Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-14-02592/USCOURTS-ca8-14-02592-0/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 

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United States Court of Appeals

For the Eighth Circuit

 ___________________________

No. 14-2592

___________________________

Frank Julianello, on behalf of himself and all others similarly situated

lllllllllllllllllllll Plaintiff

Lori Anderson

lllllllllllllllllllll Plaintiff - Appellant

v.

K-VPharmaceuticalCompany; Gregory J.Divis,Jr.; ScottGoedeke; ThomasMcHugh

lllllllllllllllllllll Defendants - Appellees

____________

Appeal from United States District Court 

for the Eastern District of Missouri - St. Louis

____________

 Submitted: March 12, 2015

 Filed: July 2, 2015

____________

Before MURPHY and SHEPHERD, Circuit Judges, and HARPOOL, District 1

Judge.

____________

SHEPHERD, Circuit Judge.

The Honorable M. Douglas Harpool, United States District Judge for the

1

Western District of Missouri, sitting by designation. 

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This securities fraud class action involves a class of plaintiffs who purchased

or otherwise acquired shares of K-V Pharmaceutical Company stock during the

period in which the company launched and marketed Makena, its new prescription

drug. The plaintiffs allege that K-V and three of its officers (collectively K-V) made

materially false or misleading statements or omissions related to the product launch. 

The district court granted K-V’s motion to dismiss, holding the challenged 2

statements were protected by the safe-harbor provision of the Private Securities

Litigation ReformAct of 1995 (PSLRA), 15 U.S.C. § 78u-4(b), and that the plaintiffs

failed to adequately plead scienter under the PSLRA. The district court also denied

the plaintiffs’ motion for reconsideration of the scope of leave to amend the

complaint, denying the plaintiffs the opportunity to amend the complaint asit related

to allegations from confidential witnesses. The plaintiffs appeal, and we affirm. 

I.

The plaintiffs in this action are holders of publicly traded shares of K-V stock

who purchased or otherwise acquired shares between February 14, 2011, and April

4, 2011. Plaintiffs allege that K-V made materially false ormisleading statements and

omissions during this period regarding K-V’s marketing, distribution, and sale of its

prescription drug Makena, designed to reduce the risk of pre-term labor for at-risk

pregnant women. In 2008, K-V acquired the rights to the drug, then known as

Gestiva, rebranded it as Makena, and sought exclusive sales rights under the Orphan

Drug Act, 21 U.S.C. §§ 360aa-360ee, fromthe Food and Drug Administration (FDA). 

The Orphan Drug Act, which encourages drug manufacturersto develop drugs for the

treatment of rare diseases or disorders, provides that, with FDA approval,

manufacturers of drugs designed to treat diseases or disorders that affect fewer than

The Honorable Audrey G. Fleissig, United States District Judge for the

2

Eastern District of Missouri. 

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200,000 people may obtain seven years of exclusive sales rights. On February 3,

2011, the FDA granted K-V’s request for exclusive sales rights.

On February 14, 2011, K-V held a conference call with investors and filed a

Form 8-K with the Securities and Exchange Commission (SEC), which incorporated

the information discussed in the conference call. At the beginning of the call, K-V

made the following statements:

[C]ertain information provided on this conference call may contain

various forward-looking statements within the meaning of the [PSLRA]

and may be based on or include assumptions concerning the Company’s

operations, future results and prospects. Such statements may be

identified by the use of words such as plan, expect, believe, anticipate,

intend, will, should, could, potential and other expressions that indicate

future events and trends.

All statements that address expectations or projections about the

future, including without limitation statements about . . . the Company’s

strategy for growth, product development, product launches, regulatory

approvals,market position, acquisitions, revenues, expenditures and other

financial results are forward-looking statements. These statements

involve various risks and uncertainties that could cause our actual results

to differ materially from those expressed in such forward-looking

statements. These include the risks and uncertainties under the heading

risk factors in our most recent annual report on Form 10-K and other

periodic reports filed with the SEC which are available on our website .

. . and on the SEC’s website.

Investors are cautioned not to place undue reliance on such

forward-looking statements, as there is no assurance that these matters

contained in such statements will occur. The forward-looking statements

we make on today’s call are based on our beliefs and expectations . . . as

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of today, February 14, 2011 only. We do not undertake any obligation to

revise or update such forward-looking statements.

