Puma Biotechnology Investors Survive Defendants’ Motion to Dismiss in Securities Class Action
On September 30, 2016, the Honorable Andrew J. Guilford of the Central District of California issued an order denying defendants’ motion to dismiss in Hsingching Hsu v. Puma Biotechnology, Inc. The case charges Puma and certain of its officers and directors with violations of the Securities Exchange Act of 1934.
Puma is a development-stage biopharmaceutical company, focused on the acquisition, development and commercialization of products to enhance cancer care. The company’s lead 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. Investors assert that during the class period, Puma overstated the efficacy 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 Roche's Herceptin. The statements misled investors into thinking the disease-free survival rates over time showed an increasing benefit for those on neratinib (a 33% improvement) versus those on a placebo. In response to Puma’s statements regarding the result of the trial, its stock increased $174.37 per share by the close of the market on July 23, 2014, a one-day increase of over 295%.
In denying the motion to dismiss, the court agreed that plaintiffs had “adequately and specifically alleged why each of these statements and several others could be false or at least misleading” and “considered and rejected” defendants’ arguments. Further, the court held plaintiffs’ allegations of motive and opportunity, specifically, the timing of defendants’ alleged representations prior to a large public offering and defendants Auerbach and Eyler’s performance-based compensation, were sufficient to raise an inference of scienter. The court concluded that “[f]or all of these reasons and others, the Court DENIES the Motion to Dismiss. So, we’re out of the starting gate, off and running.”
Hsingching Hsu v. Puma Biotechnology, Inc, No. 8:15-cv-00865, Order Denying Motion to Dismiss (C.D. Cal. Sept. 30, 2016).