Hou Liu v. Intercept Pharm., Inc., 2020 WL 1489831 (S.D.N.Y. Mar. 26, 2020)
On March 26, 2020, Judge Lewis A. Kaplan of the Southern District of New York granted a motion to dismiss an action against Intercept Pharmaceuticals, Inc. and certain of its executives regarding twenty-one statements made about safety, dosing, and effects of Ocaliva, a drug approved to treat patients with primary biliary cholangitis (“PBC”), a rare liver disease. The complaint alleged that Intercept’s stock dropped after it issued a Dear Healthcare Provider Letter (the “HCP Letter”) and again after the FDA issued a drug safety communication and a corresponding safety alert on Ocaliva.
Plaintiffs’ allegations focused on thirty reports of adverse events (“SAEs”) that occurred over a one year period in twenty-seven users of Ocaliva—out of approximately 3,000—as well as the HCP Letter, which warned providers against prescribing Ocalvia to late-stage PBC patients with a dose higher than recommended. Specifically, plaintiffs alleged that Intercept’s statements concerning Ocaliva’s safety and patients’ tolerance of the drug were misleading because Intercept allegedly did not disclose that SAEs had been reported. In addition, plaintiffs alleged that Intercept’s statements regarding dosage compliance were false and misleading because the statements allegedly omitted that some patients post-marketing confirmatory trials were prescribed an incorrect dose of Ocaliva, allegedly due to an enrollment form’s limited prescription options. Finally, Plaintiffs claimed that the HCP Letter was false and misleading because it purportedly did not disclose SAEs in patients who were administered the correct dosage of Ocaliva. The Court evaluated these allegations in turn.
First, the Court rejected plaintiffs’ assertion that Intercept’s alleged omission of the reported SAEs rendered its statements about the safety and tolerability of Ocaliva false or misleading. The Court found that plaintiffs failed to establish the materiality of the SAEs and thus failed to adequately allege that a reasonable investor would have viewed the SAEs as significantly altering the “total mix” of information available. Citing the U.S. Supreme Court’s Matrixx Initiatives, Inc. v. Siracusano decision, the Court noted that the “mere existence” of adverse events is not sufficient to establish materiality; rather, “something more” is needed to link the SAEs to the drug. And, according to the Court, twenty-seven out of 3,000 Ocaliva users experiencing an SAE during a one-year class period could not support a statistically significant allegation of causation.
The Court also found that Plaintiffs’ allegations failed to establish a link between the SAEs and Ocaliva. For example, the Court held that the FDA’s instruction to conduct a Phase 4 clinical trial to provide more data on the drug’s safety and efficacy was not indicative of a heightened concern about Ocaliva. Indeed, as the Court noted, Phase 4 clinical trials are required for any drug approved under the FDA’s Accelerated Approval Program, such as Ocaliva. And the Court found that plaintiffs similarly failed to plead a link between the SAEs and Ocaliva by comparing the smaller number of deaths in the Phase 3 clinical trial to the slightly larger number of deaths in the post-trial period. The Court concluded that the mere existence of adverse events in two groups “says nothing in and of itself about whether the drug is causing the adverse events” and thus does not satisfy the materiality standard.
Second, the Court rejected plaintiffs’ argument that Intercept’s statements about dosing compliance were misleading. During the class period, Intercept’s enrollment form allegedly provided only two dosage options, neither of which reflected the suggested dose for patients with late-stage PBC. Although the form allegedly did not contain other dosing options, the Court found that the enrollment form did not “force” providers to prescribe a higher than recommended drug dose. Further, the Court held that plaintiffs did not allege any facts to demonstrate a link between known instances of alleged misdosing and the company’s enrollment form.
Plaintiffs’ allegation that Intercept’s statements regarding general dosage compliance were false and misleading in light of twelve reports of known instances of misdosing fared no better. The Court noted that Intercept’s statements regarding dosage compliance were “couched in general terms” and thus Intercept could not have misled investors when it said it was “very much focused on  compliance and persistency.”
Finally, the Court held that plaintiffs failed to allege that the HCP Letter resulted from anything other than reports of SAEs involving late-stage patients who were administered an incorrect dose. The Court found that the fact that Intercept received SAE reports indicating that correctly dosed patients suffered adverse events was not enough to adequately allege the HCP Letter resulted from those reports.
Judge Kaplan’s decision demonstrates that courts will generally not hold pharmaceutical companies liable for the failure to disclose SAEs unless there is a plausible causal link between the SAEs and the drug at issue. However, given the fact-intensive nature of the inquiry, companies should be especially sensitive to potentially statistically significant SAEs or other factors that could plausibly link the SAEs to a drug or that might otherwise require disclosure. And the case is another reminder that while disclosures concerning clinical drug trials—and particularly statements about a drug’s safety—must be carefully nuanced, courts will not hesitate to dismiss a securities disclosure complaint that fails to satisfy the applicable pleading standards.