Drugmaker’s Optimism Wasn’t Fraud

SAN JOSE (CN) — A drugmaker's optimistic outlook about a new obesity drug's potential doesn't amount to fraud, a federal judge said in dismissing a securities class action with prejudice.

U.S. District Judge Beth L. Freeman dismissed without leave to amend a second amended class action against Vivus, involving its drug Qnexa.

Mary Jane and Thomas Jasin claimed they lost more than $2.8 million when the drug was approved for use in the United States, but not in Europe. They said Vivus misled investors and concealed concerns raised by regulators in Europe, where the drug was to be sold as Qsiva.

Vivus said its statements were made based upon the best available information at the time and sought dismissal for failure to plead falsity and materiality and failure to sufficiently plead scienter.

Freeman agreed on April 19, saying the effort failed due to bad management, and Vivus told investors there was no assurance that the drug would be approved in Europe.

Vivus' statements "reflected their optimism about the drug's launch — which ultimately flopped through mismanagement rather than fraud — far more compelling than an inference of fraudulent intent," Freeman wrote.

She said the complaint could survive only if the Jasins could show Vivus acted maliciously, but they didn't.

"At the hearing on this motion, plaintiffs stated that they could better explain the public record, but did not represent that they could offer new allegations," Freeman wrote.

She said if "'simple allegations'" were sufficient to establish scienter, "virtually every company in the United States that experiences a downturn in stock price could be forced to defend securities class actions."

The Jasins "offer nothing beyond motive and opportunity," and any "'reasonable inference of intent'" is "negated by the fluidity of the approval process and the divergent opinions of the committee members — which persisted even in the final vote," Freeman wrote.

"Because the court must 'compare the malicious and innocent inferences'" and "'only allow the complaint to survive if the malicious inference is at least as compelling as any opposing innocent inference,'" Freeman said she must dismiss the complaint, due to the innocent inference being more compelling.

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