Case 1:22-cv-06395 Document 1 Filed 07/27/22 Page 1 of 21
`
`
`
`Evan J. Smith
`BRODSKY & SMITH
`240 Mineola Boulevard
`First Floor
`Mineola, NY 11501
`Telephone:
`516.741.4977
`Facsimile:
`516.741.0626
`esmith@brodskysmith.com
`
`Attorneys for Plaintiff
`
`
`
`UNITED STATES DISTRICT COURT
`
`SOUTHERN DISTRICT OF NEW YORK
`
`RICHARD GOLE,
`
` Plaintiff,
`
` vs.
`
`LA JOLLA PHARMACEUTICAL
`COMPANY, KEVIN TANG, LARRY
`EDWARDS, CRAIG JOHNSON, LAURA
`JOHNSON, DAVID RAMSAY, and
`ROBERT ROSEN,
`
`
`
`
`Defendants.
`
`
`
`
`Case No.:
`
`Complaint For:
`
`
`(1) Violation of § 14 (e) of the Securities
`
`Exchange Act of 1934
`(2) Violation of § 14 (d) of the Securities
`
`Exchange Act of 1934
`(3) Violation of § 20(a) of the Securities
`
`Exchange Act of 1934
`
`JURY TRIAL DEMANDED
`
`Plaintiff, Richard Gole (“Plaintiff”), by and through his attorneys, alleges upon information
`
`and belief, except for those allegations that pertain to him, which are alleged upon personal
`
`knowledge, as follows:
`
`SUMMARY OF THE ACTION
`
`1.
`
`Plaintiff brings this stockholder action against La Jolla Pharmaceutical Company
`
`(“La Jolla” or the “Company”) and the Company’s Board of Directors (the “Board” or the
`
`“Individual Defendants,” and collectively with the Company, the “Defendants”), for violations of
`
`Sections 14(e), 14 (d), and 20(a) of the Securities and Exchange Act of 1934 (the “Exchange Act”)
`
`- 1 -
`
`

`

`Case 1:22-cv-06395 Document 1 Filed 07/27/22 Page 2 of 21
`
`
`
`as a result of Defendants’ efforts to sell the Company to Inoviva, Inc. (“Parent”) via subsidiary
`
`Innoviva Acquisition Sub, Inc. (“Merger Sub” and collectively with Parent, “Innoviva”) as a result
`
`of an unfair process, and to enjoin an upcoming tender offer on a proposed all cash transaction (the
`
`“Proposed Transaction”).
`
`2.
`
`The terms of the Proposed Transaction were memorialized in a July 11, 2022, filing
`
`with the Securities and Exchange Commission (“SEC”) on Form 8-K attaching the definitive
`
`Agreement and Plan of Merger (the “Merger Agreement”). Under the terms of the Merger
`
`Agreement, Inoviva will acquire all the outstanding shares of La Jolla common stock for $6.23 per
`
`share in cash. As a result, La Jolla will become an indirect wholly-owned subsidiary of Inoviva.
`
`3.
`
`Thereafter, on July 25, 2022, La Jolla filed a Solicitation/Recommendation
`
`Statement on Schedule 14D-9 (the “Recommendation Statement”) with the SEC in support of the
`
`Proposed Transaction.
`
`4.
`
`The Proposed Transaction is unfair for a number of reasons. Significantly, the
`
`Recommendation Statement describes an insufficient process with only one goal in mind – to sell
`
`the Company to Innoviva.
`
`5.
`
`Notably, the Recommendation Statement fails to disclose whether a committee of
`
`disinterested directors was appointed to manage the sales process, and if so, what powers that
`
`committee had in reviewing the Proposed Transaction, including whether the committee had the
`
`ability to veto a potential transaction that was not in the best interests of shareholders.
`
`6.
`
`Next, it appears as though the Board has entered into the Proposed Transaction to
`
`procure for itself and senior management of the Company significant and immediate benefits with
`
`no thought to Plaintiff as a public stockholder. For instance, pursuant to the terms of the Merger
`
`Agreement, upon the consummation of the Proposed Transaction, Company Board Members and
`
`- 2 -
`
`

