United States: Life Sciences Companies May Face More Scrutiny In Using FDA Documents To Dismiss Securities Cases

Following a recent decision from the U.S. Court of Appeals for the Ninth Circuit in Khoja v. Orexigen Therapeutics, Inc., plaintiffs alleging securities fraud against companies in the pharmaceutical and life sciences sector are increasingly opposing the introduction of extrinsic documents by defendants in motions to dismiss under the Private Securities Litigation Reform Act (PSLRA). Because companies in this industry frequently are targets of opportunistic strike suits (usually due to potentially large stock price movements following public disclosures regarding products or drug candidates under development), they need to be particularly aware of this trend and its potential implications on their litigation strategies.

Consider a common example: A plaintiff will allege that a company’s positive statements about a drug candidate’s safety were rendered false or misleading when the company failed to disclose the full extent of adverse events data. Such complaints often allege that the purported “truth emerged” following a negative public announcement, such as a Food and Drug Administration (FDA) decision not to approve a drug. Rarely, however, do those complaints attach or reference the publicly available FDA documents upon which they rely. In many cases, those omitted materials provide important context about the nature and occurrence of adverse events data and may contain information that directly undermines allegations that a company acted with an intent to defraud investors. Because courts must construe as true all well-pled allegations in a complaint when considering a motion to dismiss, they are reluctant to wade into factual complexities at the pleading stage. Nonetheless, life sciences companies have been successful in obtaining dismissal of securities lawsuits by pointing courts to documents that are integral to, yet strategically omitted from, the complaint.

For example, in Hirtenstein v. Cempra, Inc. in the U.S. District Court for the Middle District of North Carolina, the plaintiffs alleged that a biopharmaceutical company misled investors by concealing the impact of certain adverse events observed during clinical trials for its infectious diseases drug. The plaintiffs’ allegations relied on FDA advisory committee materials describing the adverse events, but the plaintiffs did not attach the documents to their complaint. In addition to those materials specifically referenced in the complaint, the company also submitted, in connection with its motion to dismiss, the company’s publicly available FDA briefing document to show that it had reasonably interpreted the adverse event data differently than the FDA. The court rejected the plaintiffs’ argument that the FDA briefing should not be considered because it was neither specifically cited in their complaint nor integral to their case. Instead, the court held that the plaintiffs themselves alleged that their complaint was based, in part, on their review of unidentified FDA advisory committee materials, and that the FDA briefing document was “highly relevant” to the issue of intent. The court dismissed the complaint, finding that a “comparison of the extensive briefing materials prepared by the FDA staff and [the company] reveals that each side had its own interpretation of the data” and thus any “failure to disclose the adverse events in the [clinical] trials did not result from any dishonest or reckless behavior.”

Khoja Sets Guidelines for Consideration of Extrinsic Documents

Plaintiffs have attempted to rely on the recent Khoja decision to challenge the defense strategy successfully used in cases like Cempra. In Khoja, a biotechnology company asked a court to consider 21 extrinsic documents in order to dismiss a case alleging that the company had misled investors about the interim results in a post-approval clinical trial. In holding that the lower court abused its discretion in considering many of those documents when dismissing the case, the Ninth Circuit noted a “concerning pattern in securities cases” where defendants attempt to assert “their version of the facts” in an effort “improperly to defeat what would otherwise constitute adequately stated claims at the pleading stage.”

The Ninth Circuit noted a “concerning pattern in securities cases” where defendants attempt to assert “their version of the facts” in an effort “improperly to defeat what would otherwise constitute adequately stated claims at the pleading stage.”

Khoja sets forth several guidelines for when a court can consider extrinsic documents at the pleading stage. First, a court cannot consider a fact in a publicly available government report if it is subject to dispute or varying interpretations. Khoja found that a European Medicines Agency (EMA) report was improperly considered because the report did not conclusively establish which company entity reported the interim results to that agency. Second, a court can consider documents that are referenced “extensively” in the complaint or that form the basis for a claim. Khoja found that an FDA report was properly considered because the complaint referenced it extensively, even though the claims did not rely on the report itself. In contrast, Khoja found that an EMA press release was improperly considered because it was not specifically referenced or identified in the complaint, even though the facts alleged were contained in that same press release. In that regard, the court questioned whether a document can ever form the basis of a claim if the complaint does not reference the document at all, because submitting such documents to create a defense is little more than another way of disputing otherwise well-pled factual allegations.

Observations and Trends Since Khoja

In the months since the Ninth Circuit’s decision, dozens of plaintiffs already have relied on Khoja to oppose the use of extrinsic documents in securities cases. Approximately half of those challenges were made in cases outside the Ninth Circuit, demonstrating plaintiffs’ attempts to persuade courts not bound by Khoja to follow the ruling. Early observations and trends from those cases include:

  • Courts are now more carefully scrutinizing requests to consider extrinsic documents that in years past might otherwise have been considered without dispute.
  • Plaintiffs have seen mixed results within the Ninth Circuit. Numerous courts have adhered firmly to Khoja, resulting in either fewer documents being considered at the motion to dismiss stage or documents being considered for a limited purpose. But other courts either have distinguished Khoja or found that Khoja nevertheless supported consideration of the extrinsic documents.
  • Outside the Ninth Circuit, relatively few courts have discussed or mentioned Khoja, though at least one (the U.S. District Court for the District of Maryland in In re Under Armour Sec. Litig.) relied on Khoja to reason that a court must specify the particular facts within a document being judicially noticed.

It remains to be seen how Khoja will continue to affect cases that challenge disclosures made by life sciences companies and, in particular, if plaintiffs can defeat a motion to dismiss by strategically omitting references to documents they necessarily relied upon in making their allegations. In the meantime, life sciences companies should expect more vigorous opposition to attempts to introduce FDA or other contextual documents as part of their strategy to dismiss cases brought under the federal securities laws. Companies also should expect courts to place increased attention on the threshold issue of what documents they may consider at the pleading stage before analyzing the sufficiency of the complaint under the heightened pleading standards mandated by the PSLRA.

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.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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.

Disclaimer

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.

General

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