Shah v. Fischer et al

Filing 31

MEMORANDUM OPINION. Signed by Chief Judge Deborah K. Chasanow on 9/20/13. (sat, Chambers)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
:
SATISH SHAH
:
v.

:

Civil Action No. DKC 12-0341

:
GENVEC, INC., et al.
:
MEMORANDUM OPINION
Presently pending and ready for resolution in this putative
securities fraud class action is a motion to dismiss filed by
Defendants GenVec, Inc., and corporate officers Paul H. Fischer,
Douglas J. Swirsky, and Mark O. Thornton.

(ECF No. 21).

The

issues are fully briefed and the court now rules pursuant to
Local Rule 105.6, no hearing being deemed necessary.

For the

reasons that follow, the motion will be granted.
I.

Background
On July 6, 2012, Plaintiffs Rob Ferry, Robert T. Schiff,

Donald

A.

Schumer,

Scott

Sheckler,

and

Anne

Vandelanotte,

individually and on behalf of all purchasers of GenVec, Inc.,
common stock between March 12, 2009, and March 29, 2010 (“the
class period”), filed an amended complaint alleging violations
of sections 10(b) and 20(a) of the Securities Exchange Act of
1934, 15 U.S.C. §§ 78j(b) and 78t(a), and SEC Rule 10b-5, 17

C.F.R. § 240.10b-5.

(ECF No. 20).1

The following facts are

drawn from the amended complaint and documents incorporated by
reference therein.2
A.

Factual Background

1.

Events Prior to the Class Period

GenVec is a small clinical stage biopharmaceutical company
based in Gaithersburg, Maryland, specializing in the development
of novel therapeutic drugs and vaccines.

At all times relevant,

its lead therapeutic product candidate was “TNFerade™ biologic”
(“TNFerade”),

a

drug

that

showed

trials for the treatment of cancer.

early

promise

(Id. at ¶ 3).

in

clinical

“TNFerade is

an adenovector, or DNA carrier, which contains the gene for
tumor

necrosis

factor-alpha

(‘TNF

alpha’),

an

immune

system

1

The plaintiff identified in the caption, Satish Shah, was
named in the original complaint, but not the amended pleading.
Because the amended complaint names multiple plaintiffs, they
are collectively referred to herein as “Plaintiffs.”
2

In the context of securities fraud litigation, facts
outside the complaint may be considered where the “complaint
quotes selectively from various reports by investment analysts”
and the plaintiff does not “challenge the authenticity of the
analyst reports attached to defendants’ motion to dismiss and
cited in plaintiffs’ complaint.” Cozzarelli v. Inspire Pharms.,
Inc., 549 F.3d 618, 625 (4th Cir. 2008).
Indeed, “district
courts in this circuit ‘routinely take judicial notice of
newspaper articles, analysts’ reports, and press releases in
order to assess what the market knew at particular points in
time, even where the materials were not specifically referenced
in the complaint.’”
In re Human Genome Sciences Inc. Sec.
Litig., --- F.Supp.2d ----, ----, 2013 WL 1223344, at *5 (D.Md.
Mar. 26, 2013) (quoting Johnson v. Pozen Inc., No. 7:07CV599,
2009 WL 426235, at *5 (M.D.N.C. Feb. 19, 2009)).
2

protein with potent and well-documented anti-cancer effects, for
direct injection into tumors.”

(Id. at ¶ 42).

Once injected,

“TNFerade works by causing cells in the tumor to produce and
secrete

[TNF

alpha],”

which

“binds

to

cells

leading to the death of cells in the tumor.”

in

the

tumor,

(Id. at ¶ 67).

By

locally delivering protein to cells, GenVec’s core technology
had the added advantage of “reduc[ing] side effects typically
associated with systemic delivery of proteins.”
Before
approved

any

by

new

the

drug

Food

and

can

be

Drug

marketed,

(Id. at ¶ 41).

it

Administration

must

first

(“FDA”).

be
As

Plaintiffs acknowledge, the process of gaining FDA approval is
decidedly rigorous:
It takes on average 12 years and over $700
million to get a new drug from molecule to
market. Once a company develops a drug, it
generally undergoes years of laboratory
testing before an application is made to the
FDA to begin testing the drug on humans.
Only approximately one in 1,000 of the
compounds that enter laboratory testing will
ever reach human testing. Only 8% of drugs
that enter Phase I clinical trials are
eventually approved by the FDA.
(Id. at ¶ 38).
Among

the

drugs

that

are

ultimately

approved

for

human

testing, “clinical trial programs for a pharmaceutical product
consist of three sequential phases of clinical trials, which can
overlap”:

3

Phase 1 trials are the first stage of
testing the drug in human subjects.
This
phase is designed to assess the safety,
tolerability,
pharmacokinetics
(what
the
body does to the drug), and pharmacodynamics
(what the drug does to the body) of a drug
on a small group of subjects.
Once the
initial
safety
of
the
drug
has
been
confirmed through Phase 1 trials, the second
phase of testing is performed, usually on
larger groups, and designed to assess how
well the drug works, as well as to continue
safety assessments.
Data from a Phase [2]
clinical trial or trials are normally used
to design the third and final phase of
clinical trials.
A dose effect, increased
effectiveness
with
increased
dose,
is
considered evidence of efficacy by the FDA,
and dose comparisons are a specified form of
controlled trials in FDA regulations.
The
third and final phase of clinical trials
normally proceeds only if the Phase [2]
trial or trials provide adequate evidence of
efficacy and safety of a pharmaceutical
product.
(Id. at 39).
TNFerade was approved for testing on human subjects and
performed
reported

well
in

radiation
tolerated”

in

two

2004,

therapy,
and

separate

“TNFerade,

in

demonstrated

“tumor

size

Phase

1

trials.

conjunction

that

it
of

25%

with

was

reduction

As

GenVec

standard

generally
or

greater

well
was

observed in more than 70% of patients in 12 different tumor
types, including pancreatic, rectal, melanoma, small cell lung,
breast, and sarcoma.”
GenVec

“initiated

a

(Id. at ¶ 44).
Phase

2,

Based on those results,

dose-escalation

study

in

50

patients with locally advanced pancreatic cancer to determine
4

the

best

therapeutic

dose

standard chemoradiation.”

of

TNFerade

in

(Id. at ¶ 45).

combination

with

The results of that

testing also showed “an apparent dose related improvement in
survival.”

(Id.).

GenVec next “initiated a randomized, controlled, Phase 2
study of 74 patients,” which, “[i]n consultation with the FDA, .
. . was amended in March 2006 to become a Phase 2/3, 330-patient
pivotal [Pancreatic Cancer Clinical Trial (“PACT Trial”)] that
would
(Id.).

support

registration

of

TNFerade

for

this

indication.”

As Plaintiffs describe it:
The PACT Trial [was] a study for the
treatment of unresectable, locally advanced
pancreatic
carcinoma
that
included
a
comparison of: 1) treatment using TNFerade
plus standard of care therapy; and 2)
treatment
using
only
standard
of
care
therapy. Standard of care therapy consisted
of 5 ½-weeks of concurrent radiation therapy
5 days weekly and fluorouracil by continuous
infusion
5
days
weekly
followed,
approximately four weeks after completion of
chemoradiation,
by
patients
receiving
gemcitabine
or
gemcitabine/erlotinib
maintenance therapy.
The primary endpoint
for the PACT Trial was originally based on
12-month survival.

(Id.).

GenVec “reported the preliminary analysis of safety data

based on the first 40 patients treated and survival data on the
first 51 patients treated” in December 2006.

(Id. at ¶ 46).

