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					       Case4:10-cv-04957-PJH Document25                  Filed04/04/11 Page1 of 89




 1 MILBERG LLP
   JEFF S. WESTERMAN (SBN 94559)
 2 jwesterman@milberg.com
   AZRA MEHDI (SBN 220406)
 3 amehdi@milberg.com
   NICOLE M. DUCKETT (SBN 198168)
 4 nduckett@milberg.com
   One California Plaza
 5 300 South Grand Avenue, Suite 3900
   Los Angeles, California 90071
 6 Telephone: (213) 617-1200
   Facsimile: (213) 617-1975
 7
   Liaison Counsel for the Class
 8
   BROWER PIVEN
 9 A Professional Corporation
   DAVID A.P. BROWER
10 488 Madison Avenue
   Eighth Floor
11 New York, New York 10022
   Telephone: (212) 501-9000
12 Facsimile: (212) 501-0300
   brower@browerpiven.com
13

14 Lead Counsel for the Class

15   [ADDITIONAL COUNSEL ON SIGNATURE PAGE]

16                              UNITED STATES DISTRICT COURT
                               NORTHERN DISTRICT OF CALIFORNIA
17                                    SAN JOSE DIVISION

18 MERLE KOVTUN, Individually And On                 )    Case No. 4:10-cv-04957-PJH
   Behalf Of All Others Similarly Situated,          )
19                                                   )    CLASS ACTION
                                Plaintiff,           )
20        v.                                         )    AMENDED CLASS ACTION COMPLAINT
                                                     )    FOR VIOLATIONS OF FEDERAL
21                                                   )    SECURITIES LAWS
                                                     )
22                                                   )    JURY TRIAL DEMANDED
   VIVUS, INC., LELAND F. WILSON, and                )
23 WESLEY W. DAY PH.D.,                              )
                           Defendants.               )
24

25

26

27

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 1          1.      Lead Plaintiff, John Ingram (“Plaintiff”), brings this Amended Class Action

 2 Complaint for Violations of Federal Securities Laws (the “Complaint”) individually and on

 3 behalf of all other purchasers of the securities of Vivus, Inc. (“Vivus” or the “Company”)

 4 between September 9, 2009 and July 15, 2010, inclusive (the “Class Period”). Such purchasers,

 5 along with Plaintiff, are collectively referred to herein as the “Class.” This Complaint is brought

 6 against Vivus, the Company’s Chief Executive Officer (“CEO”) and director, Leland F. Wilson

 7 (“Wilson”), and the Vice President of Clinical Development, Dr. Wesley W. Day, Ph.D. (“Day”)

 8 (collectively, the “Individual Defendants,” and with the Company, “Defendants”).

 9          2.      This Complaint is alleged upon personal knowledge as to Plaintiff’s own acts, and

10 upon information and belief as to all other matters, based upon Plaintiff’s counsel’s

11 investigation, including review of Vivus’s public filings with the United States Securities and

12 Exchange Commission (“SEC”); wire and press releases published by and regarding Vivus;

13 securities analysts’ reports and advisories; information available in the media and on the Internet;

14 information available from the U.S. Food and Drug Administration (“FDA”), and interviews

15 with knowledgeable persons, Confidential Witnesses (“CW(s)”), including former Vivus

16 employees, who held positions that provided them with personal access to the information which

17 they reported.

18          3.      Additional facts supporting the allegations contained herein are known only to the

19 Defendants or are exclusively within their control. Plaintiff believes that substantial additional

20 evidentiary support exists for the allegations set forth in this Complaint that will be revealed after

21 a reasonable opportunity for discovery.

22               NATURE OF THE ACTION AND SUMMARY OF ALLEGATIONS

23          4.      Vivus is a biopharmaceutical company that develops therapeutic products to

24 address obesity, sleep apnea, diabetes, and male sexual health, among others. The Company

25 develops and commercializes such products for large underserved markets and currently has one

26 FDA-approved drug on the market, MUSE® (“Muse”), a prescription treatment for erectile

27 dysfunction. The Company also has several investigational product candidates in late stages of

28
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 1 clinical development that are focused on market opportunities in obesity and related morbidities,

 2 including sleep apnea, diabetes, and sexual health. The Company’s lead product in clinical

 3 development is Qnexa® (“Qnexa” or the “drug”), an experimental drug that has completed Phase

 4 III clinical trials for the treatment of obesity (“Phase 3 Trials”). In December 2009, Vivus

 5 submitted a New Drug Application (“NDA”) to the FDA to have Qnexa approved as an obesity

 6 drug. On March 1, 2010, the FDA agreed to review the NDA for Qnexa.

 7          5.      During the Class Period, Vivus issued materially false and misleading statements

 8 to the investing public regarding Qnexa. Vivus continuously discussed Qnexa’s “remarkable

 9 safety,” and its potential for success through the NDA approval, while materially understating

10 the health risks associated with Qnexa. As a result of Vivus’s false and misleading statements,

11 the Company’s stock traded at artificially inflated prices during the Class Period, reaching a high

12 of $13.68 per share on May 18, 2010.

13          6.      Based largely on the strength of the positive Qnexa results that were issued to the

14 investing public, which were false and misleading, the Company was able to raise $108.7 million

15 in gross proceeds from a public offering of its common stock during the Class Period.

16          7.      On July 15, 2010, the Endocrinologic and Metabolic Drugs Advisory Committee

17 of the FDA (the “FDA Panel”), composed of independent medical experts whose

18 recommendations carry great weight within the FDA approval process, voted 10 to 6 against

19 recommending approval of Qnexa based upon an “overall risk-benefit assessment” for use in

20 obese individuals and certain overweight patients with other health problems such as diabetes or

21 high blood pressure.1

22

23   1
       The sixteen voting FDA Panel members included: Dr. Thomas P. Bersot (“Dr. Bersot”), Dr.
24   David M. Capuzzi (“Dr. Capuzzi”), Dr. Allison B. Goldfine (“Dr. Goldfine”), Dr. Abraham
     Thomas (“Dr. Thomas”), Dr. Lamont G. Weide (“Dr. Weide”), Dr. Elaine H. Morrato (“Dr.
25   Morrato”), Dr. Sanjay Kaul (“Dr. Kaul”), Dr. Kenneth D. Burman (“Dr. Burman”), Dr. Susan R.
     Heckbert (“Dr. Heckbert”), Dr. Katherine M. Flegal (“Dr. Flegal”), Dr. Jessica W. Henderson
26   (“Dr. Henderson”), Dr. Janet D. Cragan (“Dr. Cragan”), Ms. Melanie Coffin (“Dr. Coffin”), Dr.
     Ed J. Hendricks (“Dr. Hendricks”), Dr. Michael A. Proschan (“Dr. Proschan”), and Dr. Michael
27   A. Rogawski (“Dr. Rogawski”).

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 1          8.      The FDA Panel members who voted “no” cited “serious” and “life-threatening”

 2 side effects in Qnexa’s trial data, including birth defects, depression, anxiety, sleep disorders,

 3 cognitive disorders, metabolic acidosis (too much acid in the body fluids), and an unknown

 4 impact on the heart as reasons they could not recommend Qnexa’s approval.

 5          9.      The FDA Panel refused to recommend Qnexa as a chronic or “lifetime” drug

 6 therapy because the limited data available made it “difficult if not impossible” to weigh the long-

 7 term safety of the drug. Vivus provided only 56 weeks of safety data from the clinical studies

 8 even though, if approved, the expected time frame for Qnexa use would be much longer since

 9 obesity is a “chronic disease requiring chronic treatment” over a lengthy period of time.

10 According to Dr. Weide, a voting member of the FDA Panel and an endocrinologist at the

11 University of Missouri, Kansas City, “[t]he real question is when we look at this drug is how safe

12 it is and for how long because this is likely a lifetime therapy.” Dr. Weide also specifically

13 stated, “I feel uncomfortable with a year’s worth of data.” Other FDA Panel members indicated

14 that chronic use would likely require studies of approximately five years.

15          10.     During the Class Period, instead of disclosing the serious risks revealed by the

16 study data, Defendants repeatedly highlighted Qnexa’s safety profile. As a result of Defendants’

17 false and misleading statements, Vivus securities traded at artificially inflated prices during the

18 Class Period.     Such inflated stock prices permitted top Vivus officers/directors, including

19 defendant Wilson, to sell shares of their Company stock at inflated prices for proceeds of over

20 $3.6 million.

21          11.     Vivus investors were not aware of Qnexa’s “serious” and “life-threatening” health

22 risks, or the inadequacy of the clinical data, prior to the FDA Panel’s July 15, 2010 vote. When

23 the previously undisclosed and misrepresented safety issues with Qnexa were publicly disclosed

24 on July 15, 2010, the market price of Vivus securities plummeted, falling $6.70 per share, or

25 55%, in one day on unusually high trading volume of over 42.3 million shares.

26          12.     As of the date of the filing of this Complaint, the FDA has not yet approved

27 Qnexa as an obesity treatment.

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 1                                    JURISDICTION AND VENUE

 2          13.     The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of

 3 the Exchange Act [15 U.S.C. §§ 78j (b) and 78t(a)], and Rule 10b-5 promulgated thereunder by

 4 the SEC [17 C.F.R. § 240.10b-5].

 5          14.     This Court has jurisdiction over the subject matter of this action pursuant to 28

 6 U.S.C. §§ 1331 and 1337, and Section 27 of the Exchange Act.

 7          15.     Venue is proper in this District pursuant to Section 27 of the 1934 Act and 28

 8 U.S.C. § 1391(b). Many of the acts charged herein occurred in substantial part in this District,

 9 and Vivus conducts business in this District at 1172 Castro Street, Mountain View, CA 94040.

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

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

12 limited to, the mails, interstate telephone communications, and the facilities of the NASDAQ.

13                                              PARTIES

14          17.     Plaintiff John Ingram (“Plaintiff”) purchased Vivus securities in reliance on

15 Defendants’ false and misleading statements and omissions of material facts and/or the integrity

16 of the market for Vivus securities at artificially inflated prices during the Class Period and

17 suffered economic loss and damages when the truth about Vivus that was misrepresented and

18 omitted during the Class Period was revealed. The certification for Plaintiff with a detailed

19 listing of transactions is attached hereto as Exhibit A.

20          18.     Defendant Vivus was founded and incorporated in California on April 16, 1991,

21 and completed a re-incorporation in the state of Delaware in May 1996. The Company’s

22 headquarters are located at 1172 Castro Street, Mountain View, CA 94040. Vivus securities are

23 listed and traded on the NASDAQ under the symbol “VVUS.” NASDAQ is a well-developed,

24 efficient market for securities.

25          19.     Defendant Leland F. Wilson was, at all relevant times, the Company’s CEO and

26 director. Defendant Wilson has served as director since April 1991 and as CEO since November

27 1991. Defendant Wilson also served as President from April 1991 until October 2009. Prior to

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 1 joining the Company, defendant Wilson was Vice President of Marketing and Corporate

 2 Development of Genelabs Technologies, Inc. from 1989 to 1991. Defendant Wilson was Group

 3 Product Director, later promoted to Director of Marketing, at LifeScan, a Johnson & Johnson

 4 company, from 1986 to 1989. Defendant Wilson holds a B.S. and a M.S. in Reproductive

 5 Physiology from Pennsylvania State University. During the Class Period, defendant Wilson

 6 signed false and misleading SEC filings and knowingly issued numerous false or misleading

 7 statements about Qnexa.

 8          20.     Dr. Wesley W. Day was, at all relevant times, the Company’s Vice President of

 9 Clinical Development.       Defendant Day served in this role since November 2005.          From

10 September 2003 until October 2005, defendant Day served as Senior Director—Safety and Risk

11 Management at Pfizer Inc., a research-based global pharmaceutical company. Defendant Day

12 holds a Ph.D. in Pharmacology and Toxicology from the University of Maryland at Baltimore

13 and a B.S. from the University of Texas Pan American. Defendant Day is an Adjunct Associate

14 Professor for the School of Pharmacy at the University of Maryland at Baltimore where he has

15 held an adjunct appointment since 1995. Defendant Day has also been an Adjunct Assistant

16 Professor for Temple University in Philadelphia, Pennsylvania.           During the Class Period,

17 defendant Day knowingly issued numerous false or misleading statements about Qnexa. Further,

18 according to the Company’s April 30, 2010 Proxy Statement, during fiscal year 2009, defendant

19 Day’s wife, Dr. Shiyin Yee (“Dr. Yee”), performed pre-clinical and clinical development

20 consulting services for the Company related to Qnexa. Dr. Yee reported directly to Peter Tam,

21 the Senior Vice President and Chief Operating Officer at the time. Dr. Yee was paid $400,187 in

22 fiscal year 2009 for the consulting services she rendered to the Company.

23          21.     Defendants Wilson and Day are referred to herein as the “Individual Defendants.”

24 Vivus, Wilson, and Day are referred to herein collectively, as the “Defendants.”

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

26 and/or directors of Vivus, were privy to confidential and proprietary information concerning

27 Vivus, its operations, products, including the safety of Vivus’s key drug, Qnexa, finances,

28
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 1 financial condition, and present and future business prospects. The Individual Defendants also

 2 had access to material adverse non-public information concerning Vivus and Qnexa, as discussed

 3 herein. Because of their positions with Vivus, the Individual Defendants had access to non-

 4 public information about its business, finances, products, including the safety of Vivus’s key

 5 drug, Qnexa, markets, and present and future business prospects, via access to internal corporate

 6 documents, conversations, and connections with other corporate officers and employees,

 7 attendance at management and board of directors meetings and committees thereof and via

 8 reports and other information provided to them in connection therewith. Because of their

 9 possession of such information, the Individual Defendants knew or recklessly disregarded the

10 fact that adverse facts specified herein had not been disclosed to, and were being concealed from,

11 the investing public.

12          23.     The Individual Defendants are liable as direct participants in, and as co-

13 conspirators, with respect to the wrongs complained of herein. In addition, the Individual

14 Defendants, by reason of their status as senior executive officers and/or directors were

15 “controlling persons” within the meaning of Section 20 of the Exchange Act and had the power

16 and influence to cause the Company to engage in the unlawful conduct complained of herein.

17 Because of their positions of control, the Individual Defendants were able to and did, directly or

18 indirectly, control the conduct of Vivus’s business.

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

20 controlled and/or possessed the authority to control the contents of its reports, press releases and

21 presentations to securities analysts and, through them, to the investing public. The Individual

22 Defendants were provided with copies of the Company’s reports and press releases alleged

23 herein to be misleading, prior to or shortly after their issuance and had the ability and

24 opportunity to prevent their issuance or cause them to be corrected. Thus, the Individual

25 Defendants had the opportunity to, and did, commit the fraudulent acts alleged herein.

26          25.     As senior executive officers and/or directors and as controlling persons of a

27 publicly-traded company whose securities were, and continue to be, registered with the SEC

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 1 pursuant to the Exchange Act and trade on the NASDAQ Global Market under the ticker symbol

 2 “VVUS,” the Individual Defendants were, and continue to be, governed by the federal securities

 3 laws, and had a duty to disseminate promptly accurate and truthful information with respect to

 4 Vivus’s financial condition and performance, growth, operations, financial statements, business,

 5 products, markets, management, earnings, and present and future business prospects; and to

 6 correct any previously issued statements that had become materially misleading or untrue, so that

 7 the market price of Vivus securities would be based upon truthful and accurate information. The

 8 Individual Defendants’ misrepresentations and omissions during the Class Period violated these

 9 specific requirements and obligations.

10          26.     The Individual Defendants are liable as participants in a fraudulent scheme and

11 course of conduct that operated as a fraud or deceit on purchasers of Vivus securities by

12 disseminating materially false and misleading statements and/or concealing material adverse

13 facts. The scheme: (i) deceived the investing public regarding Qnexa and Vivus’s business,

14 operations and management, as well as the intrinsic value of Vivus securities, and (ii) caused

15 Plaintiff and members of the Class to purchase Vivus securities at artificially inflated prices.

16                         PLAINTIFF’S CLASS ACTION ALLEGATIONS

17          27.     Plaintiff brings this action as a class action pursuant to Rule 23 of the Federal

18 Rules of Civil Procedure on behalf of all persons who purchased or otherwise acquired Vivus

19 securities during the Class Period (the “Class”). Excluded from the Class are Defendants, the

20 officers and directors of the Company, at all relevant times, members of their immediate families

21 and their legal representatives, heirs, successors or assigns, and any entity in which Defendants

22 have or had a controlling interest.

23          28.     The members of the Class are so numerous that joinder of all members is

24 impracticable. Throughout the Class Period, Vivus had more than 81 million shares of common

25 stock outstanding that were actively traded on the NASDAQ. While the exact number of Class

26 members is unknown to Plaintiff at this time and can only be ascertained through appropriate

27 discovery, Plaintiff believes that there are hundreds or thousands of members in the proposed

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 1 Class.    Record owners and other members of the Class may be identified from records

 2 maintained by Vivus or its transfer agent and may be notified of the pendency of this action by

 3 mail, using the form of notice similar to that customarily used in securities class actions.

 4          29.      Plaintiff’s claims are typical of the claims of the members of the Class as all

 5 members of the Class are similarly affected by Defendants’ wrongful conduct in violation of

 6 federal law that is complained of herein.

 7          30.      Plaintiff will fairly and adequately protect the interests of the members of the

 8 Class and has retained counsel competent and experienced in class and securities litigation.

 9          31.      Common questions of law and fact exist as to all members of the Class and

10 predominate over any questions solely affecting individual members of the Class. Among the

11 questions of law and fact common to the Class are:

12                   (a)    whether the federal securities laws were violated by Defendants’ acts as

13 alleged herein;

14                   (b)    whether statements made by Defendants to the investing public during the

15 Class Period misrepresented material facts about Vivus’s business, operations, and products

16 (specifically, Qnexa);

17                   (c)    whether Defendants omitted and/or misrepresented material facts;

18                   (d)    whether Defendants’ statements omitted material facts necessary to make

19 the statements, in light of the circumstances under which they were made, not misleading;

20                   (e)    whether Defendants knew or recklessly disregarded that their statements

21 were false and misleading;

22                   (f)    whether the price of Vivus securities was artificially inflated; and

23                   (g)    the extent of damage sustained by Class members and the appropriate

24 measure of damages.

25          32.      Plaintiff intends to rely, in part, upon the presumptions of reliance created by the

26 United States Supreme Court in connection with the reliance element of his claims and the

27 claims of the other Class members under Sections 10(b) and 20(a) of the Exchange Act and,

28
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 1 therefore, individual questions regarding reliance do not predominate. In particular, with respect

 2 to Defendants’ material omissions alleged herein, reliance by Plaintiff and the other members of

 3 the Class is presumed. With respect to Defendants’ affirmative misrepresentations alleged

 4 herein, reliance by Plaintiff and the other members of the Class is presumed under the fraud-on-

 5 the-market doctrine, because, at all relevant times, the market for Vivus securities was efficient

 6 for the following reasons, among others:

 7                  (a)    Vivus securities met the requirements for listing, and were listed and

 8 actively traded on the NASDAQ, which is a highly-efficient, open, developed, and automated

 9 market, free of manipulation;

10                  (b)    As a regulated issuer, Vivus filed periodic public reports with the SEC and

11 the National Association of Securities Dealers (NASD);

12                  (c)    Vivus regularly communicated with public investors via established

13 market communication mechanisms, including through regular disseminations of press releases

14 on the national circuits of major newswire services and through other wide-ranging public

15 disclosures, such as communications with the financial press and other similar reporting services;

16 and

17                  (d)    Vivus was followed by numerous securities analysts and investment

18 market professionals.

19          33.     As a result of the foregoing, the market for Vivus securities rapidly absorbed all

20 publicly material information regarding Vivus and that information was reflected in the price of

21 Vivus securities.

22          34.     Plaintiff and other members of the Class purchased Vivus securities between the

23 time that Defendants made the material misrepresentations and omissions alleged herein and

24 when the truth was revealed to the public.

25          35.     Plaintiff is thus entitled to a presumption that all purchasers of Vivus securities

26 during the Class Period suffered similar injury because they paid inflated prices for their Vivus

27 securities in reliance on Defendants’ material misrepresentations and/or omissions and/or in

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 1 reliance on the integrity of the prices for Vivus securities, and suffered economic losses when the

 2 price of Vivus securities declined in value in direct, proximate and consequential response to the

 3 truth regarding Qnexa.

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

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

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

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

 8 redress the wrongs done to them. There will be no difficulty in the management of this action as

 9 a class action.

10                                            BACKGROUND

11          37.      As a pharmaceutical developer, Vivus has an obligation to ensure that the drug

12 products it sells meet federal efficacy and safety standards.           The FDA process of gaining

13 approval is long and expensive. It takes on average 12 years and over $700 million to get a new

14 drug from molecule to market. Once a company develops a drug, it generally undergoes years of

15 laboratory testing before an application is made to the FDA to begin testing the drug on humans.

16 Only one in 1,000 of the compounds that enter laboratory testing will ever reach human testing.

17 Only 8% of drugs that enter phase I clinical trials are eventually approved by the FDA.

18          38.      Usually, clinical trial programs for a pharmaceutical product consist of three

19 sequential phases of clinical trials. Phase 1 trials are held to test the safety of the product. In the

20 second phase of testing, different dosages of the product are tested to determine the efficacy and

21 to test the safety of the product on the target patient population, in order to ascertain the most

22 effective dosage and to develop other data regarding the drug. Data from a phase 2 clinical trial

23 or trials are normally used to design the third and final phase of clinical trials. Moreover, a dose

24 effect, increased effectiveness with increased dose, is considered evidence of efficacy by the

25 FDA, and dose comparisons are a specified form of controlled trials in FDA regulations. The

26 third and final phase of clinical trials normally proceeds only if the phase 2 trial or trials provide

27 adequate evidence of efficacy and safety of a pharmaceutical product.

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 1           39.    With the rise of obesity in the U.S., many drug manufacturers are racing to obtain

 2 approval for their appetite suppressing weight loss drugs, so that these drugs can be marketed to

 3 the masses for long-term use. According to the VI-0521 (Qnexa) Advisory Committee Briefing

 4 Document (“Briefing Document”), dated July 15, 2010:

 5           Current pharmacotherapies used in conjunction with diet and exercise can achieve
             weight loss of approximately 5%, while surgical interventions, which can achieve
 6           >15% weight loss, are invasive and not without postsurgical complications. There
             is currently no effective, noninvasive, treatment that is capable of achieving a
 7           meaningful degree of weight loss of ≥10%, which has been established by experts
 8           to be the goal of weight loss that commensurate with a significant decrease in the
             severity of obesity-associated risk factors. There is, therefore, a treatment gap for
 9           noninvasive therapies that achieve weight loss in the range of 10% to 15%.

