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`IN THE UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF PENNSYLVANIA
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`CIVIL ACTION
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`NO. 18-2279
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`JOHN ALBERICI, individually and on
`behalf of all others similarly situated
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`v.
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`RECRO PHARMA, INC., GERALDINE
`A. HENWOOD, STEWART
`MCCALLUM, and JOHN HARLOW
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`
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`MEMORANDUM RE SECOND MOTION TO DISMISS AMENDED COMPLAINT
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`Baylson, J.
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` March 1, 2021
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`I.
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`Introduction
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`In the present case, Plaintiff alleges that Recro Pharma Inc. concealed concerns about a
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`drug’s efficacy and manufacturing quality control. As alleged, Recro’s investors learned of these
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`issues only after the FDA refused to approve the drug — intravenous meloxicam (“IV
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`meloxicam”) — causing the stock value of Recro to plummet. Plaintiff sued Recro and several of
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`its executives, claiming that they perpetrated a fraud on a class of investors in violation of the
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`Securities Exchange Act of 1934.
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`This Court has examined Plaintiff’s claims once before: it granted Defendants’1 motion to
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`dismiss on the grounds that Plaintiff failed to sufficiently plead a culpable mental state for the
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`alleged wrongdoing. ECF 47, Alberici v. Recro Pharma, Inc., No. 18-2279, 2020 WL 806719
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`(E.D. Pa. Feb. 14, 2020) (Baylson, J.) (“Alberici I”). Simultaneously, however, the Court held
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`1 The term “Defendants” encompasses Recro and “Individual Defendants” — Geraldine Henwood,
`Stewart McCallum, and John Harlow.
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`1
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`Case 2:18-cv-02279-MMB Document 59 Filed 03/01/21 Page 2 of 19
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`that Plaintiff had satisfied its burdens in pleading the materiality of the misrepresentations and loss
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`causation. The Court declined to rule on each statement’s falsity or actionability.
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`Plaintiff filed its Second Amended Complaint, ECF 50 (“SAC”); it argues it has now met
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`the Court’s concerns. Additionally, since Alberici I and the filing of the SAC, the FDA has
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`approved IV meloxicam. Defendants argue this update merits reconsideration of the Court’s prior
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`findings of materiality and loss causation.
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`The Court agrees with Plaintiff. The SAC satisfies the Court’s prior concerns regarding
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`insufficient allegations for scienter and the statements’ falsity. While the FDA’s subsequent
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`approval of the drug may be relevant to loss causation, it does not fundamentally alter the Court’s
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`prior conclusions. The Court therefore DENIES Defendants’ Second Motion to Dismiss.
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`II.
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`Factual Allegations2
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`The Court takes the allegations in the SAC as true and draws all reasonable inferences in
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`favor of Plaintiff, as is required at the motion to dismiss stage. Phillips v. Cty. of Allegheny, 515
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`F.3d 224, 231 (3d Cir. 2008). Additionally, as the Court is “faced with a Rule 12(b)(6) motion to
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`dismiss a § 10(b) action,” it will consider information in “documents incorporated into the
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`complaint by reference, and matters of which a court may take judicial notice.” Tellabs, Inc. v.
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`Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007).3
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`Plaintiff’s Second Amended Complaint contains many of the same factual allegations as
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`this Court previously discussed in Alberici I. The Court therefore incorporates Alberici I’s
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`discussions regarding development of IV meloxicam and the FDA’s initial review of the drug. See
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`2020 WL 806719, at * 1–3 (discussing “Factual Allegations”). Since Alberici I, Plaintiff has
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`2 For ease of reference, this opinion will cite to filed documents using the page numbers printed
`on ECF (i.e. the PDF page number) where appropriate, even if they have internal pagination.
`3 See infra Section IV (discussing Judicial Notice).
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`2
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`Case 2:18-cv-02279-MMB Document 59 Filed 03/01/21 Page 3 of 19
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`revised its allegations relevant to scienter and list of allegedly actionable misstatements. The Court
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`will discuss both. In addition, the Court takes judicial notice that the FDA approved IV meloxicam
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`since the filing of the SAC. The FDA approved the drug for both hard- and soft-tissue uses on
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`February 20, 2020. ECF 51 (“Defs.’ Br.”) at 186–91 (Def.’s Ex. L); see also infra Section IV
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`(Judicial Notice).
