Life science companies could face pressure to settle earlier with shareholders following a US Supreme Court decision against Amgen (NASDAQ:AMGN). The securities class action was brought by Connecticut Retirement Plans and Trust Funds on behalf of Amgen shareholders.
The retirement plans alleged that despite the biotechnology company’s assurances to investors that its anemia drugs Aranesp and Epogen were safe there was clinical data showing they could harm cancer patients. They complained in the suit that because Amgen made misleading statements about the drugs, the share price stayed artificially high for three years until May 10, 2007 when a US Food and Drug Administration committee expressed concern over the drugs’ effect on certain patients.
As The New York Times pointed out, the question was whether plaintiffs in securities fraud cases should be required to prove that the defendants had made a material misstatement before a class action may be certified.
The 6-3 ruling said investors could sue a company without initially being required to show that misinformation had inflated the company’s stock price.
The theory behind a fraud-on-the-market-case is that a misrepresentation by the defendant made the stock price artificially high. The market was defrauded, so shareholders should be certified as a class and allowed to bring a class-action suit against the company.
Last summer when the Supreme Court agreed to hear the case, The Life Science Report had reported that the 9th US Circuit Court of Appeals and 7th circuit ruled that whether specific information is material to a company’s share price is a merits question that shouldn’t be considered as part of class certification.
Paul Karlsgodt is a partner in the Denver office of Baker & Hostetler and specializes in class action defense. In his ClassActionBlawg he said Amgen was an important decision in the context of securities action but could have ramifications beyond that.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
“Amgen is an important decision in the securities fraud context because it addresses the lingering question of whether any special prerequisites exist in certifying a securities fraud class action that aren’t required in certifying other types of class actions…In the context of class certification decisions more broadly, the opinion will be almost certainly be cited as clarifying the distinction between issues impacting the elements of class certification, which must be resolved at the class certification phase and merits issues which can wait until trial to be resolved.”
A statement on the Washington Legal Foundation’s website expressed some dismay with decision.
“The Court upheld a trial court’s decision to certify a plaintiff’s class under a fraud-on-the-market theory even though no evidence existed that the market was ever misled. In a brief filed with the Court, WLF had argued that a court should never certify a class consisting of all stock purchasers on the basis of a fraud-on-the-market theory without first providing the defendant an opportunity to show that the market was not misled.”
