NorthWest Biotherapeutics Inc (NWBO)

[sentiment_stocks]

Judge Dismisses: Lerner case (Franklin Owen Greer and Neil Plaintiffs) vs. NWBO case

Order
For the reasons stated in the accompanying Memorandum Opinion, it is hereby ordered by the United States District Court for the District of Maryland that:

Defendants’ Motion to Dismiss, ECF No. 26, is GRANTED; and
Plaintiffs’ Request for Leave to Amend is GRANTED, and Plaintiffs have 14 days from the issuance of this Order to file a Second Amended Complaint.
Signed:
George J. Hazel
United States District Judge
March 31, 2017

Most of you will likely NOT download the judges opinion which is 32 pages, but you may want to consider paying the $5.50 to do so.

This opinion covers a great many topics related to NWBO and issues that have cropped up on the boards multiple times. Where I provide quotes from the document, there are also legal cases associated with most statements. I’m not providing those at this time as it’s frankly too much trouble to type it.

So consider this an abridged version … of course, an abridged "senti-version."

If you suspect I've missed something, please feel free to download it yourself and make your own abridged version.

So I’ve outlined the Opinion, and then am providing the text that I considered most relevant by making it available to you here in this post.

https://www.pacermonitor.com/case/9236657/Lerner_v_Northwest_Biotherapeutics,_Inc_et_al

The Opinion

A - background to the case, followed by a (I'm not covering)

B - summary of events. (I'm not covering)

C - NW Bio’s Public Statements (I'm not covering)

D - Events Prompting Plaintiffs Discovery (I'm not covering)
Allegations mainly concern what both Adam Feuerstein and Richard Pearson have written.

E - Procedural History
II. Standard of Review

Under this section, the Court writes,
In evaluating the sufficiency of the Plaintiffs’ claims, the Court accepts factual allegations in the Complaint as true and construes the factual allegations in the light most favorable to the Plaintiff. However, the Complaint must contain more that “legal conclusions, elements of a cause of action, and bare assertions devoid of further factual enhancement.”

“The court should not grant a motion to dismiss for failure to state a claim for relief unless “it si clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.”

“These heightened pleading standards exist because Congress recognized the potential for abuse in the securities fraud context, including ‘nuisance filings, targeting of deep-pocket defendants, vexatious discovery requests and manipulation by class action lawyers.’” Accordingly, the Court should “be vigilant in preventing meritless securities fraud claims from reaching the discovery phase of litigation.”

III. Analysis

A - Actionable Misrepresentation or Omission

The statements can be grouped into five categories for analysis:

1 - Initial and on-going data from the DCVax-Direct Phase I/II clinical trials

2 - The design of the DCVax-L Phase III trial

3- The Data Safety Monitoring Board (“DSMB”) interim analysis of the DCVax-L Phase III trial

4 - The “information arm” or “compassionate-use” study using DCVax-L

5 - The efficacy of DCVax Products in general


1 - Initial and on-going data from the DCVax-Direct Phase I/II clinical trials
Simply alleging that defendants should have used different statistical methodology in their clinical trials is not sufficient to allege falsity. Plaintiffs do not allege that defendants falsely or inaccurately reported there conclusions; rather they seem to merely disagree with Defendants’ methodology for reaching those conclusions.

“Where a company accurately reports the results of a scientific study, it is under no obligation to second-guess the methodology of that study… The securities laws do not impose a requirement that companies report only information from optimal studies, even if scientists could agree on what is optimal.”

Plaintiff’s allegations relating to certain omissions suffer from similar deficiencies. As the Supreme Court has stated, “it bears empales that 109b) and Rule 10b-5(b) do not create an affirmative duty to disclose and and all material information.”

“Disclosure of an item of information is not required… simply because it may be relevant or of interest to a reasonable investor.”

Additionally, Plaintiffs misconstrue and embellish the statements by Dr. Buzdar in their Opposition. Dr. Buzdar did not state that the positive effects of NW Bio’s clinical trials were “probably” caused by needle trauma; but rather, he identified it as a possibility, stating that “there have been many studies in which tumors are injected locally — the injections could consist of anything — and you see tumor regression because of necrosis caused by inflammation.” Hence, Plaintiff’s claims of falsity are based on speculation.

Additionally, Plaintiff’s contention that the anecdotal patient has just been “cherry-picked” is conclusory and does not demonstrate falsity. The May 15, 2014 press-release expressly states it was only describing one sarcoma patient in a specific case study… Plaintiffs have not demonstrated how this is misleading. Rather, the “clear import,” of these statements is that the case study focused on one patient, and results were “encouraging.” Additionally, Plaintiffs’ contentions that the “results were too preliminary and too anecdotal to suggestion anything about the actual effects of “DCVax-Direct” are belied by the statements themselves. The press releases unequivocally state that the “trial is still at an early stage, with many of the patients only part way through the treatment regimen.”

