Kader v. Sarepta Therapeutics, Inc. et al

Filing 65

Judge Allison D. Burroughs: MEMORANDUM AND ORDER entered.For the reasons set forth in the attached Memorandum and Order, Plaintiffs' Motion for Leave to Amend [ECF No. 50] is DENIED, and this case is DISMISSED WITH PREJUDICE. (Montes, Mariliz)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
WILLIAM KADER, Individually and On
Behalf of All Other Persons Similarly
Situated,
Plaintiff,
v.
SAREPTA THERAPEUTICS, INC.,
CHRISTOPHER GARABEDIAN, and
SANDESH MAHATME,
Defendants.

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Civil Action No. 1:14-cv-14318-ADB

MEMORANDUM AND ORDER
In this securities fraud putative class action, Plaintiff William Kader, and Lead Plaintiffs
Morad Ghodooshim, Roger Lam, and Laxmikant Chudasama (collectively, “Plaintiffs”) seek to
represent a class of all purchasers of securities issued by Sarepta Therapeutics, Inc. (“Sarepta” or
“the Company”) during the period from March 4, 2014 to October 27, 2014 (the “Class
Period”).1 The named defendants are Sarepta, along with its former CEO, Christopher
Garabedian (“Garabedian”), and the Company’s Chief Medical Officer, Edward Kaye, M.D.
(“Kaye”) (collectively, “Defendants”).2
Presently before the Court is Plaintiffs’ Motion for Leave to Amend the Complaint [ECF
No. 50]. Because Plaintiffs have unduly delayed in seeking leave to amend and because
Plaintiffs’ Proposed Second Amended Complaint (“PSAC”) fails to address the shortcomings in

1

Plaintiffs’ Amended Complaint alleged a class period of April 21, 2014 through October 27,
2014.
2
Plaintiffs have removed Sandesh Mahatme as a defendant in the Proposed Second Amended
Complaint.

the Amended Complaint, such that granting leave to amend would be futile, Plaintiffs’ Motion
[ECF No. 50] is DENIED.
I. BACKGROUND
This action was commenced on December 3, 2014. Plaintiffs filed a two-count Amended
Complaint on March 20, 2015 [ECF No. 17], which alleged that by making misrepresentations
and material omissions in connection with the purchase or sale of Sarepta’s securities, all
Defendants violated Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”)
and Rule 10b-5 (Count I), and that the individual Defendants violated Section 20(a) of the
Exchange Act (Count II).
On May 11, 2015, Defendants moved to dismiss [ECF No. 21], arguing that the Amended
Complaint failed to state a claim for securities fraud because Plaintiffs failed to allege any
actionable misstatements, and further failed to allege sufficient facts on the element of scienter.
The Court held a hearing on Defendants’ Motion to Dismiss on March 29, 2016, and on April 5,
2016, the Court granted Defendants’ motion, dismissing Plaintiffs’ Amended Complaint. [ECF
No. 46].
Three days later, on April 8, 2016, Plaintiffs filed the instant Motion for Leave to Amend
the Complaint, along with a supporting Memorandum and Proposed Second Amended
Complaint. [ECF Nos. 50, 51]. Defendants filed an opposition to Plaintiffs’ Motion for Leave to
Amend [ECF No. 55], Plaintiffs replied [ECF No. 60], and Defendants filed a surreply [ECF No.
63].
The Court only briefly reviews the factual background of this case, which is set forth in
greater detail in the Court’s prior Memorandum and Order, and familiarity with which is
assumed for purposes of this Memorandum and Order. See [ECF No. 46]. Sarepta is a

