Sanofi misled investors with rosy Lemtrada predictions, lawsuit alleges

Sanofi ($SNY) investors are fed up with disappointing news on the multiple sclerosis drug Lemtrada. Vaunted as a potential blockbuster, the drug hasn't even made it to market in the U.S. Now, some investment funds are suing the French drugmaker, saying executives talked up Lemtrada in public--and kept bad news from the FDA private.

Sanofi and its executives repeatedly said they were extremely confident Lemtrada would win FDA approval. But according to the lawsuit, the agency had repeatedly warned Genzyme, and later Sanofi, that the Lemtrada studies didn't meet its criteria for proof that it worked and was safe.

"Genzyme and Sanofi repeatedly and explicitly told the investing public that Lemtrada was highly likely to receive FDA approval, without disclosing that their communications from the FDA were telling them the contrary," a group of investment funds claim in their lawsuit, filed March 28 in New York federal court.

The lawsuit seeks unspecified damages, but says the "defendants' fraud" amounted to tens of millions of dollars of investor losses. Sanofi hasn't yet filed a response to the court complaint, which names the company and three top executives as defendants.

At the center of the lawsuit is a provision in Sanofi's $20 billion buyout of Genzyme in 2011. At the time, the French drugmaker was skeptical of the biotech's projections for Lemtrada. So, a big component of the deal was a tradable security with payoffs pegged in part to Lemtrada milestones and sales targets. At the time, Genzyme said in a Securities & Exchange Commission filing that management were 90% certain Lemtrada would win FDA approval by March 31 of this year, the lawsuit states.

At first, Lemtrada looked to be on its way up, just as Genzyme had predicted. Sanofi went so far as to buy back $152 million worth of those contingent value rights (CVRs), about 30% of the securities outstanding at the time. But as anyone who's followed the Lemtrada saga since, initial confidence in those CVRs--which trade under the ticker GCVRZ--flagged. And when an FDA advisory panel took a hard-line stance against the drug's approval in November, the CVRs tanked.

They fell even more in late December, when the agency itself thwarted Sanofi's Lemtrada hopes, at least in the U.S., citing a lack of "adequate and well-controlled controlled studies." Meanwhile, rival drugmaker Biogen Idec ($BIIB) has launched its new MS treatment Tecfidera, which leapt right out of the gate, racing toward an early blockbuster breakthrough.

Now, Sanofi is going back to the FDA on Lemtrada. The company hasn't conducted new studies as the FDA demanded. But Sanofi says it thinks it can address the agency's concerns about its drug with a new application. Meanwhile, the drug has been launched in Europe, and cost-effectiveness watchdogs in the U.K. last week gave it a preliminary OK for use by the National Health Service.

- read the Lemtrada app release from Sanofi

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