Aramic LLC v. Revance Therapeutics, Inc.

Background

Aramic LLC and Tang Family Investor Group alleged that they were stockholders of Revance Therapeutics, Inc., a biotechnology company developing and selling skin-treatment drugs. They sought to represent purchasers of Revance stock during a class period from August 5, 2021, through October 15, 2021.

The case concerned the Food and Drug Administration’s review of DaxibotulinumtoxinA, known as DAXI. During the review, the agency inspected Revance’s manufacturing facility and issued a Form 483 identifying five inspectional observations. Revance responded and later announced that it anticipated DAXI approval in 2021. On October 15, 2021, the agency issued a Complete Response Letter denying Revance’s application. Revance later resubmitted the application, and the agency approved DAXI in September 2022.

The plaintiffs alleged that statements made by Revance and individual defendants Mark Foley, Tobin Schilke, and Abhay Joshi about the timing and likelihood of FDA approval were false or misleading. They brought claims under Sections 10(b) and 20(a) of the Securities Exchange Act. After the court dismissed the first amended complaint with leave to amend, the plaintiffs filed a second amended complaint.

Motion to Strike

The defendants moved to strike a declaration by Suzanne Sensabaugh that the plaintiffs attached to the second amended complaint. Federal Rule of Civil Procedure 10(c) allows a pleading to include a copy of a written instrument, but the court explained that an expert affidavit or declaration generally is evidentiary material rather than a written instrument.

The court found that the Sensabaugh Declaration was prepared for submission with the second amended complaint, was not the basis of the complaint, and was referenced only once as support for an allegation about FDA guidance. The court therefore granted the defendants’ motion to strike the declaration as an exhibit.

Motion to Dismiss

The defendants moved under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not adequately state a claim. Because the plaintiffs alleged securities fraud, they also had to satisfy heightened pleading requirements under Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act.

The court focused on scienter, meaning an intent to deceive, manipulate, or defraud, or deliberate recklessness. The plaintiffs had added allegations based on the Sensabaugh Declaration and information from a confidential witness identified as CW2. Because the declaration was stricken, the court did not consider allegations based on its contents.

The court found that CW2’s account did not establish the required strong inference of scienter. The allegations that Revance executives went into “crisis” after the Form 483 became public did not, without more, show that the defendants intentionally concealed information or acted with an extreme departure from ordinary care. The court also found insufficient the allegations that DAXI was a top or key asset, the defendants’ participation in company meetings, and their signing of certifications under the Sarbanes-Oxley Act. Those allegations did not provide the specific information needed to show that the defendants knew their statements were false or were deliberately reckless about their truth.

Considering the allegations together, the court concluded that an innocent explanation was at least as compelling: the defendants may have believed that the FDA-related issues had been or would be remedied and that DAXI would ultimately be approved. The later approval of DAXI made that alternative explanation more compelling, according to the court.

Because the plaintiffs failed to adequately plead scienter, the court dismissed the Section 10(b) claim. The court held that the Section 20(a) claim also failed because that claim required an underlying securities-law violation. The court did not decide whether the challenged statements would have been actionable if scienter had been adequately pleaded.

Other Rulings and Disposition

The court took judicial notice of several documents incorporated into the complaint or otherwise appropriate for judicial notice, including certain press releases, Securities and Exchange Commission filings, transcripts, FDA-submitted documents, and an FDA guidance document. The court did not take judicial notice of two other exhibits because they were only referenced in passing and did not form the basis of the plaintiffs’ claims.

The court also found that the plaintiffs had introduced a new theory of liability based on agency and respondeat superior principles without the required consent or court permission. The court did not need to resolve that issue to dismiss the claims.

The court found that further amendment would be futile because the plaintiffs did not identify specific additional facts they would add to another complaint. It therefore granted the defendants’ motion to strike the Sensabaugh Declaration and granted the defendants’ motion to dismiss without leave to amend.