Court: District Court, S.D. Illinois; June 11, 2018; Federal District Court
In a putative class action under federal securities laws, lead plaintiffs Joseph Bessent, John Corbitt, and Eric Pearson allege that Aratana Therapeutics, Inc. and its officers, Steven St. Peter and Craig A. Tooman, made misleading statements about the availability of ENTYCE, an appetite stimulant for dogs. The lawsuit encompasses all individuals who purchased Aratana securities between March 16, 2015, and March 13, 2017, claiming violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 of the SEC. Aratana seeks dismissal of the Amended Class Action Complaint (AC) for failure to state a claim under Federal Rules of Civil Procedure 12(b)(6) and 9(b).
The court grants Aratana's motion to dismiss the AC. Aratana, a biopharmaceutical company specializing in animal therapeutics, had two approved products—BLONTRESS and TACTRESS—at the start of the Class Period. The company entered a loan agreement in October 2015, which was contingent on obtaining full regulatory approval for four biomedical products by the end of 2016, crucial for its financial viability. Aratana received full approval for GALLIPRANT in March 2016 and for NOCITA in August 2016, fulfilling the loan requirements. ENTYCE received full approval in May 2018, after the Class Period ended.
Plaintiffs’ claims hinge on the defendants' statements regarding the FDA approval process for ENTYCE, which is essential for its commercial distribution. The approval process includes establishing an Investigational New Animal Drug file, holding a pre-development meeting with the FDA, and submitting data on safety, effectiveness, and manufacturing controls to obtain a New Animal Drug Application approval.
The CMC section requires the company to show a defined manufacturing process that ensures high-quality consistency for the product. Manufacturing may occur in-house or via third-party contract manufacturers compliant with Current Good Manufacturing Practices (cGMP). If the CVM finds the submissions satisfactory for any technical section, it issues a technical section complete letter. Upon receiving all three complete letters, the company files an "administrative NADA," which includes additional relevant information and proposed labeling. The FDA typically approves the product within 60 days if there are no deficiencies in the NADA.
Post-approval changes that adversely impact a drug's identity, strength, quality, purity, or potency are considered "major changes" and require renewed CVM approval. A change in manufacturing sites is deemed major if the new site has not been FDA inspected for the relevant operation or does not comply with cGMP. To secure approval for a major change, companies must file a Prior Approval Supplement (PAS), which undergoes a 120-day review.
By March 16, 2015, Aratana had submitted a NADA for ENTYCE and received a technical section complete letter for the safety section. Plaintiffs allege that from this date until March 13, 2017, defendants made false statements about ENTYCE's commercialization prospects, claiming it was on track for launch in 2016 and early 2017 despite knowing that securing an FDA-approved manufacturer for commercial production was unrealistic. The truth emerged on February 6, 2017, when Aratana revealed that the CVM had requested additional information regarding a manufacturing site transfer. The court will examine the specific misstatements made by defendants, grouped by the anticipated commercialization dates for ENTYCE. The start of the Class Period is marked by Aratana's annual Form 10-K filed on March 16, 2015, which plaintiffs claim contains several misleading statements.
Aratana's Form contains cautionary statements identifying certain forward-looking statements related to management’s plans for product development, regulatory submissions, and business prospects, as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are susceptible to risks and uncertainties that could lead to significant differences in the company’s actual results. Key risk factors highlighted include dependence on the success of current product candidates despite having one fully approved and one conditionally approved product. The success of these candidates relies on the capabilities of third-party manufacturers to produce supplies and maintain compliant manufacturing processes. Regulatory approvals are critical; any delays or denials could negatively impact commercialization efforts and revenue potential.
Aratana does not possess the internal manufacturing capabilities to produce its product candidates at a scale necessary for commercialization and will depend on contract manufacturers for production. Should these manufacturers' facilities fail to gain or maintain regulatory approval, it could hinder product development and market entry. Additionally, scaling up manufacturing to meet market demands may present significant challenges requiring further regulatory approvals, which may not be timely or feasible. The Form also asserts that Aratana has established processes for overseeing product development, launch, and market maintenance to ensure safety and effectiveness of its animal health pharmaceuticals.
