Ratner v. OvaScience, Inc. et al

Filing 52

Judge William G. Young: ORDER entered. MEMORANDUM AND ORDER"This Court GRANTS the Defendants motion to dismiss the Plaintiffs complaint in its entirety, ECF No. 31 . This Court also DENIES the Plaintiffs boilerplate request for leave to amend their complaint, ECF No. 40 . SO ORDERED."(Sonnenberg, Elizabeth)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
___________________________________
MERIAM RATNER, Individually and
On Behalf of All Others Similarly
Situated
Plaintiffs,
v.

OVASCIENCE, INC., MICHELLE DIPP,
and CHRISTOPHER A. BLECK,
Defendants.

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CIVIL ACTION
No. 14-12412-WGY

YOUNG, D.J.

September 28, 2015
MEMORANDUM & ORDER

I.

INTRODUCTION
This is a shareholder class action brought against

OvaScience, Inc. (“OvaScience”), its Chief Executive Officer and
President Michelle Dipp, and its Chief Commercial Officer and
Vice President Christopher Bleck (“Individual Defendants”).
Lead plaintiff Meriam Ratner brings this class action on behalf
of herself and all other investors who purchased OvaScience
securities between February 25, 2013 and September 10, 2013 (the
“Class Period”).

Consolidated Class Action Compl. (“Compl.”) ¶

1, ECF No. 30.
The shareholder plaintiffs (the “Plaintiffs”) allege that
throughout the Class Period, OvaScience and the Individual

Defendants (collectively, the “Defendants”) omitted material
information concerning the regulatory status and commercial
prospects of OvaScience’s first product candidate, a fertility
treatment known as Autologous Germline Mitochondrial Energy
Transfer (“AUGMENT”).

Id. ¶¶ 44-50.

They further assert that

during the Class Period, OvaScience, in written public
statements, expressed its belief that AUGMENT qualified for
reduced regulatory oversight and stated it was enrolling
patients in a human trial of AUGMENT without clearance from the
FDA.

Id. ¶¶ 5-7.

As a result of OvaScience’s statements and

omissions, the Plaintiffs claim that OvaScience securities were
trading at artificially inflated prices at the time the
Plaintiffs purchased them.
A.

Id. ¶ 90.

Procedural History

The Plaintiffs initially filed an action against OvaScience
for violations of federal securities laws on September 16, 2013.
Class Action Compl., Ratner v. OvaScience, Case No. 1:13-cv12286 (D. Mass. Sept. 16, 2013), ECF No. 1.

On February 3,

2014, Ratner voluntarily dismissed the action.

Pl.’s Notice

Voluntary Dismissal Without Prejudice, Ratner v. OvaScience,
Case No. 1:13-cv-12286 (D. Mass. February 3, 2014), ECF No. 24.
Ratner later moved to vacate or withdraw her voluntary dismissal
because, she asserted, the Plaintiffs had obtained new evidence
through a FOIA request.

Lead Pl.’s Mot. Vacate Or Withdraw

2

Voluntary Dismissal, Ratner v. OvaScience, Case No. 1:13-cv12286 (D. Mass. May 9, 2014), ECF No. 25; Mem. Law Supp. Lead
Pl.’ Mot. Vacate Or Withdraw Voluntary Dismissal, Ratner v.
OvaScience, Case No. 1:13-cv-12286 (D. Mass. May 12, 2014), ECF
No. 26.

The Court denied Plaintiffs’ Motion to Vacate or

Withdraw on May 29, 2014.

Elec. Order, Ratner v. OvaScience,

Case No. 1:13-cv-12286 (D. Mass. May 29, 2014), ECF No. 32.
The Plaintiffs subsequently initiated a new action in this
Court on June 6, 2014.

Class Action Compl., ECF No. 1.

This

Court approved the appointment of Ratner as lead plaintiff on
September 25, 2014.

Order, ECF No. 26.

The Plaintiffs filed

their Amended Consolidated Complaint on October 31, 2014.
Compl. 1.

In response, the Defendants moved to dismiss.

Defs.’

Mot. Dismiss Pls.’ Am. Compl., ECF No. 31; Mem. Law Supp. Defs.
OvaScience, Inc., Michelle Dipp, Christopher A. Bleck’s Mot.
Dismiss Pls.’ Am. Compl. (“Defs.’ Mem.”), ECF No. 32.

After

both parties fully briefed their positions on the Defendants’
motion, the Court heard oral argument on the motion on April 8,
2015.

Elec. Clerk’s Notes, ECF No. 48.

In conjunction with the

briefing, the Plaintiffs also requested this Court take judicial
notice of certain documents, Req. Judicial Notice Supp. Pl.’s
Opp. Defs.’ Mot. Dismiss Am. Compl. (“Req. Judicial Notice”),
ECF No. 41; the Defendants opposed the request, Defs.’ Opp.
Pl.’s Req. Judicial Notice, ECF No. 44.

