Court Sees ‘Scienter’ in Arena Drug Case: Attorney
Attorney Peter Hawkes (Lane Powell) says the 9th Circuit Court of Appeals has held that Arena Pharmaceuticals’ actions in informing investors about its weight-loss drug lorcaserin gave rise to a strong inference of scienter (legally, intent or knowledge of wrongdoing) since the company knew of FDA’s concerns about the drug’s potentially carcinogenic effects as seen in rat studies, and still represented to investors that agency approval was likely because all of the data gathered, including animal studies, were “favorable.” Writing in an online blog post, Hawkes says that after FDA published advisory committee briefing documents that disclosed existence of a rat study and concerns about carcinogenicity, plaintiffs brought a class action suit against Arena and several of its executives, alleging that their statements relating to animal studies were misleading and made with scienter.
The advisory committee recommended against approval and FDA later denied the company’s NDA. Following further pathological review, however, FDA ultimately approved the drug and it is currently on the market.
A federal district court dismissed the complaint against Arena, finding that it failed to adequately allege scienter, However, the 9th Circuit reversed that decision, focusing on what it said was a “simple” theory of scienter: because the company referred to the animal studies when promoting the drug’s safety and likely approval, it was obligated to disclose the rat study’s existence to the market and the failure to do so demonstrated scienter.
Hawkes says the opinion seems rather harsh, given that Arena had ultimately concluded that the animal tests did not suggest that lorcaserin was carcinogenic to humans and FDA had not expressed disagreement with that conclusion at the time it was made. “It seems plausible that, at the time they made those statements, defendants actually believed that the rat study supported the drug’s safety and would not be a significant stumbling block in the approval process,” he writes. “On the other hand, FDA had not expressed that its concerns about the rat study had been mollified, either. By expressly invoking ‘favorable animal studies’ as a basis for Arena’s belief that lorcaserin would be approved, defendants arguably created an impression that nothing in the animal studies would cause FDA any concern — an arguably misleading impression given that FDA had already expressed its concern. Had Arena simply stated its belief that lorcaserin would be approved, it likely would have avoided an inference of scienter.”