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Kader v. Sarepta Therapeutics, Inc.

United States District Court, D. Massachusetts

January 6, 2017

WILLIAM KADER, Individually and On Behalf of All Other Persons Similarly Situated, Plaintiff,



         In this securities fraud putative class action, Plaintiff William Kader, and Lead Plaintiffs Morad Ghodooshim, Roger Lam, and Laxmikant Chudasama (collectively, “Plaintiffs”) seek to represent a class of all purchasers of securities issued by Sarepta Therapeutics, Inc. (“Sarepta” or “the Company”) during the period from March 4, 2014 to October 27, 2014 (the “Class Period”).[1] The named defendants are Sarepta, along with its former CEO, Christopher Garabedian (“Garabedian”), and the Company's Chief Medical Officer, Edward Kaye, M.D. (“Kaye”) (collectively, “Defendants”).[2]

         Presently before the Court is Plaintiffs' Motion for Leave to Amend the Complaint [ECF No. 50]. Because Plaintiffs have unduly delayed in seeking leave to amend and because Plaintiffs' Proposed Second Amended Complaint (“PSAC”) fails to address the shortcomings in the Amended Complaint, such that granting leave to amend would be futile, Plaintiffs' Motion [ECF No. 50] is DENIED.

         I. BACKGROUND

         This action was commenced on December 3, 2014. Plaintiffs filed a two-count Amended Complaint on March 20, 2015 [ECF No. 17], which alleged that by making misrepresentations and material omissions in connection with the purchase or sale of Sarepta's securities, all Defendants violated Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 (Count I), and that the individual Defendants violated Section 20(a) of the Exchange Act (Count II).

         On May 11, 2015, Defendants moved to dismiss [ECF No. 21], arguing that the Amended Complaint failed to state a claim for securities fraud because Plaintiffs failed to allege any actionable misstatements, and further failed to allege sufficient facts on the element of scienter. The Court held a hearing on Defendants' Motion to Dismiss on March 29, 2016, and on April 5, 2016, the Court granted Defendants' motion, dismissing Plaintiffs' Amended Complaint. [ECF No. 46].

         Three days later, on April 8, 2016, Plaintiffs filed the instant Motion for Leave to Amend the Complaint, along with a supporting Memorandum and Proposed Second Amended Complaint. [ECF Nos. 50, 51]. Defendants filed an opposition to Plaintiffs' Motion for Leave to Amend [ECF No. 55], Plaintiffs replied [ECF No. 60], and Defendants filed a surreply [ECF No. 63].

         The Court only briefly reviews the factual background of this case, which is set forth in greater detail in the Court's prior Memorandum and Order, and familiarity with which is assumed for purposes of this Memorandum and Order. See [ECF No. 46]. Sarepta is a biopharmaceutical company focused on developing RNA-based therapeutics for the treatment of rare and infectious diseases. The Company has developed a drug candidate called “eteplirsen” to treat Duchenne muscular dystrophy (“DMD”). Plaintiffs contend that during the Class Period, Sarepta and its executives made materially misleading statements and omissions regarding the Company's ongoing efforts to file a New Drug Application (“NDA”) for eteplirsen with the U.S. Food and Drug Administration (“FDA”). Specifically, Plaintiffs allege that the Defendants misstated guidance and omitted information that the FDA purportedly provided to the Company, which pertained to the sufficiency of Sarepta's clinical data on eteplirsen.

         In granting the Defendants' Motion to Dismiss [ECF No. 21] on April 5, 2016, the Court held that Plaintiffs had failed to plausibly allege facts showing that Defendants made materially misleading statements or failed to disclose information that was necessary to make their statements not misleading. The Court also concluded that Plaintiffs' Amended Complaint failed to allege facts that gave rise to a sufficiently strong inference of scienter to survive a motion to dismiss.

         As the instant litigation was ongoing, the NDA for eteplirsen was filed in May 2015, with a public hearing scheduled for January 2016. [ECF Nos. 51-1 at 12, 51-2 at ¶ 24]. Prior to the scheduled hearing, in January 2016, the FDA published a briefing document (the “FDA briefing document” or “January 2016 FDA briefing document”) which, according to Plaintiffs, contained concerns communicated by the FDA to Defendants both prior to and during the Class Period, which were concealed from investors by Defendants. [ECF No. 51-2 at 79-152]. Many of the new allegations in the PSAC are allegedly based on information revealed by this briefing document. Plaintiffs state that the FDA briefing document is “highly negative to eteplirsen's prospects for approval.” Id. at ¶ 24. On September 19, 2016, the FDA issued a press release announcing the approval of eteplirsen use on DMD patients.[3] See United States Food & Drug Admin., FDA Grants Accelerated Approval to First Drug for Duchenne Muscular Dystrophy (Sept. 19, 2016), available at