10           40.    A weight loss drug that wins regulatory approval could bring in billions of dollars
11 a year to the company manufacturing the drug. However, weight loss drugs that have reached

12 the market or gotten to the final stage of FDA vetting have repeatedly been hampered by side

13 effects and safety issues. Such is the case with Vivus’s proposed obesity drug treatment, Qnexa,

14 which completed the pivotal Phase 3 Trials, known the EQUATE, EQUIP, and CONQUER

15 studies.2

16
     2
17     The obesity development program included a six-month Phase 3 pivotal factorial-design study,
     known as EQUATE. The EQUATE study included 756 obese patients (599 females and 157
18   males) across 32 centers in the United States. The average baseline BMI of the study population
     was 36 kg/m2, baseline weight was 223 pounds and average height was 5 feet 6 inches. Patients
19   in the EQUATE study had a 4-week dose titration period followed by 24 weeks of treatment.
     The study was a randomized, double-blind, placebo-controlled, 7-arm, prospective trial with
20   patients randomized to receive once-a-day treatment with full-dose Qnexa (15 mg
     phentermine/92 mg topiramate CR), mid-dose Qnexa (7.5 mg phentermine/46 mg topiramate
21   CR), the respective phentermine and topiramate constituents, or placebo. Patients were asked to
     follow a hypocaloric diet representing a 500-calorie/day deficit and were advised to implement a
22   simple lifestyle modification program. The first year-long Phase 3 study, known as EQUIP,
     enrolled 1,267 morbidly obese patients (1,050 females and 217 males) with a BMI that equaled
23   or exceeded 35 kg/m2 with or without controlled co-morbidities. The average baseline BMI of
     the study population was 42.1 kg/m2 and baseline weight was 256 pounds. Patients had a 4-week
24   dose titration period followed by 52 weeks of treatment with patients randomized to receive
     once-a-day treatment with low-dose Qnexa, full-dose Qnexa or placebo. The second year-long
25   Phase 3 trial, known as CONQUER, enrolled 2,487 overweight and obese adult patients (1,737
     females and 750 males) with BMI's from 27 kg/m2 to 45 kg/m2 and at least two co-morbid
26   conditions, such as hypertension, dyslipidemia and type 2 diabetes. The average baseline BMI of
     the study population was 36.6 kg/m2 and baseline weight was 227 pounds. Patients had a 4-week
27   dose titration period followed by 52 weeks of treatment with patients randomized to receive
     once-a-day treatment with full-dose Qnexa, mid-dose Qnexa or placebo.
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 1          41.     Qnexa is an appetite suppressant that is a blend of two separate, already existing,

 2 medications: phentermine (also known under the brand names Adipex-P, Atti Plex P, Fastin,

 3 etc.), and topiramate (also known under the brand names Topamax, and Topiragen).

 4 Phentermine is FDA-approved and has been used for many years as a successful short-term

 5 weight loss formula, notwithstanding the drug’s association with the infamous Fen-Phen weight-

 6 loss drug that was shown to cause potentially fatal pulmonary hypertension and heart valve

 7 problems, which eventually led to the drug’s withdrawal and resulted in compensatory damages

 8 to its users of over $13 billion from drug manufacturer Wyeth. Topiramate has also been

 9 approved by the FDA and has been used for years as an anticonvulsant to treat epilepsy and has

10 also been used to treat migraine headaches or as an antidepressant, but has a history of negative

11 side effects. Qnexa essentially combines these two pre-existing drugs into a single experimental

12 drug for purported targeted long-term weight loss. Ever since the Fen-Phen fiasco mentioned

13 above, anti-obesity drugs reviewed by the FDA have faced strong scrutiny. Most anti-obesity

14 drugs have failed to obtain FDA-approval for the same safety issues highlighted by the FDA

15 Panel in voting against recommending Qnexa, as described below:

16          •       In 2008, Merck & Co. and Pfizer Inc. stopped testing two obesity drugs under

17                  development after Sanofi-Aventis SA abandoned efforts to get FDA approval for

18                  its obesity pill Acomplia, which was linked to depression.

19          •       In early October 2010, the FDA pressured drug manufacturer Abbott Laboratories

20                  to take its diet drug Meridia off the market after a study found that the drug raised

21                  the risks of heart attacks and strokes in certain patients. Meridia was approved by

22                  the FDA in 1997 even though an advisory committee had rejected it.

23          •       On October 22, 2010, the FDA rejected another diet drug, Arena

24                  Pharmaceuticals’s Lorcaserin, because a study showed that the drug in high doses

25

26

27

28
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 1                  caused tumor formation in rats. The rejection came after an advisory committee

 2                  to the FDA had voted 9 to 5 against approval in September 2010.

 3          42.     In recent years, the FDA has been raising the bar for new drug approvals, driven

 4 (at least in part) by complaints that the agency did not adequately consider safety data and by

 5 calls from Congress to strengthen standards. For example, the painkiller Vioxx was voluntarily

 6 withdrawn in 2004 after safety concerns surfaced, and more recently the diabetes drug Avandia,

 7 which is still on the market, has been the focus of congressional inquiries and mass tort lawsuits

 8 by users of Avandia alleging harm from use of the drug.

 9          43.     As Defendants knew, past events, as discussed above, where serious side effects

10 were discovered relating to obesity and other drugs, have created an environment mandating

11 solid and lengthy safety results before FDA approval is granted to new drugs, including Qnexa.

12                       OBLIGATIONS UNDER THE SECURITIES LAWS

13          44.     As a publicly traded company, Vivus had obligations under the federal securities

14 laws. Generally, Vivus had a duty to disclose the true financial condition and known trends and

15 uncertainties of its business to the public by way of public disclosures through filings with the

16 SEC. In addition, 17 C.F.R. § 229.303(a) (“Section 303”), a duly-adopted SEC regulation,

17 required the Company in its Form 10-Ks and 10-Qs to: “provide information as specified in

18 paragraphs (a) (1), (2) and (3) with respect to liquidity, capital resources and results of operations

19 and also shall provide such other information that the registrant believes to be necessary to an

20 understanding of its financial condition, changes in financial condition and results of operations.”

21          45.     Further, sub-section (a)(3)(ii) of Section 303 required Vivus, in each of its

22 quarterly and annual reports, to “(ii) [d]escribe any known trends or uncertainties that have had

23 or that the registrant reasonably expects will have a material favorable or unfavorable impact on

24 net sales or revenues or income from continuing operations. If the registrant knows of events

25 that will cause a material change in the relationship between costs and revenues (such as known

26 future increases in costs of labor or materials or price increases or inventory adjustments), the

27 change in the relationship shall be disclosed.”

28
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                    DEFENDANTS’ MATERIALLY FALSE AND MISLEADING
 1                   STATEMENTS ISSUED DURING THE CLASS PERIOD
 2          46.     The Class Period begins on September 9, 2009 (several months before the
 3 Company submitted its NDA to the FDA in December 2009), the date when Vivus announced

 4 “outstanding” results from two Phase 3 Trials it had conducted in connection with Qnexa. On

 5 this date, Vivus filed its Form 8-K with the SEC, attaching a press release it issued on the same

 6 day, entitled “Vivus Announces Positive Results From Two Phase 3 Studies; Obese Patients On

 7 Qnexa Achieve Average Weight Loss Up To 14.7% And Significant Improvements In Co-

 8 Morbidities.” The press release announced that: (a) obese patients on Qnexa achieved average

 9 weight loss of up to 14.7% and significant improvements in co-morbidities; (b) the results of the

10 EQUIP and CONQUER Phase 3 Trials exceeded FDA benchmarks for obesity treatments; and

11 (c) Qnexa demonstrated a positive safety profile. The Company’s press release provided further

12 details on Qnexa’s efficacy and positive safety profile, stating that there was “no signal for

13 suicidality risk,” increased depression, or clinically significant change in overall cognitive

14 function or effect on psychomotor skills. Specifically, the Company’s September 9, 2009 press

15 release stated, in relevant part, as follows:

16      The EQUIP and CONQUER studies met all primary endpoints by demonstrating
        statistically significant weight loss with all three doses of Qnexa, as compared to
17      placebo. Patients taking Qnexa also achieved significant improvements in
        cardiovascular and metabolic risk factors including blood pressure, lipid levels, and
18      type 2 diabetes.
19                                            *      *       *
        Across both 56-week studies comprised of more than 3,750 patients, the most
20      commonly reported side effects were dry mouth, tingling, constipation, altered taste
        and insomnia. Monthly assessments using prospective psychometric instruments in
21      accordance with FDA’s guidance showed no signal for suicidality risk. There were
        no suicide attempts or suicidal behaviors, and there was no signal for suicidal
22      ideation across all treatment groups including placebo. Depression or depressed
        mood adverse events of a moderate to severe nature were less than 2% and were
23      similar among patients in the Qnexa and placebo groups. Overall, depression scores,
        quality of life including self esteem and general health significantly improved for
24      patients on Qnexa.
25                                            *      *       *

26      VIVUS completed a thorough QT prolongation (TQT) study evaluating subjects
        taking Qnexa. The study was completed with no signal for QT prolongation.
27      Subjects taking Qnexa also underwent complex and extensive cognitive and
        psychomotor testing using validated, FDA accepted testing methodologies. There
28
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           was no clinically significant change in overall cognitive function or effect on
 1         psychomotor skills seen in patients taking Qnexa.3
 2            47.     The September 9, 2009 press release also announced that the EQUIP study
 3 patients taking full-doses of Qnexa had a higher completion rate than those taking either the

 4 placebo or the low-dose of Qnexa, and that CONQUER study patients taking the high-dose of

 5 Qnexa had a higher completion rate than those taking the placebo.

 6            48.     Defendant Wilson was quoted in the press release discussing Qnexa’s prospects
 7 as follows:

 8     The results of the phase 3 program, designed and executed after Special Protocol
       Assessments were completed by the FDA, exceed the FDA benchmarks for
 9     clinically significant weight loss. The results support the company’s plan to file a
       New Drug Application with the FDA by the end of 2009 and submit the results from
10     the studies for publication in peer-reviewed journals. We believe these results may
       provide a compelling opportunity for global pharmaceutical companies, and we
11     intend to initiate partnering discussions now that we have the full data set in hand.
12            49.     Vivus also hosted a conference call on September 9, 2009. During the conference
13 call, Vivus’s CEO, defendant Wilson, described Qnexa’s safety profile as “remarkabl[y] safe[]”

14 and stated that Vivus has “found literally no issues of concern.” Specifically, defendant Wilson

15 stated, in part, the following:

16     Qnexa was well tolerated and demonstrated an excellent benefit/risk profile. Based
       on the efficacy and safety data that you will see, we believe Qnexa meets all FDA
17     requirements for approval.
18                                           *       *      *
       . . . [t]here was no difference in total serious adverse events between placebo and
19     active treatment. And there was no difference in drug-related serious adverse events.
       Yes, the drug related adverse events that we saw were few and there was no pattern
20     of any one particular item. I would say that one of the issues that does come up with
       these kinds of drugs and weight loss drugs in general is that we have I think two
21     kidney stones and one gallstone as serious adverse events in the clinical study. But
       that’s the only one that we think is drug-related in the serious adverse event
22     column.
23                                           *       *      *
       I think again all of you would agree that this – the studies have produced remarkable
24     – not only remarkable efficacy, but remarkable safety as well. And we’ve looked at
       this from every different perspective, at every different issue as far as safety is
25

26
     3
27       All emphases in bold/italics added unless otherwise noted.

28
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        concerned and we have found literally no issues of concern at this point. And so I
 1      want to emphasis that very, very strongly . . .
 2          50.      Defendant Wilson also stated the following regarding dosage tolerance levels for
 3 trial patients:

 4      Based on what we see from the data, clearly the low-dose will be used as a part of a
        titration regimen which will take patients up to the middle-dose. And then the
 5      middle-dose I think will be adequate for a majority of the patients for a significant
        period of time and that will allow a – the higher dose then will allow a doctor to
 6      move up if the patient is doing well and is well tolerated but it gives them that choice
        to go to higher level of medicine and to – and I think the doctor can tailor this to the
 7      heavier patients that have more co-morbidities that they want to lose weight faster,
        those kinds of an approach.
 8
             51.    Defendant Day, who defendant Wilson indicated was “most directly responsible
 9
   for the studies,” elaborated on Qnexa’s glowing safety profile and low discontinuation rate,
10
   stating, in relevant part:
11

12      Now let’s turn our attention to safety. . . . Importantly, there were no surprises to
        this list. The most commonly reported side effects were dry mouth, tingling
13      sensation, constipation, upper respiratory infection, and altered taste. The majority
        of the events were mild.
14

15                                           *      *      *
        Clear measures of drug tolerability are study completion rate and discontinuation rate
16      due to side effects. On slide 29, we observed an overall higher study completion rate
        along with a low study discontinuation rate due to AEs [Adverse Events]. . . .
17      Importantly, no distinct pattern or reason for dropout is seen, as no event occurred
        in more than approximately 2% of patients. As shown on the slide, discontinuation
18      for depression associated with Qnexa, at 1.4%, was low, especially considering that
        26 to 30% of patients had background of psychiatric disorders.
19
                                             *      *       *
20      We evaluated serious adverse events across both EQUIP and CONQUER, and found
        that there were no differences in either total serious adverse events or drug-related
21      serious adverse events between Qnexa and placebo. There was one death that
        occurred in the placebo group.
22

23          52.      Defendant Day also stated that there “were no serious adverse events reported for

24 depression or depressed mood,” “there is no signal for depression,” and “there is no signal for

25 suicidal risk.”    Further, defendant Day stated there were “no clinically relevant effects seen” on

26 cognitive function and “no clinically relevant effects [were] observed” on psychomotor skills.

27

28
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 1           53.    Also, on September 9, 2009, defendant Wilson was interviewed on the financial

 2 news television network CNBC regarding Qnexa’s prospects and safety profile. During this

 3 public appearance, defendant Wilson described Qnexa’s safety profile as “remarkable” and

 4 reiterated the drug’s “superior safety.”

 5           54.    The statements referenced above from the September 9, 2009 press release, the

 6 conference call, and the CNBC interview were each materially false and misleading when issued

 7 because they misrepresented and failed to disclose the following material adverse facts:

 8                  (a)    the studies conducted by Vivus and submitted to the FDA could not

 9 support the FDA Panel’s recommendation for approval, or the FDA’s approval, for Qnexa’s use

10 to treat obesity as a chronic condition, and longer-term clinical studies would be needed to

11 determine whether Qnexa was safe for its intended use to treat chronic obesity;

12                  (b)    Phase 3 Trials showed significant and worrisome adverse effects of the

13 type that scuttled approval for other obesity drugs, some that were serious and could be life-

14 threatening, including potential teratogenicity (the capability of producing fetal malformations),

15 increased suicidal ideation, cognitive issues, decreased bicarb, tachycardia, and possible renal

16 stones;

17                  (c)    Qnexa was associated with an increased incidence of psychiatric adverse

18 effects and study discontinuations due to the adverse effects;

19                  (d)    there was a doubling of the rate of depression in the top dose group of

20 Qnexa;

21                  (e)    patients taking Qnexa reported an increased heart rate, with 20 percent of

22 high dose-treated patients with a heart rate increase of 20 beats per minute over baseline;

23                  (f)    there    was       potential        for       cardiovascular           risks,   including

24 tachycardia, arrhythmias, stunned myocardium, cardiomyopathy, and congestive heart failure, as

25 well as risk for stroke and intracerebral hemorrhage;

26                  (g)    patients taking Qnexa had a 4 times higher risk of cognitive impairment;

27

28
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 1                  (h)    Qnexa would likely receive a “Pregnancy Category X” label from the

 2 FDA due to potential fetal risks and no acceptable clinical benefits, instead of the proposed

 3 “Pregnancy Category C” label, thereby potentially eliminating a huge swath of potential Qnexa

 4 customers;

 5                  (i)    a greater proportion of individuals treated with Qnexa reported an adverse

 6 event in the subclasses of sleep disorders, anxiety, and depression and four to seven times as

 7 many patients taking the highest dose of Qnexa, compared to patients taking lower doses or

 8 placebos, dropped out of the study because of adverse side effects;

 9                  (j)    the Phase 3 Trials were unbalanced and heavily favored women, which

10 made it almost impossible to know whether the drug was efficacious in males; and

11                  (k)    during the TQT study (“Phase 1 Trial”), a depletion of potassium in

12 patients was noticed, which could be a signal of potential heart problems, and patients in the

13 Phase I Trial were provided with an increase in potassium in their diet to skew the adverse

14 results.

15            55.   On September 9, 2009, the New York Times published an article entitled, “Vivus,
16 Racing Rivals, Says Diet Drug Did Well in Trials,” which stated, in relevant part, the following:

17         Vivus, a drug developer, said Wednesday that its weight-loss drug produced
           strong results in two late-stage clinical trials, sending the company’s share price
18
           soaring.
19
           With one-third of American adults said to be obese, a successful drug could
20         potentially have billions of dollars in sales. Existing drugs have been plagued by
           side effects and some have been withdrawn from the market.
21
           56.     Vivus shares reacted positively to the announced results for Qnexa. In reaction to
22
   the statements made on September 9, 2009, the price of Vivus securities dramatically jumped
23
   from a close of $6.91 on September 8, 2009 to a close of $11.80 on September 9, 2009, or
24
   approximately 70%, in just one day.
25
           57.     Importantly, also on September 9, 2009, defendant Wilson sold 200,000 Vivus
26
   shares for proceeds of approximately $2,245,000, four times more than each of his sales prior to
27
   the Class Period.
28
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 1          58.    Over the course of the next several months, Vivus presented at many healthcare

 2 conferences at which Vivus management described the “overwhelmingly positive” results of

 3 Qnexa’s Phase 3 Trials. Defendants Wilson and Day, as well as other Company representatives,

 4 reiterated Qnexa’s powerful safety results seen in its Phase 3 Trials at a number of these

 5 conferences.

 6          59.    On September 10, 2009, at the Rodman & Renshaw’s Global Investment
 7 Conference, defendant Wilson described Qnexa as an “extremely safe” product for the obesity

 8 market and stated that “[t]he drug was well tolerated with completion rates significantly higher

 9 than placebo and a compelling risk benefit profile supporting approval, reimbursement and

10 commercial success of this product,” and that there was “nothing of concern” with the

11 discontinuation rates. Further, in terms of the safety issues, defendant Wilson stated, in relevant

12 part, the following:

13      . . . [O]bviously a big concern here that we wanted to look and demonstrate a product
        that was extremely safe for the obesity market, and I think that’s what you’re going to
14      see that we have come up with . . . [T]here is nothing in here of concern that we
        haven’t seen in other trials or is not in the label of existing studies. The most frequent
15      adverse events are dry mouth, tingling and constipation. These are patients losing
        weight, not drinking enough water and they have these most frequent adverse events,
16      but nothing of concern. Most of these adverse events are not related to drug as well
        as you’ll see in a comparison of placebo to active. Okay. This – let’s take a look at
17      the serious adverse events that we had in the trial. Total serious adverse events were
        the same between Qnexa and when we assess the total safety set for EQUIP and
18      CONQUER between Qnexa and placebo. The drug-related SAE’s were not different
        between Qnexa and placebo as well and clearly at a very low level. There was one
19      death in the study and it occurred on placebo.
20
                                            *      *       *
21      [n]o serious adverse events occurred in this study . . . the drug-related series adverse
        events were 0.4% for both active and placebo.
22

23          60.    Also, at the same conference, defendant Wilson stated the following regarding the

24 findings related to the cognitive function, the QT analysis, and the psychomotor skills:
       In addition to the assessments that we did with EQUIP and CONQUER, we have
25     completed a number of other studies important to this therapeutic area. We
       completed a cognitive function, examination and studies with no clinically relevant
26     effects. We did psychomotor testing with no clinically relevant effects. We did
       thorough QT analysis and no signal for QT prolongation. We did drug interaction
27     studies, no findings of concern and we looked at special populations such as
       patients with liver and kidney disease and found no findings of concern.
28
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 1          61.     On September 11, 2009, defendant Day described the strong safety profile of

 2 Qnexa at the Thomas Weisel Partners Healthcare Conference, noting “no signal of any increase

 3 in depression,” and “no cardiovascular signal to speak of.” Defendant Day, in relevant part,

 4 stated the following:

 5      All of these effects were generally mild as I mentioned before. The most common
        events dry mouth, tingling, constipation, altered taste.
 6

 7      . . . And then when we look at it on a relatedness perspective, all drug related SAE
        there was no difference between placebo and Qnexa.
 8

 9                                           *       *        *
10
        Depression has been a huge area of interest for us. . . . And what I can tell you is
11      that there was no signal of any increase in depression. Moreover, we saw a
        significant improvement in PHQ-9 scores overall.
12

13                                           *       *        *

14      Heart rate, there was real – there was no signal there of any clinical relevance. . . .
        We ran a standalone QT study which all of that was assessed. And there is no
15      cardiovascular signal to speak of. And in the presence of a blood pressure drop that
        we’re seeing with this treatment, one beat per minute increase which has no statistical
16      or clinical significance isn’t something that is of concern or of issue.

17                                           *       *        *
18      We performed a thorough QT study.            That study is complete with no QT
        prolongation.
19

20          62.     At the conference, defendant Day also discussed the findings related to cognitive
21 function, stating that there were “no real signals of any concern there.” Further, he discussed the

22 continuation rate of Phase 3 Trials’ patients taking Qnexa, stating that “[o]ne of the important

23 and positive outcomes of the trial was the completion rate.” Defendant Day also provided some

24 of the reasons for the drop-outs, which included insomnia, constipation, tingling and dry mouth,

25 and stated, in relevant part, the following:

26
        . . . [A]lthough a few subjects dropped out on – due to adverse events, the vast
27      majority of subjects did complete and the overall discontinuation rate due to adverse
        events was relatively low. And there were no single events that appeared to be
28      driving the discontinuation rate.
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 1          63.     On September 16, 2009, at the Newsmakers in the Biotech Industry Conference,

 2 defendant Day once again discussed the completion rates of the Phase 3 Trials, stating that “[o]ur

 3 EQUIP study, as well as our CONQUER, had very high completion rates” and that the

 4 completion rates for the full dose and the mid dose of Qnexa were “significantly greater” than

 5 the completion rate of the placebo in the EQUIP study and “significantly better” than the

 6 completion rate of the placebo in the CONQUER study. Defendant Day also stated that there

 7 were “no signals of concern from the [QT] study.”

 8          64.     Further, at the conference, defendant Day reiterated the safety profile of Qnexa,
 9 stating, in relevant part, the following:

10
           I think the important message from this table is that there were new surprises, we
11         didn’t see anything in this table that we hadn’t seen previously in other studies.
           Predominantly these events were mild and manageable. The most common of
12         them is dry mouth, tingling, constipation, altered taste, and upper respiratory
13         infection, wasn't most common, but generally mild.