`

`Case 1:22-cv-06395 Document 1 Filed 07/27/22 Page 3 of 21
`
`
`
`executive officers will be able to exchange all Company equity awards for the merger
`
`consideration.
`
`7.
`
`In violation of the Exchange Act, Defendants caused to be filed the materially
`
`deficient Recommendation Statement with the SEC in an effort to solicit stockholders, including
`
`Plaintiff, to tender their La Jolla shares in favor of the Proposed Transaction. The
`
`Recommendation Statement is materially deficient, deprives Plaintiff of the information necessary
`
`to make an intelligent, informed and rational decision of whether to tender in favor of the Proposed
`
`Transaction, and is thus in violation of the Exchange Act. As detailed below, the Recommendation
`
`Statement omits and/or misrepresents material information concerning, among other things: (a)
`
`the sales process and in particular certain conflicts of interest for management; (b) the financial
`
`projections for La Jolla, provided by La Jolla to the Company’s financial advisors Cowen and
`
`Company, LLC (“Cowen”); and (c) the data and inputs underlying the financial valuation analyses,
`
`if any, that purport to support the fairness opinions created by Cowen and provided to the Company
`
`and the Board.
`
`8.
`
`9.
`
`Accordingly, this action seeks to enjoin the Proposed Transaction.
`
`Absent judicial intervention, the Proposed Transaction will be consummated,
`
`resulting in irreparable injury to Plaintiff. This action seeks to enjoin the Proposed Transaction.
`
`10.
`
`Plaintiff is a citizen of Michigan and, at all times relevant hereto, has been a La
`
`PARTIES
`
`Jolla stockholder.
`
`11. Defendant La Jolla engages in the development and commercialization of therapies
`
`that improve outcomes in patients suffering from life-threatening diseases. La Jolla is incorporated
`
`in Delaware and has its principal place of business at 201 Jones Road, Suite 400, Waltham, MA
`
`- 3 -
`
`

`

`Case 1:22-cv-06395 Document 1 Filed 07/27/22 Page 4 of 21
`
`
`
`02451. Shares of La Jolla common stock are traded on the Nasdaq Stock Exchange under the
`
`symbol “LJPC”.
`
`12.
`
`Defendant Kevin Tang (“Tang”) has been a Director of the Company at all relevant
`
`times. In addition, Tang serves as the Chairman of the Board.
`
`13.
`
`Defendant Larry Edwards (“Edwards”) has been a director of the Company at all
`
`relevant times. In addition, Edwards serves as the company’s Chief Executive Officer (“CEO”)
`
`and President.
`
`14.
`
`Defendant Craig Johnson (“C. Johnson”) has been a director of the Company at
`
`all relevant times.
`
`15.
`
`Defendant Laura Johnson (“L. Johnson”) has been a director of the Company at
`
`all relevant times.
`
`16.
`
`Defendant David Ramsay (“Ramsay”) has been a director of the Company at all
`
`relevant times.
`
`17.
`
`Defendant Robert Rosen (“Rosen”) has been a director of the Company at all
`
`relevant times.
`
`18.
`
`Defendants identified in ¶¶ 12 - 17 are collectively referred to as the “Individual
`
`Defendants.”
`
`19.
`
`Non-Party Inoviva is a diversified holding company with a portfolio of royalties
`
`that include respiratory assets.
`
`20.
`
`Non-Party Merger Sub is a wholly owned subsidiary of Inoviva created to
`
`effectuate the Proposed Transaction.
`
`JURISDICTION AND VENUE
`
`21.
`
`This Court has subject matter jurisdiction pursuant to Section 27 of the Exchange
`
`- 4 -
`
`

