In re Ocugen, Inc. Sec. Litig.

659 F.Supp.3d 572

IN RE OCUGEN, INC. SECURITIES LITIGATION

CIVIL ACTION Master File No. 21-2725

United States District Court, E.D. Pennsylvania

Signed March 3, 2023

MEMORANDUM

KENNEY, JUDGE

I. INTRODUCTION

Lead Plaintiff Andre Galan Bernd Benayon ("Plaintiff"), individually and on behalf of a putative class, brings three claims against Ocugen, Inc. ("Ocugen" or the "Company"), Mr. Musunuri (Ocugen's Co-Founder, CEO, and Chairman), and Dr. Forrest (a member of Ocugen's Vaccine Scientific Advisory Board and Acting Chief Medical Officer) (collectively, "Defendants" or, alternatively, "Individual Defendants" as to Mr. Musunuri and Dr. Forrest)¹ alleging securities fraud under Section 10(b) of the Exchange Act, 15 U.S.C. § 78(j)(b), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5, against all Defendants (Count I); control person liability under Section 20(a) of the Exchange Act, 15 U.S.C. § 78(t), against Individual Defendants (Count II); and insider trading under Section 20A of the Exchange Act, 15 U.S.C. § 78t-1(a), against Mr. Musunuri (Count III). ECF No. 28. Before the Court is Defendants' fully briefed and argued Motion to Dismiss. ECF Nos. 41, 43, 44. For the reasons set forth below, the Court will grant Defendants' Motion and dismiss this case. An appropriate order will follow.

II. BACKGROUND

Ocugen is a biopharmaceutical company that was founded by Mr. Musunuri and non-party Professor Uday Kompella in 2013 to develop treatments for rare sight-threatening diseases. ECF No. 28 at 47. As of early 2019, the Food and Drug Administration ("FDA" or the "Agency") had not approved any of Ocugen's drug treatments, and the company did not have any products approved for sale. Id. at 47-48. In fact, Ocugen was a failing company; between 2013 and 2020 the Company saw only $50,620 in total revenue and in both 2019 and 2020 the Company incurred over $20 million in net losses. Id. at 97. Accordingly, from 2013 through December 2020, the Company was able to fund its operations only by raising approximately $90 million from the sale of common stock, warrants, and convertible notes, and by securing debt. Id.

On September 27, 2019, as a result of a reverse-merger, Ocugen was publicly listed under the ticker symbol "OCGN" on the NASDAQ which has a minimum trading price of $1.00 per share. Id. at 8, 47-48, 97. However, between September 2019 and November 25, 2019, Ocugen's stock declined in value from $2.85 to $0.266 per share. Id. at 48. By June 2020, Ocugen had abandoned efforts of a "promising" product and had terminated one-third of its employees. Id. at 1. By July 2020, Ocugen's stock had declined further to $0.196 per share. Id. at 48. In November 2020, the Company reported via its SEC Form 10-Q that there was "substantial doubt" that Ocugen would be able to continue its business operations. Id. at 97.

On December 22, 2020, following the emergence of COVID-19 as an unprecedented global pandemic, Ocugen announced² that it had executed a letter of intent to partner with Bharat Biotech International Limited³ ("Bharat") to develop and bring to the United States market the COVAXIN vaccine. Id. at 2. COVAXIN, which was developed in collaboration with the Indian Council for Medical Research and the Indian National Institute of Virology, is an inactivated whole-virion vaccine that was ultimately approved for use in India in January 2021. Id. at 40, 42. An inactivated virus vaccine is one in which the virus is chemically inactivated and the pathogen's "outer shell," which is unable to cause infections, is injected into the body. Id. at 40. This triggers an immune response to the proteins on the inactivated "shell," also known as the antigens.⁴ Id. The inactivated virus approach is an "established technology" that has been successfully utilized by Bharat, among others. Id. COVAXIN was a marked shift from the Company's previous focus on blindness diseases and the Company's priorities shifted accordingly.⁵

a. The FDA's Guidance on COVID-19 Vaccines

On March 27, 2020, the U.S. Department of Health and Human Services declared that the FDA could issue emergency use authorization ("EUA") for unapproved drugs, or unapproved uses of approved drugs, under certain circumstances⁶ rather than adhering to the typical, and more rigorous biologics license application ("BLA") process. See id. at 15. The EUA process affords the FDA more flexibility in authorizing a drug for use and, importantly, allows for EUA before the conclusion of Phase III clinical trials. Id.; 21 U.S.C. § 360bbb-3(c)(2). To aid in the EUA process, the FDA provided non-binding guidance to COVID-19 vaccine developers throughout the height of the pandemic. Id. 16-20, 23-26; see 21 C.F.R. § 10.115(d)(1) ("Guidance documents do not establish legally enforceable rights or responsibilities [and] do not legally bind the public or FDA."). Although the guidance documents represented the "current thinking" of the FDA, each also contained a disclaimer explaining that vaccine developers could "use an alternative approach if it satisfie[d] the requirements of the applicable statutes and regulations." ECF No. 41-1 at 6.