14                                           *       *        *

15          . . . The other point that’s not shown, but for sake of time I will mention is that
            there was a balance on both sides in terms of the overall SAE’s and nothing that
16          was unexpected or raised concern.
17
                                            *     *       *
18          Finally, we believe we have or Qnexa has a very compelling benefit risk profile,
            which we believe will support approval, reimbursement, and ultimately
19          commercial success. Thank you for your attention.
20
            65.     The statements referenced above from the September 10, 2009, September 11,
21
     2009, and September 16, 2009 conferences were each materially false and misleading when
22
     issued because they misrepresented and failed to disclose the following material adverse facts:
23
                    (a)    the studies conducted by Vivus and submitted to the FDA could not
24
     support the FDA Panel’s recommendation for approval, or the FDA’s approval, for Qnexa’s use
25
     to treat obesity as a chronic condition, and longer-term clinical studies would be needed to
26
     determine whether Qnexa was safe for its intended use to treat chronic obesity;
27

28
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 1                  (b)    Phase 3 Trials showed significant and worrisome adverse effects of the

 2 type that scuttled approval for other obesity drugs, some that were serious and could be life-

 3 threatening, including potential teratogenicity, increased suicidal ideation, cognitive issues,

 4 decreased bicarb, tachycardia, and possible renal stones;

 5                  (c)    Qnexa was associated with an increased incidence of psychiatric adverse

 6 effects and study discontinuations due to the adverse effects;

 7                  (d)    there was a doubling of the rate of depression in the top dose group of

 8 Qnexa;

 9                  (e)    patients taking Qnexa reported an increased heart rate, with 20 percent of

10 high dose-treated patients with a heart rate increase of 20 beats per minute over baseline;

11                  (f)    there    was     potential        for       cardiovascular           risks,   including

12 tachycardia, arrhythmias, stunned myocardium, cardiomyopathy, and congestive heart failure, as

13 well as risk for stroke and intracerebral hemorrhage;

14                  (g)    patients taking Qnexa had a 4 times higher risk of cognitive impairment;

15                  (h)    Qnexa would likely receive a “Pregnancy Category X” label from the

16 FDA due to potential fetal risks and no acceptable clinical benefits, instead of the proposed

17 “Pregnancy Category C” label, thereby potentially eliminating a huge swath of potential Qnexa

18 customers;

19                  (i)    a greater proportion of individuals treated with Qnexa reported an adverse

20 event in the subclasses of sleep disorders, anxiety, and depression and four to seven times as

21 many patients taking the highest dose of Qnexa, compared to patients taking lower doses or

22 placebos, dropped out of the study because of adverse side effects;

23                  (j)    the Phase 3 Trials were unbalanced and heavily favored women, which

24 made it almost impossible to know whether the drug was efficacious in males; and

25                  (k)    during the Phase 1 Trial, a depletion of potassium in patients was noticed,

26 which could be a signal of potential heart problems, and patients in the Phase I Trial were

27 provided with an increase in potassium in their diet to skew the adverse results.

28
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 1           66.    On September 16, 2009, the Company filed its Registration Statement on Form S-

 2 3 with the SEC, signed by defendant Wilson, and the Company’s Prospectus on Form 424B5.

 3 On September 18, 2009, the Company filed its Prospectus Supplement on Form 424B5, which

 4 also included the September 16, 2009 Prospectus (collectively with the Registration Statement,

 5 “Registration Statement”), offering 9,000,000 shares of the Company’s common stock at $10.50

 6 per share. The Registration Statement incorporated by reference various of the Company’s other

 7 SEC filings, including the Form 8-Ks from July 15, 2009, August 11, 2009, August 17, 2009,

 8 September 2, 2009, September 8, 2009, September 9, 2009 and September 14, 2009.4

 9           67.    The Registration Statement discussed the adverse effects found in the Phase 3

10 Trials, stating, in relevant part, the following:

11           The most common drug-related adverse events reported in the EQUIP study for
12           the full-dose, low-dose and placebo group were paresthesia, or tingling of the
             extremities (19%, 4% and 2%, respectively), dry mouth (17%, 7% and 4%,
13           respectively), altered taste (8%, 1% and 1%, respectively), headache (12%, 10%
             and 10%, respectively) and constipation (14%, 8% and 7%, respectively).
14           Overall average completion rates were 47%, 57%, 59% for patients taking
             placebo, low-dose Qnexa and full-dose Qnexa, respectively.
15

16                                            *        *        *

17           The most common drug-related adverse events reported in the CONQUER study
             for the full-dose, mid-dose, and placebo group were paresthesia, or tingling of
18           the extremities (21%, 14% and 2%, respectively), dry mouth (21%, 14% and 2%,
             respectively), altered taste (10%, 7% and 1%, respectively), headache (10%, 7%
19
             and 9%, respectively) and constipation (17%, 15% and 6%, respectively).
20           Overall average completion rates were 57%, 69%, 64% for patients taking
             placebo, mid-dose Qnexa and full-dose Qnexa, respectively.
21

22   4
       The Registration Statement also incorporated by reference the Form 10-K filed on March 11,
     2009, the information specifically incorporated by reference into the Form 10-K for the year
23
     ended December 31, 2008 from the definitive proxy statement on Schedule 14A, filed with the
24   SEC on April 30, 2009, and Form 10-Qs for the quarterly periods ended March 31, 2009 and
     June 30, 2009 filed with the SEC on May 11, 2009 and July 31, 2009. Further, Vivus also
25   incorporated by reference any future filings (other than Current Reports on Form 8-K furnished
     under Item 2.02 or Item 7.01 thereof and exhibits filed on such form that are related to such
26   items) made with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
27   until the Company files a post-effective amendment that indicates the termination of the offering
     of the securities made by the Registration Statement.
28
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 1          68.     The Registration Statement also stated that “[i]n the EQUIP and CONQUER

 2 studies, there was no difference between Qnexa and placebo for incidence of moderate or

 3 severe depression/depressed mood,” and that “depression scores, quality of life, including self

 4 esteem and general health, significantly improved for patients on Qnexa.”

 5          69.     Further, the Registration Statement that “[t]he [TQT] study was completed with

 6 no signal for QT prolongation,” that “[t]here was no clinically significant change in overall

 7 cognitive function or effect on psychomotor skills seen in patients taking Qnexa,” and that

 8 “Qnexa was well-tolerated, and there was no difference between Qnexa (0.4%) and placebo

 9 (0.4%) drug-related serious adverse events in these studies.”

10          70.     The statements referenced above from the Registration Statement were each

11 materially false and misleading when issued because they misrepresented and failed to disclose

12 the following material adverse facts:

13                  (a)    the studies conducted by Vivus and submitted to the FDA could not

14 support the FDA Panel’s recommendation for approval, or the FDA’s approval, for Qnexa’s use

15 to treat obesity as a chronic condition, and longer-term clinical studies would be needed to

16 determine whether Qnexa was safe for its intended use to treat chronic obesity;

17                  (b)    Phase 3 Trials showed significant and worrisome adverse effects of the

18 type that scuttled approval for other obesity drugs, some that were serious and could be life-

19 threatening, including potential teratogenicity, increased suicidal ideation, cognitive issues,

20 decreased bicarb, tachycardia, and possible renal stones;

21                  (c)    Qnexa was associated with an increased incidence of psychiatric adverse

22 effects and study discontinuations due to the adverse effects;

23                  (d)    there was a doubling of the rate of depression in the top dose group of

24 Qnexa;

25                  (e)    patients taking Qnexa reported an increased heart rate, with 20 percent of

26 high dose-treated patients with a heart rate increase of 20 beats per minute over baseline;

27

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 1                  (f)    there    was     potential         for       cardiovascular           risks,   including

 2 tachycardia, arrhythmias, stunned myocardium, cardiomyopathy, and congestive heart failure, as

 3 well as risk for stroke and intracerebral hemorrhage;

 4                  (g)    patients taking Qnexa had a 4 times higher risk of cognitive impairment;

 5                  (h)    Qnexa would likely receive a “Pregnancy Category X” label from the

 6 FDA due to potential fetal risks and no acceptable clinical benefits, instead of the proposed

 7 “Pregnancy Category C” label, thereby potentially eliminating a huge swath of potential Qnexa

 8 customers;

 9                  (i)    a greater proportion of individuals treated with Qnexa reported an adverse

10 event in the subclasses of sleep disorders, anxiety, and depression and four to seven times as

11 many patients taking the highest dose of Qnexa, compared to patients taking lower doses or

12 placebos, dropped out of the study because of adverse side effects;

13                  (j)    the Phase 3 Trials were unbalanced and heavily favored women, which

14 made it almost impossible to know whether the drug was efficacious in males; and

15                  (k)    during the Phase 1 Trial, a depletion of potassium in patients was noticed,

16 which could be a signal of potential heart problems, and patients in the Phase I Trial were

17 provided with an increase in potassium in their diet to skew the adverse results.

18          71.     On September 21, 2009, at the UBS Global Life Sciences Conference, Vivus
19 representatives stated, in part, the following:

20        I also like to point out that the completion rates on active was statically important
          as compared to the completion rate on placebo. . . . And also suggest a very safe
21
          side effect profile.
22
                                              *     *       *
23
          All of these side-effects were the same side-effects we’ve seen in the studies; they
24        have been consistent throughout. . . . And really as expected, so no surprises
25        here.

26                                           *       *              *

27          We use the tool that was designed estimation by the FDA from Caliposner to a bit
            Columbia. CSSR’s gain signal for suicidality. So this is a fairly compete safety
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            set and we didn’t find anything that really caused any concern. We also thought
 1          that if look at the completion rate so that Qnexa was well tolerated again. No
 2          signal for depression and no signal for suicidality and all the additional safety
            we had really we think supports a very positive safety profile fortune accent.
 3
            72.     On September 30, 2009, Merriman Curhan Ford published a report on Vivus,
 4
     entitled “Out of the Quiet Period – Publishing an Updated Model and Raising Target to $16-18;
 5
     Reiterating Buy.” The report stated, in relevant part, the following:
 6

 7
            On September 9, Vivus announced best-in-class results for its obesity therapy,
 8          Qnexa, in two large and well-executed clinical trials. The shares surged from just
            under $7 to nearly $12 before pulling back. The company priced a follow-on
 9          public offering on the 17th of September, raising gross proceeds of $94.5M at a
10          price of $10.50 per share. Shortly thereafter, the company announced that the
            underwriters had exercised their overallotment, for a final raise of gross proceeds
11          that exceeded $108M before fees.

12          73.     On October 5, 2009, Vivus presented at the JMP Securities Healthcare Focus

13 Conference. At the conference, Vivus representatives stated that there was “nothing of concern

14 from the side effect standpoint.” Vivus representatives also reiterated that the Company was

15 “very happy with [the] completion rate” in the EQUIP and the CONQUER studies and that it

16 showed a “nice measure of tolerability of the drug.” Specifically, Vivus representatives stated,

17 in part, the following:
            But we’re very happy with our completion rate. In EQUIP study, we got it 59%
18
            again, which was very statistically significant over the placebo group. And then
19          even higher in better completion rate in the CONQUER group where we had
            completion rates up to 69% on mid-dose, 64 again on the full-dose, which was
20          also statistically significant over the placebo group, so for us it’s a nice measure
            of the tolerability of the drug.
21

22          74.     Also, at the October 5, 2009 conference, Vivus representative discussed the safety

23 profile of Qnexa, stating, in relevant part, the following:
           . . . [W]e went out of our way to specifically look at certain things. So we did
24
           specific testing on cognitive function. We haven’t seen any clinically relevant
25         effects there. We did a specific study on psychomotor, which shows you what
           happens when you drive motor vehicles and the like; again no issues there. We
26         did a thorough QT study so to the extent there is any questions about
           cardiovascular safety, any concerns about centromene, again no signal for a QT
27         prolongation.
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                                             *       *        *
 1

 2          We had to specifically look at depression. The agency is concerned about
            depression these days and all central action drugs and so we measured and took
 3          depression assessments on every patient, at every visit. And as a subset of that, we
            also looked at suicidality. There is also been discussions at the agency level
 4          around suicidality for all the central-acting drugs. And again no signal for that as
            well. So a fairly comprehensive safety assessment was done in addition to the
 5
            pure efficacy.
 6          75.     On November 2, 2009, Vivus filed its Form 8-K with the SEC, attaching a press
 7 release it issued on October 29, 2009, entitled “Additional Data from the Qnexa Phase 3 Studies

 8 Presented at The Obesity Society 27th Annual Scientific Meeting,” reiterating that the data from

 9 the EQUIP and CONQUER studies supports the safety and efficacy profile of Qnexa. Defendant

10 Wilson, quoted in the press release, stated that “[w]e believe the overall efficacy and safety

11 profile of Qnexa supports approvability.”

12          76.     The statements referenced above from the September 21, 2009 and the October 5,
13 2009 conferences and the October 29, 2009 press release were each materially false and

14 misleading when issued because they misrepresented and failed to disclose the following

15 material adverse facts:

16                  (a)    the studies conducted by Vivus and submitted to the FDA could not
17 support the FDA Panel’s recommendation for approval, or the FDA’s approval, for Qnexa’s use

18 to treat obesity as a chronic condition, and longer-term clinical studies would be needed to

19 determine whether Qnexa was safe for its intended use to treat chronic obesity;

20                  (b)    Phase 3 Trials showed significant and worrisome adverse effects of the
21 type that scuttled approval for other obesity drugs, some that were serious and could be life-

22 threatening, including potential teratogenicity, increased suicidal ideation, cognitive issues,

23 decreased bicarb, tachycardia, and possible renal stones;

24                  (c)    Qnexa was associated with an increased incidence of psychiatric adverse
25 effects and study discontinuations due to the adverse effects;

26                  (d)    there was a doubling of the rate of depression in the top dose group of
27 Qnexa;

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 1                  (e)    patients taking Qnexa reported an increased heart rate, with 20 percent of

 2 high dose-treated patients with a heart rate increase of 20 beats per minute over baseline;

 3                  (f)    there    was     potential        for       cardiovascular           risks,   including

 4 tachycardia, arrhythmias, stunned myocardium, cardiomyopathy, and congestive heart failure, as

 5 well as risk for stroke and intracerebral hemorrhage;

 6                  (g)    patients taking Qnexa had a 4 times higher risk of cognitive impairment;

 7                  (h)    Qnexa would likely receive a “Pregnancy Category X” label from the

 8 FDA due to potential fetal risks and no acceptable clinical benefits, instead of the proposed

 9 “Pregnancy Category C” label, thereby potentially eliminating a huge swath of potential Qnexa

10 customers;

11                  (i)    a greater proportion of individuals treated with Qnexa reported an adverse

12 event in the subclasses of sleep disorders, anxiety, and depression and four to seven times as

13 many patients taking the highest dose of Qnexa, compared to patients taking lower doses or

14 placebos, dropped out of the study because of adverse side effects;

15                  (j)    the Phase 3 Trials were unbalanced and heavily favored women, which

16 made it almost impossible to know whether the drug was efficacious in males; and

17                  (k)    during the Phase 1 Trial, a depletion of potassium in patients was noticed,

18 which could be a signal of potential heart problems, and patients in the Phase I Trial were

19 provided with an increase in potassium in their diet to skew the adverse results.

20          77.     On November 3, 2009, Vivus filed its Form 8-K with the SEC, attaching a press

21 release it issued on the same day, entitled “VIVUS Reports Third Quarter 2009 Highlights and

22 Financial Results.” Defendant Wilson, commenting on the financial results of the third quarter

23 2009, stated, in part, the following:

24          The highlight of the third quarter and the year to date was the announcement of
            the positive results from the year-long studies of Qnexa for the treatment of
25
            obesity. The results demonstrated that patients treated with Qnexa had weight
26          loss up to 14.7% and significant improvement in their co-morbidities. All three
            doses administered in the studies exceeded the FDA guidance on efficacy
27          endpoints. Progress on the submission of the NDA for Qnexa in obesity remains
            on schedule and is expected by the end of 2009. Following the announcement
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            of the positive Qnexa results, we were able to raise $108.7 million in gross
 1          proceeds from a public offering of our common stock. With the positive results
 2          from our phase 3 trials for Qnexa and a cash and investment balance in excess
            of $226 million at the end of the third quarter, we believe we are well positioned
 3          to meet our goals for 2009 and beyond.

 4          78.     Also, on November 3, 2009, Vivus hosted a conference call to discuss the third

 5 quarter 2009 financial results, reiterating the statements made in the press release and the Form

 6 10-Q, as discussed below.

 7          79.     On November 4, 2009, Vivus filed its Form 10-Q for the third quarter of 2009

 8 (“3Q 2009 10-Q”) with the SEC. The 3Q 2009 10-Q was certified by defendant Wilson and

 9 repeated Vivus’s previously announced financial results for the quarter. Regarding Qnexa, the

10 3Q 2009 10-Q stated that “Qnexa was well-tolerated, with no drug-related serious adverse events

11 in the study,” and that the most common drug-adverse events reported in the EQUIP and the

12 CONQUER studies were tingling of the extremities, dry mouth, altered taste, headache, and

13 constipation. In terms of depression, suicidality, cardiovascular risk, and cognitive function, the

14 3Q 2009 10-Q stated, in part, the following:

15          In the EQUIP and CONQUER studies, there was no difference between Qnexa
            and placebo for incidence of moderate or severe depression/depressed mood
16
            (1.7%, 1.7%, 1.2% and 1.9% for placebo, Qnexa low-dose, Qnexa mid-dose and
17          Qnexa full-dose, respectively). . . . Overall, depression scores, quality of life,
            including self esteem and general health, significantly improved for patients on
18          Qnexa. We completed a thorough QT prolongation (TQT) study evaluating
            subjects taking Qnexa. The study was completed with no signal for QT
19          prolongation. Subjects taking Qnexa also underwent complex and extensive
            cognitive and psychomotor testing using validated, FDA accepted testing
20
            methodologies. There was no clinically significant change in overall cognitive
21          function or effect on psychomotor skills seen in patients taking Qnexa. In
            addition, Qnexa was well-tolerated, and there was no difference between Qnexa
22          (0.4%) and placebo (0.4%) drug-related serious adverse events in these studies.
23
            80.     The certification attached to the 3Q 2009 10-Q, signed by defendant Wilson,
24
     stated in part, the following:
25
            I, Leland F. Wilson, certify that:
26
            1. I have reviewed this quarterly report on Form 10-Q of VIVUS, Inc.;
27

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              2. Based on my knowledge, this report does not contain any untrue statement of a
 1            material fact or omit to state a material fact necessary to make the statements
              made, in light of the circumstances under which such statements were made, not
 2            misleading with respect to the period covered by this report.
 3
              81.    The statements referenced above from the 3Q 2009 10-Q (and thus, the
 4
     certification attached to the 3Q 2009 10-Q), and which were also discussed in the November 3,
 5
     2009 press release and on the conference call, were each materially false and misleading when
 6
     issued because they misrepresented and failed to disclose the following material adverse facts:
 7
                     (a)    the studies conducted by Vivus and submitted to the FDA could not
 8
     support the FDA Panel’s recommendation for approval, or the FDA’s approval, for Qnexa’s use
 9
     to treat obesity as a chronic condition, and longer-term clinical studies would be needed to
10
     determine whether Qnexa was safe for its intended use to treat chronic obesity;
11
                     (b)    Phase 3 Trials showed significant and worrisome adverse effects of the
12
     type that scuttled approval for other obesity drugs, some that were serious and could be life-
13
     threatening, including potential teratogenicity, increased suicidal ideation, cognitive issues,
14
     decreased bicarb, tachycardia, and possible renal stones;
15
                     (c)    Qnexa was associated with an increased incidence of psychiatric adverse
16
     effects and study discontinuations due to the adverse effects;
17
                     (d)    there was a doubling of the rate of depression in the top dose group of
18
     Qnexa;
19
                     (e)    patients taking Qnexa reported an increased heart rate, with 20 percent of
20
     high dose-treated patients with a heart rate increase of 20 beats per minute over baseline;
21
                     (f)    there    was     potential        for       cardiovascular           risks,   including
22
     tachycardia, arrhythmias, stunned myocardium, cardiomyopathy, and congestive heart failure, as
23
     well as risk for stroke and intracerebral hemorrhage;
24
                     (g)    patients taking Qnexa had a 4 times higher risk of cognitive impairment;
25
                     (h)    Qnexa would likely receive a “Pregnancy Category X” label from the
26
     FDA due to potential fetal risks and no acceptable clinical benefits, instead of the proposed
27

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 1 “Pregnancy Category C” label, thereby potentially eliminating a huge swath of potential Qnexa

 2 customers;

 3                  (i)    a greater proportion of individuals treated with Qnexa reported an adverse

 4 event in the subclasses of sleep disorders, anxiety, and depression and four to seven times as

 5 many patients taking the highest dose of Qnexa, compared to patients taking lower doses or

 6 placebos, dropped out of the study because of adverse side effects;

 7                  (j)    the Phase 3 Trials were unbalanced and heavily favored women, which

 8 made it almost impossible to know whether the drug was efficacious in males; and

 9                  (k)    during the Phase 1 Trial, a depletion of potassium in patients was noticed,

10 which could be a signal of potential heart problems, and patients in the Phase I Trial were

11 provided with an increase in potassium in their diet to skew the adverse results.

12          82.     On December 29, 2009, Vivus filed its Form 8-K with the SEC, attaching a press

13 release it issued on the same day, entitled “VIVUS Submits Qnexa New Drug Application to the

14 FDA for the Treatment of Obesity.” The press release announced that a NDA was submitted to

15 the FDA seeking approval of Qnexa. The press release also once again reported the highlights

16 from the EQUIP and CONQUER studies, including: “[s]tatistically significant improvements in

17 cardiovascular, metabolic and inflammatory risk factors among patients treated with Qnexa”;

18 “[c]ompletion rates up to 69% were statistically significantly higher than placebo at all three

19 doses of Qnexa, indicating favorable tolerability”; and “the most commonly reported side

20 effects were dry mouth, tingling and constipation.”

21          83.     On January 11, 2010, defendant Wilson spoke at the JPMorgan Healthcare
22 Conference, where he reported that the Phase 3 Trial results were “very outstanding” and noted

23 “highly statistically significant improvements in all cardiovascular and all metabolic endpoints

24 if they are on the high doses of Qnexa.” Defendant Wilson also stated, in relevant part, the

25 following:

26          We’re also very proud of the safety history of Qnexa. This is generally
            [inaudible], and I want to tell you very clearly that Qnexa has been well-
27
            tolerated in all clinical trials to date and we have had no meaningful signals of
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            severe anxiety, depression or impairment of cognitive functions. All those so
 1          that means in such case, the NDA which we were [inaudible] we’re able to submit
 2          that NDA on time in December of this year and I’m very proud of the quality of
            that NDA.
 3
            84.     On February 9, 2010, Vivus presented at the BIO CEO and Investor Conference
 4
     where Vivus’s representatives stated, in part, the following:
 5
            Qnexa was well tolerated. The completion rates were significantly higher in the
 6          active arms than in placebo and we believe with the data we’ve shown you here
            that this makes a pretty compelling risk-benefit story supporting both approval
 7          as well as reimbursement in the commercial success of Qnexa and we are very
 8          actively working with all the relevant constituencies to make this happen.

