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In re PTC Therapeutics, Inc. Securities Litigation

United States District Court, D. New Jersey

August 28, 2017

IN RE PTC THERAPEUTICS, INC. SECURITIES LITIGATION

          OPINION

          KEVIN MCNULTY, UNITED STATES DISTRICT JUDGE.

         The plaintiffs brought this securities class action against PTC Therapeutics, its CEO and founder, Dr. Stuart Peltz, and its CFO, Shane Kovacs (collectively, "defendants" or "PTC"), after the FDA found PTC's New Drug Application ("NDA") for Translarna facially inadequate for review. Plaintiffs, who purchased PTC stock sometime between November 6, 2014 and February 23, 2016, allege that PTC misrepresented or omitted facts about the efficacy of Translarna while knowing all along that the clinical data failed to meet FDA approval standards. As a result, plaintiffs claim, they suffered substantial financial losses when PTC's share price plummeted nearly 60% following the public announcement of the FDA's refusal to file its NDA. Defendants have moved to dismiss the complaint, claiming that plaintiffs fail to allege any actionable misstatement or omission made with intent to defraud or deceive. The motion to dismiss will be granted in part and denied in part.

         I. FACTUAL BACKGROUND[1]

         A. PTC, Translarna, and DMD

         Founded in 1998 by Dr. Peltz, PTC develops drugs that treat rare and ultra-rare genetic diseases and disorders. In 2003, PTC began developing ataluren (brand name Translarna), which it designed to treat a genetic mutation called a "nonsense mutation." Nonsense mutations can cause a variety of serious genetic diseases, including a particularly rare and devastating disease known as Duchene muscular dystrophy ("DMD"), [2] With a process called "post-transcriptional control, " PTC hoped that that Translarna would slow the disease's progress by allowing cells to "read-through" the nonsense mutation and produce functional proteins. (AC ¶¶ 2, 30, 34, 35, 38-39)

         Translarna was the first product for which PTC sought regulatory approval in the United States and Europe. Because PTC's other drugs were years away from being marketed, Translarna was PTC's only opportunity to begin generating revenue during the class period. The approval of Translarna, if obtained, would reflect favorably on theory of post-transcriptional control, which might assist PTC in marketing and developing other drugs that treat disorders caused by nonsense mutations. Translarna accounted for 100% of PTC's revenues in February 2016. (AC ¶¶ 34-37, 184)

         B. The Drug Approval Process: An Overview

         A company, such as PTC, which wants to market and sell a new drug, such as Translarna, must submit a new drug application ("NDA") to the FDA. To approve the drug, the FDA must be convinced that there is "substantial evidence" that the drug is safe and effective at treating the condition it purports to treat. The developer usually does this by conducting a series of clinical trials. The first, a Phase 1 trial, evaluates the drug's safety and dosage tolerance. The second, a Phase 2 trial, evaluates safety, dosage, and efficacy. Phase 2 is sometimes broken up into two sub-phases, 2a and 2b. As a rule of thumb, Phase 2b trials are more intensive than Phase 2a trials; they evaluate a drug's efficacy in a larger patient population or over a longer period of time than a 2a trial, and as against a placebo. A phase 3 trial, usually the final trial, also evaluates safety and efficacy, but in an even larger patient population. To secure an NDA, the FDA typically requires two successful efficacy trials, ideally a phase 2b and a phase 3 trial. (Id. ¶¶ 40-49)

         Once an NDA is submitted, the FDA conducts a preliminary review of the application. If it is incomplete, improperly constructed, or otherwise facially inadequate, the FDA will issue a RTF-Refuse to File-letter. According to the FDA:

A RTF is based on omission of clearly necessary information ... or omissions or inadequacies so severe as to render the application incomplete on its face and where the omissions or inadequacies are so obvious, at least once identified, and not a matter of interpretation or judgment about the meaning of data submitted."

(AC ¶¶ 50-52)

         RTFs, plaintiffs say, are relatively uncommon. From January 2010 to February 2016, the FDA issued 16 RTFs out of more than 200 NDAs for new molecular entities (not including the two Translarna RTFs).[3] (Id. ¶¶ 53-54)

         Because DMD is so rare and so serious, Translarna benefited from two programs during the development and review process. From the FDA's Orphan Products Clinical Trial Grants Program, PTC received a grant to help fund Translarna's clinical trials. The FDA also designated Translarna as a "fast track" drug, which allowed PTC to submit Translarna's NDA on a rolling basis, instead of waiting until after all the trials had been completed. The FDA encourages fast-track drug developers to communicate with it "early" and "frequently]" during the development and review process. (Id. ¶¶ 40-43)

