United States District Court, D. Massachusetts
TIM KARTH, on behalf of himself and others similarly situated, Plaintiffs,
KERYX BIOPHARMACEUTICALS, INC. et al., Defendants.
MEMORANDUM AND ORDER
J. CASPER, UNITED STATES DISTRICT JUDGE
Plaintiff Tim Karth (“Karth”) has filed this
putative class action against Defendants Keryx
Biopharmaceuticals, Inc. (“Keryx”), and certain
of Keryx’s former and current executives and directors
(the “Individual Defendants” and, together with
Keryx, “Defendants”) alleging violations of
§ 10(b) of the Exchange Act and Rule 10b-5 promulgated
thereunder (Count I) and § 20(a) of the Exchange Act
(Count II). Karth has moved for class certification. D. 112.
Defendants have moved for judgment on the pleadings. D. 96.
Karth has additionally moved for leave to file a third
amended complaint. D. 115. For the reasons stated below, the
Court DENIES Karth’s motion for class certification, D.
112. The Court ALLOWS Defendants’ motion for judgment
on the pleadings, D. 96. The Court DENIES Karth’s
motion for leave to amend the complaint, D. 115.
Standard of Review
action may be certified only if “(1) the class is so
numerous that joinder of all members is impracticable; (2)
there are questions of law or fact common to the class; (3)
the claims or defenses of the representative parties are
typical of the claims or defenses of the class; and (4) the
representative parties will fairly and adequately protect the
interests of the class.” Fed R. Civ. P. 23(a); see
In re New Motor Vehicles Canadian Export Antitrust
Litig., 522 F.3d 6, 18 (1st Cir. 2008). Where, as here,
Named Plaintiff has moved to certify a class under
Fed.R.Civ.P. 23(b)(3), the Court must also determine whether
“questions of law or fact common to class members
predominate over any questions affecting only individual
members, and that a class action is superior to other
available methods for fairly and efficiently adjudicating the
controversy.” Fed R. Civ. P. 23(b)(3); see New
Motor Vehicles, 522 F.3d at 18.
district court must undertake a ‘rigorous
analysis’ to determine whether plaintiffs me[e]t the
four threshold requirements of Rule 23(a) (numerosity,
commonality, typicality, and adequacy of representation) and
Rule 23(b)(3)’s two additional prerequisites.”
In re Nexium Antitrust Litig., 777 F.3d 9, 17 (1st
Cir. 2015) (quoting Comcast Corp. v. Behrand, 569
U.S. 27, 33 (2013)); see Smilow v. Sw. Bell Mobile
Sys., 323 F.3d 32, 38 (1st Cir. 2003). The Named
Plaintiff bears the burden of proving that class
certification is justified. Makuc v. Am. Honda Motor Co.,
Inc., 835 F.2d 389, 394 (1st Cir. 1987). When
“plaintiffs have made their initial showing, defendants
have the burden of producing sufficient evidence to rebut the
plaintiff’s showing.” Nexium, 777 F.3d
Judgment on the Pleadings
12(c) allows a party to move for judgment on the pleadings at
any time “[a]fter the pleadings are closed-but early
enough not to delay trial.” Fed.R.Civ.P. 12(c). A
motion for judgment on the pleadings pursuant to Fed.R.Civ.P.
12(c), is “ordinarily accorded much the same
treatment” as a Rule 12(b)(6) motion. Aponte-Torres
v. Univ. of P.R., 445 F.3d 50, 54 (1st Cir. 2006). To
survive a motion for judgment on the pleadings, therefore, a
plaintiff must plead “enough facts to state a claim to
relief that is plausible on its face.” Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007). Because a
motion for judgment on the pleadings “calls for an
assessment of the merits of the case at an embryonic stage,
” the Court “view[s] the facts contained in the
pleadings in the light most favorable to the nonmovant and
draw[s] all reasonable inferences therefrom” in their
favor. Pérez-Acevedo v. Rivero-Cubano, 520
F.3d 26, 29 (1st Cir. 2008) (citation omitted).
Rule 12(c) motion, unlike a Rule 12(b) motion, the Court
considers the pleadings as a whole, including the answer.
See Aponte-Torres, 445 F.3d at 54-55. Those
assertions in the answer that have not been denied and do not
conflict with the assertions in the complaint are taken as
true. See Santiago v. Bloise, 741 F.Supp.2d 357, 360
(D. Mass. 2010). In addition, “[t]he court may
supplement the facts contained in the pleadings by
considering documents fairly incorporated therein and facts
susceptible to judicial notice.” R.G. Fin. Corp. v.
Vergara-Nuñez, 446 F.3d 178, 182 (1st Cir. 2006).