The safety analysis “indicated that there was no significant
difference

in

the

occurrence

5

of

serious

adverse

events

(including thrombotic events) between the treatment and control
groups” and the efficacy data showed “a potentially emerging
trend of an overall survival advantage in patients receiving
TNFerade.”

(Id.).

In January 2008, GenVec reached an agreement with the FDA
to

change

the

twelve-month
reported

primary

survival

“could

be

efficacy

to

endpoint

overall

considered

a

survival,
basis

further

contemplated

that

the

which

for

approval of TNFerade for this indication.”
agreement

of

trial
the

full

company

regulatory

(Id. at ¶ 47).

both

GenVec

from

and

The
an

independent Data Safety Monitoring Board (“DSMB”) would conduct
interim analyses of the PACT Trial at two specific points –
namely, “following one-third (92) and two-thirds (184) of the
total events (deaths) for the study, with the potential to stop
the trial for futility or if there was clear evidence of the
drug’s efficacy.”

(Id.).3

In other words, the study was to be

“unblinded,” i.e., data was to be collected and examined, only
after the deaths of 92 trial participants (“the first interim

3

Data safety monitoring boards “are responsible for
ensuring the safety of patients participating in clinical trials
and for monitoring such trials for possible early termination
due to excessive risks.”
In re Pfizer, Inc. Sec. Litig., Nos.
04 Civ. 9866 (LTS)(JLC), 05 md 1688 (LTS), 2010 WL 1047618, at
*5 (S.D.N.Y. Mar. 22, 2010); see also Bonds v. Leavitt, 629 F.3d
369, 374 (4th Cir. 2011) (a DSMB is “tasked with protecting study
participants’ interests”).
6

analysis”) and again after the deaths of 184 trial participants
(“the second interim analysis”).
On

November

19,

2008,

GenVec

issued

a

press

release

announcing survival data from the first interim analysis of the
PACT Trial.

The press release stated, in relevant part:

Interim data demonstrated an approximately
25% lower risk of death in the TNFerade plus
standard of care (SOC) arm relative to the
95%
SOC
alone
(Hazard
Ratio=0.753;[4]
[5]
Confidence
Interval
[0.494-1.15] ).
An
independent Data Safety Monitoring Board
reviewed the interim analysis data and
recommended the trial continue as planned.

4

The press release defined the term “hazard ratio” as “an
estimate of the treatment effect in the treated versus the
control group in a trial.”
(ECF No. 21-22, at 6).
GenVec
explained, “[t]he hazard ratio reported means that, at the time
of the interim analysis, a TNFerade patient had 0.75 times the
chance of dying compared to someone in the standard of care
group.” (Id.).
5

The “confidence interval” is “a limit above or below or a
range around the sample mean, beyond which the true population
is unlikely to fall.” Perez v. Mountaire Farms, Inc., 650 F.3d
350, 362 (4th Cir. 2011) (citing D. Barnes & J. Conley,
Statistical Evidence in Litigation, § 3.15 at 107 (1986)).
It
is, “in simple terms, the ‘margin of error.’” In re Bextra and
Celebrex Marketing Sales Practices and Product Liability Litig.,
524 F.Supp.2d 1166, 1174 (N.D.Cal. 2007).
With regard to the confidence interval at issue here,
Plaintiffs do not challenge Defendants’ interpretation that “the
[f]irst [i]nterim [a]nalysis suggested that, once the full PACT
study was concluded, patients receiving TNFerade would have
shown a risk of death between roughly 51% lower than patients on
[standard of care] ([i.e.], a highly effective treatment) and
15% higher than patients on [standard of care] (i.e., an
ineffective treatment).” (ECF No. 21-1, at 10-11 n. 32).
7

Kaplan-Meier analysis of data, based on this
interim analysis, demonstrated that overall
survival at 12 months was 39.9% in the
TNFerade plus SOC arm versus 22.5% in the
SOC arm. Overall survival at 18 months was
30.5% in the TNFerade plus SOC arm versus
11.3% in the SOC arm. At 24 months, overall
survival was 10.6% in the TNFerade plus SOC
arm versus 11.3% in the SOC arm.
Median
survival was 9.9 months in both arms of the
trial.
“Successfully passing this milestone in the
PACT trial represents an important step
forward in the clinical development of
TNFerade,”
stated
Mark
Thornton,
M.D.,
Ph.D., Senior Vice President of Product
Development at GenVec.
Thornton continued,
“We believe these data are encouraging and
justify moving forward with the trial.
The
continuation of the trial will allow the
data to mature and provide for future
analyses.
We currently estimate we will
reach the required number of events needed
to conduct the next analysis of data in the
PACT study in late 2009.”
The next interim analysis will be conducted
after 184 deaths have occurred (two-thirds
of total expected events) in the PACT trial.
“At our current rate of enrollment we also
anticipate having enrolled over 300 out of
330 total patients planned for the trial by
the end of next year,” added Thornton.
(ECF

No.

21-22,

at

5).

In

the

same

press

release,

GenVec

announced that “TNFerade has been granted Fast Track product
designation by the U.S. Food and Drug Administration (FDA) for

8

its proposed use in the treatment of locally advanced pancreatic
cancer.”

(Id. at 6).6

While GenVec “called the first interim analysis of the PACT
Trial

‘encouraging,’

certain

efficacy

data

presented

in

the

November 19, 2008[,] press release was troubling, raising doubts
about the drug.”

(ECF No. 20 ¶ 53).

Indeed, these doubts were

reflected in the NASDAQ Global Market, as “the Company’s stock
declined from a close of $11.50 on November 18, 2008[,] to a
close of $6.50 on November 19, 2008[,] reaching a low of $3.80
on

November

25,

2008.”

(Id.

at

¶

54).

As

one

analyst

6

Regarding “Fast Track” product designation, the United
States Court of Appeals for the D.C. Circuit explained:
The FDA has several [] regulatory programs
designed to hasten research of the safety
and effectiveness of drugs for terminally or
severely ill patients and allow early access
where
scientifically
and
medically
warranted. For example, under its “Fast
Track” program, the agency has “established
procedures
designed
to
expedite
the
development, evaluation, and marketing of
new therapies intended to treat persons with
life-threatening and severely-debilitating
illnesses, especially where no satisfactory
alternative therapy exists.” 21 C.F.R. §
312.80. Fast Track allows the FDA to waive
its [investigational new drug] application
requirement if it is “unnecessary or cannot
be achieved,” id. § 312.10, and even allows
a waiver request to be made “[i]n an
emergency . . . by telephone or other rapid
communication,” id.
Abigail Alliance for Better Access to Developmental Drugs v. von
Eschenbach, 495 F.3d 695, 699 n. 4 (D.C. Cir. 2007) (en banc).
9

summarized

in

a

November

19,

2008,

article

posted

TheStreet.com:
GenVec (GNVC) shares sank Wednesday despite
what the company said was a positive update
on its experimental pancreatic cancer drug
TNFerade.
Patients with pancreatic cancer treated with
TNFerade
plus
a
standard
of
care
demonstrated a 25% lower risk of death than
similar patients treated with standard of
care alone, according to an interim analysis
of a phase III study released by GenVec on
Wednesday.
GenVec
executives
called
these
results
encouraging and said the TNFerade study will
continue. On the surface, the data do look
positive.
After all, pancreatic cancer is
very difficult to treat, so if TNFerade is
reducing the risk of death, there’s reason
for optimism.
Yet, GenVec shares sank [] after the company
released the new data and held a conference
call. Some potential concerns pop up once a
deeper look is taken of the interim TNFerade
results.
The 25% lower risk of death attributed to
TNFerade corresponds to a “hazard ratio” of
0.75,
according
to
the
GenVec
interim
analysis.
. . . .
The problem that GenVec may run into,
however, is that the interim hazard ratio is
likely to increase as this study matures,
with
more
patients
enrolled
and
more
patients dying.
The interim analysis Wednesday was conducted
after the 92nd patient in the study died.
The next interim analysis will be conducted
10

