XML 25 R14.htm IDEA: XBRL DOCUMENT v3.8.0.1
Legal Proceedings
9 Months Ended
Sep. 30, 2017
Commitments and Contingencies Disclosure [Abstract]  
Legal Proceedings
Legal Proceedings

In April 2009, December 2009 and June 2010, the Italian Tax Authority, or the ITA, issued notices of assessment to CTI (Europe) based on the ITA’s audit of CTI (Europe)’s VAT returns for the years 2003, 2005, 2006 and 2007, or, collectively, the VAT Assessments. The ITA audits concluded that CTI (Europe) did not collect and remit VAT on certain invoices issued to non-Italian clients for services performed by CTI (Europe). We believe that the services invoiced were non-VAT taxable consultancy services and that the VAT returns are correct as originally filed. We are defending ourselves against the assessments both on procedural grounds and on the merits of the case although we can make no assurances regarding the ultimate outcome of these cases. Following is a summary of the status of the legal proceedings surrounding each respective VAT year return at issue:

2003. In June 2013, the Regional Tax Court issued decision no. 119/50/13 in regards to the 2003 VAT assessment, which accepted the appeal of the ITA and reversed the previous decision of the Provincial Tax Court. In January 2014, we appealed such decision to the Italian Supreme Court both on procedural grounds and on the merits of the case. In March 2014, we paid a deposit in respect of the 2013 VAT matter of €0.4 million (or $0.6 million upon conversion from euros as of the date of payment), following the ITA's request for such payment.

2005, 2006 and 2007. The ITA has appealed to the Italian Supreme Court the decisions of the respective appellate court which were favorable to CTI with respect to each of the 2005, 2006 and 2007 VAT returns.

The Italian Supreme Court held the first hearing for the 2005 VAT case on September 26, 2017, and we are waiting for the Supreme Court to issue its decision. No hearing has been fixed yet for the 2003 and consolidated 2006/2007 VAT cases.

If the final decision of the Italian Supreme Court is unfavorable to us, or if , in the interim, the ITA were to make a demand for payment and we were to be unsuccessful in suspending collection efforts, we may be requested to pay the ITA an amount up to €9.4 million, or approximately $11.1 million converted using the currency exchange rate as of September 30, 2017, plus collection fees, notification expenses and additional interest for the period lapsed between the date in which the assessments were issued and the date of effective payment. In January 2013, our then remaining deposit for the VAT Assessments was refunded to us.

Securities and Exchange Commission Subpoena

We previously disclosed that we received a subpoena from the SEC in January 2016. The SEC's subpoena requested, among other things; internal and external communications related to pacritinib Phase 3 trials, including communications with the independent data monitoring committee, or IDMC, for pacritinib's Phase 3 trials, our steering committee, our board of directors, our audit committee, representatives of Baxter and Baxalta, and the FDA, and other documents related to pacritinib.
We believe that the SEC is seeking to determine whether there have been possible violations of the antifraud and certain other provisions of the federal securities laws related to the Company's disclosures concerning, among other things, the clinical test results of pacritinib. The SEC Staff's letter sent with the subpoena stated that the investigation is a fact-finding inquiry, and the investigation and subpoena do not mean that the SEC has concluded that we or anyone else has violated any law. We are cooperating with this investigation, which is ongoing.

In re CTI BioPharma Corp. Securities Litigation

On February 10, 2016 and February 12, 2016, class action lawsuits entitled Ahrens v. CTI BioPharma Corp. et al., Case No. 1:16-cv-01044 and McGlothlin v. CTI BioPharma Corp. et al., Case No. C16-216, respectively, were filed in the United States District Court for the Southern District of New York and the United States District Court for the Western District of Washington, respectively, on behalf of shareholders that purchased or acquired the Company’s securities pursuant to our September 24, 2015 public offering and/or shareholders who otherwise acquired our stock between March 4, 2014 and February 9, 2016, inclusive. The complaints assert claims against the Company and certain of our current and former directors and officers for violations of the federal securities laws under Sections 11 and 15 of the Securities Act of 1933, as amended, or the Securities Act, and Sections 10 and 20 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, Plaintiffs’ Securities Act claims allege that the Company’s Registration Statement and Prospectus for the September 24, 2015 public offering contained materially false and misleading statements and failed to disclose certain material adverse facts about the Company’s business, operations and prospects, including with respect to the clinical trials and prospects for pacritinib. Plaintiffs’ Exchange Act claims allege that the Company’s public disclosures were knowingly or recklessly false and misleading or omitted material adverse facts, again with a primary focus on the clinical trials and prospects for pacritinib. On May 2, 2016, the Company filed a motion to transfer the Ahrens case to the United States District Court for the Western District of Washington. The motion was unopposed and granted by the court on May 19, 2016. On June 3, 2016, the parties filed a joint motion to consolidate the McGlothlin case with the Ahrens case in order to proceed as a single consolidated proceeding. On June 13, 2016, the court granted the motion to consolidate with the action being captioned In re CTI BioPharma Corp. Securities Litigation, Master File No. 2:16-cv-00216-RSL. On September 2, 2016, the court appointed Lead Plaintiffs and Lead Counsel. On September 28, 2016, the court entered a scheduling order, as revised by order entered December 8, 2016, setting November 8, 2016 as the deadline to file a consolidated class action complaint and deadlines for briefing defendants’ motion to dismiss. Briefing concluded on February 22, 2017. The consolidated class action complaint asserts claims similar to those asserted in the initial complaints, although it no longer asserts claims relating to the September 24, 2015 public offering, but adds claims relating to the Company’s October 27, 2015 and December 4, 2015 public offerings. On July 26, 2017, we received a written offer for the global resolution and settlement of the consolidated action in exchange for cash payment of $20.0 million. The Company has insurance coverage related to this matter and such insurance is expected to cover $18.0 million of the claim. In August 2017, we agreed in principle to the terms of the settlement and submitted the terms and proposed class notice to the court for its preliminary approval. On October 24, 2017, the court granted preliminary approval and set a final approval hearing for February 1, 2018.

