Kader, et al v. Sarepta Therapeutics, Inc., et al
Filing
OPINION issued by Juan R. Torruella, Appellate Judge; William J. Kayatta, Jr., Appellate Judge and David J. Barron, Appellate Judge. Published. [17-1139]
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Entry ID: 6161202
United States Court of Appeals
For the First Circuit
No. 17-1139
WILLIAM KADER, individually and on behalf of all
others similarly situated; MORAD GHODOOSHIM;
ROGER LAM; LAXMIKANT CHUDASAMA,
Plaintiffs, Appellants,
v.
SAREPTA THERAPEUTICS, INC.; CHRISTOPHER GARABEDIAN;
EDWARD M. KAYE, M.D.,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Allison D. Burroughs, U.S. District Judge]
Before
Torruella, Kayatta, and Barron,
Circuit Judges.
Kara M. Wolke, with whom Robert V. Prongay, Jonathan M.
Rotter, Glancy Prongay & Murray LLP, Jason M. Leviton and Block &
Leviton LLP were on brief, for appellants.
Christopher
G.
Green,
with
whom
Mark
D.
Vaughn,
Christopher C. Boots, Cassandra A. LaRussa and Ropes & Gray LLP
were on brief, for appellees.
April 4, 2018
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TORRUELLA, Circuit Judge.
Lead
Plaintiffs
Morad
Ghodooshim,
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Plaintiff William Kader and
Roger
Lam,
and
Laxmikant
Chudasama (collectively, the "Plaintiffs") sought to represent a
class of purchasers of securities that Sarepta Therapeutics, Inc.
("Sarepta") issued between April 21, 2014, and October 27, 2014
(the "Class Period").
claims
against
Christopher
The Plaintiffs brought securities fraud
Sarepta,
Garabedian
Sarepta's
Chief
("Garabedian"),
Executive
and
Officer,
Sarepta's
Chief
Scientific Officer, Edward M. Kaye ("Kaye") (collectively, the
"Defendants").
According
to
the
Plaintiffs,
the
Defendants
knowingly or recklessly misled investors about their target date
for submitting an application to the United States Food and Drug
Administration ("FDA") for approval of the drug eteplirsen.
The
district court dismissed the Plaintiffs' First Amended Complaint
("FAC") for failure to state a claim, and then denied them leave
to file their Proposed Second Amended Complaint ("PSAC").
We hold
that the district court did not err in dismissing the FAC or in
denying Plaintiffs leave to file the PSAC.
I.
BACKGROUND
A. The FDA's drug-approval process
Before we immerse ourselves in the details of this case,
it is useful to give a brief overview of the process through which
the FDA reviews and approves drugs.
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That process begins when the
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sponsor of a new drug submits a New Drug Application ("NDA") to
the
FDA.
See
21
U.S.C.
§
355(a)-(b);
Corban
v.
Sarepta
Therapeutics, Inc., 868 F.3d 31, 34 (1st Cir. 2017) (outlining the
FDA's approval process).
The FDA then makes the "threshold
determination" as to whether the NDA is "sufficiently complete to
permit a substantive review."
21 C.F.R. § 314.101(a)(1).
"If so,
the FDA accepts the application for filing" and then proceeds to
"assess[] the merits of the application, deciding whether to
approve the drug."
§ 314.101(a)(1),
Corban, 868 F.3d at 34 (citing 21 C.F.R.
(f)).
"Approval
generally
requires
the
application's sponsor to demonstrate the drug's clinical benefit."
Id. (citing 21 U.S.C. § 355(d)).
Sponsors
of
certain
drugs
may
avail
themselves
various FDA programs that expedite the review process.
of
These
programs aim to facilitate the availability of critical therapies
for serious, unmet medical needs.
For example, upon a sponsor's
showing of adequate preclinical data, the FDA may grant a drug
"Fast Track" status.
See 21 U.S.C. § 356(b).
Among other
benefits, the sponsors of "Fast Tracked" drugs may interact more
frequently with the FDA to discuss "the drug's development plan
and ensure collection of appropriate data needed to support drug
approval."
U.S.
Food
&
Drug
-3-
Admin.,
Fast
Track,
https://
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www.fda.gov/ForPatients/Approvals/Fast/ucm405399.htm
(last
updated Jan. 4, 2018).
Fast Tracked drugs may also be eligible for "Accelerated
Approval."
Id.
The
FDA
approves
drugs
in
the
Accelerated
Approval program upon meeting a "surrogate endpoint" or "clinical
endpoint"
that
is
clinical benefit.
"reasonably
likely"
21 U.S.C. § 356(c).
to
predict
the
drug's
"For example, instead of
having to wait to learn if a drug actually extends survival for
cancer patients, the FDA may approve a drug based on evidence that
the drug shrinks tumors, because tumor shrinkage is considered
reasonably likely to predict a real clinical benefit."
