Gagnon v. Alkermes PLC

368 F.Supp.3d 750

Nancy GAGNON, Individually and On Behalf of All Others Similarly Situated, Plaintiff,

v.ALKERMES PLC, Richard F. Pops and James M. Frates, Defendants.

17cv9178

United States District Court, S.D. New York.

Signed March 28, 2019

Joseph Alexander Hood, II, Jeremy Alan Lieberman, Pomerantz LLP, New York, NY, for Plaintiff.

Caroline Herman Bullerjahn, Courtney Orazio, Deborah Sager Birnbach, Ian Stearns, Goodwin Procter, LLP (Boston), Boston, MA, for Defendant.

OPINION & ORDER

WILLIAM H. PAULEY III, Senior United States District JudgeDefendants Alkermes plc ("Alkermes"), Richard F. Pops, its Chief Executive Officer, and James M. Frates, its Chief Financial Officer, move to dismiss the Second Amended Complaint (the "Complaint") under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Lead Plaintiff Local 731 I.B. of T. Private Scavenger and Garage Attendants Pension Trust Fund ("Local 731") moves to strike various exhibits appended to Defendants' motion. For the reasons that follow, Local 731's motion to strike is granted in part and denied in part, and Defendants' motion to dismiss is granted.

BACKGROUND

The allegations in the Complaint are presumed true for purposes of this motion. Alkermes is a global pharmaceutical company that markets and sells a product trade-named Vivitrol, an injectable, extended-release version of an opioid dependence medication called naltrexone. This securities fraud class action concerns statements that Defendants made touting Vivitrol's sales growth and its effectiveness in treating opioid dependence. Local 731 claims that while Defendants crafted a narrative of organic, word-of-mouth growth in SEC filings and on investor conference calls, they concealed from investors a calculated and sustained campaign to market Vivitrol.

Starting in June 2017, the truth began to emerge through a steady cascade of news articles that shed a critical light on Alkermes' sales practices, academic studies that reached tepid conclusions as to Vivitrol's relative effectiveness, and revelations of governmental scrutiny of Vivitrol. Based on a progressive decline in Alkermes' stock price, plaintiffs assert claims against all Defendants for violations of Section 10(b) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder, as well as Section 20(a) claims against Pops and Frates.

I. Opioid Dependence Treatments

Since the 1980s, naltrexone has existed to treat opioid dependence. (Second Amended Complaint, ECF No. 34 ("Compl."), ¶¶ 23-26.) In particular, naltrexone works by competing for the receptors in the brain that cause the "high" that one experiences from using opioids. However, several aspects of naltrexone contributed to its sparse use by the medical community. First, patients must endure a days-long detoxification process before beginning treatment. Second, naltrexone only provides a brief period of relief from opioid cravings and must be taken every day. Third, because it does not completely block the targeted brain receptors, its effects may be overcome with a sufficiently large quantity of opioids.

Alkermes sought to improve on naltrexone by developing Vivitrol, an injectable version of naltrexone that extends relief from opioid cravings for 28 days. (Compl. ¶¶ 27-29, 61.) Although Vivitrol obviates the need to take naltrexone every day, it functions in the same way as naltrexone. Thus, it is subject to the limitations that prospective patients must detoxify first before beginning treatment and that Vivitrol's salutary effects may be overcome by large quantities of opioids.

Other prominent treatments for opioid dependence include methadone and Suboxone (i.e., buprenorphine ), both of which contain opioids. In contrast to "antagonist" treatments such as naltrexone and Vivitrol, these "agonist" treatments work by tricking the opioid receptors in the brain into believing that it has received the abused opioid. (Compl. ¶¶ 45-46.) This quality allows prospective patients to wean themselves off opioids without experiencing cravings or opiate withdrawal and without needing to detoxify before they begin treatment.

II. Increase in Vivitrol Revenues

In 2010, the Food and Drug Administration ("FDA") approved Vivitrol for treating opioid dependence. (Compl. ¶ 28.) At that time, Vivitrol yielded anemic revenues for Alkermes because of naltrexone's many known limitations relative to other available treatments. (Compl. ¶ 32.) Recognizing that the medical community did not hold naltrexone in high regard, Defendants focused their efforts on attempting to convince drug courts, prison wardens, and law enforcement officials that methadone and Suboxone were less effective than Vivitrol because they contained opioids. (Compl. ¶¶ 43-55.) Specifically, Local 731 alleges that Alkermes circulated misleading and deceptive information that only highlighted methadone and Suboxone's drawbacks while giving short shrift to their benefits. (Compl. ¶¶ 40, 49-50.) Along similar lines, Alkermes routinely represented to the policymaking community that methadone and Suboxone were themselves addictive and abused, just like other opioids. (Compl. ¶ 51.) According to Local 731, Defendants took these actions, despite scientific data supporting the use of methadone and Suboxone in treating opioid addiction. (Compl. ¶¶ 4, 46.) And Local 731 claims that because this non-medical audience lacked a sophisticated understanding of treating opioid addition, Defendants saw these entities and individuals as easy marks for misinformation. (Compl. ¶ 44.)

