BioMimetic Therapeutics Secures Dismissal With Prejudice of Securities Fraud Class Action in the FDA Approval Context

Ropes & Gray client BioMimetic Therapeutics, Inc. (“BMTI”) won dismissal with prejudice of a securities fraud class action alleging fraud in the company’s statements concerning its flagship product, Augment®. In a Jan. 10 decision, Judge Kevin H. Sharp of the Middle District of Tennessee rejected allegations that BMTI’s statements regarding Augment’s prospects of FDA approval were misleading under the federal securities laws.

Plaintiffs filed suit after BMTI’s stock price fell following the disclosure of a vote and accompanying commentary by an FDA advisory panel responsible for assessing Augment’s safety and efficacy. Plaintiffs alleged that BMTI engaged in a regulatory “bait and switch” by touting favorable clinical trial results for Augment in one particular patient population (a modified intent-to-treat, or mITT population) when Augment failed to achieve clinical significance in the FDA’s preferred patient population (an intent-to-treat, or ITT population). Plaintiffs also claimed that BMTI’s positive statements concerning Augment’s prospects were misleading in light of undisclosed commentary made by the FDA in the form of a so-called Major Deficiency Letter, which BMTI received just five days before publically reaffirming its belief that Augment would be approved. The Major Deficiency Letter expressed the FDA’s preference for the ITT population, among other criticisms.

Judge Sharp agreed with BioMimetic that BMTI’s statements were not actionable because the clinical results promoted by BMTI were based on an FDA-approved study population—even if the FDA might have preferred another population—and BMTI disclosed to investors the outcomes of both the mITT and ITT study populations. The Court also forged new ground for biotech companies, holding that a company has no affirmative duty to disclose the scope and content of an FDA Major Deficiency Letter under the federal securities laws. Judge Sharp agreed with BMTI’s position that an FDA Major Deficiency Letter represents only a snapshot of the regulatory review process, that its contents need not be disclosed in the context of BMTI's statements of overall optimism regarding FDA approval, and that the company’s optimism was reasonable and justified.

Finally, at the conclusion of its 33-page opinion, the Court denied plaintiffs leave to amend their complaint.

The Ropes & Gray litigation team included business & securities litigation partner Randy Bodner and associates Nick Berg, Andrew O’Connor and Tim Farrell.