Derivative Action Slams Tetraphase Pharma Over Failed Drug Trial

(CN) – A shareholder derivative lawsuit claims Tetraphase Pharmaceuticals Inc. defrauded investors by making false claims about the progress of an antibiotic trial in midst of a secondary public stock offering.

Lead plaintiff Edward Garity filed the action in U.S. District Court for Southern New York, claiming that Tetraphase failed to disclose adverse information about the ongoing drug trial.

Tetraphase developed a synthetic antibiotic known as Eravacycline, used to treat drug-resistant infections and conducted a series of trials to test the antibiotic on other complicated infections. The series of tests were called “Investigating Gram-Negative Infections Treatment with Eravacycline,” or IGNITE for short.

IGNITE3 was a phase to test the efficacy and safety of a once-daily dose of the drug to treat complicated urinary tract infections.

The IGNITE3 test increased the number of patients in the trial from 1,000 to 1,200 “to meet the trial’s primary endpoints.” Shareholders claim the increase in the trial population showed Tetraphase was making false statements about its business operations.

“The enrollment of more patients in the trial indicated that the existing population was inadequate to meet the trial’s primary endpoints,” the complaint says.

Meanwhile, Tetraphase offered 10 million shares of common stock at $6.50 per share in a secondary public offering, proceeds from which were earmarked for the company’s IGNITE3 trial, which Tetraphase touted as having positive results, according to the complaint.

The IGNITE3 trial ultimately failed, which the company did not mention until after the market closed on February 13, 2018. The announcement caused a sharp drop Tetraphase’s stock value from $5.43 per share down to as low as $2.10 per share.

Jacques Dumas, Tetraphase’s Chief Science Officer and named defendant sold roughly 50,000 shares of common stock, reaping $297,747 from his sale of shares at the expense of the investors, according to the 27-page complaint.

“All purchasers of Tetraphase stock during the Class Period suffered similar injury through their purchase of Tetraphase common stock at artificially inflated prices,” the complaint says. “By artificially inflating and manipulating Tetraphase’s stock price, Defendants deceived Plaintiff and the Class by causing them losses when the truth was revealed.”

The class is represented by Lesly F. Portnoy, Lionel Z. Glancy, Robert V. Prongay and Charles H. Linehan of Glancy Prongay & Murray LLP in Los Angeles and Corey D. Holzer and Marshall P. Dees of Holzer & Holzer LLC in Atlanda, Ga.

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