On March 29, 2023, Judge William G. Young of the United States District Court for the District of Massachusetts granted a motion to dismiss a putative securities class action alleging a pharmaceutical company (the “Company”), its former CEO, the president of its U.S. division, and its former Chief Medical Officer (“CMO”) made false and misleading statements regarding the efficacy of the Company’s new Alzheimer’s drug. Okla. Firefighters Pension and Ret. Sys. v. Biogen Inc., et al., No. 22-10200-WGY (D. Mass. Mar. 29, 2023). In granting defendants’ motion to dismiss, the Court held that plaintiffs failed to plead facts with particularity establishing that any of the challenged statements were false or misleading or that there was a strong inference of scienter.
Plaintiffs filed a consolidated class action complaint on June 27, 2022, alleging violations of Sections 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Specifically, plaintiffs alleged that defendants made 25 false and misleading statements, grouped into six categories: (1) statements concerning defendants’ assertion that over 900 healthcare sites were “ready” to implement treatment with the drug on June 7 and 8, 2021; (2) statements concerning potential obstacles in diagnosing the presence of amyloid plaques in patients with Alzheimer’s disease; (3) statements concerning Medicare coverage; (4) statements concerning the drug’s price; (5) statements concerning a potential agreement with the Veterans Health Administration (“VA”) to provide the drug to veterans; and (6) statements in the CMO’s open letter to the Alzheimer’s disease community allegedly describing the Company’s interactions with the FDA.
With respect to the alleged statements regarding readiness, the Court held that plaintiffs failed to allege sufficient facts showing that 900 sites were not capable of infusing the drug at the time the statements were made, finding that “put simply, [plaintiffs] acknowledge that when [the Company] spoke of sites being ‘ready’ after FDA approval it sought to signal that said sites had the necessary personnel and infrastructures to administer [the drug]—as well as potential for demand for the treatment,” and “none of plaintiff’ factual allegations suffices to show that on June 7 and 8, 2021, 900 sites did not have the necessary infrastructure and personnel to administer [the drug].”
With respect to the statements regarding diagnosing amyloid plaques, the Court rejected plaintiffs’ claim that the statements were misleading because they “omitted” to reveal that the real obstacle was the collection of spinal fluid and not its analysis, noting that it is not sufficient that the omitted information be relevant for a statement to be misleading. The Court emphasized that the collection and analysis of spinal fluid are two separate and distinct aspects of the process of diagnosing amyloid plaques, and the logistical challenges associated with each phase are similarly distinct, such that disclosure of a bottleneck associated with one of the two phases does not create an obligation to disclose every possible logistical challenge associated with the other.
With respect to the statements regarding Medicare coverage, the Court found that the statements never guaranteed that Medicare coverage would have been extended to the drug upon FDA approval. Rather, according to the Court, the CEO and president’s statements were best read as merely indicating that coverage was presumed, and there were no allegations showing that market analysts interpreted these statements any differently. With respect to statements regarding the drug’s price, the Court found that the alleged statements showed merely that the Company engaged with and received input from payors and other relevant stakeholders and did not reasonably imply that these payors or stakeholders supported, “approv[ed],” or expressed “willingness” to pay a price of $56,000 a year per patient for the drug.
The Court further held that the challenged statements regarding an agreement with the VA failed, as the fact that a single VA advisor opposed extending coverage for the drug was insufficient to establish that no agreement was being “finalized.” The Court further noted that the later announcement of the VA that it would not provide coverage for the drug in its formulary was insufficient to establish earlier falsity.
With respect to the challenged statements by the CMO, the Court found that plaintiffs mischaracterized the statements at issue. As background to these allegations, plaintiffs alleged that in March 2019, after experts brought in to examine the trial data concluded there was an insufficient clinical benefit to the use of the drug and advised that the treatment be abandoned, the Company’s CMO then allegedly contacted a former colleague who was serving as the head of the FDA’s Division of Neuroscience and who became an internal advocate at the FDA for the drug’s approval. In July 2020, the Company submitted the drug for approval. On November 6, 2020, a committee of the FDA unanimously recommended against approving the drug, citing a lack of demonstrable clinical benefit. However, in June 2021, the FDA approved the drug through its accelerated approval process, allegedly based on the drug’s effects in reducing amyloid beta presence. The Court found that plaintiffs’ allegations that the CMO made statements that the Company’s interactions with the FDA to resurrect the drug were “appropriate and not out of the ordinary” mischaracterized the CMO’s factual statements about the controversy concerning the approval. The Court also found that plaintiffs mischaracterized the FDA Commissioner’s statements, as the latter did not concede that there was contact between the FDA and the Company “outside the formal correspondence process,” but merely stated that the Office of the Inspector General should conduct an investigation about whether there were any interactions that were inconsistent with FDA policies and procedures.
Having found that false or misleading statements were not adequately alleged, the Court turned to plaintiffs’ scienter allegations, noting that plaintiffs relied on allegations primarily derived from the statements of eight former employees of the Company. The Court found that plaintiffs’ allegations fell short of showing that the CEO and president were aware of the alleged facts that would render their statements false or misleading and that other allegations—such as that it was “widely acknowledged” within the Company that the facilities performing the lumbar punctures were a major bottleneck and that this issue was discussed “all the time”—were too general. With respect to the statements regarding Medicare coverage, the Court found that “it is well-established that claims that defendants knew or should have known that their statements were false or misleading based solely on their professional backgrounds are insufficient to support a strong inference of scienter.” The Court found that plaintiffs’ scienter allegations concerning the remaining statements were “utterly devoid of any non-conclusory allegation that what the confidential witnesses knew was communicated to” defendants were “general allegations that defendants knew earlier what later turned out badly,” or were “premised on a fundamental misunderstanding” of the statement. Accordingly, the Court granted defendants’ motion to dismiss.
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Okla. Firefighters Pension and Ret. Sys. v. Biogen Inc., et al.
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