996 F. Supp. 2d 335
E.D. Pa.2014Background
- Consolidated class action by Hemispherx Biopharma shareholders alleging §10(b)/Rule 10b-5 securities fraud and §20(a) claims against Hemispherx, its President Carter, Medical Director Strayer, and Senior Advisor Pambianchi.
- Class period runs from March 14, 2012 to December 20, 2012, centered on the FDA approval process for Ampligen, Hemispherx’s flagship drug.
- Plaintiffs allege numerous public statements concealed or misrepresented Hemispherx’s prospects for Ampligen approval during the period.
- FDA NDA process requires substantial evidence of safety/efficacy; Complete Response Letters may be issued within 180 days of NDA filing, with possible advisory committee input.
- Prior AMP trials (AMP 502 and AMP 516) allegedly contained substantial protocol violations and methodological flaws, with the FDA later deeming the evidence not credible.
- Hemispherx pursued a resubmission/near-term refiling in 2012, publicly touting post-hoc analyses of AMP 516 and FDASIA-related timing changes, while not disclosing related FDA cautions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether misstatements/omissions support a §10(b) claim | Plaintiffs claim defendants misstated FDA feedback and efficacy data via AMP analyses and FDASIA claims. | Defendants contend statements were non-actionable or not misleading and that some relied on existing FDA guidance. | Yes; misstatements/omissions pled with materiality are adequately alleged. |
| Whether the alleged misstatements were material | Materiality shown by the price drop after adverse FDA disclosures and the drug’s centrality to Hemispherx’s value. | Materiality requires a showing of fact, not mere puffery; some statements may be non-material optimism. | Yes; alleged misstatements were material given Ampligen’s importance and stock-price reaction. |
| Whether the complaint plausibly pleads scienter | Allegations show knowledge of falsity or Recklessness given known FDA concerns and post-hoc data manipulations | Defendants lacked the requisite intent or knowledge to meet PSLRA scienter standard. | Yes; strong inference of scienter adequately pled at this stage. |
| Whether PSLRA safe harbor applies to forward-looking statements | Statements about FDA pathways/FDASIA were not mere forward-looking and lacked cautionary context. | Some statements are forward-looking, protected by PSLRA safe harbor. | No; safe harbor inapplicable where falsity established or actual knowledge of falsity; not all statements protected. |
| Whether §20(a) claim survives | §20(a) derivative claim derives from §10(b) and should survive if §10(b) does. | If §10(b) claims fail, §20(a) necessarily fails. | Yes; because §10(b) claims survive, §20(a) claim also survives. |
Key Cases Cited
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (U.S. 2007) (strong inference of scienter required; holistic view of allegations)
- Institutional Investors Group v. Avaya, Inc., 564 F.3d 242 (3d Cir. 2009) (exacting PSLRA pleading of scienter)
- In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410 (3d Cir. 1997) (reactionary stock movement supports materiality)
- Oran v. Stafford, 226 F.3d 275 (3d Cir. 2000) (stock-price movement as evidence of materiality)
- Phillips v. County of Allegheny, 515 F.3d 224 (3d Cir. 2008) (pleading requirements under PSLRA)
- Winer Family Trust v. Queen, 503 F.3d 319 (3d Cir. 2007) (scienter standard and pleading requirements)
- Advanta Corp. Sec. Litig., 180 F.3d 525 (3d Cir. 1999) (motive/opportunity as amplifiers to scienter)