July 25, 2014

Life Sciences Company Obtains Dismissal of Shareholder Class Action

The US District Court for the Middle District of Tennessee recently granted BioMimetic Therapeutics Inc.’s motion to dismiss the class action against it, and denied plaintiffs leave to amend their complaint. Shareholders claimed that BioMimetic violated the Securities and Exchange Act of 1934 because it knowingly made material representations about the development process and approval prospects of its flagship product, Augment, a synthetic bone-growth factor for the surgical treatment of foot and ankle bone defects.

Specifically, plaintiffs alleged that the Food and Drug Administration (FDA) sent BioMimetic a deficiency letter detailing the regulatory agency’s concerns about Augment’s clinical trials, and in particular the company’s decision to change the study population so the resulting data would cast the product in a more favorable light. BioMimetic, however, allegedly failed to disclose those issues, and instead painted an unjustifiably rosy picture of Augment’s progress towards approval. When the FDA later convened a panel of experts to review the product, the contents of the deficiency letter came to light and caused a 35% drop in BioMimetic’s share price. After the panel narrowly voted to approve Augment, shares sunk another 12%.

Notwithstanding plaintiffs’ identification of confidential witnesses, the court found the overall allegations did not satisfy the pleading requirements of the Private Securities Litigation Reform Act. First, the court determined that the company made no false statements because it disclosed and sought to explain the change in Augment’s study population. Second, BioMimetic’s single stock offering—months before it received the deficiency letter—did not give rise to an inference of scienter. Moreover, the court noted that the company never suggested FDA approval was certain, and instead consistently framed its statements with a forward-looking-statement disclaimer. 

Most significantly, the court sought to define when a life sciences company must disclose the contents of a deficiency letter. Though it remains an open question, the decision strongly suggests that no such duty exists. Noting that “a deficiency letter is not a final FDA decision, but a request for more information,” the court explained that not “every critical comment by a regulatory agency has to be seen as material for securities law reporting purposes.” If companies were obligated to report everything, the “flood of data” would ultimately be unhelpful, as uninformative noise would drown out key facts.

Sarafin v. BioMimetic Therapeutics Inc. et al., No. 3:11-06533 (M.D. Tenn. Jan. 10, 2013).

©2014 Katten Muchin Rosenman LLP

About the Author

William M. Regan, Katten Muchin Law Firm, Litigation Attorney

William M. Regan represents banks, issuers and senior executives in securities class actions, stockholder derivative cases, complex financial product litigation and enforcement actions. Bill has been involved in litigating some of the largest and most complex matters in the securities litigation field, including Thornburg Mortgage, Inc., Madoff/Fairfield Greenwich, Global Crossing, Enron, WorldCom and the Oracle special litigation committee insider trading investigation.


Boost: AJAX core statistics

Legal Disclaimer

You are responsible for reading, understanding and agreeing to the National Law Review's (NLR’s) and the National Law Forum LLC's  Terms of Use and Privacy Policy before using the National Law Review website. The National Law Review is a free to use, no-log in database of legal and business articles. The content and links on are intended for general information purposes only. Any legal analysis, legislative updates or other content and links should not be construed as legal or professional advice or a substitute for such advice. No attorney-client or confidential relationship is formed by the transmission of information between you and the National Law Review website or any of the law firms, attorneys or other professionals or organizations who include content on the National Law Review website. If you require legal or professional advice, kindly contact an attorney or other suitable professional advisor.  

Some states have laws and ethical rules regarding solicitation and advertisement practices by attorneys and/or other professionals. The National Law Review is not a law firm nor is  intended to be  a referral service for attorneys and/or other professionals. The NLR does not wish, nor does it intend, to solicit the business of anyone or to refer anyone to an attorney or other professional.  NLR does not answer legal questions nor will we refer you to an attorney or other professional if you request such information from us. 

Under certain state laws the following statements may be required on this website and we have included them in order to be in full compliance with these rules. The choice of a lawyer or other professional is an important decision and should not be based solely upon advertisements. Attorney Advertising Notice: Prior results do not guarantee a similar outcome. Statement in compliance with Texas Rules of Professional Conduct. Unless otherwise noted, attorneys are not certified by the Texas Board of Legal Specialization, nor can NLR attest to the accuracy of any notation of Legal Specialization or other Professional Credentials.

The National Law Review - National Law Forum LLC 4700 Gilbert Ave. Suite 47 #230 Western Springs, IL 60558  Telephone  (708) 357-3317 If you would ike to contact us via email please click here.