Securities Litigation Against Life Sciences Companies 2023 Year in Review

Our in-depth analysis of trends in securities class action filings in the life sciences industry, including highlights from important court decisions.

Welcome to our eighth annual report on US securities class actions filed against publicly traded life sciences companies, which include pharmaceutical, biotechnology, medical device, and healthcare companies.

In the following sections, we analyze data and trends in securities class actions across all industries and in the life sciences industry in particular. We then highlight important 2023 decisions issued by federal courts in securities cases against life sciences companies and their officers.

Please reach out to the contacts listed below if you have questions or feedback or want to discuss how trends in the industry may affect your business.

Executive Summary

In the context of securities class action litigation, 2023 held some bright spots for publicly traded life sciences companies. While stockholder plaintiffs filed slightly more securities cases overall in 2023 than in 2022, the number of cases filed against life sciences companies decreased by more than 10%. However, life sciences companies remain the biggest target for stockholders, and whether this decline is part of a larger trend or simply a reversion to the long-term average remains to be seen. Court rulings tended to be favorable to defendants throughout 2023, with courts dismissing the majority of observed cases. Several decisions this year examined stockholder complaints’ use of confidential witnesses (who often are former employees contacted by a plaintiffs firm’s “investigators” during or before litigation). When confidential witnesses have little connection to the named officer defendants or senior management, courts tend to discount them. But witnesses who speak about specific meetings or information provided to senior management can cause a court to deny a motion to dismiss.


Securities cases against publicly traded life sciences companies are typically filed by stockholders acting on behalf of a proposed class. Usually, plaintiffs’ objective is to recoup alleged investment losses following a company’s stock price decline, which often occurs after the announcement of setbacks or issues related to its drugs or products. Issues may include negative feedback or actions from the Federal Drug Administration (FDA); delays, suspensions, or terminations of clinical trials; unfavorable clinical data results; adverse events affecting patients; recalls; or manufacturing or supply challenges. Plaintiffs typically assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "1934 Act"), and SEC Rule 10b-5 under the 1934 Act, alleging that the company and its officers made false or misleading statements or failed to disclose material information. If the alleged misstatements or omissions are related to a registered securities offering, plaintiffs may bring their claims under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the “1933 Act”) — often in addition to claims made under the 1934 Act.

The number of new securities class action filings in federal and state courts increased 3% to 215 fillings in 2023, up from 208 filings in 2022.[1] Total “core” filings increased to 209 in 2023, up from 201 in 2022.[2] This reversed a trend of declining filings over the past few years. Nonetheless, the total number of new filings in 2023 remained 33% lower than the 2018 – 2022 average of 321 filings.[3]

This overall increase occurred despite notable declines in several areas. New core federal class actions related to special purpose acquisition company (SPAC) transactions continued to fall from their peak in 2021, although they remain markedly higher than in 2020.[4] The number of core actions related to COVID-19, cryptocurrency, and cybersecurity also declined.[5] M&A filings continued to decline to their lowest recorded level.[6] The total number of new state and federal 1933 Act filings, which had increased to 50 in 2022, fell 62% to only 19 filings in 2023 — the lowest level since 2014.[7] Such 1933 Act cases became even more concentrated in federal as opposed to state courts, with 16 of the 19 new cases being filed solely in federal courts.[8] As in 2022, this trend away from state courts is presumably due to forum-selection provisions, which many Delaware corporations have added to their corporate charters or bylaws, requiring 1933 Act claims to be filed in federal court.

[1] Cornerstone Research, Securities Class Action Filings 2023 Year in Review (the “Cornerstone Report”), at 1, available at Securities Class Action Filings 2023 Year in Review (
[2] “Core” filings excludes cases filed in connection with an M&A transaction. See Cornerstone Report at 1. Removing M&A filings teased out the historic growth (and then decline) in that category of filings from 2014 through 2022. See Cornerstone Report at 4.
[3] See Cornerstone Report at 4.
[4] Cornerstone Report at 5.
[5] Cornerstone Report at 5.
[6] Cornerstone Report at 3.
[7] Cornerstone Report at 1.
[8] Cornerstone Report at 4.

New core federal filings in the consumer noncyclical sector, which is primarily composed of life sciences companies, dropped to 54 in 2023, down from 65 in 2022. Nonetheless, the consumer noncyclical sector remains the largest overall sector by far for federal securities class actions.[1] As in the past, this is likely due to the inherently volatile nature of the stock prices of life sciences companies and the many event-driven disclosures made by such companies. That volatility likely drives the continued focus by the plaintiffs’ bar on life sciences companies. As shown in the chart below, the number of consumer noncyclical filings in 2023 is in line with the five-year average of 53 filings per year; the number of actions filed against life sciences companies in particular (40) remains above the longer-term historical average of 37 filings per year.

Seclit chart

The decline in filings in the consumer noncyclical sector was even more dramatic in the context of SPAC litigation, as shown in the chart below. Though the life sciences sector was the largest contributor to core federal SPAC cases in 2022, it was one of the smallest contributors in 2023, with just one SPAC case.

LS YIR Chart other

Securities cases against life sciences companies continue to be dismissed at about the same rate as other cases. As shown in the table below, almost 27% of federal core securities cases filed against pharmaceutical, biotechnology, and healthcare companies in 2022 were dismissed by the end of 2023 (with 64% of such cases still pending). This dismissal rate for cases pending for only one to two years is consistent with the long-term trend of about half of life sciences securities class actions being dismissed by the courts. The comparable number for all core federal filings was 22%.[2] Only 2.5% of life sciences cases filed in 2023 had been dismissed, but this reflects the early posture of those cases, which have been pending for at most 12 months.

LS YIR Chart

[1] See Cornerstone Report, at 26.
[2] Cornerstone Report at 19.

As in previous years, we continue to focus on jurisdictions that have been the most active in securities class actions filed against life sciences companies: the First Circuit and District of Massachusetts; the Second Circuit, the Southern District of New York, and the Eastern District of New York; the Third Circuit, the District of New Jersey (added to this report in 2021), and the Eastern District of Pennsylvania (added this year); and the Ninth Circuit and California District Courts. The Second and Ninth Circuits still have the largest share of all cases, together accounting for 56% of all core federal class action filings (across all industries) in 2023 — 13 percentage points fewer than in 2022 but consistent with the long-term average from the 1997 – 2022 period.[3] Core federal filings in the Third Circuit more than doubled, increasing from 16 to 36.[4]

In 2023, federal courts in the jurisdictions of our focus have once again issued several significant, detailed decisions in securities class actions concerning life sciences and healthcare companies in various growth stages and their directors and officers. As in prior years, these cases involve issues that life sciences and healthcare companies often face, including negative clinical trial results, clinical trial delays, discussions with the FDA, supply and manufacturing issues, drug side effects, adverse events and other safety issues, product rollout, antitrust and regulatory compliance, M&A activity, and revenue projections. We highlight key decisions in each of these jurisdictions below.

