Dougherty v. Esperion Therapeutics, Inc.

• Decision Date: 27 September 2018
• Docket Number: No. 17-1701,17-1701
• Citation: 905 F.3d 971
• Parties: Kevin L. DOUGHERTY, Plaintiff, Ronald E. Wallace and Walter J. Minett, individually and on behalf of all others similarly situated, Movants-Appellants, v. ESPERION THERAPEUTICS, INC.; Tim M. Mayleben, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

905 F.3d 971

Kevin L. DOUGHERTY, Plaintiff,

Ronald E. Wallace and Walter J. Minett, individually and on behalf of all others similarly situated, Movants-Appellants,

v.ESPERION THERAPEUTICS, INC.; Tim M. Mayleben, Defendants-Appellees.

No. 17-1701

United States Court of Appeals, Sixth Circuit.

Argued: March 15, 2018

Decided and Filed: September 27, 2018

ARGUED: Steven F. Hubachek, ROBBINS GELLER RUDMAN & DOWD LLP, San Diego, California, for Appellants. Deborah S. Birnbach, GOODWIN PROCTER LLP, Boston, Massachusetts, for Appellees. ON BRIEF: Steven F. Hubachek, ROBBINS GELLER RUDMAN & DOWD LLP, San Diego, California, for Appellants. Deborah S. Birnbach, Kevin P. Martin, Adam Slutsky, Joshua J. Bone, GOODWIN PROCTER LLP, Boston, Massachusetts, for Appellees.

Before: SILER, BATCHELDER, and DONALD, Circuit Judges.

SILER, Circuit Judge.

Plaintiffs in securities-fraud suits are subject to a more onerous pleading burden than the average plaintiff. They must plead, among other things, a "strong inference of scienter" that is "cogent and at least as compelling as any opposing inference of nonfraudulent intent." Doshi v. Gen. Cable Corp. , 823 F.3d 1032, 1039 (6th Cir. 2016) (quoting Tellabs, Inc. v. Makor Issues & Rights, Ltd. , 551 U.S. 308, 314, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007) ). In this case, the district court held that Plaintiffs, certain stockholders of Esperion Therapeutics, failed to adequately plead a strong inference that Esperion CEO Tim Mayleben willfully or recklessly made misleading statements to investors following a meeting with the FDA regarding the company's new cholesterol drug. Because Plaintiffs adequately alleged scienter, we REVERSE and REMAND.

I.

Esperion is a pharmaceutical company that was formed in 2008. Since its incorporation, Esperion has neither sold any products nor generated any revenue, relying instead upon investor funding. Esperion's sole focus is the development of ETC-1002, a first-in-class oral medication designed to lower LDL-cholesterol

, also known as "bad cholesterol." Elevated LDL-cholesterol is a significant risk factor in cardiovascular disease and contributes to plaque deposits in arteries, which in turn cause heart attacks, strokes, and other medical issues. According to the Centers for Disease Control, approximately seventy-one million adults in the United States have elevated LDL-cholesterol levels.

The current standard of care for patients with high cholesterol is a family of drugs called statins. However, the use of statins is accompanied by a number of possible side effects—muscle pain or weakness, memory loss, and increased glucose levels, to name a few. Esperion estimates that between two and seven million American adults are statin-intolerant due to these side effects.

Compared to statins, ETC-1002 acts at an earlier point in the body's synthesis of cholesterol and avoids the muscle pain and weakness that statins produce in some patients. Esperion hopes to market ETC-1002 as an alternative treatment for statin-intolerant patients. Additionally, ETC-1002 could be used as an add-on therapy for patients who suffer from heterozygous familial hypercholesterolemia

(HeFH) and clinical atherosclerotic cardiovascular disease (ASCVD). Patients with those conditions are often unable to reach their recommended LDL-cholesterol levels using statins alone, so the addition of ETC-1002 to their course of treatment might help those patients reach their cholesterol-level goals.

To that end, Esperion sought FDA approval for ETC-1002. Any new drug must be put through a series of clinical trials before it can be marketed and sold in the United States. Following initial testing on animals, pharmaceutical companies must seek permission from the FDA to test the new drug on humans. N.J. Carpenters Pension & Annuity Funds v. Biogen IDEC Inc. , 537 F.3d 35, 39 (1st Cir. 2008) (citations omitted). If approved by the FDA, human clinical trials proceed in three phases:

Phase I studies generally involve twenty to eighty subjects, and are designed to determine how the drug works in humans and the side effects associated with increasing doses. [ 21 C.F.R.] § 312.21(a)(1). Phase II studies usually involve no more than several hundred subjects, and are designed to evaluate the effectiveness of the drug, as well as common short-term side effects and risks. Id. § 312.21(b). Phase III studies are large-scale trials, usually involving several hundred to several thousand subjects, and are intended to gather the information necessary to provide an adequate basis for labeling the drug. Id. § 312.21(c).... After Phase III, the FDA considers the results of all of the clinical trials in determining whether to approve a drug for market. See id. §§ 314.125(b), 314.126(a).

