Shanawaz v. Intellipharmaceutics International Inc. et alMEMORANDUM OF LAW in Support re: 29 MOTION to Dismiss Amended Complaint. . DocumentS.D.N.Y.March 30, 2018 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK x SHAWN SHANAWAZ, Individually and on Behalf of All Others Similarly Situated, Plaintiff, v. INTELLIPHARMACEUTICS INTERNATIONAL INC., ISA ODIDI, and DOMENIC DELLA PENNA, Defendants. : : : : : : : : : : : : : Case No. 1:17-cv-05761-JPO x MEMORANDUM OF LAW IN SUPPORT OF DEFENDANTS’ MOTION TO DISMISS THE AMENDED COMPLAINT John J. Clarke, Jr. john.clarke@dlapiper.com Rachael C. Kessler rachael.kessler@dlapiper.com DLA PIPER LLP (US) 1251 Avenue of the Americas New York, New York 10020 (212) 335.4500 Attorneys for Defendants Intellipharmaceutics International Inc., Isa Odidi, Ph.D., and Domenic Della Penna Dated: March 30, 2018 Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 1 of 35 Table of Contents Page PRELIMINARY STATEMENT ................................................................................................1 SUMMARY OF THE ALLEGATIONS .....................................................................................5 STANDARD OF REVIEW ...................................................................................................... 11 ARGUMENT – THE AMENDED COMPLAINT SHOULD BE DISMISSED ........................ 12 I. PLAINTIFFS’ SECURITIES FRAUD CLAIMS SHOULD BE DISMISSED FOR SEVERAL DIFFERENT REASONS ................................................................... 12 A. The Complaint Does Not Plausibly Allege That Any Challenged Statement Was Materially False or Misleading When Made. ............................. 13 1. The NDA Complied With Non-Binding FDA Guidance When Seeking Abuse-Deterrent Labeling for the Intravenous Route of Abuse ................................................................... 14 2. Plaintiffs’ Challenge to Statements About Bioequivalence to OxyContin Ignore the FDA’s Finding That It Had Been Shown ........... 17 3. Joint Advisory Committee Views on the Blue Dye and Nasal Irritant Did Not Render Earlier Public Statements False or Misleading ............................................................................... 20 4. Many of the Challenged Statements are Forward-Looking Statements Subject to the Statutory Safe Harbor Provision .................... 20 B. The Complaint Fails to Plead Facts Giving Rise to the Required “Strong Inference” of Scienter ........................................................... 23 1. There Are No Plausible Allegations of Conscious Wrongdoing ......................................................................... 24 2. Plaintiffs’ Motive Allegations Do Not Raise Any Inference of Scienter ...................................................................... 26 II. THE “CONTROL PERSON” CLAIMS UNDER SECTION 20(a) ALSO SHOULD BE DISMISSED .......................................................................................... 28 CONCLUSION ........................................................................................................................ 29 Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 2 of 35 ii Table of Authorities Page(s) Cases Acito v. IMCERA Grp., Inc., 47 F.3d 47 (2d Cir. 1995) .............................................................................................. 16, 26 ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) .............................................................................................. 5, 11 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955 (2007) .............................................................................. 5, 11 Crihfield v. CytRx Corp., CV-16-05519 SJO (SKx), 2017 WL 2819834 (C.D. Cal. June 14, 2017) .................. 16, 21-22 Denny v. Barber, 576 F.2d 465 (2d Cir. 1978) ................................................................................................ 14 Hammerstone NV, Inc. v. Hoffman, No. 09 CV 2685(HB), 2010 WL 882887 (S.D.N.Y. Mar. 10, 2010) ..................................... 28 Higginbotham v. Baxter Int’l, Inc., 495 F.3d 753 (7th Cir. 2007) ............................................................................................... 13 In re AstraZeneca Sec. Litig., 559 F. Supp. 2d 453 (S.D.N.Y. 2008) .................................................................................. 13 In re Atlas Air Worldwide Holdings, Inc. Sec. Litig., 324 F. Supp. 2d 474 (S.D.N.Y. 2004) .................................................................................. 28 In re Biogen Inc. Securities Litigation, 193 F. Supp. 3d 5 (D. Mass. 2016) ...................................................................................... 21 In re Bristol-Myers Squibb Sec. Litig., 312 F. Supp. 2d 549 (S.D.N.Y. 2004) .................................................................................. 19 In re eSpeed, Inc. Sec. Litig., 457 F. Supp. 2d 266 (S.D.N.Y. 2006) .................................................................................. 27 In re Lehman Bros. Mortgage-Backed Sec. Litig., 650 F.3d 167 (2d Cir. 2011) ................................................................................................ 28 In re Merrill Lynch & Co., Inc. Research Reports Sec. Litig., 273 F.Supp.2d 351 (S.D.N.Y. 2003) .................................................................................... 13 In re Party City Sec. Litig., 147 F. Supp. 2d 282 (D.N.J. 2001) ................................................................................. 26-27 Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 3 of 35 iii Page(s) In re Sanofi Sec. Litig., 87 F. Supp. 3d 510 (S.D.N.Y. 2015), aff’d 816 F.3d 199 (2d Cir. 2016) ......................... 22-23 In re Sotheby’s Holdings, Inc., No. 00 Civ. 1041, 2000 WL 1234601 (S.D.N.Y. Aug. 31, 2000) ......................................... 28 In re Wachovia Equity Sec. Litig., 753 F. Supp. 2d 326 (S.D.N.Y. 2011) .................................................................................. 27 In re WorldCom, Inc. Sec. Litig., 294 F. Supp. 2d 392 (S.D.N.Y. 2003) .................................................................................. 28 Kalnit v. Eichler, 264 F.3d 131 (2d Cir. 2001) .......................................................................................... 23, 27 Kleinman v. Elan Corp., plc, 706 F.3d 145 (2d Cir. 2013) .......................................................................................... 13, 19 Local 134 IBEW Joint Pension Tr. v. JP Morgan Chase Co., 553 F.3d 187 (2d Cir. 2009) .............................................................................. 12, 26, 27, 28 Nathenson v. Zonagen Inc., 267 F.3d 400 (5th Cir. 2001) ............................................................................................... 28 Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000) ......................................................................................... passim Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 135 S. Ct. 1318 (2015) ............................................................................................. 11, 18-19 Podany v. Robertson Stephens, Inc., 318 F. Supp. 2d 146 (S.D.N.Y. 2004) .................................................................................. 13 Rothman v. Gregor, 220 F.3d 81 (2d Cir. 2000) .................................................................................. 5, 24, 25, 26 Russo v. Bruce, 777 F. Supp. 2d 505 (S.D.N.Y. 2011) .................................................................................. 27 S. Cherry St., LLC v. Hennessee Grp. LLC, 573 F.3d 98 (2d Cir. 2009) ............................................................................................ 23, 24 Schueneman v. Arena Pharmaceuticals, Inc., 840 F.3d 698 (9th Cir. 2016) ............................................................................................... 25 Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 4 of 35 iv Page(s) S.E.C. v. First Jersey Sec., Inc., 101 F.3d 1450 (2d Cir. 1996)............................................................................................... 28 Stevelman v. Alias Research Inc., 174 F.3d 79 (2d Cir. 1999) .................................................................................................. 26 Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 128 S. Ct. 761 (2008). ................................................................................... 12 Teamsters Local 445 Freight Div. Pension Fund v. Dynex Capital Inc., 531 F.3d 190 (2d Cir. 2008) ................................................................................................ 