FILED: NEW YORK COUNTY CLERK 01/15/ :07 PM INDEX NO /2015 NYSCEF DOC. NO. 5 RECEIVED NYSCEF: 01/15/2016

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1 FILED: NEW YORK COUNTY CLERK 01/15/ :07 PM INDEX NO /2015 NYSCEF DOC. NO. 5 RECEIVED NYSCEF: 01/15/2016 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK SPENCER SAVAGE, Derivatively on Behalf of ibio, INC., Plaintiff, Index No / 2015 vs. ROBERT B. KAY, ARTHUR Y. ELLIOTT, JAMES T. HILL, GLENN CHANG, PHILIP K. RUSSELL, JOHN D. MCKEY, and SEYMOUR FLUG, and ibio, INC., Defendants, Nominal Defendant. MEMORANDUM OF LAW IN SUPPORT OF DEFENDANTS MOTION TO DISMISS WILLKIE FARR & GALLAGHER LLP 787 Seventh Avenue New York, NY Tel: (212) Attorneys for Defendant Robert B. Kay and Nominal Defendant ibio, Inc. AGUILAR BENTLEY LLC 5 Penn Plaza, 19th Floor New York, New York Tel: (212) Attorneys for Defendants Arthur Y. Elliott, James T. Hill, Glenn Chang, Philip K. Russell, John D. McKey, and Seymour Flug

2 TABLE OF CONTENTS Page PRELIMINARY STATEMENT...1 FACTS...3 ARGUMENT...7 I. THE COMPLAINT FAILS TO ALLEGE DEMAND FUTILITY....7 A. The Complaint Does Not Allege That A Majority Of The Board Faces A Substantial Likelihood Of Liability....9 B. The Complaint Does Not Otherwise Allege That A Majority Of The Board Is Interested In This Lawsuit II. THE COMPLAINT FAILS TO STATE A CLAIM CONCLUSION...19 i

3 TABLE OF AUTHORITIES Cases Page(s) Aronson v. Lewis, 473 A.2d 805 (Del. 1984) In re Avon Prods., Inc. S holders Litig., No /2012, 2013 WL (Sup. Ct. N.Y. Cty. Mar. 5, 2013)...3 Berardi v. Berardi, 108 A.D.3d 406 (1st Dep t 2013)...18 Bohigian v. Pearson, No /10, NYLJ (Sup. Ct. N.Y. Cty. Oct. 15, 2010)...17 In re Caremark Int l Inc. Derivative Litig., 698 A.2d 959 (Del. Ch. 1996)...10, 18 Carroll ex rel. Pfizer, Inc. v. McKinnell, No /06, 2008 WL (Sup. Ct. N.Y. Cty. Mar. 17, 2008)...19 In re Citigroup Inc. S holder Derivative Litig., 964 A.2d 106 (Del. Ch. 2009)...8, 10, 14, 16 David Shaev Profit Sharing Account v. Cayne, No /2003, 2004 WL (Sup. Ct. N.Y. Cty. July 12, 2004)...9 David Shaev Profit Sharing Account v. Cayne, 24 A.D.3d 154 (1st Dep t 2005)...7, 9, 16 Desimone v. Barrows, 924 A.2d 908 (Del. Ch. 2007)...9, 11, 13, 16 Gomez-Jimenez v. N.Y. Law Sch., 36 Misc. 3d 230 (Sup. Ct. N.Y. Cty. Mar. 21, 2012)...3 Grimes v. Donald, 673 A.2d 1207 (Del. 1996)...7 Grobow v. Perot, 539 A.2d 180 (Del. 1988)...16 Guttman v. Huang, 823 A.2d 492 (Del. Ch. 2003)... 11, ii

4 Jacobs v. Yang, No. Civ.A. 206-N, 2004 WL (Del. Ch. Aug. 2, 2004)...16 In re Kenneth Cole Prod., Inc. S holder Litig., No /2012, 2013 N.Y. Misc. LEXIS 4026 (Sup. Ct. N.Y. Cty. Sept. 3, 2013)...18 Rales v. Blasband, 634 A.2d 927 (Del. 1993)...8, 17 Sec. Police & Fire Prof ls of Am. Ret. Fund v. Mack, 93 A.D.3d 562 (1st Dep t 2012)...11 Simon v. Becherer, 7 A.D.3d 66 (1st Dep t 2004) Spiegel v. Buntrock, 571 A.2d 767 (Del. 1990) Steinberg v. Dimon, No. 14 Civ. 688(PAC), 2014 WL (S.D.N.Y. July 16, 2014)...12 Stone v. Ritter, 911 A.2d 362 (Del. 2006) , 13, 18 Teamsters Union 25 Health Servs. & Ins. Plan v. Baiera, 119 A.3d 44 (Del. Ch. 2015)...16 Trenwick Am. Litig. Trust v. Ernst & Young, L.L.P., 906 A.2d 168 (Del. Ch. 2006)...10 Wall St. Transcript Corp. v. Ziff Commc ns Co., 225 A.D.2d 322 (1st Dep t 1996)...18 Wilson v. Tully, 243 A.D.2d 229 (1st Dep t 1998) , 11 Wood v. Baum, 953 A.2d 136 (Del. 2008)...17 Zucker v. Andreessen, C.A. No VCP, 2012 WL (Del. Ch. June 21, 2012)...8 iii

