Extracted from Law360
The U.S. District Court for the Southern District of New York's May 19 decision in In re: Checkpoint Therapeutics Securities Litigation extends a streak of dismissals of securities class actions alleging that pharmaceutical companies failed to disclose U.S. Food and Drug Administration Form 483 inspection reports.
One of the last steps of the FDA's new drug approval process is an inspection of the facility where the drug will be manufactured to verify compliance with the Food, Drug and Cosmetic Act, and with the FDA's current good manufacturing practice regulations, which outline minimum standards for manufacturing drugs to ensure the quality, safety and effectiveness of drug products.
At the conclusion of the inspection, the FDA often issues a Form 483 to the manufacturing facility, detailing observations by the FDA's inspectors that may indicate potential regulatory compliance violations at the facility.[1] Critically, the Form 483 is not a final agency determination that the facility is in violation of the FD&C Act or any federal regulations,[2] and many potential violations observed on Form 483s are resolved through corrective action by the facility, without further escalation to a warning letter or FDA enforcement action.
Given the frequency with which Form 483s are resolved without further escalation, whether to disclose the receipt of a Form 483 is far from obvious. When a company believes the inspection observations on a Form 483 will be quickly resolved and have no impact on the FDA's drug approval process, there would seem to be little reason to disclose this event.
Predictably, however, if the resolution of FDA inspection observations on a Form 483 takes longer than expected and results in delays in the FDA's drug approval process, shareholder plaintiffs are quick to claim that the failure to disclose the Form 483 was a violation of the federal securities laws. These claims have become much more prevalent since the FDA started making certain Form 483s publicly available on its website about 15 years ago.[3]
In these securities class actions, shareholder plaintiffs have essentially argued that Form 483s are per se material and must always be disclosed promptly. To that end, shareholder plaintiffs frequently claim that any statements concerning the likelihood of FDA approval after receipt of a Form 483, such as management's assurances that the FDA process is progressing well, are misleading if the company does not also disclose the receipt of a Form 483.
Early decisions in cases alleging failures to disclose Form 483s suggested that companies might need to disclose Form 483s in a broad range of circumstances, but that trend has shifted. The Checkpoint case forcefully applies a more modern, flexible standard that requires disclosure only if a pharmaceutical company knows or reasonably believes that a Form 483 will delay the FDA's approval process.
The Checkpoint case contained a familiar fact pattern for securities class actions involving Form 483s. Checkpoint submitted a drug application for its lead drug candidate.[4] During the FDA review process, the FDA inspected Checkpoint's third-party drug manufacturer and issued a Form 483 noting several compliance issues in September 2023.[5]
In November 2023, Checkpoint disclosed the Form 483 and warned about its potential impact on the FDA approval process. Checkpoint later disclosed the next month that the FDA had temporarily withheld approval of its drug approval application due to the inspection observations, and Checkpoint's stock declined by about 45%.[6]
Shareholder plaintiffs promptly filed a suit alleging securities fraud violations based on Checkpoint's purported failure to immediately disclose the Form 483. The plaintiffs argued that Checkpoint's statements about, among other things, the progress of its FDA approval application and the company's communications with the FDA were misleading because Checkpoint failed to immediately disclose the Form 483 and its potential impact on timely FDA approval.[7]
The Checkpoint court disagreed. Following an increasing trend in recent decisions, the Southern District of New York issued a 57-page opinion that applied a flexible and practical standard requiring the shareholder plaintiff to plead that a company knew or reasonably believed that the Form 483 would delay FDA approval.[8]
The Checkpoint court emphasized the lack of concrete facts alleged by the plaintiff suggesting that management knew or reasonably believed its third-party drug manufacturer would be unable to resolve the inspection observations before the FDA issued a decision on the drug approval application.
In reaching this conclusion, the court explained that Form 483s do "not represent the FDA's final word,"[9] and said the defendants may have reasonably believed the compliance issues identified in the Form 483 were "eminently correctable."[10] Checkpoint, the court noted, had no "freestanding legal duty" to disclose the Form 483 immediately upon receipt.[11]
Checkpoint and other recent cases applying this flexible standard depart from earlier federal court decisions addressing similar allegations, like the Southern District of New York's 2015 decision in In re: Intercept Pharmaceuticals Inc. Securities Litigation, which applied a more rigid standard requiring disclosure of a Form 483 if it "could cause problems for the drug's approval and commercial success."[12] While these prior decisions technically disclaimed any blanket disclosure requirement, the "could cause problems" standard would, in practice, have compelled disclosure in nearly every instance.
The Checkpoint decision reinforces the shift toward a more flexible standard and provides critical guidance for companies deciding whether, and when, to disclose Form 483s received during the FDA approval process, for three reasons:
First, the decision reaffirms that companies are not required to disclose a Form 483 unless they know or reasonably believe it will delay FDA approval. This standard gives companies the flexibility to assess disclosure based on the specific context and severity of the inspection findings.
Second, the Checkpoint opinion underscores that pharmaceutical companies may make good faith, optimistic statements about the likelihood of FDA approval without disclosing a Form 483 unless, at the time of receipt, they reasonably believe those findings are likely to delay or prevent approval.
Third, many Form 483s are resolved without further escalation. The standard used in Checkpoint may help avoid a deluge of Form 483 disclosures concerning issues that ultimately pose no real risk to FDA approval but would nonetheless trigger disclosure under the "could cause problems" standard set forth in earlier court decisions. As a result, the Checkpoint approach helps ensure that investors are alerted only to inspection findings that a company believes are likely to materially affect the approval process.
Many securities class actions alleging a failure to disclose a Form 483 are now successfully defeated at the motion to dismiss stage, particularly when the FDA's ultimate decision on the new drug application is months away from the Form 483's receipt and the issues cited can be resolved through corrective action. The Checkpoint decision adds further support to this growing trend of motion to dismiss outcomes in securities class actions.
[1] https://www.fda.gov/inspections-compliance-enforcement-and-criminal-investigations/inspection-references/fda-form-483-frequently-asked-questions.
[2] Id.
[3] https://www.fda.gov/inspections-compliance-enforcement-and-criminal-investigations/inspection-references/inspection-citation.
[4] In re: Checkpoint Therapeutics Sec. Litig. , 2025 U.S. Dist. LEXIS 94879, at *5-6.
[5] Id. at *6-7.
[6] Id. at *7-8.
[7] Id. at *22-25.
[8] See, e.g., Schaeffer v. Nabriva Therapeutics PLC , No. 19 Civ. 4183 (VM), 2020 U.S. Dist. LEXIS 78035, at *36 (S.D.N.Y. Apr. 28, 2020); Aramic LLC v. Revance Therapeutics Inc. , 2024 U.S. Dist. LEXIS 58996, at *42 (N.D. Cal. Mar. 30, 2024); Trs. of the Welfare v. Medtronic PLC , 2024 U.S. Dist. LEXIS 55664, at *80-81 (D. Minn. Mar. 28, 2024); In re: Checkpoint Therapeutics Sec. Litig. , 2025 U.S. Dist. LEXIS 94879, at *48-49 (S.D.N.Y. May 19, 2025).
[9] In re: Checkpoint Therapeutics Sec. Litig. , 2025 U.S. Dist. LEXIS 94879, at *46-48.
[10] Id. at *48-49.
[11] Id. at *46-47.
[12] In re: Intercept Pharms., Inc. Sec. Litig. , 2015 U.S. Dist. LEXIS 26442, at *26 (S.D.N.Y. Mar. 4, 2015).