791 F.3d 915 (8th Cir. 2015), 14-2592, Julianello v. K-V Pharmaceutical Co.

Docket Nº:14-2592
Citation:791 F.3d 915
Opinion Judge:SHEPHERD, Circuit Judge.
Party Name:Frank Julianello, on behalf of himself and all others similarly situated, Plaintiff; v. K-V Pharmaceutical Company; Gregory J. Divis, Jr.; Scott Goedeke; Thomas McHugh, Defendants - Appellees Lori Anderson, Plaintiff - Appellant
Attorney:For Lori Anderson, Plaintiff - Appellant: David A.P. Brower, Brower & Piven, New York, NY; New York, NY, Eric D. Holland, Holland & Groves, Saint Louis, MO. For K-V Pharmaceutical Company, Gregory J. Divis, Jr., Scott Goedeke, Defendants - Appellees: Robert P. Berry, Berry & Silberberg, Saint Lou...
Judge Panel:Before MURPHY and SHEPHERD, Circuit Judges, and HARPOOL,[1] District Judge.
Case Date:July 02, 2015
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit
SUMMARY

Plaintiffs acquired shares of K-V Pharmaceutical stock during the period in which the company launched and marketed Makena, its new prescription drug, designed to reduce the risk of pre-term labor for at-risk pregnant women. It had acquired rights to the drug from the FDA, under the Orphan Drug Act, 21 U.S.C. 360. In a putative class action, the plaintiffs alleged that K-V and three of its... (see full summary)

 
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791 F.3d 915 (8th Cir. 2015)

Frank Julianello, on behalf of himself and all others similarly situated, Plaintiff;

Lori Anderson, Plaintiff - Appellant

v.

K-V Pharmaceutical Company; Gregory J. Divis, Jr.; Scott Goedeke; Thomas McHugh, Defendants - Appellees

No. 14-2592

United States Court of Appeals, Eighth Circuit

July 2, 2015

Submitted: March 12, 2015.

Appeal from United States District Court for the Eastern District of Missouri - St. Louis.

For Lori Anderson, Plaintiff - Appellant: David A.P. Brower, Brower & Piven, New York, NY; New York, NY, Eric D. Holland, Holland & Groves, Saint Louis, MO.

For K-V Pharmaceutical Company, Gregory J. Divis, Jr., Scott Goedeke, Defendants - Appellees: Robert P. Berry, Berry & Silberberg, Saint Louis, MO; Jason E. Morrow, F. Joseph Warin, Gibson & Dunn, Washington, DC.

For Thomas McHugh, Defendant - Appellee: Robert P. Berry, Berry & Silberberg, Saint Louis, MO.

Before MURPHY and SHEPHERD, Circuit Judges, and HARPOOL,1 District Judge.

OPINION

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SHEPHERD, Circuit Judge.

This securities fraud class action involves a class of plaintiffs who purchased

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or otherwise acquired shares of K-V Pharmaceutical Company stock during the period in which the company launched and marketed Makena, its new prescription drug. The plaintiffs allege that K-V and three of its officers (collectively K-V) made materially false or misleading statements or omissions related to the product launch. The district court2 granted K-V's motion to dismiss, holding the challenged statements were protected by the safe-harbor provision of the Private Securities Litigation Reform Act of 1995 (PSLRA), 15 U.S.C. § 78u-4(b), and that the plaintiffs failed to adequately plead scienter under the PSLRA. The district court also denied the plaintiffs' motion for reconsideration of the scope of leave to amend the complaint, denying the plaintiffs the opportunity to amend the complaint as it related to allegations from confidential witnesses. The plaintiffs appeal, and we affirm.

I.

The plaintiffs in this action are holders of publicly traded shares of K-V stock who purchased or otherwise acquired shares between February 14, 2011, and April 4, 2011. Plaintiffs allege that K-V made materially false or misleading statements and omissions during this period regarding K-V's marketing, distribution, and sale of its prescription drug Makena, designed to reduce the risk of pre-term labor for at-risk pregnant women. In 2008, K-V acquired the rights to the drug, then known as Gestiva, rebranded it as Makena, and sought exclusive sales rights under the Orphan Drug Act, 21 U.S.C. § § 360aa-360ee, from the Food and Drug Administration (FDA). The Orphan Drug Act, which encourages drug manufacturers to develop drugs for the treatment of rare diseases or disorders, provides that, with FDA approval, manufacturers of drugs designed to treat diseases or disorders that affect fewer than 200,000 people may obtain seven years of exclusive sales rights. On February 3, 2011, the FDA granted K-V's request for exclusive sales rights.

