• Eastern District Of Michigan Dismisses Securities Fraud Action; Finds No Inference Of Scienter Where Defendants Failed To “Accurately Predict” FDA Approval Process
   

  01/09/2017
  On December 27, 2016, Judge Arthur J. Tarnow of the United States District Court for the Eastern District of Michigan dismissed a putative class action against Esperion Therapeutics, Inc. (“Esperion” or the “Company”), a pharmaceutical company, and its chief executive officer.  Dougherty v. Esperion Therapeutics, Inc., No. 16 Civ. 10089 (E.D. Mich. Dec. 27, 2016).  Plaintiffs, purchasers of Esperion common stock, alleged that defendants made false statements regarding the U.S. Food and Drug Administration’s (“FDA”) approval process for a new drug in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5.  The Court held, among other things, that plaintiffs failed to allege facts giving rise to a strong inference of scienter, and, in particular, that “[t]he inquiry is inherently comparative” in that it considers whether the inference of scienter is as strong or stronger than the opposing inference of non-culpability.  The Court also held that forward-looking statements about the approval process were protected under the PSLRA safe harbor.  The decision, one of many recent decisions involving statements about drug approvals, highlights the case-specific nature of the analysis and that specific disclosures about regulatory approval risks can provide a meaningful defense in securities cases. 
  
  Following a meeting with the FDA in August 2015, Esperion said that a cardiovascular outcomes trial (“CVOT”) did not need to be completed to secure FDA approval of a new drug the Company had developed to reduce cholesterol levels.  Instead, according to Esperion, the drug could be approved by showing its impact on cholesterol levels.  In September 2015, the Company issued a press release stating that the FDA “encouraged the Company to initiate” a CVOT and that the results of the CVOT may factor into the FDA’s approval of the drug.  The Company stock price fell following the announcement, and plaintiffs filed suit. 
  
  The Court dismissed the complaint because, among other things, plaintiffs failed to adequately plead facts giving rise to a strong inference of scienter.  In particular, there were no allegations suggesting defendants knew they were mistaken about the need for a CVOT at the time defendants suggested otherwise or that they understood the FDA’s comments at the August 2015 meeting differently from what was disclosed.  The Court credited defendants’ argument that their statements were based on prior experience with the FDA, and that the FDA’s encouragement of a CVOT was unprecedented and unforeseeable.  Accordingly, the Court held plaintiffs’ allegations did not give rise to a strong inference of scienter, particularly because the non-culpable inferences were stronger.  The Court also held that there were not sufficient red flags alleged that might support an inference defendants had acted recklessly.
  
  The Court also held that the August 2015 statements were protected by the safe harbor provision of the PSLRA that shields defendants from liability for forward-looking statements.  According to the Court, the statements regarding FDA approval and the need to conduct a CVOT were forward-looking and accompanied with sufficient cautionary language, including that the FDA approval process was “inherently dynamic” and that the FDA “may delay, limit or deny approval . . . for many reasons, including, among others . . . [a requirement] that we conduct additional studies, such as a cardiovascular outcomes study.”  
  Categories: Misstatement/Omission, Scienter
  

Links & Downloads

• Dougherty v. Esperion Therapeutics, Inc