Aratana's communications regarding ENTYCE consistently indicated plans for a New Animal Drug Application (NADA) submission and anticipated U.S. marketing approval in 2016. In a May 8, 2015 quarterly Form 10-Q, the company projected U.S. marketing approval for ENTYCE in that year, and during an earnings call, St. Peter confirmed efforts to secure commercial supply. An August 6, 2015 press release highlighted positive study results and reiterated plans to submit an NADA in 2016, aiming for commercialization by mid-2016. The following day, in the second-quarter 2015 Form 10-Q, Aratana again stated its intention to submit an NADA for AT-002 in dogs in 2016, with expectations for six products to be on the market that year.
Throughout subsequent communications, including an August 2015 earnings call, St. Peter emphasized the progress towards commercialization and acknowledged ongoing efforts to finalize supply agreements for ENTYCE. On September 24, 2015, the company projected an early 2016 NADA submission, potentially leading to commercialization shortly thereafter. A November 5, 2015 press release confirmed receipt of a technical section complete letter for ENTYCE and reiterated the priority on commercial execution. This was echoed in the third-quarter 2015 Form 10-Q and earnings call, where St. Peter expressed confidence in bringing ENTYCE and other products to market in 2016.
Aratana aimed to launch an unprecedented number of pet therapeutics by 2016, having completed necessary safety studies, GMP manufacturing, pilot field studies, and pivotal field effectiveness studies. On November 17, 2015, Aratana filed a Form 8-K indicating plans to engage national veterinary distributors in early 2016 for potential distribution arrangements of their product candidates.
On March 14, 2016, Aratana announced via a press release that it had received the final technical section complete letter for ENTYCE and was finalizing its product label, expecting to submit the administrative NADA by the end of March 2016. The company revised its timeline for commercial availability of ENTYCE to late 2016 or shortly thereafter. In the 2015 Form 10-K, Aratana expressed confidence in commencing commercialization of ENTYCE in late 2016, contingent on CVM approval, and highlighted the identification of contract manufacturers with a strong track record to supply active pharmaceutical ingredients and formulated drugs.
During a subsequent earnings call, an analyst inquired about factors affecting the timing of product commercialization, to which St. Peter explained that several elements impact the timeline, including the need to create a commercial supply, product labeling, inventory for distributors, and scaling up manufacturing processes from clinical trial batches to commercial quantities. The company was actively working to support the commercial forecasts for both Galliprant and ENTYCE through supply agreements.
An analyst inquired about the status of commercial agreements related to Galliprant and Entyce, to which St. Peter confirmed that they were still under development. Another analyst questioned the timing of commercialization despite an anticipated administrative NADA filing by March 2016, noting that such reviews usually take 60 days. St. Peter explained that factors such as scaling up supply, sequencing product launches, and production logistics contributed to the projected delay. On May 5, 2016, Aratana announced the filing of its administrative NADA for CVM approval and anticipated that Entyce would be commercially available in late 2016 or shortly thereafter. This timeline was reiterated in their first-quarter 10-Q filing on May 6, where the company disclosed ongoing technology transfers to contract manufacturers for ENTYCE supplies. During a subsequent earnings call, St. Peter confirmed the late 2016 launch timeframe and mentioned the hiring of a sales organization for upcoming product launches. On May 17, 2016, Aratana announced that the FDA approved ENTYCE for appetite stimulation in dogs, revising its launch timeline to February 2017 at the North American Veterinary Conference. This was restated in an August 4 press release and in the second-quarter 10-Q filing, where they expressed plans to file with the FDA in the third quarter of 2016 to support manufacturing transitions necessary for the product launch. The anticipated commercial launch remained set for the first quarter of 2017, as confirmed in the second-quarter earnings call.