R. Doc 91-2, at 2-3. 

The non-exclusive risk factors listed in the Form 10-K mentioned at the

beginning of the call included the following: “new product development and launch,

including the possibility that any product launch may be delayed or unsuccessful,

including with respect to GestivaTM,” “acceptance of and demand for our new

pharmaceutical products, including GestivaTM,” and “the possibility that any period

of exclusivity may not be realized, including with respect to GestivaTM, a designated

Orphan Drug.” R. Doc. 91-1, at 3. 

On the February 14, 2011 investor call, K-V announced that the FDA had

approved Makena and granted it orphan-drug status. K-V informed investors that it

planned to charge $1,500 per injection, with the average patient requiring nearly

$30,000 worth of injections. K-V also announced a program called Makena Care

Connection, which would offer administrative, educational, and financial assistance

to patients, and indicated that women with household incomes of up to $100,000

would be eligible for this program. K-V asserted that this would include

approximately 85% of households in the United States. K-V also indicated that it

believed health insurers would provide coverage for Makena because the average cost

relating to a pre-term birth—$51,000—was higher than the average cost of Makena

injections—$30,000. The price point of $1,500 an injection marked a 14,900%

increase fromthe price at which compounding pharmacies offered a previous version

of the drug. The parties do not dispute that the success of Makena was critical to KV’s survival.

During the call, K-V was asked specifically about the possibility of off-label

compounding pharmacies joining the market for Makena. K-V explained that it

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believed the FDA regulations to be very clear and that the FDA generally prohibits

distribution of compounded products that are the same as FDA-approved products. 

With respect to the FDA’s enforcement of exclusivity, K-V made the following

statements:

[W]e believe that the regulations and laws are very clear. I think it’s fair

to say that compounding pharmacies are not FDA-approved

manufacturing facilities and that FDA regulations and state pharmacy

laws generally prohibit the distribution of compounded products that are

the same or essentially the same as FDA-approved products.

We also believe that compounded pharmacies are aware of these

laws and regulations, and our expectation is that they will adhere to them. 

I think it’s also fair to say that, despite the availability of compounded

product, there have been moms on the sidelines because of significant

logistical and financial barriersto accessthat are typically associated with

non-FDA approved products.

And I’ll just close by saying that everything we have designed

around Makena isto remove these barriers and to make sure that we fulfill

our corporate commitment, which is to make Makena accessible to all

eligible patients.

R. Doc. 91-2, at 12-13. Asked about the price point of $1,500 per injection, K-V

reiterated its belief that, because of the high cost of pre-term birth, Medicaid and

insurers would cover the cost. K-V also stated that “we’ve done a lot of homework

around this particular decision. And we believe our pricing approach issupported by

a very comprehensivemarketresearch plan which included all stakeholders.” R. Doc.

91-2, at 14. 

On February 17, 2011, K-V sent a letter to compounding pharmaciesinforming

them that they should no longer make unapproved formulations of Makena and

warned that if the pharmacies continued production they would be subject to FDA

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enforcement actions. On March 8, 2011, K-V issued a press release indicating

Makena would become available for prescribing on March 14, 2011, and describing

the financial assistance program. K-V also filed a Form 8-K with the SEC that

included financial projections based on the sales launch of Makena. K-V released

Makena to the public and, after K-V revealed the pricing structure, a swift negative

reaction erupted. The March of Dimes withdrew its support and refused to allow K-V

to use its name in association with Makena. Two United States senators issued a

press release expressing their concerns over the price point and the insufficiency of

the financial assistance program. They also released a letter they sent to the Federal

Trade Commission urging an investigation and mentioned their concerns during an

appropriations hearing.

On March 30, 2011, the FDA issued a statement that it did not intend to take

enforcement action against compounding pharmacies that compounded the equivalent

of Makena, informing the pharmacies that the “FDA understands that the

manufacturer of Makena, KV Pharmaceuticals, has sent letters to pharmacists

indicating that FDA will no longer exercise enforcement discretion with regard to

compounded versions of Makena. This is incorrect.” R. Doc. 91-8, at 1. The FDA

further explained, “[i]n order to support accessto thisimportant drug, at thistime and

under this unique situation, FDA does not intend to take enforcement action against

pharmacies that compound [the chemical equivalent of Makena] . . . .” R. Doc. 91-8,

at 1. On April 1, 2011, in the wake of this backlash, K-V announced that it was

reducing the price of Makena to $690 an injection. Nevertheless, the price of K-V

stock plummeted, dropping from $9.75 a share on March 17, 2011, to $5.00 a share

on April 4, 2011. 

