To what extent does a company have to anticipate that its actions could result in a negative regulatory outcome? In Fire and Police Pension Association of Colorado v. Abiomed, Inc., 2015 WL 500748 (1st Cir. Feb. 6, 2015), the plaintiffs asserted that the company’s alleged off-label drug marketing rendered false or misleading its (a) financial statements, and (b) disclosures about its interaction with the Food and Drug Administration (FDA) on the issue of marketing. On appeal, the court held that the plaintiffs had failed to plead the requisite “strong inference” of scienter as to any of the defendants.
The court found that it was not clear that the alleged off-label drug marketing had materially impacted Abiomed’s financial results, which “weighs against an argument that defendants here possessed the requisite scienter.” Moreover, the company promptly disclosed when the FDA sent it a “warning letter” about its marketing and explicitly told investors that the FDA might conclude that it had engaged in improper marketing. Abiomed also took corrective actions and the FDA “eventually closed out its investigation of Abiomed without taking any action adverse to the company.” Finally, the alleged insider trading “was neither unusual nor suspicious.” Indeed, one of the individual defendants actually increased his holdings of Abiomed stock during the class period.
Holding: Dismissal affirmed.
Quote of note: “Under plaintiffs’ theory of the case, Abiomed should have affirmatively admitted widespread wrongdoing rather than stating that the outcome of its regulatory back-and-forth with the FDA was uncertain. That would be a perverse result; such an admission would have been misleading, since the off-label marketing issues had the potential to be resolved with no adverse action from the FDA. . . . There must be some room for give and take between a regulated entity and its regulator.”
The 10b-5 Daily 