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biopharmaceutical company focused on developing RNA-based therapeutics for the treatment of
rare and infectious diseases. The Company has developed a drug candidate called “eteplirsen” to
treat Duchenne muscular dystrophy (“DMD”). Plaintiffs contend that during the Class Period,
Sarepta and its executives made materially misleading statements and omissions regarding the
Company’s ongoing efforts to file a New Drug Application (“NDA”) for eteplirsen with the U.S.
Food and Drug Administration (“FDA”). Specifically, Plaintiffs allege that the Defendants
misstated guidance and omitted information that the FDA purportedly provided to the Company,
which pertained to the sufficiency of Sarepta’s clinical data on eteplirsen.
In granting the Defendants’ Motion to Dismiss [ECF No. 21] on April 5, 2016, the Court
held that Plaintiffs had failed to plausibly allege facts showing that Defendants made materially
misleading statements or failed to disclose information that was necessary to make their
statements not misleading. The Court also concluded that Plaintiffs’ Amended Complaint failed
to allege facts that gave rise to a sufficiently strong inference of scienter to survive a motion to
dismiss.
As the instant litigation was ongoing, the NDA for eteplirsen was filed in May 2015, with
a public hearing scheduled for January 2016. [ECF Nos. 51-1 at 12, 51-2 at ¶ 24]. Prior to the
scheduled hearing, in January 2016, the FDA published a briefing document (the “FDA briefing
document” or “January 2016 FDA briefing document”) which, according to Plaintiffs, contained
concerns communicated by the FDA to Defendants both prior to and during the Class Period,
which were concealed from investors by Defendants. [ECF No. 51-2 at 79–152]. Many of the
new allegations in the PSAC are allegedly based on information revealed by this briefing
document. Plaintiffs state that the FDA briefing document is “highly negative to eteplirsen’s
prospects for approval.” Id. at ¶ 24. On September 19, 2016, the FDA issued a press release

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announcing the approval of eteplirsen use on DMD patients.3 See United States Food & Drug
Admin., FDA Grants Accelerated Approval to First Drug for Duchenne Muscular Dystrophy
(Sept. 19, 2016), available at
http://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm521263.htm.
Plaintiffs now request leave to amend their complaint again, claiming that they have
addressed the pleading deficiencies identified by the Court by adding substantial facts that were
not available prior to the release of the FDA briefing document in January 2016. [ECF No. 51].
According to Plaintiffs, this FDA briefing document included the following: (1) FDA criticism
of Sarepta’s dystrophin analysis; (2) evidence of Defendants’ improper breaking of the blinded
nature of the dystrophin study and their “purposeful and unilateral” post hoc discarding of data
that failed to yield positive results; and (3) documentation of Defendants’ use of inconsistent and
biased standards in their analysis of dystrophin biomarker data, all of which provide additional
support for their claims. Plaintiffs also claim that Defendants were aware during the Class
Period, but failed to publicly disclose, that the FDA, as early as July 2013, had advised
Defendants to obtain an independent laboratory reassessment of the dystrophin data. Plaintiffs
contend that this alleged awareness of the FDA’s advice makes the statements that were made by
Defendants during the Class Period false, misleading, and made with scienter. In support of their
motion for leave to amend, Plaintiffs also argue that they have not unduly delayed in making this
motion, are not acting in bad faith or in such a way as would unduly prejudice the Defendants,
and that their motion would not be futile.

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The Court is well within its discretion in taking judicial notice of this government record. See
Apotex Inc. v. Acorda Therapeutics, Inc., 823 F.3d 51, 59–60 (2d Cir. 2016) (taking judicial
notice of FDA document in deciding motion to dismiss); In re Vertex Pharm. Inc., Securities
Litig., 357 F. Supp. 2d 343, 352 (D. Mass. 2005) (taking judicial notice of FDA policy as a
matter of public record).
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In response, Defendants argue that Plaintiffs’ Motion for Leave to Amend should be
denied as both belated and futile. Defendants criticize Plaintiffs for relying on the FDA briefing
document from January 2016 but not filing their Motion for Leave to Amend until April 2016,
three days after the Court issued its Memorandum and Order granting the motion to dismiss on
the previous complaint. [ECF No. 55]. Defendants assert that the timing of Plaintiffs’ filing of
the PSAC constitutes undue delay and that, in any event, allowing Plaintiffs’ PSAC would be
futile as it fails to cure the pleading deficiencies identified by the Court in its earlier
Memorandum and Order. Defendants further argue that criticism of study methodologies made
in a 2016 FDA briefing document cannot give rise to a claim for fraud relating to statements
made in 2014. Defendants also note that Defendants’ public statements in 2014 repeatedly
disclosed FDA concerns about the study methodology. Defendants dispute that descriptions of
the study as “blinded” were misleading since the FDA briefing document itself states that the
study was first carried out on a blinded baseline. Defendants also note that the Court previously
addressed the question of the FDA’s alleged request for an independent reassessment of the
dystrophin data and concluded that this request was not necessarily inconsistent with
Defendants’ other statements. Finally, Defendants argue that Plaintiffs have done nothing to cure
the deficiencies in the allegations of scienter that were fatal to the Amended Complaint.
Plaintiffs’ Reply argues that leave to amend should be freely given and denies that they
unduly delayed filing the PSAC. Plaintiffs also assert that the January 2016 FDA briefing
document, as reflected in the PSAC, provides proof of falsity, materiality, and scienter on the
part of Defendants during the Class Period. Specifically, Plaintiffs allege that Defendants had a
duty to disclose:
material adverse facts regarding dystrophin that they knew or
recklessly disregarded, including: that the dystrophin data was

