Intercept Pharmaceuticals Inc. has agreed to pay $55 million to settle multidistrict litigation (MDL) brought by investors accusing the company of securities fraud by concealing a liver drug’s side effects. A stipulation of settlement was filed last month by the parties in a New York federal court. The settlement amount reflects a recovery of about 35 percent of the total possible damages, according to the investors, who contend that this is a good result.
For the purposes of the settlement, the parties asked U.S. District Judge Naomi Reice Buchwald to certify the class. The investors said the recovery to individuals from the proposed two-day class period will depend on variables, including the number of Intercept shares purchased, but the estimated average distribution per share of Intercept stock is projected to be about $48.27.
The investors’ two proposed class actions, which were consolidated in May 2014, accused Intercept, along with CEO Mark Pruzanski and Chief Medical Officer David Shapiro, of withholding news that the drug, obeticholic acid, caused “substantial” increases in cholesterol lipids in order to drive up the value of Intercept’s stock.
In March 2015, Judge Buchwald denied Intercept’s motion to dismiss the multidistrict litigation, finding the investors provided evidence that the company and its executives knowingly concealed the liver drug’s side effects. Judge Buchwald noted that Intercept learned from a National Institutes of Health (NIH) doctor running a clinical trial that the drug had proven effective, but also had the side effect of increasing cholesterol.
Judge Buchwald said the company only told investors about the good news, while correspondence between the doctor and Intercept’s chief medical officer revealed the company had misgivings about keeping the information under wraps. The price of the company’s stock shot up more than 500 percent after Intercept announced the drug’s positive effects in January 2014, but dropped sharply days later when the NIH revealed the patients’ increased cholesterol levels, according to Judge Buchwald.
The proposed class includes those who purchased Intercept stock during two days that month. In support for their settlement, the investors said recovery is 13 times greater than the average. Intercept executives had argued to the court that they lacked scienter because their statements were approved by the National Institute of Diabetes and Digestive and Kidney Diseases. The executives claimed they had no motive to mislead the investors.
The Plaintiffs are represented by Tor Gronborg, Kevin A. Lavelle, David Avi Rosenfeld, Samuel Howard Rudman and Trig Randall Smith of Robbins Geller Rudman & Dowd LLP, and Jeremy Alan Lieberman of Pomerantz LLP. The case is in the U.S. District Court for the Southern District of New York.
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