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Kader v. Sarepta Therapeutics, Inc.

United States Court of Appeals, First Circuit

April 4, 2018

WILLIAM KADER, individually and on behalf of all others similarly situated; MORAD GHODOOSHIM; ROGER LAM; LAXMIKANT CHUDASAMA, Plaintiffs, Appellants,


          Kara M. Wolke, with whom Robert V. Prongay, Jonathan M. Rotter, Glancy Prongay & Murray LLP, Jason M. Leviton and Block & Leviton LLP were on brief, for appellants.

          Christopher G. Green, with whom Mark D. Vaughn, Christopher C. Boots, Cassandra A. LaRussa and Ropes & Gray LLP were on brief, for appellees.

          Before Torruella, Kayatta, and Barron, Circuit Judges.

          TORRUELLA, Circuit Judge.

         Plaintiff William Kader and Lead Plaintiffs Morad Ghodooshim, Roger Lam, and Laxmikant Chudasama (collectively, the "Plaintiffs") sought to represent a class of purchasers of securities that Sarepta Therapeutics, Inc. ("Sarepta") issued between April 21, 2014, and October 27, 2014 (the "Class Period"). The Plaintiffs brought securities fraud claims against Sarepta, Sarepta's Chief Executive Officer, Christopher Garabedian ("Garabedian"), and Sarepta's Chief Scientific Officer, Edward M. Kaye ("Kaye") (collectively, the "Defendants"). According to the Plaintiffs, the Defendants knowingly or recklessly misled investors about their target date for submitting an application to the United States Food and Drug Administration ("FDA") for approval of the drug eteplirsen. The district court dismissed the Plaintiffs' First Amended Complaint ("FAC") for failure to state a claim, and then denied them leave to file their Proposed Second Amended Complaint ("PSAC"). We hold that the district court did not err in dismissing the FAC or in denying Plaintiffs leave to file the PSAC.

         I. BACKGROUND

         A. The FDA's drug-approval process

         Before we immerse ourselves in the details of this case, it is useful to give a brief overview of the process through which the FDA reviews and approves drugs. That process begins when the sponsor of a new drug submits a New Drug Application ("NDA") to the FDA. See 21 U.S.C. § 355(a)-(b); Corban v. Sarepta Therapeutics, Inc., 868 F.3d 31, 34 (1st Cir. 2017) (outlining the FDA's approval process). The FDA then makes the "threshold determination" as to 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" and then proceeds to "assess[] the merits of the application, deciding whether to approve the drug." Corban, 868 F.3d at 34 (citing 21 C.F.R. § 314.101(a)(1), (f)). "Approval generally requires the application's sponsor to demonstrate the drug's clinical benefit." Id. (citing 21 U.S.C. § 355(d)).

         Sponsors of certain drugs may avail themselves of various FDA programs that expedite the review process. These programs aim to facilitate the availability of critical therapies for serious, unmet medical needs. For example, upon a sponsor's showing of adequate preclinical data, the FDA may grant a drug "Fast Track" status. See 21 U.S.C. § 356(b). Among other benefits, the sponsors of "Fast Tracked" drugs may interact more frequently with the FDA to discuss "the drug's development plan and ensure collection of appropriate data needed to support drug approval." U.S. Food & Drug Admin., Fast Track, https:// (last updated Jan. 4, 2018).

         Fast Tracked drugs may also be eligible for "Accelerated Approval." Id. The FDA approves drugs in the Accelerated Approval program upon meeting a "surrogate endpoint" or "clinical endpoint" that is "reasonably likely" to predict the drug's clinical benefit. 21 U.S.C. § 356(c). "For example, instead of having to wait to learn if a drug actually extends survival for cancer patients, the FDA may approve a drug based on evidence that the drug shrinks tumors, because tumor shrinkage is considered reasonably likely to predict a real clinical benefit." U.S. Food & Drug Admin., Accelerated Approval, ForPatients/Approvals/Fast/ucm405447.htm (last updated Jan. 4, 2018). This is particularly useful in the case of drugs intended to treat diseases with longer courses, when measuring the drug's clinical benefit would otherwise require an extended period of time. In such cases, the drug's effect on the surrogate or clinical endpoint may be observable much sooner, allowing the FDA to determine the drug's efficacy at an earlier juncture.

         Crucially, once the FDA has approved a drug, the drug's sponsor may begin to market it.

          B. The facts underlying this case

         Except when we indicate otherwise, we draw the following facts from the FAC.