3

B.

Facts Alleged

OvaScience is a biotechnology company focused on the
discovery, development, and commercialization of novel
treatments for infertility.

Compl. ¶ 2.

OvaScience’s patented

technology identifies egg precursor cells in the ovaries
“believed to have the potential to mature into fertilizable
eggs.”

Id.

The AUGMENT process involves removing mitochondria

from a woman’s egg precursor cells and injecting the
mitochondria into one of the woman’s eggs during in vitro
fertilization (“IVF”).

Id.

The regulatory process for a new medical product typically
requires the completion and approval of an Investigational New
Drug (“IND”) application, supplemented by multiple phases of
clinical trials in humans and animals demonstrating the safety
and efficacy of the product.

Id. ¶ 4.

OvaScience wanted to

bypass the IND process, claiming that AUGMENT qualified as a
human cellular and tissue-based product (“HCT/Ps”) exempt from
regulation under section 361 of the governing statute (“361
HCT/P designation”).

Id. ¶ 5.

Under the Food and Drug

Administration’s (“FDA’s”) regulatory scheme, products receiving
a 361 HCT/P designation can be tested and marketed without FDA
licensure because they are considered low risk for disease
transmission.

Id.

A product qualifies for the 361 HCT/P

designation if:

4

(1) it is minimally manipulated; (2) it is intended
for homologous use as determined by labeling and
advertising; (3) its manufacture does not involve
combination with another article, with limited
exceptions; (4) either (a) the HCT/P does not have a
systemic effect and is not dependent upon the
metabolic activity of living cells for its primary
function, or (b) the HCT/P has a systemic effect or is
dependent upon the metabolic activity of living cells
for its primary function and (i) is for autologous
use, (ii) is for allogenic use in a first or second
degree blood relative, or (iii) is for reproductive
use.
Id. ¶ 35.

Companies can consult with a special FDA committee

known as the Tissue Reference Group (“TRG”) for guidance on
whether a particular product falls within the 361 HCT/P
designation.

Id. ¶ 37.

In its December 2012 Annual Report (“2012 Annual Report”),
OvaScience announced that the company had initiated a human
clinical trial in late 2012 (the “AUGMENT Study”) without filing
an IND because OvaScience believed FDA premarket approval was
not required.

Id. ¶ 60.

According to the 2012 Annual Report,

OvaScience believed the FDA would regulate the HCT/Ps involved
in the AUGMENT procedure as 361 HCT/Ps because the mitochondria
taken from egg precursor cells and the fertilized eggs “(1) are
minimally manipulated, (2) are intended for homologous use only,
(3) do not involve the combination of cells or tissue with
another article and (4) are dependent upon the metabolic
activity of living cells for their primary function and are for
reproductive use.”

Id. ¶ 58.

5

OvaScience made several more relevant statements in the
2012 Annual Report.

It indicated that the company had not

consulted with the TRG prior to initiating the AUGMENT Study,
but that the FDA had contacted OvaScience regarding whether
AUGMENT qualified for regulation as a 361 HCT/P.

Id. ¶ 61.

OvaScience disclosed that it “continue[s] to believe that
AUGMENT qualifies as a 361 HCT/P; however, the FDA could
disagree with our conclusion.”

Id.

OvaScience anticipated

generating revenues from AUGMENT in the second half of 2014,
“assuming the final results of the AUGMENT Study are
positive[.]”

Id. ¶ 60.

On April 9, 2013, the FDA wrote a letter to OvaScience.
Id. ¶ 46.

The letter stated that a telephone conversation

regarding AUGMENT had taken place between the FDA and Alison
Lawton, OvaScience’s Chief Operating Officer, on January 28,
2013.

Id. “[F]ollow[ing] up” on that conversation, the April

2013 letter stated that, “based on the limited information
available,” the AUGMENT process (i.e., the “removal of
mitochondria and introduction into other reproductive tissue”)
“appears to be more than minimal manipulation.”

Id.

The FDA’s

letter ended with a follow-up statement: “For more information
about applicable regulations or to schedule a pre-IND meeting,
please contact [the relevant FDA contact.]”

6

Id.

After the phone call referenced in the above letter (i.e.,
after January 28, 2013), Ovascience issued two quarterly reports
in turn: one for the period ending March 31, 2013 (“March 2013
10-Q”) and another for the period ending June 20, 2013 (“June
2013 10-Q”).

See id. ¶¶ 64, 70.

Next, the FDA wrote another

letter to OvaScience, dated September 6, 2013.

Id. ¶ 50.

The

letter indicated that Lawton and Dr. Patrick Riggins previously
had spoken by phone on August 20, 2013.

Id.

