Opinion ID: 4524125
Heading Depth: 3
Heading Rank: 1

Heading: Ocular's 2016 and 2017 Forms 10-K

Text: We first assess plaintiffs' allegations that defendants intentionally or recklessly misstated in Ocular's 2016 and 2017 Forms 10-K that they fabricate devices and drug . . . products for use in our clinical trials, research and development and commercial efforts for all of our therapeutic product candidates - 24 - using current Good Manufacturing Practices, or cGMP despite the receipt of the February 2016 Form 483.15 Read in the context of the complaint as a whole, these allegations do not give rise to a strong inference that defendants intentionally or recklessly misled investors. As an initial matter, and as all parties acknowledge, the February 2016 Form 483 is not a final agency determination, and its inspectional observations did not affirmatively establish that Ocular was incapable of complying with cGMP regulations. Plaintiffs nevertheless contend that the February 2016 Form 483 placed defendants on notice of Ocular's manufacturing difficulties, compelling a strong inference that defendants intentionally or recklessly misled investors by subsequently stating in the Forms 10-K that they were using current Good Manufacturing Practices at their manufacturing facility. This argument is unpersuasive. In the two Forms 10-K, defendants disclosed receipt of the February 2016 Form 483, described its relevance to Ocular's manufacturing capabilities, and warned of 15 Ocular's Forms 10-K were submitted in March 2016 and March 2017, after the company received the February 2016 Form 483 and before it received the May 2017 Form 483. Thus, plaintiffs' argument implicates only the February 2016 Form 483. See ACA Fin., 512 F.3d at 62 (A plaintiff may not plead 'fraud by hindsight'; i.e., a complaint 'may not simply contrast a defendant's past optimism with less favorable actual results' in support of a claim of securities fraud. (quoting Shaw v. Dig. Equip. Corp., 82 F.3d 1194, 1223 (1st Cir. 1996))). - 25 - its implications. Defendants stated in both Forms 10-K, under Item 1A, Risk Factors, and the subheading Risks Related to Manufacturing, that the February 2016 Form 483 contained inspectional observations focused on process controls, analytical testing and physical security procedures related to manufacture of our drug product for stability and commercial production purposes. (Emphasis added). Defendants also stated that they addressed some observations before the inspection was closed and [had] responded to the FDA with a corrective action plan to complete the inspection process. (Emphasis added). Among these statements, defendants cautioned that [a]ny failure to comply with applicable regulations may result in fines and civil penalties, suspension of production, product seizure or recall, imposition of a consent decree, or withdrawal of product approval, and would limit the availability of . . . our product candidates that we manufacture. More specifically, in the 2016 Form 10-K, defendants clarified that [t]he failure to resolve the Form 483 inspectional observations from the February 2016 inspection could result in a delay in the PDUFA date and potential approval for the NDA we have filed for DEXTENZA for the treatment of post-surgical ocular pain. (Emphasis added). In the 2017 Form 10-K, submitted months after the FDA rejected Ocular's September 2015 NDA, defendants specifically noted that the concerns raised by the FDA in the - 26 - CRL rejecting the NDA pertain to deficiencies in manufacturing process and controls identified during a pre-NDA approval inspection of our manufacturing facility . . . in February 2016 that were documented on FDA Form 483. (Emphasis added). Defendants further stated that [a]dequate resolution of Form 483 manufacturing deficiencies with the [FDA] is a prerequisite to the approval of the NDA for DEXTENZA. (Emphasis added). These informative disclosures about the nature and consequences of the February 2016 Form 483 undercut any inference that defendants intentionally or recklessly misled investors by stating, in the same Forms 10-K containing those disclosures, that they were using current Good Manufacturing Practices at their manufacturing facility. See Abiomed, 778 F.3d at 243-44 (holding that scienter argument was undercut by a company's disclosure to investors of correspondences with the FDA and potential consequences of the agency's negative determination); In re Genzyme Corp. Sec. Litig., 754 F.3d 31, 42-43 (1st Cir. 2014) (holding that company's informative disclosures, including of a Form 483 and other FDA communications, undercut any inference of fraudulent intent on the part of defendants); Waters Corp., 632 F.3d at 760 ([A]ttempts to provide investors with warnings of risks generally weaken the inference of scienter. (alteration in original) (quoting Ezra Charitable Trust v. Tyco Intern., Ltd., 466 F.3d 1, 8 (1st Cir. 2006))). - 27 - Assuming arguendo that any inference of scienter could be drawn from the complaint's allegations regarding defendants' statements in the Forms 10-K, that inference is not at least as compelling as any opposing inference of nonfraudulent intent such that it is sufficiently strong under the PSLRA. Tellabs, 551 U.S. at 314. Here, given defendants' statements in the two Forms 10-K that they produce multiple products at their Bedford manufacturing facility using cGMP, and in light of the informative disclosures regarding the February 2016 Form 483, the more reasonable inference of nonfraudulent intent is that defendants were stating their intention to comply with cGMP regulations as the governing standards for their drug product manufacturing operations. See Abiomed, 778 F.3d at 240 (holding that materiality and scienter inquiries are linked and that a fact is material where there is a substantial likelihood that a reasonable investor would view it as significantly alter[ing] the total mix of information made available (alteration in original) (quoting Waters Corp., 632 F.3d at 756)); see also Singh v. Cigna Corp., 918 F.3d 57, 60-64 (2d Cir. 2019) (holding that a reasonable investor would not rely on statements in two Forms 10-K that a company expect[s] to continue to allocate significant resources to various compliance efforts as representations of satisfactory compliance without more detail (alteration in original)). Thus, - 28 - reading the complaint as a whole, we determine that these allegations do not give rise to a strong inference of scienter.16