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`a. Scienter: Defendants’ Awareness of KOL Concerns
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`In preparing to launch IV meloxicam, Recro relied on 200–300 Key Opinion Leaders
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`(“KOLs”), medical professionals and physicians who provide subject matter expertise, to shape its
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`decision-making in marketing, research, and development. SAC at ¶¶ 32–34.
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`Plaintiff’s confidential witness (“CW1”) was employed in senior Medical Affairs roles
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`throughout the class period; he and his team “frequently communicated” with KOLs and reported
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`their feedback to Recro leadership. Id. at ¶¶ 35, 36. CW1 reported to Individual Defendants that
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`KOLs did not intend to use for soft-tissue procedures and that they believed Recro’s overseas
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`manufacturing oversight of IV meloxicam was insufficient. Id. at ¶ 42.4
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`• Soft-Tissue Use: “[A]pproximately 75% of soft-tissue KOLs who had the ability to
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`drive protocols in medical institutions . . . did not intend to use IV meloxicam in
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`their procedures because of the trial data.” Id. at ¶ 69. And “a significant majority”
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`of all KOLs did not intend to use IV meloxicam in soft-tissue procedures based on
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`the perceived weakness of the clinical trial data. Id. at ¶ 66. By contrast, 99.9% of
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`KOLs “were convinced that IV meloxicam should be used in orthopedic (or hard
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`tissue) procedures.” Id.
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`4 These conversations and reports took place between June 2017 to May 2018, as they allegedly
`occurred during CW1’s employment at Recro during those months.
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`3
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`Case 2:18-cv-02279-MMB Document 59 Filed 03/01/21 Page 4 of 19
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`• Manufacturing Oversight: “[A]pproximately 30% of KOLs” were concerned about
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`Recro’s plan to manufacture IV meloxicam overseas in Ireland, including concerns
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`about inadequate supervision. Id. at ¶¶ 59, 61. Recro had only one employee
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`overseeing IV meloxicam’s manufacturing and packaging; he lived in Pennsylvania
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`and commuted to Ireland part-time for this role. Id. at ¶ 61.
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`i.
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`Soft-Tissue Use Concerns
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`CW1 personally reported to McCallum and Harlow that KOLs “frequently” opined that
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`“the trial data was not compelling enough for them to use the drug in soft-tissue procedures” and
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`that “KOL reluctance was especially strong among colorectal surgeon KOLs, who were also
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`concerned about bleeding risks.” Id. at ¶ 72. CW1 and his team “frequently reported” this
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`information to McCallum and Harlow and knew that it was “discussed by McCallum and Harlow”
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`as well. Id. at ¶ 73.
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`Leadership Team Meetings: CW1 attended Recro’s weekly Leadership Team meetings
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`(in-person or remotely), held in a conference room at Recro’s headquarters in Malvern,
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`Pennsylvania, from June 2017 through May 2018. Id. at ¶¶ 35, 39. Individual Defendants were
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`all members of the Leadership Team. Id. at ¶ 40. McCallum and Harlow “consistently attended”
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`the meetings, and, while she “did not frequently attend,” Henwood “always received reports of
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`these meetings” from the other Individual Defendants. Id. At these meetings, CW1 and his
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`Medical Affairs teams reported that KOLs had concerns for IV meloxicam, including about
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`“oversight of manufacturing in Ireland, the lack of safety data on bleeding risks for IV meloxicam,
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`and the fact that KOLs were not intending to use IV meloxicam in their soft-tissue procedures
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`because the drug’s efficacy clinical trial data was not compelling.” Id. at ¶ 42.
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`Feedback Reports: CW1 compiled KOL feedback reports and submitted them to
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`McCallum; McCallum then prepared summaries for Henwood based on his reading of those
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`4
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`Case 2:18-cv-02279-MMB Document 59 Filed 03/01/21 Page 5 of 19
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`reports and with CW1’s input. Id. at ¶¶ 74, 75. McCallum presented these reports at monthly
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`meetings in Malvern with Henwood (and with Harlow in attendance). Id. at ¶ 75. CW1 personally
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`saw that these reports “included the information that KOLs did not want to use IV meloxicam for
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`soft-tissue procedures.” Id.