`

`Case 1:22-cv-06395 Document 1 Filed 07/27/22 Page 5 of 21
`
`
`
`Act (15 U.S.C. § 78aa) and 28 U.S.C. § 1331 (federal question jurisdiction) as Plaintiff alleges
`
`violations of Sections 14(e), 14 (d), and 20(a) of the Exchange Act. This action is not a collusive
`
`one to confer jurisdiction on a court of the United States, which it would not otherwise have. The
`
`Court has supplemental jurisdiction over any claims arising under state law pursuant to 28 U.S.C.
`
`§ 1367.
`
`22.
`
`Personal jurisdiction exists over each defendant either because the defendant
`
`conducts business in or maintains operations in this District, or is an individual who is either
`
`present in this District for jurisdictional purposes or has sufficient minimum contacts with this
`
`District as to render the exercise of jurisdiction over defendant by this Court permissible under
`
`traditional notions of fair play and substantial justice.
`
`23.
`
`Venue is proper in this District pursuant to 28 U.S.C. § 1391, because each of the
`
`Individual Defendants, as Company officers or directors, has extensive contacts within this
`
`District; for example, the Company’s stock trades on the Nasdaq Stock Exchange which is
`
`headquartered in this District.
`
`Company Background
`
`SUBSTANTIVE ALLEGATIONS
`
`24.
`
`La Jolla Pharmaceutical Company engages
`
`in
`
`the development and
`
`commercialization of therapies that improve outcomes in patients suffering from life-threatening
`
`diseases. The company offers GIAPREZA, a vasoconstrictor indicated to increase blood pressure
`
`in adults with septic or other distributive shock; and XERAVA, a tetracycline class antibacterial
`
`indicated for the treatment of complicated intra-abdominal infections in patients 18 years of age
`
`and older. It offers GIAPREZA and XERAVA to hospitals and other healthcare organizations in
`
`the United States. Its product candidates that are in early stage clinical or preclinical development
`
`- 5 -
`
`

`

`Case 1:22-cv-06395 Document 1 Filed 07/27/22 Page 6 of 21
`
`
`
`include TP-6076, an IV formulation of a fully synthetic fluorocycline derivative for the treatment
`
`of certain multidrug-resistant gram-negative bacteria; TP-271, an IV and oral formulation of a
`
`fully synthetic fluorocycline for the treatment of respiratory disease caused by bacterial biothreat
`
`and antibiotic-resistant public health pathogens, as well as bacterial pathogens associated with
`
`community-acquired bacterial pneumonia; and TP-2846, an IV formulation of a tetracycline for
`
`the treatment of acute myeloid leukemia. The company has license agreement with Everest
`
`Medicines Limited to develop and commercialize XERAVA; and PAION AG to commercialize
`
`GIAPREZA and XERAVA. La Jolla Pharmaceutical Company was incorporated in 1989 and is
`
`based in Waltham, Massachusetts.
`
`25.
`
`The Company’s most recent financial performance press release, revealing
`
`financial results from the quarter preceding the announcement of the Proposed Transaction,
`
`indicated impressive financial success. For example, in the May 16, 2022 press release announcing
`
`its 2022 Q2 financial results, the Company reported milestones such as net product sales of $10.4
`
`million, up 21% from the same period in 2021.
`
`26.
`
`Speaking on the results, CEO Defendant Edwards said, “We are pleased to report
`
`that La Jolla continues to grow net product sales and generate positive operating cash flow”……
`
`“La Jolla’s focus remains on growing its GIAPREZA and XERAVA franchises while increasing
`
`operating cash flow.”
`
`27.
`
`The promise and financial results are not an anomaly, but rather, are indicative of
`
`a trend of continued future potential success by La Jolla. Clearly, based upon the positive outlook,
`
`the Company is likely to have tremendous future success.
`
`- 6 -
`
`