The plaintiffs initiated this action alleging that K-V knew, or should have

known, that charging $1,500 per injection without an effective financial assistance

program would hinder Makena’s commercial success. The plaintiffs presented four

specific allegations. First, the plaintiffs alleged that K-V made both false statements

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and omissions about the risk of the FDA not enforcing exclusive sales rights. 

Second, the plaintiffs alleged that K-V’s statement that they expected health insurers

to cover the cost of Makena was materially false or misleading when K-V knew the

price per dosage would face stiff opposition. Third, the plaintiffs alleged that K-V’s

statements about working to give all patients access to Makena, creating a financial

assistance program, and creating a marketing strategy were similarly misleading. 

Finally, the plaintiffs alleged that K-V’s Form 8-K contained revenue assumptions

that lacked a factual basis because they did not account for the negative reaction to

Makena’s price point. The plaintiffs based their allegations upon information from

unnamed confidential witnesses, who plaintiffs identified as four former employees

or sales representatives. 

K-V filed a motion to dismiss, which the district court granted based both on

the applicability of the PSLRA’s safe-harbor provision and on the plaintiffs’ failure

to adequately plead scienter. In the same order, the district court granted the plaintiffs

leave to amend the complaint with respect to their allegations regarding the financial

assistance program but denied their motion as it related to the FDA’s likelihood of

enforcing exclusivity. The plaintiffs declined to amend the complaint regarding the

financial assistance programand filed a motion for reconsideration. The district court

denied the motion for reconsideration, finding that it had already considered the

plaintiffs’ legal argumentsin its previous order and that plaintiffs did not present any

arguments sufficient to grant the motion. The district court also dismissed the

remaining claims regarding the financial assistance program. The plaintiffs appeal,

arguing that the district court erred: (1) in holding K-V’s statements regarding the

FDA’s likelihood of enforcing exclusivity were protected by the PSLRA’s safeharbor provision, (2) in holding that the complaint failed to allege a strong inference

ofscienter regarding the likelihood of FDA exclusivity, and (3) in denying the motion

for reconsideration of the scope of leave to amend the complaint. 

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II.

We first consider whether the district court erred in dismissing the plaintiffs’

complaint on the grounds that the safe-harbor provision of the PSLRA covered K-V’s

statements about FDA exclusivity and that the plaintiffs failed to adequately plead

scienter. The plaintiffs assert that the district court erred with respect to the safeharbor provision because the challenged statements were not forward-looking or

accompanied by meaningful cautionary language and erred in holding the plaintiffs

failed to adequately plead scienter when they provided detailed allegations from four

confidential witnessesshowing K-V knew orshould have known the FDA would not

enforce exclusivity. We review a dismissal under Federal Rule of Civil Procedure

12(b)(6) and the PSLRA de novo, “review[ing] the claims to determine their

compliance with the heightened pleading standards of the PSLRA” and “accept[ing]

Plaintiffs’ factual allegations astrue and [] draw[ing] all reasonable inferences in their

favor.” McCrary v. Stifel, Nicolaus & Co., Inc., 687 F.3d 1052, 1056 (8th Cir. 2012). 

“For claims with a scienter component, which includes claims under Rule 10b–5, the

allegations should give rise to more than just a plausible or reasonable inference of

scienter.” Id. “For material misrepresentation and omission claims, the court must

also determine whether the claims ‘specify each statement alleged to have been

misleading [and] the reason or reasons why the statement is misleading.’” Id.

(alteration in original) (quoting 15 U.S.C. § 78u-4(b)(1)). 

Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and 

SEC Rule 10b–5, 17 C.F.R. § 240.10b–5, “prohibit fraudulent conduct in the sale and

purchase of securities.” Ferris, Baker Watts, Inc. v. Ernst & Young, LLP, 395 F.3d

851, 853 (8th Cir. 2005). To successfully state a claim for a securities fraud action

under Section 10(b) and Rule10b–5, a plaintiff must establish six elements: (1) a

material misrepresentation or omission, (2) scienter, (3) a connection to the purchase

or sale of a security, (4) reliance, (5) economic loss, and (6) loss causation. Horizon

Asset Mgmt. Inc. v. H & R Block, Inc., 580 F.3d 755, 760 (8th Cir. 2009). The

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PSLRA contains a safe-harbor provision, which protects defendants from liability

when: (1) they have made forward-looking statements accompanied by meaningful

cautionary language, (2) the forward-looking statement is immaterial, or (3) the

statement is made without actual knowledge that it was false or misleading. 15

U.S.C. § 78u-5(c)(1).