5 Statutes Page(s) CPLR 3016(b)...18 CPLR 3211(a)(7)...1 Rule Page(s) Delaware Court of Chancery Rule iv

6 Defendants respectfully submit this memorandum of law in support of their motion to dismiss the complaint pursuant to CPLR 3211(a)(7), Delaware Court of Chancery Rule 23.1, and CPLR 3016(b). 1 PRELIMINARY STATEMENT This is a purported derivative action that attempts to recast the allegations of a now-settled securities class action as a breach of fiduciary duty case against the board of directors of biotechnology company ibio, Inc. ( ibio ). Seeking to invoke the principles of In re Caremark Int l Inc. Derivative Litigation, the thrust of the complaint is that the director defendants failed in their oversight of ibio, allowing the company to misrepresent its role in the public health response to the 2014 Ebola virus outbreak. More precisely, the complaint asserts that ibio intentionally misled investors into believing that the Company s technologies were actively being used to produce an experimental Ebola treatment called ZMapp when the Company had no role. The complaint should be dismissed, principally because it altogether fails to comply with fundamental pre-suit demand requirements. Plaintiff admits that he made no presuit demand on ibio s board but seeks to excuse that failure by asserting that demand would be futile because the directors face a substantial likelihood of liability here. In other words, plaintiff maintains that the prospect of Caremark liability famously described as possibly the most difficult theory in corporation law is so significant that the directors could not objectively evaluate a demand. At the same time, the complaint entirely lacks particularized facts showing demand futility as required by established precedent. There are no facts showing that ibio s directors failed to establish a system of controls over the company s disclosures; nor 1 Nominal defendant ibio, Inc. does not join in the argument that the complaint should be dismissed for failure to state a claim.

7 could there as ibio s SEC filings make clear that there existed meaningful disclosure controls and procedures, and even plaintiff is forced to admit to the existence of controls in the form of a Code of Business Conduct and Ethics. There are no facts showing that the directors consciously failed to monitor controls or ignored red flags relating to ibio s Ebola-related disclosures. And there are no facts that otherwise show the type of conscious failure required to sustain a Caremark claim. These defects are fatal by themselves. But, beyond that, plaintiff does not even credibly allege that ibio actually misrepresented anything relating to its role in the Ebola crisis, content instead to parrot the securities class action in attacking statements that ibio never made and citing internet commentary as corrective disclosures that actually correct nothing at all. Neither ibio nor its management ever claimed that the company s technologies were actively being used to produce ZMapp. What ibio said about the Ebola response was only that it had offered to assist the U.S. government by making its proprietary technology available for emergency use... to the extent such assistance is requested. That means that ibio had offered to help but had yet to be taken up on its offer which would not lead anyone to conclude that the company had an active role. Apart from the pre-suit demand requirements, all of this separately provides grounds to dismiss the complaint for failure to state a claim. New York law requires that a breach of fiduciary complaint state in detail the circumstances constituting the wrong. The complaint here fails to do that for the same reasons it fails to show demand futility. There are no specifics showing that the directors breached their oversight duties or that ibio misrepresented its role in the Ebola response because none of that happened. 2

8 FACTS The plaintiff here is Spencer Savage, who identifies himself as an ibio shareholder purporting to sue on the company s behalf for alleged breaches of fiduciary duty by ibio s board. 2 The defendants are all of ibio s directors, namely, Chairman and CEO Robert Kay and non-officer directors Arthur Y. Elliott, James T. Hill, Glenn Chang, Phillip K. Russell, John D. McKey, and Seymour Flug. 3 Nominal defendant ibio is a Delaware biotechnology company that, among other things, owns proprietary technology that permits tobacco plants to be used to manufacture treatments for cancers, fibrotic diseases, and, most recently, Ebola. 4 In the summer of 2014, Ebola became the subject of intense public attention. An outbreak in West Africa had by that point resulted in over 4,400 deaths with the death toll growing. 5 Several individuals in the United States became infected with the virus. 6 And there was nearly 24-hour-a-day news coverage with significant attention dedicated to the fact that there were no widely available drugs designed specifically to treat the illness. 7 With the Ebola epidemic seemingly poised to expand to the United States, public health officials began exploring partnerships with private-sector biotechnology and 2 Verified Complaint dated Dec. 4, 2015 ( Compl. ) 1, 10, attached as Exhibit 1 to the January 15, 2016 Affirmation of Antonio Yanez, Jr. ( Yanez Aff. ). 3 Yanez Aff. Ex. 1 (Compl. 2-9). 4 Yanez Aff. Ex. 2 (ibio Press Release, ibio Grants Caliber License for Production of Antibodies Targeting Ebola, dated ( November 10 Press Release )). The Court may take judicial notice of this document and the other materials submitted with this motion to dismiss. In re Avon Prods., Inc. S holders Litig., No /2012, 2013 WL , at *1 n.1, *5 (Sup. Ct. N.Y. Cty. Mar. 5, 2013) (judicial notice of SEC filings, press releases, and other public documents); see also Gomez-Jimenez v. N.Y. Law Sch., 36 Misc. 3d 230, 245 n.8, 257, 258 n.13 (Sup. Ct. N.Y. Cty. Mar. 21, 2012) (judicial notice of media articles). 5 Yanez Aff. Ex. 1 (Compl. 28). 6 Yanez Aff. Ex. 1 (Compl. 27). 7 Yanez Aff. Ex. 1 (Compl ). 3

