Robbins Geller Beats Back Defendants’ Motion to Dismiss Yet Again in Puma Biotechnology Securities Class Action
In an order dated July 25, 2017, the Honorable Andrew J. Guilford of the Central District of California denied defendants’ motion to dismiss again in Hsingching Hsu v. Puma Biotechnology, Inc. The case charges Puma and the Company’s CEO and CFO with violations of the Securities Exchange Act of 1934.
Puma is a development-stage biopharmaceutical company, focused on the acquisition, development and commercialization of drugs to enhance cancer care. The company’s only product candidate is an investigational drug known as PB272 (“neratinib”), which Puma touted as an extended adjuvant treatment for human epidermal growth factor receptor 2 (“HER2”)-positive breast cancer. Lead plaintiff Norfolk County Council, as Administering Authority of the Norfolk Pension Fund, asserts that on July 22, 2014, Puma overstated the top-line efficacy results and understated the safety results from its Phase III ExteNET trial, which compared extended adjuvant treatment with neratinib to placebo in HER2-positive breast cancer patients who were pre-treated with Herceptin. The statements misled investors into thinking the disease-free survival rates over time showed an increasing benefit for those on neratinib versus those on a placebo, and that the severe diarrhea rate and adverse event drop-out rate were in-line with prior trials. In response to defendants’ statements regarding the result of the trial, Puma’s stock increased $174.37 per share, a one-day increase of over 295%.
On September 30, 2016, Judge Guilford denied defendants’ motion to dismiss, finding that the Norfolk Pension Fund had adequately pled the falsity of defendants’ statements regarding the efficacy of neratinib, as well as defendants’ knowledge of the true facts and motive and opportunity to commit the fraud. In May 2017, following six months of discovery, the lead plaintiff moved to amend the consolidated complaint and add additional allegations regarding defendants’ false statements regarding the safety results in the ExteNET trial and additional evidence of defendants’ motive to defraud investors. The court granted lead plaintiff’s proposed amendment, and defendants subsequently moved to the dismiss the newly amended portions of the complaint.
In denying the motion to dismiss on July 25, 2017, one day after oral argument on defendants’ motion, Judge Guilford found that the amended complaint again satisfied all applicable pleading requirements. While defendants argued that their statements regarding the safety results were accurate and protected by a “safe harbor” for forward-looking statements, the court credited lead plaintiff’s allegations and found that “just days before making [the] alleged statements, [defendant] Auerbach received an email from Puma’s Senior Director of Clinical Science regarding ‘ExteNET top-line safety tables’ that identified the precise information investors sought – the safety results and the dropout rates.” As Judge Guilford remarked, “[d]efendants shouldn’t benefit from [the] safe harbor by simply saying they ‘anticipated’ success when, in fact, they had a reasonable belief that defeat was just around the corner.” On the issue of scienter, the court concluded that “[d]efendants haven’t presented a compelling reason for the [c]ourt to reverse course at this stage.”
Hsingching Hsu v. Puma Biotechnology, Inc, No. 8:15-cv-00865, Order Denying Motion to Dismiss First Amended Complaint (C.D. Cal. July 25, 2017).