Karth v. Keryx Biopharmaceuticals, Inc et al

Filing 152

Judge Denise J. Casper: ORDER entered. MEMORANDUM AND ORDER - The Court DENIES Karth's motion for class certification, D. 112, and dismisses all class claims against Defendants. The Court ALLOWS Defendants' motion for judgment on the pleadings, D. 96, and dismisses Karth's remaining individual claims against Defendants. The Court DENIES Karth's motion for leave to amend the complaint, D. 115. (Hourihan, Lisa)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
__________________________________________
)
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TIM KARTH ,
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on behalf of himself and others
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similarly situated,
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Plaintiffs,
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)
v.
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)
Civil Action No. 16-11745-DJC
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KERYX BIOPHARMACEUTICALS, INC.
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et al.,
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Defendants.
)
)
)
__________________________________________)
MEMORANDUM AND ORDER
CASPER, J.
I.

September 23, 2019

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.” AcostaMestre 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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Since the Court considered Defendants’ motion to dismiss the first amended complaint,
D. 38, at the same time as it considered Karth’s motion for leave to file a second amended
complaint, D. 43, it considered the allegations in the first amended complaint as well as the
allegations in the proposed second amended complaint, but denied that amendment finding such
amendment futile. D. 50 at 11.
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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 its earlier decision regarding that motion. D. 97 at 6; see D. 39; D. 42; D. 44. As
a result of these statements, Defendants allege that Karth, an investor who purchased stock after
both such statements, is not an adequate class representative and that the claims of a class that span
the period before and after these disclosures do not present typical claims under Fed. R. Civ. P.
23(a) and Defendants are entitled to judgment on the pleadings since Karth cannot satisfy at least
two of the essential elements of securities fraud claims. D. 97 at 4-5.
The Court considers Defendants’ arguments as to two bases of the securities fraud claims
that survived the earlier motion to dismiss: 1) that it was a material misrepresentation or omission

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to suggest that Keryx had more than one manufacturer to convert API into Auryxia drug product
in public disclosures between May 8, 2013 and the “cure” of same on August 1, 2016, D. 50 at 9;
and 2) the April 2, 2016 Preliminary Schedule 14A was materially misleading as to FDA approval
of a second such contract manufacturer when Norwich remained the only such manufacturer for
Auryxia drug product. D. 50 at 9-10.2
IV.

Procedural History
On August 26, 2016, Plaintiffs initiated this lawsuit, D. 1. On February 27, 2017, Plaintiffs

filed the first amended complaint, D. 25. On Defendants’ motion to dismiss under Fed. R. Civ. P.
12(b)(6), the Court dismissed one of Karth’s three claims relating to forward-looking statements
but allowed the two other claims relating to alleged material misrepresentations and omissions as
to multiple contract manufacturers for conversion of API into Auryxia tableted to proceed. D. 50
at 9-10. The Court also denied Karth’s motion to amend his complaint for the second time. Id. at
11.
Karth has now moved for class certification, D. 112, and moved again to amend the
complaint, D. 115. Defendants have moved for judgment on the pleadings. D. 96. The Court
heard the parties on the pending motions and took the matters under advisement. D. 147.

V.

Discussion

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The Court rejects Plaintiff’s argument that the motion for judgment on the pleadings is
merely an attempt by Defendants to get the Court to reconsider the motion to dismiss, which was
denied in part. This motion is not only brought under Fed. R. Civ. P. 12(c), rather than R. 12(b)(6)
which was the basis of the prior motion, but addresses a legal basis not previously addressed or
resolved by the Court. See generally D. 50.
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A.

Class Certification

Karth has proposed the following class for certification as to both his claims: “all persons
and entities who purchased or otherwise acquired Keryx securities between May 8, 2013, through
August 1, 2016, inclusive. Excluded from the Class are Defendants, directors and officers of the
Company, as well as their families and affiliates.” D. 25 at 56. Karth must meet all the
requirements under Rule 23(a) and under Rule 23(b)(1), (2) or (3) to prevail on his class
certification motion. See Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 614 (1997).
1.

