New England Biz Law Update
Investors could bring a securities fraud class action alleging that statements a biotech executive made about the results of an Alzheimer’s drug’s clinical trials were misleading, the 1st U.S. Circuit Court of Appeals has found.
Alfred W. Sandrock Jr., chief medical officer of defendant Biogen, told investors during a 2020 earnings call that “all data” from Phase III testing of Aducanumab, the company’s Alzheimer’s treatment, was consistent with findings that the drug had clinical benefits at a higher dose.
However, a report that the U.S. Food and Drug Administration’s statistical reviewer prepared as part of an FDA Advisory Committee review suggested that subgroup-level data did not support such a conclusion.
Within days of the report’s release and the advisory committee’s vote not to adopt Biogen’s conclusions, the company’s stock dropped by nearly $100 a share.
Investors immediately brought a securities fraud class action based on Sandrock’s statement as well as those of other Biogen executives, alleging that the defendants concealed data that, if revealed, would have established their statements as misleading.
A U.S. District Court judge dismissed the claims, concluding that the pleadings failed to demonstrate a misleading statement and failed sufficiently to allege scienter and causation of loss.
But the 1st Circuit reversed, ruling that the action could proceed based on Sandrock’s “all data” statement, while affirming dismissal of all claims based on other statements by the defendants.
“Having concluded … that Sandrock’s ‘all data’ statement was misleading given the nature of the statement and the existence of at least some contradictory subgroup data, we next ask whether, as investors claim, Defendants’ failure to disclose said subgroup data amounted to ‘an extreme departure from the standards of ordinary care … which presents a danger of misleading buyers and sellers that is either known to the [Defendants] or is so obvious that the [Defendants] must have been aware of it,’” Judge Gustavo A. Gelpi wrote for the court. “We conclude that it was such a departure.”