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`Advisory Board meetings: Recro hosted quarterly Advisory Board meetings, which
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`featured a panel of approximately twelve orthopedic and colorectal KOLs (hard- and soft-tissue
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`specialists, respectively) providing expert opinions on IV meloxicam. Id. at ¶ 76. CW1 personally
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`attended four of these meetings in 2017 and 2018 (at least one of which took place in the Grand
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`Hyatt at the Dallas-Fort Worth International Airport) that McCallum planned and both McCallum
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`and Harlow attended. Id. At each of these Advisory Board meetings that CW1 attended, the
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`colorectal KOLs “made their opinions clear to McCallum and Harlow . . . that the trial data did not
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`convince the majority of them to start using IV meloxicam in their soft-tissue procedures” and it
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`would “be a very hard sell” to include IV meloxicam in their institutions’ treatment protocols for
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`soft-tissue procedures. Id. at ¶¶ 76, 77. “[M]any of the KOLs on the Advisory Board question[ed]
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`McCallum and Harlow as to why the Company was not seeking FDA approval for just the hard-
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`tissue indication.” Id. at ¶ 77. Following these meetings, CW1 helped McCallum prepare
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`executive summaries for Henwood; these “reported that the majority of [colorectal] KOLs did not
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`intend to use IV meloxicam in their procedures.” Id. at ¶ 79.
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`Sales Strategies: Based on KOL feedback, Recro assumed the sales strategy of prioritizing
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`IV meloxicam sales to orthopedic/hard-tissue uses and away from soft-tissue uses. Id. at ¶ 80. In
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`designing sales representative training, Recro’s sales leadership team advised “focusing the team
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`on orthopedic procedures and staying away from recommending the product for soft-tissue
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`5
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`Case 2:18-cv-02279-MMB Document 59 Filed 03/01/21 Page 6 of 19
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`purposes.” Id. CW1 attended these meetings and recalled McCallum and Harlow’s participation
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`in them. Id. He also recalled Henwood attended some but not all sales strategy meetings. Id.
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`ii. Manufacturing Oversight Concerns
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`Approximately 30% of KOLs expressed concern to CW1 about IV meloxicam being
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`manufactured overseas, foreseeing that its manufacture and packaging processes in Ireland could
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`“sink [FDA] approval of the drug.” Id. at ¶ 59. Specifically, those KOLs worried that Irish
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`manufacturing plants may not satisfy FDA pre-approval plant inspections, id., and that Recro’s
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`manufacturing oversight team was understaffed (it had only one overseeing employee, who lived
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`in Pennsylvania and did not provide full-time onsite services). Id. at ¶ 61.
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`CW1 and his team informed Individual Defendants of these manufacturing oversight
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`concerns through the weekly Leadership Team meetings in Malvern and through written reports.
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`Id. at ¶ 64.
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`b. Actionability: Recro’s Alleged Misrepresentations
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`Based on the above, Plaintiff alleges that Defendants were aware of KOLs’ warnings that
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`IV meloxicam was not suitable for soft-tissue procedures and that Recro’s overseas manufacturing
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`had insufficient oversight. Id. at ¶¶ 65, 81. But the public was not made aware of these concerns
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`until May 24, 2018, when Recro issued a press release regarding the FDA’s reasons for denying
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`IV meloxicam’s NDA. Id. at ¶¶ 6, 7.
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`Plaintiff identifies eighteen materially false and misleading statements between July 17,
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`2017 and May 23, 2018 (the “Challenged Statements”), in which it contends that Defendants
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`misled investors regarding the KOLs’ concerns. See id. at ¶¶ 82–102. For the purposes of the
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`present motion, these statements fall into roughly four categories.
