Dougherty v. Esperion Therapeutics, Inc., 905 F.3d 971 (6th Cir. 2018)

A recent Sixth Circuit opinion demonstrates the critical importance of accurately describing interactions with the FDA when making statements on that topic.

In Dougherty v. Esperion Therapeutics, Inc., the Sixth Circuit held that plaintiffs adequately pleaded the scienter element (i.e., fraudulent intent) of their securities fraud claims against Esperion, a clinical stage pharmaceutical corporation, and its CEO, and reversed the district court’s order granting a motion to dismiss.

The case arose out of a disclosure by Esperion in September 2015 that the FDA had encouraged the Company to promptly initiate a cardiovascular outcomes trial in connection with obtaining approval of its drug candidate, intended to lower cholesterol, which plaintiffs alleged cause Esperion’s stock price to drop by 48%.

Plaintiffs pleaded that, in an August 2015 press release, Esperion had announced that, in a meeting to discuss the results of initial clinical trials of the drug candidate, the FDA had indicated that the drug candidate had a clear path to agency approval without the need for a cardiovascular study.  In a follow up conference call with market analysts, Esperion’s CEO allegedly restated that assertion.

Reversing the district court’s dismissal of the case, the Sixth Circuit found that plaintiffs had sufficiently pleaded that the August 2015 statements were knowingly or recklessly false, and thus could support an allegation of scienter under the federal securities laws. In support of its finding that the plaintiffs had adequately alleged actual knowledge of falsity, the Court found it implausible that FDA minutes, cited by plaintiffs, did not accurately reflect the contents of the FDA meeting with Esperion.  If that were the case, the Court noted, Esperion could have pursued an available dispute resolution procedure to challenge the contents of the minutes. The Court also considered Esperion’s suggestion its executives had left the FDA meeting with a “different impression” or a misunderstanding of what the FDA told them and subsequently passed on that incorrect impression to its investors.  Rather than cast doubt on its knowledge of the August statement’s falsity, the Court found that this argument cut against defendants.  Such conduct, according to the Court, would be “highly unreasonable” due to the high stakes for a company, which the Court found was wholly dependent entirely upon the success of the drug candidate at issue.

In addition, the Court rejected Esperion’s argument that the August 2015 press release fell within the Private Securities Litigation Reform Act (“PSLRA”) safe-harbor provision protecting forward-looking statements.  Adopting a test formulated by the Eighth Circuit, the Court noted that the critical inquiry to determining whether a statement is forward-looking is “whether [the statement’s] veracity can be determined at the time the statement is made.”  Because in August 2015 Esperion allegedly knew what statements the FDA had made in the meeting, the truth or falsity of the press release summarizing those statements was found to be discernable at the time made.  The Court further found that the press release statements were “separable statements of fact,” not assumptions. Thus, the statements fell outside the PSLRA’s safe harbor for forward-looking statements based on assumptions.

The case demonstrates that, in describing interactions with the FDA—particularly regarding facts that would be important to investors because they bear on a drug’s ultimate path to approval and commercialization—companies must exercise the utmost caution.  Moreover, to the extent that a company’s executives disagree with the FDA’s minutes of meetings they attend, they should promptly avail themselves of applicable dispute resolutions procedures.  Otherwise, they risk being held to the FDA’s description of the contents of such meetings, which could prove problematic if disclosures regarding such meetings are challenged by investors in the future.  Finally, while the PSLRA safe-harbor can be a useful tool in insulating forward-looking statements from liability, there are limits to that doctrine that must be carefully considered.