Einhorn v. Axogen, Inc.
| Decision Date | 01 August 2022 |
| Docket Number | 21-11246 |
| Citation | 42 F.4th 1218 |
| Parties | Neil EINHORN, Individually and on behalf of all others similarly situated, Plaintiff, Police and Fire Retirement System of the City of Detroit, Individually and on behalf of all others similarly situated, Plaintiff-Appellant, v. AXOGEN, INC., Karen Zaderej, Peter J. Mariani, Gregory G. Freitag, Jamie M. Grooms, Robert J. Rudelius, Mark Gold, Guido Neels, Amy Wendell, Leerink Partners LLC, JMP Securities LLC, Jefferies LLC, William Blair & Company, L.L.C., Defendants-Appellees, John Harper, et al., Defendants. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
Daniel Berger, Jay W. Eisenhofer, Grant & Eisenhofer, PA, New York, NY, Lester R. Hooker, Adam David Warden, Joseph Edward White, III, Saxena White, PA, Boca Raton, FL, John C. Kairis, Rebecca A. Musarra, Grant & Eisenhofer, PA, Wilmington, DE, for Plaintiff-Appellant.
Amanda E. Reagan, DLA Piper LLP (US), Tampa, FL, Ilana Hope Eisenstein, DLA Piper LLP (US), Philadelphia, PA, Elan Abraham Gershoni, DLA Piper LLP (US), Miami, FL, Caryn G. Schechtman, Marc Aaron Silverman, DLA Piper LLP (US), New York, NY, for Defendants-Appellees Axogen, Inc., Karen Zaderej, Peter J. Mariani, Gregory G. Freitag, Jamie M. Grooms, Robert J. Rudelius, Mark Gold, Guido Neels, Amy Wendell.
Amy Lea Drushal, Trenam Law, Tampa, FL, Daniel P. Roeser, Brian Pastuszenski, Goodwin Procter, LLP, New York, NY, Katherine Dacey, Goodwin Procter, LLP, Boston, MA, William M. Jay, Goodwin Procter, LLP, Washington, DC, for Defendants-Appellees Leerink Partners LLC, JMP Securities LLC, Jefferies LLC, William Blair & Company, L.L.C.
Before Lagoa, Brasher, and Tjoflat, Circuit Judges.
The Police and Fire Retirement System of the City of Detroit lost money when a short seller's report concluded that Axogen, Inc., had overstated the market for its products, resulting in a precipitous decline in Axogen's stock price. Specifically, Axogen said that its human nerve repair products had potential because "each year" 1.4 million people in the United States suffer nerve damage, leading to over 700,000 nerve repair procedures. The Retirement System filed this lawsuit against Axogen and related entities, which presents the following question: Were Axogen's public statements forward looking? If so, as the district court held, the statements are eligible for a safe harbor from liability. See 15 U.S.C. § 77z-2(c). After careful review and with the benefit of oral argument, we conclude that the challenged statements are forward looking and affirm the judgment of the district court.
An individual plaintiff filed a securities class action on behalf of all persons and entities that purchased or otherwise acquired Axogen stock during a class period between August 7, 2017, and December 18, 2018. The district court eventually appointed the Retirement System as lead plaintiff. Once in charge, the Retirement System filed an amended class complaint alleging violations of the 1933 Securities Act ("the ‘33 Securities Act"), 15 U.S.C. §§ 77k, 77l(a)(2), 77o, and the 1934 Securities Exchange Act ("the ‘34 Exchange Act"), 15 U.S.C. §§ 78j(b), 78t(a). The district court granted the defendants’ first motion to dismiss, and the Retirement System filed a second amended complaint. The following allegations are recited from the second amended complaint, as we must take them as true for the purposes of this decision.
Axogen is a medical technology company specializing in "nerve repair" products. Axogen claims an "exclusive focus on peripheral nerve repair and protection solutions" and sells "just a handful of products." One of those products is the Avance Nerve Graft
, a segment of nerve tissue derived from human cadavers used to "support and guide nerve regeneration" and "bridge gaps created in peripheral nerves as a result of trauma." Avance is Axogen's leading product, accounting for around half of the company's total revenues during the class period. Axogen claimed that between thirty-three and forty percent of its total market related to Avance.
During the class period, Axogen billed itself as a company with explosive growth potential, particularly for Avance. By the end of the class period, it estimated that its potential market had ballooned to 2.7 billion dollars. This estimate was made against a background of modest revenues—thirteen years after launching its core product, Axogen's 2017 revenue totaled only sixty million dollars, and it was operating at a loss. The result was a company that claimed untapped "long-term sustainable growth" potential, which was an attractive narrative to the plaintiffs.