While these decisions were largely favorable to defendants, they were not uniform. For example, of the decisions resolving motions to dismiss, the majority were favorable to defendants, but almost a quarter denied the motion in whole or in part, allowing the case to proceed into the discovery phase and further litigation. More than a third of the decisions granting motions to dismiss (and more than half of those in California federal district courts) gave the plaintiffs another opportunity to replead their dismissed claims, continuing a trend in these jurisdictions — particularly within the Ninth Circuit — of giving plaintiffs leeway to amend their deficient pleadings multiple times. In the vast majority of the cases granting dismissal, courts ruled both that scienter (fraudulent intent) was not adequately alleged and that at least some of the challenged statements were not materially false or misleading.

[3] Cornerstone Report at 27.
[4] Cornerstone Report at 27.

Shash v. Biogen, Inc., 84 F. 4th 1 (1st Cir. 2023)

Plaintiffs brought a putative securities fraud class action against Biogen Inc. and three of its executives for alleged violations of the Securities Exchange Act of 1934 (the 1934 Act). Plaintiffs alleged that statements about clinical trials of an Alzheimer’s drug were misleading in light of allegedly negative data. The District Court dismissed all claims against defendants, and the First Circuit largely affirmed, concluding for purposes of analyzing scienter that there was no glaring incongruity between the data and Biogen’s overall conclusions about the drug’s effectiveness, in part because it involved the “interpretation of significant amounts of data through complex statistical analysis.” The First Circuit also noted the absence of allegations that defendants had been specifically warned that the data undermined the company’s conclusion regarding efficacy. However, the First Circuit reversed as to one statement, made during an earnings call, that the court characterized as stating that the clinical trial data was all consistent with needing a higher dose to achieve efficacy, concluding that plaintiffs had adequately alleged that at least some trial data did not support that correlation.

In re Bos. Sci. Corp. Sec. Litig., 646 F. Supp. 3d 249 (D. Mass. Dec. 20, 2022)

Plaintiff alleged that Boston Scientific Corporation (Boston Scientific) and seven of its executives violated the 1934 Act by making false and misleading statements about the commercial viability of a transcatheter aortic valve replacement device (the Lotus Edge). Specifically, the complaint alleged that Boston Scientific hid technical failures and sluggish sales of Lotus Edge from the market from February 2019 until November 2020, when it terminated the product. The court granted defendants’ motion to dismiss in part and denied it in part. The court dismissed a number of the alleged misrepresentations, including several as puffery (for example, that the Lotus Edge team was “really pleased” with its launch). The court found that plaintiffs had adequately alleged some other statements were false (for example, a statement that there were more than 150 Lotus Edge accounts when there were allegedly only 100), but it dismissed these claims for lack of scienter given the absence of a strong inference that the executives who made the statements knew they were false at the time. However, the court declined to dismiss claims that Boston Scientific’s CEO misled investors by continuing to make positive statements about the Lotus Edge in the fall of 2020, when it was on the verge of termination. Given the timing of these statements and the CEO’s alleged involvement with Lotus Edge, the court concluded that plaintiff had alleged a strong inference that the CEO was aware of internal discussions about the product’s potential termination. Thus, the Section 10(b) claim against the CEO and Boston Scientific was not dismissed. The court also permitted the Section 20(a) claim for control-person liability to proceed against all of the executive defendants.

Oklahoma Firefighters Pension & Ret. Sys. v. Biogen Inc., 2023 WL 2693793 (D. Mass. Mar. 29, 2023)

Plaintiff alleged that Biogen Inc. and three of its executives violated the 1934 Act by making false and misleading statements relating to the commercial rollout of Aduhelm, a treatment for Alzheimer’s disease. Defendants filed a motion to dismiss, arguing the complaint failed to plead facts with sufficient particularity (1) that the statements were false or misleading; and (2) that they supported a strong inference of scienter. The court granted defendants’ motion to dismiss in full. While the complaint pointed to statements by defendants concerning “900 sites” that were “ready” to administer Aduhelm, the court did not find those statements plausibly false or misleading when read in their proper context. The court wrote that “fatal to [plaintiff’s] case is the constant misrepresentation of what the Defendants said.” The court concluded that “a securities fraud complaint cannot rest on a house of cards made of mischaracterized statements.” Moreover, the court found that the scienter allegations were deficient and failed to allege that defendants knew or recklessly disregarded information known to them that 900 sites were not ready to administer Aduhelm — in particular, none of the confidential witnesses cited in the complaint had contact with any named defendant, which “put[] a serious dent” in the scienter allegations.

Quinones v. Frequency Therapeutics, Inc., 665 F. Supp. 3d 156 (D. Mass. 2023)

Plaintiffs alleged that Frequency Therapeutics, Inc. (Frequency) and two of its executives violated Sections 10(b) and 20(a) of the 1934 Act and Rule 10b-5 promulgated thereunder by allegedly making false and misleading statements concerning a clinical trial for FX-322, Frequency’s candidate for the potential treatment of hearing loss. Specifically, plaintiffs alleged defendants knew that some of the study participants did not meet the trial’s criteria for participation. Defendants moved to dismiss for failure to plead facts establishing with particularity (1) that the statements were false or misleading; or (2) a strong inference of scienter. The court held that most of the challenged statements were not actionable, being either statements of opinion or forward-looking statements protected by the Private Securities Litigation Reform Act of 1995 (PSLRA). For two statements that arguably could be found to be misleading, the court found that the complaint had failed to adequately allege scienter, and thus dismissed the complaint in full. The court held that plaintiffs failed to present particularized facts showing that defendants knew patients did not meet the study criteria at the time they made the allegedly misleading statements. The court wrote that plaintiffs’ confidential witness provided only a “second-hand, unparticularized account of what an unnamed investigator supposedly told [an executive] at an unspecified time,” and thus was not particularized enough to establish scienter. The court was equally unpersuaded by allegations related to stock sales and an attempt to plead that FX-322 was a “core operation” of Frequency, noting “the core operation doctrine cannot itself bootstrap an otherwise insufficient complaint above the high pleading standard imposed by the PSLRA.” The court dismissed all counts.

Luongo v. Desktop Metal, Inc., No. 1:2-cv-12099-IT, 2023 WL 6142715 (D. Mass. Sept. 20, 2023)

Plaintiffs brought a putative securities fraud class action against Desktop Metal, a 3D-printing company, and several of its executives, alleging violations of 1934 Act. Plaintiffs alleged that defendants made misleading statements to investors about Desktop Metal’s compliance with Food and Drug Administration (FDA) regulations and the quality of one of its products, a resin product called Flexcera used in dental implants. Desktop Materials had acquired Flexcera through its purchase of another company, EnvisionTEC, and Desktop Metal subsequently initiated a voluntary recall of Flexcera due to manufacturing issues. The court dismissed the complaint in its entirety and denied plaintiffs leave to amend their complaint.

