Bauer v. Eagle Pharmaceuticals, Inc. et al

REPLY BRIEF to Opposition to Motion

D.N.J.March 1, 2017

Nathan W. Poulsen (Bar No. 002582011) (npoulsen@cooley.com) Jonathan Bach (pro hac vice) (jbach@cooley.com) Cooley LLP 1114 Avenue of the Americas New York, NY 10036 Phone: (212) 479-6000 Koji F. Fukumura (pro hac vice) (kfukumura@cooley.com) Peter M. Adams (pro hac vice) (padams@cooley.com) Nicolas Echevestre (pro hac vice) (nechevestre@cooley.com) Cooley LLP 4401 Eastgate Mall San Diego, CA 92121 Phone: (858) 550-6000 Attorneys for Defendants EAGLE PHARMACEUTICALS, INC. and SCOTT TARRIFF IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY BLAKE BAUER, Plaintiff, v. EAGLE PHARMACEUTICALS, INC. and SCOTT TARRIFF, Defendants. Case No. 16-CV-03091-JLL-JAD REPLY IN SUPPORT OF DEFENDANTS’ MOTION TO DISMISS PLAINTIFFS’ AMENDED CLASS ACTION COMPLAINT Date: March 20, 2017 Judge: Hon. Jose L. Linares Ctrm: MLK 5D ORAL ARGUMENT REQUESTED Case 2:16-cv-03091-JLL-JAD Document 29 Filed 03/01/17 Page 1 of 20 PageID: 776 Table of Contents Page -i- I. INTRODUCTION .......................................................................................... 1 II. PLAINTIFFS MISSTATE THE RELEVANT PLEADING STANDARDS ................................................................................................ 2 III. PLAINTIFFS FAIL TO PLEAD A MATERIALLY FALSE OR MISLEADING STATEMENT....................................................................... 4 A. Defendants’ Descriptions of RTU Bivalirudin and Optimism Regarding FDA Approval Were Not False or Misleading .................. 5 B. Plaintiffs Cannot Circumvent the PSLRA Safe Harbor ....................... 7 IV. PLAINTIFFS FAIL TO PLEAD A STRONG INFERENCE OF SCIENTER ................................................................................................... 10 V. PLAINTIFFS FAIL TO PLEAD LOSS CAUSATION ............................... 13 VI. PLAINTIFFS FAIL TO PLEAD SECTION 20(A) CONTROL- PERSON LIABILITY .................................................................................. 15 VII. THE COURT SHOULD DENY PLAINTIFFS’ REQUEST FOR LEAVE TO AMEND ................................................................................... 15 VIII. CONCLUSION ............................................................................................. 15 Case 2:16-cv-03091-JLL-JAD Document 29 Filed 03/01/17 Page 2 of 20 PageID: 777 Table of Authorities Page -ii- Cases In re Advanta Corp. Sec. Litig., 180 F.3d 525 (3d Cir. 1999) ............................................................................... 12 Bartesch v. Cook, 941 F. Supp. 2d 501 (D. Del. 2013).............................................................. 13, 14 Cal. Pub. Ret. Sys. v. Chubb Corp., 394 F.3d 126 (3d Cir. 2004) ............................................................................. 1, 6 In re CDNOW, Inc. Sec. Litig., 138 F. Supp. 2d 624 (E.D. Pa. 2001) .................................................................... 3 City of Roseville Emps.’ Ret. Sys. v. Horizon Lines, Inc., 686 F. Supp. 2d 404 (D. Del. 2009).................................................................... 12 Cozzarelli v. Inspire Pharm. Inc., 549 F.3d 618 (4th Cir. 2008) .............................................................................. 12 In re Cybershop.com Sec. Litig., 189 F. Supp. 2d 214 (D.N.J. 2002) ..................................................................... 15 In re Discovery Labs. Sec. Litig., 2006 WL 3227767 (E.D. Pa. Nov. 1, 2006) ......................................................... 8 Dougherty v. Esperion Therapeutics, Inc., 2016 WL 7439196 (E.D. Mich. Dec. 27, 2016) ................................................... 9 Fort Worth Emps.’ Ret. Fund v. Biovail Corp., 615 F. Supp. 2d 218 (S.D.N.Y. 2009) ................................................................ 14 Frater v. Hemispherx Biopharma, Inc., 996 F. Supp. 2d 335 (E.D. Pa. 2014) .................................................................... 8 Freudenberg v. E*Trade Fin. Corp., 712 F. Supp. 2d 171 (S.D.N.Y. 2010) .................................................................. 