On February 26, 2021, Judge LaShann DeArcy Hall, of the United States District Court for the Eastern District of New York, dismissed with prejudice a putative class action asserting claims under the Securities Exchange Act of 1934 against a pharmaceutical company and certain of its officers. In re Alkermes Public Ltd. Co. Sec. Litig., No. 18-CV-7410 (LDH) (RML), slip op. (E.D.N.Y. Feb 26, 2021). Plaintiff alleged defendants made misstatements concerning clinical trials for a drug that ultimately did not secure FDA approval. The Court held that plaintiff failed to allege facts giving rise to a strong inference of scienter and therefore dismissed the complaint in its entirety.
Plaintiff generally alleged that the company had made optimistic and misleading statements regarding the chances of FDA approval without disclosing that the FDA had allegedly indicated that the trials could not be successful. Id. at 9–10. In particular, plaintiff alleged that the FDA, in a November 2018 briefing document, told the company that the testing method ultimately used "could not be used for proof of efficacy" and that "with certainty" "the design of [the company's] clinical trials would necessarily prevent approval." Id. at 14.
While noting that "[p]laintiff's claim is ripe for dismissal on a number of grounds," the Court focused its opinion primarily on the scienter requirement, holding that it was unnecessary to address other issues because the failure to adequately allege scienter warranted dismissal. Id. at 11. In particular, the Court noted that plaintiff relied exclusively on a "blatant mischaracterization" of the FDA's November 2018 briefing document. For example, while plaintiff argued that the FDA told the company that the testing method in question "could not be used for proof of efficacy," in fact the FDA expressly stated that it "voiced no objection" and merely encouraged the company to provide a detailed statistical analysis plan and to seek further feedback. Id. at 14. Moreover, while plaintiff asserted that the company had been told "with certainty, that the design of its clinical trials would necessarily prevent approval," the Court referred to this characterization as "pure fantasy" and noted that no such language appeared in the FDA's November 2018 briefing document. Id.
The Court further emphasized that in the context of allegations regarding communications with the FDA about a drug candidate, scienter is found where "management knows that certain facts will necessarily prevent regulatory approval ... and conceals those facts from the investing public." Id. at 13. But, contrary to plaintiff's assertions, the Court held that the FDA expressly "voiced no objection" to the company's testing method but merely encouraged the company to "provide a detailed statistical analysis plan and seek feedback prior to initiating the trial if they intended to use the study to support an efficacy claim." Id.
The Court further emphasized that the documents incorporated into the complaint showed that there was an "ongoing dialogue" and a "collective expectation that the process was an iterative one." Id. at 14–15. Thus, the Court held that plaintiff had not alleged any facts showing that the FDA had conveyed that "approval of [the drug candidate] was not possible or even unlikely." Id. The Court accordingly concluded that the allegations failed to support a strong inference of scienter. Id. at 16.
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