Keryx Biopharmaceuticals Fends Off Investor Suit

, The Litigation Daily

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Keryx Biopharmaceuticals Inc. has defeated claims that it misled investors about the results of a clinical trial. While the case is relatively small, the rationale behind the dismissal could prove useful to other drug companies facing securities fraud claims.

In a ruling issued on Friday, U.S. District Judge Katherine Forrest in Manhattan dismissed an investor class action alleging that Keryx overhyped the results of a trial for its cancer drug Perifosine. Plaintiffs lawyers alleged that the drug trial's methodology was flawed, that Keryx was fully aware of the flaws, and that Keryx's public statements about the trial being a success were therefore inherently dishonest. Forrest rejected that argument, ruling that it would be "unjust—and could lead to unfortunate consequences beyond a single lawsuit—if the securities laws became a tool to second guess how clinical trials are designed and managed."

Keryx and a co-developer, Aeterna Zentaris Inc., began seeking regulatory approval to sell Perifosine more than five years ago. For most of 2010 and 2011, the company told investors that the drug performed well in a so-called Phase 2 clinical trial. But in October 2011, Keryx's CEO Ron Bentsur announced poor results for a Phase 3 trial, sending the company's stock price tumbling.

Two plaintiffs firms —Kessler Topaz Meltzer & Check and the Manhattan-based Law Offices of Curtis Trinko—brought suit on behalf of investors, alleging that Keryx and Bentsur told "half-truths" about the methodology behind the Phase 2 trial. The plaintiffs shop Faruqi & Faruqi brought similar claims against Aeterna Zentaris.

The U.S. district judge in Manhattan assigned to the Aeterna Zentaris case, Kevin Castel, dismissed it in May 2013. Siding with defense lawyers at Paul Weiss Rifkind Wharton & Garrison, Castel ruled that, at worst, Aeterna Zentaris did not engage in best practices in the design and conduct of the Phase 2 study. That's not enough to support a securities case, he wrote.

Forrest reached a similar conclusion on Friday in the Keryx case. Allowing it to go forward "would be equivalent to a determination that if a researcher leaves any of its methodology out of its public statements—how it did what it did or was planning to do—it could amount to an actionable false statement or omission," she wrote. "This is not what the law anticipates or requires."

John Jordak Jr. and Joseph Tully of Alston & Bird represented Keryx.

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