On November 3, 2016, Aratana released a statement indicating that the timeline for the availability of Entyce was contingent upon its approval and release. The following day, Aratana submitted its third-quarter 2016 Form 10-Q, detailing the ongoing transfer of manufacturing technology for GALLIPRANT and ENTYCE to contract manufacturers. The company confirmed completion of required manufacturing validation for both products and stated that additional filings were made with the FDA to secure necessary approvals for commercial launch.
During a third-quarter earnings call on November 4, 2016, St. Peter addressed inquiries regarding the launch dates for GALLIPRANT and ENTYCE, explaining that there is typically a delay between FDA approval and product launch due to the complexities of scaling manufacturing to meet commercial demands. He noted the need for extensive post-approval work, including regulatory filings and quality standard compliance, before the products could be shipped.
On February 6, 2017, Aratana announced a delay in the commercial availability of ENTYCE to late 2017, prompted by a request for additional information from the FDA regarding its manufacturing transfer plans. This announcement resulted in a 17.93% drop in Aratana’s share price. Subsequently, on March 13, 2017, Aratana reported $15.1 million in losses for 2016, linked to impairment charges and inventory adjustments due in part to the ENTYCE rollout delay.
Aratana disclosed in its 2016 Form 10-K that it had written off $2,639 in process validation batches of ENTYCE and $1,983 in related manufacturing costs as research and development expenses due to the batches' ineligibility as commercial launch inventory. During a March 14, 2017 earnings call, Tooman announced inventory adjustments of approximately $2.6 million for an earlier launch and a loss of a $2 million purchase commitment, leading to a 24% drop in Aratana's stock price. Subsequently, on April 25, 2017, Aratana announced an agreement with CVM regarding ENTYCE's manufacture, projecting commercial availability by fall 2017, which resulted in a 6% stock price increase. On May 4, 2017, the company filed a Form 8-K announcing the sale of approximately $24.4 million in common stock to support ENTYCE's commercialization, and on May 9, reiterated its expectation for ENTYCE's availability in the first quarter 2017 Form 10-Q.
The plaintiffs allege that individual defendants engaged in suspicious stock sales during the Class Period under pre-set Rule 10b5-1 trading plans, with Tooman selling approximately $314,175 in shares and St. Peter selling 300,000 shares for total proceeds of $1,664,925. Procedurally, on June 6, 2017, the Court consolidated two cases and appointed lead plaintiffs, with the operative amended complaint filed on August 7, 2017. A motion to dismiss was filed by defendants on October 6, 2017, followed by plaintiffs' opposition on November 6, 2017, and a reply from defendants on November 20, 2017.
The applicable legal standards for resolving a motion to dismiss under Rule 12(b)(6) require the complaint to plead sufficient facts to present a plausible claim for relief, allowing reasonable inferences of liability. Legal conclusions are not afforded the same presumption of truth as factual allegations. Securities fraud claims are subject to heightened pleading standards that must be met to withstand a motion to dismiss.
A complaint alleging securities fraud must adhere to Federal Rule of Civil Procedure 9(b), which requires that allegations of fraud be stated with particularity. Conclusory allegations lacking factual support are insufficient. Additionally, the complaint must fulfill the Private Securities Litigation Reform Act (PSLRA) requirements, which dictate that if claims are based on allegedly misleading statements, the plaintiff must specify each statement and explain why it is misleading. Plaintiffs must provide specific reasons demonstrating the falsity of the statements and state facts that create a strong inference of the defendant's requisite state of mind.
Plaintiffs assert claims under Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5. Section 10(b) prohibits using manipulative or deceptive devices in security transactions, while Rule 10b-5 makes it unlawful to make untrue statements or omit material facts necessary to avoid misleading statements. To successfully plead a claim under Section 10(b), a plaintiff must demonstrate: 1) a material misrepresentation or omission; 2) scienter; 3) a connection between the misrepresentation or omission and a security transaction; 4) reliance on the misrepresentation; 5) economic loss; and 6) loss causation. For a claim under Section 20(a), a plaintiff must show: 1) a primary violation by the controlled person; 2) the defendant's control over the primary violator; and 3) the defendant's meaningful culpability in the fraud.