During this call,

Lawton had indicated that OvaScience was currently treating
patients in the AUGMENT Study.

Id.

The letter informed

OvaScience that an IND was required for the AUGMENT Study.

Id.

The FDA ended the letter with the same instruction as before
(regarding whom to contact for more information or to schedule a
meeting).

Id.

On September 10, 2013, OvaScience issued a press release
announcing suspension of U.S. enrollment in the AUGMENT Study.
Id. ¶ 51.

Enrollment of patients outside of the U.S. would

continue.

Id.

OvaScience “anticipate[d] having further

discussions with the FDA to present details on AUGMENT and its
qualifications as a 361 HCT/P, and to determine the appropriate
path forward.”

Id.

OvaScience “continue[d] to believe that

AUGMENT qualifies as a 361 HCT/P.”

Id.

Following the press

release, OvaScience shares declined $3.325 per share, closing at

7

$10.95 per share on September 11, 2013, a decline of more than
23%.

Id. ¶ 16.
Shortly thereafter, the Plaintiffs filed this class action

alleging that the decline in market value of the company’s
securities was a result of the Defendants’ wrongful acts and
omissions (and that they had bought the securities at the
earlier, artificially inflated prices), causing significant harm
to the Plaintiffs.
II.

Id. ¶ 56.

ANALYSIS
A.

Standard of Review
1.

Rule 12(b)(6)

Under the Federal Rules of Civil Procedure, a complaint
must contain “a short and plain statement of the claim showing
that the pleader is entitled to relief.”
8(a)(2).

Fed. R. Civ. P.

To survive a motion to dismiss under Rule 12(b)(6), a

complaint must assert sufficient facts, that, if accepted as
true, would “state a claim to relief that is plausible on its
face.”

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).

“formulaic recitation” of the legal elements supported only by
conclusory statements is insufficient to state a cause of
action.

Id. at 555 (internal citation omitted).

8

A

2.

Heightened Pleading Standards under Rule 9(b) and
the PSLRA

The Plaintiffs’ claims are both premised on the Defendants
having “engaged in . . . fraud and deceit,” Compl. ¶ 86.

This

assertion triggers the heightened pleading standards of Federal
Rule of Civil Procedure 9(b) and, because the claims if proven
constitute securities fraud, those of the Private Securities
Litigation Reform Act (“PSLRA”), Pub. L. No. 104-67, codified at
15 U.S.C. § 78u-4.

See Lenartz v. Am. Superconductor Corp., 879

F. Supp. 2d 167, 180 (D. Mass. 2012).
Under Rule 9(b), a plaintiff alleging fraud “must state
with particularity the circumstances constituting fraud[.]”
Fed. R. Civ. P. 9(b).

The PSLRA’s pleading standards supplement

those of Rule 9(b) in two ways.

First, they add additional

“heightened pleading requirements” with respect to plaintiffs
claiming statements were false or misleading.

Mississippi Pub.

Empls.' Ret. Sys. v. Boston Sci. Corp., 523 F.3d 75, 85 (1st
Cir. 2008).

The plaintiff must “specify each statement alleged

to have been misleading [and] the reason or reasons why the
statement is misleading.”

Id. (quoting 15 U.S.C. § 78u–4(b)(1))

(alteration in original).

This Court will “look at all of the

facts alleged to see if they ‘provide an adequate basis for
believing that the defendants’ statements were false.’”

In re

Cabletron Sys., Inc., 311 F.3d 11, 29 (1st Cir. 2002) (quoting

9

Novak v. Kasaks, 216 F.3d 300, 314 (2d Cir. 2000)).

Second,

PSLRA imposes more demanding requirements with regard to
allegations that a defendant acted with the requisite scienter:
“the complaint must, ‘with respect to each act or omission []
state with particularity facts giving rise to a strong inference
that the defendant acted with the required state of mind.’”
Mississippi Pub. Empls.' Ret. Sys., 523 F.3d at 86 (quoting 15
U.S.C. § 78u–4(b)(2)) (alteration in original).
B.

Rule 10b-5 Claim

The Plaintiffs’ first claim is brought under Section 10(b)
of the Exchange Act and Rule 10b–5, which was promulgated
thereunder; this Court will follow convention in referring to it
as a “10b–5 claim.”

See, e.g., Lenartz, 879 F. Supp. 2d at 180.

To defeat a motion to dismiss, the Plaintiffs’ 10b-5 claim must
sufficiently allege “(1) a material misrepresentation or
omission; (2) scienter; (3) a connection with the purchase or
sale of a security; (4) reliance; (5) economic loss; and (6)
loss causation.”

Mississippi Pub. Empls.' Ret. Sys., 523 F.3d

at 85 (internal citation omitted).

The Defendants contest only

the first two elements in their motion to dismiss.

See Defs.’

