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GCVRZ Litigation Forum

Welcome to the GCVRZ Litigation Forum. This forum is STRICTLY for those who held GCVRZ securities at the close on 11/7/2013. The objective is to:

1) Present the case that GCVRZ security holders at 11/7/2013 were harmed by material misrepresentations and omissions.

2) Determine the best way to maximize litigation proceeds AFTER legal fees (type of suit, law firm, fee structure, etc).

Comments posted outside of that narrow scope will be deleted. Those wishing to discuss GCVRZ as a continuing investment are referred to Chris Demuth's excellent GCVRZ forum and related articles. This is a comment forum, not a question forum. If you've got a question, contribute by researching the answer and posting what you find. Postings from the obviously lazy (including those who haven't read the summary and prior postings) will be deleted. My goal is to keep the forum concise and high-quality, so that it will be useful to as many GCVRZ holders as possible.

I've read through all the relevant public filings, FDA briefing materials, management presentations and news stories available on Bloomberg since 12/20/2010 (the first mention of brand name Lemtrada) and have summarized them below. I've added underlining.

Disclaimer: I am not a lawyer, and all items on this web page (including comments by others) are opinions only and should not be interpreted in any way as advice (legal, investment or otherwise). The opinions are subjective beliefs and accuracy is not guaranteed. The data is from publicly available documents, which I tried to accurately represent but I don't guarantee that accuracy. Do your own homework and draw your own conclusions.

Case Summary

GCVRZ is a "Contingent Value Right" issued by Sanofi in the 4/2011 Genzyme acquisition. Payments to CVR holders (excluding a missed manufacturing milestone) are tied solely to the MS drug Lemtrada, and can total up to $13 as follows: $1 for FDA approval before 3/31/2014, +$2 if sales exceed $400m in the first year post-launch, and another +$3 / +$4 / +$3 if annual sales exceed $1.8bn / $2.3bn / $2.8bn before 12/31/20.

GCVRZ's closing price on 11/7/2013 was $2.00. At approximately 8AM EDT, the FDA released briefing documents for a scheduled 11/13/2013 advisory committee meeting to discuss Genzyme's sBLA for Lemtrada (alemtuzumab) here: The FDA reviewers concluded that Genzyme had not "submitted evidence from adequate and well-controlled studies to support the effectiveness of alemtuzumab for treating multiple sclerosis" (page 5 of the briefing). Because of the FDA's release, GCVRZ quickly fell to below $0.60 after the market open (>70% loss from the previous day's close).

The briefing document states that the FDA's conclusions "stem from issues involved with the adequacy of the design of the primary trials on which the application relies for support. In particular, Dr. Marler has grave concerns that the failure to blind patients and treating physicians in the open-label design of the trials introduced bias that confounds interpretation of their ostensible results." (page 5).

In the Clinical Review (page 249), Dr. Marler describes uncertainties from the placebo effect and observer bias, as evidenced by differences between treatment arms in 1) drop-out rates and 2) changes in EDSS scores from pre-randomization (screening) to post-randomization (baseline). He goes on to list numerous deficiencies in trial procedures / protocols, and concludes that the trial results are not statistically significant.

Also in the Clinical Review (page 254), Dr. Marler details archived minutes from several teleconferences / meetings between the FDA and Genzyme discussing the Lemtrada phase 2 and phase 3 trials. Of particular note are the following comments made by the FDA to Genzyme as follows:

1) Phase 2 trial (CAMMS223): Multiple calls from 11/7/2002-11/21/2006, during which time the trial was suspended due to three cases of ITP.

  • "variation in the treatment of relapses may confound the interpretation of the study results"
  • "the trial will not be a pivotal study to support a license application."
  • "Sponsor and CDER agreed that the public disclosure [of the CAMMS223 results] should be worded such that it does not undermine subject and / or investigator participation in a subsequent, randomized Phase 3 study."
  • "FDA cannot agree at this time that the study [CAMMS223] was successfully completed based on the 2 year interim analysis."

2) Phase 3 trials (CAMMS323/324): Multiple calls from 11/21/2006-1/24/2011.

