In the case captioned Atwood v. Intercept Pharmaceuticals, Inc. (2014 U.S. Dist. LEXIS 69717), two classes of investors brought suit against Intercept Pharmaceuticals, Inc. ("Intercept") for withholding information in order to prop up its stock price in preparation for an April 2014 stock offering. Judge Naomi Reice-Buchwald of the United States District Court for the Southern District of New York denied Intercept's motion to dismiss, holding that there was evidence showing that company executives may have purposefully withheld the information to deceive investors.1
Intercept is a biopharmaceutical company that was founded in 2002 and went public in 2012. Intercept worked to develop a new drug, an obeticholic acid ("OCA") that can be used to help treat liver problems.2 The National Institute of Diabetes and Digestive and Kidney Diseases ("NIDDK"), a branch of the National Institute of Health ("NIH") conducted trials to test the efficacy of the OCA drug. The NIDDK trials found that the OCA drug was effective in treating liver diseases, but it also showed that many participants experienced raised cholesterol and "significant lipid abnormalities."3
In January 2014, the company issued a press release touting the efficacy of the drug, announcing that the NIDDK trials had been ended early because the drug met effectiveness requirements. While the trials were truly ended because the OCA drug was proven to be effective, the side effects of increased cholesterol and lipid abnormalities partially caused the NIDDK to end the trials early, while also weaning participants off of the drug within two weeks.4
In emails to Intercept executives, Averell Sherker, who ran the NIDDK trials for the OCA drug, left it up to Intercept CEO, Mark Pruzanski, to decide whether to discuss the side effects in the company's January 9, 2014 disclosure. Pruzanski and Intercept executives decided not to mention the side effects in the release, and only mentioned that the trials were ended early due to their effectiveness. After this good news was disclosed, the company's stock price rose by 500%, only to drop greatly the next day when the NIH disclosed the fact that the OCA drug increased cholesterol level.5
Intercept has denied that it tried to purposely conceal the information regarding the side effect of increased cholesterol, and its executives purportedly were truly surprised by the massive increase in stock price. Judge Buchwald said that the plaintiffs' claims were too general but that there was enough evidence to show that Intercept "may have been reckless in choosing not to disclose their knowledge of the drug's adverse effects."6
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