Case 1:22-cv-00405 Document 1 Filed 01/17/22 Page 1 of 14
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
`
`DAVID KAUFMANN,
`
`
`Plaintiff,
`
`
`
` v.
`
`ARENA PHARMACEUTICALS, INC.,
`AMIT D. MUNSHI, GARY A. NEIL, TINA
`S. NOVA, JAYSON DALLAS, OLIVER
`FETZER, KIERAN T. GALLAHUE,
`JENNIFER JARRETT, KATHARINE
`KNOBIL, NAWAL OUZREN, and STEVEN
`SCHOCH,
`
`
`Defendants,
`
`
`
`Civil Action No. ___________
`
`
`COMPLAINT FOR VIOLATIONS
`OF THE SECURITIES EXCHANGE
`ACT OF 1934
`
`
`
`
`JURY TRIAL DEMAND
`
`Plaintiff David Kaufmann (“Plaintiff”) alleges the following upon information and belief,
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`
`
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`including investigation of counsel and review of publicly available information, except as to those
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`allegations pertaining to Plaintiff, which are alleged upon personal knowledge:
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`NATURE OF THE ACTION
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`1.
`
`Plaintiff brings this action against Arena Pharmaceuticals, Inc. (“Arena” or the
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`“Company”) and Arena’s Board of Directors (the “Board” or the “Individual Defendants”) for
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`their violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, 15.U.S.C. §§
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`78n(a), 78t(a), and SEC Rule 14a-9, 17 C.F.R. § 240.14a-9, arising out of the Board’s attempt to
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`sell the Company to Pfizer, Inc. through its wholly-owned subsidiary Antioch Merger Sub, Inc.
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`(collectively “Pfizer”).
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`2.
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`Defendants have violated the above-referenced Sections of the Exchange Act by
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`causing a materially incomplete and misleading definitive proxy statement (the “Proxy”) to be
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`filed with the Securities and Exchange Commission (“SEC”) on January 3, 2022. The Proxy
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`recommends that Arena stockholders vote in favor of a proposed transaction (the “Proposed
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`Case 1:22-cv-00405 Document 1 Filed 01/17/22 Page 2 of 14
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`Transaction”) whereby Arena is acquired by Pfizer. The Proposed Transaction was first disclosed
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`on December 13, 2021, when Arena and Pfizer announced that they had entered into a definitive
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`merger agreement (the “Merger Agreement”) pursuant to which Pfizer will acquire all of the
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`outstanding shares of common stock of Arena for $100 per share (the “Merger Consideration”).
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`The deal is valued at approximately $6.7 billion and is expected to close in the first half of 2022.
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`3.
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`The Proxy is materially incomplete and contains misleading representations and
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`information in violation of Sections 14(a) and 20(a) of the Exchange Act. Specifically, the Proxy
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`contains materially incomplete and misleading information concerning the financial projections
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`prepared by Arena management, as well as the financial analyses conducted by Evercore Group
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`L.L.C. (“Evercore”) and Guggenheim Securities, LLC (“Guggenheim”), Arena’s financial
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`advisors.
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`4.
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`For these reasons, and as set forth in detail herein, Plaintiff seeks to enjoin
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`Defendants from taking any steps to consummate the Proposed Transaction, including filing an
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`amendment to the Proxy with the SEC or otherwise causing an amendment to the Proxy to be
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`disseminated to Arena’s stockholders, unless and until the material information discussed below
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`is included in any such amendment or otherwise disseminated to Arena’s stockholders. In the event
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`the Proposed Transaction is consummated without the material omissions referenced below being
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`remedied, Plaintiff seeks to recover damages resulting from the Defendants’ violations.
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`PARTIES
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`Plaintiff is, and has been at all relevant times, the owner of shares of common stock
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`5.
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`of Arena.
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`6.
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`Defendant Arena is a corporation organized and existing under the laws of the State
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`of Delaware. The Company’s principal executive offices are located at 136 Heber Avenue, Suite
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`Case 1:22-cv-00405 Document 1 Filed 01/17/22 Page 3 of 14
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`204, Park City, Utah 84060. Arena common stock trades on the NASDAQ under the ticker symbol
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`“ARNA.”
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`7.
