good morning your honour's may please the court daniel berger on behalf of the appellant's with the court's permission i would like to reserve three minutes of my time for the bottle granted your honor on october fifth two thousand and six one of  face to clinical trials that wyatt was conducting along with its joint venture partner on pharmaceuticals here is what mr ruffalo said to securities analysts he said now again we don't have any results from the study at all but we have a planned interim look at the data at the end of this year and based on this interim look we could do two things one depending on the data we could advance directly into phase three in the first half of two thousand and seven but the results would have to be spectacular use the word spectacular three months later at a conference of securities analysts in january two thousand and eight alun pharmaceuticals the joint venture partner spoke to to yes your honor these earlier statements we're not claiming are false we're not suing on those but those are the circumstances under which the statement that we do challenge which was made on may twenty first two thousand and look but it says in part and then he said no conclusion about these two study can be drawn to the study is completed in the final date or that's that's correct your honor but those he was talking about two different things one the interim look which was the basis for them moving to fake the early to phase three and the second he was telling investors but we're not sure what's going to happen when the whole face to was completed down the road the first statement based a statement of current fact at the time there was a decision made by the company the decision was to move early to the face three trials which is an important decision and that decision was based on information that they had obtained in their interim look  criteria that the companies had established in order to move to face three they want to head with the early phase three in spite of what they learned they took a gamble gamble didn't work out but investors were not informed that they were taking this yaml in fact investors were misled they were misled because the company told investors the information that i would have to first that the results would have to be spectacular and then they were told investors in january that the company was not going to move to face three based upon circumstantial evidence of efficacy or only if the phase two interim look passed the bar met the criteria that they have established it had not the company decided to move ahead anyway and that's what they investors in that statement was that you can't we can't guarantee how it's going to turn out in the end when we're done with phase two at that point they were eighteen months approximately from finishing phase two and they said even though we're going ahead with phase three based on our end of look there's no guarantee as how it's going to term out turn out it was as if they were doubling down on these tests but they didn't tell investors that they were doubling down when they had told investors before that in order for us to go ahead and order for us to spend this money and do the phase three trials early we're going to have to meet specific criteria that's what investors were told and understood and in fact they hadn't met those criteria and it turned out the end of the trial that that was clear now that's exactly what securities analysts understood as a result of that may twenty first statement in our complaint we cited numerous securities analysts who issued reports right after that press release because the move phase three given the expense that is incident to these trials if that wasn't good faith intention your honor the company he was taking a gamble why would it want to do that in the hopes that it could somehow tease out of the data something that would cause the f d a to perhaps approve this drug but that gamble so were the goal of both both in terms of corporate goals  in terms of commit consumers we don't disagree with that your honor we think that is worthy but what's not worthy is misleading investors companies can take all the risks they want as long as they're honest with investors about what they're telling them if this company as a supreme court said in the matrix case major to get circumcised which was two years ago unanimously a company's liability is in its own control based on what it chooses to disclose this company could have said nothing it could have said we're just moving to face three but it chose to tell investors that they're moving early to phase three based on what they have learned in face to after telling investors we have a bar we have criteria we have an independent committee that's going to look at it and only i that committee approves it are we going to go ahead and the why is that policy or allegations talk about the fact that this is that in disgust and one or two of your confidential witnesses indicated they might have disagreed with that but in didn't in fact there be a review of the data and that was supported by meeting corroborated maybe it was a consideration based on these among the things you consider not been supported by defendants say just means considered we say mean supported the evidence in the case that if we if we get past a motion to dismiss that we savages that's how it was understood by the market and investors and we're allowed to our motion to dismiss the court is required to assume that that's true but even if assume that the words based on the unsupported by assume that we have put forth sufficient evidence to get past a motion to go to a jury which we've done based upon our reference to analyst reports who specific analysts specifically said this means there is good this means that they must have seen something in the data that caused them to want to go ahead this means that the data was spectacular this means it was just not circumstantial evidence that's what analysts said because what the company had said earlier but in addition your honor there was no there was no reference for any p values that's correct or was that their worst specific criteria that had to be met there had to be shown statistical improvement on these two particular tests that they use for all timers patients that was what the market was  and that's where the test failed but to come back to your questions exports in addition the company opened the door they put the subject in play in this  again that's something that supreme court has said quite clearly in a matrix case you can choose not to discuss something but if you choose to discuss something if you put something in play at that point you have to disclose all material information that is relevant to that subject our reserves are adequate and it no certain information the question is whether the information known as material to the statement that they're making whether the circumstances under which you made make the same misleading here the company said we're moving to face three in part based on what we've learned in phase two so they opened up the subject what they learned in