         C. Translarna's Development and Review

         1. The 2011 2b Trial

         By May 2007, PTC had completed the Phase 1 and Phase 2a trials for Translarna. Patients began enrolling in the 2b trial-Translarna's first major efficacy trial-in February 2008. 174 DMD patients between the ages of 5 and 20 enrolled. (Id. ¶ 55)

         The goal of the 48-week 2b trial was to determine whether Translarna-treated patients experienced a slower decline in their ability to use their muscles. To test that hypothesis, one group of patients was given Translarna while a second group was given a placebo. At the beginning (week one) and end (week 48) of the trial, the researchers measured the distance that each patient could walk in six minutes. The difference between those two figures was then calculated, and averaged across the relevant group. If the average change in distance walked by Translarna-takers exceeded that of placebo-takers by more than 30 meters, then PTC could conclude that Translarna had a clinically meaningful effect on DMD patients. To achieve statistical significance, the results would need a p-value of 0.05 or less.[4] (AC ¶¶ 56-59)

         In December 2009, die 2b trial wrapped up. On March 3, 2011, PTC released some preliminary results. Translarna failed to meet the pre-specified endpoints for effectiveness and statistical significance. At 29.7 meters, the mean change in 6-minute walking distance fell just short of 30-meter threshold necessary to demonstrate clinical effectiveness, and the p-value for the results, 0.149, far exceeded the .05 limit of statistical significance. PTC theorized that the 2b trial failed to reach its endpoints because the study included "younger patients and patients with higher baseline 6-minute walk distances [that] are less likely to exhibit measurable declines in 6-minute walk distance over 48 weeks." The problem, in other words, was that 2b trial included patients that were not yet sick enough to report a benefit-as PTC had defined it-from Translarna. PTC therefore removed the younger, more able patients from the dataset, and performed a retrospective data analysis on the older, "decline-phase" patients. These so-called "corrected" results were better, and met the p-test of statistical significance. (AC ¶¶ 60-63)

         In March 2011, PTC filed an NDA (the "2011 NDA") for Translarna based on the corrected findings. Because "Phase 2b clinical trial contained in the NDA did not achieve statistical significance in the pre-specified analysis, " the FDA refused to file the NDA (the "2011 RTF"). PTC appealed in December 2011, and the FDA affirmed its decision in February 2012. (Id. ¶¶ 64-66)

         In August 2014, the European Medicines Agency ("EMA") authorized PTC to market Translarna in Germany.[5] Although the EMA initially had "major objections" because it believed there was "insufficient evidence of efficacy based on [PTC]'s single Phase 2b clinical trial, " it was eventually convinced by the post-hoc analysis of the data described above. The EMA authorization was "conditioned upon the successful completion of ACT DMD and subject to annual review and renewal by the EMA." (Def. Ex. 6, pp. 3, 4, 14; Def Ex. 10 pp. 3-4, 6)

         2. The 2015 ACT DMD (Phase 3) Trial

         Following the 2011 RTF, PTC pushed onward with the development and design for the phase 3 trial, also known as the Ataluren Confirmatory Trial in DMD, or "ACT DMD." The goal of the ACT DMD trial would be to "confirm" the positive results from the older, decline-phase patients that seemed to benefit most from Translarna in the 2b trial. Enrollment in the ACT DMD trial was therefore restricted DMD patients from ages 7 to 16 who could still walk. (AC ¶¶ 72-74)

         As far as structure and design, the ACT DMD study was essentially the same as the 2b study: a 48-week, double blind trial measuring six minute walking distance, a 30-meter clinical benefit endpoint, a .05 or less statistical significance threshold, and so on. After the study concluded, PTC planned to perform a "meta-analysis" combining all of the ACT DMD data with the favorable 2b study decline-phase data. (AC ¶¶ 71-77)

         PTC would also take a closer look at two subgroups that it had pre-specified for statistical analysis. The first was a subgroup of patients who could not walk more than 350 meters at the beginning of the trial. PTC considered this subgroup "key" because "350 meters represents a transition point for patients towards a more rapid decline in walking ability as supported by analysis from our Phase 2b study." These children and teenagers, in other words, were the decline-phase patients around which PTC designed the entire ACT DMD study. The second pre-specified "key" subgroup consisted of patients who had a baseline that fell somewhere between 300-400 meters. This second group was specified "based on an increasing understanding of the sensitivity limitations of the six minute walk test as an endpoint in 48-week studies." That PTC had pre-specified either subgroup was not known publicly until after the ACT DMD results were announced. (AC ¶¶ 73-74, 77-82, 87)

