Even Marketing Materials Can Subject Issuers to Securities Fraud Claim
Client Alert | March 24, 2025
Sneed v. AcelRx Pharms., Inc., No. 21-CV-04353-BLF, 2024 WL 2059121
(N.D. Cal. May 7, 2024).
Case Highlights
On May 7, 2024, a federal district court dismissed securities fraud claims brought against a pharmaceutical company related to a marketing slogan used to promote the company’s drug. At issue in Sneed v. AcelRx Pharms., Inc. (“Sneed”)[1], was AcelRx Pharmaceuticals, Inc.’s (“AcelRx”) marketing slogan, “Tongue and Done,” used to promote its FDA-approved drug DSUVIA, an opioid painkiller. AcelRx had presented the “Tongue and Done” slogan on its website, among other places, to highlight the ease of administering DSUVIA (i.e., sublingually) compared to other opioid painkillers, which are administered either orally (which requires a patient’s ability to swallow) or via intravenous injection.
In February 2021, AcelRx received a warning letter from the FDA stating that the “Tongue and Done” slogan contained “false or misleading claims and representations about the risks and efficacy of DSUVIA” and thus violated the Federal Food, Drug, and Cosmetic Act (FDCA). After AcelRx disclosed the warning letter, the company’s stock dropped about 9%. The plaintiff then sued under federal securities laws alleging that, in using the slogan, the company made a misleading statement to investors because it omitted material information regarding DSUVIA’s safety, including information about dosing, administration, and limitations on its use. The plaintiff claimed that the allegedly misleading slogan subjected AcelRX to a foreseeable and increased risk of regulatory investigations or enforcement actions for misbranding violations under the FDCA.
In response, the defendants argued, among other things, that AcelRx specifically disclosed information about DSUVIA’s safety and dosing information, as well as the risk of a receiving an FDA warning letter in its SEC filings. The defendants further argued that the slogan was targeted at medical professionals, not investors, and, as such, no reasonable investor would have relied on the slogan when making their investment decision. Despite acknowledging that the company’s disclosures “weaken” plaintiff’s allegations, the court found that the plaintiff had alleged the statement was misleading. However, the court granted defendants’ motion to dismiss the complaint because it found that plaintiff did not plead that the statement was made with fraudulent intent.
Key Takeaways
Sneed highlights the risk that even marketing materials—or any other kind of publicly-available material, even if not specifically targeted at investors—may form the basis of a warning letter and ultimately, a securities fraud claim. Sneed also illustrates the interplay between federal securities laws and other regulatory regimes, highlighting the risk that alleged violations of other statutes may be levered by plaintiffs’ lawyers to plead securities law violations, particularly where the alleged violations involve statements to non-investor market constituents. Pharmaceutical and biotechnology companies, thus, would benefit from involving securities litigation counsel when developing marketing materials or other public disclosures, even if not directed to investors, to minimize legal exposure under the federal securities laws.
[1] Sneed v. AcelRx Pharms., Inc., No. 21-CV-04353-BLF, 2024 WL 2059121 (N.D. Cal. May 7, 2024).
Life Sciences:
Ryan Murr – Partner, San Francisco (rmurr@gibsondunn.com)
Branden Berns – Partner, San Francisco (bberns@gibsondunn.com)
Securities Litigation:
Jessica Valenzuela – Partner, Palo Alto (jvalenzuela@gibsondunn.com)
Jeff Lombard – Of Counsel, Palo Alto (jlombard@gibsondunn.com)
Brian Lutz – Partner, San Francisco (blutz@gibsondunn.com)
Craig Varnen – Partner, Los Angeles (cvarnen@gibsondunn.com)
Monica Loseman – Partner, Denver, New York (mloseman@gibsondunn.com)
Gibson Dunn associates Zaneta Kim and Shri Dayanandan also contributed to this update.
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