The plaintiffs specifically challenge the statements K-V made in relation to the

investor call and the statements K-V made in the letter to compounding pharmacies

warning them not to produce compounded Makena. Under the PLSRA, protected

forward-looking statements include, among others: (1) projections of revenues or

other financial items, (2) statements of plans and objectives for future operations, and

(3) statements of the assumptions underlying the previous two categories. 15 U.S.C.

§ 78u-5(i)(1). “In determining whether a statement is truly forward-looking, the

determinative factor is not the tense of the statement; instead, the key is whether its

‘truth or falsity is discernible only after it is made.’” W. Wash. Laborers-Emp’rs

Pension Trust v. Panera Bread Co., 697 F. Supp. 2d 1081, 1093 (E.D. Mo. 2010)

(quoting Harris v. Ivax Corp., 182 F.3d 799, 805 (11th Cir. 1999)).

K-V’s statements were forward-looking. First, they fall within the category of

statementsregarding plans and objectives for further operations because they detailed

K-V’s future launch of Makena and the anticipated results. Second, the veracity of

the statements could only be determined after they were made. The statements during

the call expressed that K-V felt the laws and regulations were clear and that they

anticipated that the FDA would enforce exclusivity once Makena was launched. 

Critically, this statement is tied to a future event: the launch of Makena. Until this

future event occurred, it could not be determined whether the FDA would vary from

its usual practice of enforcing exclusivity. And there was no evidence at the time KV made the statement that the FDA would not enforce exclusivity. Further, the use

of the present tense in the challenged statements does not undermine our

determination that they were forward-looking. The critical inquiry in determining

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whether a statement is forward-looking is whether its veracity can be determined at

the time the statement is made, not the tense of the statement. For the same reasons

discussed above, K-V’s statements utilizing the present tense satisfy this inquiry. 

Moreover, these statements may also fairly be categorized as the underlying

assumptions that are recognized as part of the protected forward-looking statements. 

Finally, any statements that K-V made in a letter to compounding pharmacies

informing them that K-V would have exclusive sales rights related to the production

of Makena are not actionable because K-V never offered these statementsto investors

and these statements were never used in connection with the purchase or sale of

securities. See Ferris, Baker Watts, 395 F.3d at 853 (requiring a connection to the

purchase or sale of a security to state a claim for securities fraud action).

With respect to the requirement that forward-looking statements be

accompanied by meaningful cautionary language, “[c]autionary language must be

extensive, specific, and directly related to the alleged misrepresentation. Cautionary

statements disclosed in SEC filings may be incorporated by reference; they do not

have to be in the same document as the forward-looking statements.” In re Aetna,

Inc. Sec. Litig., 617 F.3d 272, 282 (3d Cir. 2010) (internal quotation marks and

citations omitted). “The requirement for ‘meaningful’ cautions callsfor ‘substantive’

company-specific warnings based on a realistic description of the risks applicable to

the particular circumstances, not merely a boilerplate litany of generally applicable

risk factors.” Southland Sec. Corp. v. INSpire Ins. Solutions, Inc., 365 F.3d 353, 372

(5th Cir. 2004). 

K-V’s forward-looking statements were accompanied bymeaningful cautionary

language. While boilerplate language reciting a list of generally applicable risk

factors is insufficient to satisfy this requirement, we reject plaintiffs’ assertion that

K-V’s language was boilerplate. K-V’s cautionary language wasspecific and related

directly to the circumstances of Makena’s planned launch. The language K-V used

in its Form 10-K, which was incorporated by reference in the February 14, 2011

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investor call, cautioned investors about the launch of Makena and warned them of

precisely the risks about which they now complain. K-V’s Form 10-K explicitly

identified the risks associated with the FDA’s presumed enforcement of exclusivity. 

As this was specific to Makena and its orphan-drug status, we cannot conclude the

cautionary language about this risk was “boilerplate” and only recited generally

applicable risk factors in a generic manner.

K-V’s statements fall within the PSLRA’s safe-harbor provision as forwardlooking statements accompanied by meaningful cautionary language and are not

actionable as a basis for a securities fraud action. Because we conclude that the

challenged statements fall within the PSLRA’s safe-harbor provision, we need not

consider whether the plaintiffs adequately pled scienter. We therefore affirm the

district court’s dismissal of the complaint. 

III.