         During the development of ACT DMD trial, PTC told investors that its design reflected what it had learned from the 2b trial and incorporated the FDA's feedback, which made PTC confident that the study would succeed. Thus, for example, in an August 2013 earnings call, Peltz stated that "[t]he design of the trial reflects the knowledge gained from our earlier study as well as the views expressed in discussions with the FDA. ..." A couple years later, in January 2015, Peltz stated at healthcare conference that PTC "used the learnings from our previous study to really wring out the risk in the current study." A few months after that, in May 2015, Kovacs, PTC's CFO, told attendees at a healthcare conference that PTC had "refined" the ACT DMD study "versus the prior Phase 2 study" and "had a high degree of confidence in the likelihood of a positive outcome in this study later this year." [Id. ¶¶ 67-69, 114, 124)[6]

         On October 15, 2015, FTC announced the ACT DMD results. They were worse than the 2b trial results. For the overall population of patients (sometimes referred as the overall "intent-to-treat, " or "ITT" population), the mean change from baseline in the 6-minute walk test fell significantly below the 30-meter efficacy goal (15 meters) and well above the of .05 statistical significance threshold (p=0.213). But there was a bright spot: the 300-400 meter subgroup did report promising, statistically significant results. (47 meters, p=0.007). Corroborating those favorable results, PTC claimed, was the "pre-specified meta-analysis of their Phase 2b and ACT DMD results, " although that analysis did not demonstrate meaningful clinical benefit. PTC did not disclose the <350 meter subgroup results.[7] (AC ¶¶ 81-84; Def. Ex. 13 p. 1-2)

         In a Q&A conference call announcing the ACT DMD results, PTC emphasized the 300-400 meter subgroup and the pre-specified meta-analysis. PTC did not state that nearly 60% of the ACT DMD patients reported no clinically meaningful or statistically significant benefit from Translarna. The "totality of the data, " PTC claimed, "confirmed" the clinical benefit of Translarna. As Peltz explained:

The totality of the data for Translarna demonstrates clinical benefit across primary and secondary endpoints. We have pre-specified the key subgroup for analysis and the metaanalysis, both of which show Translarna had a clinically meaningful benefit for DMD patients. The results from ACT DMD trial showed consistent evidence of the clinical benefit of Translarna for individuals with nonsense mutation Duchenne muscular dystrophy, and its impact on the course of the disorder, and the quality of life for those boys and young men.

(AC ¶¶ 88-90, 128)

         On the same call, Peltz implied that pre-specified meta-analysis combining the ACT DMD data with the decline-phase 2b trial data had the FDA's blessing:

Q: Hi, thanks for taking the question. So have you had discussions with the FDA on the degree of consideration they might give to pre-specified meta-analysis? And if so, can you provide any more information on that?
A. Sure, yes. Thanks for that question. The pre-specified meta-analysis was in our statistical plan, which we had discussions with with [sic] the FDA. This was in part, part of the pre-specified plan. So they were well aware that this was agreed upon, or what was in our plan. So, yes, that's in a sense, standard procedure.

         More generally, Peltz told analysts that PTC's "approach was consistent with the recent draft guidance for Duchenne muscular dystrophy, but to pre-specify subgroups were a treatment effect is more likely to be seen, for the chosen primary and secondary endpoints." (AC ¶ 129; Def. Ex 23 p. 4)

         About a month later, in a November 9, 2015, 8-K, 10-Q, and during a quarterly earnings call, PTC continued to represent that the "totality" of the data "confirmed" the clinical benefit of Translarna. From the 8-K:

ACT DMD results confirm clinical benefit of Translarna in nonsense mutation Duchenne muscular dystrophy. . . . The totality of the clinical data from two large, placebo-controlled clinical trials across 400 patients demonstrates Translarna's ability to slow disease progression.

(Id. ¶ 136)

         From the 10-Q:

[W]e believe that the results of the ACT DMD and the totality of clinical data across our two large, randomized placebo-controlled trials (ACT DMD study and our prior Phase 2b study, Study 007), provide substantial evidence of the effectiveness of Translarna and demonstrate a meaningful benefit of Translarna for the treatment of nmDMD.

(Id. ¶ 137)

         And from the conference call (Peltz is speaking):

[T]he goal is to show efficacy with given endpoints in the limited window of a 48 week clinical study. We see this in ACT DMD . . . the totality of clinical data confirmed Translarna's ability to slow disease progression for patients with DMD.

