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First Circuit dismisses claim drug safety was misrepresented to drive up stock price

[JURIST] The US Court of Appeals for the First Circuit [official website] on Thursday affirmed [opinion text] the dismissal of a shareholder securities suit against Biogen Idec [corporate website], in which the class of plaintiffs accused directors of violating the Securities Exchange Act of 1934 [text] by intentionally misrepresenting the safety of its multiple-sclerosis drug, Tysabri [informational website], in order to sell their shares at high prices, resulting in proceeds in excess of $84 million. In affirming the district court's ruling that the plaintiffs did not plead facts giving rise to a strong inference of scienter in accordance with the Private Securities Litigation Reform Act of 1995 [text] the Court of Appeals held:

Here, we have already discounted the inferences of scienter from claims about failure to disclose the risk of non-PML opportunistic infections and of safety concerns with combination therapy. Even if defendants' statements were arguably misleading, plaintiffs have not sufficiently alleged that the statements were intentionally so; that is, that defendants had any reason to know their statements were misleading before February 18, 2005, the day of the meeting where the defendants first learned of the PML diagnoses. Thus, any insider trading which occurred during the class period until February 18, 2005 cannot be used to support a strong inference of scienter, since "[i]nsider trading cannot establish scienter on its own." [citations omitted]
Tysabri was approved by the Food and Drug Administration (FDA) [official website] in November 2004, and share prices increased immediately. Within months, two patients developed infections from ongoing clinical trials, and one died. Biogen took the drug off the market [Bloomberg report; Biogen press release] in February 2005, and the share price fell 42.5% amid heavy trading.

Last month, the US House of Representatives Committee on Energy and Commerce [official website] began an investigation [information request, PDF; press release] into whether the FDA had allowed the sale of drugs that agency officials knew had been manufactured and sold using faulty data [JURIST report].

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