United States District Court, D. New Jersey
BING LI, Individually and On Behalf of All others Similarly Situated, Plaintiffs,
AETERNA ZENTARIS, INC., et al, Defendants.
MEMORANDUM AND ORDER
G. SHERIDAN, U.S.D.J.
matter comes before the Court on Lead Plaintiff Gregory
Vizirgianakis, Phong Thomas Dinh, and Jamshid
Khodavandi's (hereinafter, "Lead Plaintiffs")
motion for class certification pursuant Federal Rule of Civil
Procedure 23. (ECF No. 104). Defendants Aeterna Zentaris Inc.
("Aeterna"), David Dodd, Juergen Engel, Paul Blake,
and Nicholas Pelliccione (collectively,
"Defendants") oppose Lead Plaintiffs' motion on
three separate grounds: (1) Lead Plaintiffs face unique
defenses, which defeat the typicality requirement under
Federal Rule of Civil Procedure 23(a)(3); (2) Lead Plaintiffs
have failed to satisfy the adequacy requirement under Federal
Rule of Civil Procedure 23(a)(4), since the present matter
constitutes "lawyer driven litigation"; and (3)
Defendants have rebutted Lead Plaintiffs' presumption of
reliance. For the reasons set forth below, Lead
Plaintiffs' motion will be granted.
putative securities class action, Lead Plaintiffs allege that
Aeterna Zentaris Inc. and its executives violated Sections
10(b) and 20(a) of the Securities Exchange Act of 1934, 15
U.S.C. §§ 78j(b) and 78t(a), and Securities and
Exchange Commission Rule 10b-5, 17 C.F.R. § 240.10b-
5(b), by making false or misleading press releases. At the
heart of this case, Lead Plaintiffs claim that
Defendants' failure to disclose to investors that it
planned to omit the data results of two study patients from
their Phase 3 study constitutes a material misrepresentation
or omission contrary to securities law.
is a biopharmaceutical company that develops endocrinology
and oncology treatments. (Second Amended Complaint [SAC] at
¶ 2). Although Aeterna has several products at different
stages of development, it has yet to receive regulatory
approval for commercial sale of any of its product and,
according to the Complaint, has "virtually no operating
revenue." (Id.). At all relevant times, Aeterna
has been traded on the NASDAQ stock exchange.
2009, Aeterna acquired AEZS-130 from Ardana Bioscience for
$232, 000. (Id. at ¶¶ 3-4). AEZS-130,
marketed as "Macrilen, " "is a growth hormone
stimulator intended to diagnose whether a person has adult
growth hormone deficiency ('AGHD')."
(Id.). As part of its acquisition, Aeterna also
acquired Ardarna's partially completed Phase 3 study of
AEZS-130. (Id. at ¶ 4). In an attempt to obtain
regulatory approval of AEZS-130, Aeterna and the Federal Drug
Administration ("FDA") entered into a Special
Protocol Assessment ("SPA"), which set forth the
requirements that Aeterna had to satisfy to receive FDA
approval. (Id. at ¶¶ 4, 48-51). If Aeterna
failed to comply with the SPA, the FDA would reject
Aeterna's New Drug Application ("NDA").
(Id. at ¶ 7). The Phase 3 Study of AEZS-130
consisted of two parts; the first had been completed by
Ardarna, which Aeterna acquired, and the second part was to
be completed by Aeterna. (Id. ¶ 52).
Ardana's study consisted of "42 patients with
confirmed AGHD or multiple pituitary hormone deficiencies and
a low insulin-like growth factor . . .» and "[a]
control group of 10 subjects without AGHD."
(Id. at ¶ 53). During Ardana's study,
AEZS-130's effectiveness was to be compared with a drug
that was already on the market, GHRH. (Id. at ¶
54). However, by the time of Aeterna's acquisition, GHRH
had been removed from the market, leaving AEZS-130 with no
comparator drug. (Id. at ¶ 55). As such, the
SPA required Aeterna to enroll an additional 50 patients to
assess the accuracy and efficacy of the drug. (Mat ¶
56). As would later be discovered, Ardana's study group
of 42 patients with confirmed AGHD included two individuals
who did not have the degenerative condition; however, as
discussed below, including their data as part of
AEZS-130's final study would affect the overall
statistical performance of the drug.
during Aeterna's Phase 3 study, it made certain public
disclosures about its Phase 3 study and AEZS-130's
efficacy and compliance with the SPA. (Id. at
¶¶ 8, 64-94). Specifically, in an August 30, 2011
Press Release, former Aeterna President and CEO, Defendant
Juergen Engel claimed:
We are pleased with the results obtained and we therefore
expect to meet with the FDA and work out the content of a
submission for an NDA. We believe that AEZS-130 could become
the first approved oral test for the diagnosis of AGHD,
providing patients with a potentially safer, accurate and
more convenient alternative to the current injectable tests.
(ECF No. 49-3, "Aeterna Press Release (Aug. 30,
2011)"). In this press release, Aeterna stated that
"[t]he parameters of the study . . . were achieved as
agreed to with FDA under our Special Protocol Assessment
(SPA)" and that:
[T]he primary efficacy parameters show that the study
achieved both specificity and sensitivity at a level of 90%
or greater. In addition, 8 of the 10 newly enrolled AGHD
patients were correctly classified by a pre-specified peak GH
threshold level. The use of AEZS-130 was shown to be safe and
well tolerated overall throughout the completion of this
(Id.). In an unrelated article published that same
day, Bloomberg LLP reported that "Aeterna Zentaris rose
to [its] highest since July 27 intraday in U.S. trading after
Phase 3 results showed AEZS-130 reached primary endpoint
demonstrating >90% area-under-the-curve of Receiver
Operating Characteristic curve. Aeterna sees meeting with
U.S. FDA in coming months to prep for NDA of AEZS-130."