on

after the 184th death, expected in late
2009.
When that second interim analysis
occurs, my guess is that the 25% reduction
in the risk of death observed Wednesday will
shrink considerably.
This is not just an off-the-cuff prediction.
Other TNFerade data announced by GenVec
Wednesday provides enough evidence to be
wary about the drug’s chances for success.
At 12 months, 39.9% of TNFerade-treated
patients were alive compared to 22.5% of
patients in the study’s control arm. At 18
months, overall survival for TNFerade was
30.5% compared to 11.3% in the control arm.
Both analyses favor TNFerade.
However, at 24 months, only 10.6% of
patients treated with TNFerade were still
alive compared to 11.3% of patients in the
control arm. In other words, the benefit of
TNFerade vanished.
Moreover, median survival in the study to
date was 9.9 months for both TNFerade and
the control arms. No difference.
(ECF No. 21-34, at 2).
Plaintiffs allege that, despite GenVec’s publically-stated
optimism for the first interim analysis results, its corporate
officers, privately, took a much dimmer view.

In support of

these allegations, they rely largely on the reports of a number
confidential witness (“CWs”), former GenVec employees who gave
statements

on

condition

of

anonymity,

regarding

internal

meetings at around the time the results first became known.
CW1,

“a

Clinical

Trial

Assistant

from

May

2008

until

February 2009” (ECF No. 20 ¶ 156), attended a November 2008
11

clinical

staff

meeting

during

which

“[D]efendant

Thornton

revealed the interim TNFerade results [and] . . . used a set of
graphs to explain [them]” (id. at ¶ 161).

“CW1 stated that all

[of] the attendees of the meeting understood that the results
were not good news because the numbers were marginal.”

(Id.).

CW1 was also present at an “all-employee meeting in November
2008” where the first interim results were discussed.
“CW6,

a

Senior

Regulatory

Affairs

Associate

from

(Id.).

2006

until

January 2009,” attended the all-employee meeting and “saw charts
presented by [D]efendant Thornton that showed that the distance
between the standard of care and the standard of care [plus]
TNFerade was not much[.]”

(Id. at ¶ 164).

Similarly, CW3, “a

Senior Analytical Associate working on the TNFerade program from
March

2004

until

January

2009”

(id.

at

¶

157),

“had

done

development work on TNFerade” and “did not see any significant
difference between the standard of care and the standard of care
with TNFerade, which s/he and [his or her] colleagues discussed
following the meeting.”

(Id. at ¶ 163).7

7

At least some of the reports of one CW cited by Plaintiffs
conflict with other facts alleged in the complaint and
documentary
evidence
incorporated
by
reference
therein.
Specifically, according to CW6, “in early January 2009, there
[was] an Emergency DSMB (Data Safety Monitoring Board) meeting”
following “an email message [that] had gone out to employees
that the 184 goal (targeted number of deaths) had been reached.”
(ECF No. 20 ¶ 165).
CW6 further reported that, “before
recruitment had reached its goal of 330 patients, the targeted
number of deaths was reached (in early January 2009) and that is
12

In January 2009, GenVec laid off twenty-two employees (from
its total workforce of 123 employees).

(Id. at ¶ 154).

CW1 was

purportedly told by “one of the full time [Clinical Research
Assistants,] . . . that TNFerade was not working and that was
the real reason for the lay[]offs that occurred.”
162).

(Id. at ¶

Similarly, CW3 was advised by “her/his boss . . . that

the results from the TNFerade were bad and that was the reason
for

the

lay[]offs.”

(Id.).

GenVec

reported

to

investors,

however, that the layoffs were merely one of a number of “steps
to lower [] operating costs” in order to limit expenditures “not
critical to the clinical development of TNFerade.”

(ECF No. 21-

5, at 17).
2.

Events during the Class Period

The class period set forth in the amended complaint – i.e.,
March 12, 2009, to March 29, 2010 – encompasses the time from
approximately

four

months

after

the

first

interim

analysis

when GenVec decided to ‘pull the plug’ on the PACT Trial.” (Id.
at ¶ 164).
These statements are at odds with every other
account in the complaint and the documentary evidence, which
reflect that the 184th death, triggering the second interim
analysis, occurred in January 2010, not 2009.
(Id. at ¶ 114).
Moreover, the complaint reflects that CW6’s employment was
terminated in January 2009; thus, he or she could have had no
credible basis of knowledge as to events occurring internally at
GenVec in 2010.
“When the bare allegations of the complaint
conflict with any exhibits or other documents, whether attached
or adopted by reference, the exhibits or documents prevail.”
See Fare Deals, Ltd. v. World Choice Travel.com, Inc., 180
F.Supp.2d 678, 683 (D.Md. 2001). Accordingly, these allegations
will not be considered.
13

results were announced to the announcement of the second interim
analysis

results.

During

this

period,

Defendants

were

continuing to enroll patients in the PACT Trial in an effort to
reach the total number of trial participants; awaiting the 184th
death of a trial participant, which would trigger the second
interim

analysis;

and

actively

engaging

in

efforts

to

raise

at

least

capital.
GenVec’s

fundraising

efforts

were

necessary,

ostensibly, to prepare for regulatory approval of TNFerade.
it reported in a March 31, 2009, SEC Form 10-Q filing:
Significant
additional
capital
will
be
required to develop our product candidates
through clinical development, manufacturing,
and
commercialization,
including
the
continued advancement of TNFerade through
the pivotal trial for locally advanced
pancreatic cancer, the FDA regulatory review
process for TNFerade and the establishment
of manufacturing capabilities for TNFerade.
We may seek additional capital through
further public or private equity offerings,
debt
financing,
additional
strategic
alliance
and
licensing
arrangements,
collaborative
arrangements,
or
some
combination of these financing alternatives.
The current domestic and global economic
conditions have made it more difficult for
companies like us to access capital from the
financial and credit markets, and have made
it more likely we will have to pursue
additional strategic alliances, licensing
arrangements
or
collaborations
for
our
product candidates, including TNFerade.
(ECF No. 20 ¶ 77).

14

As

On May 28, 2009, GenVec issued a prospectus supplement,
“which offered up to 9,615,385 shares of the Company’s common
stock, including the related preferred share purchase rights,
and warrants to purchase up to 9,615,385 shares of the common
stock.”

(Id. at ¶ 79).