Mem. 8.
1.

Material Misstatement or Omission

The Plaintiffs assert that the Defendants made materially
misleading statements or omissions in three separate documents:

10

the 2012 Annual Report, the March 2013 10-Q, and the June 2013
10-Q.

Compl. ¶¶ 57-75.

These three documents, and the

allegedly misleading statements therein, will be discussed in
turn.
a.

The 2012 Annual Report

The Plaintiffs assert that three statements contained in
the 2012 Annual Report each constitute a materially misleading
misstatement or are materially misleading by omission.

See id.

¶¶ 57-63.
First, the Plaintiffs challenge the following statement
(hereinafter, the “Qualification Statement”):
We believe that the FDA will regulate the HCT/Ps
involved in the AUGMENT procedure as 361 HCT/Ps. This
is because, in our view, both the mitochondria taken
from egg precursor cells and the eggs into which those
mitochondria are injected during IVF (1) are minimally
manipulated, (2) are intended for homologous use only,
(3) do not involve the combination of cells or tissue
with another article and (4) are dependent upon the
metabolic activity of living cells for their primary
function and are for reproductive use.
Id. ¶ 58.

The Plaintiffs assert that the Qualification

Statement was misleading because AUGMENT does not in fact
qualify for a 361 HCT/P designation, and because the Defendants
had received notice from the FDA in January 2013 1 that the FDA
would not grant it 361 HCT/P status.

1

Id. ¶ 59.

The 2012 Annual Report was filed on February 25, 2013.
Compl. ¶ 57.

11

Neither reason renders the Qualification Statement
misleading.

The Plantiffs’ first ground fails, as OvaScience’s

statement of belief in a future outcome, especially accompanied
as it was by a disclaimer, 2 was not misleading.

See Plumbers'

Union Local No. 12 Pension Fund v. Nomura Asset Acceptance
Corp., 632 F.3d 762, 772 (1st Cir. 2011) (noting that cautionary
statements are relevant to analysis when the statements at issue
are “forward-looking”) (internal citation and quotation marks
omitted).

The Plaintiffs’ invocation of a January 2013 phone

call between the FDA and OvaScience is similarly unavailing: the
Plaintiffs assert simply that there was a phone call between
OvaScience and the FDA, after which the FDA wrote a follow-up
letter.

Compl. ¶ 46.

Without more, this allegation fails to

render the Qualification Statement misleading. 3

2

“Our current business plan assumes that the FDA will
regulate AUGMENT as a 361 HCT/P rather than as a new drug or
biologic and, therefore, AUGMENT will not be subject to
premarket review and approval.” Decl. Amy D. Roy Supp. Mem. Law
Supp. Defs.’ Mot. Dismiss Plf.’s Am. Compl., Ex. 1, Form 10-K,
Annual Report Pursuant to Section 13 or 15(d) of the Securities
and Exchange Act of 1934 for Fiscal Year Ended Dec. 31, 2012
(“2012 Annual Report”) 45, ECF No. 33-1.
3

This is especially so in light of the fact that OvaScience
did disclose that it had “been contacted by the FDA regarding
the AUGMENT Study, and a number of other matters relating to
AUGMENT, including whether it qualifies for regulation as a 361
HCT/P.” Compl. ¶ 61.

12

The Plaintiffs next challenge the following statement:
(hereinafter, the “AUGMENT Study Statement”):
In late 2012, we initiated a study of AUGMENT in the
United States in up to 40 women aged 38 to 42 who have
failed two to five IVF cycles to assess both safety
and effectiveness. . . . [A]ssuming the final results
of the AUGMENT Study are positive, [we] plan to begin
generating revenues from AUGMENT in the second half of
2014. . . . We do not believe we will be required to
seek premarket approval or clearance of AUGMENT from
regulatory authorities in the United States or certain
other countries.
Id. ¶ 60.

The third challenged statement reads as follows

(hereinafter, the “FDA Contact Statement”):
We have not consulted the TRG. We have, however, been
contacted by the FDA regarding the AUGMENT Study, and
a number of other matters relating to AUGMENT,
including whether it qualifies for regulation as a 361
HCT/P. [OvaScience] continue[s] to believe that
AUGMENT qualifies as a 361 HCT/P; however, the FDA
could disagree.
Id. ¶ 61.
The Plaintiffs allege that these two statements were
misleading for five reasons.

Id. ¶ 62.

The first two reasons

are identical to those discussed regarding the Qualification
Statement, and are unpersuasive for the same reasons (that in
light of the disclosures elsewhere in the document the
statements were not misleading).

Their third argument is that

the FDA’s having “raised numerous other regulatory concerns
regarding AUGMENT” renders the FDA Contact Statement misleading
by omission.

Id.

