In re Northfield Laboratories, Inc., Securities Litigation

Counsel for the defendants retained Cornerstone Research and Professor Paul Gompers of Harvard Business School to analyze economic issues pertinent to class certification in this matter.

Retained by Jenner & Block and by Katten Muchin Rosenman

Counsel for the defendants retained Cornerstone Research and Professor Paul Gompers of Harvard Business School to analyze economic issues pertinent to class certification in this matter. The plaintiffs claimed that the price of Northfield’s shares was inflated during the period in which the company allegedly withheld information from investors regarding heart attacks among patients in a clinical trial of the company’s artificial blood substitute product. The plaintiffs claimed that the revelation of this information caused the price of Northfield’s shares to decline, harming members of the proposed class.

The judge was persuaded that the analysis conducted by the plaintiffs’ expert was unreliable.

In support of their motion for class certification, the plaintiffs submitted an expert report stating that the market for Northfield’s shares was efficient, and consequently, the plaintiffs were entitled to a presumption of reliance for all class members. Professor Gompers opined that the market for Northfield’s shares was not efficient during the proposed class period, pointing to, among other things, evidence that the share price had not declined in response to information regarding the heart attacks, which had been available to market participants for months prior to the share price decline at issue in the case. In addition, Professor Gompers identified a number of deficiencies with the opposing expert’s event study methodology, which, he noted, rendered the expert’s conclusions unreliable.

The court declined to certify a class. The judge was persuaded that the analysis conducted by the plaintiffs’ expert was unreliable and excluded his report because the expert “made decisions about the [event] study that tend to skew it toward a conclusion that the market was efficient.” The court also concluded that “plaintiffs have not shown that the market for Northfield shares was efficient during the class period and that, hence, they cannot avail themselves of the presumption of reliance.”