`

`Case 1:22-cv-06395 Document 1 Filed 07/27/22 Page 7 of 21
`
`
`
`28.
`
`Despite this upward trajectory, the Individual Defendants have caused La Jolla to
`
`enter into the Proposed Transaction without providing requisite information to La Jolla
`
`stockholders such as Plaintiff.
`
`The Flawed Sales Process
`
`29.
`
`The Recommendation is materially deficient. The Recommendation Sheet fails to
`
`disclose whether a committee of disinterested directors was appointed to run the sale process, and
`
`if so, the specific powers that committee had in evaluating a potential transaction.
`
`30.
`
`In addition, the Recommendation Statement is silent as to the nature of the
`
`confidentiality agreements entered into between the Company and potentially interested third
`
`parties, including Innoviva, throughout the sales process, if any, and whether these agreements
`
`differ from each other, and if so in what way. The Recommendation Statement also fails to
`
`disclose all specific conditions under which any standstill provision contained in any entered
`
`confidentiality agreement entered into between the Company and any potentially interested third
`
`parties, including Innoviva, throughout the sales process, if any, would fall away.
`
`31.
`
`It is not surprising, given this background to the overall sales process, that it was
`
`conducted in an inappropriate and misleading manner.
`
`The Proposed Transaction
`
`32.
`
`On July 11, 2022 La Jolla issued a joint press release announcing the Proposed
`
`Transaction. The press release stated, in relevant part:
`
`BURLINGAME, Calif. and WALTHAM, Mass. – July 11, 2022 – Innoviva, Inc.
`(Nasdaq: INVA), a diversified holding company with a portfolio of royalties and a
`growing portfolio of innovative healthcare assets, and La Jolla Pharmaceutical
`Company (Nasdaq: LJPC), which is dedicated to the commercialization of
`innovative therapies that improve outcomes in patients suffering from life-
`threatening diseases, today announced that they have entered into a definitive
`merger agreement whereby Innoviva will acquire La Jolla. Innoviva has agreed to
`pay $5.95 per share for La Jolla, representing a premium of approximately 70% to
`
`- 7 -
`
`

`

`Case 1:22-cv-06395 Document 1 Filed 07/27/22 Page 8 of 21
`
`
`
`the 30-day volume-weighted average price (VWAP), and an incremental $0.28 per
`share for additional cash proceeds received in connection with the divestiture of a
`non-core asset. Under the terms of the merger agreement, Innoviva, through a
`wholly owned subsidiary, will commence a tender offer on or before July 25, 2022
`to acquire all of the outstanding shares of La Jolla for $6.23 per share in cash, or an
`implied enterprise value of approximately $149 million.
`
`La Jolla’s lead product, GIAPREZA® (angiotensin II), was approved by the Food
`and Drug Administration (FDA) in December 2017 to increase blood pressure in
`adults with septic or other distributive shock. La Jolla’s second asset, XERAVA®
`(eravacycline), was approved by the FDA in August 2018 for the treatment of
`complicated intra-abdominal infections (cIAIs) in patients 18 years of age and
`older. This acquisition strengthens Innoviva’s portfolio in infectious diseases,
`anchored by the company’s recent purchase of Entasis Therapeutics Holdings Inc.,
`an advanced late-stage clinical biopharmaceutical company focused on the
`discovery and development of novel antibacterial products.
`
`“This acquisition represents a significant step forward in advancing our strategy to
`diversify operations and adds a highly complementary commercial franchise to our
`portfolio to accelerate long-term growth,” said Pavel Raifeld, Chief Executive
`Officer of Innoviva. “We look forward to welcoming the La Jolla team to Innoviva
`and building upon the success of GIAPREZA and XERAVA.”
`
`“We are pleased to announce the acquisition of La Jolla by Innoviva, which we
`believe provides our stockholders with immediate value at a compelling premium,”
`said Larry Edwards, President and Chief Executive Officer of La Jolla. “With
`Innoviva’s shared commitment to improve outcomes in patients suffering from life-
`threatening diseases, Innoviva can continue to advance our mission and maximize
`the potential of our innovative therapies.”
`
`Assuming the minimum tender condition is met, any shares not tendered in the
`tender offer will be acquired in a second-step merger at the same cash price as paid
`in the tender offer. Closing of the transaction is subject to specified closing
`conditions, including that a majority of La Jolla’s shares of common stock are
`validly tendered and not validly withdrawn. On closing, La Jolla will become a
`wholly owned subsidiary of Innoviva, and shares of La Jolla’s common stock will
`no longer be listed on any public market.
`
`The transaction was unanimously approved by the La Jolla and Innoviva boards of
`directors and is expected to close within 30 business days. Additionally, certain La
`Jolla stockholders holding approximately 40% of La Jolla’s outstanding shares of
`common stock, have signed a support agreement under which such stockholders
`agreed, among other things, to tender their shares in the tender offer and support
`the merger.
`
`
`- 8 -
`
`

