The opinion of the court was delivered by: Judge George M. Marovich
MEMORANDUM OPINION AND ORDER
After the Court dismissed their most recent complaint, lead plaintiffs the Paul H. Shield, M.D. Inc. Money Purchase Plan and the Paul H. Shield, M.D. Inc. Profit Sharing Plan filed a second amended consolidated class action complaint on behalf of a purported class of shareholders of defendant Northfield Laboratories, Inc. ("Northfield"). In the second amended complaint, plaintiffs assert claims against defendants Northfield, Steven A. Gould, M.D. ("Gould") and Richard E. DeWoskin ("DeWoskin"). In Count I, plaintiffs assert that defendants violated § 10(b) of the Securities Exchange Act of 1934 (the "Act"), 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. 240.10b-5. In Count II, plaintiffs assert against DeWoskin and Gould a "control person" claim for violation of § 20(a) of the Act. Defendants Gould and Northfield have filed a joint motion to dismiss the claims against them. Defendant DeWoskin has also filed a motion to dismiss the claims against him. For the reasons set forth below, the Court denies the motions to dismiss.
For purposes of a motion to dismiss, the Court takes as true the allegations in plaintiffs' complaint. The Court has previously outlined the facts relevant to this motion. See In re: Northfield Labs., Inc. Securities Lit'n, 527 F. Supp.2d 769 (N.D. Ill. 2007). The Court does not repeat all of those facts here. Rather, the Court discusses the additions to and subtractions from the most recent complaint.
This case involves the attempt by defendant Northfield Laboratories, Inc. to develop a blood substitute called PolyHeme. PolyHeme is a hemoglobin-based, oxygen-carrying blood substitute that is compatible with all blood types. Northfield manufactures PolyHeme by extracting hemoglobin molecules from outdated human blood, chemically modifying the hemoglobin into a polymerized form of hemoglobin and incorporating the polymerized hemoglobin into a solution, which can then be administered to humans. The polymerization process is intended to avoid the harmful effects that hemoglobin can have outside of red blood cells. To date, no company has managed to bring a blood substitute to market.
Northfield was founded in 1985 by defendants DeWoskin and Gould. Northfield's primary purpose is to research and develop a hemoglobin-based blood substitute to treat life-threatening blood loss. DeWoskin served as Chairman and CEO from 1985 to July 2002. Gould has been Northfield's Chairman and CEO since July 2002.
PolyHeme, Northfield's only product, has not been approved for sale. Northfield has raised operating money via public offerings of shares in the company. Since its initial public offering in 1994, Northfield has raised $194 million by offering its shares to the public.
One significant area of difference between the most recent complaint and the second amended complaint is the ANH trial. In 1998, Northfield began what it called the Acute Normovelemic Hemodilution ("ANH") trial. The point of the ANH trial was to try to solve a problem for elective surgery patients. Generally, a patient can try to avoid the use of donated blood by banking up to two units of his or her own blood before a surgery. Typically, when a patient banks those two units of blood, the patient is injected with a colloid solution (which does not contain hemoglobin) to replace the blood. The goal of the ANH study was to see if a patient could bank three times as much of his or her own blood (six units) by replacing the blood with PolyHeme.
In the ANH study, participants were divided into two groups. In the study group, each participant banked six units of blood (which is about 60% of an individual's blood volume), and that blood was replaced with six units of PolyHeme. In the control group, each participant banked three units of blood, and that blood was replaced with a colloid solution. The original plan was to enroll 240 patients in the study. The United States Food and Drug Administration ("FDA"), however, requested that the number of patients in the ANH trial be increased to 600.
The ANH study never got that far. An independent data monitoring committee looked at the interim results after 120 patients had been enrolled. In the second amended complaint, plaintiffs allege that the independent data monitoring committee noticed differences between the PolyHeme group and the control group. According to the second amended complaint, the independent data monitoring group asked Northfield to conduct further analysis. The independent data monitoring committee revealed all of the safety and efficacy data to Northfield. The second amended complaint alleges that it was Northfield's own analysis that determined that 54% of the patients in the PolyHeme group suffered adverse events, relative to 28% in the control group. The difference was found to be statistically significant, i.e., the difference was not a result of randomness. In the second amended complaint, plaintiffs also allege that "Northfield conducted a further analysis of the trial data to'assess whether the difference between the two groups was caused by a randomization failure, a treatment'confounder'... or some inherent toxicity of PolyHeme.'"
Northfield closed the ANH trial in October 2000 without disclosing the results.
Next, plaintiffs have added to the second amended complaint allegations about adverse effects historically associated with hemoglobin solutions. Plaintiffs allege that "adverse cardiac events" have been historically associated with the use of hemoglobin solutions. Specifically, plaintiffs allege that adverse cardiac events, such as cardiac arrest, occurred in clinical trials of competing hemoglobin solutions Hemolink and Hemopure.
Plaintiffs have deleted from their complaint their allegation that Northfield, in September 2005, disclosed on its websites that participants in the ANH study who were given PolyHeme suffered a higher incidence of heart attacks than did participants in the control group.
II. Standard on a Motion to Dismiss
The Court may dismiss a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure if the plaintiff fails "to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). In considering a motion to dismiss, the Court accepts as true all well-pleaded factual allegations and draws all reasonable inferences in the plaintiffs' favor. McCullah v. Gadert, 344 F.3d 655, 657 (7th Cir. 2003). Under the notice-pleading requirements of the Federal Rules of Civil Procedure, a complaint must "give the defendant fair notice of what the... claim is and the grounds upon which it rests." Bell Atlantic Corp. v. Twombley, 127 S.Ct. 1955, 1964 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). A complaint need not provide detailed factual allegations, but mere conclusions and a "formulaic recitation of the elements of a cause of action" will not suffice. Twombley, 127 S.Ct. at 1964-1965. A complaint must include enough factual allegations to "raise a right to relief above a speculative level." Twombley, 127 S.Ct. at 1965. Although the Federal Rules require notice pleading, certain allegations must be stated with particularity. For example, Federal Rule of Civil Procedure 9(b) mandates that "all averments of fraud" be "stated with particularity." Fed.R.Civ.P. 9(b).
In addition to the pleading requirements of the Federal Rules of Civil Procedure, securities plaintiffs must also comply with the pleading requirements of the Private Securities Litigation Reform Act. The PSLRA outlines requirements that plaintiffs must plead to avoid dismissal of their securities claims. See 15 U.S.C. § 78u-4(b). If plaintiffs fail to include sufficient allegations, the Court must dismiss the complaint. See 15 U.S.C. § 78u-4(b)(3)(A) ("In any private action arising under this chapter, the court shall, on the motion of any defendant, dismiss the complaint if the requirements of paragraphs (1) and (2) are not met."). Paragraphs (1) and (2), in turn, provide:
(1) Misleading Statements and Omissions
In any private action arising under this chapter in which the plaintiff ...