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`Target Opportunity Statements (SAC ¶¶ 82–84, 86–89, 91–93, 97, 100, 101). These
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`statements focus on soft-tissue uses as a marketing “target opportunity” or “target procedure” —
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`6
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`Case 2:18-cv-02279-MMB Document 59 Filed 03/01/21 Page 7 of 19
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`or use similar language regarding planned growth in the soft-tissue market5 — without mentioning
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`KOLs’ concerns about IV meloxicam’s unsuitability for soft-tissue markets.
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`Market Frequency Statements (SAC ¶¶ 94, 98, 102). These statements tout health care
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`professional surveys saying that about 30% of professionals planned to use IV meloxicam in their
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`surgical cases. They do not mention KOLs’ concerns about IV meloxicam’s unsuitability for soft-
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`tissue markets.
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`Manufacturing Oversight Statement (SAC ¶ 96). This statement referred to Recro’s
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`manufacturing “oversight by our internal managers” in the plural. Plaintiff alleges there was only
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`one internal manager tasked with manufacturing oversight.
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`SOX Certification (SAC ¶ 95). This statement certified as true the statements in Recro’s
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`March 2, 2018 Form 10-K (which contained the language Manufacturing Oversight Statement)
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`pursuant to the Sarbanes-Oxley Act. Plaintiff alleges that the certification itself is a
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`misrepresentation.
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`III.
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`Procedural History
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`John Alberici initially filed a complaint against Recro and several individual defendants in
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`May 2018. ECF 1. Pursuant to the PSLRA, this Court accepted briefing regarding appointment
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`of the lead plaintiff and lead counsel, naming Plaintiff (a group of investors including Alberici)
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`and Plaintiff’s attorneys as lead counsel. ECF 21. Plaintiff filed its First Amended Complaint in
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`December 2018. ECF 26.
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`5 Example language includes “potential to be an attractive non-opioid alternative” for “following
`abdominoplasty surgery,” SAC ¶ 86; “core procedures” or “core target procedures” include those
`performed by “gastrointestinal [or] colorectal surgeons,” id. at ¶¶ 93, 97, 101; and “procedures
`conducted by [GI colorectal] surgeons represent a primary opportunity,” id. at ¶ 100.
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`7
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`Case 2:18-cv-02279-MMB Document 59 Filed 03/01/21 Page 8 of 19
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`The Court next reviewed the parties’ briefing on Defendants’ First Motion to Dismiss,
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`ECF 31–33, 41, 43, and oral arguments on the same, ECF 39. In the corresponding opinion, the
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`Court granted Defendants’ motion and dismissed the First Amended Complaint without prejudice
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`on February 14, 2020. Alberici I (at ECF 47).
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`In doing so, the Court ruled that Plaintiff had satisfied its burden on four of the six elements
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`required for a claim under Section 10(b) — including loss causation and materiality of the
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`challenged misrepresentations/omissions — but it had failed (1) to satisfy the PLSRA’s
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`heightened pleading burdens for scienter and (2) to consistently allege falsity and actionability of
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`the challenged statements.
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`Regarding scienter, the Court wrote:
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`Viewed “holistically,” these allegations do not suggest a strong inference of
`scienter. Without further detail as to exactly what CW1 communicated regarding
`the KOLs’ efficacy concerns, and to whom, and when/how often, it is impossible
`to evaluate the plausibility of competing inferences, such as the possibility that the
`percentage of KOLs who expressed concerns was insignificant, or that further
`clinical study would alleviate the concerns, or that reasonable KOLs differed on the
`efficacy question. Said differently, the Court is unable to conclude that the scienter
`inference is at least as compelling as any competing inference from the “whole
`factual picture painted by the [Amended Complaint].” As a result, Plaintiff has not
`pleaded scienter with the particularity that is required by the PSLRA.
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`Alberici I at *19. It also noted that, “for some statements, there is no clear theory of falsity, and
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`for others, the applicability of the PSLRA’s safe harbors raises legitimate questions about
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`actionability” but did “not engage in statement-by-statement analysis because the insufficiency of
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`the scienter allegations applies to all of the alleged misrepresentations.” Id. at *8.6
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`6 Plaintiff has changed its list of challenged statement in the SAC such that Alberici I guides, but
`does not mandate, the Court’s decision-making here.
