In re Bristol-Myers Squibb Co. CVR Sec. Litig.

658 F.Supp.3d 220

IN RE: BRISTOL-MYERS SQUIBB COMPANY CVR SECURITIES LITIGATION

21-CV-8255 (JMF)

United States District Court, S.D. New York

Signed March 1, 2023

OPINION AND ORDER

JESSE M. FURMAN, United States District Judge:

A Contingent Value Right or "CVR" is "a security payable upon the occurrence of a specified future event." ECF No. 95 ("Compl."), ¶ 1. In 2019, as part of a merger, Bristol-Myers Squibb Company ("BMS") issued CVRs that were contingent on approval of three drugs by the Food and Drug Administration ("FDA") by specific deadlines. If the deadlines were met, BMS would have had to pay $6.4 billion to the holders of the CVRs. But the FDA approved one of the three drugs thirty-six days after its deadline. As a result, the CVRs expired worthless.

This litigation — a consolidated putative class action brought on behalf of those who purchased or otherwise acquired the BMS CVRs between November 20, 2019, and December 31, 2020 — followed. Plaintiffs allege that Defendants — BMS and a slew of current and former BMS executives and directors¹ — violated the Securities Act of 1933 (the "Securities Act"), the Securities Exchange Act of 1934 (the "Exchange Act"), and Securities and Exchange Commission ("SEC") Rules promulgated thereunder by making various statements regarding the value of the CVRs and the likelihood of their being paid out. The premise of their claims is that Defendants intentionally delayed FDA approval to avoid the $6.4 billion payout.

Defendants now move, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, to dismiss the operative Consolidated Amended Class Action Complaint (the "Complaint"). For the reasons that follow, Defendants' motion must be and is GRANTED.

BACKGROUND

The following facts, taken from the Complaint, documents it incorporates, and matters of which the Court may take judicial notice, are construed in the light most favorable to Plaintiffs. See, e.g., Kleinman v. Elan Corp., plc, 706 F.3d 145, 152 (2d Cir. 2013); ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) (stating that a court may consider "legally required public disclosure documents filed with the SEC").

A. The BMS-Celgene Merger

BMS is a publicly traded global pharmaceutical company. Compl. ¶ 44. On January 2, 2019, BMS entered into a preliminary merger agreement with Celgene Corporation ("Celgene"), another pharmaceutical company, pursuant to which each share of Celgene common stock would be exchanged for one share of BMS common stock, fifty dollars in cash, and one CVR. Id. ¶ 85; see ECF No. 101-1 ("Joint Proxy"), at 3. According to the agreement, the CVRs would trade on a stock exchange and would pay out nine dollars per CVR — $6.4 billion in total — but only if three drugs that Celgene had been developing, Liso-cel, Ide-cel, and Ozanimod (together, the "Milestone Drugs"), were approved by the FDA by certain deadlines: (1) Liso-cel by December 31, 2020; (2) Ozanimod by December 31, 2020; and (3) Ide-cel by March 31, 2021 (together, the "Milestone Deadlines"). Compl. ¶¶ 81, 87; see also Joint Proxy 4, 217-21. If even one Milestone Drug was approved one day late, the CVRs would expire worthless. See Compl. ¶ 81. Celgene's shareholders voted to approve the merger on April 12, 2019. Id. ¶ 90. On November 20, 2019, the merger (the "Merger") closed and the CVRs were issued. Id. ¶ 95.

B. BMS Misses the Milestone Deadline for Liso-Cel

Liso-cel is a "biologic drug," see ECF No. 105 ("Pls.' Opp'n"), at 4; Compl. ¶ 91, meaning it is composed of natural and biological substances (such as "sugars, proteins, [ ] nucleic acids[,] or . . . cells and tissues"), FDA, What Are "Biologics" Questions and Answers, available at https://www.fda.gov/about-fda/center-biologics-evaluation-and-research-cber/what-are-biologics-questions-and-answers. As a result, Liso-cel could be approved only after the FDA had "reviewed [its Biologics License Application ('BLA')], conducted facility inspections [of where it will be manufactured,] and concluded that [it] is efficacious, safe[,] and appropriately labeled." Compl. ¶ 91. The BLA is the core of the application process and "must include, among other things, clinical data demonstrating the safety and efficacy of the therapy, information concerning the manufacturing and controls for production, a detailed description of the manufacturing facility[,] and the proposed product label." Id.

Celgene submitted the initial portion of Liso-cel's BLA to the FDA before the Merger. Id. On December 18, 2019, less than one month after the Merger, BMS submitted the final — and most important — portion of the BLA, titled "Chemistry, Manufacturing, and Controls" ("CMC") to the FDA. Id. ¶ 96. The FDA requires this module to include "a full description of the [biologic drug's] manufacturing process, including analytical procedures that demonstrate . . . prescribed standards of identity, quality, safety, purity, and potency and . . . substantiating data . . . [that] establish that the analytical procedures used in testing meet proper standards of accuracy, sensitivity, specificity, and reproducibility and are suitable for their intended purpose." Id. ¶ 20. On February 13, 2020, Liso-cel's application was granted "Priority Review" by the FDA, which set its target approval date as August 17, 2020, about four-and-a-half months before the drug's December 31, 2020 Milestone Deadline. Id. ¶¶ 97-98.