The court concluded that alleged misstatements concerning Desktop Metal’s pre-acquisition due diligence of EnvisionTEC were not misleading, because there was no allegation that Desktop Metal’s due diligence was inadequate or that the alleged problems with Flexcera existed at the time of the statements. The court also concluded that post-acquisition statements about Flexcera’s quality and regulatory approval were not actionable, because Desktop Metal generally warned investors about the risks associated with FDA compliance and, after receiving whistleblower complaints, added more specific warnings about the existence of a manufacturing issue. The court also found that scienter was not adequately alleged. Plaintiffs did not allege Desktop Metal’s executives had firsthand knowledge about the manufacturing difficulties, and the court declined to infer that one defendant knew about the issues simply because he attended sales meeting and left the company six months after the issues emerged. The court concluded that an inference of scienter was less compelling than the nonfraudulent alternative: after receiving a whistleblower complaint that raised quality concerns, defendants promptly withdrew Flexcera without waiting for FDA intervention.

Nandkumar v. AstraZeneca PLC, No. 22-2704-CV, 2023 WL 3477164 (2d Cir. May 16, 2023)

Plaintiffs alleged that AstraZeneca PLC and certain of its officers violated Sections 10(b) and 20(a) of the 1934 Act and Rule 10b-5 promulgated thereunder by making material misstatements regarding the design and progress of AstraZeneca’s clinical trials for its vaccine candidate for COVID-19, AZD1222. Specifically, plaintiffs alleged that AstraZeneca’s statements concerning the results of its AZD1222 clinical trials were materially misleading because they failed to disclose: (1) that the clinical trials had suffered from alleged manufacturing errors and delays that caused some of the trial participants to receive half the designated dosage and others to receive their designated second dose off-schedule; (2) that the clinical trials did not include patients over 55; and (3) that other flaws in the design of the study rendered the trials of limited utility and weakened the likelihood that the vaccine would be approved for commercial use. The Southern District of New York dismissed plaintiffs’ amended complaint for failure to adequately plead falsity and scienter, and plaintiffs appealed. The Second Circuit affirmed dismissal, holding that plaintiffs failed both to meet the heightened pleading requirements of Rule 9(b) and the PSLRA, and to plead facts supporting a strong inference of scienter. The court held that while plaintiffs had identified “eight adverse facts” omitted from AstraZeneca’s disclosures about its AZD1222 clinical trials, they did not “adequately explain how omission of the additional information from the identified statements . . . renders the statements inaccurate or misleading.” With respect to scienter, the Second Circuit held that plaintiffs’ allegations that AstraZeneca’s officers were motivated to inflate the stock price to fund an upcoming acquisition were not the type of “concrete and personal benefit[s]” that could support a strong inference of scienter. The court also held that plaintiffs’ allegations that the officer-defendants had access to contrary information about the trial were deficient, lacking specific references to individual reports or statements that AstraZeneca’s officers had reviewed.

Shapiro v. TG Therapeutics, Inc., 652 F. Supp. 3d 416 (S.D.N.Y. 2023)

Plaintiff brought securities fraud claims under the 1934 Act against TG Therapeutics (TG), a biotechnology firm, and certain of its executives. Plaintiff alleged that TG had failed to disclose negative safety data that emerged during clinical trials of two potential cancer treatments (UKONIQ and Ublituximab) and had made affirmative statements falsely describing those treatments as safe. The court granted defendants’ motion to dismiss. First, the court rejected the claim that defendants had failed to disclose safety data, because data on adverse events was available to the public on FDA’s Adverse Event Reporting System. The court reasoned that securities law presumes that stock prices rapidly incorporate all publicly available information, and so further disclosure of already-public information would not have been material to investors. Next, the court rejected several of the alleged misrepresentations as forward-looking statements about the prospects for FDA approval. Those claims were barred by the PSLRA’s safe harbor for forward-looking statements, the court held, because TG warned that negative trial results might jeopardize FDA approval. Finally, with respect to remaining statements about the safety of the treatments, the court concluded that plaintiff had not adequately pleaded scienter. Adverse events are routine in clinical trials (especially those involving gravely ill patients), and clinical trial data requires interpretation before drawing conclusions about whether a treatment is safe; thus, while defendants concededly had access to the “raw data” from the clinical trials, the court reasoned that such access did not support a strong inference that defendants knew (or were reckless in failing to conclude) that the treatments were unsafe. The court granted defendants’ motion to dismiss without leave to amend.

In re Bristol-Myers Squibb Co. CVR Sec. Litig., No. 21-CV-8255 (JMF), 2023 WL 2308151 (S.D.N.Y. Mar. 1, 2023)

Plaintiff alleged that Bristol-Myers Squibb Company (BMS) and certain of its officers and directors violated the 1934 Act and the Securities Act of 1933 (the 1933 Act) by making misleading statements in order to artificially inflate the value of contingent value rights (CVRs) tied to FDA approval of three drugs that BMS had acquired in a merger with Celgene. The CVRs had value only if all three drugs were approved within specific deadlines; one of the drugs (a biologic called Liso-cel) received FDA approval 36 days after its deadline, rendering the CVRs worthless. Plaintiff alleged that BMS misled investors about its commitment and motivation to diligently seek regulatory approval of Liso-cel in offering documents for the CVRs as well as in subsequent statements, while BMS was allegedly “slow-rolling” the FDA approval process to avoid paying out under the CVRs. The court granted defendants’ motion to dismiss in full, dismissing the 1934 Act claims for failure to plead facts supporting a strong inference of scienter and dismissing the 1933 Act claims for failure to plead an actionable misstatement. With respect to the 1934 Act claims, the court concluded that (1) the sheer magnitude of the potential CVR payment, absent any allegations that “Defendants benefitted in some concrete and personal way” from the fraud, did not supply an adequate motive and opportunity to commit fraud; and (2) allegations that there were intentional “missteps” in the Liso-cel application process did not support an inference of scienter, because there were no allegations that BMS’s officers and directors were aware of the alleged missteps. With respect to the 1933 Act claims, the court found that the challenged statements in the offering documents — which concerned the expected timing of approval and BMS’s intention to use “diligent efforts” — fell within the PSLRA’s safe harbor for forward-looking statements. These challenges failed because BMS had accompanied the forward-looking statements with cautionary language, including a warning that the CVRs might not be paid out; indeed, the offering documents estimated only a 45% chance that the conditions for payment would be met. The court granted plaintiff leave to amend. Defendants have since moved to dismiss the plaintiff’s second amended complaint, which is currently pending.