On February 14, 2011, K-V held a conference call with investors and filed a Form 8-K with the Securities and Exchange Commission (SEC), which incorporated the information discussed in the conference call. At the beginning of the call, K-V made the following statements:

[C]ertain information provided on this conference call may contain various forward-looking statements within the meaning of the [PSLRA] and may be based on or include assumptions concerning the Company's operations, future results and prospects. Such statements may be identified by the use of words such as plan, expect, believe, anticipate, intend, will, should, could, potential and other expressions that indicate future events and trends.

All statements that address expectations or projections about the future, including without limitation statements about . . . the Company's strategy for growth, product development, product launches, regulatory approvals, market position, acquisitions, revenues, expenditures and other financial results are forward-looking statements. These statements involve various risks and uncertainties that could cause our actual results to differ materially from those expressed in such forward-looking statements. These include the risks and uncertainties under the heading risk factors in our most recent annual report on Form 10-K and other periodic reports filed with the SEC which are Page 918

available on our website . . . and on the SEC's website.

Investors are cautioned not to place undue reliance on such forward-looking statements, as there is no assurance that these matters contained in such statements will occur. The forward-looking statements we make on today's call are based on our beliefs and expectations . . . as of today, February 14, 2011 only. We do not undertake any obligation to revise or update such forward-looking statements.

R. Doc 91-2, at 2-3.

The non-exclusive risk factors listed in the Form 10-K mentioned at the beginning of the call included the following: " new product development and launch, including the possibility that any product launch may be delayed or unsuccessful, including with respect to GestivaTM," " acceptance of and demand for our new pharmaceutical products, including GestivaTM," and " the possibility that any period of exclusivity may not be realized, including with respect to GestivaTM, a designated Orphan Drug." R. Doc. 91-1, at 3.

On the February 14, 2011 investor call, K-V announced that the FDA had approved Makena and granted it orphan-drug status. K-V informed investors that it planned to charge $1,500 per injection, with the average patient requiring nearly $30,000 worth of injections. K-V also announced a program called Makena Care Connection, which would offer administrative, educational, and financial assistance to patients, and indicated that women with household incomes of up to $100,000 would be eligible for this program. K-V asserted that this would include approximately 85% of households in the United States. K-V also indicated that it believed health insurers would provide coverage for Makena because the average cost relating to a pre-term birth--$51,000--was higher than the average cost of Makena injections--$30,000. The price point of $1,500 an injection marked a 14,900% increase from the price at which compounding pharmacies offered a previous version of the drug. The parties do not dispute that the success of Makena was critical to K-V's survival.

During the call, K-V was asked specifically about the possibility of off-label compounding pharmacies joining the market for Makena. K-V explained that it believed the FDA regulations to be very clear and that the FDA generally prohibits distribution of compounded products that are the same as FDA-approved products. With respect to the FDA's enforcement of exclusivity, K-V made the following statements:

[W]e believe that the regulations and laws are very clear. I think it's fair to say that compounding pharmacies are not FDA-approved manufacturing facilities and that FDA regulations and state pharmacy laws generally prohibit the distribution of compounded products that are the same or essentially the same as FDA-approved products.

We also believe that compounded pharmacies are aware of these laws and regulations, and our expectation is that they will adhere to them. I think it's also fair to say that, despite the availability of compounded product, there have been moms on the sidelines because of significant logistical and financial barriers to access that are typically associated with non-FDA approved products. And I'll just close by saying that everything we have designed around Makena is to remove these barriers and to make sure that we fulfill our corporate commitment, which is to make Makena accessible to all eligible patients. Page 919

R. Doc. 91-2, at 12-13. Asked about the price point of $1,500 per injection, K-V reiterated its belief that, because of the high cost of pre-term birth, Medicaid and insurers would cover the cost. K-V also stated that " we've done a lot of homework around this particular decision. And we believe our pricing approach is supported by a very comprehensive market research plan which included all stakeholders." R. Doc. 91-2, at 14.

On February 17, 2011, K-V sent a letter to compounding pharmacies informing them that they should no longer make unapproved formulations of Makena and warned that if the pharmacies continued production they would be subject to FDA enforcement actions. On March 8, 2011, K-V issued a press release indicating Makena would become available for prescribing on March 14, 2011, and describing the financial assistance program. K-V also filed a Form 8-K with the SEC that included financial projections based on the sales launch of Makena. K-V released Makena to the public and, after K-V revealed the pricing structure, a swift negative reaction erupted. The March of Dimes withdrew its support and refused to allow K-V to use its name in association with Makena. Two United States senators issued a press release expressing their concerns over the price point and the insufficiency of the financial assistance program. They also released a letter they sent to the Federal Trade Commission urging an investigation and mentioned their concerns during an appropriations hearing.

On March 30, 2011, the FDA issued a statement that it did not intend to take enforcement action against compounding pharmacies that compounded the equivalent of Makena, informing the pharmacies...

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