9 pharmaceutical companies to provide a response. 8 One of several experimental treatments under consideration (and the one on which the complaint focuses) was ZMapp, a cocktail of three Ebola-fighting antibodies. 9 The cocktail was produced by inserting ZMapp s genetic sequence into plant viruses, which were then used to infect tobacco plant cells whose natural reproductive processes multiplied the ZMapp antibodies. 10 But there were obstacles to largescale production, and stores of ZMapp ran out in August To address the shortfall, the U.S. Government s Biomedical Advanced Research and Development Authority issued a task order seeking proposals for producing large quantities of ZMapp even as other options remained under consideration. 12 As health officials considered the proper response (mostly out of view of the public), some investors scrambled to understand the impact of the Ebola outbreak across the biotechnology sector while others sought to speculate and generate profits from the crisis. The result was extraordinary volatility, with the stock prices of companies thought to have links to Ebola treatments experiencing a wild ride. 13 For its part, in early September 2014, ibio began working with a long-time partner called Caliber Biotherapeutics LLC ( Caliber ) to address the issues hampering ZMapp, and the companies soon saw meaningful progress. 14 Among other things, ibio and Caliber 8 Yanez Aff. Ex. 1 (Compl. 36). 9 Yanez Aff. Ex. 1 (Compl ). 10 Yanez Aff. Ex. 1 (Compl. 33). 11 Yanez Aff. Ex. 1 (Compl ). 12 Yanez Aff. Ex. 1 (Compl. 36); Yanez Aff. Ex. 3 (Sharon Begley, U.S. Requests Production Plans for Ebola Drug ZMapp, REUTERS, ). 13 Yanez Aff. Ex. 4 (Ben Rooney, CNN, The Ebola stocks: Effect of an outbreak, ). 14 Yanez Aff. Ex. 2 (November 10 Press Release). 4

10 confirmed that ibio s plant-based technology could be used to produce the antibodies needed to treat Ebola more efficiently and on a larger scale than had been possible previously. 15 Based on this progress, ibio offered its technology to the U.S. government for emergency use. 16 ibio and Caliber s work would later evolve to where ibio entered into a formal emergency license with Caliber to proceed with Ebola antibody production using ibio s patented technology. 17 At the same time it was undertaking its work with Caliber, ibio was receiving dozens of press and investor inquiries about its role in the emergency response to the Ebola outbreak and its stock price was showing the same volatility as others in the industry. 18 Throughout September and into October, ibio attempted to address the press and investor inquiries on a one-off basis. But with the number of inquiries increasing and speculation apparently rampant, on October 16, 2014, ibio issued a press release updating the market generally. 19 In that press release, ibio did not claim any role in the production of ZMapp or any other Ebola drugs. Instead, the press release reported that ibio s technology could be used to further development and production of antibodies that target the Ebola virus, that it had an ongoing relationship with Caliber, and that it had offered to assist the U.S. government by making its proprietary technology available for emergency use... to the extent such assistance 15 Yanez Aff. Ex. 5 (ibio Press Release, ibio Responds to Inquiries About its Role in Emergency Response to Ebola Virus Disease Outbreak, dated ) ( October 16 Press Release ). 16 Yanez Aff. Ex. 5 (October 16 Press Release). 17 Yanez Aff. Ex. 2 (November 10 Press Release). 18 Yanez Aff. Ex. 6 (ibio Historical Share Prices). 19 Yanez Aff. Ex. 5 (October 16 Press Release). 5

11 is requested all of which was both accurate and responsive to inquiries received by the company. 20 Then, in late October 2014, came the events that would ultimately prompt this lawsuit. On October 20, 2014, an anonymous article appeared on a website called Seeking Alpha stating that ibio NEVER confirmed in its October press release direct involvement in Ebola drug production a fact that is clear from the face of the press release itself. 21 There was then a follow-up article from a short seller on October 23 to the same effect, that is, that ibio had never announced a role in Ebola drug production but had only suggested that its technology might play a serious role. 22 Neither Seeking Alpha article revealed any new information, much less identify a misstatement by ibio or its management. But because ibio s stock price dropped, a securities class action was commenced in the U.S. District Court for the District of Delaware. That litigation was settled for $1.875 million (subject to court approval), less than 5% of claimed damages. 23 Now, plaintiff brings this action, copying pages of the securities complaint verbatim and asserting that the same allegations somehow demonstrate that ibio s directors breached their fiduciary duties through a systemic failure to exercise oversight Yanez Aff. Ex. 5 (October 16 Press Release). 21 Yanez Aff. Ex. 7 (Probio Invest, The Truth About ibio s Role In Ebola Drug Production, Seeking Alpha ) ( October 20 Seeking Alpha Article ). 22 Yanez Aff. Ex. 8 (The Street Sweeper, ibio: A Wannabe Ebola Player Infecting Buyers With False Hope, Seeking Alpha, ) ( October 23 Seeking Alpha Article ). 23 Yanez Aff. Ex. 9 (Stipulation and Agreement of Settlement, Andavarapu v. ibio et al., No. 14-cv1343-RGA (D. Del. Dec. 18, 2015) (without exhibits)). 24 Yanez Aff. Ex. 1 (Compl. 26). 6