In re Dentsply Sirona, Inc. Sec. Litig., No. 18-cv-7253 (NG)(PK), 2023 WL 2682905 (E.D.N.Y. Mar. 29, 2023)

Plaintiff alleged that Dentsply Sirona, Inc., and certain of its officers and directors violated the 1933 Act and 1934 Act by making allegedly materially misleading statements about inventory issues and their alleged involvement in an anticompetitive conspiracy. Dentsply Sirona was formed during the class period through the merger of two dental-product manufacturers, Dentsply and Sirona. Plaintiff alleged that Dentsply Sirona’s largest distributors engaged in a conspiracy to raise prices by boycotting dental buying groups (the subject of a 2018 Federal Trade Commission enforcement action), and that defendants hid their own involvement in that conspiracy from investors. In addition, one of the distributors allegedly had a large “glut” of Dentsply Sirona inventory it could not sell, and defendants allegedly failed to disclose the extent of the inventory problem. The market allegedly learned of these issues through a series of disclosures in 2017 and 2018 about lower sales, inventory reductions, and goodwill impairments at Dentsply Sirona. Defendants filed a motion to dismiss, which the court denied. First, the court rejected defendants’ argument that the claims were time-barred; while there were articles and lawsuits from earlier time periods discussing inventory issues and antitrust allegations against the distributors, those sources would not have permitted plaintiffs to bring securities fraud claims at the time based on defendants’ alleged involvement in the antitrust conspiracy and the alleged magnitude of the inventory problems. Second, the court held that defendants’ statements about “strong demand,” “sales growth,” and their “strong and terrific relationship” with the distributors were adequately alleged to be misleading given the undisclosed extent of the inventory problems. Third, statements concerning the reasons for the company’s growth and its “highly competitive” market were adequately alleged to be misleading given allegations that that growth came from the alleged undisclosed antitrust conspiracy. Fourth, the court held plaintiff had adequately alleged that the antitrust and inventory issues represented trends or uncertainties in Dentsply Sirona’s business that had not been disclosed as required by Item 303 of Regulation S-K. The court noted that, in a 2020 regulatory settlement, the SEC had found that Dentsply Sirona improperly failed to disclose the scope of certain inventory problems. Fifth, with respect to the 1934 Act claims, the court found a strong inference of scienter based primarily on two sets of allegations: (1) the company allegedly received regular updates from the distributor alerting it to the scope of the inventory “glut”; and (2) plaintiff cited emails allegedly showing defendants’ participation in the antitrust conspiracy with the distributors. Finally, the court rejected defendants’ remaining arguments concerning loss causation, materiality, and the PSLRA’s safe harbor for forward-looking statements.

In re Mylan N.V. Sec. Litig., No. 16-CV-7926 (JPO), 2023 WL 2711552 (S.D.N.Y. Mar. 30, 2023)

Plaintiffs alleged that Mylan N.V. (Mylan) and certain of its officers violated Section 10(b) of the 1934 Act and Rule 10b-5 promulgated thereunder by making misleading statements that obscured alleged underlying violations of antitrust laws. In particular, plaintiffs challenged three sets of statements: (1) statements concerning the EpiPen market and any income related to EpiPen sales; (2) statements concerning the classification of EpiPen under the Medicaid Drug Rebate Program as a generic drug; and (3) statements concerning the pricing of several of Mylan’s generic drugs. Plaintiffs alleged all were rendered misleading in light of Mylan’s alleged anticompetitive conduct, namely that Mylan’s EpiPen sales were the result of intentional misclassification and illegal rebating tactics, while the success of its generic drugs was due to an alleged illegal price-fixing scheme. The court had previously denied defendants’ motions to dismiss three times, allowing the lion’s share of plaintiffs’ claims to survive with the caveat that for each, plaintiffs would need to prove an actual violation of antitrust laws in order to succeed. Now, defendants moved for summary judgment on all remaining claims, which the court granted, finding that plaintiffs failed to meet that burden on the underlying antitrust claims. Without a genuine dispute as to the viability of the antitrust claims, plaintiffs’ securities claims also failed. The court further held, with respect to the EpiPen statements, that the “highly generic” nature of Mylan’s statements required plaintiffs to produce specific evidence that Mylan’s officers and directors knew contrary information at the time, which plaintiffs did not have. Without those specific facts, plaintiffs’ claims necessarily failed.

In re Teladoc Health, Inc. Sec. Litig., No. 22cv4687 (DLC), 2023 WL 4351455 (S.D.N.Y. July 5, 2023)

Plaintiff alleged that Teladoc Health, Inc. (Teladoc) and several of its senior executives violated the 1934 Act by allegedly making misleading statements in SEC filings, on earnings calls, and in other public statements following Teladoc’s $18.5 billion acquisition of Livongo Health, Inc., in October 2020. Plaintiff alleged that, from February 2021 to July 2022, defendants painted a misleading, positive picture of the Teladoc-Livongo integration and downplayed the rising competition in the virtual healthcare industry. According to plaintiff, these statements artificially inflated the price of Teladoc’s stock during the class period. Teladoc’s stock price declined in 2022 after the company took impairment charges and lowered its outlook for the Livongo-related business lines. After defendants filed an initial motion to dismiss, plaintiff filed a second amended complaint (SAC), and defendants moved to dismiss again, arguing that plaintiff’s SAC failed to plead material misrepresentations, scienter, and loss causation. The court granted defendants’ motion, finding that Teladoc’s statements about its integration of the Livongo business and its position in the competitive landscape were largely statements of opinion (such as “our commercial organization is now fully integrated”) or expressions of corporate optimism, which were not actionable. For similar reasons, the court rejected plaintiff’s omissions theory, concluding generality of many of the statements of opinion and optimism to which the SAC pointed “prevent[ed] them from rising to the level of materiality required to form the basis for assessing a potential investment.” In concluding that plaintiff failed to plead false or misleading statements relating to Teladoc’s competition, the court also pointed to Teladoc’s risk disclosures. The court also denied plaintiff’s request to amend the complaint a third time, noting that plaintiff had not attached a proposed amended complaint.

Zhou v. NextCure Inc., No. 20-CV-07772-LTS-RWL, 2023 WL 4493541 (S.D.N.Y. July 12, 2023)

Plaintiff alleged that NextCure, Inc., and certain of its officers and certain IPO underwriters violated the 1933 Act and 1934 Act by making materially misleading statements and omitting material information regarding the efficacy of NC318, a product candidate under investigation for potential treatment of certain types of cancers. In particular, plaintiff alleged that NextCure (1) omitted updated Phase 1 trial data; (2) knowingly made statements and omissions that generated “false optimism” around the efficacy of NC318; and (3) made statements and omissions in IPO and other offering documents about the nature of the development of the company’s imaging platform. The court granted defendants’ motion to dismiss in full, finding that plaintiff failed to plead “why” the challenged statements were misleading. For instance, the court rejected challenges to the company’s disclosures about interim clinical trial results, noting they were “replete with disclaimers.” The court also found that many of the challenged statements were “non-actionable puffery” because they were “subjective, vaguely optimistic statements that no reasonable investor would rely upon,” including statements like “we believe NC318 has potential.” The court also found that the few statements that were not puffery were still not actionable because plaintiff had not plausibly alleged that those statements omitted material information when read in context. For instance, defendants’ statements concerning the Phase 1 trial “made investors fully aware of [its] parameters” and so were not misleading. For the 1934 Act claims, the court also held that the complaint failed to plead a strong inference of scienter concerning the same statements.

