DEBORAH K. CHASANOW, District Judge.
Presently pending and ready for resolution in this putative securities fraud class action is a motion to dismiss filed by Defendants GenVec, Inc., and corporate officers Paul H. Fischer, Douglas J. Swirsky, and Mark O. Thornton. (ECF No. 21). The issues are fully briefed and the court now rules pursuant to Local Rule 105.6, no hearing being deemed necessary. For the reasons that follow, the motion will be granted.
On July 6, 2012, Plaintiffs Rob Ferry, Robert T. Schiff, Donald A. Schumer, Scott Sheckler, and Anne Vandelanotte, individually and on behalf of all purchasers of GenVec, Inc., common stock between March 12, 2009, and March 29, 2010 ("the class period"), filed an amended complaint alleging violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b) and 78t(a), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5. (ECF No. 20). The following facts are drawn from the amended complaint and documents incorporated by reference therein.
A. Factual Background
1. Events Prior to the Class Period
GenVec is a small clinical stage biopharmaceutical company based in Gaithersburg, Maryland, specializing in the development of novel therapeutic drugs and vaccines. At all times relevant, its lead therapeutic product candidate was "TNFerade2122 biologic" ("TNFerade"), a drug that showed early promise in clinical trials for the treatment of cancer. ( Id. at ¶ 3). "TNFerade is an adenovector, or DNA carrier, which contains the gene for tumor necrosis factor-alpha (TNF alpha'), an immune system protein with potent and well-documented anti-cancer effects, for direct injection into tumors." ( Id. at ¶ 42). Once injected, "TNFerade works by causing cells in the tumor to produce and secrete [TNF alpha], " which "binds to cells in the tumor, leading to the death of cells in the tumor." ( Id. at ¶ 67). By locally delivering protein to cells, GenVec's core technology had the added advantage of "reduc[ing] side effects typically associated with systemic delivery of proteins." ( Id. at ¶ 41).
Before any new drug can be marketed, it must first be approved by the Food and Drug Administration ("FDA"). As Plaintiffs acknowledge, the process of gaining FDA approval is decidedly rigorous:
It takes on average 12 years and over $700 million to get a new drug from molecule to market. Once a company develops a drug, it generally undergoes years of laboratory testing before an application is made to the FDA to begin testing the drug on humans. Only approximately one in 1, 000 of the compounds that enter laboratory testing will ever reach human testing. Only 8% of drugs that enter Phase I clinical trials are eventually approved by the FDA.
( Id. at ¶ 38).
Among the drugs that are ultimately approved for human testing, "clinical trial programs for a pharmaceutical product consist of three sequential phases of clinical trials, which can overlap":
Phase 1 trials are the first stage of testing the drug in human subjects. This phase is designed to assess the safety, tolerability, pharmacokinetics (what the body does to the drug), and pharmacodynamics (what the drug does to the body) of a drug on a small group of subjects. Once the initial safety of the drug has been confirmed through Phase 1 trials, the second phase of testing is performed, usually on larger groups, and designed to assess how well the drug works, as well as to continue safety assessments. Data from a Phase  clinical trial or trials are normally used to design the third and final phase of clinical trials. A dose effect, increased effectiveness with increased dose, is considered evidence of efficacy by the FDA, and dose comparisons are a specified form of controlled trials in FDA regulations. The third and final phase of clinical trials normally proceeds only if the Phase  trial or trials provide adequate evidence of efficacy and safety of a pharmaceutical product.
( Id. at 39).
TNFerade was approved for testing on human subjects and performed well in two separate Phase 1 trials. As GenVec reported in 2004, "TNFerade, in conjunction with standard radiation therapy, demonstrated that it was generally well tolerated" and "tumor size reduction of 25% or greater was observed in more than 70% of patients in 12 different tumor types, including pancreatic, rectal, melanoma, small cell lung, breast, and sarcoma." ( Id. at ¶ 44). Based on those results, GenVec "initiated a Phase 2, dose-escalation study in 50 patients with locally advanced pancreatic cancer to determine the best therapeutic dose of TNFerade in combination with standard chemoradiation." ( Id. at ¶ 45). The results of that testing also showed "an apparent dose related improvement in survival." ( Id. ).
GenVec next "initiated a randomized, controlled, Phase 2 study of 74 patients, " which, "[i]n consultation with the FDA, ... was amended in March 2006 to become a Phase 2/3, 330-patient pivotal [Pancreatic Cancer Clinical Trial ("PACT Trial")] that would support registration of TNFerade for this indication." ( Id. ). As Plaintiffs describe it:
The PACT Trial [was] a study for the treatment of unresectable, locally advanced pancreatic carcinoma that included a comparison of: 1) treatment using TNFerade plus standard of care therapy; and 2) treatment using only standard of care therapy. Standard of care therapy consisted of 5 ½-weeks of concurrent radiation therapy 5 days weekly and fluorouracil by continuous infusion 5 days weekly followed, approximately four weeks after completion of chemoradiation, by patients receiving gemcitabine or gemcitabine/erlotinib maintenance therapy. The primary endpoint for the PACT Trial was originally based on 12-month survival.