Id.

By August 2015, Esperion had completed three Phase 1 studies and seven Phase 2 studies. In each trial, Esperion reported that ETC-1002 was well-tolerated in the study population and demonstrated significant average LDL-cholesterol

reductions. That month, Esperion executives met with FDA officials for an "End-of-Phase 2 Meeting" to elicit feedback and advice regarding the path forward with Phase 3 of the approval process.

Following the meeting, Esperion published a press release on August 17, 2015, that contains two statements worth noting. First, the company stated that "[t]he FDA confirmed that LDL-C remains an acceptable clinical surrogate endpoint for the approval of an LDL-C lowering therapy such as ETC-1002 in patient populations who have a high unmet medical need, including patients with [HeFH] ... or [ASCVD]." Second, the company said that, "[b]ased upon feedback from the FDA, approval of ETC-1002 in the HeFH and ASCVD patient populations will not require the completion of a cardiovascular outcomes trial."

These statements require some explanation to be fully understood in context. A cardiovascular outcomes trial (CVOT) is a costly, lengthy study that measures a drug's effectiveness in reducing cardiovascular risk over several years. Because lower LDL-cholesterol

is presumed to improve overall heart health, the FDA does not typically require companies seeking approval of a new cholesterol-lowering drug to complete a CVOT and prove that the drug actually reduces cardiovascular risk. Instead, the FDA treats LDL-cholesterol as a "surrogate endpoint," or proxy, for cardiovascular risk. In other words, if a new drug is shown to lower LDL-cholesterol, the FDA assumes that it also improves overall cardiovascular health. By saying that the FDA would continue to use LDL-cholesterol as a proxy for cardiovascular risk, and that the FDA would not require a completed CVOT prior to approving ETC-1002, Esperion was essentially telling its investors that ETC-1002 had a clear path to regulatory approval.

In a follow-up conference call with market analysts, CEO Tim Mayleben stated that Esperion issued the release "because we felt that some of the information we learned last week at our End-of-Phase II meeting about the regulatory path forward for [ETC-]1002 was important for you to know sooner rather than later, even though we don't yet have meeting minutes back from the FDA." Regarding the possibility of a CVOT, Mayleben said that "[w]e know that [ETC-]1002 will not require a CV outcomes trial to be completed prior to approval in patients with heterozygous FH and ASCVD, those patient populations that the FDA considers to have an appropriate benefit/risk ratio." Thus, Mayleben confirmed what Esperion had stated in its earlier press release—the company believed the FDA would not require a completed CVOT prior to approval of ETC-1002 for use in patients whose high cholesterol could not be managed using statins alone. However, Mayleben indicated that the company still intended to conduct a CVOT at some point, in hopes that the FDA would later approve ETC-1002 for broader use in patients seeking an overall reduction in the risk of cardiovascular disease

.

During his conference call, Mayleben stressed the importance of receiving the FDA's final minutes from the meeting. He declined to fully answer several questions asked by participants in the conference call, saying that answers would have to wait until Esperion received the final minutes. And when Mayleben was asked how the FDA's minutes might differ from Esperion's notes from the meeting, he said that "we can't comment until we receive the final minutes from the FDA next month because ... we have [zero] interest in front running the FDA on this. The FDA's minutes are the only minutes that matter, and so we're going to wait for those minutes."

Esperion's press release also included cautionary language, warning investors that the release "contains forward-looking statements that are made pursuant to the safe harbor provisions of the federal securities laws," and suggesting that "Esperion may need to change the design of its Phase 3 program once final minutes from the FDA meeting are received."

Market reaction was mostly positive following the press release and conference call. Some analysts were disappointed that the proposed study population for Esperion's Phase 3 trials was narrower than anticipated. However, most analysts focused on the fact that, according to Esperion, the FDA was not planning to require a completed CVOT as a prerequisite to approval for ETC-1002's use in the high-unmet-need patient population.

Following its receipt of the final FDA minutes, Esperion published another press release on September 28, 2015. Contrary to its August statements, Esperion said that the "FDA has encouraged the Company to initiate a cardiovascular outcomes trial promptly, which would be well underway at the time of the New Drug Application submission and review, since any concern regarding the benefit/risk assessment of ETC-1002 could necessitate a completed cardiovascular outcomes trial before approval." In a subsequent conference call, Mayleben acknowledged that this language was "slightly different" than the language...