A plaintiff must adequately allege a primary violation under another provision of the Exchange Act for 20(a) claims to proceed. To survive a motion to dismiss, the complaint must demonstrate that the defendant made a materially misleading statement. The Supreme Court has ruled that Section 10(b) and Rule 10b-5 do not impose an obligation to disclose all material information, and failure to disclose is only actionable if necessary to prevent existing statements from being misleading. Pure omissions, where there is no duty to disclose, are not actionable; however, misleading omissions—termed "half-truths"—are actionable. Materiality is established when the omitted fact would likely significantly alter a reasonable investor's total mix of information. The materiality threshold is designed to prevent overwhelming investors with trivial information, making it a meaningful pleading requirement. Dismissal of a claim based on immateriality is only appropriate if the omitted information is clearly unimportant to a reasonable investor.
Subjective statements of opinion can also be actionable if the speaker did not genuinely hold the opinion or if the supporting facts were false. Merely being unreasonable or overly optimistic does not suffice for a fraud claim; the Second Circuit rejects "fraud by hindsight." Furthermore, even sincere opinions can be actionable if they omit information that makes the statement misleading to a reasonable investor.
To allege that a statement of opinion is misleading due to the omission of material information, an investor must specify particular facts that underpin the issuer's opinion, detailing the inquiry conducted or knowledge possessed by the issuer. A reasonable investor expects that an opinion aligns with the available information at the time. The critical assessment is whether omitted facts contradict what a reasonable investor would infer from the statement. The Supreme Court has cautioned against an overly broad interpretation of liability based on omitted material facts, noting that establishing such liability is challenging. Investors recognize that opinions may be based on competing facts and do not anticipate that every known fact will support the issuer's opinion. An opinion is not inherently misleading simply because the issuer withholds some contrary information. Context is crucial; an omission that misleads in isolation may not do so when viewed in the broader industry context.
The PSLRA provides a safe harbor for forward-looking statements, which include projections of revenues and management's future plans. Such statements are not actionable if they include meaningful cautionary language, are immaterial, or if the plaintiff cannot prove the issuer knew the statement was false or misleading. The safe harbor applies if any of these criteria are met. Meaningful cautionary language must provide substantive information about factors that could materially affect the results, with vague or boilerplate language being insufficient.
Courts assess the meaningfulness of cautionary language by first identifying the undisclosed risk and then evaluating whether reasonable investors could be misled by the fraudulent materials, including the cautionary language. Plaintiffs can demonstrate that cautionary language lacks significance by showing it does not directly relate to the risk that caused their loss. The standard for proving scienter in forward-looking statements is stricter than for current facts, requiring proof of knowing falsity rather than mere recklessness. Under the PSLRA and Rule 9(b), plaintiffs must detail facts that create a strong inference of the defendant's intent to deceive, which must be more compelling than any opposing inference. A strong inference of scienter requires showing that defendants had motive and opportunity to commit fraud or presenting strong circumstantial evidence of conscious misbehavior or recklessness. Recklessness is defined as conduct that is highly unreasonable and an extreme departure from ordinary care, where defendants knew or should have known their public statements were misleading. The honest belief of management in the truth of public statements is crucial in evaluating liability.
In Sys. of Ill. v. Astrazeneca PLC, 334 Fed. App'x 404 (2d Cir. 2009), the court established that management's concealment of facts preventing regulatory approval constitutes scienter, as does reckless disregard for those facts. Conversely, if management releases positive reports they genuinely believe to be true and without reckless disregard, it does not constitute securities fraud.