(Id. ¶ 138)

         A week-and-a-half after that, on November 18, Kovacs spoke at a healthcare conference. He too implied that the "totality" and "consistency" of the data favored FDA approval:

And the big picture about our data is and what will be part of our argument to both the regulatory authorities in the U.S. and Europe is that the consistency of the results now seen across two of the largest placebo-controlled Phase 3 studies ever done in the disease, the totality of the data support the clinical benefit and certainly the risk-benefit profile of the drug in favor of an approval and getting something to these kids.

(AC ¶ 143)

         In December 2015, Kovacs spoke at another healthcare conference. He told attendees that PTC's "intention today is for filing for full approval on the basis of two large well-controlled studies that all point to safety and efficacy for a risk-benefit profile in favor of the drug." [Id. ¶147)

         3. The 2016 RTF

         In January 2016, PTC announced that it had submitted a second NDA (the "2016 NDA") for Translarna. This NDA was for full, not conditional, approval; that is, PTC sought approval of Translarna for the treatment of all DMD patients, not just for patients of a certain age or at a particular stage of the disease. The 2016 NDA relied on (1) the 300-400 meter subgroup findings and (2) the meta-analysis combining the ACT DMD data with the decline-phase 2b trial data. PTC also submitted (3) a meta-analysis for all patients (i.e., everyone in the ACT DMD ITT and "corrected" 2b patient populations) who had a baseline 6 minute walking distance of 300 to 400 meters. That analysis was not specified in advance of the either the ACT DMD or 2b trials; it was a post hoc analysis. It also accounted for less than 42% of all patients across both trials.[8] After receiving the ACT DMD results but before submitting the 2016 NDA, PTC did not meet with the FDA. (Id. ¶¶ 55, 92-93, 105, Def. Ex. 24)

         While the FDA reviewed Translarna's NDA application, PTC continued to state or imply that substantial evidence supported approval. At yet another healthcare conference, this one held on January 13, 2016, Peltz stated:

So you see in the two large studies where we used the six-minute walk test as the primary endpoint, we saw a benefit in the primary endpoint as well as the secondary endpoint. And in prespecified subgroups, we saw more robust effects being observed, both the primary and second endpoints. So consistent data in two independent studies.
One of the things we've noticed they [presumably the FDA] asked for was sensitivity analysis, and that while you have prespecified subgroups, if you go beyond those, does the data still show clinically meaningful differences? And it does both in the primary and secondary endpoints.

(AC ¶ 150)

         Discussing one of the meta-analyses, Peltz added:

In the meta-analysis, where you combine the results, you see both in the six-minute walk distance as well as the time function tests, you see clinically meaningful and statistically significant improvements with Translarna over placebo. . . .
And really it's consistent with totality of the data, demonstrating that this drug was efficacious. So I think we've checked that box.

(AC ¶ 151)

         On February 22, 2016, the FDA issued Translarna a second RTF (the "2016 RTF"). Like the 2011 RTF, it is not publicly available. PTC relayed to investors the gist of it: The 2016 NDA was "not sufficiently complete to permit substantive review." "There were really two bases . . . that were outlined in the letter[, ]" PTC said: "the first of which was that both the Phase 2b and Phase 3 studies had failed and therefore did not demonstrate substantial evidence of effectiveness and secondly that the application did not sufficiently describe the abuse potential of the drug." (Id. ¶¶ 96, 157)

         After the announcement, the market turned on Translarna. From February 22 to February 23, 2016, PTC's share price fell from $28.26 to $10.84-a 61.6% drop. (Id. ¶¶ 158)

         More details about the FDA's reasoning trickled out a week later. In a February 29, 2015 press release, PTC stated that the FDA viewed "certain of the company's adjustments to the ACT DMD study as post hoc and therefore not supportive of effectiveness." On a conference call the same day, an analyst asked Peltz to reconcile the FDA's position with PTC's previous representations "that the [ACT DMD] statistics plan was submitted to the FDA earlier in 2015." Peltz responded that PTC indeed had submitted the plan "in the spring of 2015." While the "FDA commented on our statistical analysis plan, " he explained, they "had no comments on our subgroups." He continued:

We submitted the final statistical analysis plan to the FDA before unblinding the ACT DMD study. However in the RTF letter the FDA characterized that PTC proposed a post hoc adjustment of ACT DMD that eliminates data from a majority of enrolled patients. . . .
We believe the FDA's perspective in the RTF letter may be that although we've pre-specified the subgroup, relying on the subgroup as the main analysis is considered as a post hoc adjustment and well be talking to them further on this point.

(AC ¶¶ 98-103)

         In August 2016, FTC appealed the RTF, which was denied in November 2016.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;D. ...


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