phase two and what they learn in phase two was that the results were not spectacular they didn't meet the stablished criteria and there might be some indication of a possibility that would cause them to go forward but once they open the door to that subject they were required to disclose all information that would be material to that subject to investors that's what the supreme court has said in the matrix case and  complaint who will testify that the interim results did not show statistically significant differences between the treatment groups they did not meet the pre established criteria that had been set by the company to move to phase three that there w serious side effects and that most importantly the company decided to move to face three in spite of what the interim look have learned and when you combine those facts with what the company had said about the circumstances under which they would move to phase three it is clear that the statement on may twenty first is materially misleading the district court in this case made two findings that we think require reversal first of all the district court affirmatively found that there was no affirmative false statement that was made in this case  here defendants did not make an affirmative statement about the phase two interim data pages fifteen of the appendix in fact they did when you say that something is based on something that is an affirmative statement of existing fact so with all respect to this record determined that the statement was cautious and as i've alluded to earlier we think that it's clear that the caution in the may twenty first press release related to what was going to happen down the road and couldn't relate to the statement of existing fact at the time raised here but before i do i'd like to make one observation in defense of the district court the p s l are a was enacted in order for the federal courts to become gatekeepers in securities cases pleadings with care to make sure that unwarranted and on meritorious cases do not cause the court system in the litigants enormous risk and cost and expense unless there warrant exactly what the district court did here the district court looked at and carefully examined the key to certain says and i was going to read them but there's no reason to because it's clear that the court is right on the two sentences in the may twenty one press release to determine whether or not there's any falsity in there and the court concluded that there is no falsity what about the spectacular state your honor and the reliance on your honor several points about the spectacular stand first of all i believe that the district courts handling of that was to point out that the language of the may twenty one press release i think in the first in the first opinion judge whittington said it was so cautious that you wouldn't have to you wouldn't focus on the or placed weight on the spectacular state it was not there was not an explicit invocation to be speaks caution doctrine here my correct that's correct i mean there was some language of cautious i think that might have been the word itself cautious then when the word was cautious in the first opinion in the second opinion it's very interesting if you read how  the court deals with that she says it neutralized it i think the we're all grasping for a word but the point is it if a statement is made in the past and clearly the company comes forward with a statement today that says this is what we're doing and what we're considering and no conclusion should be drawn then there is no justification for looking at the prior statements i mean it entitled to rely it becomes one more step removed when you have the clarity of the may twenty one two thousand and seven statement and it is the you know lawyers are sometimes criticized for not being that means no conclusions about the interim result should be drawn or no conclusions about the final result is unequivocal it says no conclusions should be drawn so this is a belt and suspenders release i'm a twenty one it states clearly that there are there's no reference to the outcome and the test data course this court has in the past examined decisions of federal district courts in which the district courts have ruled on falsity issues cases like adams golf and cal pers resist child and they prefer and it is the role of the district courts to examine here as they did in california and in new york this exact statement to determine whether there is any falsity letter i'm sorry you finish up if you know sir more that you know your i was that was you know that issue became the focus of the second circuit case and climb in which i also argued and the question was also asked there and we talked about there the amount of focus  interest in the market on a drug like this and that would cause tremendous market movement irrespective of what was said and consequently it is not something that you can draw conclusions from particularly on the issue of falsity this case is being decided by the district court on the issue of falsity as far as we know no court has ever looked at market movement as an industry or gauge of fal sity the district court said so and essentially invited the appellant's to attack that the second circuit said so unequivocally so whether or not you would examine that for the purposes of materiality at some point i don't think so or lost causation possibly but this case was decided on falsity and market movement particularly market movement at that point i submit to you would be irrelevant to the fa let me direct my attention now to the issue that the claim is false the literal false statement and i think judge schwartz put her finger directly on that the statement the primary statement made on may twenty one was we considered these various factors a b and c if you will in making our decision and c was what we learned from the interim tests the plaintiffs have submitted confidential witnesses who when read literally say they did consider the results of the interim tests and they say we three out of the one hundred people in the group we were a little skeptical about it and we thought it should go to an exploratory too rather than a confirmatory three that's what they say they did that they're arguing a question of medical opinion and scientific judgment how do you respond to your adversaries comments about the response of the media or those who make comments about investing activities after the may twenty first statement your honor suggesting a corroborate their view that based on mean supported by that is i i should have laid this out with more detail in my brief in paragraph sixty eight of the br you start walking through the thirteen media commentators on the may twenty first statement how many of them used the word spectacular one one in paragraph one sixty three of the second amended complaint it notes that this company is covered by dozens of analysts so what we have is one of the analysts who picked up on the word spectacular and used it everybody else is focusing if you read it with care and i'm sure they parse through hundreds of reports and press reports to