Leave to Amend
Civ. P. 15(a) “mandates that leave to amend is to be
‘freely given when justice so requires’ . . .
unless the amendment ‘would be futile, or reward,
inter alia, undue or intended delay.’”
Steir v. Girl Scouts of the USA, 383 F.3d 7, 12 (1st
Cir. 2004) (quoting Fed.R.Civ.P. 15(a)(2) and Resolution
Trust Corp. v. Gold, 30 F.3d 251, 253 (1st Cir. 1994)).
Rule 15(a)’s “liberal amendment policy . . . does
not mean that leave will be granted in all cases.”
Acosta-Mestre v. Hilton Int’l of P.R., 156
F.3d 49, 51 (1st Cir. 1998) (quoting 6 Charles Alan Wright,
Arthur R. Miller & Mary Kay Kane, Federal Practice
and Procedure § 1487, at 611 (2d ed. 1990)).
sells Auryxia, an FDA-approved drug for the treatment of
patients with chronic kidney disease. D. 25 ¶¶ 1,
27. Auryxia is the only drug compound that Keryx has FDA
approval to market. D. 25 ¶ 27. The manufacture of
Auryxia is a two-step process; production of active
pharmaceutical ingredient (“API”) and the
conversion of API into tablet form as Auryxia. D. 25
¶¶ 33-34. The company engages a third-party
manufacturer to convert the active ingredient in Auryxia into
tablet form. D. 25 ¶ 1. It is undisputed that Norwich
Pharmaceuticals, Inc. (“Norwich”) was the only
contract manufacturer approved by the FDA that Keryx engaged
for this purpose during the relevant class period. D. 25
¶ 1, 28, 34.
Court will not recite all facts previously considered in
deciding Defendants’ motion to dismiss, see D.
50, but incorporates the entirety of same by reference here.
The Court summarizes the timeline of relevant public
disclosures, drawn from the operative, first amended
complaint, D. 25, which remains the operative complaint,
March 2013, in its 10-K form, Keryx disclosed that it would
initially rely on a single contract manufacturer to produce
Auryxia and then would seek to engage additional contract
manufacturers. D. 25 ¶¶ 33, 34. Plaintiffs do not
dispute the accuracy of this particular disclosure.
Id. On May 8, 2013, however, 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 disclosure 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
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.
alleged by Karth, Keryx’s material misrepresentations
and omissions regarding multiple contract manufacturers for
conversion of API into Auryxia drug product was not corrected
until August 1, 2016. See D. 25 ¶¶ 7,
10-11, 102. 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 also stated that it was withdrawing its 2016
financial guidance. Id. In an investor conference
call the same 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 that day, August 1, 2016, the
values of the shares of Keryx’s stock fell by 36%. D.
25 ¶ 101.
challenge class certification and to seek judgment on the
pleadings, Defendants now rely upon Keryx’s 2015 10-K,
issued on February 26, 2016, and its 10-Q form, dated April
28, 2016, both of which state, in relevant part, “we
currently depend on a single supply source for Auryxia drug
product.” D. 98-1 at 107, 176, D. 98-2 at 15, 52, 67.
The April 28, 2016 10-Q also noted that “[i]f any of
our suppliers, including the source of Auryxia drug product,
were to limit or terminate production, or otherwise fail to
meet the quality or delivery requirements needed to supply
Auryxia at levels to meet market demand, we could experience
a loss of revenue, which could materially and adversely
impact our results of operations.” D. 98-2 at 15, 52,
67. Both of these public filings were referenced in the still
operative first amended complaint, D. 25 ¶¶ 69, 72,
76, and are properly before the Court not only as to class
certification but also as to Defendants motion for judgment
on the pleadings, even as such statements apparently were not
briefed or addressed by either side in connection with
Defendants’ motion to dismiss and the Court did not
address same in its earlier decision regarding that motion.
D. 97 at 6; see D. 39; D. 42; D. 44. As a result of
these statements, Defendants allege that Karth, an investor
who purchased stock after both such statements, is not an
adequate class representative and that the claims of a class
that span the period before and after these disclosures do
not present typical claims under Fed.R.Civ.P. 23(a) and
Defendants are entitled to judgment on the pleadings since
Karth cannot satisfy at least two of the essential elements
of securities fraud claims. D. 97 at 4-5.
Court considers Defendants’ arguments as to two bases
of the securities fraud claims that survived the earlier
motion to dismiss: 1) that it was a material
misrepresentation or omission to suggest that Keryx had more
than one manufacturer to convert API into Auryxia drug
product in public disclosures between May 8, 2013 and the
“cure” of same on August 1, 2016, D. 50 at 9; and
2) the April 2, 2016 Preliminary Schedule 14A was materially
misleading as to FDA approval of a second such contract
manufacturer when Norwich remained the only such manufacturer
for Auryxia drug product. D. 50 at 9-10.