Opioid Drug Co. Sued In Del. For Promotion­-Tied Stock Drop

By Jeff Montgomery

Law360 (February 22, 2024, 7:53 PM EST) — Stockholders of opioid drug producer Talphera Inc. have sued the company’s top officers and directors in Delaware’s Court of Chancery, seeking derivative damages for harm to the business purportedly caused by the dangerous promotion of a flagship opioid.

Matthew Morganelli, an investor in the business formerly known as AcelRx Pharmaceuticals Inc., alleged in a seven-count complaint filed late Wednesday on the company’s behalf that nine officers or directors are liable for conduct that led to a warning letter from the U.S. Food and Drug Administration’s Office of Prescription Drug Promotion.

The FDA accused the company on Feb. 11, 2021, of improper and misleadingly upbeat marketing promotions of its sufentanil tablets, brand-named Dsuvia. The medication, originally developed for military needs, was approved for public use in 2018 after objections from some medical professionals and members of Congress. Concerns included the drug’s potency – 10 times stronger than fentanyl and 1,000 times morphine’s strength – and potential for deadly error or abuse.

Little more than two years after Dsuvia’s approval, the FDA warned the company that it was using misleading promotional materials to stress quick dosing “Tongue and Done” use of its tablet “while relegating information regarding limitations of use and risks to significantly less prominent locations.”

“While flouting the Food, Drug & Cosmetics Act, defendants distributed the deceptive materials at popular conferences and instructed sales personnel to use the slogans in conversations with doctors up to a full year before the company ever submitted those materials to the FDA in December 2019,” the suit said.

Upon news of the warning and corrective action communications, AcelRx’s stock price fell by 8.37%, closing at $2.30 per share on Feb. 16, 2021.

AcelRx was ordered to undertake “costly corrective measures,” with oversight remaining in place until regulators were satisfied, the suit said.

Named in the suit were nine individuals, including its top officers, directors and chief financial officer.

Parts of the complaint were redacted, including an account of the board’s reaction to the FD A’s action in mid-2021.

The episode, Morganelli’s suit said, has “’caused, and continues to cause, substantial harm to AcelRx and its shareholders, including monetary losses and damages to AcelRx’s reputation and goodwill.

The suit alleged derivative damages tied to Exchange Act violations, as well as breaches of fiduciary duty, unjust enrichment. abuse of control, gross mismanagement and waste of corporate assets.

Action in Chancery Court came more than two years after the launch of direct damages claims under federal securities laws in the U.S. District Court for the Northern District of California.

The California suit, since amended and now awaiting dismissal arguments, focused in part on a delay between the Feb. 11, 2021, receipt of the FDA letter and the Feb. 16, 2021, public announcement of the action. Included in the direct suit are allegations that three directors sold shares of the company on the same day as the receipt, at $2.63 per share.

AcelRx changed its name to Talphera in January, in a move that the company said at the time marked a broadening of its work beyond management of acute pain.

The company and counsel for stockholders did not immediately respond to requests for comment.
The stockholders are represented by Seth D. Rigrodsky, Gina M. Sera and Herbert W. Mondros of Rigrodsky. Law PA, Lee Squitieri of Sguitieri & Fearon LLP and Fletcher Moore of Moore Law PLLC.

Counsel information for Talphera was not immediately available.

The case is Matthew Morganelli, derivatively, on behalf of Talphera Inc., formerly know as AcelRx Pharmaceutical Inc. v. Vincent J. Angotti et al., case number 2024-0149, in the Court of Chancery,: of the State of Delaware.