Disclosure of material information is not required under §10(b) of the 1934 Act where it is not necessary to make statements already made not misleading.
Amarin Corporation PLC Securities Litigation, In Re, No. 16-2640 (3rd Cir., 5/23/17).
A Failed Drug Trial
Plaintiffs in this biopharma securities fraud putative class action claiming violations of §§ 10(b) and 20(a) of the 1934 Act appealed from the District Court’s Order dismissing the action for failure to plead actionable misstatements regarding the prospects of, and testing required for, FDA approval of defendant’s investigational new drug compound for treatment of high cholesterol. Plaintiffs alleged, inter alia, that defendant failed to disclose FDA reservations respecting, and misstated the FDA’s position regarding, (1) the design of its study, and specifically the usefulness, absent a clinical endpoint, of evidence of reduced triglycerides (“TDs”) as a surrogate endpoint, and (2) the need to conduct a costly and time-consuming outcomes study before approval would be granted.
Not Materially Misleading
The Court of Appeals affirms the dismissal. It agrees that defendant’s statements about the approval process, including the implication that a long-term outcomes study would not be required in order to obtain FDA approval, were not materially misleading. As the Court emphasizes, even Rule 10b-5 does not create a duty to disclose all material information. Absent a duty to disclose, silence itself is not misleading, and companies can control what they must disclose by controlling what they say to the marketplace. In this instance, because (1) the FDA initially accepted the design of defendant’s study as indicated by its approval of two Special Protocol Assessments (“SPAs”), (2) during the class period the completion of a separate clinical outcome trial was never required, and (3) at least until later FDA review, the FDA remained open to defendant’s strategy for demonstrating efficacy through the surrogate endpoint of TD lowering, plaintiff’s allegation that the FDA was certain to require an outcomes study was not true.
A Reasonable Investor and Hindsight
As the Appellate Court points out, neither the 2008 FDA meeting minutes regarding the initial design with surrogate endpoints, nor the SPAs, suggested that a long-term outcomes trial would be required for approval, and the FDA never explicitly conditioned approval on completion of such study. It was not until 2013, after the class period and on the basis of the failure of three other studies to link TD lowering to better outcomes, that the FDA finally and conclusively rejected TD lowering as a viable surrogate endpoint. The Court also disagrees with plaintiff’s suggestion that a reasonable investor could have interpreted defendant’s statements to have indicated otherwise. Rather, a reasonable investor would understand that the new drug approval process requires continuous dialogue with the FDA. Neither Defendant’s awareness of the TG issue, nor its expressed optimism that it would be resolved in its favor, amounts to fraud. Any claim based on the FDA’s ultimate rejection of TG lowing as a surrogate endpoint would be “fraud by hindsight.”
(D. Franceski: This decision, like a number of others involving public company statements about the sometimes treacherous bureaucratic landscape of the new drug approval process, seems aimed at striking a fair balance between frank disclosure during the drug development process and the challenge of an often opaque, changeable and highly technical drug review process.)
(SLC Ref. No. 2017-29-04)
NOTICE: The court decision synopsis published above represents an abbreviated description of the actual decision and is re-printed here for its educational value. The author's effort is to report concisely the substance of the decision or a selected portion of the decision; commentary or analysis is generally reserved for the italicized section at the bottom of the summary. Subscribers to SAC's Online Litigation Alert (SOLA), from which this synopsis is excerpted, have immediate access to the full decision, in addition to the synopsis.
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