Opinion ID: 4524125
Heading Depth: 3
Heading Rank: 2

Heading: The May 5, 2017 Conference Call

Text: We turn to plaintiffs' allegations that defendant Ankerud intentionally or recklessly misled investors during the May 5, 2017 conference call by twice stating that Ocular's manufacturing process was fully developed despite the receipt of the May 2017 Form 483 one day before and the earlier receipt of the February 2016 Form 483 showing that Ocular had manufacturing problems. Read in the context of the entire complaint, these allegations also do not give rise to a strong inference of scienter. 16 Plaintiffs alleged that a confidential witness had a direct conversation with Ankerud in late 2016 or early 2017, prior to Ocular's NDA resubmission, in which Ankerud expressly acknowledged that he and the Company knew Ocular would be including batch records in the NDA resubmission that would not meet FDA standards. Plaintiffs also alleged that the witness's statements make clear that Ocular and the Individual Defendants were aware of the severity of the problems Ocular faced in manufacturing DEXTENZA using cGMP. Before the district court, plaintiffs specified that these allegations concerned only their contention regarding the 2017 Form 10-K. Plaintiffs now reference those allegations in support of their scienter argument. This contention is unpersuasive. Plaintiffs do not now challenge the district court's finding that the complaint failed to allege a sufficient link between Ankerud's purported isolated admission about unspecified 'batch records' months before the challenged cGMP statement on the 2017 Form 10-K to render the cGMP statement false. Ocular I, 2019 WL 1950399 at  n.9. Thus, these confidential witness allegations do not disrupt our determination that the complaint, read as a whole, does not allege facts giving rise to a strong inference of scienter. - 29 - On the conference call, after defendant Sawhney's disclosure that Ocular had received the [May 2017] Form 483 containing inspectional observations focusing on procedures for manufacturing processes . . . of drug product for commercial production, Ankerud spoke about the Form 483's contents and implications as well as the company's need to pursue remediation. (Emphasis added). Ankerud specified that the FDA's primary focus in the 483 relates to a particula[te] matter issue as part of our manufacturing process and that it also contained observations regarding analytical method, testing to be completed, as well as some other issue related to quality oversight of batch records. (Emphasis added). Following this disclosure, Ankerud stated that defendants believe that each of the observations raised by the FDA during this continuous improvement review of our fully developed manufacturing process are handled well and will be resolved in our response to FDA. . . . and we're marching toward that PDUFA date and expect that we can resolve the 483 issues in a timely manner. (Emphasis added). Ankerud subsequently stated that the 483 is something that we have to respond to . . . . [W]e understand where [the FDA is] coming from and what needs to be done to address their concern. Afterwards, in response to an analyst's request for something you can tell us or say to us in terms of how things have evolved at the company overall and oversight of manufacturing, Ankerud stated that the - 30 - manufacturing process has moved forward significantly, and is in a fully developed mode, and that the new investigator was experienced in the pharmaceutical industry and we had good dialog and good discussion and that's why we felt confident that we can address these 483 issues in a timely manner. (Emphasis added). Ankerud's disclosures regarding the May 2017 Form 483 made pellucid that Ocular's manufacturing process was considered deficient by the FDA and thus undercut any inference that he intentionally or recklessly misled investors by stating that Ocular's manufacturing process was fully developed. See Abiomed, 778 F.3d at 243-44; Genzyme Corp., 754 F.3d at 42-43; Waters Corp., 632 F.3d at 760.17 Defendants submit that according to the FDA, a fully developed process is one that has surpassed the concept or piloting stage but must still be tested and validated to determine whether the process works as intended and meets the necessary standards. See FDA, Guide to Inspections of Medical Device Manufacturers at § 7 (2014) (The process must be developed before it can be validated. . . . It is impossible to 17We reject plaintiffs' argument that defendants' disclosures of the February 2016 and May 2017 Forms 483 in the Forms 10-K and the May 5, 2017 conference call did not sufficiently inform investors that the Forms 483 documented major rather than minor problems in Ocular's manufacturing operations. Plaintiffs provide no legal support for their speculative assertion that the issues observed by the FDA and recorded in the Forms 483 were so major that they rendered nugatory defendants' disclosures and ultimately compel a strong inference of scienter. - 31 - validate a process (i.e. show that it consistently operates within established parameters and produces results or products that meet specifications) until the process is fully developed.), available at https://www.fda.gov/inspections-compliance-enforcement-andcriminal-investigations/inspection-guides/page-9. We may consider that fact. See Brennan, 853 F.3d at 609-10; Tellabs, 551 U.S. at 322 ([C]ourts must consider the complaint in its entirety, as well as other sources courts ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss, in particular . . . matters of which a court may take judicial notice.). In light of that term of art and Ankerud's disclosures during the conference call that contravene plaintiffs' characterization of his statements, the more reasonable and compelling inference drawn from the complaint's allegations is that Ankerud spoke with nonfraudulent intent in describing Ocular's manufacturing process as fully developed. See Tellabs, 551 U.S. at 314. Overall, reading the complaint as a whole, we determine that plaintiffs have not alleged facts giving rise to a strong inference of scienter as required by the PSLRA. 18 Thus, 18 The district court correctly determined that defendant Sawhney's purchase of Ocular shares during the class period somewhat [f]uther negat[es] an inference of scienter, at least as to Sawhney and Ocular. Ocular I, 2019 WL 1950399 at  n.12; see Abiomed, 778 F.3d at 246 (holding that an individual defendant's purchase of company stock during the class period negates any inference that he had a motive to artificially inflate [the company's] stock during that period); cf. Tellabs, 551 U.S. - 32 - plaintiffs' securities fraud claim brought under Section 10(b) and Rule 10b-5 fails. C. Plaintiffs' Section 20(a) Claim Against Individual Defendants Section 20(a) of the Exchange Act imposes joint and several liability on persons in control of entities that are liable for violations of securities laws unless the controlling person[s] acted in good faith and did not directly or indirectly induce the act or acts constituting the violation. 15 U.S.C. § 78t(a). A claim brought under Section 20(a) is thus derivative of a claim alleging an underlying securities law violation. See Abiomed, 778 F.3d at 246. Accordingly, because the complaint does not state a securities fraud claim under Section 10(b) and Rule 10b-5, plaintiffs' derivative claim under Section 20(a) too must fail. See id.