Overview
In an opinion issued on Friday, Judge Forrest dismissed the securities fraud claims of a putative class of Keryx Biopharmaceuticals shareholders. The plaintiffs had alleged that Keryx had hidden from the market that an important trial for an in-development cancer drug had failed. Judge Forrest disagreed:
There is a significant public interest in the development of life-saving drugs. For every drug that succeeds, others do not. Clinical trials are phased into stages: some drugs never make it past the first stage, others never make it past the second stage, and so on. The costs of failure are high, but the rewards for success are also high. The relationship and ratio between the two determines whether, as a matter of economics, the costs of experimentation are worth it. Publicly traded pharmaceutical companies have the same obligations as other publicly traded companies to comply with the securities laws, but they take on no special obligations by virtue of their commercial sector. It would indeed be unjust-and could lead to unfortunate consequences beyond a single lawsuit-if the securities laws become a tool to second guess how clinical trials are designed and managed. The law prevents such a result; the Court applies that law here, and thus dismisses these actions.Judge Forrest found that the complaint failed to allege three elements necessary to support the fraud claim: falsity, scienter and loss causation.
A false statement must be just that: false; in error; wrong. An actionable omission must be information that, in light of other statements made, defendants had a duty to disclose so as not to mislead. Here, if this Court were to determine that the statements defendants made were actionable, it would essentially be the "thin end of the wedge": it would be equivalent to a determination that if a researcher leaves any of its methodology out of its public statements-how it did what it did or was planning to do-it could amount to an actionable false statement or omission. This is not what the law anticipates or requires. *** Here, plaintiffs' allegations against the Company amount to no more than management problems: someone failed to adjust p-values, which led to increased chances of Type I errors and errors in hypothesis generation, and interim analyses may have introduced bias. The [complaint] does not, however, adequately plead that the statements the Company made regarding the Phase 2 trial were known to be false at the time they were made. Put another way, it is one thing to suggest that the scientists and analysts did their job poorly; it is another to suggest that the Company knew that they had done their job poorly, and nonetheless (either consciously or recklessly) made statements to hide those errors. *** Plaintiffs first allege that, following publication of the critique of the JCO manuscript on TheStreet.com on October 19, 2011, "Keryx's common stock dropped approximately 6% to close at $2.75 per share that day." The disclosure by Keryx, however, occurred more than two weeks earlier; the JCO manuscript clearly stated, with respect to the Phase 2 trial, that "[t]he P values were not adjusted for the unplanned interim analyses or for the multiple comparisons ... because of the exploratory nature of the study design with small sample size." As a result, this allegation ofloss causation is insufficient as a matter of law.Judge Forrest also dismissed a claim for control person liability against Keryx's CEO and denied the plaintiffs' motion for leave to amend the complaint.