12 ARGUMENT The complaint should be dismissed for two reasons. First, the complaint concedes there was no pre-filing demand but nevertheless fails to adequately plead demand futility under Delaware law which controls because ibio is a Delaware corporation. 25 David Shaev Profit Sharing Account v. Cayne, 24 A.D.3d 154, 154 (1st Dep t 2005); see also Wilson v. Tully, 243 A.D.2d 229, 232 (1st Dep t 1998). Second, the complaint fails to state a claim. Each point is addressed in turn. I. THE COMPLAINT FAILS TO ALLEGE DEMAND FUTILITY. A cardinal precept of Delaware law is that boards of directors not shareholders are vested with the authority to manage the business and affairs of corporations. Aronson v. Lewis, 473 A.2d 805, 811 (Del. 1984), overruled in part on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del. 2000). The decision to bring a law suit or to refrain from litigating a claim on behalf of a corporation is a decision concerning the management of the corporation. Spiegel v. Buntrock, 571 A.2d 767, 773 (Del. 1990). As such, it is the corporation, acting through its board of directors, which must make the decision whether or not to assert the claim. Grimes v. Donald, 673 A.2d 1207, 1215 (Del. 1996), overruled in part on other grounds by Brehm, 746 A.2d 244. Given the board s authority over litigation, shareholders wishing to bring suit on behalf of a corporation must first make a pre-suit demand on the board as a condition precedent to proceeding. Simon v. Becherer, 7 A.D.3d 66, 71 (1st Dep t 2004). The purpose of the pre-suit demand is to protect the managerial power of a board of directors, Aronson, 473 A.2d at 811, to assure that the stockholder affords the corporation the opportunity to address an 25 Yanez Aff. Ex. 1 (Compl. 2, 77). 7

13 alleged wrong without litigation, Spiegel v. Buntrock, 571 A.2d 767, 773 (Del. 1990), and to provide a safeguard against strike suits. Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984) overruled in part on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del. 2000). Failure to make a pre-suit demand is fatal to shareholder-initiated derivative cases except in the limited circumstance where a plaintiff can satisfy the heavy burden of showing that demand would be futile. Wilson v. Tully, 243 A.D.2d 229, 232 (1st Dep t 1998); see also Aronson, 473 A.2d at 807. Where (as here) the complaint alleges that the board failed to act, demand is excused only if the complaint create[s] a reasonable doubt about whether a majority of the board could have properly exercised its business judgment in responding to a demand. Rales v. Blasband, 634 A.2d 927, 934 (Del. 1993); Simon v. Becherer, 7 A.D.3d 66, 72 (1st Dep t 2004); see also Zucker v. Andreessen, C.A. No VCP, 2012 WL , at *6 (Del. Ch. June 21, 2012). More specifically, a plaintiff must show that a majority of the directors could not have evaluated a demand objectively because they are either interested in the lawsuit or lack independence. Rales, 634 A.2d at 936 (Del. 1993); Simon, 7 A.D.3d at To show interestedness in the derivative case, the complaint must raise a substantial likelihood of liability for the defendant directors by identifying egregious circumstances supporting the plaintiff s claims. In re Citigroup Inc. S holder Derivative Litig., 964 A.2d 106, 121 (Del. Ch. 2009); see also Aronson v. Lewis, 473 A.2d 805, 815 (Del. 1984), overruled in part on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del. 2000) ( mere threat of personal liability insufficient). Director interestedness can also be shown by otherwise establishing that the litigation may have a materially detrimental impact on a director, but not on the corporation and the stockholders. Rales, 634 A.2d at 936. To show a lack of independence, the complaint must demonstrate that a disinterested director is beholden to a 8

