(CN) - The 3rd Circuit dismissed claims that Wyeth and Elan Pharma lied to shareholders to hide the near "complete failure" of a clinical trial of an experimental Alzheimer's drug.
Several investment funds, including City of Edinburgh Council as Administering Authority for the Lothian Pension Fund, and Italy's Arca SGR Spa, sued Pfizer, as successor to Wyeth, and four former executives under the Private Securities Litigation Reform Act of 1995.
Years ago, Wyeth and Elan Corp., an Ireland-based pharmaceutical company, developed bapineuzumab, a drug that uniquely would target underlying causes of Alzheimer's.
Though the companies received fast-track status from the FDA after completing the drug's Phase 1 trials in 2006, the Phase 2 trial was not scheduled for completion until 2008.
The investment funds claim that Wyeth's head of research, Robert Ruffolo Jr., said at a securities analysts meeting on Oct. 5, 2006, that interim Phase 2 results would have to be "spectacular" to warrant advancing into Phase 3 in the first half of 2007.
Wyeth and Elan announced on May 21, 2007, that they would start a Phase 3 trial later that year, subject to FDA approval, but that "No conclusion about the Phase 2 study can be drawn until the study is completed and the final data are analyzed and released in 2008."
The funds say, however, that Wyeth knew that the Phase 2 interim results did not support the decision to initiate the Phase 3 trial, according to two confidential witnesses.
Elan and Wyeth announced on June 17, 2008 that the Phase 2 trial failed to meet its objectives and reported serious adverse events among patients.
The funds sued the firms on behalf of investors who bought common stock in Wyeth from May 2007 to July 2008, and who did not learn that the Phase 2 trial was nearly a complete failure until July 29, 2008.
The complaint asserts claims for securities fraud, control person liability, and insider trading under the Securities Exchange Act of 1934.
The District of New Jersey dismissed the funds' amended complaint on April 22, 2013.
The funds appealed, but the 3rd Circuit affirmed the lower court's ruling on June 6.
"We agree with the district court that defendants' statements, taken in context, were not misleading," Judge Anthony Scirica wrote for a three-judge panel. "The May 2007 release did not characterize or discuss the strength of the Phase 2 interim results. It only listed those results as one factor among three in the decision to initiate Phase 3, and it expressly cautioned investors not to draw conclusions about the Phase 2 study until its completion."
The funds also failed to show that Wyeth did not honestly believe their interpretation of the interim results, as "the May 2007 release contains no affirmative statement about bapineuzumab's efficacy or safety," the ruling states. "Moreover, the initiation of Phase 3 cost millions of dollars and required FDA approval, rendering it improbable that defendants would have continued if they did not believe their interpretation of the interim results or if they thought the drug a complete failure."
Wyeth's decision to move into Phase 3 did not give investors reason to assume that the Phase 2 interim results were indeed "spectacular," according to the ruling.
"The companies only advanced to Phase 3 in the second half of 2007, not in the first half of 2007, as Ruffolo had said they might if the interim results proved to be 'spectacular,'" Scirica wrote. "Accordingly, defendants had no duty to update the 'spectacular' statement."
Though not a party to the appeal, lead plaintiff Security Police and Fire Professionals of America Retirement Fund sued
Wyeth in June 2010, months after Wyeth and Elan won
extensions on their patent applications for Alzheimer's treatments.