`

`Case 1:22-cv-06395 Document 1 Filed 07/27/22 Page 9 of 21
`
`
`
`Cowen and Company, LLC is acting as financial advisor to La Jolla and Gibson,
`Dunn & Crutcher LLP is acting as its legal advisor. Moelis & Company LLC is
`acting as financial advisor to Innoviva and Willkie Farr & Gallagher LLP is acting
`as legal advisor to Innoviva.
`
`Potential Conflicts of Interest
`
`33.
`
`The breakdown of the benefits of the deal indicates that La Jolla insiders are the
`
`primary beneficiaries of the Proposed Transaction, not the Company’s public stockholders such as
`
`Plaintiff. The Board and the Company’s executive officers are conflicted because they will have
`
`secured unique benefits for themselves from the Proposed Transaction not available to Plaintiff as
`
`a public stockholder of La Jolla.
`
`34.
`
`Company insiders, currently own large, illiquid portions of Company stock all of
`
`which will be exchanged for the merger consideration upon the consummation of the Proposed
`
`Transaction, not shared amongst Plaintiff and other public stockholders of the Company.
`
`Number of
`Shares
`(Excluding
`Options)
`
`Name
`Executive Officers
`Larry Edwards
`Michael Hearne
`Non-Employee Directors
`Kevin Tang
`David Ramsay
`Craig Johnson
`Laura Johnson
`Robert Rosen
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`11,969 $
`10,186 $
`
`9,847,934 $
`100,000 $
`12,000 $
`500 $
`— $
`
`Cash
`Consideration
`Payable in
`Respect of
`Shares
`
`
`
`
`74,567
`63,459
`
`
`61,352,629
`623,000
`74,760
`3,115
`
`
`35.
`
`Notably, Company insiders, currently own large, illiquid portions of stock options,
`
`restricted share, or other equity award, which will be exchanged for the merger consideration upon
`
`the consummation of the Proposed Transaction as follows:
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`- 9 -
`
`

`

`Case 1:22-cv-06395 Document 1 Filed 07/27/22 Page 10 of 21
`
`
`
`Name
`Executive Officers
`Larry Edwards
`Michael Hearne
`Non-Employee Directors
`Craig Johnson
`Laura Johnson
`Robert Rosen
`David Ramsay
`Kevin Tang(1)
`
`
`Number of Options
`In the Money
`(Vested or
`Unvested)
`as of the
`Effective Time
`
`
`
`1,109,263
`240,821
`
`120,000
`97,500
`84,000
`72,000
`54,000
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`Cash
`Consideration
`Payable in
`Respect of
`La Jolla
`Options
`
`
`
`
`$
`$
`
`
`$
`$
`$
`$
`$
`
`
`2,027,015
`388,612
`
`
`130,020
`127,185
`124,080
`121,200
`81,480
`
`36.
`
`In addition, certain employment agreements with certain La Jolla executives, entitle
`
`such executives to severance packages should their employment be terminated under certain
`
`circumstances. These ‘golden parachute’ packages are significant and will grant each director or
`
`officer entitled to them millions of dollars, compensation not shared by Plaintiff as follow:
`
`Change-in-Control Compensation
`
`
`
`Name
`Larry Edwards
`Michael Hearne
`
`
`
`
`
`
`
`
` $
` $
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`Cash
`
`($)
`1,224,300 $
`— $
`
`Equity
`
`($)
`2,027,015 $
`388,612 $
`
`Total
`
`($)
`3,310,910
`388,612
`
`Perquisites/
`Benefits
`
`($)
`59,595 $
`— $
`
`37.
`
`The Recommendation Statement also fails to adequately disclose communications
`
`regarding post-transaction employment during the negotiation of the underlying transaction must
`
`be disclosed to stockholders. Communications regarding post-transaction employment during the
`
`negotiation of the underlying transaction must be disclosed to stockholders. This information is
`
`necessary for Plaintiff to understand potential conflicts of interest of management and the Board,
`
`as that information provides illumination concerning motivations that would prevent fiduciaries
`
`from acting solely in the best interests of the Company’s stockholders.
`
`38.
`
`Thus, while the Proposed Transaction is not in the best interests of La Jolla, Plaintiff
`
`- 10 -
`
`

