887 F.3d 48
1st Cir.2018Background
- Sarepta developed eteplirsen to treat Duchenne Muscular Dystrophy; FDA had Fast Track/Accelerated Approval discussions and expressed concerns about dystrophin measurement methods.
- Between April 21 and October 27, 2014 (Class Period), Sarepta publicly indicated it aimed to file an NDA by end of 2014 but disclosed FDA concerns and need for additional data and review.
- In July 2014 the FDA requested independent pathologist review of the dystrophin endpoint; Sarepta did not disclose that request during the Class Period. On Oct. 27, 2014 Sarepta announced the FDA required additional data and moved the NDA target to mid-2015.
- Plaintiffs (investors) sued in March 2015 under §10(b)/Rule 10b-5 and §20(a), alleging defendants misled investors about the FDA feedback and the blinding/methodology of Study 201/202 analyses.
- The district court dismissed the First Amended Complaint (FAC) for failure to plead a material misstatement/omission and scienter with particularity, and denied leave to file a Proposed Second Amended Complaint (PSAC) as unduly delayed; the First Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FAC alleged a materially false or misleading statement/omission about likelihood of 2014 NDA filing | Plaintiffs: FDA statements and the undisclosed July request show Sarepta knew 2014 filing was unrealistic and withheld material facts | Defendants: public statements warned of FDA concerns and need for more data; no categorical FDA finding that made 2014 filings impossible | Court: No material misrepresentation shown; public disclosures and FDA statement do not support reasonable inference defendants misstated filing prospects |
| Whether failure to disclose July request for independent review was a fraudulent omission | Plaintiffs: request materially altered approval prospects and non-disclosure was misleading | Defendants: prior disclosures already warned about further review; July request was part of regulatory give-and-take, not a mandatory precondition | Court: Non-disclosure of regulatory back-and-forth, given the broader warnings, does not plausibly show actionable omission |
| Whether FAC pleaded scienter with required particularity | Plaintiffs: concealing/avoiding review recklessly risked misleading investors; motive (raising capital via offering) supports intent | Defendants: statements were cautious and risk-disclosing; motive allegations are generic and insufficient | Court: Plaintiffs failed to plead a cogent, compelling inference of fraudulent intent; warnings undercut scienter inference |
| Whether district court abused discretion by denying leave to amend (PSAC) | Plaintiffs: new Briefing Document (released Jan 2016) supplied additional facts; amendment filed promptly after dismissal | Defendants: Plaintiffs delayed and engaged in “wait-and-see” tactic; amendment prejudicial | Court: Even assuming PSAC not futile, denial affirmed for undue delay—Plaintiffs waited ~3 months after Briefing Document to move and only filed after dismissal |
Key Cases Cited
- Corban v. Sarepta Therapeutics, Inc., 868 F.3d 31 (1st Cir. 2017) (background on eteplirsen development and FDA process)
- ACA Fin. Guar. Corp. v. Advest, Inc., 512 F.3d 46 (1st Cir. 2008) (Rule 15 leave-to-amend standards and caution against "wait-and-see" pleading)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (PSLRA scienter standard: inference must be cogent and at least as compelling as nonfraudulent inference)
- Fire & Police Pension Ass'n of Colo. v. Abiomed, Inc., 778 F.3d 228 (1st Cir. 2015) (regulatory back-and-forth disclosures can undercut scienter)
- Greebel v. FTP Software, Inc., 194 F.3d 185 (1st Cir. 1999) (motive allegations must be more than generic benefits from corporate success)
- Forman v. Davis, 371 U.S. 178 (1962) (factors permitting denial of leave to amend)