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In re Intercept Pharmaceuticals, Inc. Securities Litigation

United States District Court, S.D. New York

March 4, 2015


Samuel H: Rudman, Esq., David A. Rosenfeld, Esq., Robbins Geller Rudman & Dowa LLP, Melville, NY, Tor Gronberg, Esq., Trig R. Smith, Esq., Tricia L. McCormick, Esq., Robbins Geller Rudman & Dowd LLP, San Diego, CA, Attorneys for Lead Plaintiff.

Michael G. Bongiorno, Esq., Shauna K. Friedman, Esq., Tamar Kaplan-Marans, Esq. Wilmer Cutler Pickering Hale and Dorr LLP, New York, NY, Attorneys for Defendants.



These actions are brought pursuant to §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 against Intercept Pharmaceuticals, Inc. ("Intercept") and its Chief Executive Officer and Chief Medical Officer, on behalf of a purported class of investors who purchased securities of Intercept between January 9 and 10, 2014 (the "Class Period"). Defendants have moved to dismiss the Consolidated Amended Complaint ("CAC") pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act of 1995 ("PSLRA"), 15 U.S.C. § 78u-4. For the reasons stated herein, this motion is denied.


I. Factual Background

Intercept is a biopharmaceutical company founded in 2002 that became publicly traded in October 2012. Id . ¶ 16. In the years leading up to the class period, Intercept was working to develop and market obeticholic acid ("OCA") as a treatment for various liver ailments, including nonalcoholic steatohepatitis ("NASH"), a disease whereby a fat build-up in the liver causes chronic inflammation leading to progressive fibrosis, cirrhosis, and possibly liver failure. Id . ¶¶ 3, 23, 26. While approximately twelve percent of the general population of the United States is affected by NASH, there are currently no drugs approved for its treatment, making development of an approved treatment option a lucrative endeavor. Id . ¶ 27.

A trial for OCA as treatment for NASH, known as the "FLINT" trial, was conducted by the National Institute of Diabetes and Digestive and Kidney Diseases ("NIDDK"), an agency at NIH. Id . ¶¶ 4, 28-29. Accomplished pursuant to a cooperative research and development agreement entered into by NIDDK and Intercept in July 2010, FLINT was run by NIDDK and was funded primarily by the agency. Id . ¶ 28. FLINT tested a 25 mg daily dose of OCA versus placebo in 280 patients with NASH over a 72-week treatment phase, to be followed by a 24-week post-treatment follow-up phase. Id . ¶ 30; Def's Br. at 4-5. The results of the trial were determined primarily by periodic liver biopsies, and the primary endpoint in FLINT was defined as an improvement of two or more points in the nonalcoholic fatty liver disease ("NAFLD") activity score (a system of scoring the histopathological features in the liver) with no worsening of liver fibrosis or other safety issues. CAC ¶ 30.

On January 6, 2014, Intercept's Chief Medical Officer, Dr. David Shapiro ("Shapiro"), had a telephone call with NIDDK's Scientific Advisor for Viral Hepatitis and Liver Diseases, Dr. Averell Sherker ("Sherker"). CAC ¶ 33. According to Sherker's official record of the conversation, Sherker informed Shapiro that the FLINT trial was being stopped early. Id . ¶ 34. Specifically, Sherker reported that "upon planned interim analysis, the stopping boundary for efficacy was crossed and NIDDK has decided not to have subjects undergo week 72 biopsies effective today." Id . He noted that "Dr. Shapiro was informed that given this decision and the finding of significant lipid abnormalities (increased total cholesterol, increased LDL cholesterol and decreased HDL cholesterol), all patient[s] who remain on treatment (OBCA or Placebo) will be discontinued within two weeks of today." Id . He also recorded that "Dr. Shapiro mentioned that he was aware of SAEs as Intercept has been copied on all reports submitted to FDA, " and that "Intercept has a previously scheduled Quarterly Webinar on January 9 and will mention that NIDDK has informed them that the treatment phase of the study has been terminated on the basis of efficacy and that lipid abnormalities have been observed. Additionally, Intercept will release a press release with the same information. As a courtesy, they will send me the press release for review prior to issuing it." Id.

