Pomerantz Defeats Recro Pharma Motion to Dismiss
On March 1, 2021, Pomerantz received a very favorable decision from Judge Michael M. Baylson in Alberici v. Recro Pharma, Inc. et al, 2:18-cv-02279, a case currently pending in the Eastern District of Pennsylvania, when U.S. District Judge Michael M. Baylson issued a decision denying defendants’ motion to dismiss the Second Amended Complaint.
Recro Pharma, Inc. (“Recro” or the “Company”) is a specialty pharmaceutical company that develops non-opioid therapeutics for the treatment of pain in the post-operative setting. The Company’s lead product is a proprietary injectable form of meloxicam, a long-acting preferential COX-2 inhibitor (“IV meloxicam”) to be used for the management of moderate to severe pain.
Plaintiff alleged that before and after the filing of the New Drug Application (“NDA”) for IV meloxicam with the Food and Drug Administration (the “FDA”), defendants misled investors about the market for IV meloxicam. Defendants made numerous materially false and misleading statements that soft tissue surgeons – such as gastrointestinal/colorectal surgeons, and their patients – were “IV meloxicam target opportunities” even though defendants knew, but failed to disclose, that a significant majority of key opinion leader physicians communicating with defendants specifically told them that they did not intend to use the drug in soft tissue procedures because the trial data for the drug’s efficacy in soft tissue procedures was not compelling. Defendants also misled investors to believe that, even though IV meloxicam was manufactured overseas, there was “oversight by our internal managers.” In reality, however, Recro did not have a handle on the manufacturing process and had only one employee – the Chief Executive Officer’s brother, who had to commute from the U.S. to Ireland – to oversee the manufacturing of IV meloxicam and its packaging in Ireland. Although key opinion leader physicians voiced serious concerns to the Company about the inherent risks and specific lack of oversight of the Company’s process for manufacturing IV meloxicam overseas, defendants disregarded their expert feedback and conditioned investors to believe that the manufacturing process and oversight was copacetic.
On May 24, 2018, Recro announced that the FDA had declined to approve Recro's NDA for IV meloxicam. In its Complete Response Letter, the FDA stated that the drug's analgesic effects did not meet FDA expectations and raised questions related to chemistry, manufacturing and controls data. On this news, Recro's share price fell $6.79, or 54.67%, to close at $5.63 on May 24, 2018.
The Court previously granted defendants’ motion to dismiss on scienter grounds after finding that Plaintiff adequately pled materiality and loss causation but declined to rule on each statement’s falsity or actionability. Plaintiff filed a Second Amended Complaint and the FDA subsequently approved IV meloxicam.
This week, the Court issued a decision denying defendants’ motion to dismiss the Second Amended Complaint, holding that Plaintiff pled sufficient facts to support the reasonable inference that all 18 challenged statements “are false or misleading, actionable, and unprotected by the PSLRA safe harbor.” This decision clarifies an important point that many courts fail to understand. The fact that the FDA subsequently approves a drug is irrelevant to falsity or scienter. The allegations center not on FDA approval, but rather undisclosed information that if investors knew, would have caused the share price to decline. The Court stated that the subsequent approval of the drug “does not indicate that the statements were not false or misleading at the time they were made.” One of these statements was a Sarbanes-Oxley Act (“SOX”) certification that the Court found actionable because Plaintiff adequately pled that a manufacturing oversight statement was false or misleading and the person who signed the SOX certification had scienter. The Court also held that forward-looking statement protection does not apply to statements challenged on the basis that they omitted facts known at the time the statement was made.
Pomerantz’s Recro Pharma litigation is led by Of Counsel Brenda Szydlo.