Ascertainability

Before addressing the Rule 23(a) and (b) analysis, the Court must determine “whether the
scope of the class . . . is appropriate, i.e., whether it is administratively feasible.” Kent v.
SunAmerica Life Ins. Co., 190 F.R.D. 271, 278 (D. Mass. 2000) (citing 7C Charles Alan Wright
& Arthur R. Miller, Federal Practice and Procedure § 1760, 581 (2d ed. 1972)). A class must be
determinable by “stable and objective factors” at the outset of a case, id.; not every class member
must be identified, but the class must be sufficiently ascertainable to permit a court to “decide and
declare who will receive notice, who will share in any recovery, and who will be bound by the
judgment.” Id. (citing Crosby v. Soc. Sec. Admin. of the U.S., 796 F.2d 576, 580 (1st Cir. 1986)).
The definition for the proposed class here identifies members by their purchase of Keryx securities
during a defined time period. The Court, therefore, concludes that Karth has provided objective
criteria for defining the class and has satisfied his initial burden of showing ascertainability.
2.

Rule 23(a) Requirements
a)

Numerosity

The Court must now determine whether “the class is so numerous that joinder of all
members is impracticable.” Fed. R. Civ. P. 23(a)(1). “No minimum number of plaintiffs is
required . . . but generally if the named plaintiff demonstrates that the potential number of
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plaintiffs exceeds 40, the first prong of Rule 23(a) has been met.” García-Rubiera v. Calderón,
570 F.3d 443, 460 (1st Cir. 2009) (quoting Stewart v. Abraham, 275 F.3d 220, 226-27 (3d Cir.
2001)); see In re Relafen Antitrust Litig., 218 F.R.D. 337, 342 (D. Mass. 2003). Karth contends,
and Defendants do not dispute, that he has met his burden with respect to numerosity because
during the proposed class period Keryx securities traded at such a high volume that the class
necessarily includes at least hundreds of members. D. 113 at 5-6. The Court concludes that the
putative class satisfies the numerosity requirement. See, e.g., In re Evergreen Ultra Short
Opportunities Fund Sec. Litig., 275 F.R.D. 382, 388 (D. Mass. 2011) (noting that “[a]lthough the
number of class members is still unknown, because there are millions of shares outstanding and
were millions of transactions during the class period, the Court can reasonably infer that there are
at least hundreds, if not thousands of class members”).
b)

Commonality

Karth also must demonstrate that “there are questions of law or fact common” to the class.
Fed. R. Civ. P. 23(a)(2). Commonality is satisfied where the claims at issue depend upon a
“common contention . . . of such a nature that it is capable of classwide resolution—which means
that determination of its truth or falsity will resolve an issue that is central to the validity of each
one of the claims in one stroke.” Wal–Mart Stores, Inc. v. Dukes, 564 U.S. 338, 350 (2011). Karth
asserts that the class shares common questions of law and fact, including whether Keryx violated
federal securities laws through misrepresentation and/or omission of material facts and the scienter
of the Individual Defendants. D. 113 at 6-7. Defendants either do not object to commonality or
contend that the proposed class lacks commonality for the same reasons it cannot satisfy the
predominance inquiry set forth in Rule 23(b)(3). See D. 133 at 7-17. However, the “predominance
criterion is far more demanding . . . than the commonality requirement.” New Motor Vehicles,
522 F.3d at 20 (quoting Amchem, 521 U.S. at 624). Here, the common questions among the class
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overcome the commonality requirement’s “low bar.” New Motor Vehicles, 522 F.3d at 19. The
Court concludes that Karth has established commonality as to the proposed class and addresses
Defendants’ concerns regarding the predominance of common issues or questions affecting
individual members in its later analysis of the Rule 23(b)(3) factors.
c)