 9          85.     The statements referenced above from the December 29, 2009 press release and

10 the January 11, 2010 and February 9, 2010 conferences were each materially false and

11 misleading when issued because they misrepresented and failed to disclose the following

12 material adverse facts:

13                  (a)     the studies conducted by Vivus and submitted to the FDA could not
14 support the FDA Panel’s recommendation for approval, or the FDA’s approval, for Qnexa’s use

15 to treat obesity as a chronic condition, and longer-term clinical studies would be needed to

16 determine whether Qnexa was safe for its intended use to treat chronic obesity;

17                  (b)     Phase 3 Trials showed significant and worrisome adverse effects of the
18 type that scuttled approval for other obesity drugs, some that were serious and could be life-

19 threatening, including potential teratogenicity, increased suicidal ideation, cognitive issues,

20 decreased bicarb, tachycardia, and possible renal stones;

21                  (c)     Qnexa was associated with an increased incidence of psychiatric adverse
22 effects and study discontinuations due to the adverse effects;

23                  (d)     there was a doubling of the rate of depression in the top dose group of
24 Qnexa;

25                  (e)     patients taking Qnexa reported an increased heart rate, with 20 percent of
26 high dose-treated patients with a heart rate increase of 20 beats per minute over baseline;

27

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 1                  (f)    there    was     potential        for       cardiovascular           risks,   including

 2 tachycardia, arrhythmias, stunned myocardium, cardiomyopathy, and congestive heart failure, as

 3 well as risk for stroke and intracerebral hemorrhage;

 4                  (g)    patients taking Qnexa had a 4 times higher risk of cognitive impairment;

 5                  (h)    Qnexa would likely receive a “Pregnancy Category X” label from the

 6 FDA due to potential fetal risks and no acceptable clinical benefits, instead of the proposed

 7 “Pregnancy Category C” label, thereby potentially eliminating a huge swath of potential Qnexa

 8 customers;

 9                  (i)    a greater proportion of individuals treated with Qnexa reported an adverse

10 event in the subclasses of sleep disorders, anxiety, and depression and four to seven times as

11 many patients taking the highest dose of Qnexa, compared to patients taking lower doses or

12 placebos, dropped out of the study because of adverse side effects;

13                  (j)    the Phase 3 Trials were unbalanced and heavily favored women, which

14 made it almost impossible to know whether the drug was efficacious in males; and

15                  (k)    during the Phase 1 Trial, a depletion of potassium in patients was noticed,

16 which could be a signal of potential heart problems, and patients in the Phase I Trial were

17 provided with an increase in potassium in their diet to skew the adverse results.

18          86.     On March 2, 2010, Vivus filed its Form 8-K with the SEC, attaching a press

19 release it issued on March 1, 2010, entitled “VIVUS Announces FDA Acceptance of Qnexa®

20 New Drug Application for Treatment of Obesity.” The press release announced that the FDA had

21 accepted for filing the Company’s NDA for Qnexa for the treatment of obesity.

22          87.     On March 8, 2010, Vivus filed its Form 8-K with the SEC, attaching a press

23 release it issued on the same day, entitled “VIVUS Reports 2009 Fourth Quarter and Full-Year

24 Financial Results.”

25          88.     Also, on March 8, 2010, Vivus hosted a conference call to discuss the fourth

26 quarter 2009 and full year financial results.        Defendants once again brushed aside safety

27 concerns regarding Qnexa’s safety profile when questioned by analyst Mike King of Merriman:

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 1
        Q - MIKE KING: Given the sort of political sensitivity and very focused – FDA is
 2      very focused on safety issues. Why should investors have confidence that Qnexa will
        gain approval on a first cycle review?
 3
        A - LELAND F. WILSON, CHIEF EXECUTIVE OFFICER: The first thing I
 4      would say is that we are very confident that Qnexa will be approved on the PDUFA
        data. And as you know we have had two products approved on the PDUFA data here
 5      at VIVUS and have some credibility I think in speaking to that matter. Now
        specifically concerning the product, with the FDA it’s all about risk benefit profile.
 6      And as you know obesity is now known as one of the most devastating diseases we
        have in this country, cost associated with or in excess of $150 billion a year. And to
 7      our knowledge we have the state-of-the-art therapy for the treatment of obesity. I
        think clearly everyone recognizes the efficacy of Qnexa.
 8
        Now speaking specifically at the safety considerations here, as you know, Mike, we
 9      have expended considerable effort and time trying to meet all of the possible targeted
        medical event issues that could come up. Things such as the neurologic and
10      psychological aspects of it was our test with PHQ-9, C-CASA suicidality and all
        those things. We have completed them all under an SPA using the latest tools
11      possible and we are extremely confident of the outcome, and I think we’ve been very
        forthcoming in disclosing all the data that we have on a top line basis for the safety
12      consideration. So, the view that we have is this drug is remarkably safe, clearly
        there are three doses that has allowed the physician to titrate to a specific patient
13      based upon their tolerance for the drug and clearly even the mid dose had results that
        achieved greater weight loss than to my knowledge any previous therapy that has
14      been submitted to the FDA. . . . [S]o Peter [Tam], if you have a comment?
15
        A - PETER Y. TAM, PRESIDENT: And what we are using again is a combination
16      of low doses of two already approved drugs, which I certainly feel very comfortable
        with given the millions of years of patient experience on these two drugs. So, we are
17      very, very confident that the FDA would be able to reach a decision hopefully
        quickly. We are working with the Division right now to answer the questions and we
        believe that the FDA is really reviewing this in a very expedited – not an expedited
18      review, but they are currently doing their job and we are really glad to see that.
19
        A - LELAND F. WILSON, CHIEF EXECUTIVE OFFICER: Yeah, I would just
20      comment further on what Peter said. I think a lot of people failed to understand that
        this submission is done under a 505(b)(2) submission, which relies in part on the
21      safety that is demonstrated by the two previous approved drugs. And this goes a
        long ways towards making people comfortable with the safety profile of the drug.
22      As Peter mentioned, there is more than five million patient years of history with these
        drugs on the market, both are very large selling drugs in the marketplace. And I
23      would also comment that there is not one event in our clinical program that is not in
        the label for both – for either phentermine or topiramate in the marketplace. So, there
24      were no surprises in our entire clinical program. I think the only surprises were the
        dramatic weight loss and because of the reduction in doses that we used over the
25      market products, a reduction in the side-effect profile.

26          89.     Defendant Wilson then spoke about Qnexa’s cardiovascular issues and whether

27 the FDA will require a further “outcome study” of Qnexa’s cardiovascular effects prior to

28
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 1 approval. Defendant Wilson and Peter Y. Tam, Vivus’s director of clinical and corporate

 2 development at the time, fielded questions from analyst Jason Butler of JMP Securities:

 3      Q - JASON BUTLER: Hi, thanks for taking the question. I had a question relating to
        the cardiovascular risk. . . . in the run up to the Qnexa NDA submission and in the
 4      short time since, has the FDA’s communications with you over the requirements to
        assess cardiovascular risk changed in any way?
 5
        A - LELAND F. WILSON, CHIEF EXECUTIVE OFFICER: . . . No, and in fact
 6      we have written communications with the FDA concerning the need for an outcome
        study. No need – there is not a need for an outcome study for the treatment of
 7      obesity. And so that’s been reaffirmed on several occasions in writing from the
        FDA to us. So we’re comfortable with that. Now that doesn’t mean the FDA can’t
 8      change their mind at any point. The second one that I think is important to
        consideration here too, I don’t know of a drug that has ever demonstrated an
 9      improvement in all cardiovascular and metabolic endpoints that we have seen with
        Qnexa in these trials. So it speaks highly towards the potential cardiovascular benefits
10      that we’ve seen – that can be seen with this drug, and I’ll ask Peter to comment if he
        has any other comments on this.
11

12      A - PETER Y. TAM, PRESIDENT: . . . So there is nothing here that we believe
        would trigger an FDA’s change of mind in requiring a cardiovascular safety study.
13
            90.     Defendant Wilson later reiterated his confidence in Qnexa and underscored the
14
     importance of the upcoming FDA review process to Vivus’s business prospects:
15
        Again, 2009 was pretty remarkable, but we’re looking at 2010 as being potentially
16      even more remarkable, clearly to have a positive panel for Qnexa and to have the
        approval on the PDUFA date would certainly trump having successful Phase III data
17      that we had last year. So we’re looking for a great 2010, someone likened it, or
        somebody asked me one time, are you nervous or scared? And I said, no I’m
        probably overconfident, but I’m anxious. This is our Super Bowl, our Olympics, et
18      cetera and we are well prepared. We want to go to the advisory panel, we want to
        defend our product. And we believe that the data is – justifies approval on the
19      PDUFA date, and feel strongly about that. So we’re ready to go. And we’re going
        to even be more ready by the time it happens, which will likely have an advisory
20      panel in September, is my opinion, and we’ll be ready to go. So very confident. And
        so, appreciate everybody’s support, and it’s going to be a great year.
21

22          91.     The statements referenced above from the March 8, 2010 conference call were

23 each materially false and misleading when issued because they misrepresented and failed to

24 disclose the following material adverse facts:

25                  (a)    the studies conducted by Vivus and submitted to the FDA could not
26 support the FDA Panel’s recommendation for approval, or the FDA’s approval, for Qnexa’s use

27

28
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 1 to treat obesity as a chronic condition, and longer-term clinical studies would be needed to

 2 determine whether Qnexa was safe for its intended use to treat chronic obesity;

 3                  (b)    Phase 3 Trials showed significant and worrisome adverse effects of the

 4 type that scuttled approval for other obesity drugs, some that were serious and could be life-

 5 threatening, including potential teratogenicity, increased suicidal ideation, cognitive issues,

 6 decreased bicarb, tachycardia, and possible renal stones;

 7                  (c)    Qnexa was associated with an increased incidence of psychiatric adverse

 8 effects and study discontinuations due to the adverse effects;

 9                  (d)    there was a doubling of the rate of depression in the top dose group of

10 Qnexa;

11                  (e)    patients taking Qnexa reported an increased heart rate, with 20 percent of

12 high dose-treated patients with a heart rate increase of 20 beats per minute over baseline;

13                  (f)    there    was     potential        for       cardiovascular           risks,   including

14 tachycardia, arrhythmias, stunned myocardium, cardiomyopathy, and congestive heart failure, as

15 well as risk for stroke and intracerebral hemorrhage;

16                  (g)    patients taking Qnexa had a 4 times higher risk of cognitive impairment;

17                  (h)    Qnexa would likely receive a “Pregnancy Category X” label from the

18 FDA due to potential fetal risks and no acceptable clinical benefits, instead of the proposed

19 “Pregnancy Category C” label, thereby potentially eliminating a huge swath of potential Qnexa

20 customers;

21                  (i)    a greater proportion of individuals treated with Qnexa reported an adverse

22 event in the subclasses of sleep disorders, anxiety, and depression and four to seven times as

23 many patients taking the highest dose of Qnexa, compared to patients taking lower doses or

24 placebos, dropped out of the study because of adverse side effects;

25                  (j)    the Phase 3 Trials were unbalanced and heavily favored women, which

26 made it almost impossible to know whether the drug was efficacious in males; and

27

28
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 1                  (k)     during the Phase 1 Trial, a depletion of potassium in patients was noticed,

 2 which could be a signal of potential heart problems, and patients in the Phase I Trial were

 3 provided with an increase in potassium in their diet to skew the adverse results.

 4          92.     On March 10, 2010, Vivus filed its Form 10-K with the SEC for the year ended

 5 December 31, 2009, signed and certified by defendant Wilson. In regard to completion rates, the

 6 Form 10-K stated that “[a] significantly greater proportion of patients completed the study on

 7 Qnexa as compared to placebo patients” in both the EQUIP study and the CONQUER study.

 8 The Form 10-K also stated that the most common drug-related adverse events in both studies

 9 were tingling of the extremities, dry mouth, altered taste, headache and constipation. Further, the

10 Form 10-K stated that “[i]n the Phase 3 EQUIP and CONQUER studies, there was no difference

11 between Qnexa (0.4%) and placebo (0.4%) drug-related serious adverse events.”

12          93.     As for depression and suicidality risk, the Form 10-K stated, in part, the

13 following:

14          In the EQUIP and CONQUER studies, there was no difference between Qnexa
            and placebo for reported incidence of moderate or severe depression/depressed
15          mood (1.9%, 1.2%, 1.7% and 1.7% for Qnexa full-, mid- and low-dose and
            placebo, respectively). Patients were monitored for depression and suicidality
16          using the PHQ-9 questionnaire, a validated mental health assessment tool, and the
17          C-SSRS, or Columbia Suicidality Severity Rating Scale, agreed to by the FDA for
            use in our studies. Overall, depression scores, quality of life, including self-
18          esteem and general health, significantly improved for patients on Qnexa. In
            addition, Qnexa was well-tolerated and there was no difference between Qnexa
19          (0.4%) and placebo (0.4%) for serious adverse events that were considered to be
            drug-related by investigators in these studies.
20

21                                            *      *        *
            As part of our Phase 3 obesity trials for Qnexa, we prospectively assessed the
22
            potential risk of suicidal tendencies. The results of the extensive assessments
23          performed in our Phase 3 trials for Qnexa indicated no signal for suicidal
            ideation.
24
            94.     As for the cognitive function and cardiovascular risk, the Form 10-K stated, in
25
     part, the following:
26

27          We completed a “Thorough QT,” or TQT, prolongation study evaluating patients
            taking Qnexa. . . . The study was completed with no drug-related signal for QT
28
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            prolongation. Patients taking Qnexa also underwent complex and extensive
 1          cognitive and psychomotor testing using validated, FDA recognized testing
 2          methodologies. There was no clinically relevant change in overall cognitive
            function or effect on psychomotor skills seen in patients taking Qnexa.
 3

 4          95.     The Form 10-K contained a certification signed by defendants Wilson, stating, in

 5 part the following:

 6          I, Leland F. Wilson, Chief Executive Officer, certify that:

 7          1. I have reviewed this annual report on Form 10-K of VIVUS, Inc.;

 8          2. Based on my knowledge, this report does not contain any untrue statement of a
            material fact or omit to state a material fact necessary to make the statements
 9          made, in light of the circumstances under which such statements were made, not
10          misleading with respect to the period covered by this report.
            96.     On March 10, 2010, Vivus presented at the Cowen & Company Health Care
11
     Conference. Once again, Vivus representatives reiterated that “nothing causes us any great
12
     concern” and “[n]othing in here was unexpected” regarding the adverse effects of the Phase 3
13
     Trials, which included dry mouth, tingling, constipation, and altered taste.         As for completion
14
     rates, Vivus representatives stated that “we had fairly decent completion rate here” and “nothing
15
     that causes any great concern from a side effect standpoint” regarding the drop-outs.
16
            97.     The statements referenced above from the Form 10-K (and thus, the certification
17
     attached to the Form 10-K) and the March 10, 2010 conference were each materially false and
18
     misleading when issued because they misrepresented and failed to disclose the following
19
     material adverse facts:
20
                    (a)    the studies conducted by Vivus and submitted to the FDA could not
21
     support the FDA Panel’s recommendation for approval, or the FDA’s approval, for Qnexa’s use
22
     to treat obesity as a chronic condition, and longer-term clinical studies would be needed to
23
     determine whether Qnexa was safe for its intended use to treat chronic obesity;
24
                    (b)    Phase 3 Trials showed significant and worrisome adverse effects of the
25
     type that scuttled approval for other obesity drugs, some that were serious and could be life-
26
     threatening, including potential teratogenicity, increased suicidal ideation, cognitive issues,
27
     decreased bicarb, tachycardia, and possible renal stones;
28
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 1                  (c)    Qnexa was associated with an increased incidence of psychiatric adverse

 2 effects and study discontinuations due to the adverse effects;

 3                  (d)    there was a doubling of the rate of depression in the top dose group of

 4 Qnexa;

 5                  (e)    patients taking Qnexa reported an increased heart rate, with 20 percent of

 6 high dose-treated patients with a heart rate increase of 20 beats per minute over baseline;

 7                  (f)    there    was     potential        for       cardiovascular           risks,   including

 8 tachycardia, arrhythmias, stunned myocardium, cardiomyopathy, and congestive heart failure, as

 9 well as risk for stroke and intracerebral hemorrhage;

10                  (g)    patients taking Qnexa had a 4 times higher risk of cognitive impairment;

11                  (h)    Qnexa would likely receive a “Pregnancy Category X” label from the

12 FDA due to potential fetal risks and no acceptable clinical benefits, instead of the proposed

13 “Pregnancy Category C” label, thereby potentially eliminating a huge swath of potential Qnexa

14 customers;

15                  (i)    a greater proportion of individuals treated with Qnexa reported an adverse

16 event in the subclasses of sleep disorders, anxiety, and depression and four to seven times as

17 many patients taking the highest dose of Qnexa, compared to patients taking lower doses or

18 placebos, dropped out of the study because of adverse side effects;

19                  (j)    the Phase 3 Trials were unbalanced and heavily favored women, which

20 made it almost impossible to know whether the drug was efficacious in males; and

21                  (k)    during the Phase 1 Trial, a depletion of potassium in patients was noticed,

22 which could be a signal of potential heart problems, and patients in the Phase I Trial were

23 provided with an increase in potassium in their diet to skew the adverse results.

24          98.     According to a March 31, 2010 Jesup & Lamont report by Ching-Yi Lin:

25          Since Qnexa is VIVUS’s dominant revenue driver, FDA rejection, delay in
            approval or restrictive labeling of Qnexa would pose as a serious concern for
26          investors. . . .
27

28
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 1          99.     On April 8, 2010, Vivus presented at the Biotech Industry Conference. Regarding

 2 side effects, Vivus representatives stated that “[w]e report everything that’s out here” and

 3 “nothing [ ] really causes any great concern, nothing that was entirely unexpected.”

 4 Specifically, in terms of cardiovascular risk, Vivus representatives stated, in part, the following:

 5          In terms of the cardiovascular risk factors, again, we’ve seen very, very strong
            signals for improvements and this is really where the double-digit weight loss
 6          really comes into effect. So if you remember on our full dose, we had 11% weight
            loss. And you could see statistical significance in every single one of these
 7          cardiovascular risk factors.
 8
            100.    As to completion rates, Vivus representatives stated that “these are year long
 9
     studies, so difficult to get anybody to stay in the study for over a year, but overall, very high
10
     completion rates. The mid-dose probably had the best completion rate.” As for drop-outs,
11
     Vivus representatives stated, in part, the following:
12
            The drop-outs due to AEs are about as expected, anywhere from 12 to 18%. A
13          little bit of a dose relationship here. We’ve listed not every reason here, but as you
            can see, there’s not one single reason. It’s kind of a smattering and these are
14          things, again, that are expected. Nothing that was unusual, nothing that was
            exacerbated by the combination. So, again, that’s the benefit of using drugs that
15          have been approved and used before. There are no surprises and that’s really the
            message here.
16

17          101.    The statements referenced above from the April 8, 2010 conference were each

18 materially false and misleading when issued because they misrepresented and failed to disclose

19 the following material adverse facts:

20                  (a)     Phase 3 Trials showed significant and worrisome adverse effects of the

21 type that scuttled approval for other obesity drugs, some that were serious and could be life-

22 threatening, including potential teratogenicity, increased suicidal ideation, cognitive issues,

23 decreased bicarb, tachycardia, and possible renal stones;

24                  (b)     Qnexa was associated with an increased incidence of psychiatric adverse

25 effects and study discontinuations due to the adverse effects;

26                  (c)     there was a doubling of the rate of depression in the top dose group of

27 Qnexa;

28
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 1                  (d)    patients taking Qnexa reported an increased heart rate, with 20 percent of

 2 high dose-treated patients with a heart rate increase of 20 beats per minute over baseline;

 3                  (e)    there    was     potential        for       cardiovascular           risks,   including

 4 tachycardia, arrhythmias, stunned myocardium, cardiomyopathy, and congestive heart failure, as

 5 well as risk for stroke and intracerebral hemorrhage;

 6                  (f)    patients taking Qnexa had a 4 times higher risk of cognitive impairment;

 7                  (g)    a greater proportion of individuals treated with Qnexa reported an adverse

 8 event in the subclasses of sleep disorders, anxiety, and depression and four to seven times as

 9 many patients taking the highest dose of Qnexa, compared to patients taking lower doses or

10 placebos, dropped out of the study because of adverse side effects;

11                  (h)    during the Phase 1 Trial, a depletion of potassium in patients was noticed,

12 which could be a signal of potential heart problems, and patients in the Phase I Trial were

13 provided with an increase in potassium in their diet to skew the adverse results.

14          102.    On May 3, 2010, Vivus hosted a conference call to announce the first quarter
15 2010 financial results. Defendant Wilson once again discussed Qnexa’s “outstanding”

16 cardiovascular-related data, stating:

17      We feel very strongly, as you know, that the cardiovascular benefits of this drug are
        really outstanding. And so we’re anxious to present our cardiovascular data. It is
18      outstanding.
19          103.    During the May 3, 2010 conference call, defendant Wilson also made the
20 following statements regarding Qnexa’s psychiatric adverse effects:

21     We have presented all the data that we have on our psychiatric AEs to this point. I
       mean, clearly, we have probably the most thorough and complete look at both
22     depression and suicidality of any product that’s ever been through the FDA through
       the Phase 3 program. And clearly, we really have a zero indication of any
23     suicidality. . . . So we think we have a very thorough and very convincing review of
       the psychiatric adverse events and we’re really very confident that we’re in very good
24     shape here. Remember now, as I always like to say, when you talk about the
       psychiatric adverse events, you’re talking about topiramate in general. And so the
25     doses that we use are very low compared to the approved doses of topiramate and the
       experience in the marketplace now. And then we have the counterbalancing activity,
26     the complementary pharmacology of phentermine, which is really I think helps to
       ameliorate some of those side effects. And so we have just done an A to Z look at
27     this and really in my view there is really nothing here to report.
28
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 1             104.   The statements referenced above from the May 3, 2010 conference call were each

 2 materially false and misleading when issued because they misrepresented and failed to disclose

 3 the following material adverse facts:

 4                    (a)     Phase 3 Trials showed significant and worrisome adverse effects of the

 5 type that scuttled approval for other obesity drugs, some that were serious and could be life-

 6 threatening, including potential teratogenicity, increased suicidal ideation, cognitive issues,

 7 decreased bicarb, tachycardia, and possible renal stones;

 8                    (b)     Qnexa was associated with an increased incidence of psychiatric adverse

 9 effects and study discontinuations due to the adverse effects;

10                    (c)     there was a doubling of the rate of depression in the top dose group of

11 Qnexa;

12                    (d)     patients taking Qnexa reported an increased heart rate, with 20 percent of

13 high dose-treated patients with a heart rate increase of 20 beats per minute over baseline;

14                    (e)     there    was      potential        for       cardiovascular           risks,   including

15 tachycardia, arrhythmias, stunned myocardium, cardiomyopathy, and congestive heart failure, as

16 well as risk for stroke and intracerebral hemorrhage;

17                    (f)     a greater proportion of individuals treated with Qnexa reported an adverse

18 event in the subclasses of sleep disorders, anxiety, and depression and four to seven times as

19 many patients taking the highest dose of Qnexa, compared to patients taking lower doses or

20 placebos, dropped out of the study because of adverse side effects;

21                    (g)     during the Phase 1 Trial, a depletion of potassium in patients was noticed,

22 which could be a signal of potential heart problems, and patients in the Phase I Trial were

23 provided with an increase in potassium in their diet to skew the adverse results.

