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Li v. Aeterna Zentaris, Inc.

United States District Court, D. New Jersey

February 28, 2018

BING LI, Individually and On Behalf of All others Similarly Situated, Plaintiffs,
v.
AETERNA ZENTARIS, INC., et al, Defendants.

          MEMORANDUM AND ORDER

          PETER G. SHERIDAN, U.S.D.J.

         This 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.

         Background

         In this 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.

         Aeterna 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.

         In 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.

         Nevertheless, 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 trial.

(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.).

         According 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 proved

(Id. at ¶¶ 10-11).

         In a 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).

         In a 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.).

         Nevertheless, 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).

         On 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).

         Almost 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.).

         Lead 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.

         Legal ...


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