In an important ruling dismissing a comprehensive securities class action complaint against Genzyme Corporation, the U.S. District Court for the District of Massachusetts held last week that regulatory comments and inspectional observations provided by the FDA to pharmaceutical companies like Genzyme – including commentary supplied on FDA Form 483 – are of “questionable materiality” and are not automatically required to be disclosed by regulated issuers. The decision means that the plaintiffs’ bar will not be able to leverage critical comments delivered in the day-to-day give-and-take between the agency and a pharmaceutical company into a securities lawsuit.
Multiple securities class actions were filed against Genzyme in 2009 in the wake of a series of manufacturing and regulatory setbacks. Two Genzyme facilities experienced failures at a key stage in the manufacturing process, ultimately determined to have been caused by a rare virus. Separately, FDA inspections at the Company’s Allston, Massachusetts facility resulted in issuance of a Form 483 and, ultimately, warnings concerning Genzyme’s compliance with the FDA’s current Good Manufacturing Practices (“cGMPs”). Finally, the FDA delayed approval of an important new biologic product, Lumizyme, beyond the date publicly anticipated by Genzyme. The plaintiffs’ 141 page, 364 paragraph consolidated complaint alleged that Genzyme committed securities fraud by making a “daunting number” of purportedly fraudulent statements about these events in order to keep Genzyme’s stock price artificially high. According to the investors, Genzyme deliberately withheld information from the market about the state of its manufacturing facilities, its knowledge of the FDA’s concerns, the likely delayed approval for Lumizyme in light of these issues, and the predicted effect of all of them on production, revenue and net profit. The complaint asserted that the market price for Genzyme stock fell only when Genzyme signed a consent decree with the FDA that disclosed the scope of the problems and the depth of the FDA’s concerns. Among other things, the pleading contended that Genzyme omitted to disclose adverse information about these events that it “knew” based upon correspondence and communications with the FDA, including inspectional observations made on a Form 483.
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