Judge Tosses Type 1 Diabetes Drug Securities Suit

In a Thursday opinion, Judge Michael A. Shipp of the District of New Jersey dismissed a suit brought by investors in Provention Bio, a pharmaceuticals company that developed teplizumab, “a drug intended to delay or prevent the progression of” Type 1 diabetes. The plaintiffs allege that the company and executives mislead investors in their public statements about the drug’s approval process.

Teplizumab, the opinion recounts, was originally developed in the 2000s to counteract the progression of Stage 3 Type 1 diabetes patients; the drug failed to do so but was later found to effectively delay the progression from Stage 2 to Stage 3. Through a series of transactions, Provention eventually restarted the drug’s Food and Drug Administration (FDA) approval process and began manufacturing the drug.

The FDA eventually rejected the drug because the newly-manufactured teplizumab was significantly different from the prior incarnation that was manufactured during the drug’s initial development in Ireland; the new batch clears from the bloodstream at a different rate. The announcement of this event, after years of positive development, caused the defendant’s stock price to plummet, leading to the securities lawsuit alleging that the company made misleading statements.

The court sided with the pharmaceutical company, finding the statements that the investors took issue with were not actionable. The statements at issue were interpretations of clinical data, considered opinions by the court, and the company included cautionary language in its statements demonstrating that they were forward-looking. The court also rejected allegations that the company failed to update investors frequently enough, and similar allegations pertaining to other aspects of the defendant’s disclosures surrounding the drug approval process.

“Because Plaintiffs’ allegations do not show Defendants made materially false or misleading statements or omissions, Plaintiffs have failed to allege Defendants caused Plaintiffs’ loss.”

The plaintiffs are represented by Pomerantz and the defendants are represented by Ropes & Gray.