23 Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 127 S. Ct. 2499 (2007) ........................................................................... passim Tongue v. Sanofi¸ 816 F.3d 199 (2d Cir. 2016) ......................................................................................... passim Wilson v. Merrill Lynch & Co., Inc., 671 F.3d 120 (2d Cir. 2011) ................................................................................................ 28 Zak v. Chelsea Therapeutics Int’l, Ltd., 780 F.3d 597 (4th Cir. 2015) ........................................................................................... 7, 25 Statutes, Regulations, and Rules 15 U.S.C. § 78j(b) ................................................................................................................. 1, 12 15 U.S.C. § 78t(a) ................................................................................................................... 1, 4 15 U.S.C. § 78u-4(b) ....................................................................................................... 3, 12, 23 15 U.S.C. § 78u-5(c) ....................................................................................................... 3, 21-22 17 C.F.R. § 240.10b-5 ........................................................................................................... 1, 12 21 C.F.R. § 314.101(a) ........................................................................................................ 15, 24 Fed. R. Civ. P. 9(b) ............................................................................................................... 1, 11 Fed. R. Civ. P. 12(b)(6) ......................................................................................................... 1, 11 Fed. R. Evid. 201(b) .................................................................................................................... 5 Legislative History H.R. Rep. No. 104-369 (1995), 1996 U.S.C.C.A.N. 730 ............................................................ 21 Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 5 of 35 Defendants Intellipharmaceutics International Inc. (“Intellipharmaceutics” or the “Company”), Isa Odidi, Ph.D., and Domenic Della Penna respectfully submit this memorandum of law in support of their motion, pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure, to dismiss all claims asserted against them under sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”), and Rule 10b-5 promulgated thereunder. PRELIMINARY STATEMENT Intellipharmaceutics is a biopharmaceutical company engaged in research, development, and commercialization of controlled-release and targeted pharmaceutical products. Among other product candidates, it has developed oxycodone hydrochloride extended-release tablets (“Oxycodone ER”), an abuse-resistant oral oxycodone formulation.1 In early 2017, the U.S. Food and Drug Administration (“FDA”) accepted the Company’s new drug application (“NDA”) for Oxycodone ER and scheduled a meeting of a joint advisory committee, to be held in July 2017, where a panel of outside experts would consider whether to recommend that the FDA grant an abuse-deterrent label for Oxycodone ER. Compl. ¶ 46. The FDA knew, when it scheduled the advisory committee meeting, that Intellipharmaceutics was seeking labeling only for the intravenous route of abuse and that applications for additional abuse-deterrent labeling would not be made until later. Id. ¶ 50. The FDA also knew that only “Category 1” studies of Oxycodone ER’s abuse-deterrent properties had been completed, notwithstanding the agency’s non-binding guidance that sponsors seeking abuse-deterrent labeling usually should also include data from Category 2 and Category 3 studies in their applications. Id. Even with its knowledge of what was in the NDA and what was not in 1 The Company originally proposed to name the product candidate “Rexista,” but it will change that name in its resubmitted application. Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 6 of 35 2 it, the FDA accepted the application, set a brisk schedule for its evaluation, and subsequently scheduled the joint advisory committee meeting. At its meeting on July 26, 2017, unfortunately, the joint advisory committee voted against recommending FDA approval. As the transcript of the meeting reveals, committee members had concerns about the inclusion of a staining blue dye in the formulation as one component of the Company’s approach to abuse-deterrence (aimed at routes of abuse other than intravenous). See Compl. ¶¶ 53, 59, 62. Two days after the joint advisory committee vote, the first complaints in this consolidated action were filed. But the securities laws are not designed to protect investors against such business setbacks, nor does a company’s experience of a negative development in an FDA application process amount to “fraud.” See, e.g., Tongue v. Sanofi, 816 F.3d 199, 212 (2d Cir. 2016) (affirming dismissal of claims where complaint did not allege “that the risks arising out of the FDA feedback were out of the ordinary, or presented a special challenge not of the kind normally confronted by pharmaceutical companies seeking FDA approval”). The amended complaint does not significantly alter the claims first asserted only hours after the joint advisory committee voted. Plaintiffs continue to contend that since the FDA ultimately refused to approve the Company’s NDA and requested that additional study data be included in any resubmission, the Company and other defendants must have known that the NDA would be rejected and therefore misled investors in discussing Oxycodone ER and the FDA approval process in public statements over the two-year-long “class period.” Those claims should be dismissed for several reasons. First, plaintiffs have not plausibly alleged any actionable misstatement or omission. Absent from the complaint are any factual allegations showing a conflict between defendants’ public statements and allegedly undisclosed information that was known to them at the time. See Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 7 of 35 3 Sanofi, 816 F.3d at 212. Plaintiffs paper this over by offering a lengthy discussion of recommendations from the FDA’s non-binding guidance on applications for opioid products seeking an abuse-deterrent label. But the complaint itself shows that the FDA accepted the NDA even knowing that it did not include Category 2 or Category 3 studies. It also was the FDA, not the defendants, that scheduled the joint advisory committee meeting to consider the application. The complaint’s discussion of the FDA guidance does not support a reasonable inference of falsity, whether for challenged statements of fact or of opinion. In addition, many of the challenged statements are protected by the “safe harbor” for forward-looking statements enacted by the Private Securities Litigation Reform Act of 1995 (“PSLRA”). See 15 U.S.C. § 78u-5(c). Those forward-looking statements were accompanied by meaningful cautionary language, and plaintiffs do not plausibly allege that any were made with actual knowledge that they were false or misleading. See 15 U.S.C. § 78u-5(c)(1)(B). The Company consistently cautioned investors about the risks inherent in the FDA approval process, including that “there [could] be no assurance that we will not be required to conduct further studies . . . [or] that the FDA will ultimately approve the NDA . . . .”2 Tellingly, plaintiffs fail to acknowledge these warnings about precisely the risks that later materialized even while they challenge public statements that contained them. Second, plaintiffs do not allege particularized facts giving rise to the strong inference of scienter required for securities fraud claims under the PSLRA. See 15 U.S.C. § 78u-4(b)(2). Despite their inclusion of “confidential witness” allegations, plaintiffs have not plausibly alleged that any of the defendants had “knowledge of facts or access to information contradicting their public statements,” nor does the complaint plead facts supporting a strong inference that 2 See Declaration of John J. Clarke, Jr. dated March 30, 2018 (“Clarke Decl.”), Exh. 8 (press release attached to Form 6-K filed Feb. 2, 2017). Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 8 of 35 4 defendants acted in reckless disregard of the truth in making any statements. Novak v. Kasaks, 216 F.3d 300, 308 (2d Cir. 2000). Plaintiffs similarly do not raise a strong inference of scienter through their “motive” allegations. Plaintiffs assert that a single stock sale in May 2015 by an entity affiliated with Dr. Odidi is evidence of an alleged motive to defraud. See Compl. ¶ 133. But that transaction, involving less than 2.5% of Dr. Odidi’s holdings, occurred years before the joint advisory committee meeting and pre-dated most of the public statements at issue. It cannot fairly be characterized as “suspicious” in either its timing or amount. Other alleged motives could be shared by officers of most public companies, such as an alleged desire for the Company to appear profitable or to enhance the value of incentive-based compensation, and do not support an inference of scienter here. Plaintiffs also have added allegations concerning Dr. Odidi’s alleged dealings with a start-up pharmaceutical company in China, but those allegations bear no relationship to Oxycodone ER or the FDA approval process; they do not support an inference of scienter either. Finally, plaintiffs’ failure to allege a primary violation also requires dismissal of the “control person” claims under section 20(a) of the Exchange Act. Plaintiffs also do not plead culpable participation. Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 9 of 35 5 SUMMARY OF THE ALLEGATIONS 3 A. The Parties Intellipharmaceutics is incorporated under the laws of Canada and maintains its principal offices in Toronto. Compl. ¶ 23. It is engaged in the research, development, and commercialization of pharmaceutical products. Id. ¶ 26. Dr. Odidi is its chief executive officer and chief scientific officer. Id. ¶ 24. Until early September 2017, when he left the Company to pursue a new opportunity, Mr. Della Penna served as the Company’s chief financial officer. Id. ¶ 25; id. at 9, fn. 5. Plaintiffs allege that they purchased Intellipharmaceutics common stock. They purport to assert their claims on behalf of a putative class of such purchasers during an alleged “class period” from May 21, 2015 through July 26, 2017. Id. ¶¶ 1, 18-22. B. 2015 FDA Guidance on Applications for Abuse-Deterrent Labeling In 2015, the FDA released non-binding guidance entitled “Abuse-Deterrent Opioids – Evaluation and Labeling,” which “explain[ed] FDA’s current thinking about the studies that should be conducted to demonstrate that a given formulation has abuse-deterrent properties” and “ma[de] recommendations about how those studies should be performed and evaluated.” Clarke 3 The well-pleaded allegations of the complaint are assumed to be true solely for the purpose of this motion to dismiss. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56, 127 S. Ct. 1955, 1965 (2007). The Court also may consider “documents incorporated into the complaint by reference, and matters of which a court may take judicial notice.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322, 127 S. Ct. 2499, 2509 (2007); ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) (court may consider “statements or documents incorporated into the complaint by reference, legally required public disclosure documents filed with the SEC, and documents possessed by or known to the plaintiff and upon which it relied in bringing the suit”) (citing Rothman v. Gregor, 220 F.3d 81, 98 (2d Cir. 2000)). In addition to the complete text of public statements challenged in the complaint, this Court can take judicial notice of the FDA’s 2015 guidance, briefing documents filed on the FDA’s public website, and the transcript of the public session of the joint advisory committee meeting. See Fed. R. Evid. 201(b) (requirements for judicial notice). Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 10 of 35 6 Decl., Exh. 1 at 1. The guidance made clear that it “[did] not establish legally enforceable responsibilities . . . and should be viewed only as recommendations, unless specific regulatory or statutory requirements are cited.” Id. In the guidance, the FDA described three types of pre-market studies that could support a claim of abuse-deterrence for an opioid formulation: (1) laboratory-based in vitro manipulation and extraction studies (Category 1) to assess ways a drug “could be manipulated to the point of defeating its abuse-deterrent properties,” id. at 5, 6; (2) in vivo pharmacokinetic studies (Category 2) to compare the pharmacokinetic profiles of the manipulated formulation with the intact version and with comparator drugs, id. at 5, 8; and (3) clinical abuse potential studies (Category 3), which are randomized, double-blind studies of drug experienced, recreational users to assess potentially abuse-deterrent properties, id. at 5, 9-10. Three typical routes of opioid abuse are evaluated through these studies – intravenous, intra-nasal, and oral (usually by crushing and ingestion to defeat controlled-release features). See id. at 4-5. The FDA’s guidance explained that when an applicant is seeking abuse-deterrent labeling for the intravenous route of abuse only, as was the case for Intellipharmaceutics here, “Category 1 in vitro data may be sufficient to support a statement in labeling about abuse deterrence.” Id. at 24. Similarly, Category 1 and 2 data alone “may be sufficient to support statements in labeling about abuse deterrence for the nasal and intravenous routes of abuse.” Id. C. The Intellipharmaceutics New Drug Application Oxycodone ER is an abuse-deterrent extended-release version of oxycodone hydrochloride. Compl. ¶ 27. The Company developed its formulation using a combination of chemical barriers and aversion techniques intended to deter abuse, including: gelling quickly upon contact with aqueous solutions with greater particle size reduction; resisting chemical Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 11 of 35 7 extraction in solvents; resisting dose dumping in the presence of alcohol; including a nasal irritant; and including a staining blue dye, released if a tablet is crushed or chewed, which is difficult to remove from the face, hands, and tongue, to act as a visible deterrent against inappropriate use. Id.; see id. ¶ 93. According to the complaint, on March 30, 2015, the Company submitted an investigational new drug application (“INDA”) to the FDA for Oxycodone ER. Id. ¶ 27. On May 21, 2015, the Company announced that the FDA had said it would “not be required to conduct Phase III studies if bioequivalence to OxyContin is demonstrated.” Id. ¶ 41. On January 14, 2016, the Company announced the results of pivotal trials that “demonstrated bioequivalence, in both fasted and fed conditions to the brand reference drug Oxycontin®.” Id. ¶ 77; see Clarke Decl., Exh. 5 (January 14, 2016 press release). The FDA later agreed with that conclusion. On November 25, 2016, the Company announced that it had filed its NDA. Compl. ¶ 44. Several months later, on February 2, 2017, the Company announced that the FDA had accepted the NDA for filing based on a finding that it contained sufficient information to allow for the FDA’s substantive review. Id. ¶ 46. The FDA also set September 25, 2017 as the deadline, under the Public Drug User Fee Act (“PDUFA”), by which the application would be accepted or rejected. Id. The FDA scheduled a meeting on July 26, 2017 of two advisory committees of outside experts to consider the application and make recommendations to the FDA.4 Id. In its public statements about all of these developments, Intellipharmaceutics made clear that “[t]here can be no assurance that [Oxycodone ER] will receive FDA approval or that, if 4 The committees were the Anesthetic and Analgesic Products Advisory Committee and the Drug Safety and Risk Management Advisory Committee. Advisory committees are comprised of outside experts; their recommendations are not binding on the FDA. See Zak v. Chelsea Therapeutics Int’l, Ltd., 780 F.3d 597, 603 (4th Cir. 2015). Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 12 of 35 8 approved it will be successfully commercialized,” Clarke Decl., Exh. 7 (November 25, 2016 press release), and that “[t]here can be no assurance that [the Company] will not be required to conduct further studies for [Oxycodone ER],” Clarke Decl., Exh. 6 (July 5, 2016 press release) and Exh. 8 (February 2, 2017 press release). (These press releases are partially quoted in the complaint but the warnings are not included in those excerpts, see Compl. ¶¶ 44, 95, 97.) In advance of the joint advisory committee meeting, the Company submitted a briefing document, available on the FDA’s website, that described the data to support abuse-deterrent labeling for Oxycodone ER for the intravenous route of abuse. Compl. ¶ 50; see Clarke Decl., Exh. 2 (Company briefing document). The FDA issued its own briefing document. Compl. ¶¶ 12, 112; see Clarke Decl., Exh. 3 (FDA briefing document). At the meeting on July 26, 2017, members of the joint advisory committee engaged in a wide ranging discussion about the application which was not limited to the requested abuse- deterrent label for the intravenous route of abuse. Significant attention was focused on the use in the formulation of the staining blue dye and what it might mean for abusers of the formulation through oral or intra-nasal routes of abuse. See Compl. ¶¶ 53, 59, 62; see also Clarke Decl., Exh. 4 at 79-84, 121-23, 152-56, 158-63, 168-71. At the conclusion of the meeting, the committee members voted against a recommendation that the FDA approve the NDA. Id. ¶ 56. Thereafter, in a complete response letter announced by the Company on September 25, 2017, the FDA requested that the Company resubmit the application within one year and to include specific, additional data in the resubmission. Id. ¶ 64; see Clarke Decl., Exh. 10. Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 13 of 35 9 D. The Alleged Misstatements and Omissions Plaintiffs challenge a number of public statements “regarding the promise of Rexista, [the] NDA, Rexista’s abuse-deterrent properties, and the clinical studies and trials by which the Company purportedly established Rexista’s abuse-deterrence properties[.]” Compl. ¶ 5. 1. Statements Made Before the NDA Submission Plaintiffs challenge fifteen public statements dating from before November 2016, when the Company filed the NDA. Compl. ¶¶ 67-94. Several of them concerned FDA communications to the Company that it would “not be required to conduct Phase III studies if bioequivalence to OxyContin is demonstrated.” Id. ¶¶ 67, 70, 73, 77, 80, 83, 86. Plaintiffs contend that these statements were “materially false or misleading when made” because, inter alia, Intellipharmaceutics “did not conduct studies in accordance with the 2015 FDA Guidance, and thus, the Company could not demonstrate bioequivalence to Oxycontin,” id. ¶¶ 68, 71, 74, 78, 81, 84, 87, and because the Company had not yet conducted Category 2 and 3 studies of abuse deterrence, id. at ¶ 74, 78, 81, 84, 87. Other challenged statements from before the NDA filing concern the “abuse-deterrent attributes” of Oxycodone ER (Rexista). Id. ¶¶ 75, 80, 83, 86, 89, 91, 93. Plaintiffs allege that these statements were “materially false and misleading when made” because: (1) Intellipharmaceutics allegedly “had not conducted the necessary studies in accordance with the 2015 FDA Guidelines” to support its claims that Rexista possessed abuse-deterrent attributes, id. ¶¶ 76, 90, 92, 94; and (2) “[d]efendants did not have data to support claims that Rexista’s excipients (a nasal irritant and blue dye) deterred abuse by the nasal and oral routes,” id. ¶¶ 76, 81, 84, 87, 94. Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 14 of 35 10 2. Statements Made After NDA Submission Plaintiffs also challenge nine statements made after the Company filed its NDA but before the July 2017 joint advisory committee meeting. Compl. ¶¶ 95-110. These statements relate to the contents of the NDA, Compl. ¶¶ 95, 97, 100, 103, 105, 107, 110, and the abuse- deterrent properties of Oxycodone ER (Rexista), id. ¶¶ 95, 97, 103, 107, 110. Plaintiffs allege that these statements were “materially false and misleading when made” because: (1) Intellipharmaceutics allegedly did not follow the FDA’s 2015 guidance because it only included data from Category 1 studies and only sought abuse-deterrent labeling for the intravenous route of abuse, id. ¶¶ 96, 98, 101, 104, 106, 108, 111; (2) Intellipharmaceutics allegedly could not demonstrate the bioequivalence of Oxycodone ER (Rexista) to OxyContin, id. ¶¶ 104, 108, 111; and (3) Intellipharmaceutics “did not have data to support claims that Rexista’s excipients (a nasal irritant and blue dye) deterred abuse by the nasal and oral routes,” id. ¶¶ 104, 108, 111. E. Plaintiffs’ Scienter Allegations Plaintiffs allege that defendants knew or should have known that the NDA for Oxycodone ER would not be approved because Intellipharmaceutics allegedly failed to follow the FDA’s non-binding 2015 guidance. Compl. ¶¶ 116-18. Plaintiffs allege that the Company “[s]ubmitted only Category 1 (in vitro) studies to support labeling of Rexista,” “should have conducted a complete abuse-deterrent assessment to cover multiple routes of administration,” and “should have conducted Category 2 and 3 studies because they provide important information for the evaluation of abuse-deterrent formulations with respect to oral and intranasal abuse that cannot be derived from Category 1 studies alone.” Id. ¶ 117. Plaintiffs also include allegations apparently intended to show that defendants had a motive to defraud, including: their participation in executive compensation plans, Compl. Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 15 of 35 11 ¶¶ 119-24; the Company’s “at the market” program of stock sales , id. ¶¶ 125-29; a public offering of Intellipharmaceutics common stock, id. ¶¶ 130-33; a single sale of common stock by an entity affiliated with Dr. Odidi on May 29, 2015, id. ¶¶ 132-33; and Dr. Odidi’s alleged involvement with a pharmaceutical manufacturing facility and research and development company in China, Smart Pharmaceutical (Shanghai) Co., Ltd., id. ¶¶ 134-41. * * * On the basis of these allegations, plaintiffs assert claims against all defendants under sections 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5, and against Dr. Odidi and Mr. Della Penna under section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a). STANDARD OF REVIEW Under Rule 12(b)(6), a complaint must be dismissed if it fails to plead “enough facts to state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570, 127 S. Ct. at 1974. “Allegations that are conclusory or unsupported by factual assertions are insufficient.” ATSI Commc’ns, 493 F.3d at 99. Well-pleaded allegations are assumed to be true only to the extent not contradicted by other allegations or documents incorporated by reference, including filings with the SEC and other materials as to which the Court can take judicial notice. Tellabs, 551 U.S. at 322, 127 S. Ct. at 2509; ATSI Commc’ns, 493 F.3d at 98. Challenged public statements must be evaluated “fairly and in context.” Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 135 S. Ct. 1318, 1330, 1332 (2015). Under the heightened pleading requirements imposed by Rule 9(b) and the PSLRA, a securities fraud complaint must specify each alleged misstatement or omission, explain why it is false or misleading, and “state with particularity facts giving rise to a strong inference that the defendant acted” with a fraudulent state of mind, that is, scienter. Tellabs, 551 U.S. at 321, 127 Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 16 of 35 12 S. Ct. at 2508 (citing 15 U.S.C. § 78u-4(b)(1) and (2)); Novak, 216 F.3d at 306. A complaint will only survive a motion to dismiss “if a reasonable person would deem the inference of scienter cogent and at least as compelling as any opposing inference one could draw from the facts alleged.” Tellabs, 551 U.S. at 324, 127 S. Ct. at 2502-03. ARGUMENT THE AMENDED COMPLAINT SHOULD BE DISMISSED I. PLAINTIFFS’ SECURITIES FRAUD CLAIMS SHOULD BE DISMISSED FOR SEVERAL DIFFERENT REASONS. Section 10(b) of the Exchange Act “makes it unlawful to ‘use or employ, in connection with the purchase or sale of any security . . . any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [SEC] may proscribe.’” Local 134 IBEW Joint Pension Tr. v. JP Morgan Chase Co., 553 F.3d 187, 197 (2d Cir. 2009) (quoting 15 U.S.C. § 78j(b)). Rule 10b-5(b), in turn, “prohibits ‘mak[ing] any untrue statement of a material fact or [omitting] to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.’” Id. (quoting 17 C.F.R. § 240.10b-5(b)) (alterations in original). To state a claim for relief under these provisions, a plaintiff must allege “(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.” Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 157, 128 S. Ct. 761, 768 (2008). Plaintiffs have not met their pleading burden here. Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 17 of 35 13 A. The Complaint Does Not Plausibly Allege That Any Challenged Statement Was Materially False or Misleading When Made. In the complaint, plaintiffs seek to recharacterize as “fraud” a type of business setback that is familiar to companies that seek FDA approval for a new drug. But “[t]he securities laws are not intended as investor insurance every time an investment strategy turns out to have been mistaken.” Podany v. Robertson Stephens, Inc., 318 F. Supp. 2d 146, 156 (S.D.N.Y. 2004); see also In re Merrill Lynch & Co., Inc. Research Reports Sec. Litig., 273 F.Supp.2d 351, 358 (S.D.N.Y. 2003) (securities laws are not meant to underwrite investor risk). A mere failure to obtain FDA approval for a new drug application does not amount to fraud. For example, in In re AstraZeneca Sec. Litig., 559 F. Supp. 2d 453 (S.D.N.Y. 2008), Judge Griesa concluded that the FDA’s rejection of a new drug application after an advisory committee recommended against it did “not mean that AstraZeneca was not conscientious in advocating the drug [] before the FDA, nor does it mean that the information issued publicly over the course of more than a year was dishonest or recklessly disseminated.” Id. at 471. Similarly, in Tongue v. Sanofi, 816 F.3d 199 (2d Cir. 2016), the Second Circuit affirmed dismissal of claims challenging a company’s statements about the results of clinical trials and its expectations for FDA approval despite allegations concerning contemporaneous differences in view with the FDA regarding the underlying data. Id. at 213-14; see also Kleinman v. Elan Corp., plc, 706 F.3d 145, 147 (2d Cir. 2013) (rejecting claims where “in the context of the full presentation of the details surrounding the study of the drug, nothing omitted from the June press release rendered it false or misleading to a reasonable investor”). In this case, too, the fact that the FDA ultimately required resubmission of the Company’s application for Oxycodone ER after a joint advisory committee voted against Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 18 of 35 14 recommending its approval does not support any reasonable inference that earlier statements were false or misleading. 