24             105.   On May 7, 2010, Vivus filed its Form 10-Q for the first quarter 2010 with the

25 SEC (“1Q 2010 10-Q”), which was signed and certified by defendant Wilson.5 In the 1Q 2010

26
     5
27       The certification used almost identical language to the certification attached to the 3Q 2009.

28
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 1 10-Q, Vivus once again reported the same drug-related adverse events and stated that the

 2 completion rates for Qnexa patients were “significantly greater” than the placebo patients in the

 3 EQUIP and the CONQUER study. The 1Q 2010 10-Q also mentioned that “[i]n the Phase 3

 4 EQUIP and CONQUER studies, there was no difference between Qnexa (0.4%) and placebo

 5 (0.4%) drug-related serious adverse events.”

 6          106.    The 1Q 2010 10-Q also discussed the risk of depression and suicidality, stating, in

 7 part, the following:

 8
            In the EQUIP and CONQUER studies, there was no difference between Qnexa
 9          and placebo for reported incidence of moderate or severe depression/depressed
10          mood (1.9%, 1.2%, 1.7% and 1.7% for Qnexa full-, mid- and low-dose and
            placebo, respectively). . . .In addition, Qnexa was well-tolerated and there was
11          no difference between Qnexa (0.4%) and placebo (0.4%) for serious adverse
            events that were considered to be drug-related by investigators in these studies.
12
                                             *      *      *
13
            As part of our Phase 3 obesity trials for Qnexa, we prospectively assessed the
14          potential risk of suicidal tendencies. The results of the extensive assessments
            performed in our Phase 3 trials for Qnexa indicated no signal for suicidal
15          behavior or ideation.

16          107.    In regard to cognitive function and cardiovascular risk, the 1Q 2010 10-Q stated,

17 in part, the following:

18          We completed a “Thorough QT,” or TQT, prolongation study evaluating patients
            taking Qnexa. . . . The study was completed with no drug-related signal for QT
19
            prolongation. Patients taking Qnexa also underwent complex and extensive
20          cognitive and psychomotor testing using validated, FDA recognized testing
            methodologies. There was no clinically relevant change in overall cognitive
21          function or effect on psychomotor skills seen in patients taking Qnexa.
22
            108.    The statements referenced above from the 1Q 2010 10-Q (and thus, the
23
     certification attached to the 1Q 2010 10-Q) were each materially false and misleading when
24
     issued because they misrepresented and failed to disclose the following material adverse facts:
25
                    (a)      the studies conducted by Vivus and submitted to the FDA could not
26
     support the FDA Panel’s recommendation for approval, or the FDA’s approval, for Qnexa’s use
27

28
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 1 to treat obesity as a chronic condition, and longer-term clinical studies would be needed to

 2 determine whether Qnexa was safe for its intended use to treat chronic obesity;

 3                  (b)    Phase 3 Trials showed significant and worrisome adverse effects of the

 4 type that scuttled approval for other obesity drugs, some that were serious and could be life-

 5 threatening, including potential teratogenicity, increased suicidal ideation, cognitive issues,

 6 decreased bicarb, tachycardia, and possible renal stones;

 7                  (c)    Qnexa was associated with an increased incidence of psychiatric adverse

 8 effects and study discontinuations due to the adverse effects;

 9                  (d)    there was a doubling of the rate of depression in the top dose group of

10 Qnexa;

11                  (e)    patients taking Qnexa reported an increased heart rate, with 20 percent of

12 high dose-treated patients with a heart rate increase of 20 beats per minute over baseline;

13                  (f)    there    was     potential        for       cardiovascular           risks,   including

14 tachycardia, arrhythmias, stunned myocardium, cardiomyopathy, and congestive heart failure, as

15 well as risk for stroke and intracerebral hemorrhage;

16                  (g)    patients taking Qnexa had a 4 times higher risk of cognitive impairment;

17                  (h)    Qnexa would likely receive a “Pregnancy Category X” label from the

18 FDA due to potential fetal risks and no acceptable clinical benefits, instead of the proposed

19 “Pregnancy Category C” label, thereby potentially eliminating a huge swath of potential Qnexa

20 customers;

21                  (i)    a greater proportion of individuals treated with Qnexa reported an adverse

22 event in the subclasses of sleep disorders, anxiety, and depression and four to seven times as

23 many patients taking the highest dose of Qnexa, compared to patients taking lower doses or

24 placebos, dropped out of the study because of adverse side effects;

25                  (j)    the Phase 3 Trials were unbalanced and heavily favored women, which

26 made it almost impossible to know whether the drug was efficacious in males; and

27

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 1                  (k)    during the Phase 1 Trial, a depletion of potassium in patients was noticed,

 2 which could be a signal of potential heart problems, and patients in the Phase I Trial were

 3 provided with an increase in potassium in their diet to skew the adverse results.

 4          109.    On May 11, 2010, Vivus presented at the JMP Securities Research Conference
 5 where Vivus representatives stated, in part, the following:

 6       So, side effect profile, we’ve shown this before. These side effects are very
         consistent with what you’d see in the label from each of these drugs. You see
 7
         some dry mouth, you see some tingling, constipation, altered taste nothing
 8       unexpected here. And again consistent with the label of these two products.

 9          110.    On May 13, 2010, Vivus presented at the Bank of America Merrill Lynch
10 Healthcare Conference where Vivus representatives stated, in part, the following:

11          The side effect is the same. . . . You see some dry mouth, some constipation, some
            altered taste, nothing here that’s caused us any great concern, and again,
12          nothing that was surprising.
13                                           *       *        *

14          We didn’t have any suicides in the study or suicidal attempts or behavior. So I
            think we're pretty clean there. We did measure depression at baseline, and at
15          every visit, we had improvements in the depression assessments.

16          111.    On May 18, 2010, Vivus presented at the Rodman & Renshaw Global Investment
17 Conference where Vivus representatives stated, in part, the following:

18          So this is an adverse events slide. This is every adverse event from the time of
            randomization on that occurred at a rate of greater than 5% throughout the EQUIP
19          and CONQUER studies. What you see in this population, this is the same data
            that we have released. We have been pretty transparent about our safety data
20          from the beginning. The things you see most commonly dry mouth, tingling,
            constipation, change in taste, insomnia, those are pretty consistently reported
21          across all of our studies at about the same rate. There is a slight – there is
            proportionality to it. So that you see at the higher doses there are slightly higher
22          rates, but consistently those same five or six [dry mouth, tingling, constipation,
            change in taste, insomnia].
23
            112.    On June 9, 2010, Vivus presented at the Needham & Company Healthcare
24
     Conference. Vivus representatives once again discussed the adverse effects and stated that
25
     “nothing [ ] was exacerbated by putting them [topiramate and phentermine] together.” As to
26
     completion rates, Vivus representatives stated that “the completion rates in the study again were
27
     very good and encouraging” and that “[d]iscontinuation rates due to adverse events [were] kind
28
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 1 of as expected” with “[n]o any one particular reason [ ] dominating.” Further, the Vivus

 2 representatives stated, in part, the following:

 3          So in summary, what are we seeing with EQUIP and CONQUER? Obviously
            good significant weight loss here really meaningful benefits in the cardiovascular
 4          and the metabolic risk factors. We know that all three doses exceeded the
            guidelines, adverse events were as expected and the completion rates were all
 5          higher than placebo.
 6          113.    On June 10, 2010, Vivus presented at the Jefferies Global Life Science
 7 Conference. Vivus representatives stated that the side effects of Qnexa were not unusual and

 8 then provided the reasons for the drop outs, stating, in part, the following:

 9
            And so you could see here, there isn’t again anything that causes any grave
10          concern, no one thing dominated each of the category. You’ve got a slight dose
11          response in some of these things, but again nothing unexpected, nothing that was
            exacerbated, and everything that was consistent with the labeled drugs that are
12          included in the components.

13          114.    On June 23, 2010, Vivus presented at the Wells Fargo Securities Healthcare
14 Conference where Vivus representatives stated, in part, the following:

15          So obviously depression and suicidality are hot buttons for all centrally acting
            drugs this drug included. So we should be able to address any questions they
16          have on depression and suicidality. We obviously didn’t have any suicide. We
            haven’t seen any signal for suicidality. These patients, we did enroll patients who
17
            were depressed, patients could be on antidepressant medication. So we think it is
18          the real world setting and I think what we’ve seen is improvement in PHQ-9
            scores. So we should be able to address any questions the agency or the panel
19          would have on depression.
20          115.    The statements referenced above from the May 11, 2010, May 13, 2010, May 18,
21 2010, June 9, 2010, June 10, 2010, June 23, 2010 conferences were each materially false and

22 misleading when issued because they misrepresented and failed to disclose the following

23 material adverse facts:

24                  (a)    the studies conducted by Vivus and submitted to the FDA could not
25 support the FDA Panel’s recommendation for approval, or the FDA’s approval, for Qnexa’s use

26 to treat obesity as a chronic condition, and longer-term clinical studies would be needed to

27 determine whether Qnexa was safe for its intended use to treat chronic obesity;

28
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 1                  (b)    Phase 3 Trials showed significant and worrisome adverse effects of the

 2 type that scuttled approval for other obesity drugs, some that were serious and could be life-

 3 threatening, including potential teratogenicity, increased suicidal ideation, cognitive issues,

 4 decreased bicarb, tachycardia, and possible renal stones;

 5                  (c)    Qnexa was associated with an increased incidence of psychiatric adverse

 6 effects and study discontinuations due to the adverse effects;

 7                  (d)    there was a doubling of the rate of depression in the top dose group of

 8 Qnexa;

 9                  (e)    patients taking Qnexa reported an increased heart rate, with 20 percent of

10 high dose-treated patients with a heart rate increase of 20 beats per minute over baseline;

11                  (f)    there    was     potential        for       cardiovascular           risks,   including

12 tachycardia, arrhythmias, stunned myocardium, cardiomyopathy, and congestive heart failure, as

13 well as risk for stroke and intracerebral hemorrhage;

14                  (g)    patients taking Qnexa had a 4 times higher risk of cognitive impairment;

15                  (h)    Qnexa would likely receive a “Pregnancy Category X” label from the

16 FDA due to potential fetal risks and no acceptable clinical benefits, instead of the proposed

17 “Pregnancy Category C” label, thereby potentially eliminating a huge swath of potential Qnexa

18 customers;

19                  (i)    a greater proportion of individuals treated with Qnexa reported an adverse

20 event in the subclasses of sleep disorders, anxiety, and depression and four to seven times as

21 many patients taking the highest dose of Qnexa, compared to patients taking lower doses or

22 placebos, dropped out of the study because of adverse side effects;

23                  (j)    the Phase 3 Trials were unbalanced and heavily favored women, which

24 made it almost impossible to know whether the drug was efficacious in males; and

25                  (k)    during the Phase 1 Trial, a depletion of potassium in patients was noticed,

26 which could be a signal of potential heart problems, and patients in the Phase I Trial were

27 provided with an increase in potassium in their diet to skew the adverse results.

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 1          116.    As a result of Defendants’ false and misleading statements, Vivus securities

 2 traded at artificially inflated prices during the Class Period. Such inflated prices permitted top

 3 Vivus officers/directors, including defendant Wilson, to sell shares of their Company stock at

 4 inflated prices for proceeds of over $3.6 million. However, after the above adverse news hit the

 5 marketplace, the Company’s shares were hammered by massive sales, sending them down 60%

 6 from their Class Period high.

 7                               THE TRUTH BEGINS TO EMERGE

 8          117.    On July 15, 2010, the FDA Panel held a meeting to review Qnexa (“Panel

 9 Meeting”).

10          118.    Prior to the Panel Meeting, the FDA Panel was provided with the Memorandum

11 from the FDA to the Member and Consultant of the Endocrinologic & Metabolic Drugs

12 Advisory Committee (“FDA Memo”), dated June 17, 2010, which stated in part, the following:

13          In conclusion, relative to placebo, the RBANS study demonstrated that
            topiramate, given either alone or in combination with phentermine, produced
14          statistically significant and clinically relevant negative effects on cognitive
            function, as assessed by the Total Index scores.
15
                                             *       *        *
16
            There was a higher proportion of PHEN/TPM-treated individuals who
17          discontinued study drug treatment due to an adverse event compared to placebo-
            treated individuals. The majority of individuals experienced a TEAE [treatment
18          emergent adverse events] with a higher proportion occurring in the
            PHEN/TPM exposed group.
19
                                             *       *        *
20
            There was a higher incidence of TEAEs in the PHEN/TPM groups as compared to
21          the placebo group in the 1-year cohort (Table 38).
22                                           *       *        *
23          A drug product like Qnexa, which may increase the risk for adverse pregnancy
            outcomes and offers no clinical benefits for use during pregnancy, should be
24          contraindicated for use during pregnancy and labeled as pregnancy category X.
25                                           *       *        *
26          In summary, the MHT [the Maternal Health Team of the Pediatric and Maternal
            Health Staff] has the following recommendations for Qnexa:
27

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           1. Classify Qnexa as Pregnancy Category X - There are potential fetal risks
 1            and no acceptable clinical benefits for a woman using Qnexa in pregnancy.
 2
           2. Require that the Qnexa Risk Evaluation Mitigation and Strategy (REMS)
 3            have a goal for pregnancy prevention. Pregnancy prevention and related
              recommendations should be placed in labeling, including the Medication
 4            Guide for patients. The Sponsor should provide recommendations for
              effective contraception use during Qnexa therapy.
 5

 6         3. Require a pregnancy registry (a prospective observational cohort study) as a
              Postmarketing Requirement (PMR).
 7
           4. Require a milk-only lactation trial as a Postmarketing Requirement (PMR).
 8
           5. The MHT will provide pregnancy, nursing mothers, and information for
 9
              females of childbearing potential labeling recommendations for Qnexa as an
10            addendum to this review at a later date. Labeling will be done in
              collaboration with the DMEP Qnexa Pharmacology/Toxicology Reviewers.
11
                                             *       *        *
12
            Lastly, the safety profile associated with long term use of Qnexa is not known.
13          It is notable that phentermine was approved only for short term use (“a few
            weeks”) for patients with obesity. Topiramate was approved for long term use,
14          but in a population (epilepsy or migraine prophylaxis) that may have important
            clinical differences than patients who seek treatment for obesity.
15
            119.    Further, the Briefing Document stated, in part, the following:
16
            The incidences of paresthesia, dry mouth, constipation, dysgeusia, insomnia,
17          dizziness, hypoesthesia, irritability, alopecia, dry eye, and hypokalemia were
            higher in the QNEXA groups than in the placebo group and increased in a dose-
18          related manner.
19                                           *       *        *
20          QNEXA, primarily at the Top dose, was associated with an increased incidence
            of psychiatric AEs and study discontinuations due to these AEs.
21
                                             *       *        *
22
            Discontinuations due to cognitive-related AEs . . . occurred more frequently in
23          QNEXA-treated subjects than subjects who received placebo.
24
            120.    The FDA Panel acknowledged that Qnexa resulted in “significant” weight loss,
25
     but voted against recommending Qnexa based on concerns over potential safety issues relating to
26
     serious adverse effects, such as potential teratogenicity, increased suicidal ideation, cognitive
27
     issues, decreased bicarb, tachycardia, and possible renal stone, negative psychological effects
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 1 (such as depression and suicide), potential for cardiovascular risks, including tachycardis,

 2 arrhythmias, stunned myocardium, cardiomyopathy, and congestive heart failure, as well as risk

 3 of stroke and intracerebral hemorrhage. Further, the FDA Panel was concerned about usage by

 4 pregnant women due to the potential for birth defects, as well as the unknown impact of long-

 5 term use beyond the 56-week clinical study period. The FDA Panel voted 10-to-6 in the

 6 negative on the question of whether the “overall risk-benefit assessment of Qnexa is favorable to

 7 support approval.” Further, the FDA Panel indicated that chronic use would require longer-term

 8 studies of approximately five years to satisfy their safety concerns relating to chronic use. The

 9 FDA usually follows its panel recommendations, which it did on October 28, 2010 when it

10 officially denied Vivus’s NDA for Qnexa.

11          121.    The ten FDA Panel committee members voting against approval included: Dr.

12 Bersot, Dr. Burman, Dr. Cragan Dr. Flegal, Dr. Heckbert, Dr. Morrato, Dr. Proschan, Dr.

13 Thomas, Dr. Weide, and Dr. Capuzzi.

14          122.    At the Panel Meeting, Dr. Mary Roberts, the clinical reviewer for the Division of

15 Metabolism and Endocrinology Products (“DMEP”) of the FDA, who presented the DMEP’s

16 perspectives on the results of Qnexa’s clinical development program, made the following points:

17      •   As a class, psychiatric adverse events occurred more frequently in
            phentermine/topiramate-exposed versus placebo-exposed individuals. Twenty-
18          one percent of high dose-treated versus 10 percent of placebo-treated individuals
            experienced a psychiatric adverse event.
19
        •   A greater proportion of individuals treated with phentermine/topiramate
20          reported an event in the subclasses of sleep disorders, anxiety, and depression.
            These events were responsible for 26 percent of the discontinuations due to
21          adverse events among phentermine/topiramate-treated individuals versus 12
            percent of placebo-treated individuals.
22
        •   Individuals treated with the phentermine/topiramate combination were more
23          likely to experience a psychiatric adverse event compared to individuals treated
            with placebo, regardless of baseline history of depression.
24
        •   Phentermine/topiramate-treated individuals were four times more likely to
25          experience a cognitive 15 disorder compared to placebo.
26      •   The potential risks for some individuals with phentermine/topiramate use
            include a 1 and a half to 2 times higher risk of psychiatric adverse events; a 4
27          times higher risk of cognitive impairment; an increased heart rate, with 20
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             percent of high dose-treated individuals with a heart rate increase of 20 beats
 1           per minute over baseline compared to 12 percent in the placebo group.
 2           123.   During the open public hearing portion of the Panel Meeting, Dr. Sidney Wolfe,

 3 director of Public Citizen’s Health Research Group who sits on the FDA’s Drug Safety & Risk

 4 Management Advisory Committee, stressed his concerns with Qnexa, stating that Qnexa is a

 5 “repackaging of two old drugs, each of which had substantial dangers” and “[b]ecause of a long

 6 list of safety reasons, this drug should not be approved.” Dr. Wolfe also made the following

 7 points:

 8              •   Vivus only conducted trials lasting one year, as mentioned Lynn
                    McAfee. This is unacceptable. More than other drugs, diet drugs, with
 9                  their potential for long-term use, should be accompanied by long-term
                    safety data of at least two to five years. We know that some patients may
10                  take diet drugs for a long time because when they stop, they usually suffer
                    recurrent weight gain.
11
                •   As would be expected of an amphetamine and an anti-seizure combination
12                  like Qnexa, there’s a long list of serious effects. I've gone through some
                    of these. Eighteen percent of high dose subjects withdrew due to an
13                  adverse effect, compared with 9 percent for placebo.
14              •   Psychiatric effects. As previously mentioned by a couple of speakers, in
                    the meta analysis, the pooled meta-analysis by the FDA, topiramate had a
15                  statistically significant 2.5 to 3 times greater odds of suicidal ideation than
                    placebo. It was the highest of all the drugs that had a statistically
16                  significant endpoint. And in the clinical trials, 7.7 percent of the high
                    dose versus 3.4 percent got depression.
17
                •   The teratogenicity has been discussed in depth. It would be the only
18                  pregnancy X category drug approved by the FDA if it was approved, and
                    I agree with the FDA’s findings that there’s a high likelihood of exposed
19                  pregnancies in this drug. . . . It’s particularly a concern because of what
                    the FDA said was a repeated pattern of craniofacial congenital
20                  malformations in animals, U.K. pregnancy registry, North American, and
                    the AERS database.
21
                •   Four MIs showed up in the treatment group, none in the placebo. This is a
22                  drug with powerful adrenergic effects, the phentermine part. It’s
                    interesting the study proposed is following approval, not before. If we are
23                  really concerned as we should be about this, the company should agree to
                    do a study before it’s approved, not afterwards.
24

25

26

27

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 1            124.   During the Panel Meeting, Dr. Neil Gesundheit (“Dr. Gesundheit”)6 noted that

 2 there were patients who discontinued from the Qnexa Phase 3 Trials due to an adverse event in

 3 the depression subclass. Dr. Gesundheit also discussed the increase in heart rate in patients

 4 taking Qnexa, stating that “there’s an increase in the number of subjects with an increased heart

 5 rate in the Qnexa-treated groups.” Specifically, Dr. Gesundheit stated:

 6            So what we saw was, as I may have mentioned, is that there were 10 patients in
              placebo who showed two or more heart rates over 100 and 17 on Qnexa at the top
 7            dose.
 8            125.   In voting against recommending Qnexa for FDA approval, Dr. Morrato explained
 9 that she was concerned about the “long list of safety risks” and the “strong pent-up market

10 demand”:

11        That is, the drug will be used by 5 millions of patients over long periods of time, far
          exceeding the label indications for use and duration of clinical experience that we
12        have. . . . It’s chronic disease requiring chronic treatment. . . . I had to ask myself,
          to balance against the initiating a huge public health experiment . . . [s]o I erred on
13        no. . . . I agree also with the maternal health team’s recommendations. If it is to be
          approved, it would be a category X, and that there be attention made to really think
14        through the development and pretesting of the medication.
15            126.   In voting against recommending Qnexa for FDA approval, Dr. Proschan, a
16 mathematical statistician for the National Institutes of Health, pointed to the short length of the

17 data available, as well the “brain related problems,” and made the following points:

18        •   [I]t caused a lot of people to have mild depression that otherwise might not have
              had any depression. And then it also increased the pink relative to what you see
19            in the placebo arm. . . . So if you have moderate depression, then it might have
              pushed you over into the severe depression. So it seems like it increased
20            depression by a relatively small amount, perhaps, but that’s enough to perhaps
              push you from moderate to severe depression.
21

22

23   6
       Dr. Gesundheit is an endocrinologist and associate professor of medicine at Stanford
24 University, and a clinical advisor to Vivus. He completed medical residency at Stanford and a
   fellowship in endocrinology and metabolism at the National Institutes of Health. From 1994 to
25 1999, he was the vice president of Clinical and Regulatory Affairs at Vivus, and has remained an

26 advisor to the Company. In 1999, he joined the Stanford faculty in the Department of Medicine.
   He is also a shareholder and a paid advisor to Vivus.
27

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        •      [A] lot of these potential problems are sort of brain-related, depression, anxiety,
 1             memory, cognitive. And that always makes me worry a little more than with other
               kinds of problems, although I think there were other problems that certainly were
 2             brought up that I don’t think we have enough data to really be able to say
               whether they are serious issues or not.
 3

 4      •      I don’t feel comfortable with one year follow-up. In clinical trials, people often
               say, well, how do you know that it won’t cause cancer in 15 years? The answer
 5             is, we don’t know. We do five-year trials. We don’t know whether it might
               cause cancer in 15. But when you do a one-year trial, to me, I’m not willing to
 6             make that leap in another year, there might not be problems that revealed that
               these are very serious and they won’t go away.
 7
               127.   In voting against recommending Qnexa for FDA approval, Dr. Burman noted the
 8
     serious adverse effects of Qnexa, as well as the lack of long-term data, and made the following
 9
     points:
10
        •      [T]he medication has serious potential adverse effects, including potential
11             teratogenicity, increased suicidal ideation, cognitive issues, decreased bicarb,
               tachycardia, and possible renal stones. Some of these side effects are serious
12             and could be life-threatening, and they have to be weighed against the potential
               of a relatively modest weight loss and its long-term health benefits. It is difficult
13             if not impossible to weigh these issues since the clinical studies are only for
               about a year and these medications, if approved, will be used for a much longer
14             time frame in a much wider population. . . . The question remains open in my
               mind whether it is worthwhile to approve a medication for moderate weight loss
15             when it has significant potential issues.

