InVivo, co-founded by Reynolds based on technology out of MIT professor Robert Langer’s lab, is developing a treatment for spinal cord injury.
Reynolds, who was chairman, CFO & CEO, left InVivo suddenly in August 2013, citing a "medical condition." Back in 2009 and 2010, Reynolds told MassDevice.com and Inc. magazine that he’d suffered spinal cord injury of his own in a 1992 car accident that left him partially paralyzed. The executive later retracted the story, saying instead that he injured his back loading a truck and suffered spinal problems after a 1992 surgery to treat the injury. Reynolds is now CEO of PixarBio, a startup that’s developing treatments for Parkinson’s disease and epilepsy.
In April 2013, the Cambridge, Mass.-based company announced that the FDA had approved a humanitarian device exemption for its biopolymer scaffold and OK’d an investigational device exemption trial for it. At the time the company and Reynolds said they expected to submit data from the 5-patient trial by the end of 2014.
But in August 2013, NVIV shares sank more than 43% in a single day after the company announced new hurdles in negotiations with the FDA. InVivo said the terms of the IDE required each patient to be followed for 3 months and agency approval for enrolling the next subject. That pushed the enrollment period from 15 months out to 21 months, well past the end of this year as previously forecast.
"Defendants’ representations as to the timing and importance of the study were false and misleading,"according to the lawsuit. "The time periods stated for completion of the trial and submission of data from the trial to the FDA were also false and misleading in light of the time necessary for clinical sites to obtain Institutional Review Board approval and to enroll patients, steps that InVivo knew or recklessly disregarded when it made the statements."
The lawsuit also alleged that Reynolds "was motivated to generate an increase in InVivo’s stock price because he was regularly selling stock," selling thousands of shares a day during the period covered by the purported class action. And it questions a series of resignations by key executives, saying it "raises suspicions about what was actually happening within the company."
Judge Richard Stearns of the U.S. District Court for Massachusetts ruled April 3 that the plaintiffs failed to prove that InVivo and Reynolds deliberately misled investors about the trial’s timeline.
"Plaintiff agrees that the court must confine its enquiry to the FDA letter itself and what InVivo knew at the time it issued the contested press releases. Here is where plaintiff missed the mark," Stearns wrote [emphasis his]. "Plaintiff faults the press releases for failing to make clear that the FDA’s approval came with conditions. But any objective reading of the letter makes clear that the FDA erected no material barriers to an immediate enrollment of the 1st patient for the exploratory study. While the FDA did require additional information of a corrective nature from InVivo, it did not condition the 1st enrollment on the prior receipt of this information. Indeed, the letter explicitly stated that ‘[InVivo] may enroll 1 subject at this time.’
"Because the projected timeline set out in the April 5 and May 9 of 2013 press releases was not implausible (even in light of the conditions imposed by the FDA approval letter), there was no material misrepresentation supporting a claim," Stearns wrote.