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materially flawed and unreliable due to Sarepta’s biased selection
and analysis of data; and, as a result of these methodological
problems, the FDA specifically instructed Sarepta as early as July
2013, and again in July 2014, to obtain independent laboratory
review of the dystrophin data prior to filing the NDA (which
Defendants ignored).
[ECF No. 60 at 6–7]. Plaintiffs also add that “more recent developments destroy any notion that
Defendants fairly and accurately represented the FDA review process during the Class Period”
because during an FDA meeting on eteplirsen on April 25, 2016, the FDA “took pains to ‘set the
record straight’ on what the agency told Sarepta throughout its eteplirsen trials, including about
the many serious problems with Sarepta’s dystrophin data.” Id. at 7 (emphasis in original). In a
footnote to their Reply brief, Plaintiffs indicate that the documents distributed prior to the April
25, 2016 FDA meeting contained additional supportive facts that Plaintiffs would include in a
future amended complaint.
In their Surreply, Defendants argue that Plaintiffs’ mention in a footnote to their Reply
that they intend to file an additional amended complaint is improper and that such a proposed
amendment should have been attached to their pending Motion for Leave. Defendants also argue
that Plaintiffs relied on an impermissible theory of “fraud by hindsight” and reiterate that
Plaintiffs have still failed to cure defects in their scienter allegations.
For the reasons set forth in this Memorandum and Order, Plaintiffs’ Motion for Leave to
Amend [ECF No. 50] is DENIED, and this case is DISMISSED WITH PREJUDICE.

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II. LEGAL STANDARD
Federal Rule of Civil Procedure 15(a)(2) provides that the Court should freely grant a
party leave to amend when justice so requires. “[Rule 15] reflects a liberal amendment policy but
even so, the district court enjoys significant latitude in deciding whether to grant leave to amend.
We defer to the district court’s decision ‘if any adequate reason for the denial is apparent on the
record.’” ACA Fin. Guaranty Corp. v. Advest, Inc., 512 F.3d 46, 55 (1st Cir. 2008) (quoting
LaRocca v. Borden, Inc., 276 F.3d 22, 32 n.9 (1st Cir. 2002)) (other internal citation omitted). A
Court may deny leave to amend for reasons including “undue delay, bad faith or dilatory motive
on the part of the movant, repeated failure to cure deficiencies by amendments previously
allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [and]
futility of amendment.” Foman v. Davis, 371 U.S. 178, 182 (1962). A request to amend a
complaint “requires the court to examine the totality of the circumstances and to exercise its
informed discretion in constructing a balance of pertinent considerations.” Palmer v. Champion
Mortg., 465 F.3d 24, 30–31 (1st Cir. 2006). If the proposed amendment would be futile because
the amended complaint still fails to state a claim, a district court acts within its discretion in
denying the motion for leave to amend. Abraham v. Woods Hole Oceanographic Inst., 553 F.3d
114, 117 (1st Cir. 2009).
In assessing whether a proposed amendment would be futile, the district court must apply
the same standard it applies to motions to dismiss under Federal Rule of Civil Procedure
12(b)(6). Adorno v. Crowley Towing & Transp. Co., 443 F.3d 122, 126 (1st Cir. 2006). In
assessing the complaint’s sufficiency under Rule 12(b)(6), the Court must accept all “wellpleaded factual allegations in the Complaint as true and view all reasonable inferences in the
plaintiffs’ favor.” ACA Fin. Guar. Corp. v. Advest, Inc., 512 F.3d 46, 58 (1st Cir. 2008). To