4 Institutional Inv’rs Grp. v. Avaya, Inc., 564 F.3d 242 (3d Cir. 2009) ....................................................................... 7, 8, 12 Case 2:16-cv-03091-JLL-JAD Document 29 Filed 03/01/17 Page 3 of 20 PageID: 778 Table of Authorities (continued) Page -iii- Johnson v. Pozen Inc., 2009 WL 426235 (M.D.N.C. Feb. 19, 2009) ..................................................... 11 In re Lululemon Sec. Litig., 14 F. Supp. 3d 553 (S.D.N.Y. 2014) .................................................................. 13 Luminent Mortg. Cap., Inc. v. Merrill Lynch & Co., 652 F. Supp. 2d 576 (E.D. Pa. 2009) .................................................................... 3 In re MannKind Sec. Actions, 835 F. Supp. 2d 797 (C.D. Cal. 2011) .................................................................. 8 McCabe v. Ernst & Young, LLP, 494 F.3d 418 (3d Cir. 2007) ............................................................................... 14 Monroe Cnty. Emps’ Ret. Sys. v. YPF Sociedad Anonima, 15 F. Supp. 3d 336 (S.D.N.Y. 2014) .................................................................. 15 In re Novatel Wireless Sec. Litig., 830 F. Supp. 2d 996 (S.D. Cal. 2011)................................................................. 13 Oregon Pub. Emps. Ret. Fund v. Apollo Grp. Inc., 774 F.3d 598 (9th Cir. 2014) .............................................................................. 14 Payne v. DeLuca, 433 F. Supp. 2d 547 (W.D. Pa. 2006)................................................................... 3 Phillips v. Cty. of Allegheny, 515 F.3d 224 (3d Cir. 2008) ................................................................................. 3 Phillips v. LCI Int’l, Inc., 190 F.3d 609 (4th Cir. 1999) .............................................................................. 13 In re Rockefeller Ctr. Props., Inc. Sec. Litig., 311 F.3d 198 (3d Cir. 2002) ........................................................................... 3, 15 Sapir v. Averback, 2016 WL 554581 (D.N.J. Feb. 10, 2016) ....................................................... 4, 12 Case 2:16-cv-03091-JLL-JAD Document 29 Filed 03/01/17 Page 4 of 20 PageID: 779 Table of Authorities (continued) Page -iv- Tongue v. Sanofi, 816 F.3d 199 (2d Cir. 2016) ............................................................................... 11 Winer Family Tr. v. Queen, 503 F.3d 319 (3d Cir. 2007) ................................................................................. 4 Yates v. Mun. Mortg. & Equity, LLC, 744 F.3d 874 (4th Cir. 2014) .............................................................................. 13 Other Authorities Fed. R. Civ. P. 8 ....................................................................................................... 14 Fed. R. Civ. P. 9(b) .............................................................................................. 3, 14 Fed. R. Civ. P. 12(b)(6) .............................................................................................. 3 Case 2:16-cv-03091-JLL-JAD Document 29 Filed 03/01/17 Page 5 of 20 PageID: 780 -1- I. INTRODUCTION This case is a classic example of pleading “fraud by hindsight,” which courts in this Circuit have long rejected. Cal. Pub. Emps.’ Ret. Sys. v. Chubb Corp., 394 F.3d 126, 158 (3d Cir. 2004). According to Plaintiffs, Defendants knowingly made material misrepresentations about Eagle’s ready-to-use liquid bivalirudin product (“RTU Bivalirudin,” formerly known as Kangio) and its prospects for FDA approval. Their Opposition brief confirms, however, that Plaintiffs lack any particularized facts - i.e., no contemporaneous adverse documents, conversations, emails, etc. - to support this theory of fraud. Based solely on the FDA’s March 2016 complete response letter, denying Eagle’s new drug application and requesting additional information (“CRL”), Plaintiffs’ speculate that there must be “fundamental” differences between RTU Bivalirudin and the branded reference drug (Angiomax) that Defendants knew of but failed to disclose. The Complaint, however, never identifies these supposed differences in “chemical composition” 1 much less adequately alleges that Defendants knew of them. More important, even if