FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
MASSACHUSETTS [Hon. Richard G. Stearns, U.S. District Judge]
G. Shapiro, with whom Patrick J. Vallely and Shapiro Haber
& Urmy LLP were on brief, for appellant.
Michael G. Bongiorno, with whom James W. Prendergast, Andrew
S. Dulberg, Wilmer Cutler Pickering Hale and Dorr LLP,
Richard J. Rosensweig, Paul F. Beckwith, Derek B. Domian, and
Goulston & Storrs PC were on brief, for appellee InVivo
Therapeutics Holdings Corp.
Richard J. Rosensweig for appellee Frank Reynolds.
Howard, Chief Judge, Selya and Lipez, Circuit Judges.
a drop in the share price of InVivo Therapeutics Holdings
Corporation's ("InVivo") common stock,
investors filed suit against the company and its former chief
executive officer ("CEO"), Frank Reynolds, alleging
securities fraud in violation of Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934 ("Exchange
Act"), 15 U.S.C. §§ 78j(b) and 78t(a), as well
as the Securities and Exchange Commission's
("SEC") Rule 10b-5, 17 C.F.R. § 240.10b-5. On
behalf of himself and a putative class of shareholders, lead
plaintiff Edmond Ganem ("Ganem") alleges that
InVivo and Reynolds inflated the value of InVivo's common
stock for about five months in 2013 by issuing false or
materially misleading press releases concerning the approval
of human clinical trials for a new medical device the company
was developing, by, inter alia, failing to identify the
caveats and conditions imposed by the Food and Drug
Administration ("FDA") for the clinical trials. The
district court, in a well-reasoned opinion, granted
defendants' motion to dismiss the complaint. We affirm,
agreeing with the district court that Ganem has failed to
allege false or misleading statements sufficient to state a
claim under Section 10(b) and Rule 10b-5, and, having failed
to plead a viable claim of a primary violation, Ganem's
control person claim against Reynolds under Section 20(a) was
also properly dismissed.
to InVivo's 2012 annual report to the SEC ("Form
10-K"), which was filed in early March 2013, the company
focuses on "develop[ing] and commercializ[ing] new
technologies for the treatment of spinal cord injuries."
The report identified InVivo's "Lead Product Under
Development" as "biopolymer scaffolding, " a
device that would attach to a patient's body at the point
of a spinal injury to prevent additional damage to the spinal
cord. The report outlined the company's strategy for
marketing the device, including the steps for securing the
required approval from the FDA.
report explained that InVivo would first need to obtain an
Investigational Device Exception ("IDE") to permit
it to conduct human clinical trials. Such a clinical study
was a prerequisite for obtaining either Pre-Market Approval
("PMA") or a Humanitarian Device Exemption
("HDE"), either of which would permit the company
to sell the product in the United States. InVivo stated that
it "plan[ned] to conduct an initial clinical study to
evaluate the device in five spinal cord injury patients with
acute thoracic injuries. We are also planning a larger
follow-on human study in acute spinal cord injury patients
after the initial study is completed."
report, InVivo qualified the above statements, noting that
"forward-looking statements" -- such as
"statements about our plan to conduct an initial
clinical study to evaluate our product" -- are
necessarily contingent because they "involve substantial
known and unknown risks." InVivo stated that "[t]he
start of clinical trials can be delayed or take longer than
anticipated for many and varied reasons, many of which would
be outside of our control."
March 29, 2013, the Acting Director of the FDA's Office
of Device Evaluation sent an eleven-page letter to InVivo.
Because Ganem's claims rely on the proposition that
InVivo later misrepresented the content of the letter, we
quote from it at some length:
The [FDA] has reviewed your amendment to your [IDE]
application to conduct an early feasibility study . . . .
Your application to begin your study is approved with
conditions . . . . You may begin your investigation, using a
revised informed consent document which corrects deficiency
number 1 and 3, at an institution in accordance with the
investigational site waiver granted below. Your investigation
is limited to 3 institutions and 1 subject.
Your IDE application has been approved with conditions as a
staged study; you may enroll one subject at this time. You
should follow this subject for 3 months before requesting
approval for an additional subject, who should also be
followed for three months before requesting another subject.
This will result in a total of 5 subject[s] enrolled over a
minimum 15 month period. . . .
A feasibility study is a preliminary study which is not
expected to provide the primary support for the safety and
effectiveness evaluation of a medical device for the purposes
of a marketing application. . . . FDA believes that
additional modifications, as outlined in "Study Design
Considerations" below, are needed for your study design
to support a future study.
This approval is being granted on the condition that, within
45 days from the date of this letter, you submit information
correcting the following issues[.]
listed thirteen issues for which it required further
information before the initial study could
begin. Then, under "Study Design
Considerations, " the FDA stated that "[w]e
recommend, but do not require, that you modify your study to
address the following issues" so that ...