Yet the Statement itself provides that

13

OvaScience had been contacted by the FDA “regarding . . . a
number of other matters[;]” it is not misleading.

The

Plaintiffs’ fourth ground, that “the FDA indicated that [the
Defendants] should schedule a pre-IND meeting,” id. ¶ 62, is
based on a letter that post-dates the submission of the 2012
Annual Report, compare id. ¶ 46 (discussing April 9, 2013
letter) with id. ¶ 57 (asserting the 2012 Annual Report was
filed on February 25, 2013).

Thus it fails to suggest the

statement was false or misleading at the time it was made.

The

Plaintiffs’ final ground is that the FDA Contact Statement was
misleading because in fact the Defendants would not generate
their predicted sales revenue due to the FDA’s regulatory
concerns.

Id. ¶ 62.

This ground fails in light of the

disclaimers in the Statement and the clear indication that the
projection was based on assumptions, see, e.g., id. ¶ 60
(“assuming the final results of the AUGMENT Study are
positive”).

See Plumbers' Union Local No. 12 Pension Fund, 632

F.3d at 772 (noting “[c]autionary statements” can negate
reliance on “forward-looking” statements).

The plaintiffs have

failed adequately to allege any materially false or misleading
statements or omissions in the 2012 Annual Report.

14

b.

The First Quarterly Report of 2013

Plaintiffs next assert that certain statements contained in
the March 2013 10-Q were false or misleading.

Compl. ¶¶ 64-68.

The Plaintiffs target two statements.
The first is the AUGMENT Study Statement, apparently
reproduced verbatim from the 2012 Annual Report.
65 with id. ¶ 62.

Compare id. ¶

The second is the FDA Contact Statement,

again apparently copied verbatim from the 2012 Annual Report,
compare id. ¶ 67 with id. ¶ 61.

The Plaintiffs essentially

recycle their previously discussed reasons that these statements
are misleading, and to the extent they are the same, this Court
remains unpersuaded.
The Plaintiffs, however, purport to explain how both
statements, even if true in the 2012 Annual Report, were
misleading when they were made in the March 2013 10-Q:
OvaScience received a letter from the FDA in the interim, id. ¶
46. 4

The FDA’s letter to OvaScience stated that “[t]he removal

of mitochondria and introduction into other reproductive tissue
appears to be more than minimal manipulation.”
added).

Id. (emphasis

The FDA qualified this statement as “based on the

limited information available[.]”

4

Id.

The Plaintiffs thus

OvaScience filed the March 2013 10-Q on May 15, 2013.
Compl. ¶ 64. The relevant FDA letter to OvaScience was dated
April 9, 2013. Id. ¶ 46.
15

argue that this undisclosed statement renders misleading by
omission two statements in the March 2013 10-Q: both the AUGMENT
Study Statement’s assertion that “[OvaScience] do[es] not
believe we will be required to seek premarket approval or
clearance of AUGMENT from regulatory authorities in the United
States,” Compl. ¶ 65, and the FDA Contact Statement’s assertion
that “[OvaScience] continue[s] to believe that AUGMENT qualifies
as a 361 HCT/P; however, the FDA could disagree[,]” id. ¶ 67.
Whether these two forward-looking statements were misleading by
omission presents a close question.
“[T]here is no per se rule that a company immediately
disclose receipt of any correspondence with the FDA.”

Fire &

Police Pension Ass'n of Colorado v. Abiomed, Inc., 778 F.3d 228,
243 n.9 (1st Cir. 2015) (internal citation omitted).

The April

2013 Letter was an informal one outside the FDA’s hierarchy of
regulatory correspondence, not a Warning Letter or Untitled
Letter. 5

Yet the FDA’s perspective on whether AUGMENT involved

more than “minimal manipulation” and thus would fail to qualify

5

Untitled Letters are a step below Warning Letters in “the
FDA’s enforcement hierarchy[,]” and address alleged regulatory
violations that do not meet the threshold for regulatory
significance warranting a Warning Letter. Fire & Police Pension
Ass'n of Colorado, 778 F.3d at 234. A Warning Letter
“communicates that the FDA believes the regulated entity has
committed a violation of regulatory significance but does not
commit the FDA to taking enforcement action.” Id. (internal
citation omitted).

16

for 361 HCT/P status is closely tied to OvaScience’s professed
“belie[fs.]”

Compl. ¶ 65.

As such, noting the hypothetical

possibility that “the FDA could disagree[,]” Compl. ¶ 45,
without mentioning that the FDA had sent a letter indicating its
initial (tentative) disagreement, especially in the context of a
company’s first product, 6 id. ¶ 4, does not save OvaScience.

As

to the two statements expressing OvaScience’s “belie[f]” about
whether it would receive the FDA’s approval, Compl. ¶¶ 65, 67,
the Plaintiffs adequately state a claim of a material omission
rendering two statements in the March 2013 10-Q misleading.
c.