By another prospectus supplement issued

on August 27, 2009, GenVec “offered up to 8,000,000 shares of
the

Company’s

common

stock,

including

the

related

preferred

share purchase rights, and warrants to purchase up to 4,000,000
shares of the common stock.”
The
tepid.

market’s

reaction

(Id. at ¶ 95).
to

these

offerings

was

initially

In fact, GenVec announced in an SEC Form 8-K filing

dated September 16, 2009, that it had
[r]eceived a notice from The [NASDAQ] Stock
Market stating that the minimum bid price of
the Company’s common stock was below $1.00
per share for 30 consecutive business days
and that the Company was therefore not in
compliance
with
the
minimum
bid
price
requirement for continued listing set forth
in Marketplace Rule 5450.
. . . .
If the Company does not regain compliance by
March
15,
2010,
[NASDAQ]
will
provide
written notification to the Company that the
Company’s common stock will be delisted.
(Id. at ¶ 102).8

8

One court explained the concepts of “bid price” and “ask
price” as follows:
15

The
November

company’s
2009,

fortunes

however,

took

when

the

a

turn
FDA

for

granted

the

better

“orphan

in

drug

designation to TNFerade for the treatment of pancreatic cancer.”
(Id. at ¶ 104).9

As reported in a November 4, 2009, article in

the Washington Business Journal:

[NASDAQ] market makers publicize the
prices at which they are willing to buy or
sell a stock by entering those “quotes” for
display
on
the
[NASDAQ]
computerized
quotation system.
The price at which a
market maker is willing to buy a security is
called its “bid” or “bid price.” The price
at which a market maker is willing to sell a
security is called its “ask” or “ask price”
(or its “offer” or “offer price”).
Each
market maker must simultaneously quote both
a bid and an offer price.
United States v. Alex Brown & Sons, Inc., No. 96 CIV 5313 (RWS),
1997 WL 314390, at *10 (S.D.N.Y. Apr. 24, 1997).
“A Company
that has its Primary Equity Security listed on the [NASDAQ]
Global Market must continue to substantially meet all of the
requirements set forth in Rule 5450(a)” by maintaining a
“[m]inimum bid price of $1 per share” and “[a]t least 400 Total
Holders.”
See NASDAQ Manual, Rule 5450(a), available at
http://nasdaq.cchwallstreet.com/NASDAQTools/PlatformViewer.asp?s
electednode=chp%5F1%5F1%5F4%5F3&manual=%2Fnasdaq%2Fmain%2Fnasdaq
%2Dequityrules%2F (last viewed Sept. 17, 2013).
9

In In re NeoPharm, Inc. Sec. Litig., 705 F.Supp.2d 946,
950 (N.D.Ill. 2010), the United States District Court for the
Northern District of Illinois discussed the significance of
orphan drug designation:
The Orphan Drug Act, codified at 21 U.S.C. §
360aa
et
seq.,
provides
incentives
to
companies to develop and market drugs for
rare diseases – ones affecting fewer than
200,000 people in the United States, or “for
which there is no reasonable expectation
that the cost of developing and making the
16

The
Gaithersburg-based
biotech
said
Wednesday that the FDA had granted orphan
drug
designation
to
TNFerade
for
the
treatment of pancreatic cancer. Orphan drug
designation provides potential financial and
regulatory incentives including study design
assistance,
waiver
of
user
fees,
tax
credits, and up to seven years of market
exclusivity upon marketing approval.
The FDA grants orphan drug designation to
drugs
that
may
provide
a
significant
therapeutic
advantage
over
existing
treatments and target conditions effecting
200,000 or fewer U.S. patients per year.
“Orphan drug designation is a critical step
for the development of TNFerade,” said
GenVec
CEO
Dr.
Paul
Fischer.
“The
designation will strengthen the TNFerade
program at GenVec by offering potential
clinical development and commercialization
benefits,” Fischer said.
Investors appeared to agree with Fischer
that
orphan
drug
designation
was
a
significant development for GenVec.
The
company’s shares (NASDAQ: GNVC) rose as much
as 21 cents, 26 percent, to $1.01[10] in the
Wednesday morning trade.

drug available for treatment in the United
States would be recovered from the sales –
by designating certain drugs as “orphan
drugs.” Alliance Sec. Prods. v. Fleming Co.,
471 F.Supp.2d 452, 458 (S.D.N.Y. 2007). “The
‘orphan
drug’
designation,
intended
to
encourage
research
and
development
of
treatments for rare diseases, grants a
seven-year marketing exclusion (or monopoly)
to the first drug to gain FDA approval.” SEC
v. Selden, 632 F.Supp.2d 91, 94 (D.Mass.
2009).
10

This number appears to refer to the minimum bid price for
GenVec stock.
There is no dispute that, on November 4, 2009,
17

(Id. at ¶ 104).

A Reuters article published on the same date

quoted one market analyst, who recommended GenVec stock in the
wake of the orphan drug designation:
“When combined with the unmet medical need
for these various indications, the overall
market potential quickly becomes meaningful
as well as attractive to a potential partner
for TNFerade,” Merriman Curhan Ford analyst
Joe Pantginis said in a note.
Pantginis,
who has a “buy” rating on the stock, said
the company’s shares have the potential to
trade toward a range of $2.50 to $3.50.
(Id. at ¶ 105).

Indeed, the company was able to reestablish

compliance with NASDAQ listing requirements, as it announced in
an SEC Form 8-K filing and attached press release, dated January
7, 2010.

(Id. at ¶ 113).

On January 15, 2010, GenVec announced that the 184th death
had occurred in the PACT Trial, thereby triggering the second
interim analysis.

The company issued a press release, stating,

in relevant part:
This event, which represents two-thirds of
the total events expected in the trial,
triggers
the
next
interim
analysis
of
overall survival in the trial.
GenVec
expects data from this interim analysis to
be available in approximately 10-12 weeks.
“This is another significant milestone for
the PACT trial.
The data released at the
last interim look were encouraging and we
are looking forward to the top-line results
GenVec was trading at around $9.00 per share.
199; ECF No. 21-33, at 7).
18

(See ECF No. 20 ¶

of the upcoming data analysis,” stated Dr.
Mark
Thornton,
GenVec’s
Senior
Vice
President of Product Development.
The
first
interim
analysis
of
overall
survival in the PACT trial was released in
November 2008.
These data demonstrated an
approximately 25% lower risk of death in the
TNFerade plus standard of care arm relative
to standard of care alone. . . .
(Id. at ¶ 114).
Less

than

two

weeks

later,

GenVec

issued

another

stock

offering of “up to 14,000,000 shares of . . . common stock,
including

the

related

purchase

preferred

warrants

to

up

stock.”

(Id. at ¶ 117).

to

share

purchase

4,200,000

shares

of

rights,
the

and

common

It announced that it would “use the

net proceeds from the [o]ffering [over $26 million] to complete
the

development

[TNFerade]

of

through

the
the

Company’s
filing

of

lead

clinical

program,

a

Biological

License

Application for TNFerade’s use in locally advanced pancreatic
cancer, and other general corporate purposes.”
The market reacted skeptically.

(Id. at ¶ 121).

As reported in a January

27, 2010, article posted on TheStreet.com:
Shares of GenVec (GNVC) are down 23% after
the tiny drug maker said it had sold 14
million shares of stock and another 4.2
million warrants, raising net proceeds of
$26.2 million. . . . The stock closed
Tuesday at $2.47. In recent trading, shares
were down to $1.88. . . . Now, the $26
million
dollar
question
is
whether
Wednesday’s financing implies anything about
the upcoming interim analysis of the phase
19

III study of TNFerade in pancreatic cancer.
Is GenVec simply being opportunistic about
raising money ahead of this important,
potentially stock-moving event?
Or, is the
company fearful that the TNFerade results
will be negative, so it’s getting the money
now while it can?
No one but GenVec knows
the answer, of course, and the executives
aren’t about to tell us.
(Id. at ¶ 119).
On February 11, 2010, GenVec again issued a stock offering
of “up to 150,000,000 [shares] in total of the Company’s common
stock,

shares

of

preferred

stock,

and

warrants

to

purchase

shares of the common stock, and any combination of the common
stock, preferred stock or warrants.”

(Id. at ¶ 123).

The

supplemental prospectus stated, in part, that “GenVec expects
data from th[e] [second interim] analysis to be available in
March or April of 2010.”

(Id.).

The second interim analysis results became available, as
expected, in late March 2010, and the news was not good.