We next consider whether the district court erred in denying plaintiffs’ motion

for reconsideration ofthe scope ofleave to amend the complaint. The plaintiffs assert

that the district court erred in denying the motion because a court should freely give

leave to amend and the plaintiffs identified new facts concerning the confidential

witnessesthat would demonstrate the statements and omissions regarding the FDA’s

likelihood of enforcing exclusivity were materially false and misleading. We review

a district court’s denial of a motion for reconsideration for abuse of discretion. K.C.

1986 Ltd. P’ship v. Reade Mfg., 472 F.3d 1009, 1017 (8th Cir. 2007). We also

review a district court’s denial of leave to amend a complaint for abuse of discretion. 

Popoalii v. Correctional Med. Servs., 512 F.3d 488, 497 (8th Cir. 2008). “A court

abusesits discretion when it denies a motion to amend a complaint unlessthere exists

undue delay, bad faith, repeated failure to cure deficiencies by amendments

previously allowed, undue prejudice to the non-moving party, or futility of the

amendment.” Id. 

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Under Federal Rule of Civil Procedure 15(a), “[t]he court should freely give

leave [to amend] when justice so requires.” But “[a]lthough amendment of a

complaint should be allowed liberally to ensure that a case is decided on its merits,

there is no absolute right to amend.” Ferguson v. Cape Girardeau Cnty., 88 F.3d 647,

650-51 (8th Cir. 1996) (citations omitted). “[P]artiesshould not be allowed to amend

their complaint without showing how the complaint could be amended to save the

meritless claim.” Wisdom v. First Midwest Bank, of Poplar Bluff, 167 F.3d 402, 409

(8th Cir. 1999). But, when considering a motion for reconsideration, the inquiry is

more narrow. “Motions for reconsideration cannot be used to introduce new evidence

that could have been produced while the [] motion was pending.” Chism v. W.R.

Grace & Co., 158 F.3d 988, 992 n.4 (8th Cir. 1998). 

The district court did not abuse its discretion in denying the motion for

reconsideration of the scope of leave to amend the complaint. The court granted the

plaintiffs leave to amend the complaint regarding the financial assistance program,

but denied the plaintiffs leave to amend their allegations relating to the confidential

witnesses’ knowledge of what K-V knew about the likelihood of the FDA enforcing

exclusivity. In denying the motion for reconsideration, the court applied FederalRule

of Civil Procedure 54(b) and determined that none of the plaintiffs’ arguments was

sufficient to warrant expanding the scope of leave to amend. The scope of the

3

K-V argues that the district court could have considered the motion under

3

Federal Rule of Civil Procedure 60(b) rather than under Federal Rule of Civil

Procedure 54(b). We disagree. Rule 54(b) allows a district court to revise a decision

that adjudicates, but does not enter final judgment on, fewer than all claims in an

action with multiple claims. Fed. R. Civ. P. 54(b) (“[A]ny order or other decision,

however designated, that adjudicates fewer than all the claims or the rights and

liabilities of fewer than all the parties does not end the action as to any of the claims

or parties and may be revised at any time before the entry of a judgment adjudicating

all the claims and all the parties’ rights and liabilities.”). The district court concluded

that because it had not yet entered final judgment on any of plaintiffs’ claims when

the plaintiffs filed the motion for reconsideration, Rule 54(b) is the appropriate rule

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motion for reconsideration is critical in our determination that the district court did

not err in denying the motion. A motion for reconsideration is not a vehicle to

identify facts or legal argumentsthat could have been, but were not, raised at the time

the relevant motion was pending. That is precisely the situation before us. Nothing

in the record indicates that the allegedly new information from the confidential

witnesses was not available to the plaintiffs at the time they opposed the motion to

dismiss. The witnesses were the plaintiffs’ own witnesses and the plaintiffs had every

opportunity to utilize this evidence in opposition to the motion to dismiss. Plaintiffs

are seeking to use a motion for reconsideration for the impermissible purpose of

raising evidence they could have previously raised. The district court thus did not

abuse its discretion in denying the plaintiffs’ motion. 

IV.

For the foregoing reasons, we affirm the judgment of the district court. 

______________________________

under which to consider the motion. We agree. See Auto Servs. Co., Inc. v. KPMG,

LLP, 537 F.3d 853, 856 (8th Cir. 2008) (noting that district court must direct entry

of judgment for purposes of a final judgment when issuing an order dismissing fewer

than all of the claims). The district court did not enter final judgment until after

denying the motion for reconsideration. 

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