  • "a rater blinded (but patient not blinded) study may be adequate if the effect is large. However, a totally blinded study is more likely to be found persuasive if the treatment effect is relatively small."
  • "In the absence of a valid justification for the proposed study, we believe that any further investigation of alemtuzumab for multiple sclerosis should be carried out under a well designed randomized controlled trial that will provide useful efficacy data as well as adequate safety monitoring. The current trial (CAMMS223) does not meet these criteria."
  • "FDA strongly recommends that you use a double-dummy placebo control in your pivotal trials. The acceptability of your rater-blinded study will be a matter of review. If your study results reveal an extremely large effect, then FDA may potentially accept this rater-blinded design for the pivotal trials. Also, you should carefully assess the effectiveness of your blinding during the trial and at its conclusion to determine if the rater blind was maintained."
  • "The Division continues to have concerns about group differences in the treatment of relapses by unblinded physicians and the reporting of relapses by unblinded patients."
  • The FDA was "concerned by the potential bias introduced by the absence of blinding of patients, the possibility of unblinding of EDSS raters, the initiation of alternative MS therapies after the first relapse, and the elimination of censoring. The interpretation of the results from the statistical analysis will be challenging, and extremely robust findings will be necessary to overcome these issues."
  • "Blinding procedures were discussed in detail. For EDSS and relapse reporting, the bias introduced by unblinding of physicians and patients remains a significant problem which will cause serious difficulties in interpreting the results of the trial. Trial procedures leave doubt about the extent of any unblinding of EDSS raters."
  • "The adjudicated relapses will form the basis for the analysis of the primary relapse rate outcome. The detection of a relapse still depends entirely on subjective observations by the unblinded patient or an unblinded physician."
  • "Beginning with our initial review of the CAMMS323 and CAMMS324 protocols, the lack of double-blinding has consistently concerned us. The lack of blinding remains a major concern. We [FDA] note that, despite these previous concerns that have been communicated to you, there was little discussion of the unblinded design of the trials in the meeting material. We emphasize the importance of presenting a full discussion and analysis of the impact of having the patients and treating physicians unblinded. You need to present data and analyses that evaluate the objectivity of the EDSS and MRI outcomes as well as the relapses. To do so requires full descriptions of the procedures for ensuring the blind and data to support compliance with the different blinding procedures in the protocols."

As detailed above, the FDA's multiple serious concerns were well known by Genzyme before it issued the 3/30/2011 prospectus for GCVRZ (trading of which commenced on 4/4/2011). This was in no way disclosed in the public filings then or subsequently, until the 11/8/2013 FDA briefing memo. Note especially the absence of disclosure in the "Risk Factors Related to the CVR's" beginning page 19 of the prospectus here:

The below timeline was constructed using the "Background of the Merger" info from the prospectus (page 23), public filings, news stories, and presentations (quotes are all from management unless otherwise indicated). It shows that Genzyme was under enormous pressure from a proxy fight followed by a hostile takeover. Genzyme responded by pushing Lemtrada as very promising and undervalued, without ever mentioning the FDA's repeated strong concerns. Post-acquisition, Sanofi continued making very bullish comments on Lemtrada without mentioning the FDA's concerns.

- 11/17/2002 - 8/20/2009: FDA expresses trial concerns in at least 10 separate meetings / letters.

- 2/22/2010: Icahn begins proxy fight with Genzyme, trashing management:

- 3/17/2010: FDA expresses trial concerns in meeting with Genzyme

- 5/23/2010: Sanofi CEO makes first contact with Genzyme CEO to express interest in a transaction, parties agree to speak after 6/19/2010.

- 6/9/2010: Genzyme settles proxy fight, adding two Icahn-backed board members.

- 6/28/2010: Sanofi CEO calls Genzyme CEO to reiterate interest and schedule a meeting. Genzyme says will get back to him.

- 7/2/2010: Media publishes rumors of Sanofi's interest in acquiring a large biopharma company in the US.

- 7/10/2010: Genzyme CEO calls Sanofi CEO and says no interest in deal or meeting.

- 7/23/2010: Media publishes rumors of Sanofi's informal approach to Genzyme.

- 7/29/2010: Sanofi sends $69 all-cash offer to Genzyme board (38% premium to 7/1 pre-media-speculation share price).

- 8/11/2010: Genzyme rejects offer with letter stating "your opportunistic takeover proposal does not begin to recognize the significant progress underway to rectify our manufacturing challenges or the potential for our new product pipeline...We recognize that Genzyme's share price has been depressed as a result of manufacturing setbacks the Company experienced last year. In reaching a decision to reject your offer, the Board not only reviewed the timeline and remaining steps necessary to address the manufacturing challenges, but also the potential of our new product pipeline, in particular the outlook for our MS treatment Alemtuzumab. We are confident that these factors coupled with our newly announced discipline for deploying capital and significant opportunity to reduce costs will soon be recognized by investors."