Defendants were aware of undisclosed, “fundamental” differences (they were not), Plaintiffs allege no facts to suggest that Defendants knew, or should have known, that such differences would be meaningful to the FDA. 1 Indeed, Plaintiffs concede that they “have been unable to independently determine the specific differences between Kangio and Angiomax.” (Opp. n.5.) Case 2:16-cv-03091-JLL-JAD Document 29 Filed 03/01/17 Page 6 of 20 PageID: 781 -2- Plaintiffs also theorize that, in light of these supposed differences, Defendants knew all along that the drug was “ineligible” for the 505(b)(2) pathway, yet pursued FDA approval anyway. This theory, which emerged for the first time in Plaintiffs’ Opposition (at 5-6), is also not supported by any particularized facts, and makes no sense. Why would Defendants spend substantial time and money developing a drug only to knowingly submit an application that was destined to fail? They wouldn’t and didn’t. To the contrary, Defendants were genuinely optimistic that the FDA would approve the drug and were, therefore, shocked when it did not. Plaintiffs’ Opposition cannot, and in large measure does not even attempt to, overcome the many deficiencies in the Complaint. Instead, Plaintiffs misstate the pleading standards, parade inapposite cases, and ask the Court to grant them a free pass to discovery. The Court should dismiss the Complaint with prejudice. II. PLAINTIFFS MISSTATE THE RELEVANT PLEADING STANDARDS. Right out of the gate, Plaintiffs attempt to water down the applicable pleading standards. They pay lip service to “heightened” requirements, but then suggest that the Complaint need only state a “plausible” claim, or “enough facts to raise a reasonable expectation that discovery will reveal evidence of [a] necessary element.” (Opp. 8.) Plaintiffs are wrong. Case 2:16-cv-03091-JLL-JAD Document 29 Filed 03/01/17 Page 7 of 20 PageID: 782 -3- “Unlike a typical civil matter, a securities fraud action is subject to a pyramid” of pleading requirements. Payne v. DeLuca, 433 F. Supp. 2d 547, 556 (W.D. Pa. 2006). Certainly, the allegations must be plausible. Phillips v. Cty. of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008). But plausibility is only the base of the pyramid. The Court must also apply Rule 9(b) and the PSLRA. Payne, 433 F. Supp. 2d at 557. Unless Plaintiffs “allege facts supporting their contentions of fraud with the requisite particularity mandated by Rule 9(b) and the Reform Act [PSLRA], they may not benefit from inferences flowing from vague or unspecific allegations - inferences that may arguably have been justified under a traditional Rule 12(b)(6) analysis.” In re Rockefeller Ctr. Props., Inc. Sec. Litig., 311 F.3d 198, 224 (3d Cir. 2002) (emphasis added). Plaintiffs cannot bypass these requirements by complaining of information asymmetries. (Opp. 11-12.) True, some courts have “relaxed” Rule 9(b) when facts are exclusively within the defendant’s knowledge or control. Rockefeller, 311 F.3d at 216. But “the relaxed application of the rule is not ‘a license for plaintiffs to base fraud claims on speculation and conclusory allegations.’” Luminent Mortg. Cap., Inc. v. Merrill Lynch & Co., 652 F. Supp. 2d 576, 595 (E.D. Pa. 2009) (citation omitted). Here, the allegations “are so conclusory” that even under a relaxed standard, they are plainly inadequate to state a claim. See, e.g., In re CDNOW, Inc. Sec. Litig., 138 F. Supp. 2d 624, 640 (E.D. Pa. 2001). Case 2:16-cv-03091-JLL-JAD Document 29 Filed 03/01/17 Page 8 of 20 PageID: 783 -4- Plaintiffs lack of diligence or success in finding any documents or witnesses to corroborate their story is glaring and should not be rewarded with a lesser pleading burden. See Sapir v. Averback, 2016 WL 554581, at *13 (D.N.J. Feb. 10, 2016) (defendants’ failure to cite a single document or witness “count[ed] against” inferring scienter under the PSLRA). III. PLAINTIFFS FAIL TO PLEAD A MATERIALLY FALSE OR MISLEADING STATEMENT. Under the PSLRA, a plaintiff must “specify each allegedly misleading statement, why the statement was misleading, and if an allegation is made on information and belief, all facts supporting that belief with