Rosi v. Aclaris Therapeutics, Inc.
| Decision Date | 29 March 2021 |
| Docket Number | 19-cv-7118 (LJL) |
| Parties | LINDA ROSI, individually and on behalf of all others similarly situated, Plaintiff, v. ACLARIS THERAPEUTICS, INC., et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Defendants Aclaris Therapeutics, Inc. ("Aclaris" or the "Company"), Neal Walker ("Walker"), Frank Ruffo ("Ruffo"), Kamil Ali-Jackson ("Ali-Jackson"), and Brett Fair ("Fair") (collectively "Defendants"), move, pursuant to Fed. R. Civ. P. 9(b) and 12(b)(6), to dismiss the amended class action complaint filed against them.
For the following reasons, the motion to dismiss is granted in part and denied in part.
The Court accepts the well-pleaded allegations of the Amended Complaint and the documents incorporated therein as true for purposes of the motion to dismiss.1
Plaintiff Robert Fulcher ("Plaintiff" or "Fulcher") brings a putative class action on behalf of persons and entities that purchased or otherwise acquired Aclaris securities between May 8, 2018 and August 12, 2019, inclusive (the "Class Period"), seeking to recover damages caused by Defendants' alleged violations of the federal securities laws under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b) and 78t(a), and Rule 10b-5 promulgated thereunder.
Aclaris is a small physician-led biopharmaceutical company headquartered in Wayne, Pennsylvania. Dkt. No. 27 ("Amended Complaint" or "AC") ¶ 2. Until August 2019, its business was focused on the identification, development, and commercialization of therapies to address unmet needs in medical and aesthetic dermatology and immunology. Id. ¶¶ 2, 52.2 Its shares trade on the NASDAQ Global Select Market under the symbol "ACRS." Id. ¶¶ 36, 53. The "Individual Defendants" are defined to include Walker who was President and Chief Executive Officer ("CEO"), id. ¶ 37, Ruffo who was Chief Financial Officer ("CFO"), id. ¶ 38, Ali-Jackson who was Chief Legal Officer, Chief Compliance Officer and Corporate Secretary, id. ¶ 39, and Fair who was Chief Commercial Officer, id. ¶ 40. Walker, Ruffo, and Ali-Jackson had worked together at prior pharmaceutical start-up companies and were the co-founders of Aclaris. Id. ¶ 54. They, along with Aclaris's Chief Operating Officer, Chis Powala ("Powala"), ran Aclaris and acted as the core management of the Company. Id. ¶ 54.3
Aclaris was incorporated in 2012 and went public in October 2015. Id. ¶ 53. Because Aclaris did not sell products at that time, Defendants funded Aclaris's operations with the proceeds of the initial public offering. Id. ¶ 57. At the start of the Class Period in May 2019, Aclaris was in dire financial condition. Id. ¶ 56. It had never produced revenue from product sales and was experiencing increasing operating losses, which had ballooned from $8.5 million in 2014 to $72.4 million in 2017 and to $30.9 million in the first quarter of 2018 alone. Id. It also had few employees. Id. ¶ 55. It had 96 full-time and part-time employees as of December 31, 2017, and 169 full-time and part-time employees as of December 31, 2018. Id. In August 2019, it laid off approximately 86 employees, or half of Aclaris's staff. Id.
On December 14, 2017, five months before the start of the Class Period, the FDA approved ESKATA ("ESKATA" or "Eskata"), which was a concentrated (40%) hydrogen peroxide-based topical solution for treatment of raised seborrheic keratosis ("SK" or "raised SK"), or waxy or wart-liked raised brown spots or lesions on the skin that are darker than an individual's regular skin tone. Id. ¶¶ 4, 58, 62. They are colloquially known as "age spots." Id. ¶ 58. SK lesions are typically treated by dermatologists who usually remove them by freezing them off (cryosurgery), by cutting (shave excision), by scraping and burning (electrodessication and curettage) or a combination of those methods. Id. ¶ 60. Those treatments are painful, leave scars, and cause skin discoloration and some patients thus avoid them, preferring to live with the SKs. Id. ¶ 61. Approximately 83 million Americans have raised SK. Id. ¶ 59.
Aclaris developed ESKATA as an alternative clinical treatment to removing SK lesions without damaging surrounding skin. Id. ¶ 63. ESKATA offered advantages to existing raised SK treatments that were invasive and painful and could leave scars or skin discoloration. Id. ¶¶ 5, 66. ESKATA was administered through an applicator, which looked like a thin felt-tippedpen or highlighter, by a healthcare provider. Id. ¶ 63. The healthcare provider would rub the tip of the applicator directly to the lesion for approximately 20 seconds to coat the lesion with ESKATA, four times, approximately one minute apart. If the application was successful, the raised SK treated with ESKATA would peel away in the days following treatment. If the lesion was not removed by a single treatment, a patient would return for additional treatments. Id.