&
Drug
Admin.,
Accelerated
Approval,
ForPatients/Approvals/Fast/ucm405447.htm
2018).
U.S. Food
https://www.fda.gov/
(last
updated
Jan.
4,
This is particularly useful in the case of drugs intended
to treat diseases with longer courses, when measuring the drug's
clinical benefit would otherwise require an extended period of
time.
In such cases, the drug's effect on the surrogate or
clinical endpoint may be observable much sooner, allowing the FDA
to determine the drug's efficacy at an earlier juncture.
Crucially, once the FDA has approved a drug, the drug's
sponsor may begin to market it.
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B. The facts underlying this case
Except when we indicate otherwise, we draw the following
facts from the FAC.
1.
Duchenne Muscular Dystrophy ("DMD") is a rare genetic
neuromuscular disorder that primarily affects boys and young men.
As the result of inadequate production of the protein dystrophin,
individuals with DMD suffer from progressive muscle loss causing
severe
disability
and
premature
death.
The
average
expectancy for someone diagnosed with DMD is 27 years.
life
During the
Class Period, no approved disease-modifying therapies for DMD
existed.
Sarepta, however, was developing drug candidates to
treat DMD, including eteplirsen, the drug around which this case
revolves.
See Corban, 868 F.3d at 34-37 (describing, in the
context of a case involving a different class period, Sarepta's
development of eteplirsen).
During the Class Period, Sarepta's
main competitor, Prosensa Therapeutics, Inc., was also developing
and seeking approval of a drug candidate to treat DMD.
The first
company to obtain approval of its drug and succeed in bringing it
to
market
would
obtain
the
"first
mover
advantage."
In
pharmaceutical markets, the "first mover" gains a considerable
advantage
because
doctors
will
quickly
prescribe
the
first
available drug of a new type, and are unlikely to switch to
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prescribing a different drug of the same type that subsequently
becomes available.
The FDA granted eteplirsen Fast Track status in 2007. In
2011, Sarepta began conducting the clinical trials at the center
of this case.
Study 201, designed as a randomized, double-blind,
placebo-controlled study involving 12 participants, sought to
assess the effects of "eteplirsen administered intravenously in
two different doses over 24 weeks for the treatment of ambulant
boys with DMD."
The study's participants all underwent muscle
biopsies at the study's outset and conclusion to determine if the
amount of dystrophin in their muscle tissue had changed over time
-- a potential surrogate endpoint by which to assess eteplirsen's
efficacy.
eteplirsen
Study
met
the
201's
results
primary
showed
efficacy
that
endpoint
"treatment
in
the
with
study."
Following these encouraging results, Sarepta began "Study 202," in
which the same participants received varying dosages of eteplirsen
for an additional 24 weeks.
All of the muscle biopsy dystrophin
analysis for both of these studies took place at a single location
-- Nationwide Children's Hospital in Columbus, Ohio -- with one
doctor overseeing the entirety of the clinical review.
Because
this analysis requires staining muscle samples with a dye that
makes dystrophin visible, and then viewing and analyzing those
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samples in slides, the Plaintiffs aver that it is "inherently
subjective."
2.
On April 21, 2014 -- the first day of the Class Period
-- Sarepta issued a press release discussing the possibility of
submitting an NDA for eteplirsen by the year's end.
According to
the press release, that goal was "based on a guidance letter from
the [FDA] that proposed a strategy regarding the submission of an
NDA
for
pathway."
eteplirsen
under
a
potential
Accelerated
Approval
The press release quoted the FDA's guidance letter,
which explained that "with additional data to support the efficacy
and safety of eteplirsen for the treatment of DMD, an NDA should
be fileable."
The press release also explained that the FDA's
letter "outlined examples of additional data and analysis that, if
positive, will be important to enhance the acceptability of an NDA
filing by addressing areas of ongoing concern in the existing
dataset."
In
addition,
"expressed
concerns
the
about
release
noted
methodological
that
the
problems
FDA
had
in
the
assessments of dystrophin and, 'remain[s] skeptical about the
persuasiveness of the (dystrophin) data.'"
According to the press
release, the FDA had stated that, as a result, it was "uncertain
whether the existing dystrophin biomarker data will be persuasive
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enough to serve as a surrogate endpoint that is reasonably likely
to predict clinical benefit."
That same day, Sarepta held a conference call with
investors and analysts to discuss its announcement.
Per the
guidance letter, Garabedian explained that with "additional data
and analysis," Sarepta would be able to "pursue an NDA filing that
we will plan to submit by the end of this year, for a potential
early
approval
of
eteplirsen
sometime
in
2015."
But,
he
cautioned, "the guidance letter described the FDA's reservations
that the existing data set may not be sufficient to support an NDA
filing,
or
be
compelling
enough
for
a
favorable
review."
