Shareholder suit targets NewLink management over failed cancer vaccine trial

A year after NewLink Genetics reported a phase 3 trial failure for its pancreatic cancer vaccine that crushed shares, a shareholder is taking it to the company’s current and former execs for "gross mismanagement" and other allegations.

In a new shareholder derivative suit filed in New York, plaintiff Rickey Ely says co-founder and CEO Charles Link Jr., M.D., plus other NewLink execs, gravely misled the investing public in the lead-up to the failed trial, dubbed Impress. NewLink reported the failed trial last May, but the lawsuit claims NewLink didn’t have sufficient reason to head into the phase 3 trial that actually ended with a 3-month survival edge for the control group.

NewLink’s trial failure damaged its share price by about 34% last year.

On top of a count of "gross mismanagement," the suit says NewLink execs misled the public, breached their fiduciary duties, unjustly enriched themselves, abused their control and wasted corporate assets. The suit goes after some execs for alleged insider trading and misappropriation of information.

NewLink representatives didn’t immediately respond to a request for comment.

NewLink kicked off the phase 3 trial of algenpantucel-L in May 2010, just three months after starting phase 2, the suit points out. Further, the phase 2 study didn’t have a control group "and therefore did not produce statistically meaningful data from which scientifically valid conclusions concerning the drug’s efficacy could be drawn," the lawsuit claims.

During the lead-up to the news of the failure, some in NewLink management sold off 1,154,161 shares for a total of $39.9 million, according to the lawsuit. The legal action also says directors set their own compensation above that of a group of peers.

While the company did have a big setback with its pancreatic cancer vaccine, NewLink’s Ebola shot—licensed to Merck—has been progressing and could be used against a current outbreak in Congo.