Securities Regulation Daily Wrap Up, FRAUD AND MANIPULATION—D. Mass.: Biologics maker not saying its product would need label warning isn’t misleading omission, (May 28, 2025)

By Rebecca E. Hoffman, J.D.

The defendant CFO did not falsely imply the FDA would grant a priority review voucher, despite the FDA’s ultimate finding that the defendants’ biologic shares an active ingredient with another approved drug.

The District of Massachusetts dismissed a shareholder class action against biotech company bluebird bio, Inc. and three principals May 23, finding that the defendants’ statements about their pending biologics license application (BLA) for a sickle cell disease gene therapy did not contain material misrepresentations or omissions (Gill v. bluebird bio, Inc., No. 24-cv-10803 (D. Mass. May 23, 2025)).

The company submitted a BLA to the FDA for lovo-cel, a treatment for sickle cell disease. At that time, bluebird made public that two patients in trials developed leukemia and passed away. The FDA approved the application in June 2023 but denied the company’s request for a “priority review voucher” (PRV) and required a “black box warning” about the risk of leukemia on lovo-cel’s label. When these details became public, the company’s stock dropped. The plaintiffs’ action against bluebird and its CEO, CFO, and chief medical officer alleged violations of Exchange Act Section 10(b), Rule 10b-5, and Section 20(a).

The court explained that a PRV is a “transferable voucher[] issued by the FDA that can be redeemed for guaranteed priority review of a future drug or biologic application.” Biologics are not eligible for PRVs if they share an active ingredient with an already-approved drug.

The court noted the standard for fraud, requiring the plaintiffs to show falsity of the statements at issue with particularity and specificity, pursuant to Fed. R. Civ. P 9(b) and the Private Securities Litigation Reform Act. Context is considered, and “a significant amount of meat is needed on the bones of the complaint,” the court said, quoting Ganem v. InVivo Therapeutics Holdings Corp., 845 F.3d 447, 455 (1st Cir. 2017). Moreover, to show scienter, the plaintiffs’ inferences are weighed against reasonable competing inferences.

Black box and blood cancer. The statements to which the plaintiffs object were made at a health care conference and on two earnings calls. First, the plaintiffs allege that the defendants’ statements misrepresented or omitted the possibility that the FDA would require the black box warning, and the relationship between lovo-cel and blood cancer, and thus the statements were false or misleading. In May 2023, the CEO was asked about the label, and he said “I don’t think there’s any one particular area that the FDA would focus on overall.” A reasonable investor would interpret this as an opinion, the court said, and “the amended complaint offers no non-conclusory allegations suggesting that [the CEO’s] statement misrepresented either his true belief about the FDA’s focus with respect to the label or any facts known to him about the FDA’s labeling determination.”

Although the CEO did not state that the FDA could require a black box warning, he did not speak to such a possibility at all or mention the leukemia deaths in this context. “And he was not obligated to enumerate all possible ways that safety concerns could manifest on lovo-cel’s label,” the court added.

In another context, the CEO said it was “likely that we will have a mention” of the leukemia deaths in the “safety events” within the label, but he did not know where. The plaintiffs alleged that by mentioning safety events and not black box warning, the CEO downplayed the severity of the deaths, but he did say that this information would be on the label, and “no reasonable investor would plausibly have thought that [the CEO] was foreclosing the possibility that the FDA would require a black box warning.”

Possibility of PRV? Discussions of the PRV were also challenged. The CFO said that it was possible the company would receive one and that it had entered into an agreement to sell one. The plaintiffs argued that these statements were false because lovo-cel could not be eligible for a PRV, given that its active ingredient was the same as that of an earlier approved product. The defendants argued that the FDA’s determination was not inevitable, and the court concluded that there is not enough information in the complaint to say for certain that a PRV grant was impossible. Even if this was certain, the plaintiffs failed to adequately allege scienter.

“[T]he amended complaint does not describe in any detail the actual composition of lovo-cel or the process for determining whether Defendants must have known that two biologics share an active ingredient,” the court said, adding that it “therefore cannot infer that lovo-cel’s ineligibility for a PRV would have been obvious when bluebird submitted its BLA for lovo-cel.” The plaintiffs attempted to argue that the defendants had a financial motive to defraud investors, but they did not show that the company made any money between making the allegedly false statements and not getting the PRV.

It was possible that the defendants believed the FDA would not find that the two drugs shared active ingredients, and “[v]iewing the amended complaint holistically … the Court finds the inference of scienter to be less compelling than the competing innocent inference.”

The case is No. 24-cv-10803.

Judge: Saris, P.

Attorneys: Shannon L. Hopkins (Levi Korsinsky LLP) for Garry Gill. Monica Mleczko (Ropes & Gray LLP) for bluebird bio, Inc.

Companies: bluebird bio, Inc.

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