Microbot Med., Inc. v. Mona, No. 19 Civ. 3782 (GBD) (RWL), 2023 WL 5372469 (S.D.N.Y. Aug. 22, 2023)

Plaintiff Microbot Medical, Inc. (Microbot), alleged that defendant Joseph Mona (Mona), a stockholder of Microbot, violated the 1934 Act by engaging in “short-swing” trades of Microbot stock. Mona filed an amended counterclaim claiming that Microbot had violated Section 10(b) of the 1934 Act and Rule 10b-5 promulgated thereunder by making material misrepresentations or omissions on which he had relied when purchasing Microbot stock. After the court entered judgment on the pleadings in favor of Microbot with respect to its claims against Mona, Microbot filed a motion for summary judgment as to Mona’s counterclaim. The Southern District of New York adopted the magistrate’s recommendation and granted summary judgment in full, dismissing Mona’s counterclaim with prejudice because he had not established loss causation for either alleged misrepresentation. While the court found that Mona had raised a triable issue of material fact regarding his reliance on two of the three alleged misstatements, Mona failed to establish any issue of triable fact concerning loss causation. Mona merely stated that Microbot’s alleged misstatements were the direct cause of his loss but did not provide any analysis or factual basis to support his theory. The court held defendant’s “conclusory” statements that the misrepresentations directly caused him economic loss left his counterclaim “devoid of allegations” sufficient to raise triable issues with respect to loss causation. The court further found that defendant “indisputably did not lose money” when the corrective disclosures became known and, instead, made money — which, in the court’s view, eliminated his counterclaim entirely.

Gru v. Axsome Therapeutics, Inc., No. 22 Civ. 3925 (LGS), 2023 WL 6214581 (S.D.N.Y. Sept. 25, 2023)

Plaintiff alleged that Axsome Therapeutics, Inc. (Axsome), and certain of its officers violated the 1934 Act by omitting material statements and making other misstatements while developing AXS-07, a drug candidate designed for the acute treatment of migraines, during a class period from December 30, 2019, to April 22, 2022. Specifically, plaintiff alleged that Axsome failed to disclose manufacturing issues in the development of AXS-07 and, as the result of this omission, Axsome’s subsequent statements regarding the timeline and prospect of AXS-07’s FDA approval were false or misleading. The court granted Axsome’s motion to dismiss in full, but with leave to amend, holding that plaintiff’s complaint had failed to allege loss causation. In particular, plaintiff bought and sold his shares entirely during the class period. That is, by the time of the company’s alleged corrective disclosure in April 2022, plaintiff was no longer a stockholder. Plaintiff attempted to allege he held shares during a “partial corrective disclosure” in November 2020, but the court rejected those allegations as well. The court explained that because the complaint alleged the November 2020 disclosure still omitted manufacturing problems, it could not be a “corrective disclosure about manufacturing issues.” The court also noted that the complaint did not contain factual allegations that the alleged manufacturing issues had begun by November 2020.

Spar v. Celsion Corp., No. 20-15228 (ZNQ) (DEA), 2023 WL 2069725 (D.N.J. Feb. 6, 2023)

Plaintiffs alleged that Celsion Corporation and certain of its officers violated the 1934 Act by making misleading statements about an ongoing trial designed to test the efficacy of its cancer treatment candidate ThermoDox. After an independent data monitoring committee recommended stopping the trial, it was discontinued. Plaintiffs alleged that Celsion executives made optimistic statements about the trial even though data showed a pattern of participant deaths that would prevent the trial from reaching its primary endpoint. Defendants filed a motion to dismiss, which the court granted in full. As the court observed, plaintiffs did not dispute that the trial was double blinded until the end of the class period, meaning defendants could not have known about the alleged pattern in the underlying data, and once the trial was unblinded, Celsion promptly disclosed that it had “but a very slim chance” of succeeding. Because plaintiffs challenged statements of opinion, none of which was alleged to be subjectively disbelieved or misleading in light of the data defendants had at the time, there was no misstatement. Similarly, because defendants did not have the data that supposedly contradicted their statements, there was no strong inference of scienter.

Lewakowski v. Aquestive Therapeutics, Inc., No. 21-3751 (ZNQ) (DEA), 2023 WL 2496504 (D.N.J. Mar. 14, 2023)

Plaintiffs initiated a putative class action suit against Aquestive Therapeutics, Inc. (Aquestive), and its executives alleging that defendants misled investors regarding the efficacy of a drug candidate and the likelihood of its approval by FDA in violation of Sections 10(b) and 20(a) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder. Defendants moved to dismiss the amended complaint and strike certain allegations in the complaint. The court granted dismissal without prejudice, determining the complaint “cherry-pick[ed] out-of-context quotes from the Company’s disclosures” and failed to allege falsity or scienter. The court further held that statements regarding future prospects of FDA approval were not actionable as they were “forward-looking statements” and noted that “the FDA’s difference of opinion in interpreting the data cannot support a securities fraud claim.” The court also found that where the challenged statements were forward-looking and accompanied by meaningful cautionary language, plaintiffs failed to allege either conscious misbehavior or recklessness, and the court concluded that plaintiffs failed to plead facts giving rise to a strong inference of scienter since plaintiffs had pleaded no motive-and-opportunity allegations. However, the court denied defendants’ motion to strike allegations related to two unrelated lawsuits involving Aquestive based on the fact that the allegations were not “so immaterial as to warrant their being struck.” Accordingly, the court granted defendants’ motion to dismiss without prejudice and allowed plaintiffs to replead the claims.

In Re Ocugen, Inc. Securities Litig., No. 21-2725, 2023 WL 2351695 (E.D. Pa. March 30, 2023)

Plaintiff, an alleged investor, brought an action against biopharmaceutical company Ocugen, Inc., and certain of its executives for alleged violations of Sections 10(b), 20(a), and 20A of the 1934 Act and Rule 10b-5 promulgated thereunder. Plaintiff alleged defendants made materially misleading statements regarding the development and potential of Ocugen’s COVID-19 vaccine, COVAXIN. Defendants moved to dismiss all claims, which the court granted with prejudice. For instance, the court found that defendants’ statements about Ocugen’s potential to obtain emergency use authorization (EUA) for COVAXIN were not materially misleading because defendants had no duty to disclose plaintiff’s “speculative” allegation that Ocugen had “fail[ed] to adhere to every aspect of non-binding guidance” and thus was “guaranteed denial of EUA for COVAXIN.” Additionally, the court found that defendants’ statements that “data would be acceptable to FDA was a statement of optimism and opinion, particularly in context of the pandemic and the non-binding nature of FDA’s guidance.” The court thus held that plaintiff’s complaint failed to satisfy the heightened pleading standards of Rule 9(b) and the PSLRA. The court also denied leave to amend the complaint, writing, “[p]laintiff’s claims largely fail as a matter of law rather than because of insufficient pleadings.”