Two of the guidance statements at issue relate in relevant part to the diversity of clinical trial participants. Specifically, guidance published in June 2020 "encourage[d] the inclusion of diverse populations in all phases of vaccine clinical development" which included racial and ethnic minorities, the elderly, those with comorbidities, pregnant persons, those of childbearing age, and children. ECF No. 41-15 at 15. Similar sentiments were reiterated in a November 2020 guidance which provided that inadequate participant diversity "can lead to insufficient information pertaining to medical product safety and effectiveness for product labeling." ECF No. 28 at 23. The guidance further emphasized that different responses to medical products may be observed in racially or ethnically distinct subgroups of the United States population and, therefore, the FDA "recommend[ed]" that trials capture "data on race and ethnicity [which] may assist in identifying population-specific" responses.⁷ Id.

The FDA also issued guidance documents in October 2020, February 2021, and May 2021, with each guidance superseding the former. Id. at 19, 23-27. In each, the FDA described its authority to issue EUAs and emphasized the importance of early and frequent communication with the FDA throughout vaccine development. Id. The FDA further emphasized that EUA decisions would be made on a case-by-case basis "considering the target population, the characteristics of the product, the preclinical and human clinical study data on the product, and the totality of the available scientific evidence relevant to the product." Id.

In the October 2020 guidance, the FDA stated that EUA considerations would be based on "data from at least one well-designed Phase III clinical trial that demonstrates the vaccine's safety and efficacy in a clear and compelling manner." Id. at 25. The February 2021 guidance was updated to address emerging COVID-19 variants but did not relax the Agency's prior recommendations with respect to EUA applications. Id. at 18-25.

Several vaccines were granted EUAs by the FDA in late 2020 and early 2021: (i) an mRNA vaccine developed by Pfizer Inc. and BioNTech SE (collectively "Pfizer") on December 11, 2020; (ii) an mRNA vaccine developed by Moderna, Inc. ("Moderna") on December 18, 2020; and (iii) an adenovirus vector vaccine developed by Johnson & Johnson on February 27, 2021. Id. at 26-35. As a result, in May 2021, the FDA stated via guidance that it "may decline to review and process further EUA requests other than those vaccines whose developers have engaged in an ongoing manner with the Agency during the development of their manufacturing process and clinical trials program." Id. at 26. The guidance issued was generally applicable to the development of all COVID-19 vaccines, though the May 2021 guidance also included an appendix addressing concerns that previously authorized vaccines might have reduced efficacy against subsequent variants such as those arising in the United Kingdom and South Africa. ECF No. 41-20 at 22.

b. COVAXIN's Progress Towards EUA and the Impact on Ocugen Stock

COVAXIN development began on May 9, 2020. Id. at 40. Clinical trials lagged behind those of other COVID-19 vaccines: the first participant was enrolled in COVAXIN's Phase III trial on November 11, 2020 - just one month prior to the FDA's grant of EUA for the Pfizer vaccine. Id. at 42. Shortly thereafter, and prior to any efficacy or safety data from the Phase III trial, the Drug Controller General of India granted COVAXIN accelerated approval on January 3, 2021. Id. Clinical trials progressed throughout the class period. On March 3, 2021, Bharat released initial Phase III data which claimed 81% efficacy in preventing COVID-19 in those without prior infection. Id. at 46. According to Defendants, the India-based trial represented a diverse cross-section of the Indian population based on age, weight, body mass index, underlying conditions, and economic and social factors. Id. at 76. Ultimately, in July 2021, Bharat described the Phase III trial as showing that COVAXIN had a 77.8% efficacy against symptomatic COVID-19 and 63.6% efficacy against asymptomatic infections.⁸ Id. at 47.

On February 2, 2021, Ocugen announced that it had executed a definitive agreement with Bharat for the commercialization of COVAXIN and that it planned to pursue an EUA for the vaccine. Id. at 51. In connection with this announcement, Ocugen projected that it would distribute 100 million doses of COVAXIN in the United States during 2021. Id. That same day, Ocugen's stock increased from $1.81 per share on February 1, 2021, to $3.26 per share on February 2, 2021. Id. at 53. Ocugen's SEC filings, filed February 5, 2021, proclaimed that the Company was in "pre-EUA discussions with the FDA." Id. Ocugen provided that it planned to file for EUA in the...