The Second Quarterly Report of 2013

Finally, Plaintiffs assert that certain statements
contained in the June 2013 10-Q were false or misleading.
Compl. ¶¶ 64-68.

The Plaintiffs again target two statements,

the AUGMENT Study Statement 7 and the FDA Contact Statement, that
appear in the June 2013 10-Q as they did in the March 2013 10-Q

6

The drop in stock value of more than twenty-three percent
when OvaScience revealed that the FDA asked the company to file
an IND before continuing the AUGMENT Study indicates the
importance to investors of regulatory issues with AUGMENT. See
Compl. ¶ 16.
7

Although a few words are changed, the essential ones are
not: the defendants state that “assuming the results of the
AUGMENT Study are positive, [we] plan to begin generating
revenues from AUGMENT in the second half of 2014. . . . We do
not believe we will be required to seek premarket approval or
clearance of AUGMENT from regulatory authorities in the United
States or certain other countries.” Compl. ¶ 71.
17

and 2012 Annual Report.

The Plaintiffs make the same arguments

as before, but assert one more fact: this time, it arises from a
letter the FDA sent to OvaScience on September 6, 2013,
referencing a prior phone call.

Id. ¶ 50.

The letter mainly

operates to inform OvaScience that “an IND is required,” but in
doing so it references prior communications between the two
parties:
[f]rom the August 20, 2013 phone call between you and Dr.
Patrick Riggins, of [the FDA], it appears you are treating
subjects under your clinical study protocol, even though
you have not submitted an IND.
We are taking this opportunity to advise you that an IND is
required for this study. Further, we are writing to express
additional concerns based on our review of the protocols,
Investigator’s Brochure, and informed consent document that
you submitted to the [redacted] for your AUGMENT study.
These documents were collected during our inspection of
[redacted].
Id.

The referenced phone conversation occurred on August 20,

2013, yet the June 2013 10-Q was filed before that, on August
13, id. ¶ 70, thus the failure to disclose the as-yet-unmade
phone call could not constitute a misleading omission. 8
For the same reasons discussed in the prior section, see
supra section II-B-1-b, the Complaint again adequately states a
claim that two statements in the June 2013 10-Q were misleading.

8

The remainder of the FDA’s letter to the Defendants in
September 2013 is irrelevant to the Plaintiffs’ claims for the
same reason: it post-dates all statements the Plaintiffs assert
are false or misleading.
18

Other than that ground, the remaining assertions regarding
statements made in the June 2013 10-Q lack merit.
2.

Scienter

Having found that all but two of the Plaintiffs’ claims of
false statements or omissions of material facts fail to state a
cognizable claim (the only still-viable one arising from two
statements expressing OvaScience’s “belie[f]” that AUGMENT would
qualify as a 361 HCT/P, both made in the March 2013 10-Q and in
the June 2013 10-Q), this Court moves to the Defendants’ second
ground for dismissing the Plaintiffs’ complaint: a failure
adequately to plead the required element of scienter.
Mem. 13-20.

See Defs.

Scienter is a “mental state embracing intent to

deceive, manipulate, or defraud.”

Mississippi Pub. Empls.' Ret.

Sys., 523 F.3d at 85 (citing Ernst & Ernst v. Hochfelder, 425
U.S. 185, 193 n.12 (1976); ACA Fin. Guar. Corp. v. Advest, Inc.,
512 F.3d 46, 57 (1st Cir. 2008)).

Here, the remaining

statements were forward-looking, 9 thus the PSLRA requires the

9

The relevant portion of the first statement at issue is:
“[A]ssuming the final results of the AUGMENT Study are positive,
[we] plan to begin generating revenues from AUGMENT in the
second half of 2014. . . . We do not believe we will be required
to seek premarket approval or clearance of AUGMENT from
regulatory authorities in the United States or certain other
countries.” Compl. ¶¶ 65 (statement in March 2013 10-Q), 71
(statement in June 2013 10-Q) (emphasis supplied). The second
statement reads: “[OvaScience] continue[s] to believe that
AUGMENT qualifies as a 361 HCT/P; however, the FDA could
disagree[,]” id. ¶ 67 (statement in March 2013 10-Q), 73
(statement in June 2013 10-Q).
19

Plaintiffs adequately to allege a scienter of “actual
knowledge.”

Matrixx Initiatives, Inc. v. Siracusano, 131 S. Ct.

1309, 1324 n.14 (2011) (quoting 15 U.S.C. § 78u–5(c)(1)(B)).
The complaint must not simply allege knowledge, but must assert
facts sufficient to create a “strong” inference that the
defendant acted with the requisite scienter.

Id. at 1324.

