Fire and Police Pension Assoc v. Abiomed, Inc.
2015 U.S. App. LEXIS 1944
1st Cir.2015Background
- Abiomed, maker of the Impella 2.5 micro heart pump, generated ~85% of FY2012 revenue from Impella products; Impella 2.5 was the core product and faced competition from intra-aortic balloon pumps (IABP).
- The FDA issued an Untitled Letter (Jan. 2010) and a Warning Letter (June 2011) alleging Abiomed promoted the Impella 2.5 for non‑cleared (off‑label) uses; further FDA correspondence and audits followed through 2012–2013.
- Plaintiffs (institutional investors) alleged defendants (Abiomed, CEO Minogue, CFO Bowen) made materially false or misleading statements from Aug. 4, 2011–Oct. 31, 2012 about: causes of revenue growth, comparisons of Impella to IABP (Protect II study), company policy against off‑label promotion, and cooperation with the FDA.
- Confidential witnesses (former employees) reported internal encouragement of off‑label promotion and management awareness; plaintiffs also cited insider stock sales and timing of later disclosures (including an announced DOJ investigation) as evidence of scienter.
- The district court dismissed for failure to plead scienter with the particularity and strength required by the PSLRA; the First Circuit affirmed, holding plaintiffs failed to allege a "strong inference" of conscious intent to defraud or a high degree of recklessness.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether defendants made materially false or misleading statements/omissions under §10(b)/Rule 10b‑5 | Abiomed concealed that revenue growth was driven by pervasive off‑label marketing, misrepresented company policy and cooperation with FDA, and touted Protect II results to promote off‑label use | Disclosures, warnings, and SEC filings acknowledged FDA concerns and uncertainty; statements were non‑fraudulent or adequately warned investors | Court assumed some statements could be misleading but held plaintiffs failed to plead scienter; revenue omission’s materiality was marginal and disclosures undercut fraud inference |
| Whether plaintiffs alleged the required scienter (conscious intent or extreme recklessness) | CW accounts and insider sales show management knew of improper promotion and intentionally misled investors | CWs lack seniority/timeliness; insider sales not unusual; many disclosures and FDA close‑out reduce inference of intent | No strong inference of scienter; competing inferences (negligence, aggressive marketing) as or more plausible |
| Whether insider trading bolstered scienter inference | Executives sold large blocks (Minogue, Bowen, others) shortly before adverse disclosures | Sales occurred under 10b5‑1 plans, post‑eligibility, or were not unusually large; Minogue increased holdings during class period | Sales were not shown to be atypical or suspicious and do not support a strong scienter inference |
| Whether leave to amend should be granted | Plaintiffs sought remand to amend complaint | No proper motion was made below; plaintiffs were on notice of deficiencies; further amendment appears futile | Denied — plaintiffs failed to preserve a proper, timely request and amendment would likely be futile |
Key Cases Cited
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (standard for evaluating competing inferences in scienter analysis)
- ACA Financial Guaranty Corp. v. Advest, Inc., 512 F.3d 46 (PSLRA scienter pleading standard)
- Aldridge v. A.T. Cross Corp., 284 F.3d 72 (recklessness and scienter principles)
- City of Dearborn Heights Act 345 Police & Fire Ret. Sys. v. Waters Corp., 632 F.3d 751 (materiality, scienter, and effect of risk disclosures)
- In re Genzyme Corp. Securities Litigation, 754 F.3d 31 (disclosures can undermine inference of fraudulent intent)
- Greebel v. FTP Software, Inc., 194 F.3d 185 (insider trading and recklessness standards)
- Basic Inc. v. Levinson, 485 U.S. 224 (materiality standard)
- In re Boston Scientific Corp. Securities Litigation, 686 F.3d 21 (balanced view of risk warnings and mismanagement allegations)
- In re Cabletron Systems, Inc., 311 F.3d 11 (use and limits of confidential witnesses in securities pleadings)