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Supreme Court Ruling: Amgen Put Cart Before the Horse

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By Mari Serebrov
Washington Editor

In a split decision that will make it more costly for drugmakers to defend against "fraud-on-the-market" class actions, the Supreme Court ruled against Amgen Inc., saying the company wanted to "put the cart before the horse" in its challenge to the certification of a shareholders class in a securities fraud suit involving statements about the safety of its anemia drugs, Epogen and Aranesp.

The 6-3 decision, released Wednesday, affirmed the U.S. Court of Appeals for the Ninth Circuit, which held that the shareholders didn't have to prove materiality to get the class certified.

In the Amgen suit, the Connecticut Retirement Plans and Trust Funds alleged the biotech engaged in fraud on the market when it issued misleading statements about the safety of 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.

The fundamental premise of a fraud-on-the-market case is that a misrepresentation distorted the stock price, despite the fact that no individual investor is actually defrauded by the statements. The theory is that the market as a whole was defrauded, so shareholders should be certified as a class and allowed to bring a class-action suit against the company.

When a federal district court granted Connecticut Retirement class status, it refused to consider evidence Amgen submitted that showed the market, in the four-year period specified by the shareholders, was well aware of potential safety concerns with the drugs.

The Ninth Circuit upheld the lower court, citing the "presumption-of-reliance" standard set by a 1988 Supreme Court decision, which 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."

The Ninth Circuit opinion was at odds with four other appellate courts that had 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. (See BioWorld Today, April 9, 2012.)

Writing for the majority in Wednesday's decision, Justice Ruth Bader Ginsburg said the purpose of class certification is not to try the case but to select the method "best suited to adjudication of the controversy 'fairly and efficiently.'" The merits of a class action, including proof of materiality, are to be considered at trial, not in class certification, she added.

Addressing Amgen's argument that refusal to consider materiality before certifying a class will force companies "to settle rather than incur the costs of defending a class action and run the risk of potentially ruinous liability," Ginsburg said that's a policy decision best left up to Congress. She noted that federal lawmakers have yet to pass proposed legislation that would raise the bar for class certification.

Amgen's stock price (NASDAQ:AMGN) fluctuated considerably over the class period specified by Connecticut Retirement. In 2003, the year leading up to the class, Amgen ranged from the high $40s to the low $70s. Throughout 2004, it traded at a low of $52 into the mid $60s. (See BioWorld Today, Aug. 20, 2012.)

The low in 2005 was $56.19 with forays into the low $80s. In 2006, Amgen was trading mostly in the $60s and low $70s. Although it started 2007 in the low to mid-$70s, the stock quickly settled in the $50s and $60s before dropping into the high $40s and $50s. The stock didn't hit the $60s again until the end of July 2008.

On Wednesday, Thousand Oaks, Calif.-based Amgen was trading at more than $91, up slightly despite the court ruling and the suspension of all pediatric trials of the company's Sensipar (cinacalcet). The FDA ordered the suspension this week following the death of a 14-year-old trial participant. The agency is investigating whether the oral drug played a role in the death.

According to ClinicalTrials.gov, Amgen has been recruiting for three pediatric trials of Sensipar. The largest trial is a randomized, double-blind, placebo-controlled study assessing the efficacy and safety of Sensipar in children, age 6 to 17, with chronic kidney disease and secondary hyperparathyroidism receiving dialysis. The trial, which is enrolling 100 subjects, was expected to be completed in 2015. The other two trials are enrolling a total of 32 children younger than 6.

Sensipar, licensed from NPS Pharmaceuticals Inc., has been approved for secondary hyperparathyroidism in adults with chronic kidney disease on dialysis and adults with hypercalcemia. (See BioWorld Today, Dec. 13, 2004.)

FDA Dislikes FB 'Likes'

"Liking" something on Facebook (FB) may be the social thing to do, but it's not on the FDA's list of best practices.

That bit of advice can't be found in any guidance – the agency has yet to issue one on social media. Instead, it's buried in a recent warning letter to Amarc Enterprises Inc., a California marketer of human and animal supplements.

Much of the letter deals with health claims that make Amarc's products unapproved drugs. But toward the end of the lengthy missive, the FDA takes offense with Amarc's FB practices, particularly the "liking" of a March 20, 2011, comment, posted by a satisfied customer, that said: "PolyMVA has done wonders for me. . . . It enabled me to keep cancer at bay without the use of chemo and radiation."

Another FB practice the FDA disliked was the company's May 5, 2010, post that provided a link to a blog on its website. What seemed to bother the agency about the post was the final sentence of the blog – "For information on how palladium lipoic complexes can nutritionally support the body during cancer and cancer therapy, visit the Foundation for Advancement in Cancer Research's website" – and a link to the foundation's website.

Pediatric Labeling Draft Released

The latest labeling guidance released by the FDA will help sponsors in determining the appropriate placement and content of pediatric information in labeling for prescription drugs and biologics.

The goal of the draft guidance, published in Thursday's Federal Register, is to ensure that all useful information on pediatric use of drugs and biologics is "consistently placed in the proper sections within labeling so that the information is clear and accessible to health care providers," the FDA said.

Comments on the draft are due by April 29.