Sneed v. AcelRx Pharm.

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AARON SNEED JR., Plaintiff, v. ACELRX PHARMACEUTICALS, INC., et al., Defendants.

No. 21-cv-04353-BLF

United States District Court, N.D. California, San Jose Division

July 7, 2023

ORDER GRANTING MOTION TO DISMISS SECOND AMENDED COMPLAINT WITH LEAVE TO AMEND IN PART AND WITHOUT LEAVE TO AMEND IN PART

[RE: ECF NO. 78]

BETH LABSON FREEMAN UNITED STATES DISTRICT JUDGE

Now before the Court is Defendants' motion to dismiss the Second Amended Complaint in this putative securities class action. ECF No. 78 (“MTD”); see also ECF No. 83 (“Reply”). Plaintiffs oppose the motion. ECF No. 82 (“Opp.”). For the reasons discussed at the May 30, 2023 motion hearing and further explained below the Court GRANTS Defendants' motion to dismiss WITH LEAVE TO AMEND IN PART and WITHOUT LEAVE TO AMEND IN PART.

I. BACKGROUND

On June 8, 2021, Plaintiff Aaron Sneed Jr. filed a securities class action suit in this Court alleging violations of various securities laws by AcelRx Pharmaceuticals, Inc. (“AcelRx”), AcelRx Chief Executive Officer Vincent J. Angotti, and AcelRx Chief Financial Officer Raffi Asadorian. ECF No. 1. The Court appointed Aaron Sneed Jr. and Yaacov Musry as co-lead plaintiffs and Pomerantz LLP as lead counsel. ECF No. 47. On March 3, 2022, Plaintiffs filed an amended complaint. ECF No. 54. The amended complaint added one additional Defendant, AcelRx Chief Health Officer Pamela Palmer. Id. On September 28, 2022, the Court dismissed the amended complaint with leave to amend. Sneed v. AcelRx Pharms., Inc., No. 21-cv-04353-BLF, 2022 WL 4544721 (N.D. Cal. Sept. 28, 2022).

On November 28, 2022, Plaintiffs filed the operative second amended complaint. ECF No. 75 (“SAC”). Plaintiffs bring suit against AcelRx, Angotti, Asadorian, and Palmer, asserting three counts under the Securities and Exchange Act of 1934 (“Exchange Act”) on behalf of a class including all individuals who purchased or otherwise acquired AcelRx securities (ticker symbol ACRX) between March 20, 2019 and February 12, 2021. Id.

AcelRx is a pharmaceutical company that develops therapies for the treatment of acute pain. SAC ¶ 37. DSUVIA, the product at the center of this suit, is an opioid painkiller that is administered sublingually and therefore particularly useful in circumstances where patients cannot swallow oral medication and access to intravenous pain relief is not possible. Id. ¶¶ 37-38. In November 2018, the U.S. Food and Drug Administration (“FDA”) approved AcelRx's application for DSUVIA. Id. ¶ 63. In so doing, the FDA also approved the DSUVIA Risk Evaluation and Mitigation Strategy (“REMS”), which is “a drug safety program that the [FDA] can require for certain medications with serious safety concerns to help ensure the benefits of the medication outweigh its risks.” Id. ¶¶ 40, 63. As an FDA-approved drug, DSUVIA is subject to the Federal Food, Drug, and Cosmetic Act (“FDCA”), which prohibits the introduction into interstate commerce of any drug that is “misbranded.” Id. ¶ 8, 114; see 21 U.S.C. § 331.

On February 11, 2021, AcelRx received a warning letter from the FDA's Office of Prescription Drug Promotion (“OPDP”). SAC ¶ 18. The letter (“Warning Letter”) indicated that two of AcelRx's promotional materials-a banner advertisement and a tabletop display-made “false or misleading claims and representations about the risks and efficacy of DSUVIA” and therefore violated the FDCA (the “Misbranding Violations”). Id. ¶¶ 18-19. The Warning Letter stated that the Misbranding Violations were “particularly concerning considering a REMS program was required for DSUVIA to ensure that the benefits of the drug outweigh the risk of respiratory depression that can result from accidental exposure.” Id. ¶ 176. After AcelRx publicly disclosed this letter on February 16, 2021, the stock price fell $0.21 per share, or 8.37%. Id. ¶ 23. Also on February 16, 2021, the FDA issued a press release entitled, “FDA issues warning to AcelRx for making false and misleading claims about the risks and benefits of DSUVIA.” Id. ¶ 182. The press release stated that the tabletop display and banner advertisement “undermine key prescribing conditions required for the safe use of this opioid product” and “dangerously undercut[] FDA-required conditions on the proper administration of the drug, which requires particular diligence to minimize the risk of serious or even fatal adverse events.” Id. ¶ 184. It went on to explain that DSUVIA “was approved with a [REMS].” Id.

