Recent legal proceedings against executives of publicly listed biotech companies serve as a stark reminder of the potential pitfalls in reporting clinical trial results. These cases, one involving RA Capital Healthcare Fund v ChemoCentryx Inc & Thomas Schall and the other US v Nader Pourhassan & anor, highlight the critical importance of accuracy and transparency when communicating with investors and the public about drug development progress.
RA Capital v. ChemoCentryx: Avacopan and ANCA-Associated Vasculitis
RA Capital, a Boston-based hedge fund, is seeking damages from ChemoCentryx and its CEO, Thomas Schall, alleging breaches of US securities laws, fraud, and negligent misrepresentation. The claim stems from statements made regarding avacopan (Tavneos™), a complement 5a receptor inhibitor developed by ChemoCentryx for the treatment of anti-neutrophil cytoplasmic antibody (ANCA)-associated vasculitis. This rare autoimmune condition affects small blood vessels.
Following a press release and investor call about the topline results of a pivotal study, RA Capital invested in a $310 million secondary public offering of ChemoCentryx common stock at $58 per share. ChemoCentryx's CEO claimed the study was an "overwhelming success," achieving both primary and secondary endpoints, and that avacopan could safely replace steroids as the standard of care. The stock surged 281% following the announcement.
However, RA Capital alleges that the FDA had already informed ChemoCentryx that the study design, a non-inferiority study, would not demonstrate avacopan's efficacy or suitability to replace steroids. The FDA suggested changes, including shifting to a superiority study, but ChemoCentryx only implemented a few. When the FDA published its briefing pack ahead of the Advisory Committee meeting, ChemoCentryx's share price plummeted by 45% and then by a further 62% on the day of the meeting.
The FDA ultimately granted avacopan a limited label, approving it only as an adjunctive treatment for severe ANCA-associated vasculitis, to be used in combination with steroids, not as a replacement. ChemoCentryx is also facing a class action lawsuit for securities fraud related to the same events.
US v. Nader Pourhassan: CytoDyn and Leronlimab
The second case involves Nader Pourhassan, the former President and CEO of CytoDyn Inc., who is charged with conspiracy, wire fraud, and securities fraud. The indictment alleges that Pourhassan made materially false and misleading representations about the timeline for the Biologics License Application (BLA) submission to the FDA for leronlimab, a monoclonal antibody intended for HIV treatment.
After repeated delays in the BLA submission, Pourhassan allegedly directed CytoDyn's CRO to submit an incomplete BLA so he could announce its submission to the market. He then allegedly issued a press release stating that a "complete" BLA had been submitted, knowing it was incomplete and would be rejected by the FDA. Pourhassan then allegedly sold millions of dollars worth of CytoDyn stock before the FDA's rejection became public.
If convicted, Pourhassan and the CEO of Cytodyn’s CRO face a maximum penalty of 20 years in prison on each wire fraud and securities fraud charge, and 5 years imprisonment on the conspiracy count. Trial is scheduled for November 4, 2024.
Implications for Biotech Companies
These cases serve as a critical reminder for biotech companies to exercise extreme caution when reporting clinical trial results. Overly optimistic or misleading statements can have severe legal and financial consequences, particularly when they influence investment decisions. The need for transparency and accuracy in communicating with the market is paramount, especially concerning interactions with regulatory agencies like the FDA.