The court found that the amended complaint (AC) failed to state a claim for two key reasons: inadequate allegations of falsity and a lack of strong inference of scienter. The plaintiffs alleged that defendants misrepresented the status of FDA approvals necessary for the commercialization of the drug ENTYCE, claiming that statements made were misleading because Aratana had not secured an FDA-approved third-party manufacturer. However, most challenged statements were deemed non-actionable puffery, opinions, or forward-looking statements that do not support a federal securities claim.
Specifically, statements about progress towards commercialization were considered too general for a reasonable investor to rely upon and therefore non-actionable. Assertions expressing confidence in the company's future, such as being "on track" for product market entry, were similarly categorized as mere puffery. The court emphasized that while companies can express optimism, they are not obligated to project negativity regarding future prospects.
Statements from Shields v. Citytrust Bancorp, Inc. and Lasker v. N.Y.S. Elec. Gas Corp. clarify that company assertions regarding future prosperity are considered puffery. Opinion statements are subjective judgments about non-objectively determinable values and include forward-looking statements expressing future expectations rather than current facts. Such statements are generally not actionable if the speaker genuinely held the belief, did not present false supporting facts, and did not omit misleading information. Forward-looking statements are also protected if accompanied by cautionary language or if they are immaterial or not made with actual knowledge of falsity.
Defendants' statements about FDA approval and the commercialization timeline for ENTYCE were predominantly framed as opinions or forward-looking statements. For example, the company anticipated submitting an NADA for ENTYCE in early 2016 and aimed to launch the product in 2017, expressing confidence about meeting commercialization goals. They provided extensive cautionary disclosures about dependence on third-party manufacturers and the necessity of FDA approvals, which plaintiffs do not contest. Instead, plaintiffs assert that, despite the optimistic projections, defendants were aware that further FDA approval was needed due to issues with finding a suitable manufacturer but failed to disclose this knowledge, mischaracterizing the nature of the defendants' statements.
Aratana provided comprehensive disclosures regarding the commercialization of ENTYCE, clarifying that FDA manufacturing approval was not the sole requirement for product launch. From the beginning of the Class Period, Aratana indicated that commercialization could necessitate additional steps, including potential changes in manufacturers and CVM approval, as detailed in their 2014 10-K report. It was emphasized that the approval of contract manufacturers' facilities was critical and that failure to secure such approval could hinder development and marketing.
Aratana also communicated to investors about the transfer of manufacturing processes to a new facility, announcing plans to seek regulatory approval in 2016. They stated that FDA approval for these filings was necessary for product launch, which was reiterated in subsequent reports. The company clearly informed investors about the involvement of contract manufacturers and the regulatory approvals required, thus mitigating claims of securities fraud.
The plaintiffs' argument failed to establish that Aratana concealed risks, as prior communications had already informed investors about potential manufacturing challenges and the need for regulatory compliance. The absence of CVM requests for additional information prior to February 2, 2017, further weakened their claim. Overall, Aratana's disclosures equipped investors with sufficient information to assess the risks, aligning with legal precedents that protect companies from fraud claims when risks are openly communicated.
Defendants adequately disclosed the need for a new commercial-scale manufacturer and the potential requirement for additional regulatory approval, demonstrating that they did not mislead stockholders regarding the necessity of a new manufacturer, inquiries from the CVM, or possible commercialization delays. Plaintiffs failed to show that defendants were aware at the start of the Class Period that their projected timelines for ENTYCE's commercial release were overly optimistic or that the CVM would require more information about Aratana's manufacturer. The plaintiffs did not sufficiently allege that defendants' opinion statements were misaligned with the information they possessed, nor that the forward-looking statements were knowingly false. The argument that defendants’ revisions to the commercialization timeline indicated culpable knowledge was dismissed as "fraud by hindsight."
Additionally, while some statements regarding historical facts were raised, such as efforts to complete agreements and manufacturing processes, the allegations of falsity were largely generalized and lacked specificity. Notably, aside from the statements about the manufacturing transfer, the complaint did not directly challenge claims regarding hiring a sales organization, developing packaging, or securing a manufacturer for the active ingredients, indicating insufficient grounds for the allegations.