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survive a motion to dismiss, the complaint must contain “enough facts to state a claim to relief
that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “To state a
claim for securities fraud under Section 10(b), a plaintiff must allege: (1) a material
misrepresentation or omission; (2) scienter, or a wrongful state of mind; (3) in connection with
the purchase or sale of a security; (4) reliance; (5) economic loss; and (6) loss causation.” Fire &
Police Pension Ass’n of Colorado v. Abiomed, Inc., 778 F.3d 228, 240 (1st Cir. 2015) (internal
quotations and citation omitted).4
Because this case involves claims of securities fraud, Plaintiffs’ PSAC must also satisfy
the Federal Rule of Civil Procedure 9(b) standard for alleging fraud with particularity, and
comply with the heightened pleading requirements imposed by the Private Securities Litigation
Reform Act of 1995 (“PSLRA”), Pub. L. No. 104-67, 109 Stat. 737. See Advest, Inc., 512 F.3d
at 58. The PSLRA “requires plaintiffs’ complaint to ‘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). If plaintiffs’ allegation regarding the statement or
omission “is made on information and belief, the complaint must state with particularity all facts
on which that belief is formed.” Id. (quoting 15 U.S.C. § 78u–4(b)(1)).
The PSLRA also imposes a “rigorous pleading standard” for allegations of scienter,
which is a “‘mental state embracing intent to deceive, manipulate, or defraud.’” Id. (quoting
Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 n.12 (1976)). A complaint must state “with

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“Claims brought under section 20(a) of the Securities Exchange Act, 15 U.S.C. § 78t(a), are
derivative of 10b-5 claims.” Hill v. Gozani, 638 F.3d 40, 53 (1st Cir. 2011). Section 20(a)
provides that once a company has been found to have violated the Act’s substantive provisions,
“[e]very person who, directly or indirectly, controls” the company “shall also be liable jointly
and severally with and to the same extent as [the company] . . . unless the controlling person
acted in good faith and did not directly or indirectly induce the act or acts constituting the
violation or cause of action.” 15 U.S.C. § 78t(a).

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particularity facts giving rise to a ‘strong inference’ that defendants acted with a conscious intent
‘to deceive or defraud investors by controlling or artificially affecting the price of securities’ or
‘acted with a high degree of recklessness.’” Abiomed, Inc., 778 F.3d at 240 (quoting City of
Dearborn Heights Act 345 Police & Fire Ret. Sys. v. Waters Corp., 632 F.3d 751, 757 (1st Cir.
2011)). The facts alleged must make the inference of scienter “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).
“When there are equally strong inferences for and against scienter, the draw is awarded to the
plaintiff.” Waters Corp., 632 F.3d at 757.
While the PSLRA does not modify the liberal amendment policy of Rule 15(a),
“[p]laintiffs may not, having the needed information, deliberately wait in the wings . . . with
another amendment to a complaint should the court hold the first amended complaint was
insufficient.” Advest, Inc., 512 F.3d at 56-57.
III.

ANALYSIS
a. Undue Delay

Plaintiffs contend that they did not unduly delay in filing their Motion for Leave to
Amend because it was filed just three days after this Court issued its Memorandum and Order
dismissing the Amended Complaint. While the Plaintiffs did file their Motion for Leave to
Amend shortly after the Court issued its Memorandum and Order on April 5, 2016, the document
that Plaintiffs claim added additional facts to their allegations was, at the latest, available in
January 2016, well before the Court ruled on Defendants’ Motion to Dismiss the Amended
Complaint. Despite the availability of this document, Plaintiffs did not request leave to amend at
the hearing held on the Motion to Dismiss on March 29, 2016 and instead argued against the

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motion to dismiss, without citing the availability of other supporting information. Nor did they
move for leave to amend before the Court entered its April 2016 order, which they should have
done if the FDA briefing document cured deficiencies identified by Defendants in their Motion
to Dismiss or at the argument on the motion. There was thus more than a three-month delay from
the release of the new information Plaintiffs claim to have relied upon in their PSAC. The timing
of the filing of the motion to amend suggests that rather than moving promptly for leave to file a
new complaint based on new information discovered in January 2016, the Plaintiffs instead
waited for the Court’s ruling on the Motion to Dismiss before seeking leave to amend. Undue
delay alone can be a sufficient reason for a Court to deny leave to amend. In re Lombardo, 755
F.3d 1, 3 (1st Cir. 2014). The Plaintiffs’ actions qualify as undue delay.
Further, Plaintiffs’ suggestion in a footnote of their Reply brief that there are additional
FDA briefing documents from April 2016 that Plaintiffs may plan to incorporate into a future
amended complaint also suggests improper delay. Plaintiffs state that “[t]hese documents contain
additional supportive facts that Plaintiffs would intend to include in an operative amended
complaint, should the instant motion be granted.” [ECF No. 60 at 1, n.1]. To date, Plaintiffs have
still not filed a Proposed Third Amended Complaint, and the Court is left only to speculate about
what additional allegations Plaintiffs may plan to make based on those documents and the
outcome of this motion. This “wait and see” approach to pleading, coupled with the successive
filing of motions to amend, is an abuse of the rules that allow complaints to be freely amended
and constitutes undue delay.
As the First Circuit has recognized, the “wait and see” approach to pleading falls squarely
within the definition of “undue delay.”
The plaintiffs argue that in the end, they were entitled to wait and
see if their amended complaint was rejected by the district court

