Fourth Circuit Issues Decisive Opinion Affirming Dismissal Of Securities Class Action Against MacroGenics

• Jurisdiction: United States,Federal
• Law Firm: Cooley LLP
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Class Actions, Securities
• Author: Mr Patrick Gibbs, Brett De Jarnette and Amie Simmons
• Published date: 10 April 2023

Biotech companies are often faced with a dilemma - they need to raise capital to develop novel therapies, and in doing so, they often express honest optimism about interim and topline results from their drugs in development. But they cannot be reasonably expected to disclose all results or interpretations of the clinical data to avoid the threat of shareholder litigation. The US Court of Appeals for the Fourth Circuit recently published an opinion that thoughtfully recognized the difficulties that biotech companies face in disclosing the results of clinical trials, emphasizing that such companies should not be punished for expressing optimism, and that investors should know that not every known fact would necessarily support a company's opinions. The court also made clear that courts are not an arbiter of science, and '[s]ecurities law is simply not a vehicle through which courts will police disagreements in the cancer research community or the parameters of clinical trials.'

Summary

On March 2, 2023, the Fourth Circuit affirmed the US District Court for the District of Maryland's complete dismissal of a putative securities class action accusing MacroGenics and several executives of misleading investors about interim clinical trial data.

The plaintiffs' core theory was that the company misled investors by disclosing some positive clinical trial data, while not disclosing purportedly negative data from the same study.

The court rejected the plaintiffs' theory, holding that:

• Disclosure of certain endpoint data and general references to topline results did not trigger a duty to disclose data for all endpoints of the study.
• The defendants' interpretation of clinical trial data amounted to an inactionable opinion statement. The plaintiffs' disagreement with that interpretation was insufficient to state a securities fraud claim.
• Certain positive statements about the clinical trial's survival endpoint were inactionable statements of corporate optimism.

Importantly, the court emphasized that biopharmaceutical companies should not be punished for expressing optimism and that investors should know that not every known fact would necessarily support a company's opinions:

'Biopharmaceutical clinical trial drug companies constantly find themselves in the hot seat. Not only does their longevity depend on the creation of ground-breaking, experimental drugs designed to combat the world's deadliest illnesses, i.e. Cancer, but also a significant portion of their success turns on the amount of capital raised to explore these unchartered waters, making investors an integral part of the equation. Therefore, we cannot admonish these companies for issuing positive and accurate opinions while 'weighing ' competing facts,' and must remind investors to 'not expect that every fact known to an issuer supports its opinion statement' (emphasis added). It would be a great disservice to stifle biopharmaceutical companies' pursuit of medical advancements by failing to safeguard against an inundation of lawsuits...