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`Defendant Amit D. Munshi has been President and Chief Executive Officer
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`(“CEO”) of the Company since May 2016, and a director of the Company since 2016.
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`8.
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`Defendant Garry A. Neil has been Chair of the Board since February 2021, and a
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`director of the Company since 2017.
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`9.
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`Defendant Tina S. Nova has been a director of the Company since 2004. Defendant
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`Nova previously served as Chair of the Board from June 2016 to February 2021, and as the Board’s
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`lead independent director from 2015 to 2016.
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`10.
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`11.
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`12.
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`13.
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`14.
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`15.
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`16.
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`Defendant Oliver Fetzer has been a director of the Company since 2017.
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`Defendant Kieran T. Gallahue has been a director of the Company since 2018.
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`Defendant Jennifer Jarrett has been a director of the Company since 2017.
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`Defendant Katharine Knobil has been a director of the Company since 2020.
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`Defendant Nawal Ouzren has been a director of the Company since February 2021.
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`Defendant Steven Schoch has been a director of the Company since June 11, 2021.
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`Nonparty Pfizer is a corporation organized and existing under the laws of the State
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`of Delaware. Pfizer’s principal executive offices are located at 235 East 42nd Street, New York,
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`NY 10017. Pfizer common stock trades on the New York Stock Exchange under the ticker symbol
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`“PFE.”
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`17.
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`Nonparty Antioch Merger Sub, Inc. is a Delaware corporation and is a wholly
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`owned subsidiary of Pfizer.
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`JURISDICTION AND VENUE
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`18.
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`This Court has subject matter jurisdiction pursuant to Section 27 of the Exchange
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`Case 1:22-cv-00405 Document 1 Filed 01/17/22 Page 4 of 14
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`Act (15 U.S.C. § 78aa) and 28 U.S.C. § 1331 (federal question jurisdiction) as Plaintiff alleges
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`violations of Section 14(a) and 20(a) of the Exchange Act and SEC Rule 14a-9.
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`19.
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`Personal jurisdiction exists over each Defendant either because the Defendant
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`conducts business in or maintains operations in this District, or is an individual who is either
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`present in this District for jurisdictional purposes or has sufficient minimum contacts with this
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`District as to render the exercise of jurisdiction over Defendant by this Court permissible under
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`traditional notions of fair play and substantial justice.
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`20.
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`Venue is proper in this District under Section 27 of the Exchange Act, 15 U.S.C. §
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`78aa, as well as under 28 U.S.C. § 1391, because a significant amount of the conduct at issue took
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`place and had an effect in this District.
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`FURTHER SUBSTANTIVE ALLEGATIONS
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`A. Background of the Company and the Proposed Transaction
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`21.
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`Arena is a clinical stage biopharmaceutical company founded in 1997. Arena’s
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`therapeutic focus is on the gastroenterology, dermatology, and cardiovascular fields. The
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`Company has developed treatments for Crohn’s disease, alopecia areata, atopic dermatitis,
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`eosinophilic esophagitis, acute heart failure, and pain associated with irritable bowel syndrome.
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`22.
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`On December 12, 2021, the Company entered into the Merger Agreement with
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`Pfizer.
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`23.
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`According to the press release issued on December 13, 2021 announcing the
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`Proposed Transaction:
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`Pfizer to Acquire Arena Pharmaceuticals
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`Proposed acquisition offers potentially new, differentiated best-in-class
`approach to address unmet need for a broader number of patients with
`immuno-inflammatory diseases
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`Expands innovative pipeline potentially enhancing growth through 2025 and
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`Case 1:22-cv-00405 Document 1 Filed 01/17/22 Page 5 of 14
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`beyond
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`Transaction valued at $100 per Arena share in cash, for a total equity value of
`approximately $6.7 billion
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`Pfizer to host analyst and investor call at 10am EST today with Pfizer I&I
`executives
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`NEW YORK AND PARK CITY, UTAH, December 13, 2021 – Pfizer Inc. (NYSE:
`PFE) and Arena Pharmaceuticals, Inc. (Nasdaq: ARNA) today announced that the
`companies have entered into a definitive agreement under which Pfizer will acquire
`Arena, a clinical stage company developing innovative potential therapies for the
`treatment of several immuno-inflammatory diseases. Under the terms of the
`agreement, Pfizer will acquire all the outstanding shares of Arena for $100 per share
`in an all-cash transaction for a total equity value of approximately $6.7 billion. The
`boards of directors of both companies have unanimously approved the transaction.