         Duchenne Muscular Dystrophy ("DMD") is a rare genetic neuromuscular disorder that primarily affects boys and young men. As the result of inadequate production of the protein dystrophin, individuals with DMD suffer from progressive muscle loss causing severe disability and premature death. The average life expectancy for someone diagnosed with DMD is 27 years. During the Class Period, no approved disease-modifying therapies for DMD existed. Sarepta, however, was developing drug candidates to treat DMD, including eteplirsen, the drug around which this case revolves. See Corban, 868 F.3d at 34-37 (describing, in the context of a case involving a different class period, Sarepta's development of eteplirsen). During the Class Period, Sarepta's main competitor, Prosensa Therapeutics, Inc., was also developing and seeking approval of a drug candidate to treat DMD. The first company to obtain approval of its drug and succeed in bringing it to market would obtain the "first mover advantage." In pharmaceutical markets, the "first mover" gains a considerable advantage because doctors will quickly prescribe the first available drug of a new type, and are unlikely to switch to prescribing a different drug of the same type that subsequently becomes available.

         The FDA granted eteplirsen Fast Track status in 2007. In 2011, Sarepta began conducting the clinical trials at the center of this case. Study 201, designed as a randomized, double-blind, placebo-controlled study involving 12 participants, sought to assess the effects of "eteplirsen administered intravenously in two different doses over 24 weeks for the treatment of ambulant boys with DMD." The study's participants all underwent muscle biopsies at the study's outset and conclusion to determine if the amount of dystrophin in their muscle tissue had changed over time -- a potential surrogate endpoint by which to assess eteplirsen's efficacy. Study 201's results showed that "treatment with eteplirsen met the primary efficacy endpoint in the study." Following these encouraging results, Sarepta began "Study 202, " in which the same participants received varying dosages of eteplirsen for an additional 24 weeks. All of the muscle biopsy dystrophin analysis for both of these studies took place at a single location -- Nationwide Children's Hospital in Columbus, Ohio -- with one doctor overseeing the entirety of the clinical review. Because this analysis requires staining muscle samples with a dye that makes dystrophin visible, and then viewing and analyzing those samples in slides, the Plaintiffs aver that it is "inherently subjective."


         On April 21, 2014 -- the first day of the Class Period -- Sarepta issued a press release discussing the possibility of submitting an NDA for eteplirsen by the year's end. According to the press release, that goal was "based on a guidance letter from the [FDA] that proposed a strategy regarding the submission of an NDA for eteplirsen under a potential Accelerated Approval pathway." The press release quoted the FDA's guidance letter, which explained that "with additional data to support the efficacy and safety of eteplirsen for the treatment of DMD, an NDA should be fileable." The press release also explained that the FDA's letter "outlined examples of additional data and analysis that, if positive, will be important to enhance the acceptability of an NDA filing by addressing areas of ongoing concern in the existing dataset." In addition, the release noted that the FDA had "expressed concerns about methodological problems in the assessments of dystrophin and, 'remain[s] skeptical about the persuasiveness of the (dystrophin) data.'" According to the press release, the FDA had stated that, as a result, it was "uncertain whether the existing dystrophin biomarker data will be persuasive enough to serve as a surrogate endpoint that is reasonably likely to predict clinical benefit."

         That same day, Sarepta held a conference call with investors and analysts to discuss its announcement. Per the guidance letter, Garabedian explained that with "additional data and analysis, " Sarepta would be able to "pursue an NDA filing that we will plan to submit by the end of this year, for a potential early approval of eteplirsen sometime in 2015." But, he cautioned, "the guidance letter described the FDA's reservations that the existing data set may not be sufficient to support an NDA filing, or be compelling enough for a favorable review." Garabedian further offered that "[w]e could submit our NDA now on the existing data set, but the FDA has highlighted questions and concerns, " for which reason "we are going to be in a much better position if we just wait for some of these additional pieces of data."

         Following this announcement, Sarepta shares increased in value by 39.26% on unusually heavy trading volume, closing on April 21, 2014 at $33.98 per share. The following day, Sarepta announced that it planned to offer up to $100 million of its common stock in a public offering. Then, on April 29, it sold 2, 650, 000 shares of common stock in a public offering at a price of $38.00 per share, resulting in net proceeds of approximately $94.5 million.

         On May 7, 2014, Garabedian participated in another conference call with analysts. During that call, he characterized the FDA's guidance letter as communicating to Sarepta, in paraphrased terms:

[W]e're not telling you you can't submit an NDA tomorrow on the existing data set . . . . But we're telling you that we've raised enough concerns on the existing data set that you would bolster your case for an NDA filing and potentially a favorable review if you allow us to do a more detailed review of your dystrophin methodology [and if you supplement the data set].

         In short, Sarepta expressly disclosed that the FDA wanted to do a more detailed review of the study's methodology, and get more data, and that Sarepta's chances of success for an NDA filing would be affected by whether it allowed the FDA to do so. Additionally, during the same month, the FDA also visited Nationwide Children's Hospital -- where Study 201/202 took place -- to review the clinical trial site and protocols in place there.

         Then, on July 29, 2014, the FDA requested that "independent pathologists at independent labs" review Sarepta's primary dystrophin endpoint. Sarepta did not disclose this request to the public during the class period. On the same day, the director of the FDA's Center for Drug Evaluation and Research ("CDER") responded via a statement on the White House's website to a petition urging the FDA to "say YES to Accelerated Approval for safe, effective therapies for children with ...

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