On July 24, 2020, United States District Judge Allison D. Burroughs of the District of Massachusetts dismissed a putative securities class action against a biopharmaceutical company (the “Company”) and certain of its executives under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. Hackel v. Aveo Pharmaceuticals Inc. et al., No. 1:19-cv-10783, 2020 WL 4274542 (D. Mass. July 24, 2020). Plaintiffs alleged that defendants misrepresented the status of clinical trials of a cancer drug required for approval from the U.S. Food and Drug Administration (“FDA”). The Court granted defendants’ motion to dismiss because the statements at issue were forward-looking and because plaintiffs failed to allege falsity.
The “central focus” of the Company’s strategy was developing a cancer treatment medication called tivozanib, which was in clinical trials. Clinical trials for tivozanib—like other cancer treatment drugs—measure two outcomes: overall survival (“OS”), which measures how long a patient lives after treatment, and progression-free survival (“PFS”), which measures how long a patient lives and for how long the disease stops progressing after treatment. When the Company announced the start of a Phase 3 trial in May 2016, it stated that the preliminary endpoint analysis and relevant safety data based on PFS—referred to as “topline results”—of 255 events (or patients) were “projected” to be available in the first quarter of 2018. The Company subsequently announced postponements of the topline results until the fourth quarter of 2018, attributing the adjusted timeline to the slow pace of PFS events. In November 2018, the Company reported topline results and initial OS results but noted that OS data would not be mature until nearly a year later. The Company said that its goal was to submit a New Drug Application (“NDA”) “in approximately six months.” Then, on January 31, 2019, the Company announced that it accepted the FDA’s recommendation to delay filing an NDA as it waited for “more mature OS results.” Plaintiffs alleged that defendants misled investors about the timing of topline results and about the preliminary OS results.
The Court held that statements about the timing of topline results were forward-looking statements protected under the PSLRA safe harbor. The Court first found that the timing statements about “a projected, or planned, timeline for future results,” framed with words such as “expect” and “anticipate” were “clearly forward-looking.” The Court also found that the statements were accompanied by meaningful cautionary language, including that “the completion of enrollment and the data readout for the [Phase 3] trial” was one of the Company’s “substantial risks and uncertainties,” that the “expected timeline” for reporting the topline results was uncertain, that clinical trial testing was “inherently uncertain as to outcome,” and that the Company could not “guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all.” Because these disclosures “explicitly identified the expected timeline of topline results as uncertain,” the requirements of the PSLRA safe harbor were satisfied.
The Court next held that defendants’ announcements regarding the preliminary OS results were not misleading. Plaintiffs alleged that the Company’s failure to disclose complete data from its OS results—including the number of “lost to follow-up subjects” or patients who had to be dropped from the trial because of eligibility or non-compliance with protocol—made the statements misleading. However, the Court found that the Company’s statements were clear that the OS results were incomplete, indicated how many patients remained in active follow-up, and how many had withdrawn consent or were lost to follow-up. The Court further found the Company’s statement that it was actively attempting to gather “additional data on as many of these patients as possible,” “put investors on notice that subjects who had withdrawn or been lost to follow-up might still contribute data to the study.” Accordingly, plaintiffs failed to allege how knowing the exact number of lost to follow-up subjects would be relevant to the “total mix” of information. The Court also rejected plaintiffs’ hindsight argument that the Company’s statement in January 2019 that additional OS results from lost to follow-up subjects had a negative impact on results showed that the November 2018 statements were misleading. The Court found that statements about the impact of the lost to follow-up subjects’ OS results to the study did not support plaintiffs’ allegations that the number of lost to follow-up subjects was material information, and in any event, that plaintiffs could not plead fraud by hindsight by contrasting “defendant’s past optimism with less favorable actual results.” Moreover, the Company in any event warned investors that it could not “make any predictions about what the final OS analysis for [Phase 3] will show.”
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Hackel v. Aveo Pharmaceuticals Inc.