Typicality and Adequacy

As to the typicality requirement, Karth also must show that “the claims or defenses of the
representative parties are typical of the claims or defenses of the class.” Fed. R. Civ. P. 23(a)(3).
“The representative plaintiff satisfies the typicality requirement when its injuries arise from the
same events or course of conduct as do the injuries of the class and when plaintiff’s claims and
those of the class are based on the same legal theory.” In re Credit Suisse–AOL Sec. Litig., 253
F.R.D. 17, 23 (D. Mass. 2008) (citation omitted).
As to adequacy of the class representative, pursuant to Rule 23(a)(4), the Court considers
whether “the representative parties will fairly and adequately protect the interests of the class.”
Fed. R. Civ. P. 23(a)(4). This factor requires Karth to establish an absence of potential conflict
and an assurance of vigorous prosecution. See Andrews v. Bechtel Power Corp., 780 F.2d 124,
130 (1st Cir. 1985). The class representative must be part of the class, possess the same interest
and suffer the same injury as class members. See Amchem, 521 U.S. at 625-26. “[P]erfect
symmetry of interest is not required and not every discrepancy among the interests of class
members renders a putative class action untenable.” Matamoros v. Starbucks Corp., 699 F.3d 129,
138 (1st Cir. 2012). Rather, the inquiry “serves to uncover conflicts of interest between named
parties and the class they seek to represent,” Amchem, 521 U.S. at 625, and focuses on conflicts
that are “fundamental to the suit and that go to the heart of the litigation,” Matamoros, 699 F.3d at
138 (quoting 1 William B. Rubenstein, Newberg on Class Actions § 3:58 (5th ed. 2012)).

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“[S]peculative conflict should be disregarded at the class certification stage.” Natchitoches Parish
Hosp. Serv. Dist. v. Tyco Int’l, Ltd., 247 F.R.D. 253, 265 (D. Mass. 2008) (citation omitted).
The Court considers these separate Rule 23(a) factors together because Defendants
challenge Karth’s adequacy as the class representative because, in part, his claims are not typical
of the proposed class he seeks to represent. Karth contends that his claims are typical of the class
because he, like all proposed class members, purchased Keryx shares within the proposed class
period between May 8, 2013 and August 1, 2016 and seeks recovery for damages suffered as a
result of the alleged inflation of the market price he paid for those shares by the allegedly materially
false statements and omissions of material facts by Defendants. D. 113 at 7-8. Likewise, Karth
says that his “interests are perfectly aligned with the remainder of the class.” Id. at 8. Defendants
argue that Karth is not a suitable representative of the class because he purchased Keryx shares on
behalf of a trust in July 2016. Defendants maintain that Karth’s status as representative of an
allegedly defunct trust renders his claims susceptible to “unique defenses that would divert
attention from the common claims of the class.” Swack v. Credit Suisse First Bos., 230 F.R.D.
250, 260 (D. Mass. 2005). D. 133 at 18. Defendants further argue that the timing of Karth’s
purchase, in July 2016, renders him unsuitable because Defendants claim they disclosed Keryx’s
reliance on a single manufacturer in February and April 2016 thus putting Karth potentially at odds
with those members of the putative class who purchased prior to the alleged February and April
2016 disclosures and/or removing him from the class entirely. Id.
(1) Karth’s purchase of shares as a trustee does not make him an inadequate
representative.
Defendants initially challenged Karth’s standing to be a plaintiff at all here given Karth’s
own statement that the trust had been dissolved before the filing of the complaint. D. 133 at 24;
D. 142 at ¶ 1. Further investigation by Karth, produced to Defendants, however, showed that the
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trust was never dissolved. D. 142 at ¶ 3. The trustee argument thus appears to reflect an initial
misunderstanding, now corrected, of the trust’s status and, at most, harmless error in Karth’s initial
failure to identify himself as having purchased Keryx shares in his role as a trustee. See D. 141 at
31.
(2) Even assuming arguendo Karth would otherwise be an adequate
representative for this class, he is not given the timing of his purchases and
nature of his claims.
The timing of Karth’s purchase, however, presents a problematic issue with respect to
defining the class period because of the existence of the February and April 2016 disclosures.
Karth characterizes the February and April 2016 disclosures as identical to the disclosures about
“single source suppliers” the Court analyzed in connection with the motion to dismiss. D. 101 at
2-3, 5-7, 9-11. In deciding the motion to dismiss, however, the Court looked at the shift in
disclosures from the March 2013 statement that there was a single contract manufacturer for
Auryxia drug product to the later disclosures, from May 2013 through February 2016, which read,
for instance, “some of the third parties we employ in the manufacturing process are single source
providers,” and held that the later in time disclosures were potentially misleading for their
ambiguity as to the number of contract manufacturers Keryx was employing. See D. 50 at 8-9.
The disclosures Defendants now have brought to the Court’s attention are distinct from the
disclosures analyzed in connection with the motion to dismiss because they are not ambiguous.
The February and April 2016 disclosures, particularly the April disclosure, match the specificity
of the March 2013 statement in that all three disclose the fact that Keryx utilized a single source
for Auryxia drug product, i.e., Auryxia tablets, as well as the attendant risks.

