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Corban v. Sarepta Therapeutics, Inc.

United States Court of Appeals, First Circuit

August 22, 2017

MARK A. CORBAN, individually and on behalf of all others similarly situated; STEVE FLEISCHMANN, individually and on behalf of all others similarly situated; Plaintiffs, Appellants,
SAREPTA THERAPEUTICS, INC.; CHRIS GARABEDIAN; EDWARD KAYE, Defendants, Appellees, DANIEL BARADARIAN, individually and on behalf of all others similarly situated; BIJESH AMIN, individually and on behalf of all others similarly situated; Plaintiffs, SANDESH MAHATME, Defendant.


          Stuart W. Emmons, with whom William B. Federman, Amanda B. Murphy, and Federman & Sherwood were on brief, for appellants.

          Christopher G. Green, with whom Dalila Argaez Wendlandt, Justin G. Florence, Mark D. Vaughn, Alexia R. De Vincentis, and Ropes & Gray LLP were on brief, for appellees.

          Before Kayatta, Circuit Judge, Souter, Associate Justice, [*] and Stahl, Circuit Judge.


         The price of the publicly traded securities issued by Sarepta Therapeutics, Inc. dropped sixty-four percent when Sarepta announced that the Food and Drug Administration deemed premature Sarepta's application for approval of a novel gene therapy. Promptly thereafter, several shareholders brought this securities fraud class action against Sarepta as well as former and current Sarepta executives on behalf of those who bought Sarepta stock during the prior four months while Sarepta was expressing conditional optimism that the FDA would accept its application. The district court found that the plaintiffs failed to allege facts creating a strong inference that the defendants intentionally or recklessly deceived the investing public. We agree and affirm.

         I. A.

         The district court dismissed the complaint after this action was consolidated and the pleading was once amended. The plaintiffs then brought a motion for leave to file another amended complaint, which the district court denied as futile. The plaintiffs thereafter brought a motion for relief under Rule 60(b)(2) of the Federal Rules of Civil Procedure proposing a fourth version of the complaint, and a motion for reconsideration under Rule 59(e) proposing yet a fifth version. The district court denied all of these motions for the sole reason that it found them futile because none of the proposed pleadings sufficiently stated a claim under the Private Securities Litigation Reform Act of 1995 (PSLRA), 15 U.S.C. § 78u-4(b).[1] Normally we apply a deferential standard of review to decisions denying amendment, relief from judgment, and reconsideration. Here, though, each ruling hinged on a single issue: the sufficiency of the pleading as a matter of law. Hence, our review is de novo. See Mills v. U.S. Bank, NA, 753 F.3d 47, 54 (1st Cir. 2014); Roger Edwards, LLC v. Fiddes & Son Ltd., 427 F.3d 129, 132 (1st Cir. 2005). Because the fifth version of the complaint is the most recent and most complete version of the pleading, we focus our analysis on that iteration and draw the following facts and reasonable inferences from it.


         Sarepta is a biopharmaceutical company that works to discover and develop gene therapies for the treatment of rare neuromuscular diseases, including Duchenne muscular dystrophy ("DMD"). DMD is a progressive childhood disease that affects approximately 1 in 3500 boys worldwide. Caused by genetic mutations that hinder or halt production of dystrophin, an essential protein for muscle function, DMD leads to loss of muscle strength and ultimately to respiratory and cardiac failure. Few boys afflicted with this debilitating disease reach adulthood.

         Sarepta's lead product candidate during the relevant time period was eteplirsen. Eteplirsen is designed to treat DMD by altering the transcription process to skip the genetic mutation. It thereby enables the body's production of truncated but functional dystrophin, the type of dystrophin associated with less severe forms of muscular dystrophy and longer life expectancies.

