Eastern District Of Pennsylvania Denies In Part And Grants In Part Motion To Dismiss Stock Drop Suit, Finding Plaintiffs Adequately Pled Global Pharmaceutical Company Misrepresented The Safety Of Its Opioid
12/18/2018On December 10, 2018, Judge Timothy J. Savage of the United States District Court for the Eastern District of Pennsylvania denied in large part defendants’ motion to dismiss a putative class action asserting violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Sections 11 and 20 of the Securities Act of 1933 (the “Securities Act”). SEB Inv. Mgmt. AB v. Endo Int’l, PLC, No. 17-cv-03711 (E.D. Pa. Dec. 10, 2018). The Court held that plaintiffs adequately pled that the corporate defendant, a global pharmaceutical company (the “Company”), and five of the ten officers against whom plaintiffs asserted Exchange Act claims (collectively, the “Exchange Act Defendants”), misrepresented and omitted material facts regarding the abuse-deterrent properties of the opioid pills manufactured by the Company, such that plaintiffs could maintain an action under Section 10(b). Furthermore, the Court concluded that plaintiffs also adequately alleged Securities Act claims against the Company and nine of its officers (the “Securities Act Defendants”) on largely similar grounds.
The Company manufactures an extended-release pain relief pill. When that drug is crushed and taken intranasally, however, the extended-release mechanisms no longer remain intact and nearly half of its active ingredient is released immediately. This made it highly susceptible to abuse, and so the Company reformulated the pill to make it more difficult to crush. The Food and Drug Administration (“FDA”) approved the reformulated pill but denied the Company’s request to label the drug as abuse-deterrent because it found the extended release feature could still be compromised. A Company consultant found, among other things, that there were high levels of abuse of the reformulated drug via injection. Approximately two months after the release of the reformulated drug, the Centers for Disease Control and Prevention (“CDC”) issued a public health alert after observing a potentially fatal blood clotting disorder among intravenous abusers of the drug. In May 2013, the FDA again denied the Company’s abuse-deterrent labeling and found that the extended-release qualities could be compromised through snorting or injection. Throughout this period, the Company and its officers made various public statements that the reformulated drug was misused at lower rates than the original formula, commented on the reformulated drug’s success in reducing intranasal abuse, and represented that it had introduced a safer version of the drug to the market. In June 2016, the FDA convened an advisory committee to review abuse patterns associated with the reformulated drug, and, in June 2017, it requested that the Company voluntarily withdraw the reformulated drug from the market.
Plaintiffs claim that the Exchange Act Defendants made misrepresentations that the reformulated drug was less susceptible to abuse and failed to disclose serious adverse events associated with intravenous abuse of the drug. The Court held that plaintiffs plausibly pleaded that the data on which defendants expressly relied in making statements that the reformulated drug would reduce abuse actually showed a propensity to increase incidents of intravenous abuse. Because of this contradicting data, the Court rejected defendants’ argument that certain forward-looking statements (e.g., about the prospect for FDA approval) were protected by the safe-harbor provisions under the Private Securities Litigation Reform Act of 1995. According to the Court, plaintiffs adequately alleged that defendants actually knew of data contradicting their expressed opinions. The Court further held that claims based on statements that the data were “robust” and “compelling” were actionable, and not mere puffery, because those characterizations were combined with expressed opinions about the likelihood of reduced abuse. The claims against certain defendants who did not tout the data supporting the reformulated drug were dismissed.
The Court also sustained Section 11 claims based on allegations that the materials filed in connection with an equity offering failed to present the data showing that the reformulated drug could be abused intravenously, while at the same time extolling the abuse-deterrent qualities of the drug. The Court also held that plaintiffs plausibly alleged Section 11 claims because the offering materials contained the same misrepresentations and omissions that the Court sustained under the Exchange Act.