On March 4, 2016, the Second Circuit affirmed the dismissal of two related securities actions against Sanofi Pharmaceuticals, its predecessor Genzyme Corporation, and three company executives (collectively, “Sanofi”).  In doing so, the Second Circuit offered its first substantial interpretation of the Supreme Court’s March 2015 decision in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 135 S. Ct. 1318 (2015), which addresses how plaintiffs can allege securities claims based on statements of opinion.

The suit arose out of Sanofi’s development of Lemtrada, a drug designed to treat multiple sclerosis, and the company’s opinion statements regarding (i) its expectation that the FDA would approve Lemtrada by March 31, 2014; (ii) the expected launch date for Lemtrada; and (iii) the effectiveness of Lemtrada, as shown through “single-blind” clinical trials.  From as early as 2002, the FDA expressed concerns to Sanofi about the use of single-blind studies in testing Lemtrada, as opposed to double-blind studies, which the FDA prefers.  Contrary to the Sanofi’s statements regarding its expectations as to the timing of Lemtrada’s approval, the FDA rejected Sanofi’s initial application for Lemtrada’s approval in December 2013, in part because of the company’s use of single-blind studies.  The FDA eventually approved the drug in November 2014, well after Sanofi’s anticipated March 31, 2014 approval date.

Plaintiffs filed suit, alleging that Sanofi’s opinion statements were misleading because it failed to disclose the FDA’s concerns with the company’s use of single-blind studies, and asserted claims under Sections 11 and 12 of the Securities Act of 1933 and Sections 10(b), 18, and 20 of the Securities Exchange Act of 1934.  The district court granted Defendants’ motion to dismiss in January 2015, two months before the Supreme Court issued its decision in Omnicare, finding that Plaintiffs failed to state a claim based on Sanofi’s statements of opinion because Plaintiffs failed to adequately allege that Sanofi disbelieved its opinions, or that its opinions were objectively false.

On appeal, the Second Circuit focused on examining plaintiffs’ claims under the Supreme Court’s opinion in Omnicare, which altered the Second Circuit’s standard for analyzing whether a statement of opinion is materially misleading.  In Omnicare, the Supreme Court held that an investor that alleges that an issuer omitted material information that rendered an opinion statement misleading must identify particular and material facts about the issuer’s inquiry into or knowledge concerning the opinion statement that conflicts with what a reasonable investor would expect to form the basis of the opinion.  In interpreting the Supreme Court’s opinion in Omnicare, the Second Court echoed the Supreme Court’s observation that investors must examine the context in which an allegedly misleading opinion statement is made.  In particular, the court found that reasonable investors understand that there can be competing factors that issuers consider in issuing a statement of opinion, and that Omnicare does not require issuers to disclose every fact that cuts against their opinion.  Rather, issuers’ statements of opinion need only be fairly aligned with the information they possessed at the time.

The Second Circuit found that plaintiffs, as sophisticated investors, were aware that Sanofi and the FDA were engaged in constant dialogue regarding the sufficiency of Lemtrada’s clinical trials, and that they inherently held different views.  It further found that the FDA’s concerns regarding the use of single-blind studies were generally known and did not seriously conflict with Sanofi’s expectations regarding Lemtrada’s FDA approval, launch date, or efficacy.  Thus, Sanofi’s failure to specifically disclose the FDA’s concerns regarding the use of a single-blind study in Lemtrada’s clinical trials was not sufficient to render Sanofi’s statements of opinion actionable.

The Sanofi decision provides litigants additional guidance as to the type of evidence necessary to sufficiently allege that an issuer’s opinion statements were misleading because of material omissions.  It is also a clear reflection of the Supreme Court’s view that it is “no small task” for investors to satisfy Omnicare’s standards.