In March 2013,

Keryx wrote in its Form 10-K that ““[u]ntil such time [as it engages a back-up supplier] we expect
that we will rely on a single contract manufacturer to produce [Auryxia].” D. 25 at ¶ 34. The two

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public disclosures by Keryx in filings with the SEC in February and April of 2016 read, “[w]e
currently depend on a single supply source for Auryxia drug product.” D. 98-1 at 107, 176, D. 982 at 15, 52, 67. The April 2016 disclosure further stated, “[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, precisely the issue Karth points to as precipitating the drop in
share price in August 2016.
Karth’s argument that the February and April 2016 disclosures do no more than muddy the
waters and “left investors to guess which disclosures were accurate” is, therefore, unavailing. D.
141 at 21. In its ruling on the motion to dismiss, the Court wrote that “a reasonable investor could
have concluded . . . from the ambiguous language . . . regarding the number of contract
manufacturers that Keryx had engaged multiple contract manufacturers to convert the API into
tablets when in fact Keryx had not.” D. 50 at 9. The February and April 2016 disclosures resolve
the ambiguity that may have misled the market by stating there was a single supplier for Auryxia
drug product.

Additionally, they do so in the same forum, SEC filings, as the potentially

misleading disclosures. Karth advances additional arguments that the specific language used in
the February and April 2016 disclosures, specifically the terms drug product and drug substance,
was not clear. “Drug product” is a term defined by the FDA as “[a] finished dosage form.” See
Gustavsen v. Alcon Labs., Inc., 903 F.3d 1, 13 (1st Cir. 2018) (citing 69 Fed. Reg. at 18,739); see
also 21 C.F.R. § 314.3 (defining “drug product” as “a finished dosage form, e.g., tablet, capsule,
or solution, that contains a drug substance, generally, but not necessarily, in association with one
or more other ingredients”). It is undisputed that Auryxia tablets were the only “drug product,” as

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defined by the FDA, that Keryx manufactured (through its contract with Norwich) during the
relevant time period. D. 25 at ¶ 1. At the hearing on the motions, counsel for Karth pointed to an
email, referenced in the proposed amended complaint, D. 115-1 at ¶ 116, from a Keryx director,
John Butler, in which Butler noted that “retail” investors may not know the difference between
drug substance and drug product. D. 150 at 50-51. At this point, however, both parties have
embraced the notion that Keryx shares trade in an “efficient market,” i.e. a market that “is said to
digest or impound news into the stock price in a matter of minutes.” D. 97 at 10 (citing Erica P.
John Fund, Inc. v. Haliburton Co., 309 F.R.D. 251, 269 (N.D. Tex. 2015)); D. 101 at 13 n. 1. This
principle, known as the Basic presumption, states that “the market price of shares traded on welldeveloped markets reflects all publicly available information, and, hence, any material
misrepresentations.” Basic Inc. v. Levinson, 485 U.S. 224, 246 (1988). Whether the February and
April 2016 disclosures were in footnotes or not is inapposite where parties do not dispute that such
information was publicly disclosed or the timing of same. See D. 107 at 4-5.
As courts have noted, “[w]hether a particular announcement . . . actually cured a prior
misrepresentation is, of course, a sensitive issue to rule on at this early stage of the proceedings,
because it comes so close to assessing the ultimate merits in the case.” In re Fed. Nat. Mortg.
Ass'n Sec., Derivative & ""ERISA'' Litig., 247 F.R.D. 32, 39 (D.D.C. 2008). In instances where
there is “no substantial doubt as to the curative effect” of the later-in-time announcement, however,
courts “will simply define the class period accordingly” without risk of improperly wading into
the merits at the class certification stage. Id. As in Hayes v. MagnaChip Semiconductor Corp.,
No. 14-CV-01160-JST, 2016 WL 7406418, at *1 (N.D. Cal. Dec. 22, 2016) and Fed. Nat. Mortg.
Ass’n Sec., this is not “a situation where the [subsequent] disclosure merely hinted at the existence
of the problems and that the market barely reacted to a half-hearted disclosure.” In re Fed. Nat.

