United States: U.S. District Court For The District Of Massachusetts Holds Pharmaceutical Companies Not Required To Disclose FDA Inspectional Observations Made On Form 483

In an important ruling dismissing a comprehensive securities class action complaint against Genzyme Corporation, the U.S. District Court for the District of Massachusetts held last week that regulatory comments and inspectional observations provided by the FDA to pharmaceutical companies like Genzyme – including commentary supplied on FDA Form 483 – are of "questionable materiality" and are not automatically required to be disclosed by regulated issuers. The decision means that the plaintiffs' bar will not be able to leverage critical comments delivered in the day-to-day give-and-take between the agency and a pharmaceutical company into a securities lawsuit.

Multiple securities class actions were filed against Genzyme in 2009 in the wake of a series of manufacturing and regulatory setbacks. Two Genzyme facilities experienced failures at a key stage in the manufacturing process, ultimately determined to have been caused by a rare virus. Separately, FDA inspections at the Company's Allston, Massachusetts facility resulted in issuance of a Form 483 and, ultimately, warnings concerning Genzyme's compliance with the FDA's current Good Manufacturing Practices ("cGMPs"). Finally, the FDA delayed approval of an important new biologic product, Lumizyme, beyond the date publicly anticipated by Genzyme. The plaintiffs' 141 page, 364 paragraph consolidated complaint alleged that Genzyme committed securities fraud by making a "daunting number" of purportedly fraudulent statements about these events in order to keep Genzyme's stock price artificially high. According to the investors, Genzyme deliberately withheld information from the market about the state of its manufacturing facilities, its knowledge of the FDA's concerns, the likely delayed approval for Lumizyme in light of these issues, and the predicted effect of all of them on production, revenue and net profit. The complaint asserted that the market price for Genzyme stock fell only when Genzyme signed a consent decree with the FDA that disclosed the scope of the problems and the depth of the FDA's concerns. Among other things, the pleading contended that Genzyme omitted to disclose adverse information about these events that it "knew" based upon correspondence and communications with the FDA, including inspectional observations made on a Form 483.

The Court rejected all of the plaintiffs' theories of liability. According to the Court, the plaintiffs' "speculative" effort to tie multiple different events together could not support the required "strong inference" that Genzyme intentionally or recklessly acted to deceive the markets. The Court took note of the fact that throughout the class period, Genzyme disclosed considerable adverse information of the very sort the plaintiffs claimed was concealed. Genzyme's extensive disclosure of its manufacturing and regulatory problems supported the more plausible inference that Genzyme disclosed what it knew when it knew it, and that was inconsistent with a fraudulent motive to withhold information from investors.

In reaching this conclusion, the Court also held that FDA Forms 483 – common forms expressing FDA inspectional observations of possible regulatory non-compliance – were of "questionable materiality" such that their nondisclosure alone is unlikely to raise an inference of a fraudulent or reckless intent to deceive the market. Judge O'Toole specifically rejected the plaintiffs' contention that Form 483 observations are required to be disclosed as a matter of law. Instead, the Court noted that the forms are not a "final agency determination," are subject to change, and are thus of only "questionable materiality." Importantly, according to the Court, "it simply cannot be that every critical comment by a regulatory agency – even about matters as important as good manufacturing practices – has to be seen as material for securities law reporting purposes . . . ."

The Genzyme ruling affirms that the Company's robust disclosures throughout its manufacturing problems and the negotiations that led to its execution of a consent decree with the FDA could not amount to an actionable securities claim, and confirms that securities plaintiffs cannot just string together unrelated and temporally disconnected facts in order to build an inference of fraud. In that respect, the opinion holds plaintiffs to the tough standards of the PSLRA, which requires securities complaints to plead a "strong inference" of fraud with great particularity.

The opinion also has important implications for the life sciences industry. Judge O'Toole's conclusion that FDA observations on Forms 483 were not required to be disclosed as a matter of law strengthens a growing judicial consensus that critical regulatory comments are not necessarily disclosure events. That holding should give comfort to pharmaceutical companies and other issuers regulated by the FDA that their constant give-and-take with the agency will not permit plaintiffs to leverage some criticism into a securities case.

The Ropes & Gray litigation team representing Genzyme in this case was led by partners John Donovan and Rob Jones.


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions