Corban v. Sarepta Therapeutics, Inc.
2017 U.S. App. LEXIS 15993
| 1st Cir. | 2017Background
- Sarepta developed eteplirsen, a gene therapy for Duchenne muscular dystrophy (DMD), and sought accelerated FDA approval based on surrogate dystrophin endpoints from small Phase IIb trials (Study 201/202).
- In March and July 2013 Sarepta met with the FDA; the FDA expressed concerns about Sarepta’s proposed dystrophin analysis but by July said it was “open to considering an NDA based on these data for filing,” subject to conditions.
- Sarepta publicly communicated optimism about FDA receptivity (July 24 press release and subsequent statements), while also including caveats that the FDA requested additional information and made no guarantees.
- Sarepta conducted an “at-the-market” offering in July 2013 and continued public statements of confidence through September 2013; a competitor’s Phase III failure (drisapersen) and the FDA’s November 12, 2013 statement that an NDA would be premature caused a 64% stock drop.
- Plaintiffs filed a securities-fraud class action alleging Sarepta and executives made false/misleading statements and omissions in violation of Section 10(b)/Rule 10b-5 and Section 20(a), and the district court dismissed for failure to plead scienter under the PSLRA; multiple amendment requests were denied as futile.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether complaint pleads scienter (intent or high recklessness) under PSLRA/Tellabs | Statements and omissions about FDA feedback and dystrophin analysis were knowingly false; FDA had expressed concerns earlier and Sarepta omitted material details | Statements were opinionary, adequately caveated, and based on subsequent data submissions; omissions were at most negligent and not intentionally misleading | Dismissal affirmed: plaintiffs failed to plead a strong inference of scienter at least as compelling as innocent inferences |
| Whether mid-period statements (Aug 15, Sept 9) were objectively false | Garabedian knew FDA had questioned quantification methods (from March) so his statements that methods were not questioned were knowingly false | March concerns were addressed by additional data; July FDA feedback showed openness to filing and did not show persistent methodological doubt | Held: chronology and content undermine inference of knowledge; allegations do not show intentional or reckless falsehood |
| Whether omissions of internal FDA details created an actionable duty to disclose | Omitted details (bias concerns, technical critiques) were material and made public statements misleading | No obligation to disclose every nonpublic detail; Sarepta quoted FDA and included caveats; omissions more consistent with negligence | Held: omission allegations insufficient to show that disclosures were rendered misleading with requisite scienter |
| Whether motive (fundraising via at-the-market offering) supports scienter | At-the-market offering ($125M) created motive to inflate price and supports inference of fraud | General motive to raise capital is common and insufficient; Sarepta had substantial cash and no alleged dire need | Held: motive allegations weak; financial motive alone does not meet PSLRA burden |
Key Cases Cited
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (PSLRA strong-inference standard requires scienter inference at least as compelling as nonculpable inference)
- Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981 (comparative inquiry for scienter under Tellabs)
- Local No. 8 IBEW Ret. Plan & Tr. v. Vertex Pharm., Inc., 838 F.3d 76 (First Circuit on scienter pleading and PSLRA standards)
- In re Smith & Wesson Holding Corp. Sec. Litig., 669 F.3d 68 (recklessness standard and non-disclosure duty discussion)
- In re Credit Suisse First Boston Corp., 431 F.3d 36 (when opinion statements may imply underlying factual assertions)
- Zak v. Chelsea Therapeutics Int'l, Ltd., 780 F.3d 597 (Fourth Circuit: withholding adverse FDA materials can support scienter where affirmative statements contradict internal documents)
- In re Cabletron Sys., Inc., 311 F.3d 11 (motive to commit fraud requires more than routine desire to improve results)