`
`Arena’s portfolio includes diverse and promising development-stage therapeutic
`candidates in gastroenterology, dermatology, and cardiology, including etrasimod,
`an oral, selective sphingosine 1-phosphate (S1P) receptor modulator currently in
`development
`for a
`range of
`immuno-inflammatory diseases
`including
`gastrointestinal and dermatological diseases.
`
`“The proposed acquisition of Arena complements our capabilities and expertise in
`Inflammation and Immunology, a Pfizer innovation engine developing potential
`therapies for patients with debilitating immuno-inflammatory diseases with a need
`for more effective treatment options,” said Mike Gladstone, Global President &
`General Manager, Pfizer Inflammation and Immunology. “Utilizing Pfizer’s
`leading research and global development capabilities, we plan to accelerate the
`clinical development of etrasimod for patients with immuno-inflammatory
`diseases.”
`
`Arena has built a robust development program for etrasimod, including two Phase
`3 studies in ulcerative colitis (UC), a Phase 2/3 program in Crohn’s Disease, a
`planned Phase 3 program in atopic dermatitis, and ongoing Phase 2 studies in
`eosinophilic esophagitis and alopecia areata.
`
`In UC, the randomized, placebo-controlled, dose-ranging, Phase 2 study (OASIS)
`evaluated the efficacy and safety of etrasimod in moderate to severe UC patients
`over 12 weeks versus placebo. In the study, most patients who achieved clinical
`response, clinical remission, or endoscopic improvement at week 12 experienced
`sustained or improved effects up to week 46 with etrasimod 2 mg in the open-label
`extension. Etrasimod also demonstrated a favorable benefit/risk profile, consistent
`with safety findings reported in the double-blind portion of OASIS. The findings
`are encouraging as there remains significant unmet need for safe and effective oral
`therapies in UC for patients with inadequate response, loss of response, or
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`Case 1:22-cv-00405 Document 1 Filed 01/17/22 Page 6 of 14
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`intolerance to conventional or advanced therapies. The OASIS trial supported the
`advancement of the ELEVATE UC 52 and UC 12 trials, which are currently fully
`enrolled, and for which data are expected in 2022.
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`In addition, Arena’s pipeline includes two development-stage cardiovascular
`assets, temanogrel and APD418. Temanogrel is currently in Phase 2 for the
`treatment of microvascular obstruction and Raynaud's phenomenon secondary to
`systemic sclerosis. APD418 is currently in Phase 2 for acute heart failure.
`
`“We’re delighted to announce Pfizer’s proposed acquisition of Arena, recognizing
`Arena’s potentially best in class S1P molecule and our contribution to addressing
`unmet needs in immune-mediated inflammatory diseases,” said Amit D. Munshi,
`President and Chief Executive Officer of Arena. “Pfizer’s capabilities will
`accelerate our mission to deliver our important medicines to patients. We believe
`this transaction represents the best next step for both patients and shareholders.”
`Pfizer expects to finance the transaction with existing cash on hand.
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`Under the terms of the merger agreement, Pfizer will acquire all of the outstanding
`shares of Arena common stock for $100 per share in cash. The proposed transaction
`is subject to customary closing conditions, including receipt of regulatory approvals
`and approval by Arena’s stockholders.
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`B. The Materially Incomplete and Misleading Proxy
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`24.
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`On January 3, 2022, Defendants filed the Proxy with the SEC. The purpose of the
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`Proxy is, inter alia, to provide the Company’s stockholders with all material information necessary
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`for them to make an informed decision on whether to vote in favor of the Proposed Transaction.
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`However, significant and material facts were not provided to Plaintiff. Without such information,
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`Plaintiff cannot make a fully informed decision concerning whether to vote in favor of the
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`Proposed Transaction.
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`Materially Incomplete and Misleading Disclosures Concerning the
`Management-Prepared Financial Forecasts
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`25.