         To market eteplirsen in the United States, Sarepta needed approval from the FDA. The approval process requires a sponsor like Sarepta to prepare and submit a new drug application ("NDA" or "application"). See 21 U.S.C. § 355(a). When the FDA receives an NDA, it "ma[kes] a threshold determination [whether] the NDA is sufficiently complete to permit a substantive review." 21 C.F.R. § 314.101(a)(1). If so, the FDA accepts the application for filing. Id. The agency then assesses the merits of the application, deciding whether to approve the drug. Id. § 314.101(f). Approval generally requires the application's sponsor to demonstrate the drug's clinical benefit. See 21 U.S.C. § 355(d). In certain instances, though, an accelerated approval program permits the FDA to review and approve "a product for a serious or life-threatening disease or condition . . . upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit." Id. § 356(c)(1)(A). For example, even if a sponsor has not yet shown that a drug reduces the occurrence of stroke, the FDA might fast-track the drug upon a showing that it has a measurable effect on blood pressure. See U.S. Food & Drug Admin., FDA Facts: Biomarkers and Surrogate Endpoints, innovation/ucm512503.htm (last updated July 22, 2016).

         Sarepta set its sights on accelerated FDA approval for eteplirsen, developing and conducting a series of clinical trials to investigate the drug's effect on two endpoints: (1) the percentage change in dystrophin-positive fibers in the patient's muscle, and (2) the distance the patient was able to walk in six minutes. The clinical trials most relevant to this litigation are Sarepta's Phase IIb clinical trials, Study 201 and Study 202. Study 201 enrolled twelve boys in a randomized, double-blind, placebo-controlled trial. Four boys received a placebo, another four received a lower dose of eteplirsen, and four more received a higher dose of the drug. After twenty-four weeks, Study 202 commenced. In this open-label extension, which was neither blind nor placebo-controlled, all twelve participants received the drug in one dosage or the other.

         Pointing to the results of these trials, in March 2013, Sarepta informed investors that it would move toward filing an NDA. To that end, Sarepta met with FDA officials that month. During the meeting, the FDA expressed serious concerns regarding the way Sarepta proposed to analyze the results from the Phase IIb trials, cautioning that "the proposed analysis was unreasonable even for hypothesis generation." Sarepta relayed certain information about this meeting to analysts and investors during an April 15, 2013 conference call led by Chris Garabedian, President and Chief Executive Officer of Sarepta at the time, and Edward Kaye, then the company's Senior Vice President and Chief Medical Officer. Garabedian explained that the FDA had "not made a final decision"--and that it was "still too early to draw conclusions" about the FDA's stance--regarding Sarepta's proposed dystrophin endpoint for accelerated approval. He nonetheless conveyed optimism and a sense of positive momentum on this call, stating that the FDA was "approaching the question of [d]ystrophin as a surrogate that is reasonably likely to predict clinical benefit in the thoughtful manner we expected and is requesting more information." Garabedian struck a similar tone at a conference presentation on July 10, 2013.

         Approximately two weeks later, on July 23, 2013, Sarepta again met with the FDA regarding eteplirsen. By this time, the FDA had reviewed additional information from Sarepta about its data. The agency told Sarepta at the July meeting that it was "open to considering an NDA based on these data for filing, " subject to a number of conditions. Sarepta quoted that language in a press release it issued the following day, which also stated that Sarepta planned to submit an NDA "in the first half of 2014 for the approval of eteplirsen." The press release went on to say that the FDA "requested additional information related to the methodology and verification of dystrophin quantification, " and that the company believed it could address and incorporate the requests into its early 2014 submission. In calls with analysts, investors, and business reporters, Garabedian communicated "excite[ment], " stating that the company was "very encouraged by the FDA feedback" and hopeful that the agency "would accept [an NDA] for filing." He emphasized Sarepta's "belie[f] that dystrophin is a viable surrogate marker, " characterizing the company's dystrophin analysis as "robust."

         Notwithstanding Garabedian's sanguinity, the company cautioned in its communications that the exact timing of the NDA submission was unknown, that the agency did not yet endorse the dystrophin surrogate endpoint under the accelerated approval pathway, and that in any event "[a] filing would only indicate that the question [of the propriety of Sarepta's dystrophin surrogate endpoint] merits review." Investors apparently paid more attention to those caveats than to the news that the FDA was open to considering an NDA based on Sarepta's Phase IIb trial data, as Sarepta's stock price dropped nineteen percent on July 24 from its closing price the day before. Nevertheless, as we will describe in greater detail, the plaintiffs contend that Sarepta's July 24 communications were misleadingly rosy and selectively ...

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