Garabedian further offered that "[w]e could submit our NDA now on
the existing data set, but the FDA has highlighted questions and
concerns," for which reason "we are going to be in a much better
position if we just wait for some of these additional pieces of
data."
Following this announcement, Sarepta shares increased in
value by 39.26% on unusually heavy trading volume, closing on
April 21, 2014 at $33.98 per share.
The following day, Sarepta
announced that it planned to offer up to $100 million of its common
stock in a public offering.
Then, on April 29, it sold 2,650,000
shares of common stock in a public offering at a price of $38.00
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per
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share,
resulting
in
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net
Date Filed: 04/04/2018
proceeds
of
Entry ID: 6161202
approximately
$94.5
million.
On
May
7,
2014,
Garabedian
conference call with analysts.
the
FDA's
guidance
letter
participated
in
another
During that call, he characterized
as
communicating
to
Sarepta,
in
paraphrased terms:
[W]e're not telling you you can't submit an NDA
tomorrow on the existing data set . . . . But we're
telling you that we've raised enough concerns on the
existing data set that you would bolster your case
for an NDA filing and potentially a favorable review
if you allow us to do a more detailed review of your
dystrophin methodology [and if you supplement the data
set].
In short, Sarepta expressly disclosed that the FDA wanted to do a
more detailed review of the study's methodology, and get more data,
and that Sarepta's chances of success for an NDA filing would be
affected by whether it allowed the FDA to do so.
Additionally,
during the same month, the FDA also visited Nationwide Children's
Hospital -- where Study 201/202 took place -- to review the
clinical trial site and protocols in place there.
Then,
on
July
29,
2014,
the
FDA
requested
that
"independent pathologists at independent labs" review Sarepta's
primary
dystrophin
endpoint.
Sarepta
did
not
request to the public during the class period.
disclose
this
On the same day,
the director of the FDA's Center for Drug Evaluation and Research
("CDER") responded via a statement on the White House's website to
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a petition urging the FDA to "say YES to Accelerated Approval for
safe,
effective
therapies
for
children
with
Duchenne."
Her
response acknowledged Sarepta's intention of filing an NDA for
eteplirsen by the end of 2014.
On August 7, 2014, Garabedian held another conference
call with investors and analysts.
During that call, he stated
that "[a]s a reminder, the FDA indicated in its April guidance
that if, after further detailed review, they were to find the
currently available dystrophin biomarker data to be adequate, our
existing dystrophin data set would have the potential to support
accelerated approval."
After relaying that the FDA had visited
National Children's Hospital, he added that "we continue to work
with the FDA to provide greater assurance of the quality and
reliability of our dystrophin data in anticipation of a potential
NDA filing decision and potential NDA review next year."
However, on October 27, 2014 -- the last day of the Class
Period -- Sarepta issued another press release announcing that it
had received updated guidance from the FDA regarding its planned
NDA submission for eteplirsen.
FDA
now
required
Sarepta's
That guidance indicated that the
NDA
to
include
additional
data,
including, among other things, "the results from an independent
assessment of dystrophin images and the 168-week clinical data
from study 202."
As a result, the press release explained, Sarepta
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would not be able to submit an NDA until mid-2015, as opposed to
its prior target of late 2014.
On the same day, Sarepta executives
also held a conference call with investors and analysts to convey
and explain the FDA's concerns.
That day, Sarepta shares declined
by more than 32%, closing at $15.91 per share, on unusually heavy
trading volume.
On October 30, 2014, the FDA issued a public statement
addressing "questions the agency has received from DMD patients,
their families, and others in the community who are concerned about
the timing of the filing of an NDA for eteplirsen."
The statement
underscored that "[i]n its advice to Sarepta, FDA has consistently
stated that it would be necessary to include data in its NDA
demonstrating that eteplirsen increases production of the muscle
protein dystrophin."
The statement also clarified that during the
FDA's visit to Nationwide Children's Hospital, "the agency did not
find any evidence of fraud at this site, as has been perceived by
some."
However, the FDA also highlighted its concern "that the
methods used to measure dystrophin were not adequately robust to
support an NDA submission."
Finally, the statement concluded by
explaining that the "FDA will continue to work with Sarepta in
their efforts to provide the data it considers critical to FDA's
ability to review the NDA and reach a decision on approvability."
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3.
We add the following facts from the PSAC.
In
May
2015,
after
the
Plaintiffs
brought
this
securities fraud suit, see infra Section I.C., Sarepta did file an
NDA for eteplirsen.
August 25, 2015.
The FDA accepted the NDA for filing on
While the director of the CDER has the sole
authority to approve an NDA, the FDA may call upon advisory
committees to provide independent opinions and recommendations
during the approval process.
The FDA scheduled an advisory
committee meeting about the eteplirsen NDA for January 22, 2016.