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`The Proxy discloses management-prepared financial projections for the Company
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`which are materially misleading. The Proxy indicates that in connection with the rendering of
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`Evercore’s fairness opinion, Evercore “reviewed the Projections relating to Arena prepared and
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`furnished to Evercore by management of Arena, as approved for Evercore’s use by Arena.”
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`Accordingly, the Proxy should have, but failed to, provide certain information in the projections
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`that Arena’s management provided to the Board and Evercore. The Proxy also indicates that in
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`connection with the rendering of Guggenheim’s fairness opinion, Guggenheim “reviewed certain
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`non-public business and financial information regarding Arena’s business and future prospects
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`(including the Projections) and certain other estimates and other forward-looking information, all
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`as prepared and approved for Guggenheim Securities’ use by Arena’s senior management.”
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`26.
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`Notably, Defendants failed to disclose the line item entries for the Company’s: (a)
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`Risk Adjusted Total Revenue; (b) EBIT; and (c) Unlevered Free Cash Flow. This omitted
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`information is necessary for Plaintiff to make an informed decision on whether to vote in favor of
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`the Proposed Transaction.
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`Incomplete and Misleading Disclosures Concerning
`Materially
`Evercore’s and Guggenheim’s Financial Analyses
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`
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`27. With respect to Evercore’s Discounted Cash Flow Analysis, the Proxy fails to
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`
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`disclose: (a) the “unlevered, after-tax free cash flows” for the 2022 through 2040 fiscal years; (b)
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`the estimated terminal year “unlevered, after-tax free cash flows”; (c) the Company’s terminal
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`values; (d) the present value of tax savings from the Company’s use of its net operating losses; and
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`(e) the key data, inputs, and assumptions that form the basis of the range of discount rates applied
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`by Evercore.
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`28. With respect to Evercore’s Selected Transactions Analysis, the Proxy fails to
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`disclose Arena’s estimated revenue for the 2026 fiscal year.
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`29. With respect to Evercore’s Selected Public Company Trading Analysis, the Proxy
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`fails to disclose the financial metrics and multiples for each company included in the analysis. The
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`Proxy also fails to disclose Arena’s estimated revenue for the 2026 fiscal year.
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`30. With respect to Evercore’s Equity Research Analyst Price Targets analysis, the
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`Case 1:22-cv-00405 Document 1 Filed 01/17/22 Page 8 of 14
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`Proxy fails to disclose the specific price targets studied as part of the analysis. The Proxy also fails
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`to disclose the sources of the price targets.
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`31. With respect to Guggenheim’s Arena’s Discounted Cash Flow Analysis, the Proxy
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`fails to disclose: (a) the “risk-adjusted, after-tax unlevered free cash flows” for Arena; (b) Arena’s
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`“terminal year normalized after-tax unlevered free cash flow; (c) the Company’s terminal values;
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`and (d) the key data, inputs, and assumptions underlying the range of discount rates applied by
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`Guggenheim.
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`32. With respect to Guggenheim’s Arena Wall Street Equity Research Analyst Stock
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`Price Targets analysis, the Proxy fails to disclose the specific price targets studied as part of the
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`analysis. The Proxy also fails to disclose the sources of the price targets.
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`33. With respect to Guggenheim’s Premiums Paid in Selected Precedent Merger and
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`Acquisition Transactions analysis, the Proxy Statement fails to disclose: (a) the transactions
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`observed; and (b) the individual premiums observed for each of the transactions.
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`34.
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`This information is necessary to provide Company stockholders a complete and
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`accurate picture of the sales process and its fairness. Without this information, Plaintiff is not fully
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`informed as to the defendants’ actions, including those that may have been taken in bad faith, and
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`cannot fairly assess the process. And without all material information, Plaintiff is unable to make
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`a fully informed decision in connection with the Proposed Transaction and faces irreparable harm,
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`warranting the injunctive relief sought herein.
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`35.
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`In addition, the Individual Defendants knew or recklessly disregarded that the
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`Proxy omits the material information concerning the Proposed Transaction and contains the
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`materially incomplete and misleading information discussed above.
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`36.
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`Specifically, the Individual Defendants undoubtedly reviewed the contents of the
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`Case 1:22-cv-00405 Document 1 Filed 01/17/22 Page 9 of 14
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`Proxy before it was filed with the SEC. Indeed, as directors of the Company, they were required
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`to do so. The Individual Defendants thus knew or recklessly disregarded that the Proxy omits the
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`material information referenced above and contains the incomplete and misleading information
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`referenced above.
