Sneed Jr. v. AcelRx Pharmaceuticals, Inc.

Background

Aaron Sneed Jr. filed a proposed securities class action against AcelRx Pharmaceuticals, Inc., Chief Executive Officer Vincent J. Angotti, Chief Financial Officer Raffi Asadorian, and Chief Health Officer Pamela Palmer. The amended complaint asserted four claims under the Securities Exchange Act of 1934 on behalf of people who purchased or acquired AcelRx securities between March 20, 2019, and February 12, 2021.

The case centered on DSUVIA, an opioid painkiller approved by the Food and Drug Administration. The FDA sent AcelRx a warning letter stating that two promotional materials made false or misleading claims about DSUVIA’s risks and effectiveness and violated the Federal Food, Drug, and Cosmetic Act. After AcelRx publicly disclosed the warning letter, its stock price fell by $0.21 per share, or 8.37 percent. Plaintiffs alleged that defendants made false or misleading statements about AcelRx’s business, operations, compliance policies, DSUVIA’s marketing, and regulatory risks. Plaintiffs also alleged that the individual defendants engaged in insider trading by selling stock after receiving the warning letter but before publicly disclosing it.

Judicial Notice and Incorporation by Reference

The court granted defendants’ request for judicial notice. It found that some documents were incorporated by reference into the amended complaint. For other publicly available documents, including filings, websites, press releases, transcripts, and analyst reports, the court took notice of the documents’ existence but not the truth of the facts asserted in them.

Rule 10b-5(b) Claim

The court held that the amended complaint did not adequately plead a material misrepresentation or omission. Plaintiffs identified statements concerning DSUVIA’s use and administration, launch efforts and future plans, risks, the drug’s risk-management program, and certifications in Securities and Exchange Commission filings. But the court found that many of the alleged misstatements were not sufficiently connected to the alleged misbranding violations. The fact that the FDA found violations did not, by itself, show that the challenged statements were false when made.

The court also found that plaintiffs failed to plead scienter, meaning facts showing that defendants acted intentionally or with deliberate recklessness. Plaintiffs relied on insider stock sales, defendants’ access to information, the importance of DSUVIA to AcelRx’s operations, signed certifications, and an alleged desire to sell shares at inflated prices. The court found these allegations insufficient, including because plaintiffs did not provide enough information about defendants’ prior trading patterns, the proportion of shares sold, or facts showing that defendants knew particular statements were false when made.

The court granted the motion to dismiss the Rule 10b-5(b) claim with leave to amend.

Rule 10b-5(a) and (c) Claims

The court rejected defendants’ argument that claims under Rule 10b-5(a) and (c) necessarily failed because they overlapped with the Rule 10b-5(b) claim. However, the court held that plaintiffs had not adequately pleaded either a theory based on disseminating false statements with intent to defraud or a traditional scheme-liability theory. Plaintiffs had not alleged with sufficient particularity that defendants schemed to overstate DSUVIA’s potential market or engaged in an insider-trading scheme.

The court granted the motion to dismiss the Rule 10b-5(a) and (c) claim with leave to amend.

Section 20(a) Claim

Section 20(a) allows liability against controlling persons for violations of Section 10(b). Because the court found that plaintiffs had not adequately alleged a Section 10(b) violation, it granted the motion to dismiss the Section 20(a) claim against Angotti, Asadorian, and Palmer with leave to amend.

Section 20A Claim

Section 20A prohibits trading while possessing material, nonpublic information. Because plaintiffs had not adequately alleged a Section 10(b) violation, the court granted the motion to dismiss the Section 20A claim against Angotti, Asadorian, and Palmer with leave to amend.

Order

Judge Beth Labson Freeman granted defendants’ motion to dismiss with leave to amend. Plaintiffs were ordered to file a second amended complaint, if they could correct the identified defects, within 60 days of the order. They could not add parties or claims without the court’s permission. The second amended complaint also had to include a numbered chart identifying each allegedly false or misleading statement, its source and date, where it appeared, evidence that it was false when made, and evidence of scienter. Plaintiffs also had to provide a redlined version comparing the new complaint with the prior amended complaint.