1. The NDA Complied With Non-Binding FDA Guidance When Seeking Abuse-Deterrent Labeling for the Intravenous Route of Abuse. Plaintiffs contend that a number of statements concerning the NDA for Oxycodone ER were “materially false and misleading” because Intellipharmaceutics did not disclose that it allegedly had not followed the FDA’s 2015 guidance for applications seeking abuse-deterrent labeling by relying only on Category 1 in vitro studies of abuse-deterrence. Compl. ¶¶ 74, 76, 78, 81, 84, 87, 90, 92, 94, 96, 98, 101, 104, 106, 108, 111. Such a claim of “fraud by hindsight” is never actionable. See Denny v. Barber, 576 F.2d 465, 470 (2d Cir. 1978) (Friendly, J.). In this case, plaintiffs’ theory also overlooks their own allegations and the FDA guidance that is the principal basis for their arguments. The FDA’s non-binding guidance explains that a sponsor seeking FDA approval for an abuse-deterrent label can elect to obtain approval for only one route of abuse or can elect to pursue one route first and seek additional labeling later. See Clarke Decl., Exh. 1 at 24-25. When an applicant is only seeking labeling for the intravenous route of abuse, data from Category 1 abuse-deterrence studies may be sufficient to support such a label. Id. at 24. The FDA representative who ran the joint advisory committee meeting elaborated on the reasons for why this was so: Because it’s not possible to safely conduct human studies of manipulated oral formulations by the intravenous route, for products with physical chemical properties intended to deter intravenous abuse, we rely on the in vitro assessment of the ability to manipulate the product for extraction or to form a solution suitable for injection. Clarke Decl., Exh. 4 at 31:6-12 (joint advisory committee transcript). Intellipharmaceutics did not disregard the FDA guidance, in other words, but instead prepared an application seeking only Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 19 of 35 15 a label for the intravenous route of abuse in a manner the guidance expressly contemplates. See Compl. ¶ 50. Further, and contrary to the complaint, see id. ¶ 59, the FDA had approved an earlier application for abuse-deterrent labeling of a reformulated version of OxyContin based on in vitro studies. See Clarke Decl., Exh. 14 (Purdue Pharma briefing document from May 2008). Beyond the guidance itself, the actions of the FDA concerning the Intellipharmaceutics NDA would have provided defendants further assurance that their statements were accurate. FDA regulations required the agency, before accepting the NDA, to review it sufficiently to make “a threshold determination that the application is sufficiently complete to permit a substantive review.” 21 C.F.R. § 314.101(a). As the result of its review here, the FDA knew that Intellipharmaceutics was only seeking approval for labeling for the intravenous route of abuse and that the application was supported only by Category 1 studies at that time.5 See Compl. ¶ 50. Yet the FDA concluded that the Company’s application was sufficiently complete to permit a substantive review. See Clarke Decl., Exh. 8 (Feb. 2, 2017 press release) at 1; see Compl. ¶¶ 46, 97. In addition, based on the data actually included in the NDA, rather than other hypothetical studies that might have been included, the FDA set a September 2017 PDUFA date and scheduled a July 2017 joint advisory committee meeting. Compl. ¶ 46. Further contradicting the inferences plaintiffs seek to draw, the record suggests that the FDA itself might not have anticipated the joint advisory committee’s reactions. At the start of the joint advisory committee meeting on July 26, 2017, the FDA’s representative, Dr. Sharon Hertz, explained that the committee was there to evaluate whether Oxycodone ER should receive 5 Protocols for proposed Category 2 and Category 3 studies of abuse-deterrence also were submitted. See Clarke Decl., Exh. 4 at 244:8-10 (joint committee meeting transcript). Plaintiffs therefore misunderstand a statement by Dr. Odidi, after the FDA sent its complete response letter, that the Company “already planned the additional Category 2 and Category 3 studies” the FDA requested in that letter. See Compl. ¶ 64. Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 20 of 35 16 abuse-deterrent labeling for the intravenous route of abuse. See Clarke Decl., Exh. 4 at 29:4-5 (transcript); see Compl. ¶ 50. But the committee then ventured into a wide ranging discussion of issues relating to the nasal and oral routes of abuse for Oxycodone ER, labeling for which was not then being sought, and, in particular, the inclusion in the formulation of a staining blue dye. Compl. ¶¶ 51, 53, 55-63; see Clarke Decl., Exh. 4 at 79-84, 121-23, 152-56; 158-63, 168-71. Following a discussion among committee members, Dr. Hertz intervened: DR. HERTZ: So how about if I try it this way? If everything else were in order, would there be adequate data to support abuse-deterrent labeling? And in terms of what it’s relative to, it’s relative to the data that you have. If you were to conclude that everything else were in order, and this was one of the series of questions that we ask when we have the different routes, so the next one could have been nasal, the next one could have been oral, if we were going to do all of that, are the data sufficient to support that type of labeling? Clarke Decl., Exh. 4 at 296:3-14. Plaintiffs’ contention that Intellipharmaceutics should have known its application would be voted down by the joint advisory committee disregards this context. The claims are, in essence, an FDA-specific brand of inactionable “fraud by hindsight.” See Sanofi, 816 F.3d at 214 (statements regarding clinical trial results “were not misleading simply because the FDA disagreed with [d]efendants’ interpretation of the data”); Acito v. IMCERA Grp., Inc., 47 F.3d 47, 53 (2d Cir. 1995) (“defendants’ lack of clairvoyance” that manufacturing plant would fail FDA inspection “simply does not constitute securities fraud”). Nor do the claims plead a materially misleading statement to the extent plaintiffs are contending that the Company implied that it had “checked every box” under the FDA’s guidance. See Crihfield v. CytRx Corp., CV-16-05519 SJO (SKx), 2017 WL 2819834, at *10-11 (C.D. Cal. June 14, 2017) (dismissing securities fraud claims noting that plaintiff did not “point to any authority indicating, much less suggesting, that a company misleads its investors by Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 21 of 35 17 announcing its clinical trial is being ‘conducted under [a special protocol assessment]’ . . . when the company fails to follow all scientific assumptions underlying [it]”). As in CytRx, the challenged statements that Intellipharmaceutics had conducted clinical studies “having reference to” the FDA’s 2015 guidance, Compl. ¶¶ 97, 100, or studies “conducted to support abuse-deterrent label claims” by “various pathways,” id. ¶¶ 103, 107, did not constitute representations that the Oxycodone ER application included data from Category 1, Category 2, and Category 3 studies. Category 1 studies are relevant to show abuse-deterrence for all routes of abuse, but the FDA guidance also acknowledges that applications for labeling for the intravenous route of abuse could be based on Category 1 studies alone. That is the approach the Company followed. See generally Sanofi, 816 F.3d at 212 (investors “would fully expect that [d]efendants and the FDA were engaged in a dialogue . . . about the sufficiency of various aspects of the clinical trials and that inherent in the nature of a dialogue are differing views”). 