In re Valeant Pharms. Int’l, Inc. Sec. Litig., No. 315CV07658MASLHG, 2022 WL 17480933 (D.N.J. Nov. 30, 2022), report and recommendation adopted, No. CV157658MASLHG, 2023 WL 3993740 (D.N.J. June 14, 2023)

This case arises of out of a securities class action under the 1934 Act against Valeant Pharmaceuticals International, Inc. (Valeant), and other defendants. In February 2022, plaintiff filed a second amended complaint (SAC), which added PricewaterhouseCoopers LLP (PwC), Valeant’s auditor, as a defendant, and alleged PwC’s 2014 audit report falsely assured investors that Valeant’s financial statements complied with GAAP, that Valeant had effective internal controls, and that PwC conducted its audit in accordance with professional standards. PwC moved to dismiss plaintiff’s new claim against it in the SAC. In a report and recommendation and subsequent decision of the district court adopting that recommendation, the court denied PwC’s motion to dismiss. The court’s decision focused on the element of scienter. While the court concluded that the SAC “does not allege that PwC had any particular motive to commit fraud,” it nevertheless found plausible allegations of “conscious behavior or recklessness.” The court noted issues with alleged suspicious transactions and alleged red flags in quarter closing procedures. Taken together at the motion-to-dismiss stage, the court held that the inference of scienter was at least as strong as PwC’s alternative theories and denied the motion to dismiss.

Turnofsky v. electroCore Inc., No. 19-18400 (ZNQ) (TJB), 2023 WL 4527553 (D.N.J. July 13, 2023)

Plaintiff alleged that electroCore Inc., a bioelectric medicine company, and certain of its officers and certain IPO underwriters violated the 1933 Act and 1934 Act by including untrue and misleading statements, as well as omitting to disclose necessary clarifying information, in electroCore’s offering documents. In particular, plaintiff alleged that certain officers knowingly made materially false or misleading statements that conflated commercial and insurance payors and omitted material facts that obscured the alleged falsity of defendants’ statements. The court granted defendants’ motion to dismiss all of plaintiff’s claims in the second amended complaint. The court dismissed claims brought under Sections 11, 12(a)(2), and 15 of the 1933 Act, without prejudice, finding that plaintiffs failed to sufficiently allege material misrepresentations within the offering documents. The court held that a reasonable investor would not plausibly find electroCore’s projections about the coverage of the company’s commercial payors misleading because electroCore’s statement provided several disclaimers about the state of coverage. Moreover, plaintiff could not identify any affirmative misstatement in the offering documents, once read in context. Finally, the court dismissed claims brought under Sections 10(b) and 20(a) of the 1934 Act and Rule 10b-5 promulgated thereunder. The court held that the complaint failed to plead sufficient allegations of scienter, in addition to the deficiencies in the pleading of a materially misleading statement noted above. The court explained that “[m]ere allegations of their knowledge of the business, without more, does not prove scienter.” While granting the motion to dismiss in full, the court allowed plaintiff an opportunity to plead a third amended complaint.

Roofer’s Pension Fund v. Papa, 16-2805 (RMB/LDW), 2023 WL 5287783 (D.N.J. Aug. 17, 2023)

Plaintiffs alleged that Perrigo Company PLC (Perrigo) and certain of its officers (including its former chief executive officer) violated Sections 10(b), 14(e), and 20(a) of the 1934 Act and Rule 10b-5 promulgated thereunder by making material misrepresentations and omissions in an alleged attempt to overvalue Perrigo and fight off a potential corporate takeover. Following a motion to dismiss that was denied in part, the parties pursued discovery around the two remaining claims: (1) that Perrigo had misrepresented its generic drug pricing by omitting an alleged price-fixing scheme; and (2) that Perrigo had misrepresented the success of Perrigo’s integration of an acquisition. Defendants moved for summary judgment on both claims, arguing plaintiffs had unearthed no evidence to show the challenged statements were material or false or misleading, or that defendants had acted with scienter. The court granted summary judgment for Perrigo’s former chief financial officer in full; granted in part and denied in part the former chief executive officer’s summary judgment motion; and reserved in part and denied in part Perrigo’s summary judgment motion. The court’s analysis focused primarily on scienter. It found that plaintiffs had failed to show a genuine issue of material fact as to the purported scienter of Perrigo’s CFO, noting in particular that Perrigo executives’ purchase of additional Perrigo stock during a competitor’s attempt to take over the company cut against finding scienter and was furthermore consistent with their past trading history. However, the court then found a dispute of material fact existed as to the scienter of Perrigo and its CEO with respect to statements made about the integration of a recent acquisition. Concerning the price-fixing allegations, the court concluded that plaintiffs had failed to show scienter by both the CFO and CEO, warranting dismissal of those claims. The court reserved entering summary judgment in favor of Perrigo on those allegations, pending further briefing by the parties on the corporate scienter doctrine. The court also found “genuine issues of fact are in dispute on some corrective disclosures, precluding summary judgment on loss causation,” which allowed the case to proceed forward toward trial.

Zaidi v. Adamas Pharm., Inc., 650 F. Supp. 3d 848 (N.D. Cal. 2023)

Plaintiff alleged that Adamas Pharmaceuticals, Inc. (Adamas), and certain of its officers violated the 1934 Act by making false or misleading statements about GOCOVRI, an extended-release drug developed by Adamas to alleviate dyskinesia, a side effect of levodopa therapy for Parkinson’s disease patients. Specifically, plaintiff alleged that Adamas and its officers made false or misleading statements regarding (1) payer decisions about coverage of GOCOVRI, including the potential of required patients to “step-through” another therapy before receiving GOCOVRI; (2) patient and physician responses to GOCOVRI; and (3) the effectiveness of Onboard, Adamas’ specialty pharmacy for distribution of GOCOVRI. The court granted the motion to dismiss in part and denied it in part. The court dismissed claims as to Adamas’ CFO, finding scienter inadequately pleaded under the PSLRA because that plaintiff had asserted their allegations of the CFO’s knowledge of falsity generally and only on “information and belief.” As to claims against Adamas’ CEO, although plaintiff had produced more concrete allegations that he learned at some point of the information that rendered his statements false or misleading, plaintiff failed to plead chronologically that the CEO possessed that contrary information at the time he made the challenged statements, and the court dismissed those claims as well. As to claims against Adamas’ COO, the court found that plaintiff had adequately pleaded scienter regarding statements the COO made before the launch of GOCOVRI. Specifically, plaintiff alleged that after receiving surveys from payors indicating the likelihood they would require patients to step through other treatments before obtaining GOCOVRI, the COO insisted that Adamas “did not anticipate” step-through requirements. Thus, the court denied the motion to dismiss as to the COO’s prelaunch statements regarding step-through prescription requirements and granted leave for plaintiffs to amend their claims against Adamas and the other individual defendants. 