Axogen conducted two public offerings of common stock during the class period that raised more than 170 million dollars. Documents related to those offerings contained statements in support of Axogen's purported growth potential. Axogen stated that it "believed" several things concerning the number of peripheral nerve injuries
and procedures that occurred "each year" in the United States.1 The offering documents incorporated statements made in Axogen's 2016 and 2017 Form 10-K. The 2016 10-K stated that:
Axogen believes each year in the U.S. more than 1.4 million people suffer traumatic injuries to peripheral nerves
. Axogen estimates that traumatic injuries to peripheral nerves result in over 700,000 extremity nerve repair procedures.
Similarly, the 2017 10-K stated:
We believe that each year in the U.S., more than 1.4 million people suffer damage or discontinuity to peripheral nerves resulting in over 700,000 extremity nerve repair procedures.
These statements appeared in the general business overview section of Axogen's Form 10-K, under a subheading entitled "Peripheral Nerve Regeneration Market Overview."
Some of the offering documents repeated Axogen's belief concerning the number of injuries and procedures that occur each year. A prospectus prepared in support of the November 2017 offering stated:
We believe that, each year in the United States, more than 1.4 million people suffer traumatic injuries to peripheral nerves
, resulting in over 700,000 extremity nerve repair procedures.
The same document contained similar statements concerning the size of the market for a different Axogen product:
[R]esearch ... has indicated approximately 80,000 [peripheral nerve injuries
] occur in the U.S. each year that are related to third molar extractions, anesthetic injections, dental implants and benign pathology.
And a registration statement filed prior to the May 2018 offering stated:
We believe that each year in the U.S. more than 1.4 million people suffer damage or discontinuity to peripheral nerves resulting in over 700,000 extremity nerve repair procedures.
In December 2018, Seligman Investments, a short seller that had been investigating Axogen, published a research report challenging Axogen's claims about the frequency of peripheral nerve injury
repair procedures and the size of Axogen's market. The report concluded that, far from the number Axogen touted, there were only 28,000 peripheral nerve injury repair procedures each year in the United States. It also concluded that Axogen's total market for Avance in trauma cases was only fifty-two million dollars, almost twenty times less than the market Axogen represented to investors during the class period. The release of the Seligman Report caused a market shock. Axogen's share price fell from $27.53 per share at closing the day before the report was released to $21.36 per share at close of the next trading day and $17.09 per share at closing three days after that. Axogen's stock price has yet to recover to pre-Seligman levels.
The Retirement System later retained its own experts to examine Axogen's claims about peripheral nerve injury
frequency. These experts argued that Axogen's claims about its market and the prevalence of repair procedures were inaccurate. The Retirement System also contacted several former Axogen employees who served as confidential witnesses in the complaint. These confidential witnesses expressed further skepticism about Axogen's market estimates. And although the Retirement System alleged that Axogen executives knew that the estimates were false to support its claims under the ‘34 Exchange Act, it "expressly disclaim[ed] any allegations of fraud or intentional misconduct in connection with [the ’33 Securities Act] claims."
After the Retirement System filed the second amended complaint, the defendants moved to dismiss again. The district court granted the defendants’ renewed motion and dismissed the complaint with prejudice, holding that the challenged statements were: (1) forward looking and protected by the safe-harbor provision, 15 U.S.C. § 78z-2, and in the alternative (2) non-actionable statements of opinion under Omnicare, Inc. v Laborers District Council Construction Industry Pension Fund , 575 U.S. 175, 135 S.Ct. 1318, 191 L.Ed.2d 253 (2015). The court also held that the amended complaint failed to satisfy the heightened standard for pleading scienter under the Reform Act, rendering the ‘34 Exchange Act claims fatally deficient.
The Retirement System timely appealed, challenging only the district court's dismissal of its claims under the ‘33 Securities Act. The question before us is further narrowed by the Retirement System's briefing, which disclaims any challenge to Axogen's estimates of the size of its market. Thus, the only question on appeal is whether Axogen's statements concerning the frequency of nerve injuries and peripheral nerve
injury repair procedures are shielded from liability.
We review a district court's order granting a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) de novo , accepting the complaint's well-pleaded factual allegations as true and construing them in the light most favorable to the plaintiff. See S. Fla. Water Mgmt. Dist. v. Montalvo , 84 F.3d 402, 406 (11th Cir. 1996). But "conclusory allegations, unwarranted deductions of facts or legal...
To continue reading
Request your trial
-
Cruz v. Farmers Ins. Exch.
... ... Hampton v. Dillard Dep't Stores, Inc. , 247 F.3d 1091, 110102 (10th Cir. 2001). Farmers does not dispute the first and third elements, ... ...
-
Clowdus v. Am. Airlines, Inc.
... ... STANDARD OF REVIEW ... We ... review de novo the dismissal of a complaint ... Einhorn v. Axogen, Inc., 42 F.4th 1218, 1222 (11th ... Cir. 2022). And we review de novo a judgment on the ... pleadings. Samara v. Taylor, 38 ... ...