A district court has dismissed a class action lawsuit filed by investors in Pozen Inc. (Pozen), a pharmaceutical company, in which they alleged that Pozen, its CEO and several other officers violated Sections 10(b) and 20(a) of the Exchange Act.
Plaintiffs alleged that defendants made false or misleading statements concerning the Food and Drug Administration’s (FDA’s) anticipated approval of Pozen’s drug Trexima. Specifically, plaintiffs alleged that defendants misled investors by stating that the FDA had expressed concern about Trexima’s “safety,” when in fact it had expressed concern about the drug’s “genotoxicity”—i.e., its propensity to cause cancer by altering DNA, and that defendants did not have a reasonable basis for their statement that Trexima could be FDA-approved by August 2007 considering that the drug had tested positive for genotoxicity in two separate studies. Plaintiffs alleged that Pozen CEO’s sale of stock during the Class Period created an inference of scienter.
The Court granted the motion to dismiss. First, the Court held that defendants’ use of the word “safety” to describe FDA’s concerns about Trexima was not misleading because plaintiffs failed to show why a “genotoxicity” concern is more serious than any other “safety” concern. Second, plaintiffs failed to show why the positive results of two Trexima genotoxicity studies rendered the possibility of FDA’s approval of Trexima highly unlikely. As noted by the Court, the relevant FDA guidelines permitted approval despite the positive results of the two studies, and FDA did in fact ultimately approve Trexima in 2008. Moreover, defendants’ forward-looking statements about the anticipated launch of Trexima in August 2007 were protected by the Private Securities Litigation Reform Act’s Safe Harbor provision because they were accompanied by “meaningful, cautionary language,” and plaintiffs failed to show that defendants had actual knowledge that such statements were false when made.Finally, the Court held that defendant CEO’s sale of his Pozen stock during the Class Period did not give rise to an inference of scienter where he sold only 6.7% of the stock, his sales were made pursuant to a Rule 10b5-1 plan, and the two other individual defendants did not sell any stock during the same period. (Johnson v. Pozen Inc., 2009 WL 426235 (M.D.N.C. Feb. 19, 2009))