14 director that is interested, rendering the former incapable of evaluating a decision based on the corporate merits... rather than extraneous consideration or influences. Aronson, 472 A.2d Nor can would-be derivative plaintiffs rely on generic recitations or boilerplate assertions to make the required showing. Under Delaware Chancery Rule 23.1 which governs the sufficiency of demand futility allegations against Delaware boards a derivative plaintiff is required to support a claim of demand futility with particularized factual allegations. Simon, 7 A.D.3d at 71; see also Stone v. Ritter, 911 A.2d 362, 367 n.9 (Del. 2006). Unlike notice pleading, courts will not take as true conclusory allegations of fact or law not supported by allegations of specific fact. Wilson v. Tully, 243 A.D.2d 229, 234 (1st Dep t 1998); David Shaev Profit Sharing Account v. Cayne, No /2003, 2004 WL (Sup. Ct. N.Y. Cty. July 12, 2004), aff d, 24 A.D.3d 154 (1st Dep t 2005). Rather, a plaintiff must plead facts on a director-by-director basis showing specific conduct or other particulars indicating interestedness or lack of independence. Wilson, 243 A.D.2d at ; Desimone v. Barrows, 924 A.2d 908, 942 (Del. Ch. 2007); Cayne, 24 A.D.3d at 155. Judged against these requirements, the complaint fails to plead demand futility. The complaint does not even try to allege that a majority of the board lacks independence. And, as set forth below, it fails to plead facts showing either a substantial likelihood of liability or that a majority of the board is otherwise interested. A. The Complaint Does Not Allege That A Majority Of The Board Faces A Substantial Likelihood Of Liability. Plaintiff principally seeks to allege demand futility by asserting that there exists a substantial likelihood of liability on his Caremark claim. 26 Specifically, the complaint alleges 26 Yanez Aff. Ex. 1 (Compl ). 9

15 that the directors failed to exercise oversight over ibio allowing the company to intentionally misle[a]d investors about the company s role in ZMapp production and the Ebola response more generally, and that threat of liability for that failure renders the directors incapable of objectivity. 27 These allegations are insufficient. 28 As noted, a Caremark claim presents possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment. See In re Caremark Int l Inc. Derivative Litig., 698 A.2d 959, 967 (Del. Ch. 1996); Stone v. Ritter, 911 A.2d 362, 372 (Del. 2006). [O]nly a sustained or systematic failure of the board to exercise oversight will support Caremark liability. Caremark, 698 A.2d at 971. This requires a plaintiff to demonstrate that (a) the directors utterly failed to implement any reporting or information system or controls; or (b) having implemented such a system or controls, consciously failed to monitor or oversee its operations thus disabling themselves from being informed of risks or problems requiring their attention. Stone, 911 A.2d at 370. Critically, under Caremark, the imposition of liability requires a showing that the directors knew that they were not discharging their fiduciary obligations in other words, liability requires a showing of bad faith or scienter. Stone, 911 A.2d at 370 (emphasis added); see also In re Caremark Int l Inc. Derivative Litig., 698 A.2d 959, 971 (Del. Ch. 1996) (liability 27 Yanez Aff. Ex. 1 (Compl. 26, 45, 49, 76). 28 The complaint includes a four-paragraph second cause of action that purports to state gross mismanagement and aiding and abetting claims but in reality adds nothing. (Yanez Aff. Ex. 1 (Compl ).) Both of these so-called claims are based on the same supposed breaches as plaintiff s Caremark claim and fail for the reasons set forth in the text. See In re Citigroup Inc. S holder Derivative Litig., 964 A.2d 106, 115 n.6 (Del. Ch. 2009) (dismissing supposedly separate claim for reckless and gross mismanagement dependent on Caremark claim stated in other count). Additionally, there can be no aiding and abetting liability without a primary breach of fiduciary duty, so the aiding and abetting allegations should be dismissed with the main claim for that reason too. Trenwick Am. Litig. Trust v. Ernst & Young, L.L.P., 906 A.2d 168, 215 (Del. Ch. 2006). 10

16 requires that directors knew or... should have known about violations); Desimone v. Barrows, 924 A.2d 908, 935 (Del. Ch. 2007) (Caremark imposes a scienter-based standard ). The reason is that a Caremark claim seeks to show that the directors violated their duty of loyalty to the corporation. Stone v. Ritter, 911 A.2d 362, (Del. 2006). Accordingly, to the extent liability is premised on the absence of controls, a plaintiff must establish that the directors utterly failed to implement any reporting or information system or controls. Id. at 370 (emphasis added). To the extent liability is premised on the failure of controls, a plaintiff must establish that the directors ignored red flags, that is, facts showing that the board ever was aware that [the corporation s] internal controls were inadequate, that these inadequacies would result in illegal activity, and that the board chose to do nothing about problems it allegedly knew existed. Id.; see also Guttman v. Huang, 823 A.2d 492, 507 (Del. Ch. 2003). Here, facts showing bad faith or scienter are also required for the additional reason that ibio s certificate of incorporation contains a provision that (in relevant part) exculpates directors from liability for violations other than those not in good faith or which involve intentional misconduct or a knowing violation of law. 29 As the First Department has explained, independent of Caremark requirements, this type of exculpation provision requires particularized facts indicating scienter in order to plead a substantial likelihood of liability : [where] directors are exculpated from liability... except for claims based on fraudulent, illegal or bad faith conduct[,]... the complaint must allege particularized facts that would show that the directors acted with scienter, i.e., that they had actual or constructive knowledge that their conduct was legally improper. Sec. Police & Fire Prof ls of Am. Ret. Fund v. Mack, 93 A.D.3d 562, 565 (1st Dep t 2012) (quoting Wood v. Baum, 953 A.2d 136, 141 (Del. 2008)); see also Wilson, 243 A.D.2d at Yanez Aff. Ex. 10 (Certificate of Incorporation of ibiopharma, Inc., Art. TENTH). 11