particularity.” Winer Family Tr. v. Queen, 503 F.3d 319, 326 (3d Cir. 2007) (emphasis added). The Complaint falls short of this standard for several reasons. We reiterate two here. First, Plaintiffs do not allege with particularity any omitted facts contradicting Defendants’ statements. Second, the vast majority of the alleged misrepresentations are protected by the PSLRA safe harbor.2 2 The Opposition also does not meaningfully address the long list of puffing statements highlighted in Defendants’ opening brief. (Dkt. No. 19-4 at Exh. B.) For example, here, it is hard to fathom how statements such as “we should do very well,” “unique product,” “should be sticky,” “very exciting opportunity,” and the like, are objectively verifiable. (Id.) Yet that is precisely what Plaintiffs ask this Court to hold. (Opp. 15-17.) The cases Plaintiffs rely on in which courts rejected puffery arguments (id. 18-19) are inapposite because, unlike here, the statements were “juxtaposed against detailed factual descriptions” of contrary conditions. See, e.g., Freudenberg v. E*Trade Fin. Corp., 712 F. Supp. 2d 171, 190 (S.D.N.Y. 2010). Case 2:16-cv-03091-JLL-JAD Document 29 Filed 03/01/17 Page 9 of 20 PageID: 784 -5- A. Defendants’ Descriptions of RTU Bivalirudin and Optimism Regarding FDA Approval Were Not False or Misleading. The Opposition divides the challenged statements into two general categories: (1) descriptions of RTU Bivalirudin as a liquid, ready-to-use formulation of the branded reference drug (Angiomax) (Opp. 9-13); and (2) statements in which Defendants expressed optimism about FDA approval and market success (Id. 13-14). For both categories, Plaintiffs contend that Defendants misled investors by not disclosing “fundamental” or “significant” chemical differences between RTU Bivalirudin and Angiomax that supposedly stood as a barrier to FDA approval. This theory of omission, however, is bereft of particularized facts. Descriptions of RTU Bivalirudin. The Opposition claims that, in describing RTU Bivalirudin, Defendants omitted “fundamental differences” between the drug and Angiomax which “do in fact exist.” (Opp. 9.) But what are those concealed “fundamental differences”? Plaintiffs do not say. Neither the Complaint nor the Opposition identifies a single distinction (“chemical” or otherwise) that was not disclosed. To the contrary: Plaintiffs concede they “have been unable to independently determine” any “specific differences.” (Opp. n.5.) Lacking facts, Plaintiffs resort to speculation. Plaintiffs posit that there must be some undisclosed chemical ingredients in RTU Bivalirudin because the FDA ultimately “requested further characterization of the bivalirudin-related Case 2:16-cv-03091-JLL-JAD Document 29 Filed 03/01/17 Page 10 of 20 PageID: 785 -6- substances” in the drug. (Opp. 9; see also id. 31 (“chemical composition”), 27 (“ingredients”). And they assume that “[i]f Kangio truly was just a liquid form of Angiomax, these additional measures [requested by the FDA] would not have been necessary to secure FDA approval.” (Opp. 10.) Such conjecture is “undisputedly insufficient to satisfy the heightened pleading standard of [the PSLRA].” Chubb, 394 F.3d at 155. It is undisputed (and was repeatedly disclosed) that Eagle’s RTU Bivalirudin contains bivalirudin, which is a synthetic peptide and the active ingredient in Angiomax. Thus, the fact that there are “bivalirudin-related substances” associated with the drug is wholly unremarkable, as these substances are a naturally occurring byproduct of that peptide’s degradation. Defendants’ description of the drug as a “stable liquid IV ready to use liquid formulation” of bivalirudin (or Angiomax) was entirely accurate. Plaintiffs do not (and cannot) show otherwise. Expectations of FDA Approval. The Opposition also argues that Defendants’ optimism regarding FDA approval was misleading “insofar as [it was] based on . . . ongoing discussions with the FDA signal[ing] that approval was imminent.” (Opp. 13-14.) Specifically, Plaintiffs highlight statements by Mr. Tarriff in February 2016, informing investors that Eagle was “in dialogue with [the] FDA” and had “every expectation,” based on that dialogue, that