In re Talis Biomedical Corp. Sec. Litig., No. 22-cv-00105-SI, 2022 WL 17551984 (N.D. Cal. Dec. 9, 2022)

Plaintiffs brought claims under the 1933 Act and 1934 Act against Talis Biomedical Corporation (Talis) and certain current and former Talis officers and directors, alleging that they misled the investing public about Talis’ ability to bring its first product — a molecular diagnostic platform for COVID-19 tests called Talis One — to market. Plaintiffs alleged that defendants misled investors about (1) Talis's initial application for an emergency use authorization (EUA) from FDA; (2) the accuracy and functionality of Talis One; and (3) Talis’s ability to manufacture Talis One on a commercial scale and on projected timelines. Plaintiffs alleged that defendants made numerous false and misleading statements and omissions in connection with Talis’ February 2021 IPO, in post-IPO filings with the SEC, and during quarterly investor calls from March 2021 until March 2022. The court dismissed the 1933 Act claims, finding that the allegations of falsity were based on confidential witness allegations that were “conclusory, state[d] opinions without factual support, [were] sometimes based on vague hearsay and rumors, and [were] often vague or silent as to time period.” The court also dismissed the 1934 Act claims, finding that (1) plaintiffs failed to allege with particularity that any of the challenged statements were false or misleading when made; and (2) the challenged statements, such as claims that Talis was “on track” or “expected” to scale production, were forward-looking and accompanied by meaningful cautionary language. The court granted plaintiffs leave to amend.

In re Progenity, Inc. Sec. Litig., No. 20-cv-01683, 2023 WL 219345 (S.D. Cal. Jan. 13, 2023)

Plaintiffs, in their second amended complaint (SAC), alleged that Progenity, Inc., certain of its officers, and the underwriters of its IPO had violated Sections 11 and 15 of the 1933 Act. Plaintiffs alleged that the registration statement filed by Progenity in preparation for its IPO failed to disclose that Progenity had allegedly improperly billed government payors for its prenatal tests, had allegedly been engaged in illegal marketing practices, and had allegedly been experiencing negative sales trends. The court dismissed all claims in the SAC with leave to file a subsequent amended complaint. Regarding the improper billing/overpayment allegations, the court found that, although Progenity was alleged to owe $10.3 million in refunds to government payors, the refund liability did not exist until it was “determined and quantified” in Progenity’s Q2 2020 financial results, which did not occur until after the registration statement at issue took effect in June 2020. Thus, Progenity did not omit a material fact from the registration statement. As to the claims identifying allegedly illegal marketing practices, the court found that plaintiffs had not sufficiently alleged how the marketing schemes at issue were illegal, and further found that Progenity had not discussed its historical marketing practices in its registration statement and was not required to disclose any changes to its marketing strategy there. Finally, on the issue of the negative sales trends, the court noted that plaintiffs relied on data observed during the second quarter of 2020. Progenity filed its initial S-1 registration statement in May 2020, and the court held that Progenity was not required to disclose real-time sales data at the time of filing and that plaintiffs had failed to identify any claims in the registration statement that were made materially misleading by the omission of the alleged real-time data.

City of Birmingham Relief & Retirement Sys. v. Acadia Pharm., Inc., No. 21-cv-00762, 2023 WL 1769810 (S.D. Cal. February 2, 2023)

Plaintiffs alleged that Acadia Pharmaceuticals, Inc. (Acadia), and certain of its officers violated the 1934 Act by making false and misleading statements and material omissions regarding the likelihood of FDA approval of its dementia-related psychosis treatment drug candidate, pimavanserin. Specifically, plaintiffs alleged Acadia “misrepresented the existence or terms of agreement with FDA concerning the approval of pimavanserin” and failed to disclose issues with the design and sub-level results of studies used to support its application for FDA approval of pimavanserin. The court denied defendants’ motion to dismiss and further denied defendants’ motion to reconsider that dismissal. Concerning scienter, the court noted that FDA denied Acadia’s application “in a manner plausibly inconsistent” with public statements about the supporting studies and an agreement with FDA, and thus supported an inference of scienter at the motion-to-dismiss stage. On falsity, defendants pointed to later disclosures by defendants of detailed results of the pimavanserin trials and moved the court to reconsider a prior ruling that certain earlier statements about the pimavanserin trials were misleading. The court denied this argument, holding that, at the pleading stage, the court could not take inferences in defendants’ favor on this issue, categorizing defendants’ argument as a “truth on the market” defense for which defendants bore the burden of proof. The defense, therefore, could only be evaluated later in the case.

In re Eargo, Inc. Sec. Litig., No. 21-cv-08597-CRB, 2023 WL 1997918 (N.D. Cal. Feb. 14, 2023)

Plaintiffs alleged that Eargo, Inc., certain company executives and directors, and its IPO underwriters violated the 1933 Act and 1934 Act. According to plaintiffs, the company’s business model was incompatible with the requirements for federal insurance reimbursement, which made defendants’ statements about Eargo’s revenue and growth opportunities false or misleading. Plaintiffs also claimed that Eargo misleadingly downplayed an insurance audit that had resulted in a DOJ investigation. The court rejected these claims and ruled in favor of defendants’ motion to dismiss. The court found that Eargo’s offering documents did not contain actionable false or misleading statements. For instance, while plaintiffs argued that Eargo’s unaudited financial statements were false or misleading because certain claims were ultimately not reimbursed, the court held that argument was undercut by the fact that federal insurance carriers had reimbursed Eargo’s claims for nearly three years prior without issue. The court also concluded that statements about potential future coverage possibilities were non-actionable corporate optimism and forward-looking statements immunized by the PSLRA’s safe harbor. Turning to post-offering statements challenged under the 1934 Act, the court found that certain statements, particularly relating to certain specific reimbursements, “could appear false or misleading to a reasonable investor.” However, the court concluded that plaintiffs’ allegations did not support a strong inference of scienter and therefore could not support a claim. The court found scienter lacking because (i) plaintiffs did not allege that any defendant sold stocks during the class period; (ii) plaintiffs did not adequately plead that defendants knew or believed that Eargo’s telecare business model would not comport with relevant insurance requirements; (iii) the DOJ’s investigation was not evidence of fraud; (iv) plaintiffs did not identify any facts suggesting that Eargo executives believed an ongoing insurance audit was anything but routine; and (v) the core operations doctrine could not save the otherwise deficient allegations. The court granted defendants’ motion to dismiss but allowed plaintiffs an opportunity to amend the complaint.