To create an inference that is “strong,” scienter “must be
more than merely plausible or reasonable—it must be cogent and
at least as compelling as any opposing inference of
nonfraudulent intent.”

Tellabs, Inc. v. Makor Issues & Rights,

Ltd., 551 U.S. 308, 314 (2007).

This Court must consider the

totality of the circumstances in evaluating scienter, and not
examine each alleged omission or misstatement in isolation.

See

In re Cabletron Sys., Inc., 311 F.3d at 40; cf. Tellabs, 551
U.S. at 323 (“The strength of an inference cannot be decided in
a vacuum.”).

Specifically, this Court “must consider plausible,

nonculpable explanations for the defendant's conduct, as well as
inferences favoring the plaintiff.”

Tellabs, 551 U.S. at 310;

see ACA Fin. Guar. Corp., 512 F.3d at 59 (noting PSLRA mandates
that courts weigh competing inferences from facts).

If there

are equally strong inferences for and against scienter, the tie
goes to the plaintiff.

ACA Fin. Guar. Corp., 512 F.3d at 59

(internal citation omitted).

20

The Plaintiffs, in arguing that the statements were made
with knowledge of their falsity in both the March 2013 10-Q and
in the June 2013 10-Q, principally rely on the April 2013 letter
from the FDA to OvaScience.

That letter adequately supported a

claim that the statements were materially misleading by
omission.

To aid the Plaintiffs in adequately pleading the

required element of scienter, however, they must establish the
requisite strong inference that the Defendants knew the FDA
would not grant AUGMENT 361 HCT/P designation.

They fail to do

so.
The Defendants’ alternative explanation for the AUGMENT
Study Statement is that OvaScience “honestly believed that
AUGMENT met the criteria for regulation as a 361 HCT/P, [and]
believed that [the] FDA ultimately would agree with its
conclusion,” even after receipt of the April 2013 Letter.
Defs.’ Mem. 15.

That such belief was ultimately incorrect ex-

post does not, without more, support a “strong inference” that
ex-ante it was knowingly false.

Cf. Kuyat v. BioMimetic

Therapeutics, Inc., 747 F.3d 435, 442 (6th Cir. 2014) (affirming
dismissal where the defendant company “may have ultimately been
mistaken” in its belief about the FDA’s eventual approval of its
procedures because “there are no facts suggesting the company
knew this at the time its representatives spoke.”).

Instead,

OvaScience asserts that its statements must be evaluated in

21

context.

Specifically, that it is using “new technology . . .

present[ing] a matter of first impression for the FDA[.]” Decl.
Amy D. Roy Supp. Mem. Law Supp. Defs.’ Mot. Dismiss Plf.’s Am.
Compl., Ex. 1, Form 10-K, Annual Report Pursuant to Section 13
or 15(d) of the Securities and Exchange Act of 1934 for Fiscal
Year Ended Dec. 31, 2012 (“2012 Annual Report”) 46, ECF No. 331.

Thus OvaScience “could not reliability predict rejection[]”

as a result of the FDA’s preliminary statement that AUGMENT
appeared, “based on limited information[,]” to involve more than
minimal manipulation.

Reply Mem. Further Supp. Defs.’ Mot.

Dismiss 7, ECF. No. 43.
OvaScience’s nonculpable explanation for its actions
suggests the company believed that AUGMENT might qualify for 361
HCT/P status even after receipt of the April 2013 Letter.

The

April 2013 Letter was not an Untitled Letter, but an informal
letter based on the “limited information available” to the FDA,
Compl. ¶ 46.

OvaScience was not silent about the company’s

regulatory exchanges with the FDA: OvaScience informed
shareholders that the company had been contacted by the FDA
regarding AUGMENT’s qualification for 361 HCT/P status in both
the March 2013 10-Q, id. ¶ 67, and in the June 2013 10-Q, id. ¶
73.

These disclosures, although they omitted the FDA’s

preliminary notice of disagreement with OvaScience, preclude a
strong inference of scienter.

See Abiomed, 778 F.3d at 244

22

(stating that company’s “substantial disclosures about its
correspondence with the FDA. . . . undercut any inference of
scienter.”). 10
The Plaintiffs argue that additional asserted facts, when
combined with the April 2013 letter, create the requisite strong
inference of knowledge of falsity, but this argument fails
because they add nothing of consequence.