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Mortg. Ass'n Sec., 247 F.R.D. at 39. Instead, “there was nothing equivocal” about Keryx’s April
28, 2016 disclosure that Keryx had a single manufacturer for its drug product. Id. A plausible
class period can therefore extend no further than April 28, 2016.3 See, e.g. Hayes, 2016 WL
7406418, at *8 (noting that “[a] number of district courts have declined to extend the class period
in a securities case beyond the date of [curative] disclosures” and collecting cases).
Karth, who purchased shares in July 2016, therefore, purchased Keryx shares in a markedly
different disclosure environment than other proposed class members who purchased shares as early
as May 8, 2013. Such a different position is “fundamental to the suit” and “go[es] to the heart of
the litigation,” namely, Karth not being a member of a sustainable class. See, e.g., Basic, 485 U.S.
at 248–49 (noting that “if, despite petitioners' allegedly fraudulent attempt to manipulate market
price, news of the merger discussions credibly entered the market and dissipated the effects of the
misstatements, those who traded . . . after the corrective statements would have no direct or indirect
connection with the fraud”). This disparity creates a conflict between Karth and prospective class
members, see Vargas v. Spirit Delivery & Distrib. Servs., 245 F. Supp. 3d 268, 288 (D. Mass.
2017), that threatens to “overbalance the common interests of the class members as a whole,”
Matamoros, 699 F.3d at 138. The Court, therefore, concludes Karth is not a suitable named
plaintiff for reasons of atypicality and inadequacy.
After the voluntary dismissal by named plaintiff Abraham Kiswani in April 2019, D. 104,
Karth has become the sole Named Plaintiff remaining in the case. Having found that the timing
of Karth’s purchase makes his claims atypical from those of a majority of proposed class members
and removes his standing to bring the claims on behalf of the proposed class, see City of Bristol

3

Even if a class period could be shortened to this “curative” date, it is not clear that
securities fraud claims would survive for such a class given the issues of reliance and loss causation
addressed below.
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Pension Fund v. Vertex Pharm. Inc., 12 F. Supp. 3d 225, 235 (D. Mass. 2014) (noting “a plaintiff
who purchased after a corrective disclosure was made would have no standing, because relying on
the earlier misrepresentation would no longer be reasonable in light of the new information”), and
thus that Karth is an inadequate class representative, the Court declines to certify the proposed
class given the lack of a named plaintiff.4 See 1 William B. Rubenstein, Newberg on Class Actions
§ 2:5 (5th ed. 2012) (noting that “[i]n a class action suit with multiple claims, at least one named
class representative must have standing with respect to each claim”).
Due to the Court’s conclusion as to adequacy and typicality, the Court need not proceed to
address the Rule 23(b)(3) requirements of predominance and superiority, but does so here in the
interest of completeness.
3.

Rule 23(b)(3) Superiority

A putative class seeking certification under Rule 23(b)(3) also bears the burden of showing
that a class action “is superior to other available methods for fairly and efficiently adjudicating the
controversy,” Fed. R .Civ. P. 23(b)(3). Nexium, 777 F.3d at 18. The Court considers four factors
within the superiority inquiry: 1) the individual interests in controlling the prosecution of separate
actions; 2) any existing litigation already begun by class members; 3) the advantages or
disadvantages of litigating the claims in the forum; and 4) any particular difficulties in managing
the class action. Fed. R. Civ. P. 23(b)(3). The Court considers the alternatives to a class action,
conscious that “[t]he policy at the very core of the class action mechanism is to overcome the
problem that small recoveries do not provide the incentive for an individual to bring a solo action