16      •      With regard to heart rate, I think there’s serious concern on the panel regarding
               many issues, which include most patients. . . .We are concerned about the long-
17             term effects of high pulse rate, including possible association or inducement of
               a trial fibrillation and other cardiac comorbidities, such as congestive heart
18             failure. It was noted that obese patients frequently have a high heart rate to start
19             out with, although they didn’t necessarily in this study. Studies should look at
               continuous heart rate, not just periodic or intermittent. . . . We’re concerned about
20             the risk of CNS abnormalities and strokes that are higher in patients with
               diabetes and heart problems, as well as patients on similar medications. And we
21             also are concerned about the elderly.
22             128.   Further, as Dr. Burman highlighted, potential teratogenicity and pregnancy
23 category labeling was also extensively discussed by the FDA Panel. The pregnancy category of

24 a pharmaceutical agent is an assessment of the risk of fetal injury due to the pharmaceutical, if it

25 is used as directed by the mother during pregnancy. Vivus requested a birth-defects designation

26 of “pregnancy category C,” which denotes “animal reproduction studies have shown an adverse

27 effect on the fetus and there are no adequate and well-controlled studies in humans, but potential

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 1 benefits may warrant use of the drug in pregnant women despite potential risks.” However,

 2 according to the FDA Memo, the Company’s proposed labeling for Qnexa included pregnancy

 3 warnings and precautions that are typically associated with a pregnancy category D or X drug.

 4 Category D or X labeling indicates either: “there is positive evidence of human fetal risk based

 5 on adverse reaction data from investigational or marketing experience or studies in humans, but

 6 potential benefits may warrant use of the drug in pregnant women despite potential risks,” or

 7 “studies in animals or humans have demonstrated fetal abnormalities and/or there is positive

 8 evidence of human fetal risk based on adverse reaction data from investigational or marketing

 9 experience, and the risks involved in use of the drug in pregnant women clearly outweigh

10 potential benefits,” respectively. The FDA Memo noted that Vivus’s proposed labeling could be

11 confusing to physicians and patients of child-bearing age, and that such confusion was a serious

12 concern because of the “large potential” for women to become pregnant while taking the drug,

13 thereby triggering the birth defect concerns. The FDA Memo recommended that Qnexa be

14 labeled as “pregnancy category X,” the strongest label possible, indicating that the risk of using

15 of Qnexa during pregnancy “clearly outweighs any possible benefit,” and also recommended that

16 Vivus’s labeling include risk evaluation and mitigation strategies (REMS) for patients in case of

17 accidental pregnancy by Qnexa users.

18          129.    In voting against recommending Qnexa for FDA approval, Dr. Flegal, Senior
19 Research Scientist of the National Center for Health Statistics of the Centers for Disease Control

20 and Prevention, explained her concern with the lack of long-term data and suggesting that five-

21 years of data would give a better indication of the safety effects of Qnexa:

22     [T]his is like a public health experiment, a large gamble. And I think widespread
      usage even in inappropriate populations is difficult to prevent. We have one-year
23    information, but this drug will likely be used for a long time. It really addresses
      surrogate endpoints, and there’s minimal information on subgroups, even, like sex
24    and ethnic groups. I think we need more data. . . . And I think that the risk
      management is a very difficult challenge, and that we need more information and
25    research on how to really monitor this, how to control access.
26

27

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 1          130.    In voting against recommending Qnexa for FDA approval, Dr. Thomas noted his

 2 concerns with safety, specifically depression, suicidality, cardiovascular disease, and the lack of

 3 long-term data. Specifically, Dr. Thomas made the following points:

 4      The first is cardiovascular disease. . . . I think we should start a cardiovascular trial
        to look at outcomes in a higher risk population before release so we have the data
 5      within two to three years of release of the medication.

 6      We do need more information about suicide risk. It took 10- or 12,000 patients for
        rimonabant to have that signal to be really clear. . . . I am concerned about this issue
 7      because there’s a dramatic difference between placebo and the highest dose. And
        there are such a number of dropouts, and depression and anxiety is a cause for
 8      dropout, that we really don’t have a good signal to say that it’s absolutely safe or
        what type of mitigation steps should be done.
 9
        Then finally, I think we have to get away from the concept of usage for a short term.
10      Obesity is a chronic disease. Blood pressure is a chronic disease. I would never go to
        someone who has high blood pressure and say, your blood pressure is normal; now
11      we stop all your medications; see you in a year. But with obesity, we view it that way.
        So we have to look at the long-term safety of these medications so we can prevent
12      weight regain.

13
            131.    In voting against recommending Qnexa for FDA approval, Dr. Bersot stated that
14
     “[w]e need more evidence in the high risk cardiovascular disease patient.”
15
            132.    In voting against recommending Qnexa for FDA approval, Dr. Weide stated that
16
     the “[increase in heart rate in patients taking Qnexa] has probably brought up the most discussion
17
     and is of concern” and he felt “uncomfortable with a year’s worth of data” “because [ ] this is
18
     going to be a lifelong therapy for people”:
19
        If, with a year’s trial, you have double the depression risk and you have some
20      cardiovascular questions, I would like to see it extended. I would like to see the at-
        risk population be sicker, if you will, so that we can find out whether or not these
21      safety concerns are going to be a major issue. I would agree, I am really sick of taking
        medicines off of the market after they’ve been on a year or two because we’ve
22      identified something that we didn’t know about. And that really is some of what has
        given the FDA a reputation outside in the public. . . .[W]e do have a responsibility to
23      protect the public at large, and that means, although as much as I feel for the people
        who want this drug and want to lose weight, we have to protect the population at
24      large. And I think we just need longer term data with the people who are really
        going to be using it out there rather than a select group of patients in fairly good
25      health.

26          133.    Dr. Cragan, in explaining her rationale for voting against recommending Qnexa

27 for FDA approval, stated that she “couldn’t really justify widespread use with the reproductive

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 1 outcomes concerns that we have” and that the discussion of the other adverse events “actually

 2 raised [her] level of concern rather than lessening it.”

 3            134.   In voting against recommending Qnexa for FDA approval, Dr. Heckbert
 4 explained that she was concerned about the “number of signals of adverse effects that really

 5 can’t be ignored that need more exploration,” including “suicidality risk, the potential for

 6 cardiovascular risk based on the mechanism of action of these drugs and the heart rate signal,

 7 and of course the teratogenicity” and stated that the FDA needed “more information.”

 8            135.   Dr. Rogawski, in discussing concerns about Qnexa, stated that he was concerned
 9 about the depression and suicidality risks, the risk for stroke, as well as the fact that the Phase 3

10 Trials were unbalanced, heavily favoring women, and made the following points:

11        •   Well, I would say that doubling the rate of depression in the top dose group is
              very concerning. However, we didn’t pick up an increase in suicidality risk. The
12            FDA, however, in the aggregate analysis of antiepileptic drugs, did pick up an
              overall increase in suicidality.
13
          •   But I’d like to raise a question about a related risk that goes hand in hand with
14            cardiovascular disease, and that is the risk for stroke. . . .The concern here is
              particularly in regard to intracerebral hemorrhage such as might occur in an
15            individual who has an aneurism or a vascular malformation or so forth. I don’t
              think we have enough information to know what the risk might be here, but it's a
16            concerning issue.
17        •   The sponsor mentioned that women made up the predominate group of both
18            pivotal the 302 and the 303 trials. Eighty-three percent of the subjects in the 302
              trial were female, and 70 percent in the 303 trial. I’m wondering if the agency or
19            the sponsor has broken down the analysis to look at the effects in either sex. And
              really, that gets to the question of whether we know is this drug efficacious in
20            males, or is it only efficacious in females, perhaps.
21            136.   Dr. Goldfine also expressed his concerns with the depression signal stating that:

22            On the same point, I actually looked at that, but it actually gave me some concern,
              because I actually think that in addition to the more specific depression scales,
23            people who lose weight, as you heard from our two select study subjects, usually
              feel much better. And I was very concerned not to see these improvements on an
24            SF-36.7 And to me, it suggests that there is additional things being masked in that
              they don’t have the magnitude of improvement I would have anticipated.
25

26
     7
27    “The SF-36 is a multi-purpose, short-form health survey with only 36 questions. It yields an 8-
     scale profile of functional health and well-being scores as well as psychometrically-based
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 1          137.    Dr. Craig Pratt, who was on the panel of experts at the Panel Meeting and is a

 2 cardiologist who studied Qnexa’s cardiovascular adverse events, stated that “it is a very scary

 3 number of people [taking Qnexa] that increased more than 20 beats per minute” in the studies

 4 and “at least in terms of the heart rates at clinical visits, there was nobody in persistent sinus

 5 tachycardia for the duration of the trial. . . . But we don’t have a Holter study, and . . . there are

 6 still missing pieces of information.”

 7          138.    On July 15, 2010, Vivus issued a press release regarding the vote by the FDA

 8 Panel, which stated, in part, the following:

 9          MOUNTAIN VIEW, Calif., July 15, 2010 — VIVUS, Inc. (NASDAQ: VVUS)
            today announced that the Endocrinologic and Metabolic Drugs Advisory
10
            Committee of the U.S. Food and Drug Administration (FDA) voted against the
11          following question: “Based on the current available data, do you believe the
            overall benefit-risk assessment of PHEN/TPM (QNEXA) is favorable to support
12          its approval for the treatment of obesity in individuals with a BMI > 30 kg/m2 or
            > 27 kg/m2 with weight-related co-morbidities?” The three co-morbidities
13          included hypertension, diabetes and dyslipidemia.
14
            The vote from the Endocrinologic and Metabolic Drugs Advisory Committee is a
15          recommendation. The FDA will take the Committee’s recommendation into
            consideration during its review of the current application and will make a
16          determination. The FDA may or may not follow the Committee’s
            recommendation.
17

18          139.    In the press release, defendant Wilson stated, in part, the following:
            We appreciate the Advisory Committee’s recognition of obesity as a significant
19
            health crisis, and the challenges associated with the treatment of this disease. We
20          are disappointed with the Advisory Committee’s vote. While the final vote was
            close, and we are encouraged that the Committee recognized the efficacy
21          demonstrated in the QNEXA clinical trials, we will work closely with the FDA
            leading up to our October 28, 2010 PDUFA date to address the labeling and
22          safety questions raised during today’s proceedings. We remain committed to
            patients living with obesity and weight-related disease.
23

24

25
   physical and mental health summary measures and a preference-based health utility index. . . .
26 Accordingly, the SF-36 has proven useful in surveys of general and specific populations,
   comparing the relative burden of diseases, and in differentiating the health benefits produced by
27 a wide range of different treatments.” See http://www.sf-36.org/tools/sf36.shtml.

28
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 1          140.    In response to the July 15, 2010 disclosures regarding Qnexa’s previously

 2 undisclosed and misrepresented safety issues, the price of Vivus securities plummeted, from a

 3 closing price of $12.11 per share on July 15, 2010, to a closing price of $5.41 per share on July

 4 16, 2010, a one-day drop of 55% on unusually heavy trading volume of over 42 million shares.

 5          141.    Reporting on the recommendation against approval of Qnexa, on July 16, 2010,

 6 Bloomberg Businessweek published an article entitled, “Vivus Plunges Most Ever After U.S.

 7 Review of Qnexa,” which stated, in relevant part, the following:

 8          Vivus Inc. shares plunged the most ever in New York trading the day after U.S.
            reviewers recommended against approval of its Qnexa diet pill, a decision that
 9          analysts say may threaten makers of competing drugs.
10          Outside advisers to the Food and Drug Administration voted 10-6 yesterday that
            the potential risks of depression, birth defects and increased heart rate trumped
11          the weight loss seen with Qnexa. Shares of Vivus, an unprofitable
            biotechnology company with one marketed product, fell the most since the
12          company’s initial public offering in 1994.
13
            Panel members who voted against Qnexa said longer-term data on safety would
14          make them more comfortable about supporting a drug that may appeal to
            millions of Americans. A 56-week study showed the treatment helped severely
15          obese people lose an average of 14.7 percent of their body weight, compared with
            2.5 percent on placebo. Side effects included anxiety, depression, memory and
16          attention lapses, and increased heart rate.
17
            Vivus would need to raise money to fund large outcome studies if they’re
18          required for FDA approval of Qnexa, Leerink’s Yoo said in a telephone
            interview yesterday.
19
            142.    On July 16, 2010, Brean Murray Carret & Company published a report regarding
20
     the Panel Meeting, entitled “Panel Not Sold – Downgrading to Hold,” which stated, in part, the
21
     following:
22
            INVESTMENT SUMMARY
23
            The paucity of long-term safety data was the primary concern among AdCom
24          panelists. We are taking a cautious stance on the PDUFA meeting and have
            revised our revenue expectations for Qnexa. We are downgrading VVUS shares
25          to Hold from Buy.
26          DISCUSSION
27          The discussions regarding each of the questions posed to the  AdCom were as
            follows:
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 1          Question 1: Depression Signal
 2          The panel acknowledged the existence of a depression signal; considered to be a
            reason for disapproval. The panel was concerned that the patient population
 3          (4,500 in the Phase 3 program) was not large enough to discern a definitive
            depression signal. It was recommended that long population would serve to
 4          assuage those concerns.
 5          Question 2: Cognitive Issues
 6          The majority of the panel was not concerned with issues such as attention,
            aphasia, and memory. The adverse events were not unexpected and fell within as
 7          per the Topamax label. Additionally, the adverse events were considered to be
            subtle, reversible, and not life threatening. Overall, cognitive adverse events were
 8          considered to be important, and warranted further investigation, but were not
            cited as a reason for disapproval.
 9
            Question 3: Metabolic Acidosis
10
            The drop in serum bicarbonate level was not a cause for concern as it is effect of
11          topiramate. The panel was comforted by the fact that patients a drop in
            bicarbonate levels saw their levels return to baseline value. Additionally, the drop
12          in bicarbonate levels was considered transient in nature. The panel was also
            curious about the effect of Qnexa treatment in conjunction with laxatives,
13          diuretics, and medformin (as it is linked to lactic acidosis). The Phase 3 program
            for Qnexa required a reduction in caloric intake (by about 500 calories), which
14          might explain a drop in bicarbonate levels. Since the drug is likely to be used as a
            chronic treatment for obesity, the panel recommended that Vivus should
15          conduct long the effect of Qnexa on bicarbonate levels.
16          Question 4: Cardiovascular Risk
17          The panel was comforted by the transient increase in heart rate above 100. We
            note that, although there were increases in heart rate while patients were on
18          Qnexa, there was a simultaneous decrease in blood pressure. As such, the Rate
            Pressure Product (RPP) was lower in the treatment group as compared to the
19          placebo group. Additionally, concerns were raised regarding the lack of
            pharmacodynamic data, which would be important to gauge Qnexa’s
20          interaction with prevalent medications (i.e., Lipitor, medformin, Toperol, etc.)
            used in the obese population. The panel recommended further long-term studies
21          to determine the impact on stroke and increased heart rate.
22          Question 5: Teratogenicity Risk
23          The panelists were concerned about the higher rate of unplanned pregnancies.
            Considering that the use of two modes of contraception was encouraged in the
24          Phase 3 program, the unplanned pregnancies raised concerns about teratogenicity
            risk associated with the topiramate component of the drug. Themother-risk data
25          presented by Vivus indicated that the incidence of babies that are born with
            malformations is in the range of 3 to 5%. Additionally, the use of topiramate in
26          obese and epileptic patients is not associated with an increased incidence of
            malformations, and falls within the expected 3-5% range. Obesity is a known risk
27          factor for teratogenicity, and is specifically linked to neural tube defects. As such,
            we believe that teratogenicity issues could be addressed via appropriate labeling
28
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            (i.e., contraindications in pregnancy and breast-feeding), and the implementation
 1          of a pregnancy prevention program. The panel suggested the need for a pregnancy
            registry, from which long-term data could be used to ascertain the teratogenicity
 2          risk of Qnexa.
 3          Question 6: Panel Vote
 4          The AdCom rejected Qnexa with a 9 to 7 negative vote based on the
            aforementioned risk factors. We note that all panelists were impressed with the
 5          unprecedented efficacy of Qnexa, but the majority was on the fence owing to the
            lack of long-term safety data. Recall that the FDA is not obligated to follow the
 6          recommendations of the AdCom. Recently, Tarceva and Avastin were both
            approved for their respective indications in spite of negative AdCom
 7          recommendations. Vivus will be planning the next steps with the FDA, and we
            look forward to the one-year extension trial data in 3Q10.
 8

 9          143.    On July 16, 2010, Rodman & Renshaw published a report regarding the Panel
10 Meeting, entitled “Market Underperform/Speculative Risk: Obesity – to Big Not to Fail,” which

11 stated, in part, the following:

12          What Will The FDA Do?
            The FDA is not required to follow the advisory committee’s advice, and has on
13          several occasions ruled against such advice. However, we believe that in this case
            the agency is more likely to side with the committee and request additional data
14          instead of granting approval. The key decision drivers are: 1) multiple
            unanswered safety concerns, including potential harm to a newborn baby 2)
15          difficulty in preventing use outside of the target population, 3) allowing chronic
            usage based on one year of safety data, and 4) desire to avoid re-analysis and
16          potential removal of approved drug in the future. In our view the agency likely
            views the obese population as a generally healthy group with long life
17          expectancy, similar to people with dislipidemia. Since running 10,000+ subject
            studies is basically the norm for lipid-reducing drugs, it is not unreasonable to
18          assume that the FDA may hold weight loss drugs to a similar threshold of safety.
            Even for human teratogenecity studies, that present a fundamental design
19          challenge, a large 10,000+ subject database is likely to have ~100+ pregnancies
            (based on the 1% pregnancy rate in the Phase 3 program), and would therefore
20          address the teratogenecity questions in addition to other safety concerns.
21          144.    On July 16, 2010, Jefferies & Company, Inc. published a report regarding the

22 meeting, entitled “Downgrading VVUS From Hold to Underperform On Negative FDA Panel

23 Outcome,” which stated, in part, the following:

24          FDA Panel’s Negative Outcome and Safety Concerns Casts Doubt On Qnexa’s
            Approvability. As reflected by the negative overall vote, the FDA advisory panel
25          for VVUS’s obesity drug Qnexa was highly controversial. As we expected from
            the briefing documents, the main concerns were cardiovascular safety issues,
26          potential teratogenicity (birth defect risk), and psychiatric side effects. Although
            VVUS did a good job answering cardiovascular questions initially, the panel was
27          ultimately still concerned about the increase in heart rate and the four heart
            attacks in the Phase 3 trials, opening the door for the FDA to potentially
28          require a pre-approval cardiovascular safety study. This has been one of our
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             primary concerns. In addition, the FDA did not intervene much during the panel
 1           deliberations, and thus, we were struck when they did intervene with comments
             revealing a high level of concern on the teratogenicity risk and the lack of
 2           sufficient data to understand the suicidality risk with Qnexa.
 3           145.   On September 21, 2010, FierceBiotech published an article entitled, “Vivus Offers
 4 Upbeat Assessment of Two-Year Qnexa Data,” which stated, in relevant part, the following:

 5       In a surprise vote in July, 10 of 16 FDA experts concluded that they didn’t know
         enough about Qnexa’s long-term effects to warrant an approval. Many panel
 6
         members thought the drug, a combination of phentermine and topiramate, could
 7       pose a safety issue for pregnant women, regardless of the way the label is written.
         And other potential issues, like the threat of depression and potential memory
 8       problems along with the prospect of cardiovascular side effects, weighed against
         the drug as well.
 9

10           146.   On October 28, 2010, the FDA officially denied Vivus’s NDA for Qnexa, as

11 recommended by the FDA Panel on July 15, 2010. In the FDA’s Complete Response Letter that

12 set forth the reasons Qnexa was rejected, the FDA asked Vivus to provide a thorough evaluation

13 of the drug’s potential for causing birth defects and heart problems. Specifically, the FDA

14 requested that Vivus provide a detailed plan and strategy to evaluate and mitigate the potential

15 teratogenic (birth defect) risks in women of childbearing potential taking the drug for the

16 treatment of obesity; and to provide evidence that the elevation in heart rate associated with

17 phentermine/topiramate does not increase the risk for major adverse cardiovascular events.

18 Additionally, the FDA requested that Vivus formally submit the results from the SEQUEL study

19 (which Vivus announced was completed on September 21, 2010), a 52-week extension study for

20 a subset of 675 patients who completed the previously reported 56-week CONQUER study.

21 Further, the FDA requested a safety update of any new adverse events to be submitted. The

22 FDA also stated that if approved, Qnexa would be a Schedule IV drug due to the phentermine
             8
23 component. Finally, the FDA reserved the right to comment further on proposed labeling.

24

25

26   8
     See http://www.thepharmaletter.com/file/99458/us-fda-approves-additional-medical-indication-
27 for-bristol-myers-squibbs-sprycel-clears-sunovions-latuda-further-delays-vivus-qnexa.html.

