Pomerantz Scores Major Victory in Investor Suit Against Y-mAbs
POMERANTZ MONITOR | MARCH APRIL 2024
By The Editors
In February 2024, Pomerantz overcame defendants’ motion to dismiss a major investor suit against Y-mAbs Therapeutics, Inc. and its executives. The case alleges that Y-mAbs made numerous misleading statements about the FDA approval process for its primary product, omburtamab.
Y-mAbs is a clinical biopharmaceutical company headquartered in New York that develops and markets antibody-based therapies. In 2020 and 2021, Y-mAbs’ leading drug candidate was omburtamab, a therapy designed to treat neuroblastoma, a type of cancer that forms in nerve cells. In 2020, Y-mAbs submitted a Biologics License Application (“BLA”) as part of the FDA approval process for omburtamab. In the application, Y-mAbs included a single-arm study comparing the overall survival results of patients using omburtamab with an external control constructed using data from the Central German Childhood Cancer Registry (“CGCCR”), rather than with a study control group. However, the company received a Refusal-to-File (“RTF”) letter from the FDA indicating substantial flaws in the data Y-mAbs presented in its application. Y-mAbs issued a press release on October 5, 2020 informing investors of the RTF letter, but without actually publishing the contents of the letter. Instead, they assured the market that the RTF was issued merely for non-substantive reasons. Y-mAbs confirmed that the letter contained “new issues being raised that hadn’t been discussed previously,” but portrayed the FDA’s concerns optimistically, saying that it was a “minor setback,” “not a problem,” they “have everything” to cure the deficiencies, and that there was “no concern that the FDA will think, ‘Oh, that is not sufficient response.’”
In reality, since 2016 the FDA had repeatedly warned the company that the patient population in the study Y-mAbs submitted was not comparable to the population in the CGCCR. Contrary to what the company claimed, these deficiencies were not “new issues.” Additionally, Y-mAbs and its executives knew they could not fully address all the points the FDA raised, as a satisfactory resubmission called for a comparison of patients who had also received craniospinal irradiation, which the CGCCR dataset did not contain.
The FDA maintained its position as it discussed the resubmission of the BLA with Y-mAbs in January 2022, reiterating that the CGCCR data was fundamentally flawed and that Y-mAbs did not provide sufficient information to support the BLA. The FDA told Y-mAbs that it had failed to adequately address the deficiencies that the agency had identified and that aspects of the Y-mAbs analysis were “arbitrary.” Ultimately, the FDA informed Y-mAbs that if the company could not provide an adequate comparator, “an alternative clinical development program” would need to be discussed. Despite this feedback, Y-mAbs went out of its way to reassure investors that “all the information that we need, we have,” and the FDA and Y-mAbs were “aligned” on the resubmission. The company even claimed that there was a “clear regulatory path forward,” and the resubmission was “progressing as planned.”
Y-mAbs had previously told investors the company would not file the BLA until they “reach a final agreement with the [FDA]” and “get a green light.” However, on March 31, 2022, in keeping with a statement from a February earnings call in which Y-mAbs said it expected to resubmit the BLA by the end of the first quarter of 2022, the company resubmitted the BLA for omburtamab “prior to reaching agreement with the FDA on the content of the application.”
On October 26, 2022, the FDA released a Briefing Document for the Oncologic Drug Advisory Committee. The document laid out the FDA’s findings that the clinical trials on which Y-mAbs had based its application were inadequate and not well-controlled, and therefore did not provide sufficient evidence that omburtamab is safe and effective.
Two days later the Advisory Committee unanimously voted to deny FDA approval for omburtamab. The committee concluded that the “difference in survival cannot be reliably attributed to omburtamab.” On this news, Y-mAbs’ share price plummeted over 76%.
The court reviewed defendants’ motion to dismiss by dividing the alleged false statements into four categories: statements regarding timing of resubmission, statements regarding progress towards resubmission, statements interpreting clinical data, and statements interpreting FDA feedback and guidance.
The first category covers statements regarding the future timing of resubmission, such as “[we] expect this year to complete our BLA submission.” The court held that such statements were not actionable as they constituted forward-looking statements or opinions, which are protected by the PSLRA’s safe harbor for forward-looking statements.
The second category comprises statements regarding progress towards resubmissions. Examples of these statements include that the resubmission was “going as planned” and “progressing well.” The court decided that these statements were not actionable under Omnicare, which established that a “reasonable investor” may understand an opinion statement to convey facts about how the speaker formed the opinion. As the FDA continued to meet with the company, the court concluded that this point fell short of a “serious conflict” between the FDA’s interim concerns and the defendants’ optimism. Even though the statements “fail[ed] to disclose the FDA’s repeated statements of concern,” the court reasoned that the FDA’s interim feedback did not actionably conflict with defendants’ statements about FDA approval because the optimistic statements were consistent with the FDA’s guidance about how deficiencies could be overcome.
The third category consists of statements interpreting clinical data. When defendants interpreted Study 03-133 and Study 101, they stated that there is a clear “clinical benefit in terms of response rates and survival.” The court rejected the assertion that these statements were misleading because they do not claim that the FDA had interpreted the studies similarly.
The most consequential category of statements was the fourth: statements interpreting FDA feedback and guidance. For example, in May 2022, defendants stated that a “pre-BLA meeting with the FDA in January” had “confirmed our path towards our March BLA resubmission, which we ultimately achieved.” The court upheld plaintiffs’ allegation that statements by Y-mAbs characterizing FDA feedback and guidance were materially misleading. The court distinguished statements interpreting FDA feedback from the optimistic statements it found nonactionable because they described “the current state of resubmission” rather than future optimism. The court ruled that, even if these statements were opinions, the company misled investors because the FDA had outstanding concerns that were never resolved when the company resubmitted the BLA. This finding opens a direct pathway for defrauded investors to pursue recovery for the significant damages they incurred by Y-mAbs’ misleading statements.
The court held that Pomerantz adequately alleged scienter, given y-mAbs’ knowledge of the FDA’s concerns, as demonstrated through the continuous communication between defendants and the FDA. The court also held that Pomerantz adequately alleged loss causation, writing, “each statement appears to contradict a warning by the FDA and these warnings were made clear in . . . the FDA Briefing Document, which was released just before the stock price fell.”
“Companies are allowed to be as optimistic as they want,” according to Pomerantz Partner Michael Wernke, who leads Pomerantz’s litigation of the case. “But they can’t be optimistic about what the FDA actually says.” While investors are overwhelmingly incentivized to applaud companies’ optimism about their products and progress, when corporate optimism mischaracterizes feedback from regulators and the news comes to light, investors must work to protect their rights in the face of corporate fraud. The case is now proceeding to discovery.