4

At the hearing on the motions, Karth’s counsel agreed that if the February and April 2016
disclosures were curative, Karth “clearly . . . would have purchased after there’s a cure of the
information” and added that he was “not sure anybody would be able to bring a claim.” D. 150 at
15.
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prosecuting his or her rights.” Amchem, 521 U.S. at 617 (quoting Mace v. Van Ru Credit Corp.,
109 F.3d 338, 344 (1997)) (internal quotation marks omitted). The superiority inquiry thus ensures
that litigation by class action will “achieve economies of time, effort, and expense, and promote .
. . uniformity of decision as to persons similarly situated, without sacrificing procedural fairness
or bringing about other undesirable results.” Id. (quoting Advisory Committee’s Notes on Fed. R.
Civ. P. 23).
The first two factors weigh in favor of a class action given the lack of any record of
particularized interest in directing the litigation from any individual and the lack of existing
litigation concerning the same controversy. As to the latter two factors, the fact that Keryx is
headquartered in Massachusetts is an advantage to this forum and there are no particular difficulties
presented by the management of this class action. Defendants also do not challenge the superiority
of a class action as a method of adjudicating the class claims here. A class action would be superior
to litigation of individual claims by the multitudinous individual investors who purchased Keryx
shares during the shortened class period.
4.

Rule 23(b)(3) Predominance

Rule 23(b)(3) requires the Court to find that “the questions of law or fact common to class
members predominate over any questions affecting only individual members.” Fed. R. Civ. P.
23(b)(3). The focus of the predominance inquiry is “whether proposed classes are sufficiently
cohesive to warrant adjudication by representation.” Amchem, 521 U.S. at 623. When conducting
a Rule 23(b)(3) analysis, the Court must determine whether there is “reason to think that
[individualized] questions will overwhelm common ones and render class certification
inappropriate.” Halliburton Co. v. Erica P. John Fund Inc., 573 U.S. 258, 276 (2014). This
requires a district court to “formulate some prediction as to how specific issues will play out in

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order to determine whether common or individual issues predominate in a given case.” Waste
Mgmt. Holdings, Inc. v. Mowbray, 208 F.3d 288, 298 (1st Cir. 2000).
Given that the class definition for the full period through August 1, 2016 cannot be
sustained, Defendants’ arguments as to price impact and Plaintiff’s damages model no longer
apply with full force. It is not clear that the predominance factor could be met here, particularly
as to the class presently proposed. Given the proposed class period—stock purchases from May
8, 2013 through August 1, 2016—which spans non-ambiguous public disclosures as to the single
contract manufacturer for Auryxia drug product in February and April 2016, the Court cannot say
that questions of law or fact common to this class predominate over any questions affecting
individual members, particularly as to reliance and loss causation.
For all of these reasons, the Court DENIES the motion to certify the proposed class.
Accordingly, what remains are Karth’s individual claims against Defendants, which the Court
turns to now.
B.

Defendants’ Motion for Judgment on the Pleadings

Thus the Court turns to Defendants’ motion for judgment on the pleadings, D. 96, against
Karth’s individual claims against Defendants for violations of §10(b) of the Exchange Act and
Rule 10b-5 against all Defendants and violations of §20(a) of the Exchange Act against the
Individual Defendants. Both of Karth’s claims to survive the Court’s order on the motion to
dismiss, D. 50, are premised on the same set of alleged facts, namely that: 1) Keryx, through
material misrepresentations and/or omissions misled investors about the number of its third-party
manufacturers of Auryxia drug product even though there was, at all relevant times to this matter,
only one manufacturer of Auryxia tablets; and 2) when Keryx revealed that it only had a single
manufacturer for Auryxia tablets in August of 2016 and that the single manufacturer was