28
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 1          147.    On October 28, 2010, Reuters published an article entitled, “Update 2—Vivus

 2 Fails to Win FDA Approval for Diet Drug,” which stated, in relevant part, the following:

 3          Vivus Inc’s (VVUS.O) weight-loss drug candidate Qnexa failed to win over U.S.
            health regulators, who declined to approve the diet pill, asking for evidence
 4          related to heart risk and other information.
 5          FDA’s advisers earlier this year also recommended against approving Qnexa.
            They cited concerns about depression, memory loss, possible birth defects, among
 6          other risks amid potential wide use among patients who are not necessarily obese
            but who want to lose a few pounds.
 7
                             ADDITIONAL SCIENTER ALLEGATIONS
 8

 9          148.    As alleged herein, Defendants acted with scienter in that Defendants knew that

10 the public documents and statements issued or disseminated in the name of the Company were

11 materially false and misleading; knew that such statements or documents would be issued or

12 disseminated to the investing public; and knowingly and substantially participated or acquiesced

13 in the issuance or dissemination of such statements or documents. As set forth herein in detail,

14 Defendants, by virtue of their receipt of information reflecting the true facts regarding Vivus,

15 their control over, and/or receipt and/or modification of Vivus’s allegedly materially misleading

16 misstatements and/or their positions of control within the Company, which made them privy to

17 confidential, proprietary information concerning Vivus, participated in the fraudulent scheme

18 alleged herein.
   The Individual Defendants, By Reason Of Their
19
   Roles At The Small Company And Professional Background,
20 Were Aware Of The Truth About Qnexa During The Class Period

21          149.    Vivus is a small company currently with only 43 employees. During most of the
22 Class Period, it had just over 100 employees with the vast majority of the employees located at

23 the manufacturing facility in Lakewood, New Jersey, a smaller number of employees at

24 the corporate headquarters in Mountain View, California, and an even smaller number in other

25 U.S locations. In a small company, with a very small number of revenue-generating products,

26 facts critical to the company’s core operations or core products are known to a company’s key

27 officers, particularly when the officers are hands-on and intimately involved in the development

28
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 1 and discussion of the product with the market. Vivus only had one FDA-approved drug on the

 2 market for erectile dysfunction, with a projected market of about $1 billion annually. Even

 3 Vivus conceded in its public filings that “the potential worldwide pharmaceutical market for

 4 obesity could approach $5 billion annually.” The only plausible inference both from the size and

 5 make-up of the Company, as well as corroborating reports from the Confidential Witnesses, is

 6 that Defendants knew every aspect of the chain of events in the development of Qnexa.

 7           150.   Here, defendant Day was the Company’s Vice President of Clinical Development
 8 and served in this role since November 2005. During the September 9, 2009 conference call,

 9 defendant Wilson identified defendant Day as the person “most directly responsible for the

10 [Qnexa] studies.” Defendant Day also spoke on conference calls and at conferences putting

11 himself out there as the person most knowledgeable regarding Qnexa. Vivus’s website also lists

12 defendant Day as the responsible party for the Phase 3 Trials.9 Former Vivus employees have

13 also confirmed defendant Day’s integral role in the Qnexa clinical trials. CW1, who was the

14 Senior Clinical Project Manager at Vivus from September 2008 until January 2010 directly

15 involved in the Qnexa research and clinical studies, was hired by and directly reported to

16 defendant Day. CW1 confirmed that defendant Day helped design and monitored the Phase 1

17 Trial for Qnexa.

18           151.   According to the Company’s April 30, 2010 Proxy Statement, during fiscal year
19 2009, defendant Day’s wife, Dr. Yee, performed pre-clinical and clinical development consulting

20 services for the Company in connection with Qnexa. Dr. Yee reported directly to Peter Tam, the

21 Senior Vice President and Chief Operating Officer at the time. CW1 also confirmed that she/he

22 reported to Dr. Yee during the Qnexa Phase 1 Trial. Dr. Yee was paid $400,187 in fiscal year

23 2009 for the consulting services she rendered to the Company.

24

25

26   9
        See,   e.g.,    http://www.clinicaltrials.gov/ct2/show/NCT00553787?term=vivus&rank=4;
27 http://www.clinicaltrials.gov/ct2/show/NCT00554216?term=vivus&rank=2.

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 1          152.    Defendant Wilson was the Company’s CEO and director during the Class Period.

 2 Defendant Wilson also spoke on many of the conference calls and at medical conferences during

 3 the Class Period where the false and misleading statements were made, signed and certified SEC

 4 filings which contained false and misleading statements, and was quoted in many false and

 5 misleading press releases. Further, according to the Company’s April 30, 2010 Proxy Statement,

 6 “Mr. Wilson’s scientific background and extensive drug development and marketing experience

 7 afford the Board of Directors unique insight and guidance into strategic issues and opportunities

 8 that face the Company.”

 9          153.    Individual Defendants Day’s and Wilson’s hands-on involvement in the Company

10 was corroborated by CW4, who was a regional sales representative in California from

11 approximately early 2004 until about October 2010. CW4 stated that there are only 8-9 people

12 that control everything that goes on at Vivus, including defendants Wilson and Day and senior

13 executive Peter Tam. CW6, a former Vivus regional sales representative covering the Mid-West

14 region who worked at Vivus for six years, including during the Class Period, and left the

15 Company sometime in 2009, confirmed that at sales meetings, each product in the pipeline,

16 including Qnexa, was discussed.

17          154.    CW2, who was a scientist at the Lakewood, New Jersey location from 2006 until

18 2008, stated that senior management should have been receiving monthly reports on how the

19 clinical trials of Qnexa were progressing. Additionally, according to CW3, who was employed

20 as a regional sales representative from 2000 until 2008, there were only 12 individuals employed

21 in the sales force at that time. CW3 stated that all the sales personnel received verbal reports on

22 the progress of the clinical trials of Qnexa, which were usually given by defendant Wilson and

23 Vice President of U.S. Operations and General Manager, Guy P. Marsh (“Marsh”).

24 Additionally, CW5, who was the New England Regional Sales Manager from April 2008 until

25 around November 2010, stated that defendants Wilson and Day went over the Qnexa data as it

26 was internally reported. CW5 further stated that after the clinical trials were complete, the

27 complete data was passed up to senior management.

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 1          155.    Additionally, due to their professional backgrounds and experience, the Individual

 2 Defendants knew or recklessly disregarded the fact that the statements issued by them during the

 3 Class Period regarding Qnexa – detailed above – were materially false and misleading because

 4 they misrepresented and failed to disclose that: (a) the studies conducted by Vivus and submitted

 5 to the FDA could not support the FDA Panel’s recommendation for approval, or the FDA’s

 6 approval, for Qnexa’s use to treat obesity as a chronic condition, and longer-term clinical studies

 7 would be needed to determine whether Qnexa was safe for its intended use to treat chronic

 8 obesity; (b) Phase 3 Trials showed significant and worrisome adverse effects of the type that

 9 scuttled approval for other obesity drugs, some that were serious and could be life-threatening,

10 including potential teratogenicity, increased suicidal ideation, cognitive issues, decreased bicarb,

11 tachycardia, and possible renal stones; (c) Qnexa was associated with an increased incidence of

12 psychiatric adverse effects and study discontinuations due to the adverse effects; (d) there was a

13 doubling of the rate of depression in the top dose group of Qnexa; (e) patients taking Qnexa

14 reported an increased heart rate, with 20 percent of high dose-treated patients with a heart rate

15 increase of 20 beats per minute over baseline; (f) there was potential for cardiovascular risks,

16 including tachycardia, arrhythmias, stunned myocardium, cardiomyopathy, and congestive heart

17 failure, as well as risk for stroke and intracerebral hemorrhage; (g) patients taking Qnexa had a 4

18 times higher risk of cognitive impairment; (h) Qnexa would likely receive a “Pregnancy

19 Category X” label from the FDA due to potential fetal risks and no acceptable clinical benefits,

20 instead of the proposed “Pregnancy Category C” label, thereby potentially eliminating a huge

21 swath of potential Qnexa customers; (i) a greater proportion of individuals treated with Qnexa

22 reported an adverse event in the subclasses of sleep disorders, anxiety, and depression and four

23 to seven times as many patients taking the highest dose of Qnexa, compared to patients taking

24 lower doses or placebos, dropped out of the study because of adverse side effects; (j) the Phase 3

25 Trials were unbalanced and heavily favored women, which made it almost impossible to know

26 whether the drug was efficacious in males; and (k) during the Phase 1 Trial, a depletion of

27 potassium in patients was noticed, which could be a signal of potential heart problems, and

28
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 1 patients in the Phase I Trial were provided with an increase in potassium in their diet to skew the

 2 adverse results.

 3          156.    Further, the Individual Defendants had a detailed knowledge of the FDA approval

 4 process and its requirements through their professional backgrounds and experience, such that

 5 they knew Qnexa would not be approved by the FDA due to the lack of long-term data and the

 6 adverse effects, detailed above, that were undisclosed to investors.

 7          157.    Prior to joining the Company, defendant Wilson was Vice President of Marketing

 8 and Corporate Development of Genelabs Technologies, Inc. from 1989 to 1991, which is a

 9 biopharmaceutical company engaged in the discovery and development of infectious disease

10 therapies. Defendant Wilson was also Group Product Director, later promoted to Director of

11 Marketing, at LifeScan, a Johnson & Johnson company, from 1986 to 1989, which is the leading

12 maker of blood glucose monitoring systems for home and hospital use. Further, defendant

13 Wilson holds a B.S. and a M.S. in Reproductive Physiology from Pennsylvania State University.

14          158.    Prior to joining the Company, from September 2003 until October 2005,

15 defendant Day served as Senior Director—Safety and Risk Management at Pfizer Inc., a

16 research-based global pharmaceutical company. Defendant Day holds a Ph.D. in Pharmacology

17 and Toxicology from the University of Maryland at Baltimore and a B.S. from the University of

18 Texas Pan American. Defendant Day is also an Adjunct Associate Professor for the School of

19 Pharmacy at the University of Maryland at Baltimore and has also been an Adjunct Assistant

20 Professor for Temple University in Philadelphia, Pennsylvania.

21 The Problems With Qnexa Were Discussed Internally, But Never Disclosed

22          159.    A number of former Vivus employees, who either worked on the Qnexa clinical

23 trials or were in sales, stated that there was a constant discussion about the various health issues

24 arising out of the use of Qnexa. Cardiac problems were at the forefront of these discussions

25 because a significant component of Qnexa was also a component in the controversial weight-loss

26 drug Fen-Phen. CW4, who was a regional sales representative for Vivus in California from

27 approximately early 2004 until October 2010, was aware of and stated that the risk of previously

28
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 1 identified side effects with the Fen-Phen component of Qnexa was the biggest concern of people

 2 at Vivus.

 3            160.   Corroborating CW4, CW2, who was a scientist at the Lakewood, New Jersey

 4 location from 2006 until 2008, stated that during her/his employment, she/he and others at the

 5 Company discussed some of the likely problems associated with Qnexa considering that part of

 6 Qnexa’s components was a drug that had been part of Fen Phen, which caused valve damage in

 7 the heart, and whether Qnexa could be approved. CW6, a former Vivus regional sales

 8 representative covering the Mid-West region, corroborated that there was debate by Company

 9 scientists about the cardiac problems that Fen-Phen had created and if Vivus could get over the

10 hurdle because a component of Qnexa was part Fen-Phen.

11            161.   CW6 stated that Company representatives told the sales staff that if there was a

12 problem with cardiac issues, they planned to get it approved with a “black label.”10 CW5, who

13 had been the New England Regional Sales Manager from April 2008 until around November

14 2010, corroborated this plan and stated that defendant Wilson, as well as other management,

15 thought Vivus could overcome the problems because it could be labeled differently. CW5 stated

16 that there were internal discussions about having Qnexa approved with a black box label.

17            162.   Further, CW5 stated that suicidality and heart problems were two major internal

18 concerns prior to the Panel Meeting because everyone, including senior management, knew the

19 drug had the potential for these problems. However, Defendants failed to disclose, and indeed

20 downplayed the impact of, these major health issues to the investing public.

21

22

23

24   10
      According to the FDA’s “A Guide to Drug Safety Terms at FDA,” a “black box” warning (also
25 known as a “black label” warning) “appears on a prescription drug’s label and is designed to call
   attention to serious or life-threatening risks.” According to the FDA’s website, the “black box”
26 warning is “the strongest warning for an FDA approved product.”

27

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 1             163.     CW1, a former Vivus Senior Clinical Project Manager, also indicated that there

 2 was another issue of concern regarding the need to gather more long term data on the safety of

 3 patients who became pregnant while involved in the trials.

 4 Defendants Manipulated Qnexa Clinical Trials
   By Potassium Augmentation During Phase 1 Trial
 5
           164. During the Phase 1 Trial (also known as the TQT Study), Defendants knew that
 6
   one of the known effects of topiramate (one of the components of Qnexa) is to lower blood
 7
   potassium, which could result in cardiac irregularities. Thus, to mask any potential negative
 8
   effects, during the Phase 1 Trial, clinical trial participants were given supplemental potassium.
 9
           165. Potassium is an ion (charged molecule) with various critical biological roles.11 Of
10
   particular relevance is its role in the regulation of heart rate and blood pressure.12 Hypokalemia
11
   (low potassium) is associated with a variety of symptoms, including weakness, lack of energy,
12
   muscle cramps, stomach disturbances, irregular heartbeat and abnormal electrocardiogram.13
13
   Some studies have linked low levels of dietary potassium with high blood pressure.14 There is
14
   also some evidence, although not universally accepted, that potassium supplementation might
15
   cause a slight drop in blood pressure.15 Importantly, topiramate, one of the compounds that
16
   make up Qnexa, is known to have effects on potassium levels. In fact, according to the drug
17

18
     11
19      See generally Keating MT, Sanguinetti MC, Molecular and Cellular Mechanisms for
     Arrythmias. Cell. 2001: 104: 569-580.
20   12
          Id. at 572.
21   13
          See http://www.ncbi.nlm.nih.gov/pubmedhealth/PMH0001510/.
22   14
      Brancati FL, Appel LJ, Seidler AJ, Whelton PK. Effect of potassium supplementation on
23 blood pressure in African Americans on a low-potassium diet. Arch Intern Med. 1996;156:61-
   72.; Burgess E, Lewanczuk R, Bolli P, et al., Lifestyle modifications to prevent and control
24 hypertension. 6. Recommendations on potassium, magnesium and calcium. Canadian
   Hypertension Society, Canadian Coalition for High Blood Pressure Prevention and Control,
25 Laboratory Centre for Disease Control at Health Canada, Heart and Stroke Foundation of
   Canada. CMAJ. 1999;160 (9 Suppl.):S35-S45.
26 15
      Cappuccio EP, MacGregor GA. Does potassium supplementation lower blood pressure? A
27 meta-analysis of published trials. J Hypertens. 1991; 9: 465-473.

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 1 information supplied with topiramate, “[i]n double-blind trials hypokalemia defined as serum

 2 potassium decline below 3.5 mmol/L has been observed in 0.4% of subjects treated with

 3 topiramate compared to 0.1% of subjects treated with placebo.”16

 4            166.   CW1 is a former Vivus Senior Clinical Project Manager who was hired by and

 5 routinely spoke to defendant Day. CW1 also reported directly to defendant Day and Dr. Yee,

 6 defendant Day’s wife, who performed pre-clinical and clinical development consulting services

 7 for Vivus in connection with Qnexa. CW1 stated that there were concerns about Qnexa’s

 8 clinical studies regarding the cardiac signal. CW1 stated that with every drug that has a

 9 cardiovascular element, there has to be a thorough QT study. CW1 indicated that concerns had

10 developed about the depletion of potassium in patients, and if potassium is depleted, it can be a

11 signal of potential heart problems. CW1 explained that there was no standard operating

12 procedure for documenting how this problem would be addressed and the problem was masked

13 as it appeared. CW1 communicated that patients in the Phase I Trial were provided an increase

14 in potassium in their diet during the clinical trial, and therefore, the test results would not give an

15 accurate read of the cardiac implications. CW1 opined that such potassium augmentation during

16 clinical trials would break protocols in scientific investigation and invalidate the results.

17            167.   CW1 further stated that the clinical site was in Phoenix, Arizona and

18 possibly only 2 or 3 doctors would have received the instructions on the potassium change.

19 Specifically, CW1 stated that the Phase 1 Trial was conducted by MDS Pharma (“MDS”) in

20 Phoenix, Arizona (now, Celerion). CW1 explained that after the trial began, reports were issued

21 by MDS each Wednesday during the study, which included two reports for each of 112 patients.

22 CW1 stated that the first report showed potassium levels and charts showing patients’ heart

23 rates. The second report showed all lab sample results, which included liver enzymes and other

24 items. CW1 explained that as she/he looked at the data, she/he saw a clear trend that Qnexa was

25 causing a drop in potassium levels and a corresponding change in the heart beat. CW1 also

26
     16
27        http://www.druglib.com/druginfo/topamax/warnings_precautions/.

28
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 1 mentioned that there was a separate report for potassium levels because everyone was aware in

 2 the beginning that there might be problems and they wanted to look closely at the problems.

 3          168.    CW1 further clarified that MDS sent electronic copies of all reports to CW1, Dr.

 4 Yee, defendant Day, and Vivus’s Senior Director of Medical Affairs, Barbara Troupin. Also, at

 5 the end of the study, a CD was provided to Vivus that contained all the reports. When CW1 saw

 6 the potassium data, she/he spoke to Dr. Yee and defendant Day about her/his concerns, but was

 7 told not to worry about it. CW1 also spoke to the Senior Director of Medical Affairs, the

 8 Clinical Trial Manager, and the Associate Director of Clinical Development about his/her

 9 concerns regarding the information contained in those reports. CW1 also mentioned that it was

10 so obvious that the potassium levels were dropping from the data that each person who received

11 the reports was qualified and understood exactly what the data showed.

12 The Individual Defendants, By Reason Of Qnexa Being
   A Core Product Of The Company, Were Aware That
13 The Statements Made Were False And/Or Misleading When Made

14          169.    Because Qnexa was an essential, core product for the Company, the Individual
15 Defendants were well-aware that the statements made during the Class Period about Qnexa were

16 false and misleading when made. As noted in the Company’s March 10, 2010 Form 10-K:

17          We are largely dependent on the success of our two investigational product
            candidates: Qnexa, for treatment of obesity, and avanafil, for treatment of
18
            erectile dysfunction, and cannot be certain that either product candidate will
19          receive timely regulatory approval, if at all, or be successfully commercialized.

20          170.    CW6, a regional sales representative, stated that Qnexa was Vivus’s life line and
21 also stated that, based on information learned while working for Vivus, she/he believed that if

22 Vivus was unable to get Qnexa approved in the U.S. and Europe, the Company would be out of

23 business. CW5 also stated that Qnexa was everything to Vivus. Further, CW1 reported that

24 Vivus was relying on Qnexa for its survival. Additionally, CW3, another sales representative

25 who worked at Vivus from 2000 to 2008, stated that it was important to understand that “the holy

26 grail in the pharmaceutical industry is an obesity drug.” Vivus’s public filings acknowledged the

27 significance of this by noting that the potential market for obesity drugs could approach $5

28
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 1 billion annually. Thus, the only plausible explanation is that defendant Day, who was “most

 2 directly responsible for the [Phase 3 Qnexa] studies,” and defendant Wilson, who was CEO of

 3 the Company, were aware of any and all significant developments related to this pivotal product,

 4 Qnexa.

 5 The Company Had Substantial Motivation
   To Make False And/Or Misleading Statements
 6
          171. According to the Company’s March 10, 2010 Form 10-K, the Company had
 7
   incurred a cumulative deficit of $234.1 million as of December 31, 2009, expected to incur
 8
   additional operating losses, and needed additional funding to continue with the Qnexa research:
 9

10          We have funded operations primarily through private and public offerings of our
            common stock, through the sale of the rights to Evamist and through product sales
11          of MUSE (alprostadil). We expect to generate future net losses due to increases
12          in operating expenses as our various investigational product candidates are
            advanced through the various stages of clinical development and for pre-
13          commercialization activities. . . . As of December 31, 2009, we have incurred a
            cumulative deficit of $234.1 million and expect to incur operating losses in
14          future years.
15                                           *      *      *
16          We have substantially less money than we need to develop our compounds into
            commercially available drugs. It takes many years and potentially hundreds of
17          millions of dollars to successfully develop a pre-clinical or early clinical
            compound into an approved and commercially marketed drug, and our efforts
18          may not result in any additional marketed drugs, aside from MUSE. We may need
            additional funds or a partner to bring our most advanced investigational
19
            product candidate, Qnexa, to market, if ever.
20
                                             *       *        *
21
            We have generated a cumulative net loss of $234.1 million for the period from
22          our inception through December 31, 2009, and we anticipate losses in future years
            due to continued investment in our research and development programs. There
23          can be no assurance that we will be able to achieve or maintain profitability or
            that we will be successful in the future.
24
            172.    Thus, during the Class Period, Defendants were motivated to make false
25
     misleading statements in order to be able to raise the $108.7 million in gross proceeds from the
26
     sale of 10,350,000 shares of the Company’s common stock at $10.50 per share through a public
27
     offering. According to the Company’s Registration Statement, the net proceeds from the sale of
28
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 1 the common stock would be used “to fund our research and development efforts, including

 2 manufacturing activities and clinical trials for our proprietary product candidates and investment

 3 in select pre-commercial and commercial activities, and for general corporate purposes,

 4 including working capital.”

 5          173.    Defendant Wilson even admitted that the Company was able to raise the $108.7

 6 million due to the false and misleading statements made regarding Qnexa during the Class

 7 Period. Defendant Wilson, in the November 3, 2009 press release, stated, in part the following:

 8          Following the announcement of the positive Qnexa results, we were able to
 9          raise $108.7 million in gross proceeds from a public offering of our common
            stock. With the positive results from our phase 3 trials for Qnexa and a cash
10          and investment balance in excess of $226 million at the end of the third quarter,
            we believe we are well positioned to meet our goals for 2009 and beyond.
11
            174.    Moreover, during the Class Period, Defendants were further motivated to make
12
     false and misleading statements about Qnexa because they were looking for potential companies
13
     to partner up with to develop and build the market for Qnexa. In fact, during the November 3,
14
     2009 conference call, Peter Tam, who was appointed as the Company’s President on October 30,
15
     2009 stated, in part, the following:
16
            As we have previously stated, we would not begin partnering discussions until the
17          phase 3 data was released. The data is now available and interest from potential
            partners remains very high. I am pleased to report that discussions with multiple
18          parties are underway.
19                                            *      *        *

20          . . . So we’re looking for big partners to partner and be able to develop the brand
            and also build the market for Qnexa.
21
            175.    CW4 also stated that the Company did not have the resources to take a
22
     product from development to production itself, and therefore, Vivus had to sell their first
23
     FDA-approved product, MUSE, to raise money to keep the Qnexa research going.
24
     Corroborating CW4, CW3, who was employed as a regional sales representative from
25
     2000 until 2008, stated that the sales staff only had only one product to sell, MUSE, and
26
     it was not covering the costs of the Company’s operations.
27

28
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 1         176.    Moreover, because of Vivus’s money issues, CW1 stated that Vivus

 2 wanted to push the Phase 3 Trials to make Qnexa advance more rapidly in development.

 3 CW1 explained that the development program was done in a way that was driven more

 4 by money because Vivus wanted to tell the financial markets that it had completed Phase

 5 3 Trials. CW1 explained that if the QT study had come back and shown bad results, then,

 6 the $14 million spent on the Phase 3 Trials would have been a waste. CW1

 7 communicated that a “thorough QT” is the biggest issue in clinical trials. CW1 stated

 8 that if done right, Vivus should have done a thorough QT study first instead of the Phase

 9 3 Trials. However, the trials were done this way because Vivus management wanted to

10 get the results they needed and to file for approval. When they got the approval, CW1

11 stated that Vivus would likely sell the product because the Company did not have the

12 money to bring Qnexa to production. CW1 stated, this way, the headaches of Qnexa

13 would become that of the buyer, and Vivus would make a large profit. For these reasons

14 and in the hope that the FDA would rubber-stamp the Company’s findings, Defendants

15 made false and misleading statements to the market regarding the success and lack of side

16 effects from the use of Qnexa.