Plaintiffs’ claims regarding the initial and on-going data from the DCVax-Direct Phase I/II Clinical Trials are not actionable and therefore will be dismissed.


2 - The design of the DCVax-L Phase III trial
Plaintiffs also allege that “the change in trial size was not an ‘enhancement,’” but rather an attempt to move the goalposts in light of a lack of promising evidence from the trial as specified. Again, Plaintiffs fail to move their Complaint from mere disagreement to actionable misrepresentation or omission. The fact that “the FDA does not consider a p-value of 0.05 to be the de facto measure of statistical evidence,” does not render Defendants’ representations false or misleading.

With respect to the use of the word “enhancement” to the trial size, “Section 10-b is not concerned with such subtle disagreements over adjectives and semantics.” Moreover, Plaintiffs do not sufficiently explain how “tak[ing[ account of a major new variable” and “increasing the total number of patients from 312 to 348” cannot truthfully be described as “enhancements,” rate that Plaintiffs’ preferred description of “attempt to move the goalposts.”

Thus, claims related to the design of the DCVax-L Phase III Trial are dismissed.

3- The Data Safety Monitoring Board (“DSMB”) interim analysis of the DCVax-L Phase III trial
Plaintiff’s additional argument the Defendants were trying to “bury” interim efficacy results in undercut by the record itself. A review of the record in its entirety leaves as the only reasonable inference that the data monitoring committee had reviewed only safety data from the Phase III trials, not efficacy data. Plaintiffs do not establish how Defendants deliberately withheld or concealed information with respect to the interim review.

Accordingly, Plaintiff’s claims related to the Interim Analysis of the DCVax-L Phase III trial by the DSMB are dismissed.

4 - The “information arm” or “compassionate-use” study using DCVax-L
Plaintiff’s opinion that Defendants should have disclosed all the ways in which the results may have been biased does not establish a securities violation. (“While it may be desirable to eliminate biases to the maximum extent possible… [m]edical researchers may well differ with respect to what constitutes acceptable testing procedures, as well as how best to interpret data garnered under various protocols.”) Moreover, a compassionate use trial, by definition, is the use of a medical product outside of a clinical trial. The press releases and presentations concerning the compassionate use or information study arm study made quite clear the these subjects were a special group of patients “to sick to meet the eligibility criteria.” Plaintiffs have not sufficiently articulated how Defendants statements about this program constitute an actionable misrepresentation or omission…. Furthermore, Defendants were not obligated to take a pessimistic view with regard to the results, so long as they were reported accurately.

Thus, Plaintiff’s claims involving the Compassionate Use or Information Arm Study will also be dismissed.

5 - The efficacy of DCVax Products in general
Finally, Plaintiff’s object to Defendants’ statements made at the January 13, 2014 BioTech Showcase and, to a lesser extent, the January 12, 2015 BioTech Showcase regarding the efficacy of DCVax products in general. Plaintiffs claim that “neither DCVax-L nor DCVax-Direct had demonstrated an 80+% response rate in any well-designed clinical trial,” and “neither DCVax-L nor DCVax-Direct had demonstrated a 1-1/2 year extension in median overall survival or progression free survival over standard of care in any well-designed clinical trial.” Plaintiffs further state that “NW Bio had no evidence from well-controlled trials showing any ‘extensions of the time to disease progression, progression free survival, and extensions of overall survival in the realm of years.”

These claims are either flawed or suffer from a lack of clarity. If, for example, Plaintiffs are alleging that NW Bio falsely reported a greater-than-80% response rate for DCVax, Plaintiffs may have stated a claim. However, in there Opposition, Plaintiffs merely explain that “these representations were misleading not because of what they affirmatively stated, but because of the adverse interim Phase III results they omitted.” Plaintiffs fail to show how this is an actionable omission, as they do not adequately plead facts demonstrating that na interim efficacy analysis took place, or what such an analysis revealed. Indeed, the only reasonable inference with respect to these allegations, as stated, is that Plaintiffs disagreed with Defendants’ methodology, interpretation of the data, or expressions of optimism. In that regard, they fail to allege how these statements are false or misleading.

Here, Defendants did not represent that DCVax was “unquestionably efficacious,” nor do Plaintiffs allege that the reported results in the presentation were false.

Therefore, the Court cannot find that Plaintiffs have stated a claim with respect to the efficacy of DCVax Products.

