Sixth Circuit Affirms Dismissal with Prejudice of Securities Class Action Suit Against Ropes & Gray Client BioMimetic
On March 28, the United States Court of Appeals for the Sixth Circuit affirmed the dismissal with prejudice of a putative federal securities fraud class action against Ropes & Gray clients BioMimetic Therapeutics Inc. (BMTI) and two of its former officers. The appeal followed Ropes & Gray’s successful motion in the district court to dismiss claims alleging fraud in BMTI’s statements concerning the chances of FDA approval of its flagship product, Augment.
The plaintiffs filed suit after BMTI’s stock price dropped following a narrow vote and accompanying commentary by an FDA advisory panel responsible for assessing Augment’s safety and efficacy. The plaintiffs alleged that BMTI engaged in a “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 statistical significance in the FDA’s preferred patient population (an intent-to-treat, or ITT, population). The plaintiffs also claimed that BMTI’s positive statements concerning Augment’s prospects were misleading in light of undisclosed, critical commentary made by the FDA in a Major Deficiency Letter, which BMTI received five days before publically reaffirming its belief that Augment would be approved by the FDA. The Major Deficiency Letter expressed the FDA’s strong preference for an ITT population, among other criticisms.
The Sixth Circuit, like the district court below, agreed with Ropes & Gray’s argument that BMTI’s statements were not actionable because the clinical results promoted by BMTI were based on an FDA-approved study population—an approval that BMTI cited in its response to the Major Deficiency Letter. The Sixth Circuit also cited BMTI’s open disclosures of the results of both the mITT and ITT study populations and that the FDA would consider both populations in deciding whether to approve Augment. The court agreed with the district court that such disclosures weighed against the inference that BMTI intended to mislead investors. An important subtext of the Sixth Circuit’s opinion is that a defendant’s reliance on a reasonable interpretation of ambiguous regulatory statements—like the FDA’s discussion in the Major Deficiency Letter of its preference for an ITT population—can overcome a competing inference that the defendants intentionally misled the market.
The Sixth Circuit also agreed with Ropes & Gray’s procedural arguments that led the district court to deny the plaintiffs’ requests to amend their complaint.
The litigation team included securities & shareholder litigation partners Randall Bodner and Douglas Hallward-Driemeier, as well as associates Nicholas Berg, Andrew O’Connor, Timothy Farrell and Michael Marzano.