Aramic LLC v. Revance Therapeutics, Inc.

Background

Aramic LLC and Tang Family Investor Group were stockholders of Revance Therapeutics, Inc. They sought to represent purchasers of Revance stock between November 25, 2019, and October 11, 2021. The plaintiffs alleged that Revance, Mark Foley, Tobin Schilke, and Abhay Joshi made 29 false or misleading statements concerning the timing and likelihood of Food and Drug Administration approval for DAXI, a drug used to treat frown lines.

The plaintiffs alleged three general categories of misconduct: failing to disclose quality-control and manufacturing problems that made approval unlikely; making misleading statements about readiness for an FDA inspection and confidence in approval; and continuing to express confidence in approval after the FDA issued a Form 483 with five inspection observations. The plaintiffs asserted claims under Section 10(b) of the Securities Exchange Act and the related control-person claim under Section 20(a).

The FDA inspected Revance’s manufacturing facility in July 2021 and issued the Form 483. Revance responded, addressed some observations, and continued to anticipate approval in 2021. On October 15, 2021, the FDA issued a Complete Response Letter denying the DAXI application. Revance resubmitted the application in March 2022, and the FDA approved DAXI in September 2022.

Rule 12(b)(6) Standard and Judicial Notice

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not state a legally sufficient claim. The court generally accepted the complaint’s factual allegations as true and viewed them favorably to the plaintiffs, but applied the heightened pleading requirements for securities fraud under Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act.

The court took judicial notice of incorporated documents and certain publicly available materials, but did not assume the truth of disputed facts in those documents. It declined to take judicial notice of three exhibits that were not sufficiently incorporated into or relied on by the complaint, including Revance’s unredacted Form 483 response.

Forward-Looking Statements

The court held that Revance’s statements predicting FDA approval within particular time periods were forward-looking statements. Under the Private Securities Litigation Reform Act safe harbor, such statements generally are not actionable when accompanied by meaningful cautionary language, when immaterial, or when the plaintiff does not adequately allege that a natural person made the statement with actual knowledge that it was false or misleading.

The court found that statements made before the July 2021 inspection were accompanied by cautionary language warning of risks involving regulatory approval, inspection delays, and FDA observations. The plaintiffs argued that the warnings were boilerplate and did not identify the specific manufacturing risks later discussed in the Form 483. The court nevertheless concluded that the plaintiffs had not adequately alleged that the defendants knew, when they made the projections, that the projected approval timeline was impossible. It therefore dismissed the Section 10(b) claim concerning the anticipated approval timeline.

The court stated that the post-inspection statements presented a closer question because some statements discussed possible future FDA deficiencies without disclosing that the risks might already have occurred. The court concluded that certain statements about confidence in approval and preparedness could be actionable if scienter was adequately pleaded. It ultimately found that scienter was not adequately pleaded.

Corporate Optimism and Opinion Statements

The court held that several statements describing Revance’s year as “exciting,” “pivotal,” or “transformational,” and describing the BLA submission as a “monumental achievement” or “significant achievement,” were vague corporate optimism. These statements were not actionable because they were generalized expressions that a reasonable investor would not rely on as material factual representations.

The court also concluded that several pre-inspection statements expressing confidence in the BLA submission and readiness for inspection were not shown to be false when made. The alleged lack of a quality agreement was quickly remedied, and the plaintiffs did not adequately allege that the agreement was required when the earlier statements were made or that its absence materially reduced the likelihood of approval on the projected timeline.

The court treated some post-inspection statements about preparedness and confidence differently. It found that the FDA inspector’s explanation that Revance’s manufacturing changes were inconsistent with the submitted BLA could make statements made after the inspection misleading. Those statements could have proceeded if the plaintiffs had adequately alleged the required state of mind.

Individual Defendants

The court explained that an individual is liable for a misleading statement only if that individual made the statement, meaning that the person or entity had ultimate authority over it. The court stated that Joshi could potentially be liable for misleading statements in SEC filings that he signed. But, apart from those signed filings, the plaintiffs had not adequately alleged that Joshi or Schilke had ultimate authority over statements made during investor calls. The court allowed the plaintiffs to amend their allegations on that issue.

Scienter

Scienter means an intent to deceive, manipulate, or defraud, or deliberate recklessness. The Private Securities Litigation Reform Act requires particular facts creating a strong inference of scienter.

The plaintiffs relied on the defendants’ access to information about the FDA process and manufacturing problems, the core-operations doctrine, and financial motives to support scienter. The court found these allegations insufficient. Knowledge of manufacturing problems did not establish that the defendants believed FDA approval was unlikely or that the projected timeline was impossible. The court also found that general management awareness and routine financial motives did not create the required strong inference, particularly because the complaint did not allege that any individual defendant sold Revance stock during the class period.

Considering the allegations together, the court found that they did not establish fraudulent intent or deliberate recklessness as to any defendant. The court concluded that the more compelling inference was that Revance believed it could address the manufacturing problems and obtain approval, even though its expectations proved overly optimistic.

Disposition

The court dismissed the amended complaint with leave to amend because the plaintiffs had not adequately pleaded scienter. The court also held that the Section 20(a) claim failed because it requires an underlying securities-law violation and the plaintiffs had not adequately pleaded a Section 10(b) or Rule 10b-5 violation.

The court granted the defendants’ motion to dismiss with leave to amend. Any amended complaint had to be filed by May 1, 2024, and no additional parties or claims could be added without the court’s permission or the defendants’ stipulation.