San Francisco Chronicle - August 12, 2008
Bob Egelko, begelko@sfchronicle.com.

If the investors can prove their claims, they may be able to show that the Foster City company's alleged misrepresentations about its promotion of the drug Viread caused an artificial rise in its stock price that was reversed after a Food and Drug Administration reprimand, said the Ninth U.S. Circuit Court of Appeals in San Francisco.

A federal judge had dismissed the suit in 2006, saying the investors' claims, even if true, couldn't show how an FDA warning letter in July 2003 caused a drop in the stock price three months later. The appeals court disagreed, noting that Gilead's price fell 12 percent the day after the company announced lower-than-expected quarterly sales - allegedly caused by the FDA's letter three months earlier.

Disclosure of a company's fraud can hurt innocent investors despite "a limited temporal gap between the time a misrepresentation is publicly revealed and the subsequent decline in stock value," said Judge Michael Hawkins in the 3-0 ruling.

"The court recognized that investors respond to the impact of fraud on a company's bottom line," said Susan Alexander, a lawyer for the plaintiffs.

Gilead spokeswoman Cara Miller declined to comment. Later Monday, the company said the FDA had just approved Viread as a treatment for chronic hepatitis B - one of the diseases for which it was allegedly being marketed without government approval in 2003, according to the lawsuit.

Viread, an antiretroviral drug taken in combination with other drugs, has helped to make Gilead the nation's leading seller of AIDS medications.

The suit said the FDA initially approved Viread in October 2001 for about 40 percent of AIDS patients, but Gilead marketed it for all AIDS patients, as well as for those who were also infected with hepatitis B.

The FDA told Gilead to stop understating the product's risks in March 2002, but the company continued off-label marketing, which accounted for 75 to 95 percent of the sales of Viread, the suit said.

A resulting price increase and favorable earnings report in mid-July 2003 led to a 13.4 percent jump in the company's stock, the suit said. Two weeks later, the plaintiffs said, the FDA warned Gilead against misleading promotions and told it to take corrective action, a letter the agency made public in early August. But it was not until October 2003 that the stock price fell after a new, gloomier financial report.

In the meantime, the suit said, two Gilead officers had each sold company stock worth more than $3 million.

The suit seeks class-action status on behalf of everyone who bought Gilead stock between the first financial report in mid-July 2003 and the second report in October.

Gilead stock fell 34 cents to $56.43 before rallying in after-hours trading, where the stock rose 94 cents to $57.37.

080812
SC080802

Always watch for outdated information. This article first appeared in 2008. This material is designed to support, not replace, the relationship that exists between you and your doctor.

AEGiS presents published material, reprinted with permission and neither endorses nor opposes any material. All information contained on this website, including information relating to health conditions, products, and treatments, is for informational purposes only. It is often presented in summary or aggregate form. It is not meant to be a substitute for the advice provided by your own physician or other medical professionals. Always discuss treatment options with a doctor who specializes in treating HIV.

Copyright ©1980, 2008. AEGiS. All materials appearing on AEGiS are protected by copyright as a collective work or compilation under U.S. copyright and other laws and are the property of AEGiS, or the party credited as the provider of the content. .