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Media Alerts - In re Sanofi Sec. Litig., AG Funds, L.P. v. Sanofi - Second Circuit
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March 5, 2016
  In re Sanofi Sec. Litig., AG Funds, L.P. v. Sanofi - Second Circuit
Headline: Second Circuit Holds Pharmaceutical Companies' Opinions About Drug's Likely FDA Approval Are Not Actionable Under New Federal Securities Laws Standards Laid Out By Supreme Court's Recent Omnicare Decision.

Area of Law: Securities Law

Issue(s) Presented: Whether the district court correctly dismissed plaintiffs' securities claims for failure to plead a material misstatement or omission under the standard recently articulated by the Supreme Court in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund.

Brief Summary: The defendants, pharmaceutical company Sanofi, along with its predecessor and three company executives, were sued for allegedly issuing materially false or misleading statements regarding the breakthrough drug, Lemtrada, designed to treat multiple sclerosis ("MS"). The consolidated plaintiffs, individual and corporate stockholders that invested and purchased contingent value rights ("CVRs"), were entitled to cash payouts upon achievement of certain "milestones" connected to the success of Lemtrada. One important milestone, that was not met, was obtaining U.S. Food and Drug Administration ("FDA") approval for Lemtrada by March 31, 2014. The plaintiffs alleged that because the defendants failed to disclose the FDA's concerned feedback regarding the use of only single-blind studies to test Lemtrada, the defendants misled investors as to the likelihood of meeting the "milestones," upon which the CVRs value partially depended, thereby artificially inflating the value of the CVRs. The plaintiffs argued defendants false or misleading statements violated several provisions of the Securities Exchange Act of 1934, the Securities Act of 1933, and state blue sky laws. The defendants moved to dismiss the consolidated complaints for failure to state a claim and the United States District Court for the Southern District of New York granted the defendants' motion.

On appeal, the Second Circuit affirmed, examining the allegations under the recent United States Supreme Court decision, Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, which refined the standard for analyzing whether a statement of opinion is materially misleading. Recognizing that the new U.S. Supreme Court precedent disturbed previous Second Circuit precedent, the Second Circuit still found that plaintiffs failed to allege that defendants made materially misleading statements of opinion and affirmed dismissal of plaintiffs' complaints for failure to state a claim.

To read the full opinion, please visit:

Extended Summary:
Lemtrada, a drug currently owned by the pharmaceutical company Sanofi, has long shown great potential as a treatment for victims of multiple sclerosis ("MS"). Lemtrada has a unique treatment cycle that requires only two annual treatment courses rather than traditional MS treatments which require a daily or weekly dosing regimen. In part, because of Lemtrada's unique treatment design, it was only clinically tested with a single¿blind study, rather than a double-blind study. During a single¿blind study, either the researcher or the patient does not know which drug was administered. By contrast, during a double¿blind study, neither the patient nor the researcher knows which drug was administered. At least as far back as 2002, when Lemtrada was then-owned by the pharmaceutical company Genzyme, the FDA expressed concern about the use of only single¿blind studies for the drug. However, the FDA also stated in various opinions that single-blind studies might be adequate to support approval for the drug if the effect is large.

In 2010 when Sanofi began to acquire Genzyme, the two companies could not agree on a value for Lemtrada. Sanofi ultimately issue contingent value rights ("CVRs") to Genzyme shareholders as part of the acquisition. The CVRs entitled investors and holders to cash payments upon the achievement of certain "milestones" connected to the success of Lemtrada, such as obtaining FDA approval for the drug by March 31, 2014. Following its acquisition of Genzyme, Sanofi continued to speak optimistically about, and make statements endorsing the effectiveness of, Lemtrada. However, the FDA rejected Lemtrada's initial application in 2013, and the value of the CVRs significantly decreased. The drug was ultimately approved by the FDA, but not until November, 2014, well after the "milestone" deadline. The plaintiffs, individuals and corporations that invested and purchased CVRs, subsequently sued for violations of §§ 10(b), 18, and 20(1) of the Securities Exchange Act of 1934, §§ 11 and 12 of the Securities Act of 1933 and state blue sky laws, alleging defendants' issued materially false or misleading statements or omissions regarding Lemtrada.