B - Scienter

Even assuming that the Court were to consider some of the Defendants’ statements false or misleading, Plaintiffs have failed to establish scienter, which provides an independent grounds for dismissal.

Plaintiffs’ allegations of scienter have three permutations.
First, they argue that Defendants had “actual knowledge” of the alleged misleading statements and omissions “by virtue of [Powers’] position at NW Bio” and because “Powers unquestionably had full knowledge of the details of NW Bios’ internal affairs.”

Second, Plaintiffs make the additional argument that their Opposition that Defendants “recklessly ignored” the “material adverse information held from investors.”

Third, Plaintiffs contend that “[m]isleading stock promotion played a central role in this scheme [to defraud]” because Defendants had a “unique financial motive” to sell NW Bio shares in order “to confer windfalls upon [Powers’] private companies.”

Plaintiffs’ first argument fails because a defendant’s position of control in a company, without more, is insufficient to establish scented. Courts have routinely held that corporate executives’ access to information and internal affairs is not enough to demonstrate scienter under the PSLRA.

Plaintiffs’ second argument does not fare better. Plaintiffs contend that Defendants “recklessly ignored” the “truth” about DCVax-L and DC-Vax-Direct. The Fourth Circuit makes clear that “[r]eckless conduct sufficient to establish a strong inference of scienter” must be “sever,”, or “so highly unreasonable and such an extreme departure from the standard of ordinary care as to present a danger of misleading the plaintiff to the extent that the danger was either known to the defendant or so obvious that the defendant must have ben aware of it.” To bolster this argument, Plaintiffs rely on the opinion of Dr. Buzdar, who claimed NW Bio’s press releases were “extremely unusual and inappropriate,” and Plaintiff’s further claim that “Defendants received by early 2014 information from an interim efficacy analysis but to this day have refused to disclose this ‘incoming trial data’ to investors.”

Neither Dr. Buzdar’s unsubstantiated conjectures in an online posting, nor Plaintiffs’ unsupported assertion, demonstrates that Defendants engaged in “an extreme departure from the standard of ordinary care.” (discussion of how Plaintiff’s likened NWBO to Zak v. Chelsea Therapeutics - and Court disagrees that it does resemble that case for a variety of reasons) Plaintiff’s allegations here simply do not establish a strong inference of scienter as required by the PSLRA.

Finally, Plaintiffs unsuccessfully attempt to raise a “strong inference of scienter” based upon Defendants’ “unique financial motive to inflate NW Bio’s stock price.” Specifically, they allege that “NW Bio operated as a fiefdom for the personal benefit of Powers,” and “ecause the lavish benefits that NW Bio conferred upon Cognate, Powers, and her Toucan Group of companies far exceeded the Company’s assets, NW Bio had to repeatedly tap the public markets.” Even if that were true, it does not follow that “defendant acted with the required state of mind” to defraud investors. “A strong inference of fraud does not arise merely from seeking capital to support a risky venture. Indeed, the motivations to raise capital or increase one’s own compensation are common to every company and thus add little to an inference of fraud.” That Defendants may have wished to raise capital for other business ventures does not, on its own, establish fraudulent intent.

To conclude, it bears noting that:

All investments carry risk, particularly in a field like biopharmaceuticals. If we inferred scienter from every bullish statement by a pharmaceutical company that was trying to raise funds, we would choke off the lifeblood of innovation in medicine by fueling frivolous litigation — exactly what Congress sought to avoid by enacting the PSLRA.

Plaintiffs have not demonstrated how Defendants were reckless, much less deliberately misleading, and thus they fail to establish the required scienter.

C - Section 20(a) Claim

Plaintiffs’ second claim in the Amended Complaint alleges a violation against Defendant Powers as a “controlling person” under Section 20(a) of the Exchange Act. A “claim for controlling person liability under section 20(a) must be based upon a primary violation of the securities laws.” Thus, because Plaintiffs’ claim under Section 10(b) is dismissed, their claim under Section 20(a) is dismissed as well.

D - Leave to Amend

As a final matter, Plaintiffs’ have requested leave to amend their complaint if Defendants’ motion to dismiss were to be granted. “Leave to amend should be denied only when the amendment would be prejudicial to the opposing party, there has been bad faith on the part of the moving party, or amendment would be futile.” Here, Plaintiffs do not explain how a second amended complaint would reconcile the infirmities of the first amended complaint, nor is the existing record lacking in volume.

However, the Court finds no evidence that amendment would be prejudicial to Defendants, or any indication of bad faith on the part of Plaintiffs — and will therefore grant Defendants’ Motion to Dismiss without prejudice.