In re Biogen Inc. Sec. Litig.

193 F.Supp.3d 5

IN RE: BIOGEN INC. SECURITIES LITIGATION

Civil Action No. 15-13189-FDS

United States District Court, D. Massachusetts.

Signed June 23, 2016

MEMORANDUM AND ORDER ON DEFENDANTS' MOTION TO DISMISS

SAYLOR, United States District Judge

This is a putative class action involving alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78t(a), and SEC Rule 10b-5. Lead plaintiff GBR Group, Ltd. has brought suit, on behalf of a class of similarly situated persons, against biopharmaceutical company Biogen Inc. and three Biogen executives. Plaintiffs contend that class members were harmed when they purchased Biogen's common stock at prices that were artificially inflated by the company's materially misleading statements and omissions about Tecfidera, its leading multiple sclerosis drug.

The complaint relies heavily on statements by ten former Biogen employees acting as confidential witnesses. It alleges that defendants, after publicly announcing in October 2014 that a patient being treated with Tecfidera had died, both withheld material information about declining Tecfidera sales and made misleading positive statements about future revenue. Plaintiffs assert that three Biogen executives made more than twenty materially false misrepresentations and omissions during various earnings calls and conferences between December 2, 2014, and July 23, 2015.

Defendants have moved to dismiss the complaint pursuant to Fed. R. Civ. P. 12(b)(6) and the Private Securities Litigation Reform Act of 1995, 15 U.S.C. §§ 78u–4, 78u–5.¹ Defendants contend that the complaint should be dismissed for two principal reasons. First, they contend that the complaint fails to set forth plausible allegations that the individual defendants' statements contain actionable misrepresentations or omissions. Specifically, defendants contend that the alleged misrepresentations are either (1) forward-looking statements protected by the PSLRA safe harbor provisions, (2) immaterial statements of corporate optimism or puffery, or (3) not adequately alleged to be false at the time they were made. Second, they contend that the complaint fails to allege specific facts that give rise to a strong inference of scienter.

As the First Circuit has recently stated, "[n]ot all claims of wrongdoing by a company make out a viable claim that the company has committed securities fraud." Fire and Police Pension Ass'n of Colo. v. Abiomed, Inc. , 778 F.3d 228, 231 (1st Cir.2015). The complaint does not, for example, allege that Biogen's current or historical financials are misleading because of fictitious sales, off-label marketing, inventory parking, or any similar act of corporate fraud. Rather, it alleges in substance that Biogen executives made statements about future Tecfidera sales that were misleading because they were unduly optimistic.

Although most of the alleged misrepresentations appear to be non-actionable, after drawing all reasonable inferences on behalf of plaintiffs, the complaint alleges a plausible claim for at least one material misrepresentation or omission. However, the complaint's allegations that defendants acted with the requisite degree of scienter fail to clear the relatively high hurdle of the PSLRA. Even assuming that defendants made a materially false or misleading statement, plaintiffs have not sufficiently alleged that defendants made those statements with a "conscious intent to defraud or 'a high degree of recklessness.' " ACA Fin. , 512 F.3d at 58 (quoting Aldridge v. A.T. Cross Corp. , 284 F.3d 72, 82 (1st Cir.2002) ). Instead, the most compelling inference that can be drawn from the complaint as a whole is that defendants were, at worst, negligent, or engaged in permissible puffery. But "negligence or puffing are not enough for scienter ...." Automotive Indus. Pension Trust Fund v. Textron Inc. , 682 F.3d 34, 39 (1st Cir.2012). Accordingly, and for the reasons set forth below, defendants' motion to dismiss will be granted.

I. Factual Background

Unless otherwise noted, all facts are stated as set forth in the complaint.²

A. The Parties and Tecfidera

Lead plaintiff GBR Group, Ltd. is a limited partnership located in Jacksonville, Florida. (Compl. ¶ 30).³ The complaint alleges that GBR purchased Biogen securities at artificially inflated prices during the class period, which is December 2, 2014 through July 23, 2015. (Id. ¶¶ 1, 30).

Biogen Inc. is based in Cambridge, Massachusetts. (Id. ¶ 32). It is a global biopharmaceutical company that develops, manufactures, and markets treatments for certain neurological, autoimmune, and hematological diseases, including multiple sclerosis ("MS"). (Id. ¶ 43). Biogen's securities trade on the NASDAQ under the ticker "BIIB." (Id. ¶ 32).

The complaint alleges claims against Biogen and individual defendants George Scangos (the Chief Executive Officer), Paul Clancy (the Chief Financial Officer and Executive Vice President, Finance), and Stuart Kingsley (the former Executive Vice President, Global Commercial Operations). (Id. ¶¶ 33-35).

