9th Circuit Court of Appeals Revives Securities Class Action Against Arena Pharmaceuticals, Inc.  

October 28, 2016


A federal appeals court has revived a proposed shareholder class action against Arena Pharmaceuticals Inc. and certain of its former executives and directors that alleges defendant concealed safety concerns about Arena’s weight loss drug, lorcsaserin.  Kaplan Fox filed the initial complaint in September 2010 and has served as lead counsel for the lead plaintiff and proposed class since August 2011.

In September 2010, the FDA revealed that it had been engaged in series of exchanges with Arena since 2007 about the results of a rat study that appeared to link the drug to increased cancer risk. The existence of the rat study had not previously been disclosed to investors. Following the revelation, Arena's stock price fell and investors filed a proposed class action alleging fraud under the Securities Exchange Act of 1934.

The 9th Circuit's decision reverses a dismissal by a court in the Southern District of California that found the lead plaintiff did not adequately plead scienter because the defendants and the FDA were engaged in a good-faith scientific dispute regarding the cause of cancer in lab rats that were given the drug.  

Judge Jay Bybee, writing on behalf of a unanimous panel of the 9th U.S. Circuit Court of Appeals, found that lead plaintiff adequately pleaded facts supporting a strong inference of scienter under Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act of 1995 because when the defendants touted the safety and likely FDA approval of lorcaserin, they referred to animal studies supporting the FDA application.  Once they raised the animal studies, the Court found that they were obligated to disclose the cancer studies on rats.  

Judge Bybee wrote that "the simple fact that Arena had an explanation for its view of the data does not mean investors would not want to know that Arena and the FDA were at odds."  "It is the failure to disclose 'issues' and 'concerns' with the Rat Study and the FDA's interest in the outcome of those studies - not who was ultimately right about the underlying science - that matters."  "And it sure mattered to investors, who were understandably concerned by the information revealed in the FDA's 2010 briefing documents."

Kaplan Fox attorneys working on this matter are: Robert N. Kaplan, Frederic S. Fox, Joel B. Strauss, Jeffrey P. Campisi, Laurence D. King, and Mario C. Choi.

A copy of the decision can be downloaded (here).  For more information about this case, contact: Jeffrey P. Campisi.