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Supreme Court Asked for Shareholder Class Action Rx

By Mari Serebrov
Washington Editor

WASHINGTON – The Supreme Court is being asked to curb a growing cottage industry of shareholder lawsuits by raising the bar for class actions alleging companies have frauded the market.

Courts have become all too willing to "certify inappropriate and unwieldy classes in cases alleging that a corporation provided misleading information to investors" when there's no evidence the market was misled, the Washington Legal Foundation (WLF) said in a brief filed last week in support of a Supreme Court appeal filed by Amgen Inc., of Thousand Oaks, Calif.

As a result, the corporate defendants face "enormous pressure . . . to settle the suit without regard to the underlying merits," the WLF added.

In the Amgen suit, the Connecticut Retirement Plans and Trust Funds sought to bring a class action, alleging Amgen engaged in fraud on the market when it issued misleading statements about the safety of anemia drugs Epogen (epoetin alfa) and Aranesp (darbepoetin alfa) between 2004 and 2007, thus inflating the value of its stock. When the "truth" was disclosed in 2007, the price of the stock fell, according to the shareholders.

Although Amgen submitted evidence that, during the four-year period, the market was well aware of potential safety concerns with the anemia drugs, the U.S. Court of Appeals for the Ninth Circuit upheld a lower court's decision to certify the shareholder class.

The appellate court based its ruling on a "presumption-of-reliance" standard set by a 1988 Supreme Court decision that stated: "The price of a company's stock is determined by the available information regarding the company and its business. . . . Misleading statements will therefore defraud purchasers of stock even if the purchasers do not directly rely on the misrepresentations."

But the Ninth Circuit incorrectly assumed that a "presumption of reliance is appropriate in virtually all cases involving widely traded securities," WLF said.

That assumption places the Ninth Circuit at odds with four other appellate courts, which have ruled companies accused of stock fraud are permitted to challenge class certification by demonstrating the market did not rely on alleged misrepresentations because they weren't material.

FDA Needs Partners to Do its Job

In today's global world, the FDA can no longer be a lone ranger when it comes to protecting the nation's drug and food supply. The job is just too big, according to a new Institute of Medicine (IOM) report.

With 20 million types of regulated products arriving from more than 300,000 factories in 150 different countries, the FDA can't rely on its periodic inspections at factories and 300 ports of entry to ensure that only safe products enter the U.S. market, the IOM said. Instead, the agency must ally with industry, other regulatory agencies and international organizations.

For instance, the report recommended that the FDA plan inspections and pool data with strong regulators in other countries. "There is no need for American and European inspectors to duplicate each other's work, especially when a vast number of facilities go uninspected," the IOM said.

The FDA also should work with international partners to help developing countries set up core regulatory capabilities. Other recommendations include enhanced incentives offered to importers that make sure their supply chains comply with U.S. standards and FDA management systems capable of targeting products at the greatest risk. "It is neither good management nor good sense to divide resources equally among all regulated products," the IOM said.

JOBS Act Being Implemented

The SEC jumped to implement the new Jumpstart Our Business Startups (JOBS) Act as soon as President Barack Obama signed it into law Thursday. While the commission is setting up an electronic system for the confidential submission of registration statements, it is asking emerging growth companies to submit draft registration statements in paper format or in a searchable PDF file on a CD/DVD. The information will be kept confidential. (See BioWorld Today, March 27, 2012, March 28, 2012, and March 29, 2012.)