In anticipation of that meeting, the FDA published a briefing
document for members of the advisory committee (the "Briefing
Document").
That document detailed, among other things, the
concerns that the FDA had communicated to Sarepta prior to and
during the Class Period.
So
too,
primarily
for
purposes
of
narrative
completeness, do we mention the following facts contained neither
in the FAC nor the PSAC.
The
district
court
took
judicial
notice
that,
on
September 19, 2016 -- after briefing on the Plaintiffs' motion for
leave to amend had concluded, see infra Section I.C. -- the FDA
announced that it had decided to grant accelerated approval to
eteplirsen.
Moreover, the Plaintiffs ask us to take judicial
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notice that this announcement came after an appeal within the FDA
to the CDER director's initial decision to grant accelerated
approval to eteplirsen.
In brief, the Director of CDER's Office
of Drug Evaluation brought an appeal challenging that decision on
the basis that Study 201/202 was methodologically inadequate.
After reviewing the appeal, the FDA Commissioner decided to "defer
to [the CDER director's] judgment and authority to make the
decision to approve eteplirsen under the accelerated approval
pathway."1
Thus, Sarepta was able to begin marketing eteplirsen.
C. This putative class action
The Plaintiffs filed the FAC on March 20, 2015, alleging
two counts: (1) that all of the Defendants violated section 10(b)
of the Securities Exchange Act of 1934 (the "Exchange Act"), see
15 U.S.C. § 78j(b), and Securities and Exchange Commission ("SEC")
Rule 10b-5, see 17 C.F.R. § 240.10b-5, and (2) that Garabedian and
Kaye violated section 20(a) of the Exchange Act.
In broad terms,
the Plaintiffs alleged that the Defendants, in discussing their
intention to file an NDA in 2014, fraudulently misrepresented the
FDA's communications to them concerning Sarepta's dystrophin data.
1
We note that, while we have made reference to these facts, which
were not before the district court, they do not end up having the
effect of impacting our analysis.
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The Defendants moved to dismiss the FAC for failure to
state a claim.
See Fed. R. Civ. P. 12(b)(6).
granted that motion on April 5, 2016.
did
not
allege
"sufficient
facts
The district court
It concluded that the FAC
to
plausibly
suggest
that
Defendants made affirmatively misleading statements, or that they
omitted . . . information needed to make their statements not
misleading."
It also held that the FAC similarly lacked facts
supporting an inference of scienter on the part of Sarepta's
executives as to the allegedly misleading nature of any of their
statements or omissions.
The Plaintiffs then filed a motion for leave to amend
the FAC, attaching the PSAC to that motion.
The PSAC, unlike the
FAC, contained allegations involving the Briefing Document.
The
Briefing Document, according to the Plaintiffs, demonstrated that
the FDA had communicated to Sarepta a "plethora of concerns" about
Sarepta's data before and during the Class Period.
It also, said
the Plaintiffs, illustrated that the Defendants had misrepresented
Study 201/202 as "blinded."
On
January
6,
2017,
the
Plaintiffs' motion for leave to amend.
district
court
denied
the
Specifically, it held that
the Plaintiffs had delayed unduly in moving to amend, and that, in
any event, the PSAC was futile because it also failed to state a
claim.
The Plaintiffs now appeal the district court's orders
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denying them leave to file the PSAC and dismissing their claims
with prejudice.
II.
THE DISTRICT COURT PROPERLY DISMISSED THE FAC
We first take up the Plaintiffs' contention that the
district court erred in dismissing the FAC for failure to state a
claim.
Our review of a district court's dismissal under Rule
12(b)(6) is de novo.
Schaefer v. Indymac Mortg. Servs., 731 F.3d
98, 103 (1st Cir. 2013).
In determining whether the FAC stated a
claim upon which relief can be granted, "we accept well-pleaded
factual
allegations
in
the
complaint
as
true
reasonable inferences in the plaintiffs' favor."
and
view
all
ACA Fin. Guar.
Corp. v. Advest, Inc., 512 F.3d 46, 58 (1st Cir. 2008).
A. The relevant law
To survive a motion to dismiss under Rule 12(b)(6), a
complaint alleging securities fraud under section 10(b) of the
Exchange Act and Securities and Exchange Commission Rule 10b–5
must plead six elements: "(1) a material misrepresentation or
omission;
(2)
scienter,
or
a
wrongful
state
of
mind;
(3)
a
connection with the purchase or sale of a security; (4) reliance;
(5) economic loss; and (6) loss causation."
Id. at 58.
Only the
first two elements are at issue here.2
2
While the Plaintiffs also brought claims under section 20(a),
those claims are "derivative of 10b-5 claims." Hill v. Gozani,
638 F.3d 40, 53 (1st Cir. 2011).
Following a finding that a
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The Private Securities Litigation Reform Act of 1995
("PSLRA"),
15
U.S.C.
securities
fraud
pleadings.