As

reported by GenVec on March 29, 2010, the final day of the class
period,
[t]he
interim
data
demonstrated
an
approximately 8% lower risk of death in the
TNFerade
plus
[standard
of
care]
arm
relative to the [standard of care] alone
(hazard
ratio
=
0.921;
95%
Confidence
Interval [0.678 – 1.252]).
Accordingly,
these data strongly suggest the trial will
not achieve the statistical significance
required to form the basis for approval of a
biological
license
application
in
the

20

population
chosen
for
study,
warranting discontinuing the trial.

thereby

(Id. at ¶ 134).
In the wake of this announcement, GenVec’s “stock price
plunged $20.10 per share – from $28.10 per share on March 29,
2010[,] to close to $8.00 per share on March 30, 2010 – a
decline of more than 71.5% on unusually high volume.”
138).

(Id. at ¶

This lawsuit followed.
B.

Procedural History

Former plaintiff Satish Shah commenced the action by filing
the original complaint on February 3, 2012.

On April 3, 2012,

the current plaintiffs, calling themselves “the GenVec Investor
Group,” filed a motion for appointment as lead plaintiffs and
for

approval

counsel.

of

the

law

firm

of

Brower

Piven,

PC,

as

lead

That motion was granted.

On July 20, 2012, prior to any response by Defendants to
the original pleading, Plaintiffs filed their amended complaint.
(ECF No. 20).

Defendants moved to dismiss on September 4, 2012

(ECF No. 21); Plaintiffs filed opposition papers on November 12,
2012 (ECF No. 24); and Defendants replied on December 20, 2012
(ECF No. 25).11

11

On February 7, 2013, Plaintiffs filed a motion to strike
a portion of Defendants’ reply memorandum.
(ECF No. 26).
Plaintiffs do not indicate the legal basis of this motion, but
the only candidate is Federal Rule of Civil Procedure 12(f),
which allows the court to strike certain matters “from a
21

II.

Standard of Review
The purpose of a motion to dismiss under Rule 12(b)(6) is

to test the sufficiency of the complaint.

Presley v. City of

Charlottesville, 464 F.3d 480, 483 (4th Cir. 2006).

Generally, a

plaintiff’s complaint need only satisfy the standard of Rule
8(a), which requires a “short and plain statement of the claim
showing that the pleader is entitled to relief.”
8(a)(2).

Fed.R.Civ.P.

“Rule 8(a)(2) still requires a ‘showing,’ rather than

a blanket assertion, of entitlement to relief.”
v. Twombly, 550 U.S. 544, 555 n. 3 (2007).

Bell Atl. Corp.

That showing must

consist of more than “a formulaic recitation of the elements of
a cause of action” or “naked assertion[s] devoid of further
factual enhancement.”

Ashcroft v. Iqbal, 556 U.S. 662, 678

(2009) (internal citations omitted).
At this stage, all well-pleaded allegations in a complaint
must be considered as true, Albright v. Oliver, 510 U.S. 266,
268 (1994), and all factual allegations must be construed in the
light

most

favorable

to

the

plaintiff.

See

Harrison

v.

pleading.”
Pursuant to Federal Rule of Civil Procedure 7(a),
“pleadings” include a complaint, a counterclaim, a third-party
complaint, an answer, and a reply, if ordered.
Rule 12(f) may
only address the papers listed in Rule 7(a). See, e.g., Hrivnak
v. NCO Portfolio Mgmt., Inc., 723 F.Supp.2d 1020, 1029 (N.D.Ohio
2010) (“While some courts have employed Fed.R.Civ.P. 12(f) to
strike an affidavit or a brief, or portions thereof, there is no
basis in the Federal Rules for doing so.”). Because Defendants’
reply memorandum is not a pleading, Plaintiffs’ motion to strike
will be denied.
22

Westinghouse Savannah River Co., 176 F.3d 776, 783 (4th Cir.
1999) (citing Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134
(4th Cir. 1993)).

In evaluating the complaint, unsupported legal

allegations

not

need

be

accepted.

Revene

v.

Comm’rs, 882 F.2d 870, 873 (4th Cir. 1989).
conclusions

couched

as

factual

allegations

Charles

Cnty.

Moreover, legal
are

insufficient,

Iqbal, 556 U.S. at 678, as are conclusory factual allegations
devoid

of

any

reference

to

actual

events,

United

Black

Firefighters v. Hirst, 604 F.2d 844, 847 (4th Cir. 1979).
Because Plaintiffs’ amended complaint alleges fraud under
§§ 10(b) and 20(a) of the Exchange Act, Plaintiffs must also
satisfy

the

heightened

Civil Procedure 9(b).

pleading

standard

of

Federal

Rule

of

See Cozzarelli, 549 F.3d at 629; In re

Medimmune, Inc. Sec. Litig., 873 F.Supp. 953, 960 (D.Md. 1995).
Rule 9(b) requires that “[i]n alleging fraud or mistake, a party
must

state

fraud

or

with

particularity

mistake.”

the

Particularity

circumstances
of

pleading

constituting
is

generally

required with regard to the time, place, speaker and content of
the allegedly false statement, as well as the manner in which
the

statements

are

inference of fraud.
Criimi

Mae,

Inc.

false

and

the

specific

facts

raising

an

See Medimmune, 873 F.Supp. at 960; In re

Sec.

Litig.,

2000).

23

94

F.Supp.2d

652,

657

(D.Md.

The
imposes

Private

Securities

additional

pleading

securities fraud actions.

Litigation

Reform

requirements

Act

on

(“PSLRA”)

plaintiffs

in

As relevant here, the PSLRA requires

the complaint to “specif[y] the statements alleged to have been
misleading and the reasons why they were misleading” and to
“support a reasonable belief that the statements were in fact
misleading.”

Teachers’ Retirement System of LA v. Hunter, 477

F.3d 162, 174-75 (4th Cir. 2007).
III. Analysis
Plaintiffs allege in the amended complaint that Defendants
knew,

but

analysis

failed
results

to

disclose

became

at

the

available,

time

that

the

the

first

PACT

interim

Trial

was

essentially destined to fail and, consequently, that TNFerade
would never gain FDA approval.

Despite this knowledge, they

persisted in publicly expressing “optimism regarding the [first
interim analysis] results as being predictive of PACT meeting
its

endpoint

for

overall

survival,

of

a

feasible

path

to

commercialization of TNFerade, and of an expectation of GenVec
securing a strategic partnership for TNFerade” (ECF No. 24, at
18), thereby artificially inflating the company’s stock price.12

12

At no point did GenVec represent that it had an
“expectation” of a partnership for TNFerade.
Rather, it
reported that it was seeking a partnership and, at various
points, that it had engaged in discussions with potential
partners.
24

In their papers opposing the motion to dismiss, Plaintiffs
summarize the voluminous allegations of misleading statements
contained

in

the

amended

complaint,

with

citations

pleading, as follows:
Defendants’ materially misleading statements
to the investing public during the Class
Period
regarding
the
prospects
for
commercialization of TNFerade, purportedly
supported by the data from the [first
interim
analysis]
and
PACT,
and
the
Company’s
business,
operations
and
prospects, included inter alia, that: there
were “encouraging interim data from the
trial” (March 12, 2009; [ECF No. 20 ¶ 61]);
there were “encouraging top-line results of
an interim analysis from . . . PACT” [id.];
“[e]ncouraging data in multiple indications
continue
to
suggest
TNFerade
has
the
potential
to
become
an
important
new
therapeutic
agent
in
the
treatment
of
cancer” (March 13, 2009; [id. at ¶ 63]);
Defendants planned to “commercialize [its]
lead product candidate, TNFerade, for the
treatment
of
.
.
.
locally
advanced
pancreatic cancer” (March 16, 2009; [id. at
¶ 67]); “[o]ur commitment to TNFerade is
based on encouraging clinical data . . .
suggesting that TNFerade has the potential
to become a significant new cancer drug”
(May 8, 2009; [id. at ¶ 74]); “[t]he data we
presented was encouraging and it gave us
comfort moving forward with the program”
[id.]; “we are encouraged by the survival
trend being observed at this point in the
trial” (June 1, 2009; [id. at ¶ 85]); “and
we’re hoping [the second interim analysis
will] confirm the encouraging trend and the
positive trend that we saw at the first look
at the data” (August 7, 2009; [id. at ¶
90]); “[a]nd we were encouraged last time,
and we were disappointed, as you were, as a
shareholder that the market reaction didn’t
reflect it” [id.]; “[w]e hope the data [in
25