18

experiencing issues that impacted the availability of Auryxia for sale, the market responded with
a significant price drop in Keryx shares. The sole theory of liability to survive the earlier motion
to dismiss ruling was that Keryx’s statements from May 2013 forward may have misled investors
as to how many drug product manufacturers were producing Auryxia tablets. D. 50 at 7-10.
Defendants argue that the February and April 2016 disclosures break the link between the alleged
misstatements to Karth and the drop in share price in August 2016, thereby robbing Karth’s claims
of the only alleged loss causation Plaintiff suffered as a result of the alleged misstatements and
defeating the two remaining claims. Also, since only Karth’s individual claims remain with no
class having been certified, Karth’s claims also fail because he has not plausibly alleged material
reliance upon misrepresentations and/or omissions. D. 97 at 10.
As the Court stated in its ruling on Defendants’ motion to dismiss, D. 50, to state a claim
under Section 10(b) and Rule 10b-5, Plaintiffs must plead “(1) a material misrepresentation or
omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or
omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or
omission; (5) economic loss; and (6) loss causation.” Amgen Inc. v. Connecticut Ret. Plans & Tr.
Funds, 568 U.S. 455, 460–61 (2013) (citation omitted). “To establish a material misrepresentation
or omission, [the plaintiff] must show ‘that defendants made a materially false or misleading
statement or omitted to state a material fact necessary to make a statement not misleading.’”
Ganem v. InVivo Therapeutics Holdings Corp., 845 F.3d 447, 454 (1st Cir. 2017) (quoting Geffon
v. Micrion Corp., 249 F.3d 29, 34 (1st Cir. 2001)). “[W]hether a statement is ‘misleading’ depends
on the perspective of a reasonable investor.” Omnicare, Inc. v. Laborers Dist. Council Const.
Indus. Pension Fund, 135 S. Ct. 1318, 1327 (2015). The allegations in the complaint must also
meet the “heightened pleading requirements” imposed on private securities litigation. Miss. Pub.

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Emples. Ret. Sys. v. Bos. Sci. Corp., 523 F.3d 75, 85 (1st Cir. 2008). “[W]hen alleging that a
defendant made a material misrepresentation or omission, a complaint must ‘specify each
statement alleged to have been misleading [and] the reason or reasons why the statement is
misleading.’” Id. (quoting 15 U.S.C. § 78u–4(b)(1)). The heightened pleading standard in the
context of the element of scienter requires that the complaint “plead facts giving rise to a strong
inference of scienter.” Id. at 86.
Karth contends that Defendants’ arguments amount to a “truth on the market defense,” for
which they have failed to meet their burden. D. 101 at 8-10, 11-14. A truth on the market defense,
as explained by Karth, “requires a defendant to establish that the allegedly misrepresented
information was already fully reflected in the market so that the stock price already reflected the
misrepresented facts.” D. 101 at 11. A truth on the market defense posits that despite any alleged
misrepresentation the market already knows the truth of the matter. See, e.g., In re Credit SuisseAOL Sec. Litig., 465 F. Supp. 2d 34, 51 (D. Mass. 2006). In raising this defense, a party rebuts
the allegation that the alleged misrepresentations were material by providing evidence that the
market did not “believe” the alleged misrepresentation due to other available information, usually
from a third party. See, e.g., In re Apple Computer Sec. Litig., 886 F.2d 1109, 1115 (9th Cir.
1989) (finding that press scrutiny and disbelief of positive statements was sufficient to form basis
of truth on the market defense). The fact that the corrective information usually comes from a
third party is why the “degree of intensity and credibility sufficient to counter-balance effectively
any misleading information” is an important part of the truth on the market analysis. See In re
Credit Suisse-AOL, 465 F. Supp. at 51. Here, the issue is not the ability of the new information
to counterbalance the misleading information, but non-ambiguous language that breaks the causal
link between allegedly misleading information as to multiple contract manufacturers and reliance