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`8
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`Case 2:18-cv-02279-MMB Document 59 Filed 03/01/21 Page 9 of 19
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`Plaintiff filed its Second Amended Complaint on February 24, 2020. ECF 50. In June
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`2020, Defendants again moved to dismiss. ECF 51 (“Defs.’ Br.”). Plaintiff opposed, ECF 54
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`(“Pl.’s Br.”), and Defendants replied, ECF 56 (“Defs.’ Reply”).
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`IV.
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`Judicial Notice
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`Defendants request that the Court take judicial notice of twelve documents, arguing each
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`is a relevant public record. Defs.’ Br. at 9–11. Plaintiff does not oppose Defendants’ Exhibits B
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`through H but opposes notice for Exhibits I through M (“Challenged Documents”), conceding that
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`they are public records but arguing they are not relevant to the current proceedings. Pl.’s Br. at
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`28–30. The Challenged Documents all concern Recro’s appeal of the FDA’s May 24, 2018
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`rejection of IV meloxicam and the FDA’s eventual approval of the drug on February 20, 2020.
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`Defs,’ Br. at 10–11; Pl.’s Br. at 29–30. In addition to announcing the FDA’s approval of the IV
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`meloxicam NDA, Exhibit K includes information from a January 2020 survey in which
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`“approximately 39% of medical doctors believed they will use IV meloxicam in soft-tissue
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`procedures.” Defs.’ Br. at 27.
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`“A district court evaluating a motion to dismiss under Rule 12(b)(6) may take judicial
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`notice of . . . matters of public record [but] ‘matters extraneous to the pleadings’ should not be
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`considered.” Alberici I, 2020 WL 806719, at *7 (citing In re Burlington Coat Factory Sec. Litig.,
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`114 F.3d 1410, 1432 (3d Cir. 1997)). The FDA’s decision to re-review and subsequently approve
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`IV meloxicam may be relevant to loss causation. See infra Footnote 13 (subsequent approval is
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`relevant but not dispositive). The Challenged Documents are therefore relevant to deciding this
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`motion.
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`For Exhibit K, however, Defendants’ discussion of a January 2020 survey is not relevant
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`to what Defendants knew and misrepresented during the class period that ended over a year and a
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`9
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`Case 2:18-cv-02279-MMB Document 59 Filed 03/01/21 Page 10 of 19
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`half earlier. The Court takes judicial notice of Defendants’ Exhibits B through M but declines to
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`take judicial notice of Exhibit K to the extent that it discusses those survey responses.
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`V.
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`Legal Standard
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`“In considering a motion to dismiss under Rule 12(b)(6), the Court ‘accept[s] all factual
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`allegations as true [and] construe[s] the complaint in the light most favorable to the plaintiff.’”
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`Alberici I, 2020 WL 806719, at *4 (quoting Warren Gen. Hosp. v. Amgen Inc., 643 F.3d 77, 84
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`(3d Cir. 2011)). But “that requirement does not apply to legal conclusions; therefore, pleadings
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`must include factual allegations [and incorporated information] to support the legal claims
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`asserted.” Id. (citing Ashcroft v. Iqbal, 556 U.S. 662, 678, 684 (2009)). “Accordingly, to survive
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`a motion to dismiss, a plaintiff must plead ‘factual content that allows the court to draw the
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`reasonable inference that the defendant is liable for the misconduct alleged.’” Id. (quoting Iqbal,
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`556 U.S. at 678).
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`As previously discussed in Alberici I, however, “[a] securities fraud complaint must do
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`much more than a typical complaint,” id.; it must also satisfy heightened pleading requirements
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`under the PSLRA:
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`In a nutshell, the PSLRA requires that securities fraud complaints specify each
`misleading statement; . . . set forth the facts on which a belief that a statement is
`misleading was formed; and . . . state with particularity facts giving rise to a strong
`inference that the defendant acted with the required state of mind.
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`Id. at *5 (citations and internal quotation marks omitted).