         Plaintiffs now request leave to amend their complaint again, claiming that they have addressed the pleading deficiencies identified by the Court by adding substantial facts that were not available prior to the release of the FDA briefing document in January 2016. [ECF No. 51]. According to Plaintiffs, this FDA briefing document included the following: (1) FDA criticism of Sarepta's dystrophin analysis; (2) evidence of Defendants' improper breaking of the blinded nature of the dystrophin study and their “purposeful and unilateral” post hoc discarding of data that failed to yield positive results; and (3) documentation of Defendants' use of inconsistent and biased standards in their analysis of dystrophin biomarker data, all of which provide additional support for their claims. Plaintiffs also claim that Defendants were aware during the Class Period, but failed to publicly disclose, that the FDA, as early as July 2013, had advised Defendants to obtain an independent laboratory reassessment of the dystrophin data. Plaintiffs contend that this alleged awareness of the FDA's advice makes the statements that were made by Defendants during the Class Period false, misleading, and made with scienter. In support of their motion for leave to amend, Plaintiffs also argue that they have not unduly delayed in making this motion, are not acting in bad faith or in such a way as would unduly prejudice the Defendants, and that their motion would not be futile.

         In response, Defendants argue that Plaintiffs' Motion for Leave to Amend should be denied as both belated and futile. Defendants criticize Plaintiffs for relying on the FDA briefing document from January 2016 but not filing their Motion for Leave to Amend until April 2016, three days after the Court issued its Memorandum and Order granting the motion to dismiss on the previous complaint. [ECF No. 55]. Defendants assert that the timing of Plaintiffs' filing of the PSAC constitutes undue delay and that, in any event, allowing Plaintiffs' PSAC would be futile as it fails to cure the pleading deficiencies identified by the Court in its earlier Memorandum and Order. Defendants further argue that criticism of study methodologies made in a 2016 FDA briefing document cannot give rise to a claim for fraud relating to statements made in 2014. Defendants also note that Defendants' public statements in 2014 repeatedly disclosed FDA concerns about the study methodology. Defendants dispute that descriptions of the study as “blinded” were misleading since the FDA briefing document itself states that the study was first carried out on a blinded baseline. Defendants also note that the Court previously addressed the question of the FDA's alleged request for an independent reassessment of the dystrophin data and concluded that this request was not necessarily inconsistent with Defendants' other statements. Finally, Defendants argue that Plaintiffs have done nothing to cure the deficiencies in the allegations of scienter that were fatal to the Amended Complaint.

         Plaintiffs' Reply argues that leave to amend should be freely given and denies that they unduly delayed filing the PSAC. Plaintiffs also assert that the January 2016 FDA briefing document, as reflected in the PSAC, provides proof of falsity, materiality, and scienter on the part of Defendants during the Class Period. Specifically, Plaintiffs allege that Defendants had a duty to disclose:

material adverse facts regarding dystrophin that they knew or recklessly disregarded, including: that the dystrophin data was materially flawed and unreliable due to Sarepta's biased selection and analysis of data; and, as a result of these methodological problems, the FDA specifically instructed Sarepta as early as July 2013, and again in July 2014, to obtain independent laboratory review of the dystrophin data prior to filing the NDA (which Defendants ignored).

[ECF No. 60 at 6-7]. Plaintiffs also add that “more recent developments destroy any notion that Defendants fairly and accurately represented the FDA review process during the Class Period” because during an FDA meeting on eteplirsen on April 25, 2016, the FDA “took pains to ‘set the record straight' on what the agency told Sarepta throughout its eteplirsen trials, including about the many serious problems with Sarepta's dystrophin data.” Id. at 7 (emphasis in original). In a footnote to their Reply brief, Plaintiffs indicate that the documents distributed prior to the April 25, 2016 FDA meeting contained additional supportive facts that Plaintiffs would include in a future amended complaint.

         In their Surreply, Defendants argue that Plaintiffs' mention in a footnote to their Reply that they intend to file an additional amended complaint is improper and that such a proposed amendment should have been attached to their pending Motion for Leave. Defendants also argue that Plaintiffs relied on an impermissible theory of “fraud by ...

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