RTU Bivalirudin would get approved. (Opp. 13.) Notwithstanding that such statements Case 2:16-cv-03091-JLL-JAD Document 29 Filed 03/01/17 Page 11 of 20 PageID: 786 -7- were forward-looking (see section III.B, below), Plaintiffs do not plead any facts undermining Defendants’ optimism. The Complaint does not allege anything about the Company’s discussions with FDA, much less that the FDA raised red flags about the drug or indicated that it would not get approved. Nor can they, because no such concerns were ever communicated to Defendants by the FDA. B. Plaintiffs Cannot Circumvent the PSLRA Safe Harbor. Furthermore, most of the challenged statements fall squarely within the safe harbor. (MTD 15-20; Dkt. No. 19-4 [Exhs. A & C].) Hoping to sidestep this roadblock, the Opposition contends that the challenged statements are somehow not forward-looking (as defined by the PSLRA) and were not accompanied by meaningful cautionary language. (Opp. 20-24.) Plaintiffs are wrong. First, the “term ‘forward-looking statement’ is broadly defined in the statute” to include, among other things, “the plans and objectives of management for future operations, including plans or objectives relating to the products or services of the issuer.” Institutional Inv’rs Grp. v. Avaya, Inc., 564 F.3d 242, 255 (3d Cir. 2009) (emphasis added). The term also includes “‘any statement of the assumptions underlying or relating to any statement described’ in the definition.” Id. Here, the Complaint challenges expectations of FDA approval, as well as projections of: (1) when the NDA would be filed; (2) when the FDA would make a decision; and (3) when the product would launch. (MTD 16-17; see also Dkt. No. Case 2:16-cv-03091-JLL-JAD Document 29 Filed 03/01/17 Page 12 of 20 PageID: 787 -8- 19-4 [Exh. C].) Such statements plainly qualify as “forward-looking” as broadly defined under the statute. See, e.g., In re Discovery Labs. Sec. Litig., 2006 WL 3227767, at *3-8, 16 (E.D. Pa. Nov. 1, 2006) (applying the safe harbor to such statements). The Opposition does not cite, much less distinguish Defendants’ authority on this point, including Discovery Labs.3 Second, Eagle’s cautionary language was “extensive and specific.” Avaya, 564 F.3d at 257. The Company repeatedly and consistently warned in its SEC filings, press releases, and earnings calls about the risks inherent in the approval process. For example: • “We cannot provide assurance that we will be able to obtain approval for any of our product candidates from the FDA or any foreign regulatory authority or that we will obtain such approval in a timely manner.” • “The FDA may also require us to perform one or more additional clinical studies or measurements to support the change from the branded reference drug, which could be time consuming and could substantially delay our achievement of regulatory approvals for such product candidates.” 3 The cases relied upon by Plaintiffs are inapposite because the statements at issue concerned companies’ past interactions with the FDA - not just future expectations. See Frater v. Hemispherx Biopharma, Inc., 996 F. Supp. 2d 335, 348 (E.D. Pa. 2014) (“[T]he company’s representations did not relate to its plans, but rather related to scientific findings and/or its beliefs about the FDA approval process, including key takeaways from the June 8 meeting after the meeting had occurred”); In re MannKind Sec. Actions, 835 F. Supp. 2d 797, 816 (C.D. Cal. 2011) (“The problematic statements made by Defendants refer to past interactions with the Agency, and do not merely express optimism or confidence about FDA approval.”). Case 2:16-cv-03091-JLL-JAD Document 29 Filed 03/01/17 Page 13 of 20 PageID: 788 -9- (MTD 18-19.) These are the exact risks that ultimately materialized. Plaintiffs attempt to downplay such disclosures as “boilerplate” and “nonspecific,” but labelling them as such does not make it so. See Dougherty v. Esperion Therapeutics, Inc., 2016 WL 7439196, at *9 (E.D. Mich. Dec. 27, 2016) (company’s warning “that FDA may require additional studies or data prior to approval that might cause approval to be delayed” was meaningful). Plaintiffs also fault Defendants for failing to caution