On remand from an appeal, the United States District Court for the Southern District of Texas considered a claim against Zonagen, Inc. for securities fraud in a 10b-5 class action. At issue were four allegedly misleading statements by Zonagen in 1996 and 1997 concerning the scope of coverage of a patent awarded for Vasomax, a Viagra-type drug developed by the company. Zonagen retained NERA in its defense.

NERA’s experts conducted an event study, a statistical method of measuring the effect of an event on a stock price, to determine the effect the statements at issue may have had on Zonagen’s stock price. Our economists analyzed each of these allegedly misleading public statements and concluded that none caused a statistically significant increase in Zonagen’s stock price.

On 13 June 2003, relying in part on NERA’s affidavit in his decision, Judge Sim Lake granted Zonagen’s Daubert motion to exclude part of the testimony of the plaintiffs’ expert and denied the plaintiffs’ Daubert motion to exclude NERA’s testimony. Judge Lake further granted summary judgment for Zonagen based on the plaintiffs’ failure to prove both reliance (transaction causation) and loss causation. Judge Lake stated that based on NERA’s testimony, “Defendants have thus rebutted the presumption of reliance by making an uncontradicted showing that the market was not affected by the allegedly culpable statement. Defendants have ‘severed the link’ between the Defendants’ alleged misrepresentations and the price Plaintiffs paid for the stock.”