Mintz Achieves Full First Circuit Victory on Behalf of Keryx Biopharmaceuticals

The Situation

In 2016, named plaintiff Tim Karth brought a lawsuit in federal court in Massachusetts seeking to certify a class consisting of all purchasers of Keryx stock from May 2013 through July 2016. The suit alleged that during this period, Keryx’s SEC filings misled the market about the risk of a patient supply interruption relating to the company’s sole commercial product, Auryxia, a medication that treats chronic kidney disease. The plaintiff further claimed that when the market learned of this interruption on August 1, 2016, Keryx suffered a 63% stock price drop.

The Approach

Our team was quickly engaged to mount a defense. We asserted that Keryx’s manufacturing risk disclosures were not misleading, and that Keryx expressly stated in its February and April 2016 SEC filings (well before the named plaintiff’s purchase of his shares in July 2016 and the August 2016 stock drop) that Keryx was reliant on a single drug product supply source, and that if that sole manufacturer experienced a supply interruption, it could impact Keryx’s revenues.

In September of 2019, the federal district court denied the plaintiff’s motion for class certification, granted our motion for judgment on the pleadings, denied as futile the plaintiff’s motion for leave to file a Third Amended Complaint, and entered a final judgment for Keryx and the other defendants on all counts.

Specifically, the court agreed with the arguments advanced by Mintz that the plaintiff failed the typicality and adequacy prongs of Rule 23 because he purchased his shares after Keryx corrected the alleged misrepresentations, rendering it impossible for him to prove either reliance or loss causation. For the same reasons, the court ruled that the plaintiff’s claims failed as a matter of law, entitling defendants to judgment on the pleadings and rendering the plaintiff’s proposed amendments futile. Following the ruling, the plaintiff appealed the trial court’s judgment to the First Circuit Court of Appeals.

The Outcome

In June 2021, we secured a decisive victory when the First Circuit Court affirmed the District Court’s judgment and upheld the denial of class certification and final judgment in our clients’ favor.

The opinion was significant for several reasons. First, it is extremely rare for defendants to defeat class certification in a securities fraud case. Second, the court’s opinion clarified the standard in the First Circuit for when manufacturing risk disclosures are not materially misleading as a matter of law. While a company may not describe a risk as hypothetical when that risk has a near certainty of coming to fruition, a company is not required to be “omniscient.” As the First Circuit explained, a “risk disclosure is not fraudulent simply because a company makes reasonable assumptions that, in retrospect, prove incorrect.”

Here, the First Circuit concluded that at the time of the SEC filings at issue, Keryx had reason to believe that any production issues would be resolved and would not lead to a patient supply interruption, so it was not misleading for Keryx to describe the risk of a supply interruption as a potential risk that could impact Keryx’s revenues in the future.