investors that “Kangio was ineligible for fast-track approval.” (Opp. 24.) This alleged omission, however, is entirely fictitious. First, the FDA never declared the drug “ineligible” for the 505(b)(2) pathway; it simply declined to approve the NDA and requested additional information. Second, Plaintiffs do not allege any facts or authority to suggest that a revised NDA (incorporating the additional testing) would be submitted under some other pathway (e.g., 505(b)(1) or 505(j)). Nor can they. Section 505(b)(2) does not preclude an applicant from submitting its own data. (See Dkt. No. 19-3 [Exh. 8 at 7] (defining 505(b)(2) applications as those “that contain[] full reports of investigations of safety and effectiveness but where at least some of the information required for approval comes from studies not conducted by or for the applicant . . .).) Third, even assuming RTU Bivalirudin was “ineligible” for approval under 505(b)(2) (it is not), the Company specifically warned investors of this potential risk: Case 2:16-cv-03091-JLL-JAD Document 29 Filed 03/01/17 Page 14 of 20 PageID: 789 -10- • “If the FDA does not allow us to pursue the 505(b)(2) regulatory pathway for our product candidates as anticipated, we may need to conduct additional clinical trials, provide additional data and information and meet additional standards for regulatory approval . . . .” (Dkt. No. 19-3 [Exh. 18 at 35] (emphasis added; see also Dkt. No. 19-4 [Exh. A].) Therefore, the safe harbor applies and warrants dismissal of Plaintiffs’ claim. IV. PLAINTIFFS FAIL TO PLEAD A STRONG INFERENCE OF SCIENTER. Plaintiffs also fail to allege the requisite “strong” inference of Defendants’ scienter. Plaintiffs’ theory boils down to this: Defendants knew, or should have known, that their drug had virtually no chance of being approved without additional testing. The facts supporting that theory, however, are nil. Plaintiffs posit: (1) that Defendants must have known the “composition” of a “key product”; (2) that Eagle had an “ongoing dialogue” with the FDA; and (3) that Mr. Tarriff sold stock. (Opp. 26-35.) Whether viewed individually or together, however, none of these “facts” support a plausible inference - much less a cogent and compelling one - that Defendants did not believe what they said. Plaintiffs’ first point-regarding the drug’s “chemical composition” (Opp. 31)-is a red herring. The issue is not whether Defendants were aware of the drug’s “composition,” but whether Defendants knew all along that RTU Bivalirudin would not be approved. (See Opp. at 2.) As discussed above, Plaintiffs fail to allege a single detail about the drug’s “chemical composition” that Case 2:16-cv-03091-JLL-JAD Document 29 Filed 03/01/17 Page 15 of 20 PageID: 790 -11- would have led to that conclusion. And even if the Court assumes that Defendants were aware of some undisclosed “differences” between their product and Angiomax, the Complaint say nothing about whether Defendants viewed any such “differences” as standing in the way of approval. See Johnson v. Pozen Inc., 2009 WL 426235, at *22 (M.D.N.C. Feb. 19, 2009) (“[O]ne may plausibly infer that Defendants did not more specifically discuss the genotoxicity tests because they did not consider them to be impediments to approval.”). Nor are there any facts to suggest that the FDA indicated it was not going to approve the product. Plaintiffs argue that the mere existence of a dialogue “gives rise to the inference that the FDA either directly asked questions or expressed concerns.” (Opp. 28.) This is pure speculation. And even if true (it is not), such back-and-forth is “the essence of the product license application process.” Tongue v. Sanofi, 816 F.3d 199, 211 (2d Cir. 2016) (citation omitted). “That such a dialogue was ongoing [would] not prevent Defendants from expressing optimism, even exceptional optimism, about the likelihood of drug approval.” Id. The salient point is this: “Plaintiffs offer no evidence to show that Defendants doubted that the FDA would approve” their drug, “or that they had any indication themselves that the FDA would require more information.” See Johnson, 2009 WL 426235, at *25. While Plaintiffs insist that