On January 7, 2014, Shapiro emailed Sherker regarding Intercept's planned January 9 disclosure. Id . ¶ 35. In the email, Shapiro informed Sherker that, after conferring with Intercept's CEO, Mark Pruzanski ("Pruzanski"), Intercept intended to issue a press release stating that the study was being stopped after having met the efficacy endpoint and that "[f]urther details will be available when the study is presented at a scientific meeting and/or published...."[1] Id . He also told Sherker that "[w]e don't think that without the specific data, we can comment on the lipid changes. We have previously reported HDL and LDL changes (see attached)." Id . Finally, he asked Sherker to get in touch with "any thoughts/disagreements... ASAP." Id.

Sherker responded with an email later that day. He wrote, in pertinent part, "[w]ith respect to the lipid abnormalities, I will defer to you about the decision whether or not to include it in your press release. As I mentioned yesterday, the NIDDK decision to terminate therapy was primarily due to the efficacy effect but, in part, influenced by the significant lipid abnormalities observed in the OCA-treated subjects." Id . ¶ 36.

On January 9, 2014, as planned, defendants filed a form 8-K and issued a press release entitled "Intercept Announces NASH Primary Endpoint Met: FLINT Trial Stopped Early for Efficacy Based on Highly Statistically Significant Improvement in Liver Histology." Id . ¶ 37. The release reported that "the FLINT trial of obeticholic acid (OCA) for the treatment of nonalcoholic steatohepatitis (NASH) has been stopped early for efficacy based on a planned interim analysis showing that the primary endpoint of the trial has been met." Id . It made no mention of any lipid abnormalities or effects. Following this release, OCA received vast media coverage and Intercept's stock price rose from $72.39 to $275.87 per share. Id . ¶¶ 39-40.

After the close of trading on January 9, 2014, defendants held a conference call with analysts and investors, at which both Pruzanski and Shapiro participated. Id . ¶ 41. There, Pruzanski announced that NIDDK "recommended stop of the trial early for efficacy. This was based on an interim analysis showing that OCA had met the primary histological endpoint. The decision to stop early was based on a predefined requirement that OCA show a much great efficacy benefit with better than AP value of.0031 on an intention-to-treat basis." Id . He added that "[a]t this point, NIDDK has only shared the statistical result of the interim efficacy analysis with us, so we don't have additional data to share with you today.... Of course, when we get the data in hand from NIDDK, we will share the results with you." Id . ¶ 42. The next day, January 10, 2014, following the press release and the conference call, Intercept stock reached an intraday high of $497 per share, ultimately closing at $445.83 per share. Id . ¶ 44.

Later on January 10, Sherker sent Shapiro an email alerting him that "NIDDK and the NASH CRN investigators have had a number of media requests for additional information related to FLINT. We have developed the attached statement as a standardized response to specific media inquiries. However, because the results are preliminary and the trial is ongoing, we are not granting interviews." Id . ¶ 46. The attached NIDDK document included a statement that mirrored Sherker's January 6, 2014 notes, stating that "FLINT interim results also found disproportionate lipid abnormalities (increased total cholesterol with increased LDL and decreased HDL cholesterol) in patients on OCA compound to those on placebo." Id . ¶ 47.

Shapiro first responded briefly to Sherker's email, stating that "I'm about to leave JFK to go home, I suggest we speak on Monday. I had no idea the press release would have the impact it did-it's rather scary!" Id . ¶ 48. Three minutes later, apparently following a communication with Pruzanski, Shapiro sent another email to Sherker, asserting that "[t]he lipid information is specific and I think will cause issues. If this hasn't been issued can we discuss first. At least it would be good to mention that similar findings had been seen previously." Id . ¶ 49.

NIDDK proceeded to release its statement later on January 10, 2014. Id . ¶ 50. As Sherker had indicated, the release stated that "FLINT interim results also found disproportionate lipid abnormalities (increased total cholesterol with increased LDL and decreased HDL cholesterol) in patients on OCA compared to those on placebo. As lipid abnormalities are common in people with NASH, following all FLINT patients the full 24 weeks after stopping the drug will help determine whether lipid problems return to pre-OCA levels and weigh potential risks and benefits of the drug." Id . It also noted that "NIDDK does not typically release interim results as ...

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