ESKATA was Aclaris's only FDA-approved product and therefore far and away the Company's most important product. Id. ¶¶ 4, 62. Aclaris's ability to continue as a going concern depended on whether it could successfully market ESKATA. Id. ¶ 62.
When the FDA approved ESKATA, the label for ESKATA was published on the FDA website. Id. ¶ 64; Dkt. No. 37 ("Vigna Decl."), Ex B. The FDA warning label reflected that ESKATA could cause undesirable side effects. Those side effects included "eye disorders" and "local skin reactions," which were listed in three different locations on the label: in two separate areas labelled "warnings and precautions" and under "patient counseling information." Vigna Decl., Ex. B. Possible eye disorders included corneal injury (erosion, ulceration, perforation, and scarring), chemical conjunctivitis, eyelid edema, severe eye pain, or permanent eye injury, including blindness." Id.
Skin reactions were also observed "in and around the treatment area after application of ESKATA." Id. "Common local skin reactions" observed included, 10 minutes after treatment, erythema, stinging, edema, pruritus, and vesiculation; 1 week after treatment, scaling, erythema, crusting, pruritus, erosion, and ulceration; and 15 weeks after treatment, erythema, hyperpigmentation, scaling, crusting, and hypopigmentation. Id. The label also warned that "severe reactions, including ulcerations and scarring, may occur." Id. "Severe local skin reactions included erosion, ulceration, vesiculation and scarring." Id.; see also id. (). "The most common side effects of ESKATA include: itching, stinging, crusting, swelling, redness and scaling." Id.
Aclaris published the warning label on its websites and announced it in a Form 8-K filed on December 15, 2017 with the U.S. Securities and Exchange Commission ("SEC"). See Vigna Decl., Ex. O.
Aclaris began marketing ESKATA in 2018 through a two-phase marketing plan. AC ¶¶ 7, 71. The first phase, called the "ESKATA Early Experience Initiative," was launched in spring 2018 ("EEI"). It involved Aclaris's sales representatives visiting physicians to encourage them to order ESKATA. Id. ¶¶ 7, 9, 71. Aclaris hired approximately 50 sales representatives to introduce ESKATA to hundreds of dermatologists. Id. ¶¶ 73-75. The sales representatives offered free samples of ESKATA, sat in on treatments of patients using ESKATA, and after the treatments, surveyed the physicians and patients on, among other things, a patient's pain or comfort level and how effectively ESKATA removed raised SK. Id. ¶¶ 7, 71, 73.
After the EEI was underway, on March 29, 2018, the FDA's Office of Prescription Drug Promotion ("OPDP") sent Defendants a letter (the "March 2018 Letter"), recommending that Aclaris "revise proposed presentations [for ESKATA] so that they do not omit material information regarding the risks associated with ESKATA or otherwise misrepresent important risk information" and also recommending that "Aclaris revise proposed presentations so that they did not overstate the efficacy of ESKATA." Id. ¶ 123.4 ESKATA became commercially available on May 7, 2018. Id. ¶ 90.
The second phase of the marketing plan was a direct-to-consumer marketing campaign (the "DTC campaign") designed to drive patients to physicians to request ESKATA treatments. The DTC campaign kicked off on or about September 19, 2018, with an interview of dermatologist Doris Day, a paid Aclaris spokesperson, that aired on the popular daytime talk show, "The View." Id. ¶¶ 8, 106, 108. During the interview, Dr. Day discussed ESKATA's application and treatment potential, as well as certain side effects. Dr. Day said, "[T]ypically in one or two treatments the lesions go away, they resolve, and that's the end of it." Id. ¶ 109. Dr. Day also warned that ESKATA "can sting as you apply it." Id. ¶ 111.
Two sets of "before and after" photos were displayed showing certain patients' results. The first set of images presented a patient with over 10 raised SK before treatment and showed that all of the lesions were completely removed after treatment and without skin discoloration. The second set of images presented a patient with fewer raised SK but also indicated that all of the raised SK were completely removed after treatment and without skin discoloration. Id. ¶ 110. Dr. Day stated: "[S]o you can see from the before and after what it [treatment with ESKATA] looks like." Id. ¶ 111. The photographs were accompanied by on-screen disclaimers stating: "18% of patients experienced clearance of 3 out of 4 raised SKs treated with ESKATA vs. 0% with vehicle (Day 106 of study)"; "[m]ost common side effects are itching, stinging, crusting, swelling, redness and scaling"; and Id. ¶ 111. Dr. Day concluded: "I am one of many I think that have their own...
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