In re: Ocular Therapeutix, Inc. Sec. Litig. 2019 WL 1950399 (D. Mass. Apr. 30, 2019)

Judge George O’Toole of the U.S. District Court for the District of Massachusetts dismissed a putative securities class action complaint filed against a biopharmaceutical company, Ocular Therapeutix, Inc., and certain of its officers, holding that plaintiffs failed to adequately allege an actionable misstatement or omission concerning manufacturing issues related to an eye pain reliever drug.

As part of its review of Ocular’s New Drug Application (“NDA”), the FDA sent formal letters to the Company regarding concerns about manufacturing of its eye pain reliever drug, Dextenza. The FDA ultimately rejected the Dextenza NDA twice.  Plaintiffs filed suit, alleging that the manufacturing issues raised by the FDA rendered certain statements by Ocular to be false, and that the disclosure of the FDA’s concerns caused Ocular’s stock to fall on multiple occasions: first, by over 14% when the Company announced the FDA had raised concerns; then by over 16% when the Company subsequently announced it had received a Form 483 from the FDA concerning manufacturing issues with the drug; and finally, by over 30% when certain articles were published concerning those manufacturing issues.

On a motion to dismiss, the Court rejected plaintiffs argument that a statement in Ocular’s Form 10-K that it uses “current good manufacturing practices, or cGMP” at its facilities was false or misleading. Analogizing this statement to one alerting investors that financial statements were prepared in accordance with generally accepted accounting practices, the Court found that Ocular’s “cGMP” statement was too general to rise to the level of a materially false or misleading statement.  According to the Court, the statement was not a “warranty that there have never been any instances of deviation from the [cGMP] standards.” The Court further found that Ocular’s prompt and adequate disclosure of the FDA’s concerns was sufficient to contextualize the Company’s manufacturing practices for an investor who interpreted the general statement regarding the Company’s manufacturing as an assurance of no deviation.

The Court also held that a statement by Ocular’s CEO’s, made after the FDA’s first rejection of the company’s NDA, was a nonactionable opinion.  In particular, on an earnings call, the CEO stated “we’ve adequately we think addressed the issues that [the FDA] raised.”  The Court held that because the CEO prefaced the statement with “we think,” it was one of opinion. The Court further held that plaintiffs failed to adequately allege that the CEO did not believe the statement at the time or that he omitted facts that would have led an investor to doubt its reliability.  Thus, the statement did not constitute an actionable securities law violation.

In addition, the Court found Ocular’s statements regarding a subsequent FDA letter outlining concerns about the company’s second NDA for Dextenza were forward-looking statements that were accompanied by appropriate cautionary language. The company told investors that it “expect[ed]” to resolve concerns raised by the FDA in a “timely manner.”  The Court held those statements were protected by a safe-harbor in the securities laws for forward-looking statements accompanied by cautionary language, which, in this case, included warnings specific to the NDA’s dependence on addressing the FDA’s concerns.

Finally, the Court found that plaintiffs failed to allege that Ocular and its executives acted with scienter (i.e., fraudulent intent).  While plaintiffs alleged that the executives knew about the FDA communications at issue, the Court noted that they had disclosed those communications.  Moreover, the fact that the company received an SEC subpoena indicating that the SEC was investigating Ocular’s practices relating to Dextenza after the statements at issue had been made “proves nothing about scienter at the time of the statements.”