`

`Case 1:22-cv-06395 Document 1 Filed 07/27/22 Page 11 of 21
`
`
`
`or Company stockholders, it will produce lucrative benefits for the Company’s officers and
`
`directors.
`
`The Materially Misleading and/or Incomplete Recommendation Statement
`
`39.
`
`On July 25, 2022, the La Jolla Board caused to be filed with the SEC a materially
`
`misleading and incomplete Recommendation Statement, that in violation the Exchange Act, failed
`
`to provide Plaintiff in his capacity as a Company stockholder with material information and/or
`
`provides materially misleading information critical to the total mix of information available to
`
`Plaintiff concerning the financial and procedural fairness of the Proposed Transaction.
`
`Omissions and/or Material Misrepresentations Concerning the Sales Process leading up
`
`to the Proposed Transaction
`
`40.
`
`Specifically, the Recommendation Statement fails to disclose material information
`
`concerning the process conducted by the Company and the events leading up to the Proposed
`
`Transaction. In particular, the Recommendation Statement fails to disclose:
`
`a. Adequate information as to whether a committee of disinterested directors was
`
`appointed to lead the sales process and if so, the powers to which they were
`
`authorized in reference to any proposed transaction;
`
`b. Whether the terms of any confidentiality agreements entered during the sales
`
`process between La Jolla on the one hand, and any other third party (including
`
`Innoviva), if any, on the other hand, differed from one another, and if so, in
`
`what way;
`
`c. All specific conditions under which any standstill provision contained in any
`
`entered confidentiality agreement entered into between the Company and
`
`potentially interested third parties (including Innoviva) throughout the sales
`
`- 11 -
`
`

`

`Case 1:22-cv-06395 Document 1 Filed 07/27/22 Page 12 of 21
`
`
`
`process, if any, would fall away; and
`
`d. The Recommendation Statement also
`
`fails
`
`to adequately disclose
`
`communications regarding post-transaction employment during the negotiation
`
`of
`
`the underlying
`
`transaction must be disclosed
`
`to stockholders.
`
`Communications
`
`regarding post-transaction employment during
`
`the
`
`negotiation of the underlying transaction must be disclosed to stockholders.
`
`Omissions and/or Material Misrepresentations Concerning La Jolla’s Financial
`
`Projections
`
`41.
`
`The Recommendation Statement fails to provide material information concerning
`
`financial projections for La Jolla provided by La Jolla management and relied upon by Cowen in
`
`its analyses. The Recommendation Statement discloses management-prepared financial
`
`projections for the Company which are materially misleading.
`
`42.
`
`Notably, in connection with its fairness opinion rendered to the Company Board
`
`regarding the Proposed Transaction, Cowen notes that it reviewed, “certain non-public
`
`information that was provided to the La Jolla Board in connection with its evaluation of the
`
`Offer.”
`
`43.
`
`The Recommendation Statement, therefore, should have, but fails to provide,
`
`certain information in the projections that La Jolla management provided to the Board and Cowen.
`
`Courts have uniformly stated that “projections … are probably among the most highly-prized
`
`disclosures by investors. Investors can come up with their own estimates of discount rates or []
`
`market multiples. What they cannot hope to do is replicate management’s inside view of the
`
`company’s prospects.” In re Netsmart Techs., Inc. S’holders Litig., 924 A.2d 171, 201-203 (Del.
`
`Ch. 2007).
`
`- 12 -
`
`

`

`Case 1:22-cv-06395 Document 1 Filed 07/27/22 Page 13 of 21
`
`
`
`44. With regard to La Jolla Projections - Five-Year Projections prepared by La Jolla
`
`management, the Recommendation Statement fails to disclose material line items for all projection
`
`metrics utilized in Cowen analyses:
`
`a. The Recommendation Statement fails to provide the underlying inputs, metrics,
`
`and assumptions used to calculate EBITDA, as well as a definition used for this
`
`metric;
`
`b. The Recommendation Statement also fails to provide the underlying inputs,
`
`metrics, and assumptions used to calculate Unlevered Free Cash Flow, as well
`
`as a definition used for this metric.
`
`45. With regard to Product Life Cycle Projections for La Jolla prepared by La Jolla
`
`management, the Recommendation Statement fails to disclose material line items for all projection
`
`metrics utilized in Cowen analyses:
`
`a. The Recommendation Statement fails to provide a definition for Unlevered Free
`
`Cash Flow;
`
`b. The assumed tax rate for years 2031- 2040; and
`
`c. The Recommendation Statement also fails to provide the underlying inputs,
`
`metrics, and assumptions used to calculate Unlevered Free Cash Flow, as well
`
`as a definition used for this metric.
`
`46.
`
`The Recommendation Statement also fails to disclose a reconciliation of all non-
`
`GAAP to GAAP metrics utilized in the projections.
`
`47.
`
`The Recommendation Statement also fails to provide the specific bases and
`
`adjustments upon which the assumptions underlying the various cases of projections rely.
`
`48.
`
`This information is necessary to provide Plaintiff in his capacity as a Company
`
`- 13 -
`
`

