Washington Editor

Cerus Corp. settled a class-action lawsuit brought by shareholders in a federal court, as well as a derivative suit in a lower court against certain current and former directors and officers.

Both lawsuits consolidated cases that were filed in 2003 and 2004, and under the settlements, all claims against the Concord, Calif.-based company and other defendants will be dismissed in their entirety without admission of liability or wrongdoing by any party. Those terms remain subject to court approval.

But it seems that the distraction for management is over at this point for Cerus, which like many in the biotech industry is particularly susceptible to these types of suits, according to the Washington Legal Foundation's chief counsel, Richard Samp. Securities class-action suits are "something that smaller, start-up public companies have complained about for decades," he told BioWorld Today, because those types of companies tend to experience greater gyrations in stock prices.

Bill Dawson, Cerus' chief financial officer, said the suits originally arose following a period of stock value decline from the $80 range to about $2. "They alleged that we had miscommunicated timelines, that we were too aggressive with them and so on," he told BioWorld Today.

These days, the company's shares remain in the single digits. On Thursday, the stock (NASDAQ:CERS) gained 20 cents to close at $6.48.

Some of that devaluation resulted from a setback with Cerus' Intercept Blood System for red blood cells, and prompted the litigation. Designed to provide an added level of protection for the blood supply intended for transfusion from pathogens, bacteria and parasites, a Phase III trial of the pathogen-inactivated red blood cell program was halted three years ago after two patients developed antibodies to red blood cells treated with S-303, the compound used in the investigational system. (See BioWorld Today, Sept. 5, 2003.)

The class-action suit was filed in the U.S. District Court for the Northern District of California on behalf of purchasers of Cerus shares between Oct. 25, 2000, and Sept. 3, 2003, a day before the company revealed it was halting the Phase III study. In heavy trading that day, the stock lost about a third of its value, $2.41, to close at $5.29.

The complaint alleged that the defendants knew that red blood cells treated with S-303 would develop antibodies, concealed the information in order to obtain regulatory approval and knew but failed to disclose that any adverse immune response to S-303 would result in significant delays and/or termination of its clinical trials.

"Inevitably, if you have a stock that decreases significantly in price, you will always find something that management said prior to the drop in price," Samp explained. "The plaintiffs' lawyers will say you failed to adequately warn about impending danger facing the company."

Of course, forward-looking statements are supposed to be protected by the Private Securities Litigation Reform Act of 1995. But as Samp said, that legislation has "met with mixed success" only, because while it has perhaps succeeded in eliminating "the most frivolous of these kinds of suits, nonetheless, there are still many out there." As a result, he said, various efforts remain afoot to further shield smaller companies from those types of distractions and costs much in the same way there is work to reform the more onerous aspects of the Sarbanes-Oxley Act's audit requirements.

Terms of Cerus' settlement were not disclosed, and the number of shareholders who will participate in the settlement will not be known until all their claims are finalized.

Cerus markets its Intercept platform for platelets in Europe, and approval there for a plasma product is expected by the end of this year. The company owns worldwide rights to all Intercept applications, save for certain countries in Asia, the result of a dissolved partnership with Deerfield, Ill.-based Baxter International Inc. in the wake of the red blood cell problem.

In connection with the settlement of the derivative litigation, Cerus agreed to adopt certain corporate governance measures.

The total cash settlements will be funded entirely by insurance carriers under the company's directors' and officers' liability insurance policy, a choice Dawson said the insurers made "even in the face of no smoking gun." So in the end, the settlements will have no financial impact on Cerus. The company, which is on the verge of beginning clinical studies of an immunotherapy compound called CRS-100 for cancer, has no more outstanding litigation.