try to get as much as they could for the word spectacular but what you see even in their snippets is what they're looking at what the analysts are saying is the decision to go to face three is a huge decision of course it is corporate conduct moves the markets and moves the analysts every day they're not linking it up with spectacular because we're dealing with the drug that truly could change the lives of thirty forty fifty million americans but you know they talk about maybe i'm this remembering this but they talk about pfizer people walked in and they said we're taking down face to we're putting up a story everybody would say the results must look good it's not a question why go to the expense and effort and so i'm sorry why go to the expense of the things if you don't think that there is something dollars of their own money to pursue this you might argue about the medical judgment later but it's inconceivable that there is an underlying fraud i think every court that's looked at this ultimately has come down and said in their heart of hearts that's got to be the case and going back and parsing these may the may twenty first report as it is being parsed here to try to find one little potential factual issue that doesn't detract from the extraordinary care with which they made that statement and if you take a look at the ninety seven statements afterwards you take a look at them they are so careful in what they say no a issue or affirmatively characterizes management conduct then it may be required to provide more information to to assure that the statement mislead the work as a first the standard is affirmatively characterizes where in may twenty one statement is there an affirmative characterization of the test results nowhere nowhere no court that's looked at it has ever come to that conclusion there was no opening the door they come through some circuitous route with confidential witnesses who by the way substantially support the analysis here what they say is somebody came in and made a report and three of us after the fact we were skeptical we were skeptical  after a test ultimately doesn't work you think you could get three out of one hundred scientists to say you know i didn't see anything at the time but i was skeptical about the result is that enough for fraud i submit it's not the confidential witnesses don't move them one notch up the meter indeed that's why the judge judge we're going to disregard them didn't disregard him didn't feel that they were relevant to the outcome because she assumed that the test results had met the prior standards but that didn't matter that's the bottom of page fourteen top of page fifteen of the appendix that didn't matter because they didn't say anything about the results so in terms of the issues that have been argued here today i submit to you that there are no substantial arguments that can be rendered against judge witnesses opinion it totally consistent with the analysis of the other courts that have looked at it it makes common sense there's just no reason why a company attempting to develop a drug would put its own resources behind something that in their view was an abysmal failure and would never work the fact of the matter is that the results i think as judge sirica identified were interesting and encouraging for forty to seventy percent of the five million americans who have alzheimer's and don't carry that a p o efore gene that's the reason that came up in the middle of test that's why they went forward not to perpetrate a fraud on the plaintive and the plaintiffs class my time is almost over i happy to answer any questions i would say that there is one citation that i should have put in my didn't cite that specifically in our brief but the advantage case supports the thesis that the twenty eight can claim does not stand absent independent violation of the r thank you thank you very conclusion of these to study law until the studies yes i mean doesn't that say it all no your honor it does not say anything about the interim look it's talking about the entire phase two study which had eighteen months more to go and what they told investors this was a company that said the fall we're going to move early to face three only if the results are spectacular and by the way spectacular is not puffery when used by scientists as part of clinical trials that's a word that has meaning it's not our company's going to spectacular next quarter it's the trial results have to be spectacular company says we're only going to move the face three if independent panel that we as assemble to look at this concludes that the results are significant and it knows that the results are spectacular and it knows that that the results haven't met the criteria then says we're moving the phase three based on the look having told investors that information beforehand how do you think investors are going to interpret that statement based on the review they're going to target in light of the circumstances were the previous statements that the company made about what would be required to move and that is exactly how analysts looked at it and in response to your question jeff schwartz that you asked my adversary there are in fact are many analysts who said that they said for example only if the interim data showed significant improvement in patient progress so that must have happened and this to us x quote both companies previously said that results from phase two interim analysis need to tackle or move forward and they were then told that the decision was made to go forward those criteria did not exist and with all respect against my adversary what was meant by these statements in our complaint for most confidential witnesses cannot be decided based on a motion to dismiss we disagree strongly with the characterization by counsel but that's why we have trials that's why those witnesses should be put on the witness stand and they're not just saying that it was a scientific disagreement that's not what we said in the complaint paragraph fifty four those witnesses said that it was absolutely clear to everyone at the company that the interim look had not met the criteria that had been established in order to go forward but the spite that the company went ahead and response to your question judge smith why would a company go ahead and spend this kind of money into a trial are many reasons but i can think of some one is as i said they were hoping that they could pursue at something good would happen down the road that maybe in this small group of people they would be able to show something  unreasonable risks business takes calculated risks and if they believe that there are probabilities drive profit then they'll take a measure of risk but they won't through caution and i agree with you your honor but they need to be honest with investors about what they're saying and as the seventh circuit said in the may court case the fact that a gamble concealing bad news in the hope that it will be overtaken by good news fails it's not inconsistent with having taken the gamble in the first place but you you for your helpful argument take the case