The Supreme Court of Canada (SCC) has struck down a proposed class action against a drug company on the basis that the allegations that the company failed to disclose a material change under its continuous disclosure obligations cannot succeed because the clinical trial developments did not qualify as a material change.
The case involved a proposed shareholder class action against Montreal-based drug maker Theratechnologies Inc. (TSX:TH), which was seeking the approval of the U.S. Food and Drug Administration (FDA) for a new drug to reduce excess abdominal fat among HIV patients.
The firm’s stock dropped after it was revealed that the FDA had posed a series of questions to the company about possible side effects of the drug in question.
Ultimately, the drug was approved by the FDA and Thera’s share price recovered.
However, a proposed class action was brought against the firm in Quebec alleging that the FDA’s questions about those side effects represented a material change that should have been publicly disclosed.
The motions judge allowed the suit to proceed, and the appeal court agreed. However, the SCC has now reversed those decisions, upholding an appeal from the company. The top court found that the suit did not produce evidence that the FDA’s questions would necessarily impact the company’s share price.
“The results of the clinical trials, including potential side effects, were disclosed to shareholders as they became available. There was no new information about the side effects of the drug that required timely disclosure when the FDA mentioned those side effects in the briefing materials,” the SCC said in its decision.
“It is difficult to characterize these questions as any kind of change to Thera’s business, operations, or capital requiring a reassuring public response from Thera,” the court found. “Because the evidence does not credibly point to a material change that could have triggered disclosure obligations, there is no reasonable possibility that [the class action] could succeed.”