By Lisa Seachrist
WASHINGTON — In a case that is likely one of the last of its genre in federal court, Biogen Inc. won a class action securities suit Wednesday in U.S. District Court for the District of Massachusetts, with the jury unanimously rejecting all of the plaintiffs' claims.
The jury took only two hours to decide public comments made by the Cambridge, Mass.-based company's chairman, Jim Vincent, at a 1994 investors' meeting did not constitute fraud by misleading investors.
Today, the case most likely would not meet the evidence standards established in 1995 for securities litigation in federal court.
However, a similar suit could end up in a number of different state courts. As Biogen celebrates its vindication, the company is urging Congress to enact legislation to close the loophole that allows frivolous lawsuits.
"We felt very strongly that we had done nothing wrong and the jury agreed," said Michael Astrue, vice president and general counsel for Biogen. "This lawsuit is an example of the kind of abusive lawsuit that Congress targeted with reform legislation in 1995. The fact that a similar case could come up in state court is a concern for us and the whole industry."
Biogen's problems began innocuously enough with a presentation at the annual Hambrecht & Quist Healthcare Conference in 1994. Vincent reported that a Phase III clinical trial of the company's multiple sclerosis drug Avonex (interferon-beta 1a) had been completed a year early and the results were impressive. At the same time, Vincent commented on the status of Biogen's anti-thrombin drug Hirulog, developed as a substitute for heparin, and derived from hirudin, a natural anti-coagulating enzyme secreted by leeches. Vincent noted "what we have seen to date [on Hirulog] is very good."
That same year, following a failed Phase III study of Hirulog for use in angioplasty, Biogen ended its Hirulog program and focused on Avonex. When the company announced that it intended to seek a marketing partner for Hirulog in late October 1994, Biogen's stock fell. On Nov. 1, 1994, a class action suit was filed against the company alleging fraud.
"It was really just a decision to focus on Avonex and find the best way to keep Hirulog moving," Astrue said. "The suit was filed in response to the announcement to license Hirulog. And that opened the discovery process."
The judge in the case threw out the majority of claims in 1996, but allowed the lawsuit to continue based on the statement Vincent made at the H&Q conference. At that time, the law firms handling the case had to advertise for plaintiffs because the original class backed out of the case.
Litigation Costs Hard To Calculate
"Its very costly to fight this type of lawsuit," Astrue said. "I can't even begin to estimate what we have spent. [The company was] taking some real risk going forward, but we knew we were right."
The plaintiffs twice offered to settle the case with Biogen, but the company refused. Typically, such cases are settled for dollar amounts that closely approximate the cost of defending the litigation — a circumstance indicating the purpose of the litigation is to force companies to settle. Chuck Ludlam, vice president for government relations at the Biotechnology Industry Organization (BIO) said that the average settlement obtained in similar cases has been $4.2 million.
"These lawsuits are really a form of highway robbery," Ludlam said. "This type of lawsuit is the perfect example of why we have to plug the loopholes left in the 1995 law."
In 1995, Congress overrode a presidential veto to raise the pleading standards in such cases in federal court and create safe harbors for companies to make forward-looking statements. The move by Congress largely protects companies from this type of securities litigation.
Those provisions haven't been enough to end altogether the risk of frivolous securities litigation against high-tech companies. The suits have moved from federal courts, where 85 percent of the litigation took place before 1995, to state courts — where the federal provisions do not apply.
As a result, both the U.S. House and the Senate have bills to move all securities litigation involving stocks traded on the national markets — NYSE, NASDAQ and AMEX — to the federal courts.
The Senate version, S. 1260, co-sponsored by Phil Gramm (R-Texas) and Christopher Dodd (D-Conn.), has moved through committee markup and is ready for consideration on the Senate floor.
The House bill, H.R. 1689, co-sponsored by Rick White (R-Wash.) and Anna Eshoo (D-Calif.), will be the subject of a committee hearing within the next two weeks. This bill is expected to reach committee markup one week after its committee hearing.
"Certainly, there wasn't any intent to create a loophole when the law was passed in 1995," a spokesperson for White told BioWorld Today. "The trial lawyers found one anyway. We are working to plug it up." *