Even though Defendants lacked scientific evidence demonstrating Vivitrol's superiority over methadone and Suboxone, their allegedly aggressive and fraudulent marketing campaign paid off. A survey of criminal justice representatives found that most favored Vivitrol over methadone and Suboxone. (Compl. ¶ 55.) And Vivitrol sales rapidly increased starting in February 2015, eventually supplanting the sale of other products as the most important driver of Alkermes' revenue growth. (See Compl. ¶¶ 35-40.) In particular, between February 24, 2015 and November 14, 2017 (the "Class Period"), Vivitrol sales as a proportion of Alkermes' total revenues trended upward from over 20% starting in 2Q 2015 to over 30% starting in 1Q 2017. (Compl. ¶ 39.) Ultimately, Vivitrol's modest net sales of $ 28.9 million in FY 2011 ballooned to $ 209 million in FY 2016. (Compl. ¶ 41.)

III. Defendants' Alleged Misstatements

Local 731 claims that Defendants made a series of materially misleading misstatements in investor and analyst calls between September 17, 2015 and June 6, 2017, as well as in Alkermes' Forms 10-K filed on February 24, 2015, February 25, 2016, and February 17, 2017. These misstatements, which generally relate to the reasons for Vivitrol's increased revenues and Vivitrol's efficacy, may be categorized as follows. First, Local 731 alleges that Defendants mischaracterized the adoption of Vivitrol as "organic" and "self-propagating" without revealing the role that their deceptive marketing and lobbying tactics played in driving Vivitrol's growth. (Compl. ¶¶ 56, 83-101.) Second, Local 731 avers that Defendants misrepresented Vivitrol's efficacy by guaranteeing that patients would not relapse for 28 days, despite having access to an in-house study finding that 30% of patients had relapsed within 28 days and a retrospective study revealing that several Vivitrol patients had overdosed within that same period. (Compl. ¶¶ 62-72, 102-103, 106-107, 112-119.) Finally, Local 731 asserts that Defendants falsely claimed that only Vivitrol—and not methadone or Suboxone—could lead to a drug-free life, even though they lacked scientific data to substantiate that claim. (Compl. ¶¶ 75-81, 104-105, 108-111.) Local 731 posits that these misstatements artificially inflated Alkermes' stock price to $ 80.69 per share on December 28, 2015. (Compl. ¶ 150.)

The first rumblings that something was amiss came on June 11, 2017, when the New York Times published an article exposing Alkermes' deceptive and aggressive efforts to market Vivitrol by disparaging its competitors without any scientific basis. (Compl. ¶¶ 120, 151.) Over the next two days, NPR and The Fix followed on the heels of the New York Times, further highlighting Alkermes' attempts to suppress the use of methadone or Suboxone by lobbying for increased regulation of those drugs. (Compl. ¶¶ 121-122, 151-154.) After this initial wave of disclosures, Alkermes' stock price dropped from a closing price of $ 61.66 the Friday before the news broke to $ 57.29. (Compl. ¶ 154.) Alkermes' stock price gradually slid over the next few months following a steady stream of disclosures of governmental scrutiny into Vivitrol and damning information regarding Vivitrol's efficacy.

For example, Local 731 alleges that ProPublica published an article on June 27, 2017 revealing Alkermes' possession of non-public, internal data showing that nearly 30% of patients relapsed during the 28-day treatment period. (Compl. ¶¶ 65-68, 123, 155.) One month later, Alkermes announced in its second-quarter Form 10-Q that it had received a subpoena from federal prosecutors, seeking documents relating to Vivitrol. (Compl. ¶¶ 58, 124, 157.) Subsequently, the Journal of the American Medical Association published a study on October 18, 2017 concluding that Vivitrol was equally as effective as Suboxone in maintaining short-term abstinence from opioid usage. (Compl. ¶¶ 78, 125, 159.) Following these disclosures, Senator Kamala Harris announced an investigation into Alkermes' sales practices relating to Vivitrol on November 6, 2017. (Compl. ¶¶ 60, 126, 161.) Alkermes' stock-price slide was punctuated by a subsequent study published on November 14, 2017 that also found Vivitrol—at best—to be equally effective to Suboxone. (Compl. ¶¶ 79-80, 127, 163.) That day, Alkermes' stock closed at $ 47.58 per share. (Compl. ¶ 164.) This lawsuit followed.

DISCUSSION

The standard on a motion to dismiss under Rule 12(b)(6)...