In its opinion, the Second Circuit affirmed the conclusions of the district court, and its dismissal of the plaintiffs' complaints for failure to state a claim. However, the Second Circuit wrote to principally examine the impact of the U.S. Supreme Court's recent intervening decision in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 135 S. Ct. 1318 (2015), which was decided after the district court rendered its decision and refined the Second Circuit's own standard for analyzing whether a statement of opinion is materially misleading under Fait v. Regions Financial Corp., 655 F.3d 105 (2d Cir. 2011). The new standard under Omnicare requires that opinions, though sincerely held and otherwise true as a matter of fact, may nonetheless be actionable if the speaker omits information whose omission makes the statement misleading to a reasonable investor. Under this new standard, the core inquiry is whether the omitted facts would conflict with what a reasonable investor would take from the statement itself.

Applying Omnicare to three specific groups of statements of opinion made by defendants, that the district court originally reviewed, the Second Circuit found that the plaintiffs still failed to allege that defendants made materially misleading statements of opinion. The first set of statements related to Sanofi's expectation that the FDA would approve Lemtrada before the "milestone" deadline. The second and third set of statements related to Sonofi's statements optimistically speaking about, and endorsing the effectiveness of, Lemtrada.

As to the first statement of opinion, the Second Circuit firstly found that defendant's optimism about the approval of Lemtrada was not in conflict with the FDA's concerned comments, which indeed indicated that Lemtrada could be approved if it demonstrated an extremely large effect. The record reflected that Lemtrada's treatment was, in fact, large. Secondly, the Second Circuit found Omnicare does not impose liability for a failure to disclose information that runs counter to an expressed opinion, and stated the defendants were not required to disclose all FDA information cutting against their studies.

As to the remaining statements, the Second Circuit found that generalized statements of subjective optimism do not convey facts about how the issuer has formed an opinion and are not actionable. The court reasoned that no reasonable investor would have inferred that the defendants' issued statements of confidence would suggest that the FDA had not engaged in industry¿standard dialogue about potential deficiencies in either the testing methodology or the drug itself. The Second Circuit concluded that, at bottom, there was an absence of plausible allegations showing a conflict between defendants' statements and the FDA's concerned feedback. Rather, the plaintiffs' allegations regarding defendants' opinions about the Lemtrada results were little more than an argument about the proper interpretation of data, something that the Second Circuit has rejected as a basis for liability. The Second Circuit thus affirmed the decision of the district court under the new standards of Omnicare, finding that not only does securities law not impose an obligation to disclose every piece of information in defendants' possession, but that the plaintiffs' in this case were sophisticated investors who could not claim they were misled by optimistic issued statements regarding the approval and launch of Lemtrada.

To read the full opinion, please visit:

Panel: Circuit Judges Parker, Lohier, and Carney

Argument Date: October 7, 2015

Date of Issued Opinion: March 4, 2016

Docket Number:
15¿588¿cv; 15¿623¿cv

Decided: Affirmed

Case Alert Author: Brad Landau

Counsel: Christopher L. Nelson (James M. Ficaro, Brett D. Stecker, on the brief), The Weiser Law Firm, P.C., Berwyn, PA, Daniella Quitt, Harwood Feffer LLP, New York, NY, on the brief, for Plaintiffs¿Appellants Gen. Partner Glenn Tongue, Deerhaven Capital Management; John B. Orenstein (Harry N. Niska, on the brief), Ross Orenstein & Baudry LLC, Minneapolis, MN, for Plaintiffs¿Appellants AG Funds, L.P. et al.; John Neuwirth (Joshua S. Amsel, Caroline Hickey Zalka, Justin D. D'Aloia, on the brief), Weil, Gotshal & Manges LLP, New York, NY, for Defendants¿Appellees.

Author of Opinion: Circuit Judge Parker

Case Alert Circuit Supervisor: Elyse Diamond Moskowitz

    Posted By: Elyse Diamond @ 03/05/2016 05:40 PM     2nd Circuit  

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