public Synergen would make. They also might have known it was time to sell because the Phase II trial results were unreliable and overstated."

Larry Soll, chairman of the board, sold 70,000 shares, some as high as $73.50 ($4.77 million); Gregory Abbott, general counsel, sold 20,000 shares at $66.30 ($1.33 million); Jon Saxe sold 20,000 shares at $68 ($1.36 million); and six other executives sold another 77,000 shares at prices between $66.43 and $68.25 ($4.6 million).

According to Stephens, Synergen touted Antril's potential sales success while ignoring the drug's damaging trial data. The company stated that "sepsis syndrome affects 500,000 patients a year in the United States." Stephens said this statistic was a misrepresentation of Antril's potential revenues because trials of the drug demonstrated only that it may be marginally effective in treating patients with severe septic shock -- a distinct sepsis patient group that represents only a fraction of the 500,000 people Synergen insisted would use Antril.

Stephens' lawsuit is not the only one brought against Synergen related to its involvement with Antril. The company's common stockholders filed a class action suit against Synergen in U.S. District Court at Denver, Colo., for federal securities fraud. In that case, Judge J. Babcock concluded in a summary judgment opinion that "a reasonable jury could find that (Synergen) failed to state material facts" about the efficacy of Antril.

Tousley Brain PLLC is a Seattle law firm founded in 1978. The firm's 15 attorneys represent clients in complex class action litigation, commercial real estate and business issues. The firm is located at 700 Fifth Avenue, Suite 5600, and can be reached at 206/682-5600.

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