Homyk v. ChemoCentryx, Inc., No. 21-cv-03343-JST, 2023 WL 3579440 (N.D. Cal. Feb. 23, 2023)

Plaintiff alleged that ChemoCentryx, Inc., and its CEO violated the 1934 Act by making allegedly misleading statements about the company’s vasculitis drug candidate, avacopan. Plaintiff challenged four overlapping categories of statements: (1) statements about avacopan’s safety results in clinical trials; (2) statements about the trial's efficacy results; (3) statements about the trial’s design and avacopan’s ability to replace existing standard-of-care steroid therapy; and (4) statements about interactions with FDA concerning avacopan. Plaintiff alleged that these statements were misleading because defendants failed to disclose that trial results could not support their safety claims, that the majority of trial participants were taking steroids, that positive trial results were the result of deviations from trial protocol, that FDA had communicated serious concerns about the trial design, and that failure to disclose these facts was misleading. Defendants moved to dismiss the claims. The court concluded that many of the challenged statements were actionable: they created a positive impression about avacopan’s prospects for success, which the court ruled on a motion to dismiss could be misleading in light of the (undisclosed) concerns expressed by FDA about the trial. The court also found that plaintiff had pleaded a strong inference of scienter, citing: (1) that there were allegations, bolstered by confidential witness statements, that the CEO was personally aware of FDA’s concerns and two serious adverse liver events that occurred during the trial; (2) that, in the court’s view, it was implausible that the CEO, who made repeated public statements about the trials for avacopan (the company’s most promising developmental drug), was not aware of the progress of the trials; and (3) that there was an alleged motive to keep ChemoCentryx’s stock price high through a stock offering in June 2020, which the court found persuasive given avacopan’s importance to investors and ChemoCentryx’s need for funding as a company with no approved drugs and thus no sales revenue.

Plumbers & Pipefitters Loc. Union #295 Pension Fund v. CareDx, Inc., No. 22-cv-03023-TLT, 2023 WL 4418886 (N.D. Cal. May 24, 2023)

Plaintiffs alleged that CareDx, Inc., and certain of its officers violated the 1934 Act based on alleged misrepresentations and omissions regarding AlloSure Kidney, a blood test that detects signs of kidney transplant rejection. Plaintiffs alleged, among other things, that CareDx relied on a fraudulent practice of billing Medicare for unnecessary AlloSure tests. Defendants moved to strike portions of the complaint drawn from allegations made by a former CareDx executive in an unrelated lawsuit against CareDx; the former executive made various allegations about improper bundling of AlloSure tests with standard blood tests, as well as alleged kickbacks paid to doctors. The court granted the motion to strike, finding that plaintiffs had not provided adequate independent corroboration of the allegations. Defendants also filed a motion to dismiss, which the court granted, finding plaintiffs had not alleged falsity or a strong inference of scienter. For many defendants, plaintiffs alleged only that they were current or former executives of CareDx, which the court found did not support an inference of scienter alone. As to CareDx’s CEO, plaintiffs attempted to allege a pattern of suspicious insider trading; however, the court found these allegations insufficient, concluding that while the CEO had “capitalized on a momentary spike” in the stock’s price to sell, these sales accounted for only 26% of his class-period sales and the sales followed a consistent, unsuspicious pattern. The court also held that the core operations theory did not apply: while plaintiffs alleged that the product was important and that CareDx executives attended regular meetings, those allegations were not particularized enough to show that senior executives knew about alleged fraudulent billing. The court also found that the mere existence of DOJ and SEC investigations did not support an inference of scienter. With respect to falsity, plaintiffs attempted to rely on representations that CareDx had made in underwriting agreements about compliance with healthcare laws; however, the court found these statements were intended as contractual representations to a counterparty, not factual statements to investors. The court also found that other statements, concerning CareDx’s products and the lack of any change to its Medicare billing practices, were not adequately alleged to be false or misleading. The court granted defendants’ motion to dismiss with leave to amend.

Sneed v. AcelRx Pharms., Inc., No. 21-cv-04353-BLF, 2023 WL 4412164 (N.D. Cal. July 7, 2023)

Plaintiffs brought claims under the 1934 Act against AcelRx Pharmaceuticals, Inc. (AcelRx), and certain company executives in connection with an FDA warning letter sent to AcelRx regarding purported misbranding violations in advertising materials for its drug DSUVIA, an opioid painkiller. FDA had approved DSUVIA subject to a risk evaluation and mitigation strategy (REMS), a drug safety program, which FDA cited in its warning letter. Plaintiffs brought claims under both Rule 10b-5(b) for materially false or misleading statements and “scheme” liability under Rule 10b-5(a) and (c). Defendants moved to dismiss the claims, which the court granted. For the misstatements claim, plaintiffs alleged that defendants made false and/or misleading statements by not disclosing that: (1) AcelRx failed to implement and/or maintain sufficient disclosure controls and procedures regarding the marketing of DSUVIA; (2) as a result, the company engaged in the misbranding violations that were the subject of the warning letter; and (3) the company was therefore subject to a foreseeable and increased risk of regulatory investigations or enforcement actions. The court found that that many of the challenged statements were not misleading. The court described determining whether the advertising statements referenced in the warning letter were misleading as a “close call.” However, the court found that plaintiffs’ scienter allegations failed. While plaintiffs argued that defendants’ general awareness of FDA scrutiny was sufficient to give rise to a scienter inference, the court disagreed. There were no allegations of specific scrutiny or knowledge by defendants of any issues with the REMS program or the company’s advertising materials at the time they made them, which was prior to the warning letter. The court also rejected plaintiffs’ argument that because AcelRx was a small company with a single approved product, the “core operations” theory applied. While granting the motion to dismiss the misstatements claim, the court allowed leave to amend. The court also dismissed the “scheme” liability claims and did not allow for leave to amend, pointing out that that plaintiffs had not alleged a failure to comply with REMS and that the court had already rejected plaintiffs’ scienter allegations and thus, there was no scienter for a scheme.

In re Progenity, Inc. Sec. Litig., No. 20-cv-01683, 2023 WL 4498502 (S.D. Cal. July 12, 2023)

Plaintiffs filed a third amended complaint (TAC) against Progenity, Inc., alleging that certain of its officers and the IPO underwriters violated Sections 11 and 15 of the 1933 Act. The court found that two of the omission theories alleged in the TAC — that Progenity had been experiencing negative sales trends and that it had been engaged in illegal marketing practices — were substantively identical to two claims previously alleged in plaintiffs’ second amended complaint and previously dismissed by the court. The court again dismissed those claims, this time with prejudice. Plaintiffs’ TAC included new allegations that plaintiffs claimed supported their theory that Progenity omitted the known fact of overbilling of and pending refund payments to government payors. Specifically, plaintiffs alleged that Progenity notified officials in Florida and Michigan that it intended to use 2018 Current Procedural Terminology (CPT) codes in 2019 despite apparent changes to the relevant codes. Addressing the new allegation, the court held, as it had when dismissing the SAC, that the refund liability to government payors was still not alleged to have been known and quantified when Progenity filed its registration statement and conducted its IPO. Thus, there was no omission of a material fact concerning any specific refund liability that Progenity ultimately, later, incurred and paid. The court granted the motion to dismiss in full and denied plaintiffs’ request for leave to amend their complaint a fourth time. Plaintiffs’ appeal is currently pending before the Ninth Circuit.