As I have documented in prior posts (for example, here), publicly traded life sciences companies are frequent targets of securities class action lawsuits. But life sciences companies’ securities litigation exposure may be well-known, it is not always as appreciated that the securities suits against life sciences companies are often dismissed. Two recent rulings in securities suits against life sciences companies – Antares Pharma and Nabriva Therapeutics – provide recent examples of securities suits in which the courts have granted the companies’ dismissal motions. The rulings illustrate the extent to which life sciences companies often are able to successfully defend themselves against securities suits.
The opinions in the Antares and Nabriva cases are discussed in a May 5, 2020 memorandum from the Seyfarth Shaw law firm (here).
Antares develops pharmaceutical delivery systems, including needle-free and mini-needle injector systems and transdermal gel technologies. In December 2016, Antares’s share price rose after the company announced that it had submitted a New Drug Application (NDA) for a testosterone replacement therapy drug. The company’s share price declined in October 2017 after the company announced that it had received a letter from the FDA identifying deficiencies in the NDA. A week later, the FDA issued a letter rejecting the NDA and identified concerns regarding increased blood pressure associated with the treatment, as well as incidents of depression and suicide. Antares submitted a revised NDA in April 2018. The FDA approved the application in October 2018; however, the approval was subject to the requirement for a “black box warning” advising of risks of blood pressure increases, as well as risks of depression and suicide.
As discussed here, in October 2017, a plaintiff shareholder filed a securities class action lawsuit in the District of New Jersey against Antares and certain of its directors and officers. The complaint was filed on behalf of a class of investors who purchased Antares securities between December 21, 2016 and October 12, 2017.
The complaint alleges that company had made materially misrepresentations and omissions during the class period by failing to disclose that the company had failed to provide the FDA with sufficient data to support its NDA for the testosterone replacement therapy drug; that there had been significant adverse patient reactions to the drug during clinical trials, (that is, prior to the submission of the NDA to the FDA) that were not disclosed to investors, particularly with respect to high blood pressure, depression, and suicide; that the company had overstated the approval prospects for the drug; and that as a result the company’s share price was inflated during the class period. The defendants filed a motion to dismiss.
In an April 28, 2020 Opinion (here), District of New Jersey Michael A. Shipp granted the defendants’ motion to dismiss, without prejudice. In reaching this decision, Judge Shipp concluded that a number of the defendants’ statements on which the plaintiff sought to rely were not actionable. For example, he found that defendants’ statements about the “physiologically normal” benefits of the drug and regarding “positive safety data” based on interpretations of the clinical data are opinions; because the plaintiff had not alleged that Antares did not honestly believe the studies on which the opinions were based or that the opinions lacked a reasonable basis, the statements were not actionable.
Judge Shipp also concluded that statements that the drug “was found to be safe,” showed “positive … safe data,” and that nothing unusual occurred regarding the FDA’s review of the drug to be “vague and general statements of optimism” that cannot be “read in a vacuum.” Judge Shipp concluded that a reasonable investor “would understand Antares’s statements on drug safety in light of the disclosure of adverse events.”
Finally, Judge Shipp also concluded that the plaintiff had failed to present sufficient allegations that the defendants had acted with scienter, noting among other things that although the FDA communicated comments and concerns to Antares while the drug application was pending, the FDA had not communicated that the concerns would threaten or delay the drug’s approval.
Nabriva Therapeutics is a biopharmaceutical company that develops anti-infective agents to treat serious infections. In 2018, one of the companies leading therapeutic candidates was Contempo, a drug intended for the treatment of urinary tract infections. Nabriva submitted an NDA for Contempo in October 2018, with a final decision on the application anticipated in April 2019. In December 2018, the FDA issued a Form 483 letter in which the agency suggested that the company’s manufacturing plant was not in compliance with applicable standards. Nabriva made several statements about Contempo during the class period but did not disclose the existence of the Form 483 letter. Nabriva ultimately had to resubmit the NDA for Contempo, triggering a new six-month review cycle and ensuring that the application would not be approved in 2019.
As detailed here, in May 2019, a plaintiff shareholder filed a securities class action lawsuit in the Southern District of New York against Nabriva and certain of its directors and officers on behalf of a class of investors who purchased Nabriva securities between October 1, 2018 and April 30, 2019. The plaintiff’s complaint alleged that Contempo would be approved in 2019. The plaintiff alleged that the statements concerning the drug’s anticipated approval were false in light of the FDA’s statements in the Form 483, the existence of which the defendants did not disclose at the time. The defendants moved to dismiss.
