AG Funds, L.P. v. Sanofi, 87 F. Supp. 3d 510

Background

Sanofi acquired Genzyme in 2011; as part of the deal it issued tradable contingent value rights (CVRs) that paid $1 if FDA approval of Lemtrada (an MS drug) occurred by March 31, 2014.
Plaintiffs purchased CVRs before November 8, 2013 and allege Sanofi/Genzyme and executives made false or misleading statements about Lemtrada’s safety, efficacy, trial results, and likelihood/timing of FDA approval by failing to disclose interim FDA concerns about the single-blind trial design.
The FDA repeatedly expressed methodological concerns (preference for double-blind studies and warning that single-blind trials would require a large treatment effect) but permitted Phase III trials to proceed, fast-tracked the program, and accepted the sBLA for review in January 2013.
After an Advisory Committee report on November 8, 2013 sharply criticized the submission, CVR prices fell sharply and the FDA formally rejected the sBLA in December 2013; Sanofi later resubmitted and the FDA approved Lemtrada in November 2014 (after these suits were filed).
Plaintiffs asserted claims under Sections 10(b), 20(a) (both complaints), and the AG Funds added Sections 18, 11, 12 and state blue-sky claims; defendants moved to dismiss under Rules 12(b)(6) and 9(b).
The court dismissed both complaints in full with prejudice as to federal claims (declining supplemental jurisdiction over state claims), holding plaintiffs failed to plead actionable misstatements/omissions or scienter and that many challenged statements were protected by the PSLRA safe harbor.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether failure to disclose FDA interim concerns about single-blind design rendered statements about likelihood/timing of FDA approval false or misleading	Plaintiffs: nondisclosure of FDA feedback made optimistic statements about approval and timelines misleading	Defendants: statements were opinions/forward-looking, accompanied by cautionary language; FDA feedback was interim, publicly-knowable context did not make omission material	Court: statements were opinions/forward-looking; plaintiffs failed to plead objective falsity or scienter; PSLRA safe harbor applies; not actionable
Whether statements about imminent/global launch were misleading by omission of FDA concerns	Plaintiffs: statements implied imminent U.S. launch and were misleading without FDA concerns	Defendants: statements referred to global rollout or preparations and were literally accurate or opinion; no duty to disclose interim FDA commentary	Court: literal accuracy and context meant no misleading omission; opinions not pled as unheld; protected by PSLRA safe harbor where forward-looking
Whether affirmative statements about clinical trial results and efficacy were materially misleading because they omitted FDA criticisms	Plaintiffs: praising results while omitting FDA methodological concerns misled investors about reliability of data	Defendants: trial design and its limitations were publicly disclosed; FDA never said data were incapable of supporting approval; opinions about results were sincerely held and had factual basis	Court: many statements were opinions; public record disclosed single-blind design and risks; omissions of interim FDA dialogue were non-actionable; plaintiffs failed to plead scienter
Whether statements minimizing or calling side-effects "manageable" were false or made with scienter	Plaintiffs: downplayed ‘‘serious and potentially fatal’’ adverse events by omission	Defendants: adverse events were publicly disclosed in medical journals and filings; statements were opinions and objectively reasonable	Court: adverse events had been comprehensively disclosed; summary characterizations were non-actionable opinions; no strong inference of scienter

Key Cases Cited

Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility standard for Rule 12(b)(6))
Ashcroft v. Iqbal, 556 U.S. 662 (legal conclusions not entitled to treatment as true on a motion to dismiss)
Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (standard for pleading scienter; competing inferences)
Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (materiality and duty to disclose; limits on disclosure obligations)
Kleinman v. Elan Corp., 706 F.3d 145 (statements of opinion actionable only if not honestly held)
Rombach v. Chang, 355 F.3d 164 (Rule 9(b) particularity in securities fraud complaints)
Slayton v. American Exp. Co., 604 F.3d 758 (PSLRA safe-harbor for forward-looking statements)