Securities Regulation Daily Market was misled about why patients died during drug trial
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Thursday, June 15, 2017

Market was misled about why patients died during drug trial

By Rodney F. Tonkovic, J.D.

A complaint adequately alleged that that a company knew or recklessly disregarded that deaths during a drug trial were linked to its cancer treatment. The complaint alleged that the company touted the treatment's efficacy after a patient died, and after more deaths were disclosed, blamed them on another drug that was used during the trial. The district court concluded that there were too many questions of fact to dismiss the case as a matter of law and that the complaint sufficiently alleged deliberated recklessness and possible motives to make the alleged misrepresentations and omissions (In re Juno Therapeutics, Inc., June 14, 2017, Martinez, R.).

Juno Therapeutics is a biopharmaceutical company that, as relevant in this case, is developing a treatment for a type of blood cancer, JCAR015. According to the complaint, Juno and its competitors were competing to be the first to market this type of treatment, and Juno had adopted a "fast to market strategy" with a launch target in 2017. To achieve this goal, the complaint says, Juno withheld material information from investors and misrepresented information about the safety and efficacy of JCAR015.

In late 2015, Juno began to introduce a combination of chemotherapies, cyclophosphamide and fludarabine, before injecting JCAR015 into patients enrolled in a Phase II trial. In July 2016, Juno disclosed that the FDA had told it to halt the trial after a patient died in May 2016, followed shortly after by two more deaths. At the time, Juno claimed that the combination of fludarabine and JCAR015 led to the deaths, and the company convinced the FDA to let trials continue using only cyclophosphamide and JCAR015. Juno continued to maintain that fludarabine was the problem until November 2016, when it disclosed that two more patients had died.

Misrepresentations. The complaint alleged that Juno knew or recklessly disregarded that the patient deaths were associated with JCAR015 itself rather than the addition of fludarabine. The court concluded that the investors more than adequately pleaded misrepresentations or omissions and agreed that Juno may have had a duty to disclose the deaths at issue given the statements that it made. Here, the complaint detailed company statements made before the July 2016 disclosure that touted how effective JCAR015 was, with no mention that a patient had died. Even though Juno had disclosed that there was a risk of severe adverse effects, including death, the disclosure of an actual death would certainly be material to a reasonable investor, the court added. There were simply too many questions of fact to dismiss the case as a matter of law, the court said.

Scienter. The court then found that the complaint adequately pleaded scienter. According to the court, the allegations showed deliberate recklessness and pointed to compelling possible motivations for Juno to make the alleged misleading statements and omissions. The court was convinced by the investors' core operations argument plus the motive allegations surrounding the race to market and suspicious stock sales. The motion to dismiss was accordingly denied.

The case is No. C16-1069RSM.

Attorneys: Janissa Ann Strabuk Tousley Brain Stephens PLLC) for Goce Veljanoski. Drew Liming Wilson Sonsini Goodrich & Rosati) for Juno Therapeutics, Inc.

Companies: Juno Therapeutics, Inc.

MainStory: TopStory Enforcement FraudManipulation WashingtonNews

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