Securities Regulation Daily Wrap Up, FRAUD AND MANIPULATION—D.N.J.: Court dismisses fraud action against Scynexis and executives, (Jul 31, 2025)

By Kristin J. Angelino, J.D.

Plaintiff’s allegations of material misrepresentations and omissions by defendants regarding the manufacture of the biotech company’s anti-fungal medication were “conclusory and insufficient” and constituted “fraud by hindsight.”

Shareholders sued Scynexis, Inc. and two of its executive officers in federal district court in New Jersey for violations of Section 10(b) of the Exchange Act, by alleging that defendants made material misrepresentations and omissions regarding the manufacture of the company’s BREXAFEMME drug by its commercialization partner, GSK plc. The shareholders, represented by lead plaintiff Brian Feldman, also alleged control person violations under Exchange Act Section 20(b) against the two officers. In granting the motion to dismiss, with leave to amend, the court held that plaintiff failed to adequately allege how defendants’ statements regarding the manufacturing process of its drug, including separation of the drug’s manufacturing equipment to prevent cross-contamination, were false or misleading at the time they were made. Since the court found no primary securities law violation, plaintiff’s Section 20(a) claim was also dismissed. (Feldman v. Scynexis, Inc., No. 2:23-cv-22082 (D.N.J. July 30, 2025)).

On March 30, 2023, Scynexis entered into a license agreement with GSK for the development and manufacture of the anti-fungal medication ibrexafungerp, including the FDA-approved BREXAFEMME product, which is used for the treatment of vaginal yeast infections. The FDA’s Good Manufacturing Practice (cGMP) regulations require the separation of equipment used to manufacture the company’s product from equipment for non-antibacterial beta-lactam products, due to the risk of allergic reactions by the general public.

On September 25, 2023, Scynexis reported that GSK had discovered potential cross-contamination of ibrexafunderp with a non-antibacterial drug substance and that Scynexis would shortly conduct a recall of the product and temporarily halt clinical studies of the drug. After this announcement, the company’s share price fell 34.14% that day and another 11.47% the following day.

Plaintiff brought a class action suit on behalf of shareholders who purchased Scynexis stock between March 31, 2023 and September 22, 2023, alleging that defendants failed to disclose that: (1) the manufacturing equipment for ibrexafungerp was not sufficiently separated from the non-antibacterial beta-lactam drug equipment; (2) the company did not ensure cGMP compliance; and (3) the failure to separate manufacturing equipment resulted in undisclosed material risks to the company’s business, including potential recalls and delays in clinical studies.

Section 10(b) claim. The court held that plaintiff’s 10(b) claim should be dismissed because plaintiff failed to allege with sufficient particularity how defendants’ statements--regarding their then-current beliefs about following all applicable FDA regulations, having quality assurance systems or proper controls in place for compliance, and any other relevant factors related to the separation of the manufacturing equipment to prevent cross-contamination--were false or misleading at the time they were made. For example, plaintiff did not allege any internal or contradictory information that would undercut defendants’ belief that they and their third-party contractors were compliant with cGMP. Moreover, plaintiff’s allegation that GSK was able to “quickly uncover” that Scynexis was not complying with cGMP was an argument of “fraud by hindsight,” which the PSLRA forbids plaintiffs to rely on.

Additionally, the court agreed with defendants’ contention that plaintiff failed to provide any factual allegations about (1) when GSK first used the facility to produce non-antibacterial beta lactams, (2) when BREXAFEEMME was manufactured in relation to any such production, and (3) whether or when any defendant learned of the beta lactam cross-contamination risk. The court also rejected as insufficient a third-party analyst’s statement provided by plaintiff, in which the analyst stated that (1) it expected that GSK would have inspected the manufacturing facilities “ahead of GSK’s March licensing agreement” and that (2) defendants’ “expertise and experience leads to the logical inference of recklessness to the point of fraud if the issue was truly not known to the defendants.” The court found that this statement did not explain how the discovery of the potential cross-contamination was “quick” and that the statement alone is not enough to support plaintiff’s conclusory argument that defendants were aware at all times of the alleged cross-contamination potential.

The court concluded that, “without providing this Court with further information regarding the allegations that Scynexis’s manufacturers were not in compliance with appropriate requirements and Scynexis was failing to monitor and ensure such compliance, plaintiff’s claim is merely conclusory and insufficient.”

Section 20(a) claim. Since the court found that plaintiff failed to plead that the defendants violated Section 10(b) of the Exchange Act, plaintiff’s Section 20(a) claim against the individual defendants was also dismissed.

Leave to amend. The court held that allowing plaintiff leave to amend its complaint would not be futile since he could provide additional factual content to cure the deficiencies in the amended complaint.

The case is No. 2:23-cv-22082.

Judge: Martinotti, B.

Attorneys: James E. Cecchi (Carella, Byrne, Cecchi, Brody & Agnello, P.C.) for Brian Feldman. Caroline Pignatelli (Cooley LLP) for Scynexis, Inc., David Angulo and Ivor Macleod.

Companies: Scynexis, Inc.

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