Shanawaz v. Intellipharmaceutics Int’l Inc., No. 17-CV-5761 (JPO), 2018 WL 6605426 (S.D.N.Y. Dec. 17, 2018)
On December 17, 2018, Judge J. Paul Oetken of the Southern District of New York partially denied defendants’ motion to dismiss a putative shareholder class action concerning development of an OxyContin alternative, but dismissed claims based on defendants’ non-actionable opinions.
The case, Shanawaz v. Intellipharmaceutics Int’l Inc., arose out of the disclosure by Intellipharmaceutics International Inc. that an FDA committee had found that the Company had not demonstrated that its drug candidate, Rexista, had properties that could be expected to deter abuse, and that there was not sufficient data to support inclusion of language regarding abuse-deterrent properties on the product label for the drug.
Plaintiffs brought a securities fraud claim asserting three categories of misrepresentations stemming from statements made by Intellipharmaceutics and two of its executives. Specifically, the plaintiffs alleged that defendants misrepresented (1) the content and scope of studies included in the New Drug Application (“NDA”) submitted to the FDA for Rexista; (2) studies demonstrating Rexista’s bioequivalence to OxyContin; and (3) Rexista’s oral and nasal abuse-deterrent properties.
The district court denied defendants’ motion to dismiss the claim they had misrepresented the contents of the Rexista NDA, finding that the defendants’ statements regarding the NDA were adequately alleged to be demonstrably false. Specifically, Plaintiffs alleged that after submission to the FDA, defendants publicly represented that the NDA included studies it did not in fact contain.
The Court granted defendants’ motion to dismiss, however, relating to the other two challenged statements. With respect to the statements about Rexista’s bioequivalence to OxyContin, the Court found that plaintiffs merely disputed the interpretation of study results, and that defendants’ statements were supported by meaningful scientific data, which meant that the statements were not alleged to be false or misleading within the meaning of the securities laws.
Similarly, the Court found that defendants’ broad and general statements regarding Rexista’s abuse-deterrent features for oral and nasal abuse were opinions and not actionable. In the statements highlighted by plaintiffs, the Company had described generally that Rexista had a number of features to deter abuse. Citing Tongue v. Sanofi, 816, F.3d 199, 214 (2d Cir. 2016), the Court held that both claims were nothing more than “a dispute about the proper interpretation of data” and thus not a basis for liability.
The Court’s decision demonstrates that while there is a high-bar in the Second Circuit, and under federal law generally, for adequately pleading misrepresentation with respect to statements concerning clinical drug development, companies must be cautious where there are facts available that may suggest a disclosure is demonstrably false. However, the decision is also a reminder that courts should (and will) distinguish between actionable statements of fact and inactionable statements of opinion, and that disputes about the proper interpretation of data should not be deemed actionable under the federal securities laws.