Sneed Jr. v. AcelRx Pharmaceuticals, Inc.

Background

AcelRx Pharmaceuticals, Inc., now known as Talphera, Inc., developed DSUVIA, an opioid painkiller approved by the Food and Drug Administration for sublingual administration. The drug was approved with a risk-management program intended to ensure that its benefits outweighed safety risks. In February 2021, the FDA warned AcelRx that a banner advertisement and tabletop display made false or misleading claims about DSUVIA’s risks and effectiveness. After AcelRx disclosed the warning letter, its stock price fell 8.37 percent, or $0.21 per share.

Aaron Sneed Jr. and other plaintiffs brought a putative securities class action against AcelRx, Vincent J. Angotti, and Pamela Palmer. Their Third Amended Complaint asserted two claims: a claim under Section 10(b) of the Securities Exchange Act and Rule 10b-5(b) against all defendants, and a claim under Section 20(a) against Angotti and Palmer. The plaintiffs alleged that the defendants’ public statements concealed improper marketing, the resulting risk of regulatory enforcement, and the defendants’ alleged disregard of those risks.

Motion to Dismiss Standard

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint adequately states a legally valid claim. Because the case alleged securities fraud, the complaint also had to satisfy heightened requirements under Rule 9(b) and the Private Securities Litigation Reform Act. Those rules required the plaintiffs to identify misleading statements with particularity and plead particular facts creating a strong inference that each defendant acted with intent to deceive or deliberate recklessness.

The court granted the defendants’ request for judicial notice. It considered certain documents as incorporated into the complaint, and took notice of other public records, filings, transcripts, press releases, and websites. The court emphasized that it took notice of the existence of the documents, not the truth of every fact asserted in them.

Section 10(b) and Rule 10b-5(b) Claim

The plaintiffs identified three allegedly misleading statements: Angotti’s description of DSUVIA’s administration at a March 2019 investor conference, the “Tongue and Done” tabletop display, and the “Tongue and Done” banner advertisement. They alleged that these statements omitted information about dosing, administration, and limitations on use.

The court treated falsity as a close question. It concluded that the context of Angotti’s presentation did not make the plaintiffs’ theory implausible at the pleading stage because the presentation did not clearly correct or explain the omitted information. The court also declined to reject the claims about the tabletop display and banner advertisement merely because they were marketing materials or because AcelRx had disclosed a general risk of an FDA warning letter. At this stage, the court accepted reasonable inferences in the plaintiffs’ favor.

The court nevertheless held that the plaintiffs failed to adequately plead scienter, meaning the required mental state of intent to deceive, manipulate, or defraud. The allegations from 12 former employees showed that Angotti and Palmer knew about, or approved, the “Tongue and Done” slogan and that AcelRx was aware of FDA regulation. But those facts did not strongly show that either defendant knew a particular statement was false or misleading when made.

The court also found insufficient the allegations that employees had criticized the slogan, that AcelRx generally viewed FDA warning letters as an acceptable risk, that Angotti wanted to expand DSUVIA’s market and demonstrate success to investors, and that the company was small or focused on one product. Considered together, the allegations did not create the strong inference of fraudulent intent or deliberate recklessness required by the securities laws.

The court therefore granted the motion to dismiss the Section 10(b) and Rule 10b-5(b) claim against all defendants.

Section 20(a) Claim

Section 20(a) can impose liability on controlling persons for an underlying Section 10(b) violation. Because the plaintiffs failed to adequately plead a Section 10(b) violation, the court granted the motion to dismiss the Section 20(a) claim against Angotti and Palmer.

Leave to Amend and Disposition

The plaintiffs had previously received opportunities to amend their complaint. The court found that they had repeatedly failed to cure the identified deficiencies and that the Third Amended Complaint represented their best case. It concluded that another amendment would be futile.

The court granted the defendants’ motion to dismiss without leave to amend.