With regard to misleading representations, the PSLRA
and
§
78u-4,
imposes
a
governs
complaints
particularity
alleging
requirement
on
requires that complaints "specify each statement alleged to have
been misleading [and] the reason or reasons why the statement is
misleading."
Id. § 78u-4(b)(1)(B); see also Aldridge v. A.T.
Cross Corp., 284 F.3d 72, 78 (1st Cir. 2002).
As for scienter,
the PSLRA requires that complaints "state with particularity facts
giving rise to a strong inference that the defendant acted with
the required state of mind."
added).
15 U.S.C. § 78u-4(b)(2)(A) (emphasis
To satisfy this "rigorous" requirement, Advest, Inc., 512
F.3d at 58, a plaintiff must "show either that the defendants
consciously intended to defraud, or that they acted with a high
degree of recklessness," Aldridge, 284 F.3d at 82 (citing Greebel
v. FTP Software, Inc., 194 F.3d 185, 198-201 (1st Cir. 1999)).
Additionally, the Supreme Court has determined that under the
PSLRA, "an inference of scienter must be more than merely plausible
or reasonable -- it must be cogent and at least as compelling as
company has violated a substantive section of the Exchange Act,
section 20(a) imposes joint and several liability on that company's
executives unless they "acted in good faith and did not directly
or indirectly induce the act or acts constituting the violation or
cause of action." 15 U.S.C. § 78t(a).
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any opposing inference of nonfraudulent intent."
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Tellabs, Inc.
v. Makor Issues & Rights, Ltd., 551 U.S. 308, 314 (2007); see also
Advest, Inc., 512 F.3d at 59 ("[W]here there are equally strong
inferences for and against scienter, Tellabs now awards the draw
to the plaintiff.").
B. Material misrepresentations or omissions
In dismissing the FAC, the district court first held
that the complaint failed "to plead any facts plausibly suggesting
that Defendants' statements or omissions were materially false or
misleading."
On appeal, the Plaintiffs argue that the district
court was wrong for two reasons:
public
statement
supports
the
(1) the FDA's October 30, 2014
inference
that
the
Defendants
"recklessly misrepresented" their ability to file an NDA by the
end of 2014, and (2) after receiving a request for independent
review of its dystrophin data in July 2014, and failing to comply
with that request, the Defendants misled investors by continuing
to represent that a 2014 NDA submission was possible and by failing
to disclose that request and the noncompliance with it.
We take
these arguments in turn.
1.
To begin, we disagree with the Plaintiffs that the FDA's
October 30 public statement suggests that the FDA had previously
communicated anything to Sarepta (such as, that its data were
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inadequate) that would render misleading the Defendants' continued
representations that a 2014 NDA submission was possible.
That
inference would not be reasonable. Contrary to what the Plaintiffs
insist, the FDA did not appear to make its October 30 statement
with the purpose of correcting any prior misrepresentations by
Sarepta.
Rather, the statement explicitly purported to "address[]
questions
the
agency
has
received
from
DMD
patients,
their
families, and others in the community who are concerned about the
timing of the filing of an NDA for eteplirsen."
It is true that the statement highlighted that: (1) "[i]n
its advice to Sarepta, FDA has consistently stated that it would
be
necessary
to
include
data
in
its
NDA
demonstrating
that
eteplirsen increases production of . . . dystrophin"; (2) "the
need for additional data and analyses to support the NDA was
reinforced
by
an
FDA
inspection
of
the
clinical
site
where
dystrophin analyses had been conducted"; and (3) after the site
visit, the FDA had "provided Sarepta with detailed recommendations
on how to improve these dystrophin analyses, and FDA's most recent
advice was consistent with the advice provided after the April
2014 meeting."
But none of this supports the inference that the
FDA had previously told Sarepta that its data were categorically
inadequate. And crucially, the statement also recognized Sarepta's
April
2014
announcement
of
its
"plans
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to
submit
an
NDA
for
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eteplirsen
by
the
end
of
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2014,"
Date Filed: 04/04/2018
without
Entry ID: 6161202
objecting
to
otherwise characterizing it as misleading or unfounded.
it
or
So, the
FDA's statement cannot serve as the scaffolding for any reasonable
inference that the FDA had communicated anything to Sarepta during
the
Class
Period
that
would
make
the
Defendants'
subsequent
representations about filing an NDA in 2014 misleading.
2.
The Plaintiffs next turn their focus to the July request
for independent review, which was not itself disclosed as such.
The Plaintiffs' theory is that once Sarepta received this request,
it knew it could not reasonably expect to file an NDA until the
requested independent review was completed, and it knew that it
was not acceding to the request.
As a result, the Plaintiffs say,
its continued assertion on the August 7 call that its existing
dataset could support accelerated approval was misleading.
