Plaintiffs pled a viable 10b-5 claim against defendants for representing that Atossa’s ForeCYTE breast cancer test was FDA-cleared when, in fact, the FDA had not yet approved the test.  The misrepresentation was material because ForeCYTE was one of Atossa’s two best-selling products and the source of much of its revenue.  Also, even if other of Atossa’s securities filings had truthfully disclosed the status of the ForeCYTE test, the misrepresentation would still have been material to plaintiffs who allegedly relied directly on the misrepresentation.  The complaint also sufficiently alleged that Atossa’s 8-K filing about an FDA warning letter was materially misleading in failing to mention the FDA’s stated concerns about the ForeCYTE test being used without FDA approval.  The fact that the FDA letter later became publicly available might defeat later claims based on fraud on the market reliance, but not claims by plaintiffs who relied directly on the 8-K or before the FDA letter was made publicly available.

Ninth Circuit Court of Appeals (Gould, J.); August 18, 2017; 2017 WL 3568088