Metzler Asset Mgmt. GMBH v. Kingsley

305 F.Supp.3d 181

METZLER ASSET MANAGEMENT GMBH and Erste–Sparinvest Kapitalanlagegesellschaft mbH, on Behalf of Themselves and All Other Similarly Situated Parties, Plaintiffs,

v.Stuart "Tony" A. KINGSLEY, George A. Scangos, Paul C. Clancy, and Biogen, Inc., Defendants.

Civil Action No. 16–12101–FDS

United States District Court, D. Massachusetts.

Signed March 27, 2018

Christopher F. Moriarty, Gregg S. Levin, Motley Rice LLC, Mt. Pleasant, SC, Garrett C. Bradley, Thornton Law Firm, Boston, MA, for Plaintiffs.

James R. Carroll, Michael S. Hines, Sara J. van Vliet, Skadden, Arps, Slate, Meagher & Flom LLP, Boston, MA, for Defendants.

MEMORANDUM AND ORDER ON DEFENDANTS' MOTION TO DISMISS

SAYLOR, J.

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 plaintiffs Metzler Asset Management GmbH and Erste–Sparinvest Kapitalanlagegesellschaft mbH have 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 amended complaint relies heavily on statements by 17 former Biogen employees acting as confidential witnesses. It alleges that defendants withheld material information about Tecfidera's safety profile and declining Tecfidera sales, and made misleading positive statements about future revenue. It further asserts that several Biogen executives made 31 materially false misrepresentations and omissions during various earnings calls and conferences over a one-year period between July 23, 2014, and July 23, 2015.

Defendants have moved to dismiss the complaint for two principal reasons. First, they contend that plaintiffs' claims are barred by the doctrine of claim preclusion, or res judicata , in light of this Court's dismissal of a suit raising similar claims in In re: Biogen Inc. Sec. Litig. ("Biogen I") , 193 F.Supp.3d 5 (D. Mass. 2016), aff'd 857 F.3d 34 (1st Cir. 2017). While the claims in this suit are largely identical to those in Biogen I , because the Biogen I putative class was never certified, lead plaintiffs in this suit are not bound by this Court's earlier decision. Claim preclusion therefore does not bar this action.

Second, defendants have moved to dismiss for failure to state a claim 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. Defendants contend that the complaint fails to set forth plausible allegations that the individual defendants' statements contain actionable misrepresentations or omissions. Specifically, defendants argue that the alleged misrepresentations, including nine that are newly alleged and were not included in the original action, are not adequately alleged to be false at the time they were made. In addition, they contend that the complaint fails to allege specific facts that give rise to a strong inference of scienter.

As the First Circuit has observed, "[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 amended complaint does not, for example, allege that Biogen's current or historical financial statements 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 Tecfidera's risks and future sales that were misleading because they were unduly optimistic and minimized the impact of adverse events.

Although most of the newly alleged misrepresentations do not appear to be actionable, after drawing all reasonable inferences on behalf of plaintiffs, the complaint alleges a plausible claim that at least six statements (or omissions) constitute material misrepresentations—three that are repeated from Biogen I , and three that are newly alleged. However, the complaint's allegations that defendants acted with the requisite degree of scienter fail to clear the relatively high hurdle of the PSLRA. In other words, 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. Guar. Corp. v. Advest, Inc. , 512 F.3d 46, 58 (1st Cir. 2008) (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. See Auto. Indus. Pension Trust Fund v. Textron Inc. , 682 F.3d 34, 39 (1st Cir. 2012) ("negligence or puffing are not enough").

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 amended complaint.¹ Because the vast majority of the amended complaint overlaps with the complaint in Biogen I , this section will largely address new witnesses and allegations.

A. The Parties and Tecfidera

Lead plaintiff Metzler Asset Management GmbH ("Metzler") is a German capital investment company located in Frankfurt, Germany. (Compl. ¶ 36).² Lead plaintiff Erste–Sparinvest Kapitalanlagegesellschaft mbH ("Erste–Sparinvest") is an Austrian investment company located in Vienna, Austria. (Id. ¶ 37). The complaint alleges that Metzler and Erste–Sparinvest purchased Biogen securities at artificially inflated prices during the class period, which is July 23, 2014, through July 23, 2015. (Id. ¶¶ 1, 36–37).

Biogen Inc. is a publicly-traded corporation based in Cambridge, Massachusetts. (Id. ¶ 38). It is a biopharmaceutical company that develops, manufactures, and markets treatments for certain neurological, autoimmune, and hematological diseases, including multiple sclerosis ("MS"). (Id. ¶ 48). Biogen's securities trade on NASDAQ under the symbol "BIIB." (Id. ¶ 38).

Tecfidera is one of Biogen's four principal drugs for the treatment of MS. (Id. ¶ 48). It is an oral pharmaceutical approved for use in the United States and European Union. (Id. ).³ It competes with other oral MS drugs as well as injectable MS treatments. (Id. ¶¶ 2, 14, 67). After the FDA approved Tecfidera for use in March 2013, Biogen began selling it in the United States in mid–2013. (Id. ¶¶ 2, 48). In 2015, the wholesale cost of the drug was approximately $70,000 per patient per year. (Id. ¶ 48).

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, producing $1 billion in revenue more than the second-place product. (Def. Ex. 24 at 16).⁴ Defendants have 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. ¶ 50).

On October 22, 2014, 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. ¶ 10). PML is an infection that is particularly dangerous for individuals with a weakened immune system, including those with low white blood cell counts. (Id. ).⁵

A month later, on November 25, 2014, the FDA issued a warning to the public about the patient who died from PML while using Tecfidera. (Id. ¶ 83). The FDA stated that the patient was not taking any other drugs associated with PML, and it advised physicians and patients to monitor Tecfidera patients for side effects. (Id. ). It further noted that "[a]s a result, information describing this case of PML ... is being added to the Tecfidera label." (Id. ). Tecfidera's label was updated in the United States to include the PML risk on December 3, 2014. (Def. Ex. 13 § 5.2). Tecfidera's original label, dated March 27, 2013, had already disclosed the risk that "Tecfidera may cause lymphopenia." (Def. Ex. 1 at 1).⁶

On July 24, 2015, Biogen cut its guidance for revenue growth in half, attributing the change to the decline in Tecfidera's recent financial performance. (Compl. ¶ 159). That day, Biogen's stock price fell over 20%, and there was unusually heavy trading volume in the stock. (Id. ¶ 161).

B. New Witness Allegations

The amended 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. ¶¶ 39–41).

The complaint essentially alleges that defendants knew from both internal data and discussions with physicians that Tecfidera potentially weakened patients' immune systems and that the PML incident materially affected Tecfidera sales—effects that their public statements fraudulently or recklessly misrepresented and concealed. In support of its allegations, the complaint relies heavily on statements from 17 confidential witnesses ("CWs") who were formerly employed by Biogen in various capacities across the country.⁷

Many of the confidential witnesses were Biogen Area Business Managers ("ABMs"), defined by Biogen as a "specialty sales representative position [that is] called upon to sell our [n]eurology products [including...