(CN) - Chelsea Therapeutics International lied about the anticipated FDA approval of a drug intended to help treat symptoms of Parkinson's disease, shareholders claim in a derivative class action.
Lead plaintiff Kunal Verma claims in Delaware Chancery Court that the company touted Northera (known generically as Droxidopa) as being on its way to the U.S. Food and Drug Administration, leading them to believe it was practically a shoe-in for approval. But the company allegedly knew that the drug was unlikely to obtain FDA approval due to serious health risks after at least 19 deaths during clinical trials.
In a June 2011 press release, Chelsea's chief scientific officer, Dr. Art Hewitt, hailed the drug and its related studies as key players in future advancements in the treatment of Parkinson's disease.
"The results from our clinical trials in neurogenic orthostatic hypotension have consistently highlighted the broad symptomatic benefits of Northera in patients with autonomic failure and we are delighted to have had these findings showcased at the Movement Disorder Society's annual meeting," he said. "These most recent data from Study 306A, though preliminary, suggests that in addition to chronic symptoms such as dizziness, weakness and fatigue, patients with NOH associated with Parkinson's disease are at a high risk for falls and associated injuries. If our on-going trial, Study 306B, replicates these early findings, it could not only have significant implications for the future treatment of neurogenic orthostatic hypotension but could also have important implications for subsequent studies in Parkinson's disease and other movement disorders associated with norepinephrine depletion.'"
On February 13, 2012, however, Chelsea announced it had received a briefing document prepared by FDA staff that revealed results of an Advisory Committee tasked with determining the safety of Northera.
"The briefing document indicated that the FDA raised questions concerning Northera's risk-benefit analysis," the complaint said. Eight days later, Chelsea publicly revealed the FDA's decision not to approve the drug, resulting in a significant drop in the company's stock prices.
The news caused Chelsea's stock to drop a total of 14 percent, from $4.99 per share to $2.64, according to the complaint.
Shareholders say the company knew its drug was not fit for FDA approval but nevertheless participated in a planned "conspiracy" meant to artificially inflate stock prices and retain their positions of power within the company.
The purpose behind the conspiracy, the suit says, was to "(1) Disguise the individual defendants' breaches of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment; (2) to conceal adverse information concerning the company's operations, financial condition and future prospects; and (3) to artificially inflate the price of the company's stock so that the individual defendants could protect and enhance their executive and directorial positions and the substantial compensation and prestige they obtained as a result thereof."
Shareholders also claim that Pedder and board members Kevan Clemens, Norman Hardman, Johnson Y.N. Lau, Roger Stoll, Michael Weiser and William Rueckert are "incapable of making an independent and disinterested decision to institute and vigorously prosecute this action" because of their entangled "financial, personal and business interests and dependencies that render them incapable of fairly evaluating a demand."
The suit was filed by Sidney Liebesman, Lionel Glancy and Michael Goldberg of Glancy Binkow & Goldberg, Willie Briscoe, Patrick Powers, Mark Taylor and Peyton Healey of Powers Taylor.