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before being put to the costs of filing a second amended complaint.
They claim this would promote efficiency in the judicial system.
Plaintiffs have it exactly backwards—their methodology would lead
to delays, inefficiencies, and wasted work. The plaintiffs do not get
leisurely repeated bites at the apple, forcing a district judge to decide
whether each successive complaint was adequate under the PSLRA.
Plaintiffs may not, having the needed information, deliberately wait
in the wings for a year and a half with another amendment to a
complaint should the court hold the first amended complaint was
insufficient.
Advest, Inc., 512 F.3d at 57; see also Abiomed, Inc., 778 F.3d at 247 (denying leave to amend
based on Advest). Like the plaintiffs in Advest, Plaintiffs may not wait in the wings with yet
another amended complaint to see if this Court determines that its prior pleading was
insufficient. See United States ex rel. D’Agostino v. EV3, Inc., 153 F. Supp. 3d 519, 540–41 (D.
Mass. 2015) (denying leave to amend based on plaintiff’s wait and see approach to pleading); see
also United States ex rel. Hagerty v. Cyberonics, Inc., 146 F. Supp. 3d 337, 343–44 (D. Mass.
2015) (noting that periods as short as three months can constitute undue delay and denying leave
to file second amended complaint).
Because Plaintiffs have had ample opportunity to properly and promptly seek leave to
amend, and have failed to do so, this Court concludes that Plaintiffs unduly delayed the filing of
their Motion for Leave to Amend. Their “wait and see” approach is highlighted by the fact that
they anticipate filing yet another such motion if this one fails. Accordingly, Plaintiffs’ Motion for
Leave to Amend is DENIED on the basis that Plaintiffs have unduly delayed in seeking leave to
amend.

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b. Futility of Amendment
In addition to concluding that Plaintiffs’ Motion for Leave to Amend should be denied on
the basis of Plaintiffs’ undue delay, the Court finds that Plaintiffs’ PSAC fails to state a claim.
Therefore, the Court also denies Plaintiffs’ Motion for Leave to Amend because allowing such
an amendment would be futile.
Plaintiffs’ PSAC seeks to add various allegations that are related to the sufficiency and
integrity of the dystrophin data and the Company’s failure to adequately communicate concerns
about the data that were raised by the FDA. The PSAC, in some instances, recycles allegations
that the Court has already rejected and, in total, fails to allege misrepresentations sufficient to
state a claim. The PSAC also fails to satisfy the Court that Plaintiffs have established a strong
inference of scienter. In this section, the Court summarizes the thrust of the new allegations,
which come largely from the January 2016 FDA briefing document, and explains why these
allegations—first, the alleged misrepresentations and, second, the allegations of scienter—are
still insufficient under the pleading standards.
1. New Allegations
In their new allegations in the PSAC, based in significant part on the January 2016 FDA
briefing document, Plaintiffs conclude that “Defendants misrepresented Sarepta’s dystrophin
data and ability to file an NDA by the end of 2014, in that they misrepresented that the
dystrophin analysis was conducted in a properly blinded and controlled manner, and they
misrepresented, omitted, and recklessly ignored the FDA’s repeated guidance to seek
independent laboratory verification of the dystrophin assessment results.” Plaintiffs claim
generally that the suggestion that the data was good enough for an NDA was false and
misleading and that ignoring the FDA’s concerns was so deliberately reckless “as to constitute a

