Sneed Jr. v. AcelRx Pharmaceuticals, Inc.
- Beth Freeman
- 5:21-cv-04353
- U.S. District Court · Northern District of California
- 23
In Sneed Jr. v. AcelRx, Judge Freeman granted dismissal of securities claims, allowing amendment of Claims 1 and 3 but not Claim 2.
The order affected Aaron Sneed Jr., Yaacov Musry, and the proposed class of AcelRx security purchasers; AcelRx Pharmaceuticals, Inc., Vincent J. Angotti, Raffi Asadorian, and Pamela Palmer; and the three asserted securities claims. Claims 1 and 3 could be amended, while Claim 2 could not.
What happened
In Sneed Jr. v. AcelRx Pharmaceuticals, Inc., investors claimed that AcelRx and three executives misled investors about the marketing and risks of DSUVIA, an opioid painkiller. They relied partly on an FDA warning about promotional materials for the drug.
The court dismissed all three claims under the federal securities laws. It allowed the investors to amend the claim based on misleading statements and the claim against executives who allegedly controlled the company, but it did not allow them to amend the claim alleging a deceptive marketing scheme.
Judge Beth Labson Freeman gave the plaintiffs 60 days to file another complaint if they could correct the identified problems, and required a chart and redlined version of that filing.
The detailed version
- Sneed Jr. v. AcelRx Pharmaceuticals, Inc. · No. 5:21-cv-04353
- Beth Freeman
- July 7, 2023
Background
Aaron Sneed Jr. and Yaacov Musry were appointed co-lead plaintiffs in 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 proposed class covered people who purchased or otherwise acquired AcelRx securities between March 20, 2019, and February 12, 2021.
The case concerned DSUVIA, an opioid painkiller approved by the Food and Drug Administration (FDA) in November 2018. The FDA also approved a Risk Evaluation and Mitigation Strategy, a drug-safety program known as a REMS. On February 11, 2021, the FDA issued AcelRx a warning letter stating that a banner advertisement and tabletop display made false or misleading claims about DSUVIA’s risks and effectiveness. After AcelRx publicly disclosed the letter, the stock price fell by $0.21 per share, or 8.37 percent.
The plaintiffs asserted three claims under the Securities Exchange Act of 1934: a claim under Section 10(b) and Rule 10b-5(b) based on allegedly false or misleading statements; a claim under Rule 10b-5(a) and (c) based on an alleged deceptive scheme; and a claim under Section 20(a) against Angotti, Asadorian, and Palmer as alleged controlling persons.
Court’s analysis
The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing that the complaint did not adequately plead the required elements. Securities-fraud complaints also must satisfy heightened requirements under Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act, including particularized allegations showing why each statement was misleading and facts creating a strong inference of intent to deceive or deliberate recklessness, known as scienter.
The court held that the plaintiffs adequately identified potentially misleading statements concerning DSUVIA’s use and administration for purposes of the motion to dismiss, including the “Tongue and Done” advertisements and a statement by Angotti. But it held that the plaintiffs had not adequately pleaded scienter. The allegations showed awareness of the marketing materials and FDA regulation, but did not create a strong inference that the defendants intended to deceive investors or acted with deliberate recklessness.
The court found that the plaintiffs had not adequately pleaded falsity for the other categories of statements, including risk factors, Palmer’s earnings-call statement, statements about sales and marketing efforts, certifications and controls under the Sarbanes-Oxley Act, forward-looking statements, and a statement that the DSUVIA launch was “progressing well.” The court characterized the last statement as nonactionable corporate optimism, or “puffery.”
The court also rejected the Rule 10b-5(a) and (c) scheme-liability claim. It found no allegations showing that the defendants intended to defraud investors about DSUVIA’s market size, inflated sales figures or market size, or engaged in the kinds of deceptive conduct described in the cases cited by the plaintiffs. Because the plaintiffs had not adequately alleged a Section 10(b) violation, the Section 20(a) controlling-person claim also failed.
The court granted the defendants’ request for judicial notice, while clarifying that it noticed the existence of certain public documents and incorporated materials, not the truth of factual assertions in those documents.
Disposition
The court granted the motion to dismiss the Rule 10b-5(b) claim with leave to amend. It granted the motion to dismiss the Rule 10b-5(a) and (c) scheme-liability claim without leave to amend. It granted the motion to dismiss the Section 20(a) claim against Angotti, Asadorian, and Palmer with leave to amend.
Overall, the court granted Defendants’ motion to dismiss the Second Amended Complaint with leave to amend all claims except Claim 2. The plaintiffs were allowed 60 days to file a third amended complaint if they could correct the identified defects. They could not add parties or claims without the court’s permission and had to include a chart identifying each allegedly false or misleading statement and provide a redlined comparison with the Second Amended Complaint.
Judge Beth Labson Freeman signed the order on July 7, 2023.
Read the full 23-page opinion on CourtListener, the free public archive maintained by the Free Law Project.