On June 14, 2017, Judge Ricardo S. Martinez of the United States District Court for the Western District of Washington denied a motion to dismiss a putative securities fraud class action against Juno Therapeutics, Inc. (“Juno” or the “Company”), a biopharmaceutical corporation, and certain of its senior officers. In re Juno Therapeutics, Inc., No. 16 Civ. 1069 (W.D. Wash. June 14, 2017). In their complaint, plaintiffs alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by repeatedly touting positive results from the first phase of a clinical trial for a new cancer treatment, while failing to disclose certain negative outcomes associated with the second phase of a clinical trial. In denying the motion to dismiss, the Court ruled that plaintiffs had adequately alleged that the omitted information was material to investors and that the defendants were deliberately reckless in failing to disclose it.
Plaintiffs’ claims relate to Juno’s development of an immunotherapy drug known as JCAR015. Plaintiffs alleged that, in order to try to bring JCAR015 to the market before its competitors obtained approval for similar treatments, defendants recklessly misrepresented the safety and efficacy of JCAR015 by repeatedly citing positive results from an ongoing Phase I trial for JCAR015, while failing to disclose that patients were dying from the toxic side effects of JCAR015 in a Phase II trial. In moving to dismiss, defendants argued that disclosure of the deaths would not have altered the total mix of information available to investors because Juno had already informed the market that severe toxicity was one of the side effects of JCAR015.
In denying defendants’ motion, the Court ruled that, given Juno’s past statements touting the Phase I results, defendants had a duty to disclose the deaths during Phase II of the clinical trial. The Court noted that the materiality of the alleged misstatements was “an intensely fact-intensive inquiry” and that “[e]ven if the risk of death was known to investors, the disclosure of an actual death [associated with that risk] could easily be viewable by the reasonable investor as having significantly altered the ‘total mix’ of information.”
The Court also found that plaintiffs had pleaded with particularity facts that give rise to a strong inference of scienter. According to the Court, the plaintiffs adequately pleaded that, based on Juno’s internal investigation and information known in the industry, defendants knew or recklessly disregarded that severe toxicity and the resulting deaths were associated with JCAR015 rather than other factors associated with the clinical trial. The Court also found that plaintiffs had pleaded “compelling” motive allegations—specifically, that defendants withheld material information because disclosing the information would have slowed the approval process and undermined its ability to beat competitors to the market.
This case highlights the challenges that companies in the health sciences industry face at the motion to dismiss stage when a plaintiff alleges that the company should have released certain negative information about a clinical trial earlier.
Click here to view In re Juno Therapeutics Inc.