Wei v. James A. Bianco, et al.; England v. James A Bianco, et al; Nahar v. James A. Bianco, et al.; Hill v. James A. Bianco, et al.

On March 14, 2016, a Company shareholder filed the first of four similar derivative lawsuits on behalf of the Company seeking damages for alleged harm to the Company caused by certain current and former officers and directors. The first suit, Wei v. James A. Bianco, et al., 16-2-05818-3, was filed in King County Superior Court, Washington. A second suit, England v. James A. Bianco, et al., 16-2-14422-5, was filed in King County Superior Court, Washington, on June 16, 2016. Two additional derivative suits, Nahar v. James A. Bianco, et al., 2:16-cv-0756, and Hill v. James A. Bianco, et al., 2:16-cv-1250, were filed in the United States District Court for the Western District of Washington on May 24, 2016 and August 9, 2016, respectively. The four suits raise similar allegations and seek similar relief against certain current and former officers and directors, including James A. Bianco, Louis A. Bianco, Jack W. Singer, Bruce J. Seeley, John H. Bauer, Phillip M. Nudelman, Reed V. Tuckson, Karen Ignagni, Richard L. Love, Mary O. Mundinger and Frederick W. Telling. Consistent with the requirements of a derivative action, the Company is named in each suit as a nominal defendant against which no monetary relief is sought. The complaints generally allege claims of: (1) breach of fiduciary duty; (2) abuse of control; (3) gross mismanagement; (4) waste of corporate assets and (5) unjust enrichment (receiving compensation that was unjust in light of the alleged conduct). Each claim is based on the assertion that the Company made materially false and misleading statements and omitted material information from its disclosures about pacritinib and its safety. Plaintiffs in none of the suits made a pre-suit demand on the current board of directors of CTI, or Board, to investigate whether to pursue claims against officers or directors, instead claiming demand is excused because the named defendants lack independence, are not disinterested because they lack impartiality, received and want to continue to receive their compensation, have longstanding personal and business relationships, and cannot evaluate a demand since they are facing personal liability. Each of plaintiffs’ suits requested the court to award the Company the damages allegedly sustained as a result of the conduct and to direct the Company and the individual defendants to reform and improve the Company’s corporate governance to avoid future damages. On March 29, 2017 during mediation, the parties to the derivative suits reached an agreement in principle to settle all four suits subject to Board and court approvals. Subject to the terms and conditions in the settlement agreement and court approval, CTI has agreed to adopt certain corporate governance reforms relating to, among other things, the content of CTI-retained independent data monitoring committee charters; engagement if an independent expert or entity to conduct yearly audits of compliance with Good Clinical Practices; the creation of a risk compliance officer position; certain improvements to CTI’s Audit Committee, including the requirement that the Audit Committee review CTI’s periodic public reports to facilitate proper disclosure of risks and risk factors; establishment of an internal audit function that will monitor the Company’s adherence to its policies and procedures, including those related to identification and disclosure of drug candidate safety issues; continuing-education requirements for members of the Board; and improvements to CTI’s nominating committee, compensation committee, and clawback policy. CTI also agreed not to object to an attorneys’ fee application by plaintiffs’ counsel of up to $0.8 million collectively, subject to the terms and conditions in the settlement agreement and court approval. There is no admission of liability or any wrongdoing by any of the individual defendants or CTI. On September 25, 2017, the King County Superior Court entered an order substituting Kevin Hammond for former Lead Plaintiff Gang Wei and Maurio Eley for former Lead Plaintiff Michael England, and the two case captions were amended as reflected above. The parties filed settlement-approval papers on October 26, 2017.

In connection with the securities litigation and four derivative lawsuits described above, after taking into account our existing insurance coverage, we recorded $2.2 million of settlement expense in Selling, general and administrative expenses in our condensed consolidated statement of operations for the nine months ended September 30, 2017.

In addition to the items discussed above, we are from time to time subject to legal proceedings and claims arising in the ordinary course of business.