`

`Case 1:22-cv-06395 Document 1 Filed 07/27/22 Page 14 of 21
`
`
`
`stockholder a complete and accurate picture of the sales process and its fairness. Without this
`
`information, Plaintiff is not fully informed as to Defendants’ actions, including those that may
`
`have been taken in bad faith, and cannot fairly assess the process.
`
`49. Without accurate projection data presented in the Recommendation Statement,
`
`Plaintiff is unable to properly evaluate the Company’s true worth, the accuracy of Cowen’s
`
`financial analyses, or make an informed decision whether to tender his shares in favor of the
`
`Proposed Transaction. As such, the Board is in violation of the Exchange Act by failing to include
`
`such information in the Recommendation Statement.
`
`Omissions and/or Material Misrepresentations Concerning the Financial Analyses by
`
`Cowen
`
`50.
`
`In the Recommendation Statement, Cowen describes its fairness opinion and the
`
`various valuation analyses performed to render such opinion. However, the descriptions fail to
`
`include necessary underlying data, support for conclusions, or the existence of, or basis for,
`
`underlying assumptions. Without this information, one cannot replicate the analyses, confirm the
`
`valuations or evaluate the fairness opinions.
`
`51. With respect to the Selected Public Companies Analysis, the Recommendation
`
`Statement fails to disclose the following:
`
`a. The inputs, metrics, and assumptions used to determine an implied Enterprise
`
`Value as a multiple of 2022E Revenue range of 1.3x – 2.8x;
`
`b. The number of fully diluted outstanding shares for each company compared;
`
`and
`
`c. The number of fully diluted outstanding shares of the Company.
`
`52. With respect to the Selected Transactions Analysis, the Recommendation Statement
`
`- 14 -
`
`

`

`Case 1:22-cv-06395 Document 1 Filed 07/27/22 Page 15 of 21
`
`
`
`fails to disclose the following:
`
`a. The specific date on which each transaction compared closed;
`
`b. The value of each transaction compared;
`
`c. The number of fully diluted outstanding shares of Company stock; and
`
`d. The inputs, metrics, and assumptions used to determine an implied Enterprise
`
`Value as a multiple of FY+1 Revenue reference range of 1.0x-3.0x.
`
`53. With respect to the Discounted Cash Flow Analysis, the Recommendation
`
`Statement fails to disclose the following:
`
`a. The specific inputs and assumptions used to determine a discount rate range of
`
`17.5%-22.5%;
`
`b. The Company’s weighted average cost of capital;
`
`c. The value of post-tax cost of debt utilized in this analysis;
`
`d. The market risk premium applied in this analysis;
`
`e. The equity size premium utilized in this analysis;
`
`f. The beta for the Company;
`
`g. The Company’s net debt;
`
`h. The Company’s total capitalization; and
`
`i. The inputs, metrics, and assumptions used to determine terminal multiples of
`
`revenue ranging from 1.3x to 2.8x with regard to the 5 year analysis.
`
`54. With respect to the Premiums Paid Analysis, the Recommendation Statement fails
`
`to disclose the following:
`
`a. The exact value of each transaction compared; and
`
`b. The underlying inputs, metrics, and assumptions used to determine the selected
`
`- 15 -
`
`