to

the

the second interim analysis] will confirm
the encouraging survival results seen in the
first interim analysis and provide a clear
path to approval of TNFerade for the
treatment of locally advanced pancreatic
cancer” [id.]; “[b]ased on the survival data
obtained to date, we believe using TNFerade
in
the
indication
of
locally
advanced
pancreatic cancer represents a feasible path
to commercialization” (March 11, 2010; [id.
at ¶ 129]); and “[e]merging clinical data
suggest TNFerade may prolong the survival of
patients with locally advanced pancreatic
cancer
when
combined
with
front-line
therapy” [id.].
(ECF No. 24, at 3-4 (internal emphasis removed)).
In

Plaintiffs’

predominantly,

view,

through

SEC

these

statements

filings,

press

to

investors

releases,

–
and

conference calls – were “materially false and/or misleading when
made because Defendants knew but did not disclose” that:
(i) the PACT Trial of TNFerade in
patients with locally advanced pancreatic
cancer was a failure because it did not
increase survival in patients with locally
advanced pancreatic cancer;
(ii)
TNFerade
was
not
clinically
effective in patients with locally advanced
pancreatic cancer;
(iii) there was no feasible path to
commercialization for the use of TNFerade
for locally advanced pancreatic cancer; and
(iv) the failure of the PACT Trial
would
have
a
material
effect
on
the
Company’s financial condition because the
Company did not have any near-term prospects
of generating revenues from the commercial
sale of their product candidates in their
therapeutic or vaccine programs.
26

(ECF No. 20 ¶ 62(b)).13
The first count of the amended complaint asserts claims for
violations of § 10(b) of the Exchange Act, 15 U.S.C. § 78j(b),
and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5.14
prohibits

“any

person”

from

“us[ing]

or

Section 10(b)
employ[ing],

in

connection with the purchase or sale of any security registered
on a national securities exchange[,] . . . any manipulative or
deceptive device or contrivance in contravention of such rules
and

regulations

as

the

[SEC]

may

prescribe

as

necessary

or

appropriate in the public interest or for the protection of
investors.”

15 U.S.C. § 78j(b).

Its implementing regulation,

SEC Rule 10b-5, provides:
It shall be unlawful for any person,
directly or indirectly, by the use of any
means
or
instrumentality
of
interstate
commerce, or of the mails or of any facility
of any national securities exchange,

13

As to each allegedly materially misleading statement,
Plaintiffs assert that between two and four of these reasons
apply.
14

In count two, Plaintiffs allege violations by the
individual defendants of § 20(a) of the Exchange Act, which
imposes joint and several liability on a person who “controls
any person liable under any provision of this chapter[.]”
15
U.S.C. § 78t(a).
“[A] plaintiff must successfully allege a
predicate violation of the Act in order to proceed under §
20(a)[.]” Matrix Capital Mgmt. Fund, LP v. BearingPoint, Inc.,
576 F.3d 172, 181 [n. 1] (4th Cir. 2009) (King J., concurring).
Because
the
court
will
find
that
Plaintiffs
have
not
successfully alleged a violation under § 10(b), their claim
under § 20(a) must fail as well.
27

(a) To employ any
artifice to defraud,

device,

scheme,

or

(b) To make any untrue statement of a
material fact or to omit to state a material
fact
necessary
in
order
to
make
the
statements made, in the light of the
circumstances under which they were made,
not misleading, or
(c) To engage in any act, practice, or
course of business which operates or would
operate as a fraud or deceit upon any
person,
in connection with the purchase or sale of
any security.
17

C.F.R.

§

240.10b-5;

see

also

In

re

Constellation

Energy

Group, Inc. Sec. Litig., 738 F.Supp.2d 614, 633 (D.Md. 2010)
(“Rule 10b-5 encompasses only conduct already prohibited by §
10(b)’” (quoting In re Mut. Funds Inv. Litig., 566 F.3d 111, 119
(4th Cir. 2009)).
“Section 10(b) affords, by implication, a right of action
to securities purchasers or sellers injured by its violations.”
Matrix Capital, 576 F.3d at 181.

To state a plausible claim

under § 10(b), the complaint must set forth facts showing:
(1) a material misrepresentation or omission
by the defendant; (2) scienter; (3) a
connection between the misrepresentation or
omission and the purchase or sale of a
security;
(4)
reliance
upon
the
misrepresentation or omission; (5) economic
loss; and (6) loss causation (that is, the
economic loss must be proximately caused by
the misrepresentation or omission).

28

Id.

at

181

(internal

marks

and

emphasis

omitted)

(quoting

Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552
U.S. 148, 157 (2008)).
Defendants contend that Plaintiffs’ amended complaint is
deficient

as

to

the

first,

second,

and

sixth

elements.

Specifically, they challenge the sufficiency of the allegations
that a material misrepresentation or omission was made, that the
requisite

strong

Plaintiffs’

inference

economic

misrepresentation.

loss

of
was

scienter

arises,

proximately

and

caused

by

477

F.3d

any

Because the court agrees with Defendants as

to the first point, it need not address the other two.
Hunter,

that

at

184

(agreeing

with

district

See

court’s

conclusion that, “[b]ecause no misleading statement or omission
was sufficiently alleged, the defendants could not have made
misrepresentations or omissions intentionally or with sufficient
recklessness”); id. at 173 n. 2 (defining “loss causation” as “a
causal connection between the material misrepresentation and the
loss” (citing Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 34142)).
To establish misrepresentation, the amended complaint must
“specify each statement alleged to have been misleading, the
reason or reasons why the statement is misleading, and, if an
allegation

regarding

the

statement

or

omission

is

made

on

information and belief, . . . state with particularity all facts
29

on which that belief is formed.”
Fourth

Circuit

requires

that

15 U.S.C. § 78u-4(b)(1).
the

challenged

statement

The
or

omission must be “factual,” i.e., “one that is demonstrable as
being true or false”; it “must be false, or the omission must
render

public

statements

misleading”;

omission of fact must be material.”

and

“any

statement

or

Longman v. Food Lion, Inc.,

197 F.3d 675, 682 (4th Cir. 1999) (emphasis in original); see
also Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083, 109196

(1991)

(under

certain

demonstrably true or false).

circumstances,

opinions

can

be

As the court explained in Longman,

197 F.3d at 683:
These components – a factual statement
or omission that is false or misleading and
that is material – interact to provide a
core requirement for a securities fraud
claim. While opinion or puffery will often
not be actionable, in particular contexts
when it is both factual and material, it may
be actionable. Thus, for example, a CEO’s
expression of “comfort” with a financial
analyst’s prediction of his company’s future
earnings was held not to be factual in that,
as a future projection, it was not capable
of being proved false.
See Malone v.
Microdyne Corp., 26 F.3d 471, 479-80 (4th
Cir. 1994); see also Raab v. General Physics
Corp., 4 F.3d 286, 289 (4th Cir. 1993)
(holding similar statement predicting future
growth not material because “the market
price of a share is not inflated by vague
statements predicting growth”). On the other
hand, the Supreme Court has held that an
opinion
by
board
members
to
minority
stockholders that the stock price of $42 for
the purchase of their shares was a “high
value” and represented a “fair” transaction
30

could be both factual and material. See
Virginia Bankshares, 501 U.S. at 1090-93,
111 S.Ct. 2749. In Virginia Bankshares, the
Court noted that the opinions could be false
and factual if the directors did not believe
what they said they believed and proof could
be had “through the orthodox evidentiary
process.” Id. at 1093, 111 S.Ct. 2749. In
addition,
the
court
found
“no
serious
question” that the statements could be
material in that shareholders, knowing that
directors
have
greater
knowledge
and
expertise as well as a fiduciary duty to
shareholders, often act on what their board
members say they believe. Id. at 1090, 111
S.Ct. 2749.
A

statement

or

omission

is

material

“‘if

there

is

a

substantial likelihood that a reasonable purchaser or seller of
a security (1) would consider the fact important in deciding
whether to buy or sell the security or (2) would have viewed the
total

mix

of

information

made

available

altered by disclosure of the fact.’”

to

be

significantly

In re PEC Solutions, Inc.

