Phila. Pharma Company Fails to Nix Class Action

, The Legal Intelligencer

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A class action brought against Hemispherx Biopharma by its shareholders has survived a motion to dismiss in federal court in Philadelphia.

Shareholders claimed securities fraud against the small Philadelphia-based pharmaceutical company after stock prices plummeted following the failure of the company's flagship drug to get approval from the U.S. Food and Drug Administration.

"The defendants are sophisticated scientists running a regulated, publicly traded corporation; they are alleged to have misrepresented their regulator's feedback, misrepresented the legal context in which they operated, heralded scientific results which they knew to be the product of empirically faulty procedures and manipulated statistical analysis, and claimed a level of external review that simply did not exist," said U.S. District Judge William H. Yohn Jr. of the Eastern District of Pennsylvania in his opinion in Frater v. Hemispherx Biopharma.

"If the defendants have good-faith explanations for these misstatements such as to make the inference of scienter less than strong, they do not emerge from the complaint," Yohn said.

Yohn said the plaintiffs' complaint pleaded enough facts to raise the inference that executives in the company spoke with scienter when they assured shareholders about the likelihood of success for the company's biggest drug in an appeal to the FDA.

"This all gives rise to an inference of scienter that is both cogent and compelling," Yohn wrote.

The drug, called Ampligen, was developed by Dr. William Carter, president and chairman of the board for Hemispherx, while he was a university researcher in the 1970s, according to the opinion. It is meant to treat chronic fatigue syndrome.

The first trial that the company held for the drug was in 1990, which had various flaws noted by the FDA, according to the opinion. That trial was followed, almost a decade later, in 1997, by a second trial that was also flawed. The first was called AMP 502 and the second was called AMP 516.

Hemispherx started the process for getting approval for Ampligen in 2007 by submitting to the FDA a new drug application, called an NDA for short.

In 2009, the FDA told the company that it wouldn't be approving the drug.

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