Drug Co. Wins Ruling on Securities Fraud Claim

     (CN) – Shareholders failed to persuade the 4th Circuit to reinstate a lawsuit accusing Inspire Pharmaceuticals and three of its directors of overstating the prospects of experimental eye drops.




     To obtain FDA approval for diquafosol tetrasodium, a drug designed to heal long-term corneal damage from dry-eye disease, Inspire had to complete one last “corneal clearing study.”
     The company was tight-lipped about the details of the study, but publicly stated that it had a “clear understanding of the FDA’s additional requirement.” Inspire’s CEO and one of its directors assured investors that the study’s design was “very similar” to a previous study with promising results.
     But the February 2005 study results told a different story. Diquafosol tetrasodium failed to show a statistically significant amount of corneal clearing. Inspire’s stock price plummeted 44.5 percent on the news, prompting shareholders to sue for violations of federal securities law. They accused the company of knowingly selling them a bad investment, and claimed three directors acted on this information by dumping their shares in the company while the study was pending.
     The federal appeals court in Virginia declined to reinstate their claims, saying the company’s optimistic statements were not enough to demonstrate that the defendants knew the eye drops would flop.
     “If we inferred scienter from every bullish statement by a pharmaceutical company that was trying to raise funds,” Judge Wilkinson wrote, “we would choke off the lifeblood of innovation in medicine by fueling frivolous litigation.”

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