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`37.
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`Further, the Proxy indicates that on December 12, 2021, Evercore and Guggenheim
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`reviewed with the Board their financial analyses of the Merger Consideration and delivered to the
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`Board their oral opinions, which were confirmed by delivery of written opinions of the same date,
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`to the effect that the Merger Consideration was fair, from a financial point of view, to Arena
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`stockholders. Accordingly, the Individual Defendants undoubtedly reviewed or were presented
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`with the material information concerning Evercore’s and Guggenheim’s financial analyses which
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`has been omitted from the Proxy, and thus knew or should have known that such information has
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`been omitted.
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`38.
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`Plaintiff is immediately threatened by the wrongs complained of herein, and lacks
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`an adequate remedy at law. Accordingly, Plaintiff seeks injunctive and other equitable relief to
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`prevent the irreparable injury that he will continue to suffer absent judicial intervention.
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`CLAIMS FOR RELIEF
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`COUNT I
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`
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`Against All Defendants for Violations of Section 14(a) of the Exchange Act and Rule 14a-9
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`39.
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`Plaintiff incorporates each and every allegation set forth above as if fully set forth
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`herein.
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`40.
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`Defendants have filed the Proxy with the SEC with the intention of soliciting Arena
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`stockholder support for the Proposed Transaction. Each of the Individual Defendants reviewed and
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`authorized the dissemination of the Proxy, which fails to provide the material information
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`referenced above.
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`Case 1:22-cv-00405 Document 1 Filed 01/17/22 Page 10 of 14
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`41.
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`In so doing, Defendants made materially incomplete and misleading statements
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`and/or omitted material information necessary to make the statements made not misleading. Each
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`of the Individual Defendants, by virtue of their roles as officers and/or directors of Arena, were
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`aware of the omitted information but failed to disclose such information, in violation of Section
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`14(a).
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`42.
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`Rule 14a-9, promulgated by the SEC pursuant to Section 14(a) of the Exchange
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`Act, provides that such communications with stockholders shall not contain “any statement which,
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`at the time and in the light of the circumstances under which it is made, is false or misleading with
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`respect to any material fact, or which omits to state any material fact necessary in order to make
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`the statements therein not false or misleading.” 17 C.F.R. § 240.14a-9.
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`43.
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`Specifically, and as detailed above, the Proxy violates Section 14(a) and Rule 14a-
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`9 because it omits material facts concerning: (i) management’s financial projections; and (ii) the
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`value of Arena shares and the financial analyses performed by Evercore and Guggenheim in
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`support of their fairness opinions.
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`44. Moreover, in the exercise of reasonable care, the Individual Defendants knew or
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`should have known that the Proxy is materially misleading and omits material information that is
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`necessary to render it not misleading. The Individual Defendants undoubtedly reviewed and relied
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`upon the omitted information identified above in connection with their decision to approve and
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`recommend the Proposed Transaction; indeed, the Proxy states that Evercore and Guggenheim
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`reviewed and discussed their financial analyses with the Board during various meetings including
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`on December 12, 2021, and further states that the Board considered Evercore’s and Guggenheim’s
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`financial analyses and fairness opinions in connection with approving the Proposed Transaction.
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`The Individual Defendants knew or should have known that the material information identified
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`above has been omitted from the Proxy, rendering the sections of the Proxy identified above to be
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`materially incomplete and misleading.
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`45.
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`The misrepresentations and omissions in the Proxy are material to Plaintiff, who
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`will be deprived of his right to cast an informed vote if such misrepresentations and omissions are
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`not corrected prior to the vote on the Proposed Transaction. Plaintiff has no adequate remedy at
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`law. Only through the exercise of this Court’s equitable powers can Plaintiff be fully protected
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`from the immediate and irreparable injury that Defendants’ actions threaten to inflict.
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`COUNT II
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`Against the Individual Defendants for Violations of Section 20(a) of the Exchange Act
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`Plaintiff incorporates each and every allegation set forth above as if fully set forth
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`46.
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`herein.
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`47.