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`For the “particularity” requirement, “securities fraud plaintiffs must plead the who, what,
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`when, where and how of the alleged fraud,” id., and, if alleged on information and belief, “the
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`10
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`Case 2:18-cv-02279-MMB Document 59 Filed 03/01/21 Page 11 of 19
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`complaint shall state with particularity all facts on which that belief is formed.” Id. (quoting 15
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`U.S.C. § 78u-4(b)).7
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`For the “state of mind” requirement — i.e., scienter — the Court must follow the three-
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`step prescription in Tellabs:
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`First, faced with a Rule 12(b)(6) motion to dismiss a § 10(b) action, courts must, as
`with any motion to dismiss for failure to plead a claim on which relief can be
`granted, accept all factual allegations in the complaint as true. Second, courts must
`consider the complaint in its entirety, as well as other sources courts ordinarily
`examine when ruling on Rule 12(b)(6) motions to dismiss, in particular, documents
`incorporated into the complaint by reference, and matters of which a court may take
`judicial notice. . . . Third, in determining whether the pleaded facts give rise to a
`strong inference of scienter, the court must take into account plausible opposing
`inferences.
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`Id. at *14 (citing Tellabs, 551 U.S. at 322–23) (emphasis original).
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`VI.
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`Parties’ Contentions
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`a. Defendants’ Arguments
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`First, Defendants argue that this Court should dismiss Plaintiff’s SAC for failure to state a
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`claim under Section 10(b) based on insufficient allegations of scienter. They argue that Plaintiff’s
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`allegations are heavily reliant on CW1 and fail to provide the specifics of information-sharing —
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`who knew what, when they learned it, and how — that would create the requisite strong inference
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`that Defendants recklessly or consciously misled investors.
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`Second, Defendants contend that each of the Challenged Statements is (1) not false or
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`misleading and/or (2) protected under the PSLRA’s safe harbor for forward-looking statements.
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`The Court did not rule on this issue in Alberici I. Defendants rely largely on the FDA’s subsequent
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`approval of IV meloxicam and on mitigating language within these statements about planned
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`7 “The particularity requirement in Rule 9(b) ‘is comparable to and effectively subsumed by the
`requirements of . . . the PSLRA.’” Id. (quoting Inst. Invs. Grp. v. Avaya, Ltd., 564 F.3d 242, 253
`(3d Cir. 2009)).
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`11
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`Case 2:18-cv-02279-MMB Document 59 Filed 03/01/21 Page 12 of 19
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`growth into the soft-tissue market — e.g. “we believe,” “potential,” “target opportunity,” and
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`“anticipated.” See ECF 56-1 (summarizing statement-by-statement defenses).
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`Finally, Defendants argue that the Court should reverse its prior conclusion that Plaintiff
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`satisfied loss causation based on new information: the FDA subsequently approved IV meloxicam
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`for hard- and soft-tissue use in February 2020.
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`b. Plaintiff’s Arguments
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`Plaintiff contests Defendants’ scienter arguments by citing to the SAC’s expanded
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`allegations regarding CW1’s first-person accounts of relaying KOLs’ concerns directly and
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`indirectly to the Individual Defendants, arguing that these allegations demonstrate Defendants’
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`awareness of KOL concerns and decision to obscure that information from investors.
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`For the no-falsity and safe harbor defenses, Plaintiff argues that Defendants had an
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`obligation to disclose KOLs’ concerns to correct likely misinterpretation of their statements,
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`making them constructively false or misleading, and that the statements do not fall under the safe
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`harbor of the PSLRA. See ECF 56-1 (summarizing the statement-by-statement challenges).
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`Plaintiff also argues that the FDA’s approval of IV meloxicam nearly two years after the
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`initial denial and the close of the class period is irrelevant to the case’s claims, and the Court’s
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`prior rulings regarding loss causation and materiality should remain.
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`VII. Analysis
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`Defendants assert three main arguments: (1) the SAC does not satisfy the PSLRA’s
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`heightened standard for pleading scienter, (2) the individual statements are not actionable because
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`they are either true or protected by the PSLRA’s safe harbor for forward-looking statements, and
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`(3) the FDA’s subsequent approval of IV meloxicam compels the Court to reverse its prior
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`conclusion that Plaintiff alleged loss causation. The Court disagrees on all three points. For the
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`reasons discussed below, Plaintiff has pleaded sufficient allegations to satisfy all six elements of
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`12
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`Case 2:18-cv-02279-MMB Document 59 Filed 03/01/21 Page 13 of 19
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`its Section 10(b) claim (and, by extension, its Section 20(a) claim); therefore, the Court will deny
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`Defendants’ Second Motion to Dismiss.