On April 28, 2020, Southern District of New York Judge Victor Marrero granted the defendants’ motion to dismiss, without prejudice. A copy of Judge Marrero’s opinion can be found here. In granting the motion, Judge Marrero concluded that the defendants’ alleged misrepresentations were either non-actionable puffery, were protected forward-looking statements, or were not sufficiently alleged to have been made with scienter.
With respect to the defendants’ alleged failure to disclose the existence and contents of the Form 483 letter, Judge Marrero concluded that the omission to disclose the letter could be actionable only if the disclosure was necessary to render other statements not misleading. The plaintiffs sought to rely on various statements in press releases describing the submission of the NDA as a “major milestone” or describing the drug as “first in class.” Judge Marrero found these statements to be “classic” examples of non-actionable puffery. Similarly, statements that the data in the application were “solid” were too vague to be actionable. Judge Marrero also found that the defendants’ statements that Contempo would likely receive FDA approval were forward-looking statements protected by the PSLRA’s safe harbor provisions, given that the plaintiffs had not alleged that they were made with actual knowledge of falsity.
In concluding that the plaintiffs had failed to sufficiently allege scienter, Judge Marrero concluded that the complaint did not allege sufficient facts to establish that defendants knew or recklessly disregarded that their statements were misleading in light of the Form 483 letter. Judge Marrero also concluded that the complaint failed to identify any motive to mislead investors or the existence of suspect insider trading. The supposed inference that he defendants recklessly disregarded the fact that their statements were potentially misleading to investors “was not as cogent or at least as compelling as an inference that they made the statements either negligently or reasonably believing their accuracy.”
One of the reasons life sciences companies are so frequently the targets of securities class action lawsuits is because their future prospects are so dependent on a highly unpredictable regulatory approval process. Because developmental stage companies’ prospects are so deeply bound with the success of a small number of drug candidates, a regulatory setback for a drug’s approval can tank the companies’ share price. The lawsuits filed against these two companies are fairly typical in that regard. Their promising drug candidates hit obstacles in the regulatory approval process, their share prices fell, and lawsuits followed.
But as these two cases also show, life sciences companies may be sued often, but the complaints are often dismissed. Indeed, prior research has substantiated that securities suits brought against biopharmaceutical companies with respect to the regulatory approval process are dismissed more frequently than average. As I discussed in a prior post (here), research by leading securities defense attorney Doug Greene and colleagues demonstrated that securities suits against biopharma companies are dismissed at a greater rate than were securities suits in general.
The bases on which these two companies’ dismissal motions were granted help explain why the securities suits against life sciences companies are frequently dismissed.
First, the courts recognized that general statements of corporate optimism represent non-actionable “puffery.” In his opinion in the Nabriva case, Judge Marrero referred to the defendants’ various positive statements on which the plaintiffs sought to rely as “classic” non-actionable puffery. Perhaps even more importantly, these types of general statement, Judge Shipp said in his opinion in the Antares case “cannot be read in a vacuum.”
Second, the courts have recognized the protections afforded under the PSLRA’s safe harbor for forward-looking statements. Judge Marrero specifically held that in the Nabriva case that the defendants’ about the likelihood of FDA approval were protected under the PSRLA’s safe harbor provisions.
Third, as the memo from the Seyfarth Shaw law firm to which I linked above noted, in dismissing these complaints, the courts “reiterated that interpretations of clinical data are opinions and emphasized the heightened pleading requirements with respect to opinion statements following the Supreme Court’s decision in Omnicare.” (Indeed, in the discussion of their research about biopharma securities suits dismissal rates to which I linked above, Doug Greene and his colleagues specifically cited the extent to which biopharma companies may be able to rely on Omnicare as one of the reasons for the more frequent dismissals of securities suits against those companies.)
Finally, as was the case for the plaintiffs in these two cases, the plaintiffs in securities lawsuits against life sciences companies frequently are unable to satisfy the heightened standards for pleading scienter. The plaintiffs in these kinds of cases may have vague theories about how investors were misled concerning the defendant companies’ regulatory prospects, but their lawsuits frequently lack any basis on which to suggest that the defendants acted with the requisite state of mind.
The unpredictability of the regulatory process and the volatility of their share prices may mean that life sciences companies frequently are the targets of securities suits. But at the dismissal opinions in these two cases suggest, the defendant companies have a range of arguments they can raise to try to defend themselves. More to the point, plaintiffs cannot simply rely on critical feedback from the FDA to try to use statements of corporate optimism to try to state a claim for securities fraud. In short, securities class action lawsuits against life sciences companies may be frequent, but frequently the lawsuits are dismissed.