On December 12, 2022, Judge Colleen McMahon of the United States District Court for the Southern District of New York granted summary judgment to a major pharmaceutical company (the “Company”) and dismissed class action claims that the Company failed to disclose a “serious and known link” between the Company’s breast implant products and a rare form of cancer, breast implant-associated anaplastic large cell lymphoma (BIA-ALCL), in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. In re Allergan PLC Securities Litigation, 2022 WL 17584155 (S.D.N.Y. 2022). The Court held that the challenged statements were “literally true and not misleading” and that plaintiff failed to prove after extensive discovery that either scientific studies or the regulatory community had determined that the Company’s implants were in fact more closely associated with BIA-ALCL than other types of implants. Because discovery did not uncover any evidence of falsity and plaintiff failed to raise a genuine issue of fact with respect to the materiality of the alleged misrepresentations or as to loss causation, the Court granted the Company’s motion for summary judgment.
The Company is a global pharmaceutical and medical products company that develops, manufactures, and distributes various pharmaceutical and medical-aesthetics products. Among them are breast implants for post-mastectomy reconstructive surgery and cosmetic augmentation, which the Company offered in different shells including smooth and textured shells. While the textured shell implants were reported to have benefits over the smooth ones, particularly for certain patients, plaintiff alleged that the Company made misrepresentations regarding a potential link between the textured implants and BIA-ALCL. Specifically, plaintiff alleged statements that (i) BIA-ALCL was linked to “all” and “multiple different” manufacturers, and (ii) there were negative reports from European regulatory authorities related to a breast implant manufacturer not affiliated with the Company, were misleading because they did not also disclose that there was a “stronger association” between the Company’s textured implants and BIA-ALCL, and instead implied that another company was more closely associated with BIA-ALCL. The Court held that plaintiff failed to produce evidence showing that any of these representations were either literally false or misleading.
With respect to the first category of statements, the Court held that the Company had no duty to disclose additional information about comparative incidence rates because the statements “were not comparative in nature.” With respect to the second category, the Court considered the full context of the allegedly misleading statement: “From time-to-time reports related to the quality and safety of breast implant devices are published, including reports that have suggested a possible association between [BIA-ALCL] and breast implants, as well as negative reports from regulatory authorities in Europe related to a breast implant manufacturer that is not affiliated with the Company.” (At-issue statement in italics.) The Court found that the phrase “as well as” clearly denoted the distinctness of the second clause from the first, and that “as a simple matter of English grammar[,] no reasonable investor reading the statement would have understood the second example referred back to the first, or that the two separately listed examples were really talking about the same phenomenon.” The Court also held that plaintiff failed to produce any evidence of scientific or regulatory studies—either during or after the class period—that proved the Company’s products were more closely associated with BIA-ALCL than any of its competitors’ products. Additionally, the Court rejected the argument that falsity should be determined based only on evidence contemporaneous with the statement, concluding that a plaintiff cannot prove objective falsity if a statement is later revealed to be true (including after the class period).
The Court also held that plaintiff failed to prove materiality because of the rarity and treatability of the disease, as well as the fact that the Company’s textured breast implant business accounted for less than 1% of the Company’s revenue. A requirement to disclose such “uncertain information from preliminary studies” of a rare and treatable disease would “bury the shareholders in an avalanche of trivial information.” Finally, the Court held that plaintiff also failed to raise a genuine issue of fact on loss causation because evidence showed that the recall of the Company’s textured implants—which plaintiff claimed was because of the Company’s product link to BIA-ALCL—was in fact due to the regulator’s concerns about the relative risk of textured implants (by whomever manufactured) versus smooth implants.
Because plaintiff failed to produce the requisite evidence to supports its allegations, the Court granted defendants’ motion for summary judgment.
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In re Allergan PLC Securities Litigation
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