To
advance
this
argument,
Plaintiffs
would
have
us
assume that the July request for independent review was materially
different in its potential impact on the likelihood of approval
than was the FDA's April request for further review (which had
been disclosed to investors).
For purposes of our disposition of
this appeal, we can make that assumption.
In so doing, however,
we cannot avoid observing that it is hardly obvious that the July
request for independent review was significantly new and that
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compliance with it was more mandatory than what had come before.
Both before and after the July request, it was the case that the
FDA was saying that further review by someone other than Sarepta
would affect the chances of approval, which is precisely what
Sarepta disclosed.
C. Scienter
The
Plaintiffs'
pursue
two
lines
of
argumentation
regarding scienter: (1) that "concealing and avoiding the requests
for reassessment recklessly risked misleading investors"; and (2)
that Sarepta's significant motive to mislead investors is an
indicia of scienter.3
1.
Keeping in mind that inferences of scienter under the
PSLRA must be "at least as compelling as any opposing inference of
nonfraudulent intent," Tellabs, 551 U.S. at 314, we begin with the
first of Plaintiffs' arguments.
As the district court correctly
noted, given that it is the only communication that took place
after the FDA made this request, Garabedian's August 7, 2014 phone
call with investors is the only communication we need to look at.4
3
The Plaintiffs also argue that Garabedian's evasive response to
a question during his May 7 conference call indicated that he was
knowingly misleading investors regarding the FDA's July request
for independent review. But this cannot be right, because according
to the Plaintiffs, the FDA had not yet made that request.
4
In
their
reply
brief,
the
Plaintiffs
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argue
that
various
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In analyzing that call, we also keep in mind our recognition that
providing warnings to investors, or otherwise disclosing potential
risks, erodes inferences of scienter.
See Fire & Police Pension
Ass'n of Colo. v. Abiomed, Inc., 778 F.3d 228, 244 (1st Cir. 2015)
(holding that defendants' informative disclosures "undercut any
inference of scienter"); City of Dearborn Heights Act 345 Police
& Fire Ret. Sys. v. Walters Corp., 632 F.3d 751, 760 (1st Cir.
2011) ("[A]ttempts to provide investors with warnings of risks
generally
weaken
the
inference
of
scienter."
(alteration
in
original) (quoting Ezra Charitable Tr. v. Tyco Int'l, Ltd., 466
F.3d 1, 8 (1st Cir. 2006))).
The substance of what Garabedian communicated during the
August 7 phone call severely weakens any inference of scienter.
He told investors "[a]s a reminder, the FDA indicated in its April
guidance that if, after further detailed review, they were to find
the currently available . . . data to be adequate, our existing
dystrophin data set would have the potential to support accelerated
approval."
He further explained that Sarepta was "continu[ing]
to work with the FDA to provide greater assurance of the quality
statements by the Defendants in April and May of 2014 were
misleading in light of the FDA's July request for independent
review. But, this argument necessarily fails because, according to
the FAC, these phone calls took place before the FDA communicated
that request to Sarepta.
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and
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reliability
of
our
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dystrophin
data."
In
this
Entry ID: 6161202
manner,
Garabedian reminded investors that the FDA was looking for further
review, as Sarepta disclosed in April. At the same time, Garabedian
gave no assurance that Sarepta would accede to the type of review
that the FDA sought.
As we have discussed, the difference between
those statements and what exactly happened is not obvious, as
investors knew that Sarepta's chances would be less if it did not
receive a further review.
And even accepting the Plaintiffs'
position that there was a material difference nonetheless, it was
not such that one might reasonably infer scienter from Sarepta's
failure to elaborate more fully on any difference between a review
by the FDA and a review for the FDA by another lab.
words,
an
arguable
misrepresentation
provides
by
In other
itself
less
support for an inference of scienter than does a clear falsehood.
See Flannery v. SEC, 810 F.3d 1, 9 (1st Cir. 2015) ("If it is
questionable whether a fact is material or its materiality is
marginal, that tends to undercut the argument that defendants acted
with the requisite intent or extreme recklessness in not disclosing
the fact." (quoting City of Dearborn Heights, 632 F.3d at 757)).
We now turn to the Plaintiffs' related argument that
Garabedian recklessly risked misleading investors about Sarepta's
likelihood of achieving that result by failing to mention that
Sarepta was not complying with the FDA's request for independent
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As we have noted, unlike in its October 2014 guidance,
the FDA did not describe compliance with its July 29, 2014 request
as a mandatory prerequisite for a successful NDA filing.
And as
we have previously held, when defendants do not divulge the details
of interim "regulatory back-and-forth" with the FDA, that alone
cannot support an inference of scienter under the PSLRA when the
defendants do provide warnings in broader terms.
Inc., 778 F.3d at 243-44.