The Plantiffs argue

that this case is similar to Abrams v. MiMedx Group Inc., 37 F.
Supp. 3d 1271 (N.D. Ga. 2014), in which the court found that
shareholder plaintiffs adequately stated a claim that a
pharmaceutical company had acted with the requisite scienter
because previously-issued FDA guidance made clear that the
product would not qualify as 361 HCT/P. 11

Here, however, unlike

the relevant FDA guidance in Abrams, the FDA guidance at issue

10

The same reasoning applies to OvaScience’s subsequent
action: four days after receiving a more definitive statement
that AUGMENT could not bypass the IND process, OvaScience issued
a press release to investors. Compl. ¶¶ 50, 51.
11

The Plaintiffs argue that the FDA’s communication with
the public about the 361 HCT/P designation provided OvaScience
with effective notice that its product would not receive said
designation. Their argument initially appears similar to that
successfully made by the plaintiff in Abrams, 37 F. Supp. 3d
1271. In ruling that the shareholders had adequately pled
scienter, that court relied in part on the fact that the “FDA
had stated that products that destroy original characteristics
or are made from amniotic fluid are generally not 361 HCT/Ps,”
and that the defendant’s products “[fell] squarely into a
category the FDA had previously announced would not be exempt
from regulation.” Id. at 1278.

23

does not create a strong inference that OvaScience knew that
AUGMENT would not qualify for 361 HCT/P status.

The Plaintiffs’

proffered 2002 FDA guidance discusses ooplasm transfers, which
involve transfer of cellular material from a third-party egg to
a mother’s unfertilized egg.

See Req. Judicial Notice, Ex. D,

BRMAC Briefing Document for Day 1, May 9, 2002. 12

AUGMENT, on

the other hand, involves transfer of cellular material from a
woman’s egg precursor cells into one of her own unfertilized
eggs.

Compl. ¶ 29.

Further, the fact that the FDA was having

an Advisory Meeting in October 2013 to discuss mitochondrial
manipulation technologies like AUGMENT, Compl. ¶ 3, supports
OvaScience’s claim that the FDA’s rejection of AUGMENT as a 361
HCT/P was not inevitable.

In fact, the FDA’s advisory meeting

suggests that the issue of whether mitochondrial manipulation
fell within the 361 HCT/P designation was still an open
question.

After all, if FDA guidance from more than a decade

12

In considering this claim, this Court thus GRANTS the
Plaintiffs’ request for judicial notice of certain of its
proposed documents, ECF No. 41. See In re Vertex Pharm. Inc.,
Sec. Litig., 357 F. Supp. 2d 343, 352 (D. Mass. 2005) (Saris,
C.J.) (taking judicial notice of FDA policy published on its
website when deciding motion to dismiss securities claim); see
also OrbusNeich Med. Co., BVI v. Boston Scientific Corp., 694 F.
Supp. 2d 106, 111 (D. Mass. 2010) (Tauro, J.) (“The public
filing of this document with a regulatory agency also makes it a
proper subject of judicial notice, at least with regard to the
fact that it contains certain information, though not as to the
truth of its contents.”).

24

earlier clearly answered this question, there would be little
reason to hold an advisory committee meeting on the topic.
This Court thus holds as matter of law that the Plaintiffs
have failed adequately to plead facts raising the requisite
“strong inference” of “actual knowledge” required by PSLRA when
challenging forward-looking statements.

Matrixx Initiatives,

Inc., 131 S. Ct. at 1324, 1324 n.14 (internal citation omitted).
Whether a statement was materially misleading, and whether
it was made with the requisite scienter, are two separate
inquiries.

See id. at 1323-25 (analyzing the issue of whether

shareholders “adequately pleaded the element of a material
misrepresentation or omission[]” before separately evaluating
the issue of scienter).

Here, although the Plaintiffs’ 10b-5

claim adequately pled that two of OvaScience’s statements were
misleading, it cannot survive the Defendants’ motion to dismiss
because it does not allege sufficient facts to meet the
demanding scienter requirement for forward-looking statements.
B.

Section 20(a) Claims

Section 20(a) of the Exchange Act allows for investors to
sue “control persons” under Section 11.

15 U.S.C. §§ 77k, 77o.

The Plaintiffs allege that the Individual Defendants acted as
control persons within this definition and are thus liable as
direct participants in the fraud.

25

Compl. ¶¶ 94-99.

Claims under section 20(a) of the Exchange Act “are
derivative of [Rule] 10b-5 claims[,]” therefore liability under
the former can attach only when there is a predicate violation
of the latter.

Hill v. Gozani, 638 F.3d 40, 53 (1st Cir. 2011).

Since this Court dismisses the 10b-5 claims against OvaScience,
no Section 20 liability can be assigned to the Individual
Defendants.
III. CONCLUSION
This Court GRANTS the Defendants’ motion to dismiss the
Plaintiffs’ complaint in its entirety, ECF No. 31.

This Court

also DENIES the Plaintiffs’ boilerplate request for leave to
amend their complaint, ECF No. 40. 13

SO ORDERED.
/s/ William G. Young_
WILLIAM G. YOUNG
DISTRICT JUDGE

13

The Court does so for substantially the same reasons as
articulated by the First Circuit in Fire and Police Pension
Ass’n of Colorado, 778 F.3d at 247.
26