17 (requiring particularized pleading of bad faith, intentional misconduct, knowing violation of law, or any other conduct for which the directors may be liable ). The complaint does not come close to satisfying these standards. Plaintiff alleges nothing indicating that ibio s directors utterly failed to implement control systems with respect to the company s disclosures, nor could he as ibio s SEC filings and other public disclosures plainly reflect the existence of such systems. Among other things, the company s SEC filings and other disclosures recite that ibio maintained disclosure controls and procedures ; that management periodically evaluated the effectiveness of controls (as did the company s independent auditors to the extent related to financial reporting); and that the board exercised oversight over disclosure and other controls coordinate[d] by the Audit Committee. 30 In fact, the complaint itself concedes the existence of at least some controls by acknowledging that ibio had in place a Code of Business Conduct and Ethics prohibiting employees from making [s]tatements regarding the Company s products and services [that are] untrue and requiring them to act honestly, ethically and fairly. 31 Steinberg v. Dimon, No. 14 Civ. 688(PAC), 2014 WL , at * 3 (S.D.N.Y. July 16, 2014) ( Clearly, controls existed at [the company], as the Complaint recognizes by alleging controls such as... the company s code of conduct. ). The complaint likewise lacks particularized facts showing that ibio s directors consciously failed to monitor or oversee control systems. The complaint does not identify a single red flag that should have alerted the directors to potential control deficiencies in the run up to the October 2014 disclosures. And having failed to identify red flags, the complaint does not (and cannot) identify facts showing what the directors did or did not do in response to the 30 Yanez Aff. Ex. 11 (ibio s SEC Form 10-K dated Sept. 29, 2014); Yanez Aff. Ex. 12 (ibio s Audit Committee Charter 3.1, 3.6, 4.5, and 4.6). 31 Yanez Aff. Ex. 1 (Compl. 23). 12

18 alleged risks or problems, much less that they acted with scienter in ignoring them. All the complaint does is impermissibly couple the assertion that ibio s October 2014 disclosures misstated the company s role in the Ebola response with the unsupported conclusion that the directors must have ignored control deficiencies. Desimone v. Barrows, 924 A.2d 908, 940 (Del. Ch. 2007) ( Delaware courts routinely reject the conclusory allegation that because illegal behavior occurred, internal controls must have been deficient, and the board must have known so. ); see also Stone v. Ritter, 911 A.2d 362, 373 (Del. 2006). Were all that not enough, the complaint fails even to plausibly allege that ibio s October 2014 disclosures actually contained misstatements. The core misrepresentation allegations relate to ibio s October 16, 2014 press release which, according to the complaint, misled investors into believing that the Company s technologies were actively being used to produce ZMapp and would be involved in future production. 32 But that entirely ignores the text of the release. Far from claiming a role in ZMapp production (or, for that matter, in the Ebola response more generally), what the press release reported was that ibio s technology could be used to further the development and production of antibodies that target the Ebola virus, that it had an ongoing relationship with Caliber, and, most importantly for present purposes, that it had offered to assist the U.S. government by making its proprietary technology available for emergency use... to the extent such assistance is requested. 33 That makes clear that ibio had no role in the emergency response and would only have a role to the extent [its] assistance [was] requested. Indeed, the Seeking Alpha articles that plaintiff claims revealed the truth themselves reflect that ibio was not understood to be claiming an active role in ZMapp 32 Yanez Aff. Ex. 1 (Compl. 45). 33 Yanez Aff. Ex. 5 (October 16 Press Release). 13

19 production. Referring to the October 16, 2014 press release, one article states: ibio NEVER confirmed in a straightforward fashion that it s involved in the Ebola drug production. 34 Further to that point, the article summarizes ibio s October 16, 2014 press release as follows: All ibio said in the press release [the October 16 Press Release] can be summarized into below three points: [sic] 1). ibio has an on-going relationship with Caliber; 2). ibio reiterated its self-claim that plant-based production may be superior to animal-based antibody production; 3). ibio offered to help US government. 35 The other Seeking Alpha article similarly states that ibio had not announced a role in Ebola drug production and had, at most, suggested that its technology might play a serious role. 36 Apart from ibio s October 16, 2014 press release, plaintiff fares no better to the extent he separately challenges press statements by ibio President Robert Erwin and Chairman Robert Kay on October 6 and 11, 2014, respectively. These statements do not support a substantial likelihood of liability because plaintiff disclaims them as grounds for his claim, pleading that the supposed breaches of fiduciary duty here occurred from October 13, 2014 through today. 37 More fundamentally, Messrs. Erwin and Kay misrepresented nothing. The complaint asserts that Mr. Erwin falsely claimed an ibio role in ZMapp production by stating 34 Yanez Aff. Ex. 7 (October 20 Seeking Alpha Article). 35 Yanez Aff. Ex. 7 (October 20 Seeking Alpha Article). 36 Yanez Aff. Ex. 8 (October 23 Seeking Alpha Article) (emphasis added). The complaint also alleges in conclusory fashion that the director defendants themselves caus[ed] the Company to issue false and misleading statements concerning [its] financial condition. (See, e.g., Yanez Aff. Ex. 1 (Compl. 22, 75, 78-79).) Putting aside that plaintiff does not challenge any statements about ibio s financial condition, these allegations lack specifics as to how the board was actually involved in creating or approving the [supposed] statements, factual details that are crucial to determining whether demand... would have been excused as futile. In re Citigroup Inc. S holder Derivative Litig., 964 A.2d 106, 133 n.88 (Del. Ch. 2009). Without specifics, [p]leading that the director defendants caused... the Company to issue certain statements is not sufficient particularized pleading to excuse demand. Id. 37 Yanez Aff. Ex. 1 (Compl. 10). 14