2. Plaintiffs’ Challenge to Statements About Bioequivalence to OxyContin Ignore the FDA’s Finding That It Had Been Shown. The second category of challenged statements concern the Company’s stated belief that it would be able to establish the safety and efficacy of Oxycodone ER by showing its bioequivalence to OxyContin and therefore avoid the need for “costly and time-consuming Phase III studies.” See Compl. ¶70; see also id. ¶¶ 67, 73, 77, 80, 83, 86. Plaintiffs mistakenly contend that these statements were false and misleading because Intellipharmaceutics “could not demonstrate bioequivalence to Oxycontin.” See Compl. ¶¶ 68, 71, 74, 78, 81, 84, 87, 104, 108, 111. To the contrary, the FDA acknowledged in its July 2017 briefing materials for the joint advisory committee meeting that the Company had established safety and efficacy for Oxycodone ER by demonstrating bioequivalence to OxyContin, through pivotal pharmacokinetic Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 22 of 35 18 studies, “both under fasted and fed conditions.” See Clarke Decl., Exh. 3 at 101; see Compl. ¶ 112 (quoting from FDA briefing document on different issue). Moreover, each of the challenged statements relating to bioequivalence was a statement of opinion or belief that is not actionable under the facts alleged given the holding in Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 135 S. Ct. 1318 (2015); see also Sanofi, 816 F.3d at 209-14 (applying Omnicare to analyze opinion statements regarding FDA approval process). The statements were couched in the language of opinion or belief, including: • “The Company believes the FDA notification is significant as it provides a basis for an accelerated development plan for its Rexista Oxycodone XR product candidate, without the need for more costly and time-consuming Phase III studies.” Compl. ¶¶ 67, 70, 73. • “The Company believes, in light of previously announced results of the three definitive Phase I pharmacokinetic trials, that it will not be required to conduct Phase III studies, although no assurance to that effect can be given.” Id. ¶¶ 70, 73. • “Having now demonstrated such bioequivalence, we believe we will not be required to conduct Phase III studies although no assurance can be given that we will not be required to conduct further studies for Rexista Oxycodone XR . . . ” Id. ¶¶ 83, 86. (Emphasis added). Under Omnicare, opinion statements are not actionable as securities violations unless plaintiffs plausibly allege either that (1) the opinion or belief “constitutes a factual misstatement,” or (2) the opinion or belief is “rendered misleading by the omission of discrete factual representations.” Omnicare, 135 S. Ct. at 1325; see Sanofi, 816 F.3d at 209-14 (applying Omnicare to claims under both Securities Act of 1933 and Exchange Act). An opinion only can be an actionable misstatement if the speaker did not “actually hold[] the stated belief.” Omnicare, 135 S. Ct. at 1326. Likewise, an opinion statement is actionable as an allegedly misleading omission only if the plaintiff has identified “particular (and material) facts going to Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 23 of 35 19 the basis for the issuer’s opinion . . . whose omission makes the opinion statement at issue misleading to a reasonable person reading the statement fairly and in context.” Id. at 1332 (emphasis added). In the complaint here, plaintiffs have not alleged facts to support a claim under either approach. To the contrary, plaintiffs’ own allegations support the reasonable inference that defendants honestly believed that the Company would be able to show the bioequivalence of Oxycodone ER to OxyContin sufficiently to avoid the need for costly and time-consuming Phase III studies; the FDA ultimately agreed that the Company had done so. There can be no claim for a securities violation under those circumstances.6 See Sanofi, 816 F.3d at 211 (rejecting claims based on opinion statements concerning timing and likelihood of FDA approval); Kleinman, 706 F.3d at 153-55 (rejecting claims based on opinion statements concerning clinical trial results where there was no evidence the opinions were not honestly believed); In re Bristol-Myers Squibb Sec. Litig., 312 F. Supp. 2d 549, 558 (S.D.N.Y. 2004) (statements by corporate officer that he did not “think it’s likely at all that this drug won’t get approved” by the FDA were “plainly opinions, not guarantees, and are not actionable”).7 6 Plaintiffs make much of concerns expressed by one member of the joint advisory committee that the blue dye included in the formulation could have an effect on Oxycodone ER’s bioequivalence to OxyContin. See Compl. ¶¶ 53, 59. But the FDA concluded that bioequivalence had been shown, and plaintiffs do not allege that the complete response letter sent by the FDA after the joint committee meeting requested the Company to conduct any further studies to establish bioequivalence. See Compl. ¶ 64. 7 Alleged statements of belief by Mr. Della Penna regarding the abuse-deterrent properties of Oxycodone ER quoted in the complaint from a news article also are not actionable. See Compl. ¶ 91. There is no allegation that Mr. Della Penna did not honestly believe that the abuse-deterrent properties of Oxycodone ER “not only match but exceed those of both currently marketed products and products in late stage development.” Id. Nor have plaintiffs identified any contemporaneous facts not discussed in the quotation which made the expression of those opinions “misleading to a reasonable person reading the statement fairly and in context.” Omnicare, 135 S. Ct. at 1332 (emphasis added). Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 24 of 35 20 3. Joint Advisory Committee Views on the Blue Dye and Nasal Irritant Did Not Render Earlier Public Statements False or Misleading. Separately plaintiffs contend that the Company’s public statements regarding the NDA for Oxycodone ER were false or misleading because the Company allegedly “did not have data to support the claims that Rexista’s excipients (a nasal irritant and a blue dye) deterred abuse by the nasal and oral routes.” Compl. ¶¶ 104, 108, 111. Plaintiffs’ assertion again is based on a mistaken premise. Oxycodone ER was formulated with a number of abuse-resistant features, but the Company’s claims of abuse-deterrence for the intravenous route of abuse were based on aspects of the formulation other than the blue dye or the nasal irritant, including that the formulation will gel upon contact with aqueous solutions with greater particle size reduction and that it resists chemical extraction in either large or small volumes of solvents. See Compl. ¶ 27. Plaintiffs have not alleged that any of the defendants knew, or reasonably could have known, that the members of the joint advisory committee would have the concerns they expressed at the joint advisory committee meeting about the blue dye (and, to a lesser extent, the nasal irritant), neither of which was intended to deter abuse through the intravenous route. 4. Many of the Challenged Statements are Forward-Looking Statements Subject to the Statutory Safe Harbor Provision. Section 78 of the Exchange Act, added to the statute by the PSLRA, provides that “a person . . . shall not be liable with respect to any forward-looking statement” if either “(1) the forward-looking statement is identified as forward-looking and ‘accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement, or (2) the plaintiff ‘fails to prove’ the projections were made with ‘actual knowledge’ that they were false and misleading.” CytRx, 2017 WL 2819834, at *12 (quoting 15 U.S.C. § 78u-5(c)). Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 25 of 35 21 Many of the statements at issue in the complaint are “statement[s] of the plans and objectives of [Intellipharmaceutics’] future operations,” as contemplated by the safe harbor. See 15 U.S.C. § 78u-5(c)(i)(1)(B); see, e.g., Compl. ¶ 67, 70, 73, 77 (e.g., “[t]he Company intends to file an NDA for [Oxycodone ER] with the FDA in the next 6 to 12 months”); ¶ 80, 83, 86 (e.g., “[w]e are continuing to work towards satisfying the requirements to file an NDA for [Oxycodone ER] with the FDA and plan to complete this filing within the next six months”); ¶ 95, 97 (“We look forward to working with the FDA during their review of our NDA submission”).8 Statements pertaining to the Company’s future plans for Oxycodone ER fall squarely within the ambit of the statutory safe harbor. See CytRx, 2017 WL 2819834, at *13 (discussing similar statements in the context of an application for FDA approval). The first prong of the safe harbor renders nonactionable forward-looking statements that are accompanied by meaningful cautionary disclosures identifying important factors that could cause actual results to differ materially. 