SEB Inv. Mgmt. AB v. Endo Int'l, PLC

351 F.Supp.3d 874

SEB INVESTMENT MANAGEMENT AB, Individually and On Behalf of All Others Similarly Situated

v.ENDO INTERNATIONAL, PLC, Susan Hall, Endo Health Solutions Inc., Paul V. Campanelli Blaine T. Davis, Matthew W. Davis, Rajiv Kanishka Liyanaarchchie De Silva, Ivan Gergel, David P. Holveck, Alan G. Levin, Julie H. McHugh, Suketu P. Upadhyay, Daniel A. Rudio, Roger H. Kimmel, Shane M. Cooke, John J. Delucca, Nancy J. Hutson, Michael Hyatt, William P. Montague, Jill D. Smith and William F. Spengler

CIVIL ACTION NO. 17-3711

United States District Court, E.D. Pennsylvania.

December 10, 2018

Darren J. Check, Johnston Deforest Whitman, Jr., Margaret E. Mazzeo, Michelle Marie Newcomer, Naumon A. Amjed, Ryan Thomas Degnan, Sharan Nirmul, Kessler Topaz Meltzer & Check, LLP, Radnor, PA, for SEB Investment Management AB.

James E. Brandt, Jeff G. Hammel, Miles N. Ruthberg, Thomas J. Giblin, Jr., Lathan & Watkins, New York, NY, J. Gordon Cooney, Jr., Laura Hughes McNally, Morgan Lewis & Bockius LLP, Philadelphia, PA, for Endo International, PLC.

MEMORANDUM OPINION

Savage, Judge

In this putative class action for violations of the Securities Exchange Act of 1934 (Exchange Act), 15 U.S.C. § 78a et seq. , and the Securities Act of 1933 (Securities Act), 15 U.S.C. § 77a et seq. , SEB Investment Management AB (SEB) claims that the defendants publicly downplayed the risks of Endo's reformulated opioid pain medication, Opana ER. In essence, SEB alleges that the defendants misrepresented and omitted facts regarding the safety of the reformulated drug and the results of surveillance data that significantly impacted the chances of obtaining FDA approval for abuse-deterrent labeling, which would make the drug more marketable. It contends the defendants, knowing the adverse consequences of the increase in intravenous abuse the data showed, consciously or recklessly, failed to disclose it. As the true facts were revealed and after the FDA requested that Endo withdraw the drug from the market or face FDA action forcing withdrawal, the market value of Endo stock plummeted.

In moving to dismiss, Endo International plc and Endo Health Solutions Inc. (collectively, Endo) and the individual defendants¹ argue SEB engages in "hindsight pleading" and alleges no facts suggesting any statements were false when made, the challenged statements were merely opinions and optimistic or forward-looking statements protected by the safe harbor provision of the Exchange Act, and the alleged facts do not establish that the defendants knew their statements were untrue. Invoking Colorado River abstention, they also maintain that the Securities Act claims should be dismissed because they are being litigated in state court.

We conclude that SEB has stated causes of action for violations of the Exchange and Securities Acts. SEB has alleged that Endo and certain of its officers consciously or recklessly made material representations and omissions regarding the safety and efficacy of reformulated Opana ER, resulting in a significant drop in Endo's share price. Therefore, we shall deny the motion to dismiss, except as to certain individuals who made no misrepresentations.

