Karth v. Keryx Biopharmaceuticals, Inc., Civil Action No. 16-11745-DJC

• Court: United States District Courts. 1st Circuit. United States District Courts. 1st Circuit. District of Massachusetts
• Writing for the Court: CASPER, J.
• Parties: TIM KARTH, on behalf of himself and others similarly situated, Plaintiffs, v. KERYX BIOPHARMACEUTICALS, INC. et al., Defendants.
• Decision Date: 23 September 2019
• Docket Number: Civil Action No. 16-11745-DJC

TIM KARTH, on behalf of himself and others similarly situated, Plaintiffs,
v.
KERYX BIOPHARMACEUTICALS, INC. et al., Defendants.

Civil Action No. 16-11745-DJC

UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS

September 23, 2019

MEMORANDUM AND ORDER

CASPER, J.

I. Introduction

Named 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

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judgment on the pleadings, D. 96. The Court DENIES Karth's motion for leave to amend the complaint, D. 115.

II. Standard of Review

A. Class Certification

A class 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.

"[T]he 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 at 27.

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B. Judgment on the Pleadings

Rule 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).

On a 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).

C. Leave to Amend

Fed. R. 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.

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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)).

III. Factual Background

Keryx 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.

The 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,¹ as follows.

In 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.

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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 ¶ 36.

Keryx 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.

As 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]

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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.

Both to 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...