Drug Company Settles Securities Lawsuit for $40 Million

New York, NYUsually when a drug company is involved in litigation, that litigation involves side effects linked to the company’s drugs, but a recently settled securities lawsuit shows that drug companies can also face securities fraud litigation for statements related to their drugs. In this case, Sanofi agreed to settle claims of securities fraud for $40 million.

Bloomberg (9/19/13) reports that the settlement agreement will see $40 million go to investors who bought depositary receipts from Sanofi between February 24, 2006 and June 13, 2007. Sanofi did not admit to any wrongdoing in agreement to settle the lawsuit.

Plaintiffs in the lawsuit alleged that Sanofi made false and misleading statements about an obesity drug it was developing. The drug, known generically as rimonabant and under the proposed brand name Zimulti, was meant to work by affecting the brain’s hunger signal, reducing a person’s craving for food.

Sanofi allegedly “positioned rimonabant in the United States as the first ‘magic pill’ that would help people shed pounds without serious side effects.” But according to the lawsuit, Sanofi learned in a clinical study while seeking FDA approval that the drug was linked to suicidal ideation and depression. “In the rimonabant studies, suicidal ideation was specifically tracked and characterized as a serious adverse event,” plaintiffs allege.

Due to patent issues with other drugs, the lawsuit claims, FDA approval of rimonabant was vital to Sanofi’s investors. Furthermore, despite receiving an FDA letter requesting additional safety data regarding rimonabant, Sanofi allegedly continued to pronounce to investors that its drug was safe and likely to be approved by the FDA. This included, according to court documents, a conference call with analysts and investors during which Sanofi stressed the safety of the drug, stating “there is no increase in cases of depression.” But supplemental data from a clinical trial reportedly showed 50 cases of suicidal ideation in patients receiving rimonabant, compared with 14 cases in patients who received a placebo.

As a result of the reported link between the weight loss drug and suicidal ideation, the FDA rejected rimonabant, causing Sanofi stock value to drop.

The lawsuit alleged Sanofi executives made false and misleading statements about the safety of its drug, rimonabant, and about the likelihood of the drug being approved by the FDA, which resulted in artificially inflated prices of Sanofi stock.

The lawsuit is In re: Sanofi-Aventis Securities Litigation, 1:07-cv-10279, US District Court, Southern District of New York.