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Karth v. Keryx Biopharmaceuticals, Inc.

United States District Court, D. Massachusetts

July 19, 2018




         I. Introduction

         Plaintiffs Tim Karth and Abraham Kiswani (“Plaintiffs”) bring a suit on behalf of a putative class of shareholders against Keryx Biopharmaceuticals, Inc. (“Keryx”) and certain officers of Keryx: Ron Bentsur, Scott A. Holmes, Gregory P. Madison and James. F. Oliviero (“Individual Defendants”). The Defendants have moved to dismiss the Plaintiffs' complaint, D. 38. In addition to opposing the motion, the Plaintiffs have moved for leave to amend their complaint, D. 43. The Court DENIES the Plaintiffs' motion to amend their complaint, D. 43, and ALLOWS in part and DENIES in part the Defendants' motion to dismiss, D. 38.

         II. Standard of Review

         In evaluating a motion to dismiss, a court must first “isolate and ignore statements in the complaint that simply offer legal labels and conclusions” and then “take the complaint's well-pled . . . facts as true, drawing all reasonable inferences in the pleader's favor, and see if they plausibly narrate a claim for relief.” Schatz v. Republican State Leadership Comm., 669 F.3d 50, 55 (1st Cir. 2012).

         III. Factual Background

         The following facts are taken from the operative first amended complaint, D. 25, and the Court accepts them as true for the purposes of resolving the Defendants' motion to dismiss. Keryx is a biopharmaceutical company which sells Auryxia, a drug approved for the treatment of hyperphosphatemia, or elevated phosphorus levels, in patients with chronic kidney disease. D. 25 ¶¶ 1, 27. Auryxia is the only compound that Keryx has received FDA approval to market. D. 25 ¶ 27. Keryx is not capable of converting the active pharmaceutical ingredient (“API”) of Auryxia into a tablet; rather, it contracts that process to another company. D. 25 ¶ 1. Engaging a new contract manufacturer could be a difficult process as the FDA would have to approve any new contract manufacturer to convert the API into a tablet. D. 25 ¶ 34. In January 2014, Keryx contracted with Norwich Pharmaceuticals, Inc. (“Norwich”) as a contract manufacturer to convert the API into a tablet and, until November 2016, did not have another contract manufacturer approved by the FDA to perform that role. D. 25 ¶¶ 1, 28.

         In March 2013, in its 10-K form, Keryx disclosed that that it would first rely on a single contract manufacturer to produce Auryxia and then would seek to engage additional contract manufacturers. D. 25 ¶¶ 33, 34. On May 8, 2013, Keryx released a 10-Q form which stated that “[w]e rely on third parties to manufacture and analytically test our drug candidate. If these third parties do not successfully manufacture and test our drug candidate, our business will be harmed.” D. 25 ¶ 35. The form contained other references to “third parties” and “manufacturers, ” including the statement that “[o]ur ability to conduct clinical trials and commercialize our drug candidate will depend on the ability of such third parties” and “issues that may arise in our current transition to commercial batch sizes with our third party manufacturers [] can lead to delays.” Id. This 10-Q form did not specifically indicate that Keryx did not, at the time, have contracts with multiple contract manufacturers. D. 25 ¶ 36.

         Keryx made similar statements referencing multiple manufacturers or third parties in its August 2013 10-Q form, its November 2013 10-Q form, its January 2014 Final Prospectus Supplement, its March 2014 10-K form, its May 2014 10-Q form, its June 2014 presentation during the Goldman Sachs Global Healthcare Conference, its August 2014 10-Q form, its November 2014 10-Q form, its January 2015 Prospectus Supplement, its February 2015 10-K, its May 2015 10-Q form, its August 2015 10-Q form, its October 2015 10-Q form and its February 2016 10-K form. D. 25 ¶¶ 37-65, 69-72. Additionally, Keryx provided generally positive forward-looking guidance about the future financial performance of Keryx in communications with the press in February 2016 and April 2016. D. 25 ¶¶ 66-68, 77-78. Specifically, in a press release issued on February 25, 2016, Madison, the Chief Executive Officer of Keryx, stated that “the fundamental of Auryxia are solid” and the press release further noted that Keryx “expect[ed] sales to ramp throughout the year, ” D. 25 ¶¶ 66-67; Holmes, the Chief Financial Officer of Keryx, stated in a conference call on February 25, 2016 that “[w]e are encouraged with the solid fundamentals we see with Auryxia, given the continued growth in prescriptions, ” D. 25 ¶ 68; on April 28, 2016, Keryx issued a press release stating that it was “progressing nicely toward achieving our previously stated 2016 full year financial objectives, ” D. 25 ¶ 77; and on April 28, 2016, Madison stated in a conference call with investors that “the fundamental[s] of Auryxia continue to remain strong” and “we are confident in our ability to achieve our net sales guidance, ” D. 25 ¶ 78. Finally, in April 2016, Keryx filed a Preliminary Schedule 14A with the SEC, which stated that it was a management incentive goal to achieve “Regulatory Approval of Additional Contract Manufacturer” and that the management had obtained “100%” performance of that goal in 2015. D. 25 ¶¶ 73-74.

         On August 1, 2016, Keryx released a press release indicating that it was halting the distribution of Auryxia until at least October 2016 due to a production issue with its contract manufacturer. D. 25 ¶ 80. In that press release, it stated that it was withdrawing its 2016 financial guidance. D. 25 ¶ 80. In a conference call that day, Keryx acknowledged that it only had one contract manufacturer and stated that “[i]n [the] past few months, ” it had been “experiencing difficulties” in the manufacturing process. D. 25 ¶ 81. Over the course of the day on August 1, the values of the shares of Keryx's stock fell by 36%. D. 25 ¶ 101.

         Plaintiffs have filed a proposed second amended complaint, in which they add the following factual allegations. Keryx operated at a loss in 2013, 2014, 2015, and 2016. D. 43-3 ¶¶ 100-103. Keryx was cash-constrained during that period and raised capital twice. D. 43-3 ¶ 104. On September 13, 2016, at a presentation at a conference, Madison stated that Norwich had “all of a sudden began to have trouble converting [API] into finished drug product” and that, until that time, it “had been producing commercial product for us for almost two years without any type of incident.” D. 43-3 ¶ 93. On September 27, 2016, Holmes stated at a conference that Norwich was Keryx's first contract manufacturer and that a second contract manufacturer would soon be brought online. D. 43-3 ¶ 94. On November 9, 2016, Keryx released a public statement that its “second contract manufacturer is successfully producing Auryxia.” D. 43-3 ¶ 96. The Court considers the allegations in the proposed second amended complaint, D. 43, in addition to the allegations in the operative first amended complaint, D. 25, to evaluate whether the claim would survive a motion to dismiss even with the allegations in the second amended complaint and thus whether the proposed amendments would be futile.

         IV. Procedural History

         On August 26, 2016, Plaintiffs filed their complaint, D. 1. On February 27, 2017, Plaintiffs filed the first amended complaint, D. 25. The Defendants have now moved to dismiss, D. 38, and the Plaintiffs have moved for leave to amend the first amended complaint, D. 43. The Court heard argument on both motions, D. 48, and took the motions under advisement.

         V. ...

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