Sec. Litig., 418 F.3d 379, 387 (4th Cir. 2005) (quoting Longman,
197

F.3d

at

683).

misrepresentation
do[es]

not

of

prohibit

While
a

fact

any

Rule
deemed

10b-5

“prohibit[s]

material,”

misrepresentation

–

it
no

any

“decidedly
matter

how

willful, objectionable, or flatly false – of im[]material facts,
even if it induces reactions from investors that, in hindsight
or

otherwise,

material.”
(4th

Cir.

might

make

the

misrepresentations

appear

Greenhouse v. MCG Capital Corp., 392 F.3d 650, 656
2004)

(emphasis

in

orginal).

31

Ultimately,

“[t]he

inquiry

is

whether,

read

as

a

whole,

the

[statements

or

omissions] “would have misled a reasonable investor about the
nature of the securities.”

In re Constellation Energy, 738

F.Supp.2d at 624-25 (citing Recupito v. Prudential Securities,
Inc., 112 F.Supp.2d 449, 455 (D.Md. 2000)).
The instant case is, as Defendants assert, essentially an
“omissions case.”

(ECF No. 21-1, at 20).

Plaintiffs do not

challenge the truth of any aspect of the first interim analysis
data released to the public; indeed, they acknowledge that “the
affirmative misrepresentations alleged in the [c]omplaint [do
not arise] from the accuracy of the data, a poorly designed
trial[,] or inaccurate financial results[.]”
18).
all

(ECF No. 24, at

They further acknowledge that investors were armed with
facts

necessary

to

interpret

the

first

interim

analysis

results and that the market knew they were a mixed bag.

As one

analyst observed, the data “look[ed] positive” on the surface
and

there

showed

was

that

“reason

“[p]atients

for

optimism”

with

insofar

pancreatic

as

cancer

the

results

treated

with

TNFerade plus standard of care demonstrated a 25% lower risk of
death

than

similar

patients

(ECF No. 21-34, at 2).

with

standard

of

care

alone[.]”

Moreover, “the interim hazard ratio for

TNFerade of 0.75 [compared] favorably with similar hazard ratios
observed
drugs[.]”

in

studies
(Id.

at

of
3).

other

approved

Questions
32

and

successful

remained,

however,

cancer
as

to

whether the drug would “produce a hazard ratio in the ballpark
of 0.75 at the final analysis of the study,” and there were
indications that it would not because the ratio was “likely to
increase as [the] study mature[d], with more patients enrolled
and more patients dying.”

(Id. at 2-3).

Notably, upon release

of the first interim analysis results, “GenVec shares sank[.]”
(Id. at 2).
The critical question as to the first element, then, is
whether

Defendants’

omission

of

the

alleged

fact

that

they

privately held the opinion that the PACT Trial would ultimately
fail rendered their public statements of optimism misleading.
In arguing that it did not, Defendants cite Padnes v. Scios Nova
Inc., No. C 95-1693 MHP, 1996 WL 539711 (N.D.Cal. 1996).
Padnes,

like

the

biopharmaceutical
enthusiasm

company
the

case,

representatives

“expressed

future”

of

a

positive

drug

based

of

opinions
on

a
and

an

interim

clinical study, which did not later come to fruition.

Id. at

*6.

about

instant

In

The court determined, in relevant part, that “plaintiffs

have not pled facts sufficient to show there was no reasonable
basis for relying on the findings of the [] study or that there
were

undisclosed

accuracy

of

facts

defendants’

tending

to

opinions.”

seriously
Id.

In

undermine
so

holding,

the
it

explained that “defendants’ opinions about the study’s findings
were not the only reasonable ones,” citing a negative market
33

analysis,

and

that

“neither

facts

showing

reasonable

people

could have disagreed with defendants’ beliefs nor the mere fact
that the Phase III tests were unsuccessful . . . amount to
allegations that there was no reasonable basis for the opinions
which were expressed.”

Id.

According to Defendants, Plaintiffs similarly “have alleged
no

facts

that

concluded
TNFerade

based
was

support
on

doomed

the

the
to

assertion

that

[f]irst

[i]nterim

failure.”

(ECF

Defendants
[a]nalysis

No.

21-1,

had
that

at

28).

Plaintiffs argue in rebuttal that, “[i]n contrast to Padnes,
where ‘[r]easonable minds could differ with respect to the value
of the [] study in determining the therapeutic effects of [the
drug],’ here, there was no disagreement of opinion, reasonable
or otherwise, over how to interpret the [first interim analysis
results].”

(ECF No. 24, at 22).

They contend that “[t]hese

statistically insignificant data were in no way predictive that
PACT

would

meet

its

efficacy

endpoint

or

that

feasible path to commercialization for TNFerade.”

there

was

a

(Id.).

Plaintiffs’ argument finds no support in the record, which
reflects that the market was fully aware of the potentially
negative implications of the first interim analysis, as was the
DSMB,

which

independently

recommended

that

the

trial

be

continued, and the FDA, which granted fast track approval and
orphan drug designation based on the same results.
34

While the

statements of Plaintiffs’ CWs support that the first interim
analysis results may not have been what Defendants had hoped
for, there was certainly a reasonable basis for believing that
TNFerade

plus

standard

of

care

treatment

might

be

found

to

prolong the lifespan of pancreatic cancer patients, as compared
to those receiving standard of care alone.
has

repeatedly

statements
‘total

cautioned

must

mix’

be

of

that

examined

information

allegedly

in

context

made

“[T]he Supreme Court
fraudulent
and

in

available

corporate

light

to

of

the

investors.”

Phillips v. LCI Intern., Inc., 190 F.3d 609, 615 (4th Cir. 1999)
(citing Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988); TSC
Indus.,
Here,

Inc.

the

v.

PACT

Northway,
Trial

Inc.,

tested

426

TNFerade

U.S.

438,

for

449

the

(1976)).

treatment

of

patients with pancreatic cancer, a particularly fatal form of
the

disease

for

which

existing

treatments

were

largely

ineffective; thus, any potential benefit to patients in terms of
extending lifespan represented cause for hope.

While the first

interim analysis data may have suggested that the benefits of
TNFerade would dissipate over time, it also showed that patients
receiving the drug experienced a 25% lower death rate at the
first interval.
Under

Plaintiffs’

theory,

Defendants

were

essentially

negligent, if not outright fraudulent, in continuing the trial
past the first interim analysis, as nothing more was known to
35

them until the second interim analysis results were available.15
But

they

do

not

allege

any

wrongdoing

by

Defendants

in

proceeding with the second interim analysis, and the putative
class

period

does

not

begin

until

approximately

after the first interim results were released.

four

months

By that time,

Defendants had already publicly expressed that the results were
“encouraging” and that they “justif[ied] moving forward with the
trial.”

