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 First Amended Complaint alleged that Revance, Mark Foley, Tobin Schilke, and Abhay Joshi made 29 false or misleading statements about the timing and likelihood of Food and Drug Administration approval for DAXI.

The allegations concerned Revance’s biologics license application, the FDA’s July 2021 inspection, five inspection observations, issues involving working cell banks and manufacturing processes, the lack of a quality agreement with a third-party facility, and the FDA’s October 15, 2021 Complete Response Letter denying the application. Revance resubmitted the application on March 8, 2022, and the FDA approved DAXI in September 2022.

Plaintiffs asserted claims under Section 10(b) of the Securities Exchange Act and Section 20(a), which concerns controlling persons’ liability for an underlying securities-law violation. Defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing that the challenged statements were protected by the Private Securities Litigation Reform Act’s safe harbor for certain forward-looking statements, were vague corporate optimism or opinions, were not false or misleading, or were made without scienter. Scienter means an intent to deceive, manipulate, or defraud, or deliberate recklessness.

Judicial Notice

The court took judicial notice of documents incorporated into the complaint, including specified press releases, filings with the Securities and Exchange Commission, earnings-call and presentation transcripts, and an FDA guidance document. It did not assume the truth of disputed facts in those documents. The court declined to take judicial notice of three other exhibits because they did not form the basis of the claims. It also declined to treat Revance’s unredacted response to the FDA inspection observations as incorporated by reference.

Analysis

The court held that Revance’s statements predicting FDA approval within specified timelines were forward-looking statements. Statements made before the July 2021 inspection were accompanied by cautionary language about risks and uncertainties, including delays, inspection observations, and regulatory approval problems. The court concluded that those statements were protected by the safe harbor. Even for later statements where the adequacy of the cautionary language was a closer question, the court found that plaintiffs had not pleaded with the required particularity that defendants had actual knowledge that the projected approval timeline was false or misleading. The Section 10(b) claim based on the anticipated approval timeline was dismissed.

The court held that several statements describing the BLA filing or the company’s year as “monumental,” “exciting,” “pivotal,” or “transformational” were non-actionable corporate optimism. The court also found that pre-inspection statements expressing confidence in the BLA and readiness for inspection were not adequately alleged to be false when made. The lack of a quality agreement was quickly remedied, and plaintiffs did not 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 differently. It concluded that statements expressing confidence in readiness and approval after the FDA inspector explained that Revance’s manufacturing changes were inconsistent with the BLA could be actionable because Revance was aware of undisclosed facts that seriously undermined those statements. The court also concluded that saying the BLA “may” receive a response identifying deficiencies could be misleading after those risks may already have occurred. However, these statements still required an adequate showing of scienter.

The court found that plaintiffs had not pleaded scienter as to any defendant. Allegations that defendants had access to information, held meetings, or knew about manufacturing problems did not show that they believed FDA approval was unlikely or would be delayed. The court also found that the core-operations theory and general financial motives, including stock-based compensation, did not create the required strong inference of fraudulent intent. The absence of alleged stock sales by the individual defendants further weakened the proposed inference.

The court separately held that Joshi could potentially be liable for statements in Securities and Exchange Commission filings that he signed, because a signer may have ultimate authority over a statement. Plaintiffs had not adequately alleged that Joshi or Schilke had ultimate authority over oral statements made on investor calls, but the court allowed plaintiffs to amend their pleadings on that issue.

Disposition

The court dismissed the First Amended Complaint with leave to amend. Because plaintiffs failed to adequately plead a Section 10(b) or Rule 10b-5 violation, the Section 20(a) claim also failed. The court granted defendants’ motion to dismiss with leave to amend. Any amended complaint had to be filed by May 1, 2024. No additional parties or claims could be added without leave of court or defendants’ stipulation.