20 that [t]echnology used to produce the ZMapp antibodies in plants is covered by ibio patents and that ibio expected an important role in the emergency response. 38 But plaintiff ignores that Mr. Erwin made clear there was no existing role by cautioning that ibio could not speculate on contracts that might or might not be awarded. 39 As to Mr. Kay, the complaint asserts that he falsely claimed that ibio would necessarily be involved in ZMapp production to the extent Caliber was involved because of the companies relationship. 40 But all Mr. Kay actually said (as quoted in the complaint) is that Caliber owns the largest facility in the world for producing drugs in tobacco plants and that, as a result, [i]f anybody is going to produce ZMapp on a large scale it is almost axiomatic that Caliber would be involved. 41 B. The Complaint Does Not Otherwise Allege That A Majority Of The Board Is Interested In This Lawsuit. No doubt aware of the defects in his main allegations, plaintiff includes a series of back-up interestedness allegations. These too are insufficient. First, the complaint alleges that the director defendants are interested because they are principal beneficiaries of the wrongdoing alleged herein and received payments, 38 Yanez Aff. Ex. 1 (Compl. 39). 39 Yanez Aff. Ex. 13 (Ciaran Thornton, ibio About to Help Mass Produce Ebola Drug ZMapp, The Small Cap Network, ). 40 Yanez Aff. Ex. 1 (Compl. 41). 41 Yanez Aff. Ex. 1 (Compl. 41). The complaint also alleges that ibio (and Mr. Erwin) misrepresented the company s relationship with Caliber by concealing that it was limited to an oncology (cancer) indication and by claiming that Caliber would need a license from ibio to produce ZMapp. (Yanez Aff. Ex. 1 (Compl. 40, 52).) But, as the complaint itself concedes, a cancer treatment was only the first product target to be pursued by ibio and Caliber. (Yanez Aff. Ex. 1 (Compl. 38).) More to the point, ibio disclosed in November 2014 that the companies had entered into an Ebola-specific license agreement and had been collaborating on Ebola for months, meaning both that the relationship actually did involve Ebola treatments and that a license was required. (Yanez Aff. Ex. 2 (November 10 Press Release).) 15

21 benefits, stock options, and other emoluments by virtue of their membership on the Board. 42 These contentions fail because individualized allegations are required; group accusation[s] do not suffice. In re Citigroup Inc. S holder Derivative Litig., 964 A.2d 106, 121 n.36 (Del. Ch. 2009); Desimone v. Barrows, 924 A.2d 908, 943 (Del. Ch. 2007) (complaint must allege facts specific to each director to satisfy demand futility analysis). Additionally, neither generic allegations of having benefitted from supposed wrongdoing nor the receipt of ordinary director compensation shows interestedness. David Shaev Profit Sharing Account v. Cayne, 24 A.D.3d 154, (1st Dep t 2005) (applying Delaware law); see also Grobow v. Perot, 539 A.2d 180, 188 (Del. 1988), overruled in part on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del. 2000). Second, the complaint alleges that any demand upon Defendants to bring suit against themselves would be a useless and futile act. 43 In addition to not being individualized, that allegation is insufficient because a plaintiff cannot establish interestedness merely by suing. Guttman v. Huang, 823 A.2d 492, 500 (Del. Ch. 2003); see also Jacobs v. Yang, No. Civ.A. 206-N, 2004 WL , at *6 n.31 (Del. Ch. Aug. 2, 2004). A simple allegation of potential directorial liability is insufficient to excuse demand, else the demand requirement itself would be rendered toothless, and directorial control over corporate litigation would be lost. Teamsters Union 25 Health Servs. & Ins. Plan v. Baiera, 119 A.3d 44, 62 (Del. Ch. 2015). Third, the complaint appears to allege that membership by some directors on ibio s Audit Committee (Messrs. Chang and Flug) or Compensation Committee (Mr. Elliott, 42 See Yanez Aff. Ex. 1 (Compl. 79, 81). 43 Yanez Aff. Ex. 1 (Compl. 87). 16