15 U.S.C. § 78u-5(c)(1)(A)(i), (2)(A)(i). Under that part of the provision, courts are to “examine only the cautionary statement accompanying the forward-looking statement” and “should not examine the state of mind of the person making the statement.” H.R. Rep. No. 104-369, at 44 (1995); see CytRx, 2017 WL 2819834, at *12-13; In re Biogen Inc. Securities Litigation, 193 F. Supp. 3d 5, 39-41 (D. Mass. 2016) (statements regarding future revenue growth based on a specific drug protected by the safe harbor); In re Sanofi Sec. Litig., 87 F. Supp. 3d 510, 535-36 (S.D.N.Y. 2015), aff’d 816 F.3d 199 (2d Cir. 8 See also Compl. ¶ 77 (“We look forward to filing an NDA within the next six months, which we hope will lead to a positive contribution in addressing an unmet need in opioid abuse and addiction.”); ¶ 86 (“We intend to generate all data necessary to support FDA approval of the applications we file.”); ¶ 95 (“[W]e look forward to further expanding our development program for abuse-deterrent pain and other medications. The Company has identified potential manufacturing options for [Oxycodone ER] in the U.S.”); ¶ 110 (“[T]he Company is preparing to share its data with the Advisory Committee as a key step towards securing FDA approval of [Oxycodone ER].”). Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 26 of 35 22 2016) (statements concerning future FDA approval were subject to safe harbor because they were accompanied by warning that the FDA “may deny or delay an approval because it was not satisfied with the structure or conduct of clinical trials or due to its assessment of the data”). In this case, similarly, Intellipharmaceutics consistently warned, in public statements concerning its NDA for Oxycodone ER, of the specific risks that eventually materialized. Notably, several of the press releases plaintiffs challenge as misleading warned that: There can be no assurance that we will not be required to conduct further studies for Rexista, that the FDA will ultimately approve the NDA for the sale of Rexista in the U.S. market, or that it will ever be successfully commercialized. See Clarke Decl., Exh. 8 (February 2, 2017 press release) (emphasis added); see also Clarke Decl., Exh. 9 (June 30, 2017 press release), Clarke Decl., Exh. 6 (July 5, 2016 press release). Plaintiffs do not quote this portion of the statements in their complaint, even while they discuss the relevant press releases. See Compl. ¶¶ 93, 97.9 Under the second prong of the safe harbor, forward-looking statements are not actionable if a plaintiff “fails to prove that the forward-looking statement . . . was made with actual knowledge . . . that the statement was false or misleading.” See 15 U.S.C. § 78u-5(c)(1)(B). The standard for pleading actual knowledge is “stricter than [the scienter requirement] for statements of current fact” and liability “attaches only upon proof of knowing falsity.” Sanofi, 87 F. Supp. 3d at 530 (dismissing claims where the complaint “contain[ed] only a conclusory allegation that defendants ‘engaged in deceptive conduct knowingly and intentionally’”). 9 See also, e.g., Clarke Decl., Exh. 11 at 12 (Form 20-F) (“The FDA or foreign regulatory authorities may require us to conduct unanticipated additional clinical trials, which could result in additional expense and delays in bringing our product candidates to market.”); Exh. 12 at 13 (July 11, 2017 quarterly report) (“There can be no assurance that we will not be required to conduct further studies for Rexista™, that the FDA will ultimately approve our NDA for the same of Rexista™ in the U.S. market, or that it ever be successfully commercialized.”). Similar warnings were provided in the Company’s other public statements concerning the NDA. Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 27 of 35 23 Plaintiffs’ allegation of “actual knowledge” here is entirely conclusory, see Compl. ¶ 154 (“at the time each of those forward-looking statements was made, the particular speaker knew that the particular forward-looking statement was false . . .”), and is not sufficient to avoid dismissal. Sanofi, 87 F. Supp. 3d at 530. B. The Complaint Does Not Plead Facts Giving Rise to the Required “Strong Inference” of Scienter. Under the Exchange Act, as amended by the PSLRA, plaintiffs are required to “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” 15 U.S.C. § 78u-4(b)(2). The “required state of mind” here is scienter, that is, “a mental state embracing intent to deceive, manipulate or defraud.” Tellabs, 551 U.S. at 319, 127 S. Ct. at 2507; Kalnit v. Eichler, 264 F.3d 131, 138 (2d Cir. 2001). To plead scienter, plaintiffs must allege facts: (1) that constitute strong circumstantial evidence of conscious recklessness; or (2) show that defendants had the motive and opportunity to commit fraud. See S. Cherry St., LLC v. Hennessee Grp. LLC, 573 F.3d 98, 108-10 (2d Cir. 2009); Novak, 216 F.3d at 311. For a corporate entity, “the pleaded facts must create a strong inference that someone whose intent could be imputed to the corporation acted with the requisite scienter.” Teamsters Local 445 Freight Div. Pension Fund v. Dynex Capital Inc., 531 F.3d 190, 195 (2d Cir. 2008). In evaluating whether a plaintiff has pleaded facts supporting the required “strong inference,” a court “must consider, not only inferences urged by the plaintiff, . . . but also competing inferences rationally drawn from the facts alleged.” Tellabs, 551 U.S. at 314, 127 S. Ct. at 2504. “An inference of fraudulent intent,” the Court recognized in Tellabs, “may be plausible, yet less cogent than other, nonculpable explanations for the defendant’s conduct.” Id. “To qualify as ‘strong,’ . . . an inference of scienter must be more than merely plausible or Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 28 of 35 24 reasonable – it must be cogent and at least as compelling as any opposing inference of nonfraudulent intent.” Tellabs, 551 U.S. at 314, 127 S. Ct. at 2504-05 (emphasis added). 1. There Are No Plausible Allegations of Conscious Wrongdoing. The essence of scienter is evidence of conscious wrongdoing, that is, particularized allegations of fact demonstrating that the statements at issue were knowingly false or, at a minimum, were made with such reckless disregard for the truth that it amounts to the same. See Novak, 216 F.3d at 306. In the context of securities fraud, recklessness means “conscious recklessness – i.e., a state of mind approximating actual intent, and not merely a heightened form of negligence.” S. Cherry St., 573 F.3d at 109 (quoting Novak, 216 F.3d at 312) (emphasis in original). The conduct involved must be “highly unreasonable, representing an extreme departure from the standards of ordinary care.” Rothman, 220 F.3d at 98 (internal quotations omitted). In the complaint here, there is no factual basis for plaintiffs’ suggestion that defendants knew or should have known that the joint advisory committee would vote against the Oxycodone ER application and that the FDA would then issue a complete response letter requiring resubmission of the NDA. In February 2017, the FDA accepted the NDA for filing after confirming that it was sufficiently complete to permit substantial review. Compl. ¶ 46; see 21 C.F.R. § 314.101(a). Not only did the agency accept the NDA for filing at that time, but it also set a brisk schedule for it under PDUFA, including a meeting of the joint advisory committee to consider the application. See Compl. ¶¶46, 50. There are no facts alleged in the complaint to suggest that the Company received any indication that the data provided in the NDA would not be sufficient to support abuse-deterrent labeling for the intravenous route of abuse. The FDA’s 2015 guidance – which is the principal basis for plaintiffs’ contentions – recognizes that such applications might be based only on Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 29 of 35 25 Category 1 in vitro studies of abuse-resistance, as the Oxycodone ER application was. See supra at 14-15. Similarly, the Company was justified in believing that it would not be required to conduct Phase III clinical trials of Oxycodone ER’s safety and efficacy because of the formulation’s bioequivalence to OxyContin. In July 2017, the FDA confirmed that bioequivalence had been shown to its satisfaction. See Clarke Decl., Exh. 3 at 101. There is, in other words, no basis alleged in the complaint to infer defendants’ “conscious recklessness.” See Rothman, 220 F.3d at 98. Nor have plaintiffs alleged that defendants had “knowledge of facts or access to information contradicting their public statements.” See Novak, 216 F.3d at 308. There are no allegations, for example, that defendants received undisclosed negative determinations from the FDA. See, e.g., Schueneman v. Arena Pharmaceuticals, Inc., 840 F.3d 698 (9th Cir. 2016) (scienter alleged where defendant had been engaged in ongoing discussions with the FDA regarding high rate of cancer in rats involved in studies while publicly stating that the drug was not carcinogenic); Zak, 780 F.3d at 609-10 (scienter alleged where defendants failed to disclose an FDA briefing document that recommended against approval of NDA). Plaintiffs’ generic “confidential witness” allegations do not come close to suggesting the existence of undisclosed, negative developments that contradicted the Company’s public statements. See Compl. ¶¶ 38- 39, 49, 138, 143 (“confidential witness” allegations). In brief, evaluating the allegations in the complaint as a whole, the “opposing inference of nonfraudulent intent” is the far more compelling one here. Tellabs, 551 U.S. at 314, 127 S. Ct. at 2504-05. 