1/8/2019 - On January 8, 2019, Judge Janet Sanders of the Superior Court of Suffolk County, Massachusetts denied defendants’ motions to dismiss the Consolidated Class Action Complaint in Wu v. Tokai Pharmaceuticals, Inc., et al., alleging violations of Sections 11 and 15 of the Securities Act of 1933.  Barrack, Rodos & Bacine serves as co-lead counsel in the action, which is brought on behalf of purchasers in the September 2014 initial public offering of Tokai Pharmaceuticals, Inc.  The complaint is brought against Tokai, certain individuals who were directors and officers of the company, and the firms that acted as underwriters of the IPO: BMO Capital Markets Corp., Stifel Nicolaus & Company, Incorporated, William Blair & Company, L.L.C. and Janney Montgomery Scott LLC.

At the time of the IPO, Tokai was developing a drug known as galeterone as a therapy for a narrow class of prostate cancer patients whose cancer was resistant to other forms of treatment.  Tokai raised $105 million in order to fund a planned Phase 3 clinical trial of galeterone.  The complaint alleges that the registration statement and prospectus for the IPO failed to disclose that a “retrospective analysis” of certain Phase 2 trial data was insufficient to design and proceed to a Phase 3 trial.  The complaint also alleges that defendants failed to disclose that taxane chemotherapy was a viable treatment option for the patients targeted in the company’s Phase 3 trial and that, accordingly, Tokai faced a known risk of being unable to recruit a sufficient number of patients for the trial.  In July 2016, Tokai announced that it was discontinuing its Phase 3 trial of galeterone and the company’s stock, which had been offered to the public at $15 per share, plummeted to around $1 per share.  It was subsequently revealed that Tokai had been able to enroll only about three dozen patients for the Phase 3 trial.

In denying defendants’ motions to dismiss, the Court determined that the complaint adequately alleged that “Tokai was in possession of material information at the time of the IPO which it was required to disclose so that the disclosures it did make would not be misleading.”  Accordingly, the Court rejected defendants’ contentions that the complaint was based on “hindsight” or a failure to predict the future.  This important decision means that plaintiffs can move forward with the prosecution of the case on behalf of purchasers in the IPO.

If you have any questions about the January 8, 2019 decision, or the litigation involving Tokai Pharmaceuticals, please contact BR&B partner Robert Hoffman at rhoffman@barrack.com.