Silverberg on Behalf of Dendreon Corporation v. Gold

Shareholder Herbert Silverberg brought a derivative action on behalf of biotech company Dendreon Corporation (plaintiff) alleging 10 officers and directors including Mitchell Gold (defendants) engaged in insider trading. Dendreon developed an immunotherapy treatment for prostate cancer called Provenge, Dendreon’s only product approved by the Food and Drug Administration (FDA). Because Provenge cost $93,000 for a full month-long course of treatment, Dendreon sold it using a “buy and bill” policy. Doctors had to buy Provenge up front, then seek reimbursement from Medicare, Medicaid, or private-insurance companies and assume the risk they would deny reimbursement. The FDA approved Provenge in April 2010. Within months, doctors began canceling scheduled infusions due to reimbursement problems. Dendreon began tracking canceled infusions in August 2010. In mid-September, a board presentation identified reimbursement as a key issue and informed the board that providers lacked confidence in reimbursement. The presentation included a sensitivity analysis that concluded reimbursement issues could decrease Dendreon’s revenues by more than $100 million, while improving reimbursement rates would only modestly increase revenues. Six months later, Dendreon’s chief operating officer told the board that a survey found over 65 percent of providers had medium or low confidence in reimbursement for Provenge. In August 2011, the company issued a press release acknowledging reimbursement issues had significantly decreased revenues, causing Dendreon’s stock to drop 67 percent overnight. Meanwhile, officers and directors had already sold over $78 million of their Dendreon stock, including over $56 million within a day of Provenge’s FDA approval. Silverberg claimed the insiders breached fiduciary duties by selling without disclosing known reimbursement problems. The insiders moved to dismiss, arguing Silverberg failed to plead sufficient facts to support a Delaware insider-trading claim.