See Abiomed,
"There must be some room for give and
take between a regulated entity and its regulator."
Id. at 244;
see also Corban, 868 F.3d at 40 ("The defendants had no legal
obligation
to
loop
the
public
into
each
detail
of
every
communication with the FDA.").
Additionally, we understand the Plaintiffs' arguments
about Sarepta's failure to obtain independent review to assert
that Sarepta was avoiding doing so out of concern that its data
would not hold up under scrutiny.5
Thus, the argument that the
Defendants needed to disclose that they had not followed this
request is a variation on the Plaintiffs' other arguments that the
Defendants were not forthcoming about the FDA's concerns about
5
The Plaintiffs do not, for example, argue that Sarepta avoided
complying with this request because it would be costly, or time
consuming, or for any other reason unrelated to the risk that
independent experts would not be able to confirm the studies'
results.
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their data's reliability or that they misleadingly claimed that
they had strong data.
And we note again that Garabedian admitted
during the August 7 phone call that the FDA had such concerns about
Sarepta's
data.
So,
even
if
Garabedian
made
material
misrepresentations or omissions regarding the July request for
independent review or Sarepta's compliance with it, the inference
that he did so with scienter is not sufficiently compelling under
Tellabs for purposes of stating a claim for securities fraud.
2.
The Defendants' purported motive to deceive investors
similarly
fails
to
make
an
inference
of
scienter
adequately
compelling. Pointing to Sarepta's public offering during the Class
Period, the Plaintiffs insist that "[i]n a race for FDA approval
and generating no significant revenue, Sarepta was dependent upon
offerings to fund its operations; reporting positive news was
critical to Sarepta's existence."
arguments of this sort.
We have set a high bar for
Indeed, "catch-all allegations that
defendants stood to benefit from wrongdoing" are not enough.
Greebel, 194 F.3d at 197 (quoting In re Advanta Corp. Sec. Litig.,
180 F.3d 525, 535 (3d Cir. 1999)).
Rather, "[w]e require something
more than the ever-present desire to improve results, such as
allegations that 'the very survival of the company w[as] on the
line.'"
Corban 868 F.3d at 41 (second alteration in original)
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(quoting In re Cabletron Sys. Inc., 311 F.3d 11, 39 (1st Cir.
2002)).
The Plaintiffs do not clear this bar.
The FAC is bereft
of allegations that Sarepta was financially on the ropes, or that
it "would shutter its doors unless it padded earnings by deceiving
investors."
Corban, 868 F.3d at 42.
It may be so that this
offering generated revenue that proved useful to Sarepta in its
"race for FDA approval," so to secure the "first-mover advantage."
Yet, that alone cannot bear the weight of an inference of scienter
that is "at least as compelling" as any other.
Tellabs, 551 U.S.
at 314.
Therefore, because the Plaintiffs did not adequately
plead scienter in the FAC, we hold that district court did not err
in dismissing the FAC for failure to state a claim.
III.
THE DISTRICT COURT PROPERLY DENIED LEAVE TO AMEND
We
now
turn
to
the
Plaintiffs'
arguments
that
the
district court should have granted them leave under Fed. R. Civ.
P. 15(a) to file the PSAC.
The district court denied leave on the
grounds that the Plaintiffs had moved to amend with "undue delay"
and because, in any event, the PSAC also failed to state a claim.
On appeal, the Plaintiffs urge the opposite: that they did not
delay unduly and that the PSAC did state a claim.
We assume
(without deciding) that the PSAC was not futile, but nonetheless
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affirm the district court's denial of leave to amend on undue delay
grounds.
Under Fed. R. Civ. P. 15(a)(2), a party may amend a
pleading "with the court's leave."
The Rule further provides that
"[t]he court should freely give leave when justice so requires."
Nonetheless, grounds for denying leave include "undue delay, bad
faith
or
dilatory
motive
.
.
.
repeated
failure
to
cure
deficiencies by amendments previously allowed, undue prejudice to
the opposing party . . . [and] futility of amendment."
Advest,
Inc., 512 F.3d at 55-56 (quoting Forman v. Davis, 371 U.S. 178,
182 (1962)).
While "[t]he rule reflects a liberal amendment
policy . . . the district court enjoys significant latitude in
deciding whether to grant leave to amend."
omitted).
Id. at 55 (citation
And notably, "undue delay in moving to amend, even
standing alone," can provide a court with adequate grounds to deny
leave.
Zullo v. Lombardo (In re Lombardo), 755 F.3d 1, 3 (1st
Cir. 2014).
We have previously made the observation that "the longer
a plaintiff delays, the more likely [a] motion to amend will be
denied."
Advest, Inc., 512 F.3d at 57 (citing Steir v. Girl Scouts
of the USA, 383 F.3d 7, 12 (1st Cir. 2004)).
