AcelRx Sued by Shareholders After FDA Marketing Scrutiny

On Tuesday, shareholders of the pharmaceutical company AcelRx brought a lawsuit against the officers and directors of the company in the Northern District of California. The plaintiffs accuse defendants of breaches of fiduciary duties, unjust enrichment, abuse of control, waste of corporate assets, and violations of Sections 10(b) and 21D of the Exchange Act.

On February 11, AcelRx received a letter from the FDA regarding some of their advertising material for the prescription drug Dsuvia. According to AcelRx’s Form 8-K disclosure, the FDA was concerned that “the  Promotional  Material makes misleading claims and representations about the risks and efficacy of (Dsuvia) because the promotional material does not reveal facts that are material in light of the representations made.”

There were three specific issues that the FDA cited within their advertising material. The first is their slogan “Tongue and Done,” which references the sublingual method of consumption. The  FDA found that  these presentations were misleading because they implied that the administration of Dsuvia consists of a simple, one-step process, which is not the case.  The actual product label describes multiple steps for administration, including visual confirmation regarding the placement of the product.

The second issue was that the product claimed a minimum redosing interval of one hour, which is misleading because although this is true, they fail to specify that a patient should consume no more than 12 tablets within a 24 hour period. Without this information, a patient might think it’s appropriate to consume a tablet every hour all day. With a strong painkiller like Dsuvia, an overdose could be extremely harmful or even fatal to the misinformed patient, the complaint said.

Lastly, the FDA found issues with the font sizing and information position within the advertising material. They stated that “unlike the benefit claims in the banner, which utilized a color background and large font, the full indication with the limitations of use are intermingled with risk information in a paragraph format in a much smaller font size and a plain white background, which were only accessible to viewers by scrolling down the banner and, therefore, did not mitigate the misleading impression”

Five days after receiving this letter, on February 16, 2021, the company publicly disclosed that they had received this letter with these complaints. On this news, the Company’s stock price dropped $0.21 per share, or 8.37%, to close at $2.30 per share on the day it was announced.

The plaintiffs claimed that this decrease was a result of materially false and misleading statements made by the officers and directors of AcelRx. They cited multiple yearly and quarterly reports signed off on by the defendants where they state that “the company has carried out an evaluation, under the supervision, and with the participation, of management including our principal executive officer and principal financial officer, of our disclosure controls and procedures” and that “based on their evaluation, our principal executive officer and principal financial officer concluded that . . . our disclosure controls and procedures were effective as of December 31, 2019”

The plaintiffs said these statements were clearly false since the FDA issued the defendants a letter that is contrary to those claims, and stated that the Defendants owed  the  company and  its shareholders fiduciary obligations of trust, loyalty, good faith and due care, and were and are required to use their utmost ability to control and manage the company in a fair, just, honest, and equitable manner. As high-ranking members of the company who have access to private details of its affairs, the defendants have a duty to be responsible with that privilege and failed to do so when reviewing their disclosure controls and procedures.

The plaintiff is represented by Magnanimo Dean.