17 The Individual Defendants Had Substantial
   Motivation To Make The False And/Or Misleading Statements
18
           177. The Individual Defendants were also motivated by various financial incentives
19
   benefitting them personally to make the materially false and misleading statements about Qnexa.
20
   The status and results of the clinical trial programs for Qnexa were a fundamental corporate
21
   objective in the determination of the CEO’s and CFO’s financial incentives.
22
           178. According to the Company’s April 30, 2010 Proxy Statement:
23
           For 2009, our primary focus has been our investigational drug development
24         programs. Accordingly, the general corporate performance objectives for 2009
25         were heavily weighted towards our clinical development and regulatory goals for
           our later stage investigational product candidates Qnexa (for the treatment of
26         obesity) . . . as well as our corporate goal of closing a financing to fund our
           operations. Our primary clinical development goals for Qnexa included
27         completion of the Phase 3 clinical studies OB-302 and OB-303, having met the
           primary endpoints in those studies, and completion of pre-clinical toxicology
28
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            studies required in the European Union for an application seeking marketing
 1          approval of Qnexa. . . . Our regulatory goal for Qnexa was the completion and
 2          submission of the New Drug Application to the Food and Drug Administration.
            Our corporate goals were significantly weighted towards the raising of a
 3          minimum of $50 million in financing, with the lesser goal of achieving
            profitability of our commercial operations of MUSE.
 4
            179.    Defendants’ misrepresentations and omissions to the market about Qnexa also
 5
     made it possible for them not only to meet the corporate objective of raising $50 million in
 6
     financing, but exceeding it - they raised $108 million. Defendants were awarded their bonus
 7
     incentives at 100% because of their ability to have raised this financing and advancing the
 8
     clinical trials for Qnexa at a rapid pace. The Proxy Statement provided:
 9

10
            For 2009, the Compensation Committee determined that our overall corporate
11          performance was excellent given that the clinical development and regulatory
12          goals for both Qnexa and avanafil were achieved and that we were successful in
            raising more than $100 million through the sale of additional equity. Accordingly,
13          it was determined by the Compensation Committee that 100% of the eligible cash
            bonus percentages would be paid for 2009.
14
            180.    The Company’s Equity Incentive Plan also provided for the granting and/or
15
     vesting of awards of Restricted Stock, Restricted Stock Units, Performance Shares and
16
     Performance Units and other incentives under the Plan subject to the attainment of performance
17
     goals such as those listed above.
18
            181.    In sum, the Individual Defendants had significant incentives to make false and
19
     misleading statements and omit material facts to ensure that the Company achieved stated
20
     corporate objectives, since their financial benefits and incentives heavily depended on meeting
21
     those objectives.
22
            182.    Defendant Day’s wife, Dr. Yee, who carried out pre-clinical development and
23
     development consulting services for Vivus and was involved in the Qnexa trials, clearly had an
24
     interest in the appearance of a positive outcome of the Qnexa trials as well, since her husband’s
25
     salary and bonuses were based on the Company achieving certain objections.
26
            183.    In 2008, defendant Wilson was paid $1,716,077 in compensation (consisting of
27
     $549,192 in salary, $971,121 in option awards, $185,625 in non-equity incentive plan
28
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 1 compensation, and $10,139 in all other compensation). In 2009, defendant Wilson was paid

 2 $2,080,097 in compensation (consisting of $612,721 in salary, $1,190,574 in option awards,

 3 $266,063 in non-equity incentive plan compensation, and $10,739 in all other compensation). In

 4 2010, defendant Wilson’s base salary was increased to $680,813. Further, the Compensation

 5 Committee approved the increase of defendant Wilson’s eligibility to receive annual cash

 6 incentive payments from 45% to 50% of his annual base salary.

 7          184.    In 2008, defendant Day was paid $708,957 in compensation (consisting of

 8 $279,493 in salary, $257,289 in option awards, $62,975 in non-equity incentive plan

 9 compensation, and $9,200 in all other compensation).          In 2009, defendant Day was paid

10 $659,082 in compensation (consisting of $304,754 in salary, $256,364 in option awards, $88,164

11 in non-equity incentive plan compensation, and $9,800 in all other compensation). In 2010,

12 defendant Day’s base salary was increased to $306,224.

13          185.    In addition, by concealing the truth about Qnexa, Vivus insiders were able to

14 personally profit by engaging in substantial and unlawful insider selling. Top Vivus officers

15 and/or directors sold shares of their Company stock during the Class Period at inflated prices for

16 proceeds of over $3.6 million. The lion’s share of those stock sales were made by the two high-

17 level Vivus officers, CEO Wilson and VP of Operations Guy Marsh.

18          186.    Specifically, on September 9, 2009, the very day on which the Class period

19 started and the day on which Vivus issued its press release about Qnexa’s effectiveness and its

20 safety profile and on which defendant Wilson hosted a conference call on which he discussed

21 Qnexa’s “remarkable efficacy” and “remarkable safety,” defendant Wilson sold 200,000 shares

22 of Vivus stock -- the majority of his Vivus holdings -- for proceeds of $2,245,000. Likewise,

23 Marsh sold 109,296 shares of his Vivus stock on September 9, 2009 and September 10, 2009 for

24 proceeds of $1,269,532.

25          187.    Defendant Wilson further sold an additional 50,000 shares of Vivus on May 18,

26 2010, shortly after yet another conference call held on May 3, 2010 and the same day Vivus

27 presented at the Rodman & Renshaw Global Investment Conference. Defendant Wilson’s May

28
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 1 18, 2010 sale in fact fell on the very day marking Vivus’s share price Class Period high. The

 2 sale brought defendant Wilson proceeds of $650,000.

 3          188.    Although defendant Wilson and Marsh also sold stock under their respective

 4 March 12, 2009 10b5-1 trading plans prior to the start of the Class Period, the number of shares

 5 sold by each in their respective initial Class-Period sales dwarfed the number of shares sold in

 6 any of their prior sales. Notably, the 200,000 shares that defendant Wilson sold on September 9,

 7 2009 constitutes a greater number of shares than the combined total that defendant Wilson had

 8 sold during the entire preceding year and is four times bigger than each of his pre-Class Period

 9 sales.

10          189.    Additionally, the circumstances surrounding the sales strongly suggest the

11 existence of a pre-conceived plan by both defendant Wilson and Marsh to profit from the sale of

12 Vivus’s shares whose price they would artificially inflate by means of calculated

13 misrepresentations concerning Qnexa’s Phase 3 Trials. According to the respective Forms 4 that

14 each filed in connection with their Class Period sales, both defendant Wilson’s and Marsh’s sales

15 were made pursuant to a Rule 10b5-1 trading plan adopted by each on March 12, 2009, only a

16 few months before the Class Period commenced. No sales made by any Vivus insiders other

17 than defendant Wilson or Marsh were made pursuant to a trading plan adopted so close to the

18 start of the Class Period.

19                                          LOSS CAUSATION

20          190.    The market for Vivus securities was open, well-developed and efficient at all

21 relevant times. As a result of Defendants’ materially false and misleading statements and

22 failures to disclose alleged herein, Vivus securities traded at artificially inflated prices during the

23 Class Period. Plaintiff and the Class purchased or otherwise acquired Vivus securities relying

24 upon market information relating to Vivus and the integrity of the market price of Vivus

25 securities, thus causing economic loss and the damages complained of herein when the truth

26 and/or the effects thereof were revealed and the artificial inflation was removed from the price of

27 Vivus securities.

28
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 1               191.         Defendants’ wrongful conduct, as alleged herein, directly and proximately caused

 2 the economic loss suffered by Plaintiff and the Class.

 3               192.         But for Defendants’ misrepresentation and omissions, Plaintiff and the other

 4 members of the Class would not have purchased Vivus securities at the artificially inflated prices

 5 at which they were purchased.

 6               193.         Artificial inflation caused by Defendants’ false and misleading statements and

 7 omissions is, in part, demonstrated by the following stock chart:

 8
                                                  VIVUS Inc. (VVUS) Closing Price
 9
     14
10         September 9, 2009, $11.80
           Vivus announced
     13
11         “outstanding” results from                                                                  July 15, 2010, $12.11
           Phase 3 trials of Qnexa.
     12
12
     11
13
     10
14
      9
15                                                                                     July 15, 2010 - the
      8                                                                                Endocrinologic and Metabolic
                                                                                       Drugs Advisory Committee of
16                                                                                     the FDA voted 10 to 6 against
      7
                                                                                       the approval of Qnexa.
17            September 8, 2009, $6.91
      6

18    5
                                                                                                 July 16, 2010, $5.41


19    4
     Aug-09              Oct-09          Dec-09       Jan-10           Mar-10         May-10              Jun-10
20

21

22               194.         Because of the public revelations regarding Qnexa’s previously undisclosed and

23 misrepresented safety issues, the Company’s securities plummeted from a closing price of

24 $12.11 per share on July 15, 2010, to a closing price of $5.41 per share on July 16, 2010, a one-

25 day drop of 55% on unusually heavy trading volume of over 42 million shares. Further, as a

26 direct result of public revelations, the price of Vivus securities fell more 60% from its Class

27

28
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 1 Period high, from $13.68 per share on May 18, 2010, to close at $5.41 per share on July 16,

 2 2010.

 3          195.    Since July 15, 2010, Vivus securities have not traded above the prices at which

 4 Class members purchased those securities during the Class Period prior to July 15, 2010. As a

 5 result, members of the Class who purchased Vivus securities during the Class Period and

 6 continue to hold those securities, have sustained economic injury resulting from the decline(s) in

 7 the value of Vivus securities resulting from the revelations on July 15, 2010.

 8          196.    Members of the Class who purchased Vivus securities during the Class Period,

 9 and sold those securities after the end of the Class Period, have suffered economic injury caused

10 by Defendants’ misrepresentations and/or omissions during the Class Period that did not come to

11 light until July 15, 2010.

12          197.    Thus, the damage suffered by Plaintiff and other members of the Class was a

13 direct result of Defendants’ fraudulent scheme to artificially inflate the price of Vivus securities

14 and the subsequent significant decline in the value of Vivus securities when the truth regarding

15 the safety of Qnexa was revealed.

16          198.    The foregoing allegations describe Plaintiff’s general theory of damages,

17 demonstrate that Plaintiff’s damages were caused by the scheme to defraud as alleged herein,

18 and negate any inference that Plaintiff’s losses were the result of general market conditions or

19 other factors wholly unrelated to Defendants’ omissions alleged herein.

20                                        NO SAFE HARBOR

21          199.    The statutory safe harbor provided for forward-looking statements under certain

22 circumstances does not apply to any of the allegedly false statements pleaded in this complaint.

23 Many of the specific statements pleaded herein were not identified as “forward-looking

24 statements” when made. To the extent there were any forward-looking statements, there were no

25 meaningful cautionary statements identifying important factors that could cause actual results to

26 differ materially from those in the purportedly forward-looking statements. Alternatively, to the

27 extent that the statutory safe harbor does apply to any forward-looking statements pleaded

28
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 1 herein, Defendants are liable for those false forward-looking statements because at the time each

 2 of those forward-looking statements was made, the particular speaker knew that the particular

 3 forward-looking statement was false, and/or the forward-looking statement was authorized

 4 and/or approved by an executive officer of Vivus who knew that those statements were false

 5 when made.

 6                                            COUNT I
                        Violation Of Section 10(b) Of The Exchange Act And
 7                   Rule 10b-5 Promulgated Thereunder Against All Defendants
 8           200.   Plaintiff repeats each and every allegation contained above as if fully set forth
 9 herein.

10           201.   During the Class Period, Vivus and the Individual Defendants, and each of them,
11 carried out a plan, scheme and course of conduct which was intended to and, throughout the

12 Class Period, did: (a) deceive the investing public, including Plaintiff and other Class members,

13 as alleged herein; (b) artificially inflate and maintain the market price of Vivus securities; and (c)

14 cause Plaintiff and other members of the Class to purchase Vivus securities at artificially inflated

15 prices. In furtherance of this unlawful scheme, plan and course of conduct, Defendants, and each

16 of them, took the actions set forth herein.

17           202.   Defendants (a) employed devices, schemes, and artifices to defraud; (b) made
18 untrue statements of material fact and/or omitted to state material facts necessary to make the

19 statements not misleading; and (c) engaged in acts, practices, and a course of business which

20 operated as a fraud and deceit upon the purchasers of the Company’s securities in an effort to

21 maintain artificially high market prices for Vivus securities in violation of Section 10(b) of the

22 Exchange Act and Rule 10b-5. All Defendants are sued either as primary participants in the

23 wrongful and illegal conduct charged herein or as controlling persons as alleged below.

24           203.   In addition to the duties of full disclosure imposed on Defendants as a result of
25 their making of affirmative statements and reports, or participation in the making of affirmative

26 statements and reports to the investing public, Defendants had a duty to promptly disseminate

27 truthful information that would be material to investors in compliance with the integrated

28
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 1 disclosure provisions of the SEC as embodied in SEC Regulation S-X (17 C.F.R. Sections

 2 210.01 et seq.) and Regulation S-K (17 C.F.R. Sections 229.10 et seq.) and other SEC

 3 regulations, including accurate and truthful information with respect to the Company’s

 4 operations, financial condition and earnings so that the market price of the Company’s securities

 5 would be based on truthful, complete and accurate information.

 6          204.    Vivus and the Individual Defendants, individually and in concert, directly and

 7 indirectly, by the use, means or instrumentalities of interstate commerce and/or of the mails,

 8 engaged and participated in a continuous course of conduct to conceal adverse material

 9 information about the business, operations, and future prospects of Vivus as specified herein.

10          205.    These Defendants employed devices, schemes and artifices to defraud, while in

11 possession of material adverse non-public information and engaged in acts, practices, and a

12 course of conduct as alleged herein in an effort to assure investors of Vivus’s value and

13 performance and continued substantial growth, which included the making of, or the

14 participation in the making of, untrue statements of material facts and omitting to state material

15 facts necessary in order to make the statements made about Vivus and its business operations and

16 future prospects in the light of the circumstances under which they were made, not misleading,

17 as set forth more particularly herein, and engaged in transactions, practices and a course of

18 business which operated as a fraud and deceit upon the purchasers of Vivus securities during the

19 Class Period.

20          206.    The Individual Defendants’ primary liability, and controlling person liability,

21 arises from the following facts: (a) the Individual Defendants were high-level executives and/or

22 directors at the Company during the Class Period; (b) the Individual Defendants were privy to

23 and participated in the creation, development and reporting of the Company’s internal budgets,

24 plans, projections and/or reports; and (c) the Individual Defendants were aware of the

25 Company’s dissemination of information to the investing public which they knew or recklessly

26 disregarded was materially false and misleading.

27

28
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 1          207.    The Defendants had actual knowledge of the misrepresentations and omissions of

 2 material facts set forth herein, or acted with reckless disregard for the truth in that they failed to

 3 ascertain and to disclose such facts, even though such facts were available to them. Such

 4 Defendants’ material misrepresentations and/or omissions were done knowingly or recklessly

 5 and for the purpose and effect of concealing Vivus’s operating condition and future business

 6 prospects from the investing public and supporting the artificially inflated price of its securities.

 7 As demonstrated by Defendants’ overstatements and misstatements of the Company’s business,

 8 operations and earnings throughout the Class Period, Defendants, if they did not have actual

 9 knowledge of the misrepresentations and omissions alleged, were reckless in failing to obtain

10 such knowledge by deliberately refraining from taking those steps necessary to discover whether

11 those statements were false or misleading.

12          208.    As a result of the dissemination of the materially false and misleading information

13 and failure to disclose material facts, as set forth above, the market price of Vivus securities was

14 artificially inflated during the Class Period. In ignorance of the fact that market prices of

15 Vivus’s publicly-traded securities were artificially inflated, and relying directly or indirectly on

16 the false and misleading statements made by Defendants, or upon the integrity of the market in

17 which the securities trade, and/or on the absence of material adverse information that was known

18 to or recklessly disregarded by Defendants but not disclosed in public statements by Defendants

19 during the Class Period, Plaintiff and the other members of the Class acquired Vivus securities

20 during the Class Period at artificially high prices and were damaged thereby.

21          209.    At the time of said misrepresentations and omissions, Plaintiff and other members

22 of the Class were ignorant of their falsity, and believed them to be true. Had Plaintiff and the

23 other members of the Class and the marketplace known of the true financial condition and

24 business prospects of Vivus, which were not disclosed by Defendants, Plaintiff and other

25 members of the Class would not have purchased or otherwise acquired their Vivus securities, or,

26 if they had acquired such securities during the Class Period, they would not have done so at the

27 artificially inflated prices which they paid.

28
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 1           210.    By virtue of the foregoing, Defendants have violated Section 10(b) of the

 2 Exchange Act, and Rule 10b-5 promulgated thereunder.

 3           211.    As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff and

 4 the other members of the Class suffered damages in connection with their respective purchases

 5 and sales of the Company’s securities during the Class Period.

 6                                               COUNT II
                               Violation Of Section 20(a) Of The Exchange Act
 7                                    Against the Individual Defendants
 8
             212.    Plaintiff repeats and realleges each and every allegation contained above as if
 9
     fully set forth herein.
10
             213.    The Individual Defendants acted as controlling persons of Vivus within the
11
     meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level
12
     positions, and their ownership and contractual rights, participation in and/or awareness of the
13
     Company’s operations and/or intimate knowledge of the statements filed by the Company with
14
     the SEC and disseminated to the investing public, the Individual Defendants had the power to
15
     influence and control and did influence and control, directly or indirectly, the decision-making of
16
     the Company, including the content and dissemination of the various statements which Plaintiff
17
     contends are false and misleading. The Individual Defendants were provided with or had
18
     unlimited access to copies of the Company’s reports, press releases, public filings and other
19
     statements alleged by Plaintiff to be misleading prior to and/or shortly after these statements
20
     were issued and had the ability to prevent the issuance of the statements or cause the statements
21
     to be corrected.
22
             214.    In particular, the Individual Defendants had direct and supervisory involvement in
23
     the day-to-day operations of the Company and, therefore, are presumed to have had the power to
24
     control or influence the particular transactions giving rise to the securities violations as alleged
25
     herein, and exercised the same.
26
             215.    As set forth above, Vivus and the Individual Defendants each violated Section
27
     10(b) and Rule 10b-5 by their acts and omissions as alleged in this Complaint. By virtue of their
28
     AMENDED CLASS ACTION COMPLAINT FOR VIOLATIONS      82    Case No. 4:10-cv-04957-PJH
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 1 positions each as a controlling person, the Individual Defendants are liable pursuant to Section

 2 20(a) of the Exchange Act. As a direct and proximate result of Vivus’s and the Individual

 3 Defendants’ wrongful conduct, Plaintiff and other members of the Class suffered damages in

 4 connection with their purchases of the Company’s securities during the Class Period.

 5                                       PRAYER FOR RELIEF

 6          WHEREFORE, Plaintiff prays for relief and judgment, as follows:

 7          216.    Determining that this action is a proper class action, designating Plaintiff as lead

 8 Plaintiff and certifying Plaintiff as class representative under Rule 23 of the Federal Rules of

 9 Civil Procedure and Plaintiff’s counsel as lead counsel;

10          217.    Awarding compensatory damages in favor of Plaintiff and the other Class

11 members against all Defendants, jointly and severally, for all damages sustained as a result of

12 Defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon;

13          218.    Awarding Plaintiff and the Class their reasonable costs and expenses incurred in

14 this action, including counsel fees and expert fees; and

15          219.    Such other and further relief as the Court may deem just and proper.

16                                    JURY TRIAL DEMANDED

17          Plaintiff hereby demands a trial by jury.

18    Dated: April 4, 2011                               MILBERG LLP
                                                         JEFF S. WESTERMAN
19                                                       AZRA MEHDI
                                                         NICOLE M. DUCKETT
20

21

22
                                                                         /s/ Azra Mehdi
23                                                                       AZRA MEHDI
24

25

26

27

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     AMENDED CLASS ACTION COMPLAINT FOR VIOLATIONS       83   Case No. 4:10-cv-04957-PJH
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                                                      One California Plaza
 1                                                    300 South Grand Avenue, Suite 3900
                                                      Los Angeles, CA 90071-3172
 2                                                    Telephone: (213) 617-1200
                                                      Facsimile: (213) 617-1975
 3                                                    E-mail: jwesterman@milberg.com
                                                      amehdi@milberg.com
 4                                                    nduckett@milberg.com
 5
                                                      MILBERG LLP
 6                                                    Andrei V. Rado
                                                      William Scoville
 7                                                    One Pennsylvania Plaza, 49th Floor
                                                      New York, NY 10119-0165
 8                                                    Telephone: (212) 594-5300
                                                      Facsimile: (212) 868-1229
 9
                                                      E-mail: arado@milberg.com
10                                                    avu@milberg.com
                                                      wscoville@milberg.com
11
                                                      Liaison Counsel for the Class
12

13                                                    BROWER PIVEN
                                                       A Professional Corporation
14                                                    David A.P. Brower
                                                      488 Madison Avenue
15                                                    Eighth Floor
                                                      New York, New York 10022
16                                                    Telephone: (212) 501-9000
                                                      Facsimile: (212) 501-0300
17                                                    E-mail: brower@browerpiven.com

18                                                    Lead Counsel for the Class

19

20

21

22

23

24

25

26

27

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 1                   DECLARATION OF SERVICE BY CM/ECF AND/OR MAIL

 2          I, the undersigned, declare:

 3          1.      That declarant is and was, at all times herein mentioned, employed in the County

 4 of Los Angeles, over the age of 18 years, and not a party to or interest in the within action; that

 5 declarant’s business address is One California Plaza, 300 South Grand Avenue, Suite 3900, Los

 6 Angeles, California 90071-3149.

 7          2.      Declarant hereby certifies that on April 4, 2011, declarant served the AMENDED

 8 CLASS ACTION COMPLAINT FOR VIOLATIONS OF FEDERAL SECURITIES LAWS by

 9 electronically filing the foregoing document listed above by using the Case Management/

10 Electronic Case filing system.

11          3.      Declarant further certifies:

12                  All participants in the case are registered CM/ECF users and that service will be

13 accomplished by the court’s CM/ECF system

14                  Participants in the case who are registered CM/ECF users will be served by the

15 court’s CM/ECF system. Participants in the case that are not registered CM/ECF users will be

16 served by First-Class Mail, postage pre-paid or have dispatched to a third-party commercial

17 carrier for delivery to the non-CM/ECF participants as addressed and listed in the Service List.

18          4.      That there is a regular communication by mail between the place of mailing and

19 the places so addressed.

20          I declare under penalty of perjury that the foregoing is true and correct. Executed this 4th

21 day of April, 2011, at Los Angeles, California.

22

23
                                                                 CECILLE CHAFFINS
24

25

26

27

28
     AMENDED CLASS ACTION COMPLAINT FOR VIOLATIONS     85    Case No. 4:10-cv-04957-PJH
     OF FEDERAL SECURITIES LAWS

				
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