2. Plaintiffs’ Motive Allegations Do Not Raise an Inference of Scienter. Unable to allege facts showing conscious wrongdoing, plaintiffs also include a number of motive-based scienter allegations. “[T]o raise a strong inference of scienter through ‘motive and Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 30 of 35 26 opportunity’ to defraud, [p]laintiffs must allege that [a company] or its officers ‘benefitted in some concrete and personal way from the purported fraud.’” JP Morgan Chase, 553 F.3d at 198 (quoting Novak, 216 F.3d at 307-08). The complaint does not plausibly allege any such “concrete” benefit. First, plaintiffs allege that a single stock sale on May 29, 2015 by an entity allegedly affiliated with Dr. Odidi was “suspiciously timed.” Compl. ¶¶ 132-33. But the transaction involved less than 2.5% of Dr. Odidi’s beneficial holdings at the time. See Clarke Decl., Exh. 13 (amendment to Schedule 13D reporting sale of 216,439 shares and aggregate beneficial holdings of 8,789,676 shares). It also occurred more than two years before the July 2017 joint advisory committee meeting that is at the heart of plaintiffs’ allegations and before most of the public statements that plaintiffs allege were “false and misleading.” “Managers sell stock all the time,” Higginbotham v. Baxter Int’l, Inc., 495 F.3d 753, 759 (7th Cir. 2007) (Posner, J.), and allegations of stock sales alone therefore do not plead a strong inference of scienter. See Stevelman v. Alias Research Inc., 174 F.3d 79, 85-86 (2d Cir. 1999). Courts have rejected motive allegations where, as here, an isolated stock trade involving a small percentage of an individual’s alleged holdings occurred long before the events allegedly constituting “fraud.” See, e.g., Rothman, 220 F.3d at 94 (sale by officer of 9.9% of holdings did not support strong inference of scienter); Acito, 47 F.3d at 54 (scienter not alleged where plaintiffs relied on sale by one director of less than 11% of holdings); In re Party City Sec. Litig., 147 F. Supp. 2d 282, 313 (D.N.J. 2001) (“A broad temporal distance between stock sales and a disclosure of bad news defeats any inference of scienter.”).10 10 See also Russo v. Bruce, 777 F. Supp. 2d 505, 517 (S.D.N.Y. 2011) (no scienter based on stock trades where “[p]laintiffs hang their hat on a single stock sale by a single defendant”); In re Wachovia Equity Sec. Litig., 753 F. Supp. 2d 326, 350 (S.D.N.Y. 2011) (complaint Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 31 of 35 27 Second, plaintiffs also allege “motives” that could be ascribed to the executives of any public company, specifically, that Dr. Odidi and Mr. Della Penna were incentivized by a desire to increase the value of their executive compensation plans, Compl. ¶¶ 119-124, and that defendants were motivated to increase the Company’s stock price because of market offerings of Intellipharmaceutics common stock, id. ¶¶ 125-131. The Second Circuit has recognized, however, that “[m]otives that are common to most corporate officers, such as the desire for the corporation to appear profitable and the desire to keep stock prices high to increase officer compensation, do not constitute ‘motive’ for purposes of [the scienter] inquiry.” JP Morgan Chase, 553 F.3d at 198 (citing Novak, 216 F.3d at 307; Kalnit, 264 F.3d at 139). Indeed, “[i]f scienter could be pleaded solely on the basis that defendants were motivated because an inflated stock price or improved corporate performance would increase their compensation, ‘virtually every company in the United States that experiences a downturn in stock price could be forced to defend securities fraud actions.’” JP Morgan Chase, 553 F.3d at 201 (citation omitted). Finally, plaintiffs’ allegations regarding interactions by Dr. Odidi with the Chinese pharmaceutical company Smart Pharmaceuticals do not aid their scienter arguments. Compl. ¶¶ 135-141. Plaintiffs draw no connection between those allegations and the public statements that are challenged in the complaint. The complaint asserts that the allegations raise “serious questions concerning . . . conflicts of interest with Intellipharmaceutics and possible breaches of duties owed to the Company’s shareholders.” Compl. ¶ 141. But this is not a stockholder derivative action or another case asserting claims for breach of fiduciary duty. Allegations about “include[d] more than 50 pages of alleged misstatements over a period of 29 months” yet plaintiffs could “identify only one transaction by a named [d]efendant that occurred close in time to an alleged misstatement”); In re eSpeed, Inc. Sec. Litig., 457 F. Supp. 2d 266, 291-292 (S.D.N.Y. 2006) (motive insufficiently alleged where two officers sold 17.4% and 10.9% of holdings). Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 32 of 35 28 conduct entirely unrelated to the allegedly fraudulent public statements at issue do not support any inference of scienter. See JP Morgan Chase, 553 F.3d at 201 (rejecting scienter allegations where “the link between [the allegations] and the alleged misconduct simply is not close enough to strengthen the inference of an intent to defraud”); Nathenson v. Zonagen Inc., 267 F.3d 400, 420-421 (5th Cir. 2001) (allegations relating to stock sales “unrelated to any Company announcements” at issue not basis for inferring scienter); Hammerstone NV, Inc. v. Hoffman, No. 09 CV 2685(HB), 2010 WL 882887, at *9 (S.D.N.Y. Mar. 10, 2010) (rejecting scienter allegations unrelated to conduct underlying securities fraud claims). II. THE “CONTROL PERSON” CLAIMS UNDER SECTION 20(a) ALSO SHOULD BE DISMISSED. Because plaintiffs have failed to plead a primary violation, their “control person” claims against Dr. Odidi and Mr. Della Penna necessarily must be dismissed. See Wilson v. Merrill Lynch & Co., Inc., 671 F.3d 120, 139 (2d Cir. 2011). Further, plaintiffs also have not provided any factual allegations showing that either of the two individual defendants was “in some meaningful sense a culpable participant in the fraud perpetrated by the controlled person.” In re Lehman Bros. Mortgage-Backed Sec. Litig., 650 F.3d 167, 186 (2d Cir. 2011) (quoting S.E.C. v. First Jersey Sec., Inc., 101 F.3d 1450, 1472 (2d Cir. 1996)). Generic allegations that a defendant held an officer or director position, signed an SEC filing, or had access to information are not sufficient. See Novak, 216 F.3d at 309; In re Atlas Air Worldwide Holdings, Inc. Sec. Litig., 324 F. Supp. 2d 474, 497 (S.D.N.Y. 2004); In re WorldCom, Inc. Sec. Litig., 294 F. Supp. 2d 392, 418 (S.D.N.Y. 2003); In re Sotheby’s Holdings, Inc., No. 00 Civ. 1041, 2000 WL 1234601, at *7 (S.D.N.Y. Aug. 31, 2000). Plaintiffs only offer such inadequate and conclusory allegations with respect to either of the individual defendants here. Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 33 of 35 29 CONCLUSION For the foregoing reasons, defendants respectfully request that the Court dismiss the amended complaint in its entirety. Dated: New York, New York March 30, 2018 DLA PIPER LLP (US) By: /s/ John J. Clarke, Jr. John J. Clarke, Jr. john.clarke@dlapiper.com Rachael C. Kessler* rachael.kessler@dlapiper.com 1251 Avenue of the Americas New York, NY 10020-1104 Tel.: 212.335.4500 * Application pending for admission pro hac vice Attorneys for Defendants Intellipharmaceutics International, Inc., Isa Odidi, Ph.D., and Domenic Della Penna Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 34 of 35 CERTIFICATE OF SERVICE I hereby certify that, on March 30, 2018, I filed the foregoing Memorandum of Law in Support of Defendants’ Motion to Dismiss the Amended Complaint using the ECF System for the United States District Court for the Southern District of New York. Notice of this filing will be sent by operation of the Court’s electronic filing system to all counsel of record registered on the ECF system. /s/ John J. Clarke, Jr. John J. Clarke, Jr. Case 1:17-cv-05761-JPO Document 31 Filed 03/30/18 Page 35 of 35