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March 4 — France-based Sanofi Pharmaceuticals Inc. can't be held liable for making false and misleading statements about a multiple sclerosis drug while it was under review by the Food and Drug Administration, the U.S. Court of Appeals for the Second Circuit affirmed.
The decision is important because it is one of few federal appeals court decisions interpreting the U.S. Supreme Court's Omnicare decision on liability for statements of opinion.
No reasonable investor would have been misled by the Sanofi defendants' optimistic projections regarding the likelihood of FDA approval, Judge Barrington D. Parker concluded.
He said the plaintiffs failed to state a claim even under the high court's new Omnicare approach to allegations of materially misleading opinions.
In Omnicare Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund , the justices held that an issuer could be liable for the omission of material facts concerning the company's knowledge about a statement of opinion, if those facts conflicted “with what a reasonable investor would take from the statement itself.”
According to the plaintiffs, Sanofi, its predecessor company and three corporate executives made materially false or misleading statements regarding Lemtrada, designed to treat multiple sclerosis. Allegedly, while Lemtrada was undergoing Phase III clinical trials prior to FDA approval, Sanofi misled investors by not telling them that the FDA repeatedly had expressed concerns regarding Sanofi's use of single-blind, rather than double-blind studies in its clinical trials.
Although the FDA ultimately approved Lemtrada to treat MS, it didn't do so until well after the deadline had passed for certain milestones that entitled the holders of “contingent value rights”—CVRs—to cash payments. A little more than a year ago, the U.S. District Court for the Southern District of New York dismissed the plaintiffs' two related complaints, saying the challenged statements either were opinion statements of opinion or not materially misleading . It also said the plaintiffs didn't adequately allege scienter.
The appeals court affirmed. It said it wrote primarily to address the impact of Omnicare, decided after the lower court made its decision.
Among other specifics, the Second Circuit said that under Omnicare, an allegedly misleading opinion must be viewed in context, “and context is instructive here.”
It said the plaintiffs, being sophisticated investors, would fully expect that the defendants and the FDA “were engaged in a dialogue, as they were here, about the sufficiency of the various aspects of the clinical trials and that inherent in the nature of a dialogue are differing views.”
The fact that the dialogue was ongoing didn't preclude the defendants “from expressing optimism, even exceptional optimism, about the likelihood of drug approval.”
The plaintiffs were represented by Christopher L. Nelson, James M. Ficaro and Brett D. Stecker, Weiser Law Firm PC, Berwyn, Pa.; Daniella Quitt, Harwood Feffer LLP New York; and John B. Orenstein, Harry N. Niska, Ross Orenstein & Baudry LLC, Minneapolis.
The defendants were represented by John Neuwirth, Joshua S. Amsel, Caroline Hickey Zalka, and Justin D. D'Aloia, Weil Gotshal & Manges LLP, New York.
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To see the decision, go to http://www.bloomberglaw.com/public/document/In_re_Sanofi_Securities_Litiga_Docket_No_1500588_2d_Cir_Feb_23_20.
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