Plaintiffs allege that defendants failed to inform investors about a foreseeable regulatory delay due to a transition to a commercial manufacturer. However, the amended complaint (AC) lacks specific allegations proving that defendants' statements regarding their efforts toward a commercial supply agreement and the manufacturing process were false. Plaintiffs only suggest that these statements misleadingly implied that Aratana had an FDA-compliant facility for producing ENTYCE, despite the statements indicating otherwise. Defendants clarified that the transfer of the manufacturing process was necessary because their clinical-trials manufacturer could not scale to commercial distribution, negating any liability for these statements.
For plaintiffs to establish scienter, they must show that defendants had either a "motive and opportunity" to make false statements or engaged in "conscious misbehavior or recklessness." General motives are insufficient; plaintiffs must demonstrate a concrete benefit to the individual defendants from the alleged fraud. Plaintiffs propose three motive theories: (1) personal enrichment via suspicious securities transactions, (2) avoidance of principal payments under a loan agreement, and (3) facilitating successful public offerings of Aratana stock. None of these theories adequately support a claim of scienter.
Regarding the securities transactions, plaintiffs claim the individual defendants profited from suspiciously timed trades, which might imply bad faith. Key factors in evaluating insider trading include the profit amount, proportion of stock sold, changes in insider trading volume, and the number of insiders selling. It is noted that the defendants traded Aratana securities under Rule 10b5-1 trading plans during the Class Period, with specific details of their transactions recorded. However, there is a disagreement on the significance of their acquisitions, as the stocks and options were obtained at no cost.
Plaintiffs contend that shares acquired without cost should not be included when assessing whether the trading activities of individual defendants suggest an intent to deceive (scienter). Defendants argue that prevailing legal authority supports considering zero-cost stock and options in evaluating insider trading relative to overall shareholdings. The court notes that while the Second Circuit has not definitively ruled on this issue, it finds merit in the approach by Judge Scheindlin, which differentiates between vested and unvested stock options. This method assesses insider sales in relation to the total shares they could have sold during the class period.
The court will include zero-cost shares and vested options in the calculations but exclude unvested options. Evidence indicates that some options for the individual defendants vested within the class period, with St. Peter having a slight decrease in holdings and Tooman experiencing a significant increase. Specifically, St. Peter's holdings decreased by about 22,600 shares (1.9%), while Tooman's increased by approximately 40,549 shares (15.8%). These changes in holdings weaken any inference of fraudulent intent, as increased holdings contradict the notion of trying to exploit inflated stock prices.
Ultimately, even if all options were disregarded, the trading activities would still fail to establish a motive for fraud. Three factors reinforce this conclusion: St. Peter's minimal decline in holdings and Tooman's substantial increase, along with precedents indicating that sales representing a small percentage of a defendant's holdings do not support a strong inference of intent to deceive.
An entity's decision to retain nearly ninety percent of its shares while its stock price declined, despite knowledge of fraudulent activity becoming public, is deemed unreasonable. The timing of the defendants' stock sales does not imply insider knowledge of undisclosed negative information. For example, St. Peter's sale of 150,000 shares in late 2016 occurred after Aratana disclosed its intention to file a PAS regarding ENTYCE manufacturing in August 2016. Similarly, Tooman's sale of shares in September 2016 followed the same disclosure. Trades under a Rule 10b5-1 trading plan typically do not indicate a strong inference of scienter, and the allegations in the amended complaint (AC) do not sufficiently challenge the legitimacy of these plans. The plaintiffs' claim that the individual defendants misrepresented ENTYCE to defer loan payments lacks concrete factual support, relying solely on the existence of the $40 million loan agreement. Courts have ruled that mere financial motivations, like reducing debt burdens, do not suffice to establish an inference of scienter without additional factual backing. Thus, the allegations regarding motives related to the loan agreement do not adequately support claims of securities fraud.
