Investors frequently bring securities class actions against drug development companies, typically asserting that the company failed to adequately disclose information about its clinical trials. In Lehmann v OHR Pharmaceutical, Inc., 2019 WL 452765 (S.D.N.Y. Sept. 20, 2019), the company was developing a drug for the treatment of a degenerative eye disease called Wet Age-Related Macular Degeneration (“Wet AMD”). The plaintiffs claimed that OHR, in disclosing the results of its Phase II clinical trial, failed to disclose that its control arm results were inconsistent with previous trials (which allegedly made the Phase II trial appear more successful than it really was). Ultimately, the company announced disappointing results for its subsequent Phase III clinical trial and the stock price declined 81%.
The court found that OHR’s disclosures were accurate and the company was not required to provide more context around its Phase II trial results. Indeed, the court questioned the entire premise of the case, noting that “[o]n Plaintiffs’ account, it is unclear whether the Company should have embarked on the phase III study after the success of the phase II study – should the Company have ignored what Plaintiffs say were aberrant results, or should it have investigated further?” The court came down firmly on the side of further investigation, noting “that the law does not abide attempts at using the judiciary to stifle the risk-taking that undergirds scientific achievement and human progress.”
Holding: Motion to dismiss granted (also based on the plaintiffs’ failure to adequately plead scienter).
Quote of note: “This Court will not adopt a rule that discourages free scientific inquiry in the name of shielding investors from the risks of failure. Science is risky. Science advances through those willing to take those risks and break with consensus. With science suffering from a replication crisis, this Court is happy to report that the law does not abide attempts to use the judiciary to stifle the risk-taking that undergirds scientific advancement and human progress. The answer to bad science is more science, not this Court’s acting as the Southern District for the Inquisition.”
The 10b-5 Daily 