`

`Case 1:22-cv-06395 Document 1 Filed 07/27/22 Page 16 of 21
`
`
`
`ranges of premiums of 23% - 367% and 46% to 121%.
`
`55. With respect to the Research Analyst Price Target analysis, the Recommendation
`
`Statement fails to disclose the following:
`
`a. The specific Wall Street analyst estimate consulted;
`
`b. The identity of the author and the firm that created the estimate consulted;
`
`c. The inputs, metrics, and assumptions used to determine a discount rate of
`
`19.7%; and
`
`d. The Company’s cost of equity.
`
`56.
`
`These disclosures are critical for Plaintiff to be able to make an informed decision
`
`on whether to tender his shares in favor of the Proposed Transaction.
`
`57. Without the omitted information identified above, Plaintiff is missing critical
`
`information necessary to evaluate whether the proposed consideration truly maximizes his value
`
`and serves his interest as a stockholder. Moreover, without the key financial information and
`
`related disclosures, Plaintiff cannot gauge the reliability of the fairness opinion and the Board’s
`
`determination that the Proposed Transaction is in his best interests as a public La Jolla stockholder.
`
`As such, the Board has violated the Exchange Act by failing to include such information in the
`
`Recommendation Statement.
`
`- 16 -
`
`

`

`Case 1:22-cv-06395 Document 1 Filed 07/27/22 Page 17 of 21
`
`
`
`FIRST COUNT
`
`Violations of Section 14(e) of the Exchange Act
`
`(Against All Defendants)
`
`58.
`
`59.
`
`Plaintiff repeats all previous allegations as if set forth in full herein.
`
`Defendants have disseminated the Recommendation Statement with the intention
`
`of soliciting stockholders, including Plaintiff, to tender their shares in favor of the Proposed
`
`Transaction.
`
`60.
`
`Section 14(e) of the Exchange Act provides that in the solicitation of shares in a
`
`tender offer, “[i]t shall be unlawful for any person to make any untrue statement of a material fact
`
`or omit to state any material fact necessary in order to make the statements made, in the light of
`
`the circumstances under which they are made, not misleading[.].
`
`61.
`
`The Recommendation Statement was prepared in violation of Section 14(e) because
`
`it is materially misleading in numerous respects and omits material facts, including those set forth
`
`above. Moreover, in the exercise of reasonable care, Defendants knew or should have known that
`
`the Recommendation Statement is materially misleading and omits material facts that are
`
`necessary to render them non-misleading.
`
`62.
`
`The Individual Defendants had actual knowledge or should have known of the
`
`misrepresentations and omissions of material facts set forth herein.
`
`63.
`
`The Individual Defendants were at least negligent in filing a Recommendation
`
`Statement that was materially misleading and/or omitted material facts necessary to make the
`
`Recommendation Statement not misleading.
`
`64.
`
`The misrepresentations and omissions in the Recommendation Statement are
`
`material to Plaintiff, and Plaintiff will be deprived of his entitlement to decide whether to tender
`
`- 17 -
`
`

`

`Case 1:22-cv-06395 Document 1 Filed 07/27/22 Page 18 of 21
`
`
`
`its shares on the basis of complete information if such misrepresentations and omissions are not
`
`corrected prior to the expiration of the tender offer period regarding the Proposed Transaction.
`
`65.
`
`Plaintiff has no adequate remedy at law.
`
`SECOND COUNT
`
`Violations of Section 14(d)(4) of the Exchange Act and SEC Rule 14d-9
`
`(Against all Individual Defendants)
`
`66.
`
`67.
`
`Plaintiff repeats and realleges all previous allegations as if set forth in full herein.
`
`Defendants have disseminated the Recommendation Statement with the intention
`
`of soliciting stockholders, including Plaintiff, to tender their shares in favor of the Proposed
`
`Transaction.
`
`68.
`
`Section 14(d)(4) requires Defendants to make full and complete disclosure in
`
`connection with a tender offer.
`
`69.
`
`SEC Rule 14d-9 requires a Company’s directors to, furnish such additional
`
`information, if any, as may be necessary to make the required statements, in light of the
`
`circumstances under which they are made, not materially misleading.
`
`70.
`
`Here, the Recommendation Statement violates both Section 14(d)(4) and SEC Rule
`
`14d-9 because it because i