Pilgaonkar v. Kitov Pharmaceuticals Holdings Ltd
1:17-cv-00917
S.D.N.Y.Mar 20, 2018Background
- Kitov Pharmaceuticals, an Israeli clinical-stage company, conducted a Phase 3 trial of KIT-302 (combination product) governed by an FDA SPA; an independent Data Monitoring Committee (DMC) reviewed results and on December 15, 2015 concluded the trial met its primary endpoint.
- Plaintiffs (investors in Kitov ADS) allege the trial results were falsified before submission to the DMC to inflate efficacy, but Defendants publicly reported the DMC’s favorable finding and made related SEC disclosures between Nov 2015 and Nov 2016.
- CEO Isaac Israel and CFO Simcha Rock signed SEC filings; Israel is alleged to have directed falsification and was later investigated by the Israel Securities Authority (ISA); a Calcalist report on Feb 6, 2017 prompted a sharp stock and warrant price decline.
- Plaintiffs assert § 10(b) and § 20(a) claims alleging material misstatements/omissions, scienter, loss causation; Defendants moved to dismiss under Rule 12(b)(6) and PSLRA/Rule 9(b) pleading standards.
- The court accepted the Complaint’s factual allegations for purposes of the motion, found plaintiffs sufficiently pleaded material omissions re: the Study’s actual historical results, loss causation, and scienter as to Israel (but not Rock), and dismissed certain claims not tied to the Study’s factual findings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether omissions/misstatements about Study results were actionable under §10(b) | Plaintiffs: Kitov’s SEC statements that the Study met its primary endpoint were misleading because defendants concealed that data had been falsified | Defendants: Statements were accurate, independent DMC handled data and statements were forward-looking or puffery | Court: Statements about the Study’s actual historical results actionable; broader/attenuated statements about SPA/process or speculative future plans are not actionable |
| Whether alleged corrective disclosures plausibly plead loss causation | Plaintiffs: ISA investigation report and press events revealed the alleged fraud causing stock/warrant declines | Defendants: Price drops due to other factors or not tied to alleged misstatements | Court: Loss causation sufficiently pleaded based on the February 2017 disclosures and market reaction |
| Whether plaintiffs pleaded scienter for individual defendants | Plaintiffs: Israel directed falsification (corroborated by former consultants); Rock had motive (warrants) and small company access | Defendants: No strong inference Rock knew; documents show limited access; allegations speculative | Court: Scienter adequately pleaded as to CEO Israel (confidential witnesses, position, ISA report); not adequate as to CFO Rock — Rock dismissed |
| Whether control-person liability under §20(a) survives | Plaintiffs: Kitov officers had control over false statements; primary violation is pleaded | Defendants: Primary claim fails so §20(a) fails | Court: §20(a) claim survives because §10(b) claim against Israel/Kitov survives |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard: plausible claim required)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility standard for complaints)
- Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (duty to disclose to avoid misleading statements)
- In re Vivendi, S.A. Sec. Litig., 838 F.3d 223 (PSLRA safe-harbor and forward-looking statements analysis)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (holistic scienter review; strong inference standard)
- Novak v. Kasaks, 216 F.3d 300 (use of confidential witnesses in securities pleading)
- Teamsters Local 445 Freight Div. Pension Fund v. Dynex Capital Inc., 531 F.3d 190 (corporate scienter imputed from individual defendants)
- ATSI Communications, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (pleading requirements under PSLRA/Rule 9(b))
- Employer’s Ret. Sys. of Gov’t of the V.I. v. Blanford, 794 F.3d 297 (PSLRA/Rule 9(b) particularity for securities fraud)