(ECF

No.

21-22,

at

5).

It

is

unclear

how

the

expression of similar opinions during the class period induced
Plaintiffs to purchase GenVec shares.

Indeed, it seems far more

likely

favorably

that

the

market

reacted

to

objective

indications that the trial might be successful, such as the
FDA’s fast track and orphan drug designations.
In Virginia Bankshares, 501 U.S. at 1095-96, the Supreme
Court held that a statement of belief can be actionable only “as
a misstatement of psychological fact of the speaker’s belief in
what he says” where there is “objective evidence” of the falsity
of

that

available

belief.

Here,

the

and

susceptible

objective
to

15

evidence

differing

was

publicly

interpretations

by

At one point in their opposition papers, Plaintiffs
suggest that optimistic statements made by Defendants after the
second interim analysis data became available were misleading
because, by that point, Defendants’ fear that the PACT Trial
would fail had been realized.
(See ECF No. 24, at 11 n. 9).
Because this argument finds no support in the amended complaint
– which relates entirely to misrepresentations based on the
first interim analysis data – the court will not consider it
here.
36

reasonable minds.

There was, quite simply, a reasonable basis

for Defendants’ expressions of optimism, and the fact that the
PACT

Trial

investors.

was

ultimately

unsuccessful

was

a

known

risk

to

See New Jersey Carpenters Pension & Annuity Funds v.

Biogen IDEC Inc., 537 F.3d 35, 48 (1st Cir. 2008) (“the investing
public is well aware that drug trials are exactly that: trials
to determine the safety and efficacy of experimental drugs.

And

so trading in the shares of companies whose financial fortunes
may

turn

on

the

outcome

of

such

experimental

drug

trials

inherently carries more risk than some other investments.

This

is true even when the FDA has given fast-track approval to a new
drug.”); In re Pfizer, Inc. Sec. Litig., 538 F.Supp.2d 621, 631
(S.D.N.Y.

2008)

(“‘[C]orporate

officials

need

not

present

an

overly gloomy or cautious picture’ so long as ‘public statements
are consistent with reasonably available data’” (quoting Novak
v. Kasaks, 216 F.3d 300, 309 (2d Cir. 2000)); In re Sierra
Wireless, Inc. Sec. Litig., 482 F.Supp.2d 365, 367 (S.D.N.Y.
2007) (“securities laws neither require corporate officers to
adopt

a

crabbed

defeatist

view

of

the

company’s

business

prospects nor permit dissatisfied shareholders to assert serious
allegations of fraud based on the perfect hindsight afforded by
the passage of time”).

Particularly when considered under the

the heightened pleading standards of Rule 9(b) and the PSLRA,
the allegations in the amended complaint are insufficient to
37

show that Defendants’ public statements were false at the time
they were made.
Even

if

demonstrated

falsity
that

had

the

been

shown,

challenged

Plaintiffs

statements

were

have

not

material.

Generally, “‘[s]oft expressions of optimism which are analogous
to

puffing’

have

been

held

not

to

constitute

actionable

misrepresentations” because they “are simply not material.”

In

re Constellation Energy, 738 F.Supp.2d at 625 (quoting In re
USEC Sec. Litig., 190 F.Supp.2d 808, 822 (D.Md. 2002)); see also
Rombach v. Chang, 355 F.3d 164, 174 (2d Cir. 2004) (“expressions
of puffery and corporate optimism do not give rise to securities
violations”); Glen Holly Entertainment, Inc. v. Tektronix, Inc.,
352

F.3d

367,

regarding

379

product

(9th

Cir.

quality

2003)

and

(optimistic

marketing

statements

efforts

“were

generalized, vague and unspecific assertions, constituting mere
‘puffery’ upon which a reasonable consumer could not rely”);
Phillips, 190 F.3d at 615 (“hyperbole and speculation cannot
give rise to a claim of securities fraud”); Raab, 4 F.3d at 289
(“‘Soft,’ ‘puffing’ statements . . . generally lack materiality
because the market price of a share is not inflated by vague
statements predicting growth”).
In

their

characterize

opposition

their

papers,

challenge

as

Plaintiffs

Defendants

properly

placing

“an

unjustifiably positive spin on the data available at the time of
38

the [first interim analysis] by using terms like ‘encouraging’
and ‘bullish[.]’”

(ECF No. 24, at 5).

Such “vague and general

statements of optimism constitute no more than ‘puffery’ and are
understood by reasonable investors as such.”

In re Advanta

Corp. Sec. Litig., 180 F.3d 525, 538 (3rd Cir. 1999) (internal
marks and citation omitted).

Accordingly, they are immaterial

and not actionable under § 10(b).

See Greenhouse, 392 F.3d at

656.16
Plaintiffs have requested leave to amend their complaint in
the event that Defendants’ motion to dismiss were to be granted.
Pursuant to Federal Rule of Civil Procedure 15(a)(2), courts
should

grant

leave

to

justice so requires.”

amend

a

pleading

“freely

.

.

.

when

Leave should be denied, however, where

“the amendment would be prejudicial to the opposing party, there
has been fad faith on the part of the moving party, or the

16

Plaintiffs further contend that Defendants violated Item
303 of SEC Regulation S-K, which requires a registrant to
“[d]escribe any known trends or uncertainties that have had or
that the registrant expects will have a material favorable or
unfavorable impact on net sales or revenues or income from
continuing
operations.”
17
C.F.R.
§
229.303(a)(3)(ii).
“[T]here is no private right of action under SEC Regulation SK,” however, and “because the materiality standards under [Rule]
10b-5 and Regulation S-K 303 differ significantly, a violation
of Regulation S-K does not lead to a failure to disclose under
10b-5.”
Iron Workers Local 16 Pension Fund v. Hilb Rogal &
Hobbs Co., 432 F.Supp.2d 571, 583 (E.D.Va. 2006).
Where
“plaintiffs
have
failed
to
plead
any
actionable
misrepresentation or omission under [Rule 10b-5], SK-303 cannot
provide a basis for liability.” Oran v. Stafford, 226 F.3d 275,
288 (3d Cir. 2000).
39

amendment would be futile.”

HCMF Corp. v. Allen, 238 F.3d 273,

276 (4th Cir. 2001) (quoting Edwards v. City of Goldsboro, 178
F.3d 231, 242 (4th Cir. 1999) (internal marks omitted)).
amendment

is

futile

when

the

proposed

amendment

is

“An

clearly

insufficient or frivolous on its face, or if the amended claim
would still fail to survive a motion to dismiss pursuant to
Fed.R.Civ.P. 12(b)(6).”

El-Amin v. Blom, Civ. No. CCB-11-3424,

2012 WL 2604213, at *11 (D.Md. July 5, 2012) (internal marks and
citations omitted).
Plaintiffs

have

not

suggested

how

a

second

amended

complaint would address the infirmities of the first amended
pleading,

nor

does

it

appear

that

they

could.

There

is

certainly no shortage of facts alleged in the amended complaint,
which

spans

over

150

pages,

but

those

facts

simply

do

not

support that Defendants’ alleged misrepresentations or omissions
are actionable under the Exchange Act.

Thus, “in light of the

fundamental deficiencies in [P]laintiffs’ theory of liability,”
further amendment would be futile.
Accordingly,

the

amended

Cozzarelli, 549 F.3d at 630.

complaint

prejudice.

40

will

be

dismissed

with

IV.

Conclusion
For the foregoing reasons, Defendants’ motion to dismiss

will be granted.

A separate opinion will follow.

________/s/_________________
DEBORAH K. CHASANOW
United States District Judge

41