Defendants must have known that its drug was ineligible under 505(b)(2), it is “improbable” that Case 2:16-cv-03091-JLL-JAD Document 29 Filed 03/01/17 Page 16 of 20 PageID: 791 -12- Eagle would pursue an approval “that the company thought was doomed to failure.” Cozzarelli v. Inspire Pharm. Inc., 549 F.3d 618, 627 (4th Cir. 2008). Mr. Tarriff’s stock sales do not change the calculus. (Opp. 33-35.) For stock sales to support an inference of scienter, they must be “unusual in scope or timing.” In re Advanta Corp. Sec. Litig., 180 F.3d 525, 540 (3d Cir. 1999). Mr. Tarriff’s sales were not unusual in scope; he sold nearly the same number of shares before (120,000) as during the class period (148,911). (MTD 32.) Moreover, his class period sales were less than 8% of his holdings. (Opp. 33.) Such modest divestiture does not suggest fraud. See, e.g., Advanta, 180 F.3d at 540 (sales of “only” 7% of defendant’s holdings did not support scienter); Cozzarelli, 549 F.3d at 628 (“modest to de minimis” sales of 13%, 12%, and 3% did not support scienter); Sapir, 2016 WL 554581, at *13 (sales of 5.9% did not support scienter). Nor were his sales unusual in timing. Although Plaintiffs focus on sales in March 2015, Mr. Tarriff sold roughly the same number of shares every month pursuant to a Rule 10b5-1 trading plan. (MTD 32.) “Accordingly, ‘the sales do not marginally increase the likelihood that defendants make knowingly false or misleading statements out of a desire for personal financial gain.’” City of Roseville Emps.’ Ret. Sys. v. Horizon Lines, Inc., 686 F. Supp. 2d 404, 425 (D. Del. 2009) (quoting Avaya, 564 F.3d at 279.). Although Plaintiffs claim that that the mere creation of a Rule 10b5-1 plan during the class period is suspicious (Opp. Case 2:16-cv-03091-JLL-JAD Document 29 Filed 03/01/17 Page 17 of 20 PageID: 792 -13- 34), that is not the law. See Yates v. Mun. Mortg. & Equity, LLC, 744 F.3d 874, 891 (4th Cir. 2014) (plan entered into during class period still “weaken[ed] any inference of fraudulent purpose”).4 Lastly, Plaintiffs do not dispute that Mr. Tarriff lost more than $18 million in equity value when Eagle’s stock price ultimately dropped-far more than he gained through the alleged insider sales. (MTD 32.) Assuming, as the Court must, that Mr. Tarriff “sought to further his own professional and economic interests,” then pursuing FDA approval that he allegedly knew to be futile is not the way any rational CEO, who owned approximately 1.8 million shares of the company’s stock, would further those interests. Phillips v. LCI Int’l, Inc., 190 F.3d 609, 623 (4th Cir. 1999). The far more cogent and compelling inference is that Mr. Tarriff believed the product would be a success. V. PLAINTIFFS FAIL TO PLEAD LOSS CAUSATION. To “satisfy the loss causation requirement, the plaintiff must show that the revelation of [a] misrepresentation or omission was a substantial factor in causing a decline in the security’s price.” Bartesch v. Cook, 941 F. Supp. 2d 501, 512 (D. 4 Plaintiffs’ reliance of In re Novatel Wireless Sec. Litig., 830 F. Supp. 2d 996 (S.D. Cal. 2011) is misplaced. In that case, the defendants entered into trading plans with accelerator clauses when they learned material nonpublic information and quickly sold shares. Id. at 1025. Here, by contrast, the Complaint “pleads no facts that even remotely suggest that [Mr. Tarriff] entered into the Plan ‘strategically’ so as to capitalize on insider knowledge.” In re Lululemon Sec. Litig., 14 F. Supp. 3d 553, 585 (S.D.N.Y. 2014). Case 2:16-cv-03091-JLL-JAD Document 29 Filed 03/01/17 Page 18 of 20 PageID: 793 -14- Del. 2013) (citing McCabe v. Ernst & Young, LLP, 494 F.3d 418, 425-26 (3d Cir. 2007)). 5 Here, the “all-but-inevitable decline” in the price of Eagle’s stock following the Company’s disclosure of the CRL “was caused by the agency’s failure to approve the drug-not by any ‘corrective’ disclosure of some prior untruth.” Fort Worth Emps.’ Ret. Fund v. Biovail Corp., 615 F. Supp. 2d 218, 229 (S.D.N.Y. 2009). Nothing in the March 18 “announcement that the FDA had declined to approve [RTU Bivalirudin] ‘corrected’ or otherwise revealed the ‘actual truth’ behind any prior alleged misrepresentation by Defendants, or otherwise tied the resulting stock price decline to any prior alleged fraud.” Id. Nor did the drop in Eagle’s stock price follow the “materialization of risk.” “Under the ‘materialization of risk’ test, ‘a plaintiff must show that the defendant exposed him to an undisclosed risk that subsequently materialized and that the materialization of the risk resulted in the complain[ed] of loss.’” Bartesch, 941 F. Supp. 2d at 512 (citation omitted). Here, the risk was not “undisclosed”: Eagle told investors repeatedly that investing in a drug company entailed notable and unique risks, including the specific risk that the FDA may not approve its drug and might require additional clinical trials. (MTD 18-19.) Because the drop in Eagle’s 5 Despite what Plaintiffs claim (Opp. 36), the Third Circuit has not decided whether allegations of loss causation are subject to the heightened pleading requirements of Rule 9(b). The Fourth, Seventh, and Ninth Circuits have held that Rule 9(b) applies. See, e.g., Oregon Pub. Emps. Ret. Fund v. Apollo Grp. Inc., 774 F.3d 598, 604 (9th Cir. 2014) (citing cases). This Court need not resolve the issue because Plaintiffs allegations fail under either Rule 8 or 9(b). Case 2:16-cv-03091-JLL-JAD Document 29 Filed 03/01/17 Page 19 of 20 PageID: 794 -15- stock price in the wake of the CRL “represented the materialization of a known risk, rather than the disclosure of a concealed one,” Plaintiffs have not plausibly alleged loss causation. See Monroe Cnty. Emps’ Ret. Sys. v. YPF Sociedad Anonima, 15 F. Supp. 3d 336, 358 (S.D.N.Y. 2014). VI. PLAINTIFFS FAIL TO PLEAD SECTION 20(A) CONTROL-PERSON LIABILITY. Because Plaintiffs fail to plead a primary violation of Section 10(b), their “control person” claim necessarily fails. See, e.g., Rockefeller, 311 F.3d at 211. VII. THE COURT SHOULD DENY PLAINTIFFS’ REQUEST FOR LEAVE TO AMEND. In a footnote, Plaintiffs make a perfunctory request for leave to amend. (Opp. n.44.) This request should be denied. Plaintiffs concede they have turned up no independent facts. (Opp. n.6.) As a result, there is no reason to believe they can cure their defective pleading. See, e.g., In re Cybershop.com Sec. Litig., 189 F. Supp. 2d 214, 236-37 (D.N.J. 2002) (denying leave where plaintiff, by filing a consolidated complaint, already had its proverbial “second bite at the apple”). VIII. CONCLUSION For the reasons discussed above, and because amending would be futile, Defendants respectfully request the Court to dismiss the Complaint with prejudice. Dated: March 1, 2017 COOLEY LLP s/Nathan W. Poulsen Attorneys for Defendants Case 2:16-cv-03091-JLL-JAD Document 29 Filed 03/01/17 Page 20 of 20 PageID: 795 Nathan W. Poulsen (Bar No. 002582011) (npoulsen@cooley.com) Jonathan Bach (pro hac vice) (jbach@cooley.com) Cooley LLP 1114 Avenue of the Americas New York, NY 10036 Phone: (212) 479-6000 Koji F. Fukumura (pro hac vice) (kfukumura@cooley.com) Peter M. Adams (pro hac vice) (padams@cooley.com) Nicolas Echevestre (pro hac vice) (nechevestre@cooley.com) Cooley LLP 4401 Eastgate Mall San Diego, CA 92121 Phone: (858) 550-6000 Attorneys for Defendants EAGLE PHARMACEUTICALS, INC. and SCOTT TARRIFF IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY BLAKE BAUER, Plaintiff, v. EAGLE PHARMACEUTICALS, INC. and SCOTT TARRIFF, Defendants. Case No. 16-CV-03091-JLL-JAD CERTIFICATE OF SERVICE Date: March 20, 2017 Judge: Hon. Jose L. Linares Ctrm: MLK 5D Case 2:16-cv-03091-JLL-JAD Document 29-1 Filed 03/01/17 Page 1 of 2 PageID: 796 -2- CERTIFICATION OF SERVICE I Nathan Poulsen, of full age, hereby certify under penalty of perjury as follows: 1. I am an attorney at law admitted to practice before this Court and the Courts of the State of New Jersey. I am associated with the law firm of Cooley, LLP. 2. I hereby certify that on March 1, 2017, I caused a copy of the (i) Defendants’ REPLY IN SUPPORT OF DEFENDANTS’ MOTION TO DISMISS PLAINTIFFS’ AMENDED CLASS ACTION COMPLAINT, to be served on all counsel of record by electronic case filing. Dated: March 1, 2017 s/Nathan Poulsen Nathan Poulsen 140004910 v1 Case 2:16-cv-03091-JLL-JAD Document 29-1 Filed 03/01/17 Page 2 of 2 PageID: 797