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fraud and deceit upon Plaintiffs and the class.” Plaintiffs further aver that “[w]hile the FDA had
expressed concerns regarding the reliability of Defendants’ eteplirsen data, and therefore had
requested that Defendants show reproducibility of the results vis-à-vis independent laboratory
verification, Defendants repeatedly misrepresented that the FDA simply wanted to become more
‘comfortable’ with the manner in which the data was assessed by the laboratory, and repeatedly
assured investors that the study was well-controlled and properly blinded.” Plaintiffs claim that
although Defendants “seemingly disclosed that the FDA expressed ‘concerns’ regarding
Sarepta’s dystrophin data during the Class Period, even those purported cautionary statements
were themselves misleading, and made with actual knowledge of falsity” because they
misrepresented “the nature and import of the FDA’s concerns” about the data.
Plaintiffs further allege that that “FDA confirmed that on March 13, 2013, Defendants
were informed that the FDA did not believe that Sarepta adequately characterized the quantity of
dystrophin produced by eteplirsen treatment and that ‘the immunofluorescence data you
presented suggest that a much lower quantity of truncated dystrophin is produced by eteplirsen
treatment than is present in BMD.’” The PSAC also adds allegations that the FDA had
specifically advised Sarepta on a number of occasions as early as July 2013 to obtain
independent laboratory reassessment of the dystrophin data prior to an NDA submission.
Plaintiffs plead on information and belief that, as early as July 2013, the FDA advised Sarepta
that “[w]e are open to considering an NDA based on these data for filing. However, we have a
number of concerns [which] should be addressed prior to filing.” [ECF No. 51-1 at ¶ 18
(emphasis omitted)]. Plaintiffs also allege that the 2013 FDA guidance stated that “[dystrophin]
image interpretation is susceptible to bias and analyses of medical images require scrupulous
attention to and documentation of blinded analysis.” Id. (emphasis omitted). Plaintiffs assert that

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the FDA advised Defendants to “confirm with an independent laboratory the
immunohistochemical findings for dystrophin and associated proteins.” Id. (emphasis omitted).
2. Misrepresentations As Alleged Are Insufficient.
Plaintiffs’ amended allegations focus on two primary areas. First, Plaintiffs criticize the
methods used in Defendants’ clinical studies of eteplirsen and argue that Defendants
misrepresented how the studies were carried out. Second, Plaintiffs rely on the FDA’s
subsequent statements that Sarepta was informed about the need to conduct further clinical
testing in order to submit their NDA and misrepresented what the FDA required. On both issues,
Plaintiffs’ PSAC fails to sufficiently allege material misrepresentations sufficient to satisfy the
pleading requirements.
Plaintiffs’ arguments about alleged flaws in clinical testing methodology do not
sufficiently state a claim for securities fraud. Disagreements with or criticism of drug study
methodology is insufficient to state a claim for securities fraud, particularly where there is no
showing of an intent to deceive or improper manipulation of results. See In re Adolor Corp.
Securities Litig., 616 F. Supp. 2d 551, 567 (E.D. Pa. 2009) (“Defendants’ statements that the
Phase III trials were randomized and double-blinded amount to disagreements over the proper
methodology and conduct of clinical studies. These allegations are not sufficient to establish
falsity for purposes of a Rule 10b-5 claim.”); In re Sanofi Securities Litig., 87 F. Supp. 3d 510,
544 (S.D.N.Y. 2015) (noting that, “[b]y far the most logical inference on the facts pled—indeed,
the only plausible inference—is that defendants (1) sincerely held their optimistic views of the
clinical trial results, and (2) were surprised and disappointed by the FDA’s temporary—for the
FDA eventually reversed course—rejection of these results as inadequate.”).

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Here, Defendants’ course of conduct suggests that they believed the FDA would
eventually become comfortable with the study results and the methodology employed. While the
FDA communicated to Defendants that additional testing would eventually be necessary, the
many cautionary statements by Defendants more than made clear to investors that there was an
ongoing discussion underway with the FDA regarding the data that would be required to support
an NDA. While Plaintiffs argue that the evidence shows that Defendants were on notice from the
FDA about the need for additional clinical testing, it is unclear from Plaintiffs’ allegations that
Defendants were unequivocally told that further data would be required for submission of the
NDA and made contrary representations to investors. Thus, the facts pled by Plaintiffs do not
show that Defendants statements were knowingly or recklessly false when made. Like in Sanofi,
“the most logical inference on the facts pled” by Plaintiffs is that the Defendants here held
optimistic views of the clinical trial results and were surprised by the FDA’s temporary rejection
of the results as inadequate. See Sanofi, 87 F. Supp. 3d at 544. The fact that the NDA was
ultimately approved in September 2016 supports the inference that the Defendants’ initial
statements that their testing data may have been sufficient for an NDA were accurate and
undercuts any argument that Defendants disregarded FDA requirements while representing
otherwise to the public. The eventual approval notwithstanding, Plaintiffs’ reliance on the post
hoc FDA briefing document showing that the FDA “consistently” expressed the need for
additional testing is misplaced because the document does not sufficiently particularize what was
said and when, or what sorts of conditions were communicated to the Defendants.
Plaintiffs’ allegations that Sarepta misrepresented the nature of the clinical testing,
particularly its “blinded” nature, are also deficient. Plaintiffs argue that Sarepta misrepresented
that the clinical trial was carried out on a blinded baseline. But, as even the January 2016 FDA