Plaintiffs allege that “Defendants made false and/or misleading statements and/or failed to disclose that: (1) AcelRx failed to implement and/or maintain sufficient disclosure controls and procedures regarding the marketing of DSUVIA; (2) as a result, the Company engaged in the Misbranding Violations; and (3) the Company was therefore subject to a foreseeable and increased risk of regulatory investigations or enforcement actions. As a result, the Company's public statements were materially false and misleading throughout the Class Period.” SAC ¶ 15. Plaintiffs also allege that Defendants “engaged in a scheme to illegally market DSUVIA beyond its permitted label.” Id. ¶ 14.

Plaintiffs assert three claims: (1) violation of Section 10(b) of the Exchange Act and Rule 10b-5(b) by all Defendants, SAC ¶¶ 199-206; (2) violation of Section 10(b) of the Exchange Act and Rule 10b-5(a), (c) by all Defendants, id. ¶¶ 207-16; and (3) violation of Section 20(a) of the Exchange Act by Defendants Angotti, Asadorian, and Palmer, id. ¶¶ 217-23.

II. LEGAL STANDARD

“A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted ‘tests the legal sufficiency of a claim.'” Conservation Force v. Salazar, 646 F.3d 1240, 1241-42 (9th Cir. 2011) (quoting Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001)). When determining whether a claim has been stated, the Court accepts as true all well-pled factual allegations and construes them in the light most favorable to the plaintiff. Reese v. BP Expl. (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). But the Court need not “accept as true allegations that contradict matters properly subject to judicial notice” or “allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (internal quotation marks and citations omitted). While a complaint need not contain detailed factual allegations, it “must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when it “allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.

In addition to the pleading standards discussed above, a plaintiff asserting a private securities fraud action must meet the heightened pleading requirements imposed by Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act of 1995 (“PSLRA”). In re VeriFone Holdings, Inc. Sec. Litig., 704 F.3d 694, 701 (9th Cir. 2012). Rule 9(b) requires a plaintiff to “state with particularity the circumstances constituting fraud ....” Fed.R.Civ.P. 9(b); see also In re VeriFone Holdings, 704 F.3d at 701. Similarly, the PSLRA requires that “the complaint shall specify each statement alleged to have been misleading, [and] the reason or reasons why the statement is misleading ....” 15 U.S.C. § 78u-4(b)(1)(B). The PSLRA further requires that the complaint “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” Id. § 78u-4(b)(2)(A). “To satisfy the requisite state of mind element, a complaint must allege that the defendant[] made false or misleading statements either intentionally or with deliberate recklessness.” In re VeriFone Holdings, 704 F.3d at 701 (internal quotation marks and citation omitted) (alteration in original). The scienter allegations must give rise not only to a plausible inference of scienter, but to an inference of scienter that is “cogent and at least as compelling as any opposing inference of nonfraudulent intent.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 314 (2007).

III. REQUEST FOR JUDICIAL NOTICE

Ordinarily, a district court's inquiry on a Rule 12(b)(6) motion to dismiss is limited to the pleadings. “A court may, however, consider certain materials-documents attached to the complaint, documents incorporated by reference in the complaint, or matters of judicial notice- without converting the motion to dismiss into a motion for summary judgment.” United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). Courts may take judicial notice of facts that are “not subject to reasonable dispute.” Fed.R.Evid. 201(b). Indisputable facts are those that are “generally known” or that “can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.” Id.

Defendants request that the Court take judicial notice of: Exhibit 1 AcelRx Press Release, issued on November 2, 2018; Exhibit 2, DSUVIA REMS, approved by FDA on November 2, 2018; Exhibit 3, DSUVIA Prescribing Information, approved by FDA on November 2, 2018; Exhibit 4, DSUVIA Directions for Use; Exhibit 5, AcelRx Press Release, issued on January 7, 2019; Exhibit 6, AcelRx Press Release, issued on January 31, 2019; Exhibit 7, Excerpts of AcelRx Form 10-K (FY 2018), filed with SEC on March 7, 2019; Exhibit 8, Transcript of AcelRx presentation at the 29^th Annual Oppenheimer Health Care Conference, webcast live on March 20, 2019; Exhibit 9, AcelRx Press Release, issued on ...