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`The Individual Defendants acted as controlling persons of Arena within the
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`meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their positions as
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`officers and/or directors of Arena and participation in and/or awareness of the Company’s
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`operations and/or intimate knowledge of the incomplete and misleading statements contained in
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`the Proxy filed with the SEC, they had the power to influence and control and did influence and
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`control, directly or indirectly, the decision making of the Company, including the content and
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`dissemination of the various statements that Plaintiff contends are materially incomplete and
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`misleading.
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`48.
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`Each of the Individual Defendants was provided with or had unlimited access to
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`copies of the Proxy and other statements alleged by Plaintiff to be misleading prior to the time the
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`Proxy was filed with the SEC and had the ability to prevent the issuance of the statements or cause
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`the statements to be corrected.
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`49.
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`In particular, each of the Individual Defendants had direct and supervisory
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`involvement in the day-to-day operations of the Company, and, therefore, is presumed to have had
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`the power to control or influence the particular transactions giving rise to the Exchange Act
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`violations alleged herein, and exercised the same. The omitted information identified above was
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`reviewed by the Board prior to voting on the Proposed Transaction. The Proxy at issue contains
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`the unanimous recommendation of each of the Individual Defendants to approve the Proposed
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`Transaction. They were, thus, directly involved in the making of the Proxy.
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`50.
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`In addition, as the Proxy sets forth at length, and as described herein, the Individual
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`Defendants were involved in negotiating, reviewing, and approving the Merger Agreement. The
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`Proxy purports to describe the various issues and information that the Individual Defendants
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`reviewed and considered. The Individual Defendants participated in drafting and/or gave their
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`input on the content of those descriptions.
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`51.
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`By virtue of the foregoing, the Individual Defendants have violated Section 20(a)
`
`of the Exchange Act.
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`52.
`
`As set forth above, the Individual Defendants had the ability to exercise control
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`over and did control a person or persons who have each violated Section 14(a) and Rule 14a-9, by
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`their acts and omissions as alleged herein. By virtue of their positions as controlling persons, these
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`defendants are liable pursuant to Section 20(a) of the Exchange Act. As a direct and proximate
`
`result of Individual Defendants’ conduct, Plaintiff will be irreparably harmed.
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`RELIEF REQUESTED
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`WHEREFORE, Plaintiff demands injunctive relief in his favor and against the Defendants
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`jointly and severally, as follows:
`
`A.
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`Preliminarily and permanently enjoining Defendants and their counsel, agents,
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`employees and all persons acting under, in concert with, or for them, from filing an amendment to
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`Case 1:22-cv-00405 Document 1 Filed 01/17/22 Page 13 of 14
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`the Proxy with the SEC or otherwise disseminating an amendment to the Proxy to Arena
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`stockholders unless and until Defendants agree to include the material information identified above
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`in any such amendment;
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`B.
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`Preliminarily and permanently enjoining Defendants and their counsel, agents,
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`employees and all persons acting under, in concert with, or for them, from proceeding with,
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`consummating, or closing the Proposed Transaction, unless and until Defendants disclose the
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`material information identified above which has been omitted from the Proxy;
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`C.
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`In the event that the transaction is consummated prior to the entry of this Court’s
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`final judgment, rescinding it or awarding Plaintiff rescissory damages;
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`D.
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`Directing the Defendants to account to Plaintiff for all damages suffered as a result
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`of their wrongdoing;
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`E.
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`Awarding Plaintiff the costs and disbursements of this action, including reasonable
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`attorneys’ and expert fees and expenses; and
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`F.
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`Granting such other and further equitable relief as this Court may deem just and
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`proper.
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`Case 1:22-cv-00405 Document 1 Filed 01/17/22 Page 14 of 14
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`JURY DEMAND
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`Plaintiff demands a trial by jury.
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`Dated: January 17, 2022
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`ROWLEY LAW PLLC
`
`
`S/ Shane T. Rowley
`Shane T. Rowley (SR-0740)
`Danielle Rowland Lindahl
`50 Main Street, Suite 1000
`White Plains, NY 10606
`Tel: (914) 400-1920
`Fax: (914) 301-3514
`Email: srowley@rowleylawpllc.com
`Email: drl@rowleylawpllc.com
`
`Attorneys for Plaintiff
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