Southern District Of California Denies Motion To Dismiss Securities Fraud Claims Against Pharmaceutical Company, Holding Plaintiff Adequately Pled Material Misstatements And Scienter

• Published date: 20 August 2021
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Class Actions, Trials & Appeals & Compensation, Securities
• Law Firm: Shearman & Sterling LLP
• Author: Shearman & Sterling LLP

On August 4, 2021, Judge Marilyn L. Huff of the United States District Court for the Southern District of California denied a motion to dismiss a putative class action lawsuit against a biopharmaceutical company (the "Company") and certain of its officers for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Kendall v. Odonate Therapeutics, Inc., et al., No. 3:20-cv-01828-H-LL (S.D. Cal. Aug. 4, 2021). The Court held that plaintiff's Second Amended Complaint (the "SAC") adequately alleged material misstatements and omissions by defendants concerning the efficacy and safety of the Company's flagship cancer drug (tesetaxel) during the course of a Phase 3 clinical trial, and further held that plaintiff adequately alleged scienter.

According to the SAC, in December 2017, the Company announced the initiation of a Phase 3 clinical trial of tesetaxel, an orally administered chemotherapy agent to treat patients with locally advanced or metastatic breast cancer. The Company filed for its initial public offering later that month and allegedly represented in its registration statement that the Phase 3 trial was designed to evaluate whether tesetaxel plus a reduced dose of an existing approved cancer drug resulted in improved outcomes with manageable toxicity and favorable quality-of-life compared to the approved dose of the existing drug alone. Plaintiff'relying on alleged statements of five confidential witnesses'alleged that defendants became aware of adverse reactions by participants during the course of the trial but failed to publicly disclose that information. Specifically, plaintiff alleged that in August 2018, the Phase 3 trial clinical sites were reporting to the Company that they were experiencing a higher-than-expected rate of neutropenia, an abnormally low number of white blood cells in the blood in patients, and that as a result "many patients" were withdrawing from the trial. In response to that development, the Company's chief medical officer along with its VP of site management allegedly held a call with the clinical site management team to initiate an "urgent 'all-hands-on-deck'" program whereby trial sites would receive a presentation on how to manage and handle the incidences of neutropenia. According to the SAC, while many trial sites implemented the new recommended protocol, approximately 10% of all clinical sites dropped out of the Phase 3 trial in the first few months...