The Second Circuit Court of Appeals affirmed the dismissal of federal law securities violations in Gen. Partner Glenn Tongue v. Sanofi, Nos. 15-588-cv, No. 15-623-cv, 2016 U.S. App. LEXIS 4107 (2d Cir. N.Y. Mar. 4, 2016). The court’s opinion focused on whether statements of opinion were actionable under the Supreme Court’s March 2015 decision in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 135 S. Ct. 1318, 191 L. Ed. 2d 253 (2015).
The plaintiff-appellants in Sanofi acquired specialized financial instruments referred to as “contingent value rights,” which increased or decreased in value according to the achievement of development milestones. One of the key milestones at stake was the U.S. Food and Drug Administration’s (FDA) approval of the defendant-appellees’ new drug, Lemtrada. According to the plaintiff-appellants’ allegations, Sanofi and other senior members of management issued false and materially misleading statements of opinion. The plaintiff-appellants’ complaint included violations of Section 10(b) of the Securities Exchange Act of 1934 as well as Section 11 of the Securities Act of 1933.
The Second Circuit began its analysis by explaining how Omnicare impacted the Supreme Court’s previous rule concerning statements of opinion as set forth in Fait v. Regions Financial Corp., 655 F.3d 105 (2d Cir. 2011). Whereas Regions Financial required a plaintiff to plead that an opinion was both objectively false and disbelieved by a defendant at the time it was made, Omnicare calls only for the identification of particular and material facts going to the basis of the opinion whose omission renders it misleading to a reasonable person when read in context.
The Second Circuit then applied the Omnicare rule to three categories of allegations leveled by the plaintiff-appellants—statements concerning the expected timing of approval of Lemtrada, the expected launch of Lemtrada, and Lemtrada’s trial results. With respect to the first category, the plaintiff-appellants argued that Sanofi omitted to disclose to investors that the FDA had raised a number of objections to Sanofi’s use of a single-blind study (as opposed to the more commonly used double-blind study). The Second Circuit rejected this argument because, in its opinion, Sanofi’s statements did not conflict in sum and substance with the omitted information. Significantly, the Second Circuit held the plaintiff-appellants to a higher standard given the fact that they were sophisticated investors in complex financial instruments that were capable of understanding customs and practices within the pharmaceutical industry.
The Second Circuit affirmed the dismissal of the second and third categories of alleged misstatements for similar reasons. Sanofi’s statements concerning the expected launch of Lemtrada were too subjective to have misled a reasonable investor and, in any event, did not materially conflict with the allegedly omitted facts. Similarly, the Second Circuit rejected the plaintiff-appellants’ allegations concerning Lemtrada’s trial results, as the purported omissions involved nothing more than reasonable disagreements between Sanofi and the FDA over study data. Additionally, the Second Circuit held that the plaintiff-appellants failed to show how Sanofi’s statements concerning Lemtrada’s trial results were rendered misleading by feedback allegedly received from the FDA.