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`a. Scienter
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`For a Section 10(b) claim, the plaintiff must “plead facts that lead to a ‘strong inference’
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`of scienter” — i.e. to “deceive, manipulate, or defraud” through “conscious or reckless behavior.”
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`Alberici I, 2020 WL 806719, at *14 (quoting Tellabs, 551 U.S. at 313, and Avaya, 564 F.3d at
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`276). In the SAC, Plaintiff significantly expanded its allegations regarding CW1’s practices of
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`informing Defendants about the KOLs’ concerns to include the “‘who, what, when, where, and
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`how’ of the fraud.” Id. (quoting Avaya, 564 F.3d at 253). Plaintiff has satisfied its pleading burden
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`for scienter.
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`As previously stated in Alberici I:
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`The pertinent inquiry [for scienter] is “whether all of the facts alleged, taken
`collectively, give rise to a strong inference of scienter, not whether any individual
`allegation, scrutinized in isolation, meets that standard.” In assessing scienter,
`courts must “consider plausible, nonculpable explanations for the defendant’s
`conduct, as well as inferences favoring the plaintiff.” To survive dismissal, the
`inference of scienter “must be cogent and compelling, thus strong in light of other
`explanations.”
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`Id. (quoting Burlington, 114 F.3d at 322–24).
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`Plaintiff alleges that CW1 was, at all relevant times, a member of Recro’s Leadership team,
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`whose job included collecting, processing, and transmitting KOL feedback on Recro products for
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`review by Individual Defendants. CW1 informed them that (1) a significant majority of KOLs
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`thought that IV meloxicam was not suitable for soft-tissue use and (2) approximately 30% of KOLs
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`were concerned about insufficient manufacturing oversight in Ireland. Plaintiff’s allegations show
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`the details of when and how he directly informed — or witnessed as others informed — each
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`Defendant of these concerns throughout the class period. These pleadings are sufficient.
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`13
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`Case 2:18-cv-02279-MMB Document 59 Filed 03/01/21 Page 14 of 19
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`Taking the allegations collectively, Plaintiff has satisfied its burden in pleading that
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`Defendants were aware of the KOL concerns at issue here but consciously or recklessly obscured
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`those concerns from investors. While Plaintiff may not have provided all the specificity to these
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`allegations that Defendants desire, such additional information can be sought through discovery.
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`b. Statement Actionability
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`Defendants argue that (1) none of the Challenged Statements is false and misleading,
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`(2) the SOX Certification is not actionable, and (3) most Challenged Statements fall under the
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`PSLRA’s safe harbor for forward-looking statements. The Court previously declined to rule on
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`these issues in Alberici I. 2020 WL 806719, at *8. Now, after reviewing each of the Challenged
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`Statements, the Court disagrees with Defendants’ arguments. Plaintiff has pleaded sufficient facts
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`to support the reasonable inference that all eighteen Challenged Statements are false or misleading,
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`actionable, and unprotected by the PSLRA safe harbor.
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`i. The FDA’s 2020 Approval of IV Meloxicam Does Not Affect the Falsity or
`Materiality Analysis.
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`As an initial matter, Defendants argue seventeen of the eighteen Challenged Statements
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`(all except for ¶ 95) were not false or misleading because the FDA approved IV meloxicam for
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`hard- and soft-tissue uses in 2020. See Defs,’ Br. at 34–38. But approval of the drug almost two
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`years after the end of the class period does not indicate that the statements were not false or
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`misleading at the time they were made. See In re Amarin Corp. PLC Sec. Litig., 689 F. App’x
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`124, 132 (3d Cir. 2017) (Plaintiff must plead that defendants “did not honestly believe their
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`projections” at the time they were shared because reliance on the FDA’s subsequent approval
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`14
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`Case 2:18-cv-02279-MMB Document 59 Filed 03/01/21 Page 15 of 19
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`decision “would amount to pleading fraud by hindsight, something our Court has long rejected.”)
