Litigation Team Prevails In Significant First Circuit Victory for Sarepta Therapeutics

Ropes & Gray secured another key victory for Sarepta Therapeutics, Inc. on April 4, 2018, when the U.S. Court of Appeals for the First Circuit affirmed the complete dismissal of a putative securities class action lawsuit brought against the company in a unanimous decision. In August 2017, the First Circuit previously affirmed the dismissal of a similar lawsuit against Sarepta that involved related allegations during a different class period.  Together, these suits presented damages exposure to Sarepta totaling over $1 billion.

Plaintiffs had alleged that Sarepta and its executives made false or misleading statements with scienter regarding the prospects for a controversial New Drug Application (NDA) for eteplirsen, Sarepta’s drug candidate to treat Duchenne Muscular Dystrophy, a rare and debilitating disease with no existing treatment.  Judge Allison D. Burroughs of the District of Massachusetts granted Sarepta’s motion to dismiss the case, also argued by the Ropes team.  Immediately following dismissal in April 2016, plaintiffs unsuccessfully sought leave to file an amended complaint based on an FDA document released several months prior.

A panel of First Circuit judges unanimously affirmed both of the district court’s decisions.

In its opinion, written by Judge Juan R. Torruella, the Court agreed with the arguments advanced by Ropes & Gray that plaintiffs’ First Amended Complaint failed to allege facts plausibly suggesting that Sarepta’s statements or omissions were materially false and misleading, and failed to allege facts necessary to create the strong inference of scienter required by the Private Securities and Litigation Reform Act (PSLRA).  The First Circuit explained that “when defendants do not divulge the details of interim ‘regulatory back-and-forth’ with the FDA, that alone cannot support an inference of scienter under the PSLRA when the defendants do provide warnings in broader terms.” The appeals court further ruled that the district court did not abuse its discretion in finding that plaintiffs’ Proposed Second Amended Complaint amounted to an improper “wait-and-see” pleading and denying leave to amend on the grounds of undue delay.

With this decision, the First Circuit makes clear that plaintiffs cannot transform conditional optimism expressed during ongoing regulatory dialogue, without more, into a securities fraud claim. The opinion further reinforces the significant barriers that securities plaintiffs face in bringing a viable claim against a drug maker in the context of the FDA’s iterative, ongoing “fast track” review process for novel drugs.

Judges William J. Kayatta and David J. Barron joined in the Court’s opinion.

The Boston-based Ropes & Gray team included litigation and enforcement associate Patrick Roath.