- 8/29/2010: Sanofi announces unsolicited bid to acquire Genzyme for $18.5bn. Genzyme responds with letter stating that it has "provided very useful, non-public information regarding...the tremendous future upside of our multiple sclerosis drug alemtuzumab" and that the $69 offer is too low.

- 12/20/2010: Genzyme hosts extensive investor presentation on Lemtrada's market potential. Starts with "forward looking statements" lingo. Includes the following (from Bloomberg transcript):

  • Dr. Edward Fox (University of Texas, involved in trials): long presentation on MS. Touts the results of Phase 2 trials - reduction in ARR and SAD "certainly was unprecedented. There never had been a head-to-head trial that showed any degree of reduction such as this compared to an existing medication. And so this was very dramatic data". "And so the Rebif patients were more likely to have had major flare-ups of their MS, causing them to potentially withdraw from the study. So there's 12% of the patients who are on Rebif withdrawing from the study because of adverse events, as opposed to a much lower percentage. This dropout rate is pretty stellar when it comes to clinical trials. And the reason for that is fairly simplistic. It's a front loaded treatment. Once the patient has received treatment, there's really very little incentive for a patient to leave the trial, and so I've certainly personally seen this in the Phase III trials." Note that Dr. Fox cites the differing Lemtrada/Rebif dropout rates as a positive, instead of recognizing the potential for trial bias - a key element of the FDA's concerns.
  • Genzyme CEO: "[Lemtrada] has the potential to be the most efficacious therapy, and certainly the Phase II showed that". "Alemtuzumab for MS is probably the largest single program that we've ever undertaken. We have been investing at the rate of more than $2 million a week". "we have decided on a new trade name for alemtuzumab. I introduce you to Lemtrada, which is a synthesis of alemtuzumab and the Spanish word entrada, meaning entrance, which we see as a gateway to improved outcomes in MS patients."
  • SVP Genzyme: "We believe this product has the potential to transform the management of multiple sclerosis with superior efficacy, demonstrated superiority to an active comparator that includes a reversal of pre-existing disability together with durable remissions...we believe this product presents a significant revenue opportunity, approaching peak revenue somewhere between $3 billion and $3.5 billion.

- 1/24/2011: FDA expresses concerns in meeting with Genzyme.

- 2/16/2011: Sanofi/Genzyme merger agreement reached at $74/share + CVR. Public conference call with both CEO's, saying that CVR resulted from disagreement in value of Lemtrada.

  • Genzyme CEO: "this has the promise of being the most efficacious drug in the class. There are some who even talked about potentially a quasi-cure for MS" (page 22 Bloomberg transcript).
  • Bloomberg story from same day quotes Genzyme spokesman John Lacy as saying in an e-mail "The analyses to date have consistently indicated unprecedented efficacy versus active treatment...Our Phase 3 program is continuing to progress well with the safety committee as recently as December indicating that no new concerns had been identified and that the trials should continue."

- 3/17/2011: Bloomberg Article:

  • "Genzyme today...ascribed a 90 percent likelihood Lemtrada will be approved, estimated to be in the third quarter of 2012. The company gave an 80 percent probability of the drug reaching $400 million in revenue, expected in the third quarter of 2013; and a 16 percent chance Lemtrada will top $2.8 billion in sales, projected in the third quarter of 2016.

- 3/30/2011: Prospectus issued, containing CVR agreement, CVR Q&A and CVR risk factors. Note that the approval milestone is FDA-only, while the sales milestones are both US and EU.

- 4/8/2011: Sanofi/Genzyme merger completed (Sanofi purchased>90% of Genzyme shares via exchange offer, then completed short-form merger). Genzyme CEO gets $160m in cash and 4.5m CVR's.

- 5/3/2011: Sanofi at DB Health Conference presentation (Bloomberg transcript):

  • "We will see Phase III results come out for Lemtrada, which is the new MS treatment that Genzyme has been developing, a potential quasi-cure for MS." (page 9)
  • "At this point, we're planning U.S. and EU filings in early 2012." (page 26)

- 11/14/2011: 6K press release with phase-3 data (CARE-MS II):

  • "Based on these positive results, we are on track to submit LEMTRADA for review to US and EU regulatory authorities in the first quarter of 2012."