And we have
explicitly condemned a "wait and see" approach to pleading, whereby
plaintiffs "having the needed information, deliberately wait in
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the wings . . . with another amendment to a complaint should the
court hold the first amended complaint was insufficient."
Id.
The Plaintiffs filed the FAC on March 20, 2015.
The
Briefing Document -- the source of the Plaintiffs' new allegations
in the PSAC -- became available in January 2016.
court denied the FAC on April 5, 2016.
The district
Three days later, the
Plaintiffs moved to file the PSAC.
The PSAC differed from the FAC in two key respects.
First, it alleged that the FDA had requested an independent review
of Sarepta's dystrophin data in July 2013 (a year earlier than the
FAC claimed that this occurred).
Second, it alleged that Sarepta
had manipulated its dystrophin studies, and that the FDA had
communicated concerns to Sarepta that "the blinded nature of the
dystrophin
study
had
been
improperly
broken
after
initial
(blinded) analysis failed to yield positive results."
Thus,
according to the PSAC, the Defendants "misrepresented that the
dystrophin
analysis
controlled
manner,
was
conducted
and
they
in
a
properly
misrepresented,
blinded
omitted,
and
and
recklessly ignored the FDA's repeated guidance to seek independent
laboratory verification of the dystrophin assessment results."
Highlighting
the
three-month
gap
between
the
FDA's
publication of the Briefing Document and the Plaintiffs' motion to
amend, the district court reasoned that "[t]he timing of the filing
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of the motion to amend suggests that rather than moving promptly
for
leave
to
file
a
new
complaint
based
on
new
information
discovered in January 2016, the Plaintiffs instead waited for the
Court's ruling on the Motion to Dismiss before seeking leave to
amend."
This, it concluded, amounted to "wait and see" pleading,
and thus undue delay.
The district court did not abuse its discretion in
reaching
this
conclusion.
The
Plaintiffs'
arguments
to
the
contrary focus on their subjective belief in the strength of the
FAC and on minimizing the three months during which they could
have moved for leave to amend.
We are unmoved by the Plaintiffs'
arguments concerning their belief that the FAC adequately stated
a claim. Regardless of whether or not they intentionally sandbagged
their claims, the fact remains that despite having three months to
do so, the Plaintiffs did not move to amend until after the
district court dismissed the FAC.
And while the Plaintiffs
characterize this period of time as "relatively short," we have
previously upheld denials of leave to amend on undue delay grounds
after a comparable amount of time.
See Villanueva v. United
States, 662 F.3d 124, 127 (1st Cir. 2011) (affirming a finding of
undue delay where the plaintiff moved to amend four months after
filing his complaint); Kaye v. New Hampshire, 821 F.2d 31, 34 (1st
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Cir. 1987) (per curiam) (finding a three-month delay to be a
sufficient basis for denying leave to amend).
We also reject the Plaintiffs' argument that moving to
amend post-dismissal is desirable from the perspective of judicial
economy.
They press that "it would have been neither practical
nor economical to move to amend the complaint each time new
relevant information was released while dispositive motions were
pending in this case . . . especially in the context of [the]
dynamic
factual
process."
methodology
work."
developments
surrounding
the
[FDA
approval]
But the Plaintiffs "have it exactly backwards -- their
would
lead
to
delays,
inefficiencies,
Advest, Inc., 512 F.3d at 57.
and
wasted
Indeed, the resulting
"unnecessary costs and inefficiencies on both the courts and party
opponents" is precisely the reason why we refused to sanction a
"wait and see" approach to pleading in Advest.
Id.
It may be so
that the Plaintiffs did not move to amend at an earlier juncture
because they believed that further information relevant to their
claims
may
have
been
coming
down
consideration of the eteplirsen NDA.
the
pike
amid
the
FDA's
But that is not so much an
argument against the district court's denial of their motion for
leave to amend as it is a suggestion that the Plaintiffs perhaps
jumped the gun in filing the FAC.
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the district court did not abuse its discretion in denying leave
to amend on undue delay grounds.6
IV.
CONCLUSION
The FAC failed to state a claim, and even assuming that
the PSAC did not also suffer from that deficiency, the district
court did not abuse its discretion in ruling that the Plaintiffs
moved to file it with undue delay.
Therefore, the district court's
judgment is affirmed.
Affirmed.
6
While both of the PSAC's new claims -- that the FDA had requested
independent review in July 2013 and that Sarepta had fraudulently
characterized its dystrophin studies as blinded -- derived from
the Briefing Document, the PSAC also cited the transcript from the
hearing before the district court in Corban, during which a portion
of the FDA's July 2013 written guidance to Sarepta (requesting
that Sarepta confirm its data independently) was read into the
record. Because this hearing took place in August 2015, however,
this does not impact our conclusion that the district court did
not abuse its discretion in denying leave to amend.
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