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`(citing OFI Asset Mgmt. v. Cooper Tire & Rubber, 834 F.3d 481, 497 (3d Cir. 2016)).8
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`Indeed, Defendants focus on the approval as if Plaintiff’s claims arise solely out of the
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`FDA’s approval or denial of the drug. This is incorrect. Plaintiff claims that Defendants obscured
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`KOL feedback which, if disclosed to the public, would have reduced the purchase price of Recro
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`shares to an uninflated level. The FDA’s actions in 2020 do not obviate Plaintiff’s allegations
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`regarding 2017 or 2018, nor do they render any allegedly false statements from that time true.
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`ii. The Target Opportunity Statements
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`In the “Target Opportunity Statements” (SAC ¶¶ 82–84, 86–89, 91–93, 97, 100, and 101),
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`Defendants made public statements discussing projected sales in the soft-tissue market (including
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`abdominoplastic, gastrointestinal, and colorectal procedures) using language such as “target
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`opportunity” or “target strategy” for IV meloxicam’s sales.9 Despite touting the potential for
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`profit, however, Defendants allegedly failed to mention KOLs’ significant concerns that IV
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`meloxicam would not succeed in that market.
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`Defendants argue that public statements identifying the soft-tissue market as a target
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`opportunity were not false or misleading, even though “a significant majority” of KOLs, including
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`approximately 75% of those who could set protocols for IV meloxicam’s usage at their institutions,
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`warned that the drug was not suitable for soft-tissue use. Defendants contend that there was still
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`some appetite for the drug in the soft-tissue market that made it a “target opportunity.”10 But the
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`8 For the same reason, the FDA’s subsequent approval of IV meloxicam does not change the
`Court’s prior holding that “Plaintiff has pleaded materiality under Section 10(b).” Alberici I, 2020
`WL 806719, at *12.
`9 There are differences within the Target Opportunity Statements, but each has the same relevant
`contents.
`10 The Court declines to take judicial notice of Defendants’ relied-upon “[s]ubsequent independent
`research.” See supra Section IV (Judicial Notice).
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`Case 2:18-cv-02279-MMB Document 59 Filed 03/01/21 Page 16 of 19
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`possibility of some interest does not change the fact that the statements, as alleged, were
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`misleading: Defendants promised Recro’s investors growth in the market while failing to inform
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`them of expert warnings that IV meloxicam would not be well received there. Plaintiff has
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`sufficiently satisfied its burden in pleading that these statements may be false or misleading to
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`survive dismissal.
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`iii. The Market Frequency Statements
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`In each of the “Market Frequency Statements” (SAC ¶¶ 94, 98, 102), Defendants stated
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`that “the majority of HCP [health care professionals] surveyed said they would accept IV
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`Meloxicam as a valuable addition upon approval to multimodal pain-management protocols. They
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`estimated they would use the product in ~30% of their surgical cases.”11
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`Although Defendants argue that Plaintiffs have not sufficiently alleged that these
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`statements are false, these statements were at least misleading as alleged. Defendants discussed
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`IV meloxicam’s marketability but did not disclose that the KOLs voiced significant concerns
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`regarding soft-tissue use of IV meloxicam or that those concerns could seriously impact the
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`marketability of the drug. If Plaintiff’s allegations prove true, a jury may reasonably find that the
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`Market Frequency Statements are false or misleading.
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`iv. The Manufacturing Oversight Statement
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`The Manufacturing Oversight Statement (SAC ¶ 96) is from Recro’s 2017 Form 10-K,
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`stating that Recro’s “Acute Care Product Candidates” (referred to in the plural) receive “oversight
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`by our internal managers” (referred to in the plural). Plaintiff alleges that IV meloxicam had
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`only one internal manager, rendering this statement false or misleading. Defendants respond that
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`11 ¶ 94 also states that the “core target procedures” include “GI/Colorectal” ones. This statement
`may be found to be false or misleading for the reasons provided for the Target Opportunity
`Statements.
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`Case 2:18-cv-02279-MMB Document 59 Filed 03/01/21 Page 17 of 19
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`t