- 1/10/2012: JP Morgan Healthcare Conference presentation (Bloomberg transcript):

  • "Lemtrada, which I think is going to really be able to demonstrate, actually, best-in-class efficacy. In fact, it's better than anything that has ever been demonstrated in clinical trials so far." (page 9)

- 2/7/2012: Sanofi preliminary annual report 12/31/2012:

  • "In November, Sanofi and its subsidiary Genzyme announced that the Phase lll CARE-MS ll trial...Results for both of these co-primary endpoints were highly statistically significant."

- 2/8/2012: Sanofi 4Q12 earnings call (Bloomberg transcript):

  • "Lemtrada, I think, is yet misunderstood. I read an article yesterday in the paper. I mean, I think people clearly don't really understand that Lemtrada is in a complete class by itself in multiple sclerosis - the only product that has ever demonstrated significant superiority over the gold standard, which is Rebif." (page 6)
  • "Lemtrada is truly a unique, unique product in the entire spectrum of products in multiple sclerosis. First, it has superior efficacy, demonstrated in two Phase III trials. But more importantly, it's an annual dosing mechanism. So in fact, you treat the patient at the beginning of one year, and then you don't treat the patient anymore." (page 39). Note that ~20% of patients were re-treaded in year 3 of an extension study.

- 3/6/2012: 12/31/2011 20-F:

  • "The first study, CARE-MS I, demonstrated strong and robust treatment effect on the relapse rate co-primary endpoint vs Rebif...The dossier is scheduled to be submitted to FDA review in the second quarter of 2012."

- 3/14/2012: Barclays Capital Global Healthcare Conference presentation (Bloomberg transcript):

  • "And Lemtrada, which we would argue may be the most transformative drug to enter the MS space, again, with a unique efficacy profile, a unique way of administration and so certainly will be a strong potential therapy for patients with more advanced disease."

- 4/25/2012: AAN 2013 Meeting (Bloomberg transcript) - long presentation summarizing phase 3 results:

  • Michael Panzara: "I think you can hear that we feel that we have a real transformative approach to treating this disease...we have unprecedented safe efficacy results".
  • Dr. Jeffrey Cohen: "retention in the study is a very important parameter because if a sizeable number of patients either discontinue treatment or discontinue the study, it may make it difficult to interpret the results. So we were very pleased that retention in the Phase III studies was quite good. There are, in general, two reasons why patients drop out of a study. One is side effects. And, as we said, even though there are some potential side effects of Lemtrada. In general, it's very well tolerated. Most patients have very few side effects. So that, in part, accounts for why retention particularly in that arm was very good. As you noted, retention in the interferon arm was not as good, and there are very common side effects with interferon. The second reason why patients discontinue a study is because of - they perceive that they're having continued disease activity or worsening. And so, again, that speaks to the very prominent efficacy of this drug that patients felt they were doing well so they continued in the study." (page 32). Note that again we see the positive framing of dropout rates, this time from Dr. Cohen.

- 4/27/2012: 1Q12 conference call (Bloomberg transcript):

  • "Lemtrada...we've been able to really, for the first time, show the data of the CARE-MS II study. Up until now, we've had to be circumspect in what we said simply because we didn't want to dilute the impact of this presentation at AAN this week. We've got three slides on Lemtrada and I really only just want to focus on this because I think Lemtrada's had a certain reputation out there and I have to say, I used to share it. When we were acquiring Genzyme, I think we rightly had some question about the ultimate value in the absence of data because of the long history of development. Equally, I think one has to give credit to where data are there and where the data are showing a different story. And I think actually, particularly when you look at the CARE-MS II study, the data are nothing sort of stunning. Obviously, because of its history, Genzyme and before then, Bayer, set the hurdle high on their Phase III. I mean they knew that if they're going to come to market, they had to have an extremely convincing set of results...then of course, the question is what are you are comparing it to. Well, if you're going to give someone a sugar pill with MS, you're probably not going to see them do very well, so it's a lot easier to show that you've got some level of efficacy here. However, because of this high hurdle, the need to really have credibility, I think Genzyme did an extraordinary thing and put an active comparator in and they didn't even pick the most advantageous comparator, they took the toughest one; they took Rebif. And you can see how many people have actually done this against Rebif; essentially nobody. So the data that really Lemtrada are showing are very difficult to compare to anybody else's studies because no one else has subjected their molecule to the same set of rigor and high hurdle that Lemtrada when you look at the number of patients that have not had any relapse for two years, you're looking at 78% for Lemtrada versus best-in-class of Rebif, which is only 59%...we can see that actually, for the very first time, a drug actually showed that you can improve the situation of disability, so you've got a longer period without relapse and you've got an improvement in disability scores. Even I can sell this drug." (page 7).
  • "The one that hasn't been filed yet, but clearly is about to be filed is Lemtrada. And actually I know their sales forecasts are all over the map. I personally think actually, and I recognize I'm changing my tune on this, but I'm changing my tune on the base of data, I think this is going to be a major drug." (Page 24)

- 8/7/2012: FDA issues refusal to file because of problems with data formatting.