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briefing document cited by Plaintiffs acknowledged, “[t]he measurement of total dystrophin
immunofluorescence by Bioquant was first carried out on blinded baseline, Week 12, and Week
24 images, captured at 20x magnification.” [ECF No. 51-2 at 105 (emphasis added)]. The FDA
document continued that “[t]he 20x immunofluorescence images on samples obtained through
Week 24 were selected by an individual blinded to treatment group, but the microscopic fields to
be photographed were selected manually by the operator.” Id.5 Plaintiffs cannot explain how
Defendants misrepresented facts by describing their clinical testing as proceeding from a blinded
baseline, when even the FDA acknowledged that this occurred. That certain results from the
testing were not carried out on a blinded baseline, and that the FDA briefing document raised
potential issues with some of the methods used in the study, without more, is insufficient to show
a misrepresentation, particularly where such allegations are also largely based on apparent
criticism of the study methodology. Plaintiffs have leveled no allegations that Defendants
improperly interfered with the clinical study, manipulated results, or were otherwise improperly
involved with the studies that would allow the Court to conclude that Defendants were
deliberately engaging in efforts to deceive investors.
3. Allegations of Scienter Are Insufficient.
Plaintiffs’ threadbare new allegations that Defendants acted with the requisite scienter
likewise fail. The PSAC fails to allege additional facts “giving rise to a ‘strong inference’ that
defendants acted with a conscious intent ‘to deceive or defraud investors by controlling or
artificially affecting the price of securities’ or ‘acted with a high degree of recklessness.’”
Abiomed, Inc., 778 F.3d at 240 (quoting Waters Corp., 632 F.3d at 757). Plaintiffs’ allegations

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Plaintiffs’ additional allegations about statements made by Garabedian on March 4, 2014 also
fail to sufficiently allege misrepresentations since these appear to be neither false nor misleading.
[ECF No. 51-2 at ¶¶ 20–23].
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that “[o]n information and belief . . . the FDA unequivocally informed Defendants at least as
early as July 2013 that independent laboratory assessment of dystrophin—the data supporting
eteplirsen’s primary surrogate endpoint—needed to be addressed prior to filing” lack the
requisite specificity to satisfy the heightened PSLRA and Rule 9(b) pleading standards. [ECF
No. 51-2 at ¶ 122(b)]. These allegations fail to make the inference of scienter “more than merely
plausible or reasonable—it must be cogent and at least as compelling as any opposing inference
of nonfraudulent intent.” Tellabs, Inc., 551 U.S. at 314. While Plaintiffs continue to claim that
Defendants ignored FDA feedback expressing concerns about the sufficiency of Sarepta’s
clinical trial data, Plaintiffs still have not alleged any facts that overcome the cautionary
language employed by Defendants in their public statements, or show that Defendants knew or
recklessly disregarded definitive FDA guidance about what was required for their NDA.
Plaintiffs’ PSAC fails to allege additional facts that would allow the Court to infer that the
Defendants acted with the requisite scienter to survive a motion to dismiss, or to change the
previous conclusion that Plaintiff’s scienter allegations are deficient.
IV.

CONCLUSION
For the foregoing reasons, Plaintiffs’ Motion for Leave to Amend [ECF No. 50] is

DENIED, and all claims against the Defendants are hereby DISMISSED WITH PREJUDICE.6
SO ORDERED.
Dated: January 6, 2017

/s/ Allison D. Burroughs
ALLISON D. BURROUGHS
U.S. DISTRICT JUDGE

6

Because Plaintiffs fail to plead a viable claim for securities fraud under Section 10 and Rule
10b-5, all derivative claims against the individual Defendants necessarily fail as well. See Hill,
638 F.3d at 70.
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