In Re Nektar Therapeutics: Ninth Circuit Affirms Dismissal Of Securities Class Action Arising From Failure Of Clinical Drug Trial

• Published date: 09 June 2022
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Food, Drugs, Healthcare, Life Sciences, Corporate and Company Law, Class Actions, Food and Drugs Law, Securities
• Law Firm: Cooley LLP
• Author: Ms Sarah Lightdale, Samantha Kirby and Joshua Walden

Summary

On May 19, 2022, a panel of the Ninth Circuit unanimously affirmed the district court's dismissal of a putative securities fraud class action accusing Nektar Therapeutics and several of its executives of misleading investors about the results of a clinical drug trial. The court held that even if Nektar had relied on outlier data in statements about the trial's interim results, the plaintiffs failed to sufficiently articulate what the trial would have showed without the outlier data or why that difference would have been material to investors. The court also held that plaintiffs failed to plead loss causation based on the results of a later-stage clinical trial or an anonymous short-sellers' report. More broadly, the opinion underscores and provides comfort that even where an experimental drug yielded promising results in early clinical trials, the later disclosure of disappointing data'without more'does not suffice to state a securities fraud claim.

Background

Nektar Therapeutics is a biopharmaceutical company that develops drugs to treat cancer, autoimmune diseases, and chronic pain.¹ Its flagship drug candidate NKTR-214 was a modified version of a human protein that activates the body's production of cancer-fighting "CD8+" T cells, which kill infected or malignant cells.

Nektar carried out a Phase 1 clinical trial (the EXCEL trial) to test NKTR-214's effectiveness. In the EXCEL trial, 28 patients were treated with NKTR-214 every two or three weeks. The Company reported interim data as the trial progressed. In 2017, Nektar's CEO presented a bar graph of data from the EXCEL trial at a healthcare conference. That graph'referred to as the "30-fold chart"'showed that among 10 patients treated with NKTR-214, cancer-fighting cells increased by about 30-fold, on average.

Based on the promising results of the Phase 1 EXCEL trial, Nektar launched a Phase 1/2 trial called PIVOT. The PIVOT trial evaluated the effectiveness of NKTR-214 when dosed with a second cancer drug, Opdivo. In June 2018, Nektar released disappointing data from the PIVOT trial showing that the response rate had declined by 35% as compared to interim PIVOT results the Company had previously disclosed.² Nektar's stock price then fell by about 42%.

Some four months later, anonymous short-sellers released a report (the "Plainview Report") suggesting that NKTR-214 was less effective than Nektar had claimed. The Plainview Report focused on a second chart from the EXCEL trial ("Figure 6"), which compared data from seven patients in EXCEL. ³Figure 6 reflected that one EXCEL patient (Patient 14) saw an outsized 300-fold increase in CD8+ T cells as compared to the other six patients. The Plainview Report asserted that the 30-fold chart included data from Patient 14 and thus provided a misleading picture of the EXCEL results. But the authors of the Plainview Report also declared that they were making "no representation, express or implied, as to the accuracy, timeliness, or completeness of [ ] information" in the report.⁴ Nektar's stock price fell another seven percent the day the Plainview Report was published.

In October 2018, two pension funds filed suit against Nektar and certain current and former employees on behalf of a putative class of investors who purchased stock in Nektar between 2017 and 2018.⁵The funds alleged...