- 9/12/2012:: BofA Healthcare Conference (Bloomberg transcript):

  • "I mean the Lemtrada patients have received their therapy. They're no longer on any active therapy. They don't go back to the physician. So that's what we see, and that's why we're so optimistic about being able to truly offer something different, and something that is complementary if not replacing of existing therapy." (page 6). Note again, no mention of the 20% of patients re-treated in year 3 alone.

- 11/29/2012: Genzyme submits and FDA files Lemtrada application.

- 1/8/2013: JPM Healthcare Conference (Bloomberg transcript):

  • "Now, when you look at the effect of Lemtrada in terms of efficacy, it's nothing short of remarkable." (Page 8)

- 2/7/2013: 4Q12 conference call (Bloomberg transcript):

  • "And if you look at Lemtrada, the reason we think it's an important component of the armamentarium in Multiple Sclerosis, is that it does reduce significantly relapse rates against comparators, not against just placebo. And it also significantly slows the accumulation of disability over six month. It's a completely different mode of administration with injections at one year apart. So it's almost like a vaccine in many ways." (page 40).

- 8/1/2013: Sanofi 2Q13 conference call (Bloomberg transcript)::

  • "we clearly have the best efficacy data that anybody has ever demonstrated in a product. I mean you're talking about over 50% prevention of relapse against an active comparator. So, nobody - but nobody has ever shown that level of efficacy against an active comparator." (page 41)
  • "And here we have a product where you're going to get five infusions one year and three the next and nothing else really after that, and with some unparalleled efficacy." (page 42)

- 9/17/2013: EU approves Lemtrada.

- 10/16/2013: FDA announces Lemtrada advisory committee meeting.

- 11/8/2013: FDA issues negative briefing memo.

Other Considerations

1) Sanofi is huge relative to potential GCVRZ damages.

  • Sanofi (US$): $143bn equity cap, $157bn enterprise, $5bn cash on hand, $5bn of 2012 net income.
  • GCVRZ maximum damages: $500m = 250m shares x $2/share at 11/7/13 closing price.

2) The information detailed above is strictly from public documents. The discovery portion of a GCVRZ lawsuit might uncover additional trial concerns not disclosed by Sanofi, and might implicate management and clinicians involved in the trials. In the FDA briefing there are several hints of suspicious inconsistencies:

  • "Although we believe bias from patients has played a considerable role in the studies, the change in SAD events could simply not be explained by the effect from patients." (page 365).
  • "It appears that the bias may not be limited to the patient's side. The discrepancy in EDSS scores between screening visit and randomization visit that led to opposite directions in change of SAD event numbers cannot be explained by bias from patients." (page 367)

3) The side effects suffered by the 1,486 Lemtrada trial patients are detailed in the FDA briefing memo and also on the FDA's meeting slides beginning page 85 here: It includes thyroid events in 29% of patients among several other conditions. Despite the FDA's trial adequacy concerns, the very positive Phase 2 results were widely released before Phase 3 trial patients were chosen. Those Phase 3 patients may also feel damaged by Sanofi's omissions, and may benefit from a GCVRZ lawsuit discovery process.

4) Given that Sanofi knew of the FDA's concerns before CVR issuance, they may have violated both the 1933 and 1934 Securities Acts. The Trust Indenture Act of 1939 is also referenced in the CVR document. Note that page B-43 of the CVR document states that all claims based upon the CVR's "shall be governed by and construed in accordance with the laws of the state of New York".

5) Article 5.1 and 5.2 of the CVR agreement might be used to get a full listing of CVR holders from Sanofi for litigation communication.

6) The CVR agreement says the company will use "Diligent Efforts" to achieve the Approval / Sales milestones. There may be a case that Sanofi delayed approval (for instance the 8/7/2012 FDA "refusal to file" letter from data formatting problems that delayed submission until 11/29/2012) while misleading investors that the milestone would be hit far sooner. On the 2/6/2011 Sanofi conference call management stated "The expected timing of payment could be H2, 2012 based on existing plans of Genzyme for the submission of Lemtrada for approval", and Sanofi made several subsequent statements expecting a quicker submission than actually occurred.