Investors Joseph Ditta and David Gruthoff have filed a brief opposing a motion by pharmaceutical giant Johnson & Johnson (J&J) and its former subsidiary Kenvue Inc. to reconsider a federal judge’s decision to uphold IPO fraud claims. The investors argue that the court’s decision to sustain these claims was correct, as it highlighted the companies’ failure to disclose significant challenges to the effectiveness of phenylephrine, a common ingredient in several Kenvue products, prior to the company’s Initial Public Offering (IPO) in 2023.
In their opposition brief filed on Wednesday, the investors urged U.S. District Judge Zahid N. Quraishi to reject the defendants’ request for reconsideration. They asserted that the defendants had not presented any new evidence or legal grounds that would warrant a reconsideration of the judge’s prior ruling.
The ongoing lawsuit accuses J&J and Kenvue of failing to disclose an impending U.S. Food and Drug Administration (FDA) meeting, scheduled shortly after Kenvue’s $4.2 billion IPO, that would question the efficacy of phenylephrine as a nasal decongestant. The meeting, held before the FDA’s Nonprescription Drug Advisory Committee (NDAC), concluded that phenylephrine, when taken orally, is ineffective, contradicting prior statements made by the companies.
Judge Quraishi’s March order denied the defendants’ motion to dismiss the class action lawsuit, stating that the investors had plausibly shown that Kenvue’s failure to disclose the FDA’s challenge to phenylephrine’s effectiveness could have misled potential investors. According to the judge, this omitted information was material to an investor’s decision to purchase Kenvue stock, particularly as phenylephrine was a major revenue driver for the company.
In their reconsideration motion, filed in April, the defendants argued that the omitted information about phenylephrine was publicly available through FDA publications and that it did not rise to the level of a material omission. They further referenced an earlier court decision in related multidistrict litigation, which they claimed found that the information regarding phenylephrine’s efficacy was not misleading under FDA regulations.
However, the investors rejected these arguments in their Wednesday filing, highlighting that the Third Circuit ruling cited by the defendants was unpublished and non-binding. Additionally, they emphasized that the labeling requirements under the Federal Food, Drug, and Cosmetic Act (FDCA) differ significantly from the disclosure obligations under securities laws, thereby making the MDL findings irrelevant to the current case.
The investors are represented by attorneys from Glancy Prongay & Murray LLP and Carella Byrne Cecchi Brody & Agnello PC, while Kenvue and J&J are defended by legal teams from Sidley Austin LLP and McCarter & English LLP. The underwriters are represented by Paul Hastings LLP.
This case, In Re Kenvue Inc. Securities Litigation, is being heard in the U.S. District Court for the District of New Jersey, under case number 3:23-cv-20998.