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on same and resulting loss causation when such misrepresentation was allegedly cured on August
1, 2016. That is, the newly presented disclosures do not render the disclosures the Court analyzed
on the motion to dismiss immaterial; rather, they bring to light a lack of a necessary causal link
between the earlier misstatements prior to February 2016 and any claimed economic loss by Karth.
Such missing link is fatal to Karth’s claims. See, e.g., Miller Inv. Tr. v. Morgan Stanley & Co.,
LLC, 308 F. Supp. 3d 411, 449 (D. Mass. 2018) (dismissing securities fraud claim because plaintiff
“has not adequately pled loss causation”); In re Polaroid Corp. Sec. Litig., 134 F. Supp. 2d 176,
189 (D. Mass. 2001) (dismissing securities fraud claims because “the Complaint fails to allege
adequate loss causation”).
As previously stated, Karth must show a material misrepresentation or omission, scienter,
a connection between the misrepresentation or omission and the purchase of a security, reliance
upon the misrepresentation or omission, economic loss and loss causation. Amgen, 568 U.S. at
460-461. Both of Karth’s remaining claims rely on the premise that once the market learned in
August 2016 that Keryx had a single manufacturer of Auryxia tablets along with the attendant
increased risk of a failure to “meet the quality or delivery requirements needed to supply Auryxia
at levels to meet market demand,” the market reacted with a sharp drop in Keryx’s share price.
The disclosure to the market of those key facts nearly six months prior to the subsequent market
reaction breaks the causal chain for purposes of Karth’s fraud on the market theory. Cf. Dura
Pharm., Inc. v. Broudo, 544 U.S. 336, 342-347 (2005) (holding plaintiff alleging securities fraud
must show causal link between alleged fraud and economic loss occurring at time of sale of
securities to survive motion to dismiss). Karth is similarly unable to plausibly allege reliance
because his July 2016 purchase of Keryx shares came after the curative disclosures in February
and April 2016. See City of Bristol, 12 F. Supp. 3d at 235 (noting “a plaintiff who purchased after

21

a corrective disclosure was made would have no standing, because relying on the earlier
misrepresentation would no longer be reasonable in light of the new information”).
Moreover, it would be futile to amend as to loss causation or reliance where there has been
no suggestion that there was any stock drop after either earlier disclosure, but only later on August
1, 2016. See D. 107 at 6. Accordingly, the Court grants judgment to Defendants on both counts.
C.

Karth’s Motion to Amend the Complaint

A party may amend a complaint with the court’s leave, which the court “should freely give”
when “justice so requires.” Fed. R. Civ. P. Rule 15(a)(2). Leave to amend may be “denied for
several reasons, including undue delay, bad faith, dilatory motive of the requesting party, repeated
failure to cure deficiencies, and futility of amendment.”

Hagerty ex rel. United States v.

Cyberonics, Inc., 844 F.3d 26, 34 (1st Cir. 2016) (citation omitted). The court denies the motion
for leave to amend on futility grounds.
First, the alleged amendment does not cure the deficiencies as to loss causation and reliance
as to the lone remaining plaintiff, Karth. As Karth notes in his motion for leave to amend, the
proposed amended complaint “still concerns the same general subject matter of the operative
complaint” and “[t]he alleged corrective disclosure [on August 1, 2016] has not changed.” D. 115
at 5. The new alleged facts in the proposed amended complaint merely bolster Karth’s claims as
to Keryx’s misrepresentations and omissions surrounding the number of contract manufacturers
for Auryxia drug product. See D. 115-1 at ¶¶ 99, 230, 239.
Second, to the extent that Karth seeks to present new legal theories, specifically with
respect to disclosures of risks from manufacturing interruptions, see D. 115 at 3; D. 115-1 at ¶¶
43-47, 50-53, 56-58, 67-69, 81-86, 100-101, 104-108, 11-114, it would be futile to amend because
the April 2016 disclosure functions as a curative disclosure for that theory as well. The April 28,

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2016 10-Q 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. The
warned-of risk of supply interruption, and resulting adverse impact on revenue, was realized in
late July 2016 leading to the stock price drop in August 2016, but the February and April 2016
disclosures had already remedied the alleged prior misrepresentations and/or omissions. Karth’s
theory as to ongoing manufacturing issues at Norwich thus suffers the same infirmities with respect
to loss causation and reliance as his theory as to the number of contract manufacturers and further
amendment would be futile.
VI.

Conclusion
For the foregoing reasons, the Court DENIES Karth’s motion for class certification, D.

112, and dismisses all class claims against Defendants. The Court ALLOWS Defendants’ motion
for judgment on the pleadings, D. 96, and dismisses Karth’s remaining individual claims against
Defendants. The Court DENIES Karth’s motion for leave to amend the complaint, D. 115.
So Ordered.
/s/ Denise J. Casper
United States District Judge

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