22 Gen. Hill, and Dr. Russell) somehow suggests interestedness. 44 But courts regularly reject committee membership as a basis to excuse demand, absent detailed pleading of specific knowledge by the committee members and specific failures to meet the duties imposed on committee members. Bohigian v. Pearson, No /10, NYLJ , at *16 (Sup. Ct. N.Y. Cty. Oct. 15, 2010); 45 see also Wood v. Baum, 953 A.2d 136, (Del. 2008). Fourth, the complaint alleges that Mr. Kay is interested because he faces liability in the District of Delaware securities case and supposedly is in a position of irreconcilable conflict of interest in terms of the prosecution of this action and defending himself there. 46 Because the securities class action has been settled with full releases (subject to final court approval), there is neither the prospect of liability nor is Mr. Kay conflicted. 47 And while plaintiff further alleges that Mr. Kay is not independent of the Compensation Committee members because they control substantially all of his income, 48 Mr. Kay s supposed dependence on them is irrelevant to the demand futility analysis as none of the Compensation Committee members have any interest of their own in this lawsuit. See Rales v. Blasband, 634 A.2d 927, 936 (relevant inquiry is whether presumptively independent directors are beholden to interested directors); see also Guttman v. Huang, 823 A.2d 492, 503 (Del. Ch. 2003). II. THE COMPLAINT FAILS TO STATE A CLAIM. In addition to the foregoing, the complaint should also be dismissed because it fails to state a claim. To survive a motion to dismiss, breach of fiduciary duty complaints must 44 Yanez Aff. Ex. 1 (Compl. 83, 89-90). 45 A copy of this case may be found as Exhibit 14 to the Yanez Affirmation. 46 Yanez Aff. Ex. 1 (Compl. 80). 47 Yanez Aff. Ex. 9 (Stipulation and Agreement of Settlement, Andavarapu v. ibio et al., No. 14-cv1343-RGA (D. Del. Dec. 18, 2015) (without exhibits)). 48 Yanez Aff. Ex. 1 (Compl ). 17

23 comply with CPLR 3016(b), which requires that the circumstances constituting the wrong be stated in detail. N.Y. C.P.L.R 3016(b) (MCKINNEY 2015); Wall St. Transcript Corp. v. Ziff Commc ns Co., 225 A.D.2d 322, 322 (1st Dep t 1996); In re Kenneth Cole Prods., Inc. S holder Litig., No /2012, 2013 N.Y. Misc. LEXIS 4026, at *6 (Sup. Ct. N.Y. Cty. Sept. 3, 2013). This requires the complaint to allege specific instances of the alleged misconduct with particularity. Berardi v. Berardi, 108 A.D.3d 406, (1st Dep t 2013). Here, the complaint does not satisfy these standards for the reasons already discussed. The complaint fails to state a claim because it lacks specifics showing that ibio s directors utterly failed to implement a system of controls, that they consciously failed to monitor control systems that were in place, and that ibio misrepresented anything to begin with. Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006); Guttman v. Huang, 823 A.2d 492, 507 (Del. Ch. 2003); see also In re Caremark Int l Inc. Derivative Litig., 698 A.2d 959, 971 (Del. Ch. 1996). 18

24 CONCLUSION For the foregoing reasons. Dcl'cndant> rcspcclfltl!y request that the Court dismiss the complaint with prcjudici:. 1'' Dated:.lanumy 15. :w 16 WILLKIE FARR & GALLAGHER LL!~' Bv:. C- r onio '{unc.l.ir. ivlanhcw \V. F!wards 787 Seventh A venue New York. NY Tel: (212) E mui I: i!.!j' l'~''..!l:l'.'.l.'' "'' ~'CJill' Enmil:,J/lt1171t')'sjiir De/i!ml11111 llohert B. Kt(I' <llld No111ilwf Defemlw11 illio. Inc. Rcspccllhlly submilled. AGUILAR BENTLEY LLC By: 5 Penn Plaza. 19th Floor Nc11 York. New York Tel: (212) Emu ii: ""~.uh~.!l.!.!" ""' '~1. 1~. 1.u''-' ~~w En1ai I: ~!ij.ujj~u" t,~)i t.!li ij0lb~1-~!lc~,,9))1l Alllll'/Wl'S.. fijr Defimda11/s. i/j'll111r r. Ellioll..fa111es T Ifill, Gle1111 Clw11g, l'ililip K. /111s.1ell..loh11 D. \lcf..'ey. and Sey111011r F/11g..[ 1 Jt is \\Cll-scttkd that a complaint should be dismissed with prejudice where the pluinti!tis unable l<l mlequately allege focts sullicicnl to support his or her claim" or.. foil! sj to allege any new focls that would cure the dclicicncks in the complaint." Curro/I ex rel. l'.fi=er. Inc. 1. McKimwlt. No. 60 I S79i WL ut * 11 (Sup. Ct. N.Y. Cty. Mar ). 1 lcrc. the delicicncics in plaintifrs allegations arc endemic to his theory nf liability and cannot be cured by rcplcading. 19