(SAC at ¶ 68). Bloomberg LLP also noted that "AEZS
up 10% after climbing as much as 14%." (Id.).
to Lead Plaintiffs, Aeterna inflated the effectiveness of
AEZS-130 in diagnosing AGHD:
In truth, Aeterna's Phase 3 trial, when analyzed pursuant
to the terms of the SPA actually failed to show that AEZS-130
was an effective diagnostic test for AGHd' In fact
AEZS-130 was only arguably "effective" when Aeterna
manipulated the data and threw out the results from two
patients from the Ardana portion of the Fnase 3 study, in
clear violation of the protocol Aeterna agreed to in the SPA.
When all of the study subjects were included in the planned
analysis pursuant to the terms of the SPA, AEZS-130 failed to
show efficacy. Yet, Aeterna consistently misrepresented to
investors that the planned analysis called for by the SPA
(Id. at ¶¶ 10-11).
November 2011 conference call, Defendant Engel claimed that
Aeterna "received confirmation of a pre-NDA meeting with
the FDA before year-end, which we expect, depending on the
outcome of this meeting, to be followed by the filing of an
NDA for the registration of AEZS-130 in the United States in
the first half of 2012." (Id. at ¶ 70).
statement to investors in March 2012, Defendant Engel claimed
that Aeterna is "in active discussion with the FDA and
expect[s] to meet with them in the first half of this year.
The goal of the meeting will be to establish the overall
content and format of our NDA for AEZS-130."
(Id. at ¶ 75). According to the Complaint
"[i]n or around May 2012, " Aeterna met with the
FDA in advance of filing the NDA for AEZA-130. (Id.
at ¶ 80). At this meeting, Aeterna purportedly sought to
have the data from the two patients, who did not have
confirmed AGHD, excluded from their study, since that data
distorted the overall results of the study. (Id. at
¶ 82). The FDA disagreed. (Id.).
Aeterna issued another press release detailing the results of
the Phase 3 drug trial on June 26, 2012. (Id. at
¶ 83). In this press release, Aeterna claimed, "the
drug is safe and effective in diagnosing adult growth hormone
deficiency (AGHD)." (Id. at ¶ 84; ECF No.
49-4, "Aeterna Press Release (June 26, 2012)").
That same day, Bloomberg LLP reported, "Aeterna Zentaris
up as much as 42%, most intraday since June 2009, after phase
3 data shows AEZS-130 is safe/effective in diagnosing adult
growth hormone deficiency." (Id. at ¶ 85).
November 5, 2013, Aeterna submitted the NDA for AEZS-130,
without including the data sets of the two patients who did
not have AGHD. (Id. ¶¶ 94-95). According
to the Complaint, while Aeterna continued to discuss publicly
its expectations that the NDA would be well-received by the
FDA, it failed to disclose the fact that it excluded the
results of two patients, which violated the SPA.
(Id. at ¶ 91).
exactly a year later, on November 6, 2014, Aeterna announced
that the FDA denied its NDA, since it did not meet the
requirements set forth in the SPA. (Id. at
¶¶ 18, 95-96). In a press release published that
same day, Aeterna stated:
Aeterna Zentaris ... today announced that the Company has
received a Complete Response Letter ("CRL") from
the [FDA] for its [NDA] for Macrilen™ (macimorehn), a
novel orally-active ghrelin agonist, for use in evaluating
adult growth hormone deficiency ("AGHD"). Based on
its review, the FDA has determined that the NDA cannot be
approved in its present form.
The CRL mentions that the planned analysis of the
Company's pivotal trial did not meet its stated primary
efficacy objective as agreed to in the Special Protocol
Assessment agreement letter between the Company and the FDA.
The CRL further mentioned issues related to the lack of
complete verifiable source data for determining whether
patients were accurately diagnosed with AGHD The FDA
concluded that, "in light of the failed primary analysis
and data deficiencies noted the clinical trial does not by
itself support the indication." To address the
deficiencies identified above, the CRL states that the
Company will need to demonstrate the efficacy of macimorelin
as a diagnostic test for growth hormone deficiency m a new,
confirmatory clinical study.
(Id. at ¶ 95) (emphasis omitted). According to
the Complaint, this announcement "caused Aeterna's
stock to open at $0.63 per share, a decline of more than 50%
from the previous day's closing price of $ 1.29 per
share." (Id. at ¶¶ 19, 96). The
following day, Aeterna held a conference call with securities
analysts to discuss the FDA's denial of its NDA.
(Id. at ¶ 97). During this call, David Dodd, a
former Aeterna executive, explained that there was not an
apparent "meeting of minds" between Aeterna and the
FDA, with regards to the Phase 3 study. (Id. at
¶ 98). Dodd explained, "[i]n general, there is a
difference with our view on the most appropriate population
for primary analysis of this study." (Id.).
Plaintiffs presently allege that Defendants committed
securities fraud since Aeterna consistently publicized
favorable reports of the status of AEZS-130's Phase 3
study, but failed to disclose that it had excluded the data
sets of the two patients, which was a critical violation of
the SPA. As such, Lead Plaintiffs contend this constitutes a
material omission made with scienter that violates securities
laws. Lead Plaintiffs now seek certification of a class of
individuals who purchased Aeterna securities from August 30,
2011 through November 6, 2014, who did not sell their
securities prior to November 6, 2014.