Mehta v. Ocular Therapeutix, Inc., 955 F.3d 194 (1st Cir. 2020)
On April 9, 2020, the First Circuit affirmed the dismissal of an action brought against a biopharmaceutical company, Ocular Therapeutix, Inc., and certain of its officers, regarding statements concerning the Company’s manufacturing processes. The Court held that plaintiffs failed to allege facts giving rise to a strong inference of scienter (i.e., fraudulent intent) and thus failed to adequately plead a securities law violation.
As discussed in a previous post on the district court’s ruling, the litigation arose out of a formal letter from the FDA as part of its review of Ocular’s New Drug Application regarding concerns about manufacturing of Ocular’s eye pain reliever drug, Dextenza. Plaintiffs alleged that the concerns outlined in the FDA’s letter rendered statements that Ocular uses “good manufacturing practice, or cGMP” false and misleading.
The First Circuit emphasized that Ocular made “informative disclosures about the nature and consequences of the” FDA letter, which included noting that “adequate resolution of . . . manufacturing deficiencies with the FDA is a prerequisite for the approval of the NDA for Dextenza.” Those fulsome disclosures, the First Circuit held, undercut any inference that defendants intentionally or recklessly misled investors by stating Ocular was using cGMP. Because the Court concluded plaintiffs failed to plead an inference of scienter, it did not address whether the allegedly misleading statements identified by plaintiffs constituted material misrepresentations.
The case demonstrates that while, in describing interactions with the FDA—particularly interactions that bear on a drug’s ultimate path to approval and commercialization—companies must exercise the utmost caution, pleading scienter in this context carries a heavy burden, and that the failure to meet that burden should result in dismissal.