Tecfidera is one of Biogen's four principal drugs for the treatment of MS. (Id. ¶ 43). It is an oral pharmaceutical approved for use in the United States and European Union. (Id. ).⁴ Tecfidera competes with other oral MS drugs as well as injectable MS treatments. (Id. ¶ 2). After the FDA approved Tecfidera for use in March 2013, Biogen began selling it in the United States during the second quarter of 2013. (Id. ¶¶ 2, 43). In 2015, the wholesale cost of Tecfidera was approximately $70,000 per patient per year. (Id. ¶ 43).

The complaint alleges that Tecfidera's revenue growth was a function of three factors: (1) the portion of new starts that Tecfidera captured (that is, patients recently diagnosed with MS and starting their treatment with Tecfidera); (2) patients switching over to Tecfidera from other drugs (referred to as "switches" or the "switch rate"); and (3) the growth of the overall market for oral MS drugs. (Id. ¶ 6). Conversely, Tecfidera revenue could be negatively affected by declining overall market growth, lower new starts, and a higher "discontinuation rate"—that is, "the rate at which patients were taken off the drug." (Id. ¶ 8).⁵

From its 2013 launch, Tecfidera was a significant source of revenue for Biogen, and it fueled much of the company's growth. In 2015, Tecfidera was Biogen's highest grossing product by more than $1 billion in revenue. (Def. Ex. 25 at 17). Defendants publicly acknowledged Tecfidera's importance to the company. In Biogen's quarterly reports and annual report released during the class period, the company stated that it "may be substantially dependent on sales from our principal products for many years, including an increasing reliance on sales of Tecfidera as we expand into additional markets." (Compl. ¶ 45). In January 2015, when Biogen issued fiscal guidance for the year, the company stated that its "plan assumes Tecfidera will represent the largest contributor to our overall revenue growth." (Id. ). The following charts display quarterly and annual revenue for Tecfidera individually and for Biogen as a whole, as well as revenue growth rates. (Id. ¶ 43).⁶

Quarterly Revenue
Tecfidera Tecfidera Revenue Biogen Biogen Revenue Tecfidera Revenue
Quarter Revenue (SMM) QoQ Growth Rate Revenue (SMM) QoQ Growth Rate %Biogen Revenue
2Q 2013              $192          —                        $1,723          —                          11.1%
3Q 2013              $286                 49.1%             $1,828                6.1%                 15.7%
4Q 2013              $398                 39.0%             $1,966                7.6%                 20.2%
1Q 2014              $506                 27.1%             $2,130                8.3%                 23.7%
2Q 2014              $700                 38.5%             $2,421               13.7%                 28.9%
3Q 2014              $787                 12.4%             $2,511                3.7%                 31.3%
4Q 2014              $916                 16.4%             $2,641                5.1%                 34.7%
1Q 2015              $825                 (9.9%)            $2,555               (3.2%)                32.3%
2Q 2015              $883                  7.1%             $2,592                1.4%                 34.1%
3Q 2015              $937                  6.1%             $2,778                7.2%                 33.7%
4Q 2015              $993                  5.9%             $2,839                2.2%                 35.0%
Annual Revenue
Tecfidera Tecfidera Revenue Biogen Biogen Revenue Tecfidera Revenue
Year Revenue (SMM) YoY Growth Rate Revenue (SMM) YoY Growth Rate %Biogen Revenue
2013              $877                     —            $6,932                   —                 12.6%
2014            $2,909                231.9%            $9,703               40.0%                 30.0%
2015            $3,638                 25.1%           $10,764               10.9%                 33.8%

B. The PML Death and its Impact on Tecfidera Sales

1. The PML Death

On October 22, 2014, Biogen released its third-quarter financial results, announcing revenues of $2.51 billion, up 3.7 percent from the previous quarter. (Id. ¶ 48). It also announced third-quarter revenue for Tecfidera of $787.1 million, which was a 12.4 percent increase from the previous quarter. (Id. ). However, Tecfidera's growth rate had decreased significantly from the growth rates of 49.1, 39.0, 27.1, and 38.5 percent in the previous four quarters. (Id. ¶ 43).

During its earnings call, Biogen publicly announced, for the first time, that an MS patient who had taken Tecfidera for more than four years as part of a clinical study had died of progressive multifocal leukoencephalopathy ("PML"). (Id. ¶ 48). PML is an infection that is particularly dangerous for individuals with a weakened immune system. (Id. ¶¶ 4, 48).⁷ During that earnings call, CEO Scangos...