According to a press release dated July 28, 2010, the complaint charges XenoPort and certain of its officers and directors with violations of the Securities Exchange Act of 1934. XenoPort is a biopharmaceutical company focused on developing a portfolio of internally discovered product candidates that utilize the body’s natural nutrient transport mechanisms to improve the therapeutic benefits of existing drugs.
Specifically, the complaint alleges that during the Class Period, defendants publicized misleading and incomplete information about XenoPort’s Phase 3 clinical program for an extended-release tablet and development stage drug called Horizant (gabapentin enacarbil), also known as XP13512 (“512”), as a potential treatment for moderate-to-severe primary Restless Legs Syndrome (“RLS”), including that there was strong evidence of safety and indicating that it remained on track, creating an opportunity for the Company to raise money. However, the Company’s top management was aware that 512 had earlier shown an increased occurrence of pancreatic cancer in lab rats. While the drug had nonetheless been approved for more serious indications, this presented a risk that the FDA would not approve 512 for less serious maladies given the devastating impact of pancreatic cancer. Instead of disclosing these findings, which would have affected the public’s expectations about the likelihood of FDA approval, defendants repeatedly assured the public as to 512’s safety and efficacy. As a result of these false and misleading statements, XenoPort stock traded at artificially inflated prices during the Class Period, reaching a high of $24.75 per share on September 17, 2009 and permitting the Company to complete a secondary offering in July 2009 of 2.875 million shares of XenoPort stock at $19 per share for proceeds of nearly $45 million.
On February 17, 2010, defendants publicly disclosed that the FDA had declined approval of Horizant, with concerns about laboratory results showing pancreatic cell tumors in rats as a result of the use of the drug. On this news, XenoPort’s stock fell $12.93 per share to close at $6.67 per share on February 18, 2010 – a one-day decline of 65% on volume of 36.5 million shares, over 16 times the average three-month daily volume.
On November 5, 2010, the Court issued an Order Granting the Motion for Consolidation of the Related Actions, Appointment As Lead Plaintiff and Approval Of Co-lead Counsel. On January 4, 2011, the lead plaintiff filed a Consolidated Complaint, which expanded the alleged class period. The defendants responded by filing a motion to dismiss the Consolidated Complaint on February 18, 2011. The motion was granted with leave to amend on May 20, 2011.
On June 14, 2011, the lead plaintiff filed a First Amended Class Action Complaint.