Nguyen v. New Link Genetics Corp., 2019 WL 591556 (S.D.N.Y. Feb. 13, 2019)

On February 13, 2019, Judge William H. Pauley, III of the Southern District of New York dismissed a proposed investor class action against New Link Genetics Corporation.

Plaintiffs’ allegations arose out of a disclosure by New Link that a Phase 3 trial of its drug candidate for patients with resected pancreatic cancer did not achieve its primary endpoint, which plaintiffs alleged triggered a 30% drop in its stock value.

Plaintiffs alleged that a prior statement by a New Link executive about historical data on pancreatic cancer survival rates was misleading with regard to the drug candidate’s success and led the company’s stock price to be artificially inflated.  Specifically, the executive stated that “all the major studies [show] pancreatic cancer survival rates . . . between 15 to 19, 20 months.”  Plaintiffs cited to alternative studies in an attempt to plead the statement was a false. As a threshold matter, the Court found the statement was a nonactionable opinion, because it was merely the executive’s interpretation of certain clinical studies.

In addition, plaintiffs contended that the executive made false statements about the results of a recent Johns Hopkins study on the topic of pancreatic cancer survival. The executive did not identify the study name, and plaintiffs argued that he was referencing a study with results contradictory to what he announced on the call. The Court was persuaded, however, that because the executive referenced a “recent” study that spanned back to the 1980s, it was implausible that he was referencing a study going back to only 1992, as plaintiffs claimed. Moreover, the Court found that plaintiffs’ contention did not support the falsity of the statement at issue, but was simply a criticism of the study’s methodology and thus that the allegations were insufficient to state a claim for securities fraud.

Plaintiffs also asserted that New Link excluded patients with short life expectancies from its prior Phase 2 trial of the cancer drug, which they claimed artificially boosted that trial’s result.  However, the court found that plaintiffs had taken issue not with New Link’s statements to investors, but rather the Ccompany’s methodology for determining when to exclude sicker patients.  New Link had posted its methodology on the FDA’s website and though plaintiffs would have preferred New Link use a different methodology to determine patient eligibility, that preference was not sufficient to adequately allege falsity.

The New Link decision underscores that while pharmaceutical executives must be carefully measured in their statements concerning available study data, courts will not hold them liable for statements that can be construed as ones constituting inactionable opinion or that otherwise cannot be construed as “false” within the meaning of the federal securities laws.  In addition, the case should underscore to the plaintiffs’ bar that while the federal securities laws apply to disclosures concerning clinical trials, they are not a means to challenge the methodology of those trials.