The Public Offerings Plaintiffs argue that the individual defendants engaged in the alleged ENTYCE fraud to maintain a high share price, thereby providing Aratana with the liquidity necessary to meet its loan obligations. However, the court notes that a mere intention to reduce debt or maintain a high stock price is not sufficient to establish motive for securities fraud, as it represents a common objective among corporate officers. Consequently, without a clear motive, the plaintiffs face a heightened burden to demonstrate conscious misbehavior or recklessness. The plaintiffs' allegations fall short, lacking specific, non-conclusory evidence that the defendants knowingly withheld or misrepresented information. Notably, the allegations do not reference internal documents or credible witness statements that suggest intentional deception. The plaintiffs also assert that the defendants’ delays in launching ENTYCE concealed the absence of adequate facilities; however, the management's positive public statements about the drug, believed to be true, do not indicate scienter. The plaintiffs' claims are further undermined by evidence of the defendants' actions, such as hiring a sales team and investing in inventory ahead of a planned launch, which contradicts the assertion of fraudulent intent and suggests a lack of knowledge about the impossibility of the launch timeline.
No inference of scienter was established where the complaint lacked "red flags" indicating management's awareness of wrongdoing. The court noted that facts, including prior regulatory approvals for other drug uses, supported the management's belief in good faith that they would secure regulatory approval and successfully commercialize their product, despite subsequent setbacks and strategic changes. Therefore, plaintiffs failed to demonstrate a strong inference of fraudulent intent.
Additionally, plaintiffs' claims against individual defendants under Section 20(a) of the Exchange Act were dismissed due to insufficient allegations of a primary violation by the controlled person. The court determined that since the plaintiffs did not adequately allege this primary violation, the 20(a) claims must also be dismissed.
The entire amended complaint (AC) was dismissed with prejudice, and the court directed the termination of pending motions and the closing of the case. In reviewing the motion to dismiss, the court assumed all well-pleaded facts as true and drew reasonable inferences in favor of the plaintiffs, referencing relevant documents incorporated into the AC and public records. The court acknowledged Aratana's reliance on contract manufacturers due to its lack of manufacturing resources and the dependency on these manufacturers to comply with good manufacturing practices (cGMP). The Class Period was defined to extend until March 13, 2017, as the full extent of financial harm was not evident until that date.
Inaccuracies are noted in the statements transcribed in the Amended Complaint (AC), prompting the Court to reference the original language from the Q1 2015 10-Q and the Q1 2015 Earnings Call transcript. Both documents incorporate risk factors outlined in Aratana's Form 10-K and include forward-looking statement disclaimers. The 2015 10-K, similar to the previous year's, contains an express forward-looking disclaimer and identifies comparable risk factors, which are not addressed in the AC or the plaintiffs' opposition to dismissal. Defendants highlight that the FDA approved Aratana's Product Application Submission (PAS) on October 13, 2017, without changes, but this information, postdating the AC, is not considered in resolving the motion.
The defendants also challenge the AC's loss causation allegations related to certain statements. The Court finds that the AC fails to adequately demonstrate falsity or scienter, rendering the loss causation argument unnecessary. Plaintiffs assert that Aratana's cautionary language was insufficiently specific regarding undisclosed risks, but defendants had warned about the potential non-approval of their contract manufacturers. The risk that materialized was covered by these disclosures.
Plaintiffs contest defendants' claims that receiving a New Animal Drug Application (NADA) approval would allow commercialization, arguing these statements misleadingly implied that NADA approval was the sole requirement. However, the disclosures indicated that while NADA approval was necessary, it was not the only condition for commercialization. The AC lacks details on the individual defendants' stock holdings and profits, which weakens any inference of motive. Nonetheless, the Court may take judicial notice of SEC Forms 4 that provide this information. Lastly, plaintiffs suggest that Aratana's revenue projections and alleged FDA compliance issues imply fraudulent intent, but they fail to substantiate how these factors support an inference of scienter.