On March 23, 2020, shortly after the start of the COVID-19 pandemic, however, the FDA directed BMS to supplement its CMC submission with "basic data" regarding Liso-cel's safeness and efficacy. Id. ¶¶ 99-100. BMS submitted an amended CMC to the FDA about three weeks later. Id. ¶ 100. After reviewing the submission, the FDA concluded that the supplemental information was a "Major Amendment" to Liso-cel's BLA, automatically triggering a three-month extension of Liso-cel's target approval date to November 16, 2020. Id. ¶¶ 101-02.

But that date was not to be either. Due to FDA scheduling issues and the Major Amendment designation, the FDA's inspections of the two manufacturing facilities slated to produce Liso-cel were not completed until early December 2020, only weeks before the Liso-cel Milestone Deadline. Id. ¶¶ 103, 120. The FDA found multiple regulatory violations at both facilities, which required BMS to respond with remediation plans. Id. ¶¶ 107-12, 116-24. BMS fully responded by the FDA's mandated deadline of December 23, 2020, id. ¶ 126; Pls.' Opp'n 12, but FDA approval of Liso-cel did not come until February 5, 2021, roughly five weeks after the December 31, 2020 Milestone Deadline, Compl. ¶¶ 33, 128. Accordingly, and notwithstanding the timely approvals of both Ozanimod and Ide-cel, the CVRs expired worthless. Id. ¶¶ 33, 128.

C. Plaintiffs' Claims

Plaintiffs in this case bring securities fraud claims under Sections 10(b), 14(a), and 20(a) of the Exchange Act, 15 U.S.C. §§ 78j(b), 78n(a), 78t(a); SEC Rules 10b-5 ("Rule 10b-5") and 14a-9 ("Rule 14a-9"), 17 C.F.R. §§ 240.10b-5, 240.14a-9; and Sections 11, 12(a)(2), and 15 of the Securities Act, 15 U.S.C. §§ 77k, 77l(a)(2), 77o.² Their claims arise from two sets of statements by Defendants "concerning the 'diligent' efforts [BMS] would make to meet the Milestone [Deadlines], the likelihood that the Milestone [Deadlines] would be met, and the purported value of the CVRs," Compl. ¶ 8: (1) statements made prior to the Merger (and thus before the CVRs were issued) in the February 22, 2019 Joint Proxy filed with the SEC, see id. ¶¶ 156-65, and a November 7, 2019 Guggenheim Partners analyst report about the Merger, see id. ¶¶ 166-67;³ and (2) statements made after the Merger (and thus during the lifetime of the CVRs) in presentations, press releases, earnings calls, and SEC filings between December 8, 2019, and November 16, 2020, see Compl. ¶¶ 169-207. Plaintiffs' claims are all premised on the same theory: that, "all [the] while," Defendants "secretly slow-rolled the Liso-cel approval process so [BMS] could avoid the $6.4 billion CVR payout." Pls.' Opp'n 3.

LEGAL STANDARD

In reviewing a motion to dismiss pursuant to Rule 12(b)(6), a court must accept the factual allegations set forth in the complaint as true and draw all reasonable inferences in favor of the plaintiff. See Giunta v. Dingman, 893 F.3d 73, 79 (2d Cir. 2018). A court will not dismiss any claims unless the plaintiff has failed to plead sufficient facts to state a claim to relief that is facially plausible, see Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) — that is, one that contains "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged," Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). More specifically, the plaintiff must allege facts showing "more than a sheer possibility that a defendant has acted unlawfully." Id. A complaint that offers only "labels and conclusions" or "a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555, 127 S.Ct. 1955. Further, if the plaintiff "ha[s] not nudged [its] claims across the line from conceivable to plausible, [those claims] must be dismissed." Id. at 570, 127 S.Ct. 1955.

DISCUSSION

As noted above, Plaintiffs bring claims under both the Exchange Act and the Securities Act. Defendants advance various arguments in support of dismissal of these claims, but the Court need only and does only address a few. First, the Court finds that Plaintiffs' claim under Section 10(b) of the Exchange Act and Rule 10b-5 fail because the Complaint does not adequately allege scienter. Second, the Court concludes that Plaintiffs' claims under the Securities Act, as well as their claims under Section 14(a) of the Exchange Act and Rule 14a-9, are shielded by the safe harbor provisions of the Private Securities Litigation Reform Act (the "PSLRA"), 15 U.S.C. § 77z-2(c) (Securities Act...