( Id. ). GenVec "reported the preliminary analysis of safety data based on the first 40 patients treated and survival data on the first 51 patients treated" in December 2006. ( Id. at ¶ 46). The safety analysis "indicated that there was no significant difference in the occurrence of serious adverse events (including thrombotic events) between the treatment and control groups" and the efficacy data showed "a potentially emerging trend of an overall survival advantage in patients receiving TNFerade." ( Id. ).
In January 2008, GenVec reached an agreement with the FDA to change the primary efficacy endpoint of the trial from twelve-month survival to overall survival, which the company reported "could be considered a basis for full regulatory approval of TNFerade for this indication." ( Id. at ¶ 47). The agreement further contemplated that both GenVec and an independent Data Safety Monitoring Board ("DSMB") would conduct interim analyses of the PACT Trial at two specific points - namely, "following one-third (92) and two-thirds (184) of the total events (deaths) for the study, with the potential to stop the trial for futility or if there was clear evidence of the drug's efficacy." ( Id. ). In other words, the study was to be "unblinded, " i.e., data was to be collected and examined, only after the deaths of 92 trial participants ("the first interim analysis") and again after the deaths of 184 trial participants ("the second interim analysis").
On November 19, 2008, GenVec issued a press release announcing survival data from the first interim analysis of the PACT Trial. The press release stated, in relevant part:
Interim data demonstrated an approximately 25% lower risk of death in the TNFerade plus standard of care (SOC) arm relative to the SOC alone (Hazard Ratio=0.753; 95% Confidence Interval [0.494-1.15]). An independent Data Safety Monitoring Board reviewed the interim analysis data and recommended the trial continue as planned.
Kaplan-Meier analysis of data, based on this interim analysis, demonstrated that overall survival at 12 months was 39.9% in the TNFerade plus SOC arm versus 22.5% in the SOC arm. Overall survival at 18 months was 30.5% in the TNFerade plus SOC arm versus 11.3% in the SOC arm. At 24 months, overall survival was 10.6% in the TNFerade plus SOC arm versus 11.3% in the SOC arm. Median survival was 9.9 months in both arms of the trial.
"Successfully passing this milestone in the PACT trial represents an important step forward in the clinical development of TNFerade, " stated Mark Thornton, M.D., Ph.D., Senior Vice President of Product Development at GenVec. Thornton continued, "We believe these data are encouraging and justify moving forward with the trial. The continuation of the trial will allow the data to mature and provide for future analyses. We currently estimate we will reach the required number of events needed to conduct the next analysis of data in the PACT study in late 2009."
The next interim analysis will be conducted after 184 deaths have occurred (two-thirds of total expected events) in the PACT trial. "At our current rate of enrollment we also anticipate having enrolled over 300 out of 330 total patients planned for the trial by the end of next year, " added Thornton.
(ECF No. 21-22, at 5). In the same press release, GenVec announced that "TNFerade has been granted Fast Track product designation by the U.S. Food and Drug Administration (FDA) for its proposed use in the treatment of locally advanced pancreatic cancer." ( Id. at 6).
While GenVec "called the first interim analysis of the PACT Trial encouraging, ' certain efficacy data presented in the November 19, 2008[, ] press release was troubling, raising doubts about the drug." (ECF No. 20 ¶ 53). Indeed, these doubts were reflected in the NASDAQ Global Market, as "the Company's stock declined from a close of $11.50 on November 18, 2008[, ] to a close of $6.50 on November 19, 2008[, ] reaching a low of $3.80 on November 25, 2008." ( Id. at ¶ 54). As one analyst summarized in a November 19, 2008, article posted on TheStreet.com:
GenVec (GNVC) shares sank Wednesday despite what the company said was a positive update on its experimental pancreatic cancer drug TNFerade.
Patients with pancreatic cancer treated with TNFerade plus a standard of care demonstrated a 25% lower risk of death than similar patients treated with standard of care alone, according to an interim analysis of a phase III study released by GenVec on Wednesday.
GenVec executives called these results encouraging and said the TNFerade study will continue. On the surface, the data do look positive. After all, pancreatic cancer is very difficult to treat, so if TNFerade is reducing the risk of death, there's reason for optimism.
Yet, GenVec shares sank  after the company released the new data and held a conference call. Some potential concerns pop up once a deeper look is taken of the interim TNFerade results.
The 25% lower risk of death attributed to TNFerade corresponds to a "hazard ratio" of 0.75, according to the GenVec interim analysis.
The problem that GenVec may run into, however, is that the interim hazard ratio is likely to increase as this study matures, with more patients enrolled and more patients dying.
The interim analysis Wednesday was conducted after the 92nd patient in the study died.
The next interim analysis will be conducted after the 184th death, expected in late 2009. When that second interim analysis occurs, my guess is that the 25% reduction in the risk of death observed Wednesday will shrink considerably.
This is not just an off-the-cuff prediction. Other TNFerade data announced by GenVec Wednesday provides enough evidence to be wary ...