SEB's Allegations in the Amended Complaint

Endo is a global pharmaceutical company that markets and sells branded opioids.² In July 2006, Endo introduced Opana ER, its extended-release pain relief pill designed to work over a twelve-hour period.³ At the time, it was the only extended release version of oxymorphone hydrochloride on the market.⁴ Its formulation made it highly susceptible to abuse.⁵ When the drug is crushed and taken intranasally, the extended-release mechanisms no longer remain intact and 43% of its active ingredient is released immediately.⁶

In July 2010, Endo submitted a New Drug Application (NDA) for a reformulated version of Opana ER.⁷ The new drug was designed to make it more difficult to crush the tablets, reducing its propensity for abuse.⁸ To support its NDA, Endo provided studies assessing the abuse-deterrent properties of the new formulation.⁹ Though the data indicated some resistance to crushing by a pill crusher, it showed that tampering with the drug by other means could compromise the extended release feature, immediately releasing a full dosage of the drug.¹⁰ Based on this information, FDA reviewers recommended excluding language claiming it was crush resistant from the drug's label.¹¹

That same year, Endo settled its patent infringement suit against Impax Laboratories, Inc. (Impax), which had submitted the first Abbreviated New Drug Application (ANDA) to introduce a generic version of original Opana ER in 2007.¹² Impax agreed to delay launching its generic version of original Opana ER until January 1, 2013.¹³ Because Impax enjoyed first-filer status, other generic manufacturers were precluded from entering the market until 180 days after Impax's generic launch.¹⁴

On December 9, 2011, the FDA approved reformulated Opana ER, but denied Endo's request to label the drug as abuse-deterrent because the data did not support such a finding.¹⁵ Endo began selling reformulated Opana ER in February 2012.¹⁶

Three months later, Endo notified the FDA that it planned to discontinue original Opana ER for safety reasons.¹⁷ It anticipated the FDA would act quickly to withdraw all generic versions of the drug, effectively blocking competition.¹⁸ On August 10, 2012, because the FDA had not acted, Endo filed a Citizen Petition asking the FDA to determine that original Opana ER was discontinued for safety reasons, to reject pending ANDAs for generic versions of original Opana ER, and to withdraw approval of any ANDA for original Opana ER.¹⁹

On October 26, 2012, the Centers for Disease Control and Prevention (CDC) issued a public health alert for reformulated Opana ER after a dozen illnesses resembling thrombotic thrombocytopenic purpura (TTP), a potentially fatal blood clotting disorder, were observed among intravenous abusers in Tennessee starting in February 2012 after the drug had been placed on the market.²⁰

Nonetheless, two weeks later on November 13, 2012, Endo supplemented its Citizen Petition with post-marketing surveillance data from the National Addictions Vigilance Intervention and Prevention Program (NAVIPPRO) and the Researched Abuse Diversion and Addiction-Related Surveillance System (RADARS),²¹ which it claimed "indicate[d] that the reformulated Opana ER [was] having the desired effect on the rates and routes of abuse[.]"²² The reports were not public, allowing Endo's summary of the data to go unchallenged.²³ Endo also compared the new Opana ER to reformulated OxyContin to support its contention that reformulated Opana ER provided superior safety benefits over the original formulation.²⁴ It did so because reformulated OxyContin was less likely to be abused because it was more difficult to inject.²⁵ At the same time, it claimed the introduction of reformulated crush-resistant Opana ER caused a dramatic decrease in abuse rates.²⁶

On November 30, 2012,²⁷ Endo filed a lawsuit against the FDA seeking a mandatory injunction requiring the FDA to rule on its Citizen Petition by December 31, 2012.²⁸ On the same day, it issued a press release claiming that surveillance data submitted in support of the Citizen Petition showed a substantial decrease in abuse rates of reformulated Opana ER.²⁹ In the press release, Endo's then-President and chief executive officer (CEO), David Holveck, represented there was enough evidence to conclude that original Opana ER had been discontinued for safety reasons.³⁰

The district court dismissed the lawsuit three weeks later as groundless.³¹ As a result, Impax's generic version of Opana ER went on the market on January 1, 2013.³²

On February 15, 2013, despite the unfavorable court decision, Endo submitted a Supplemental New Drug Application (sNDA) seeking FDA approval for placing abuse-deterrent language on reformulated Opana ER's label.³³ The application relied upon the post-marketing studies in Endo's Citizen Petition and the same studies that had been submitted with the original application, which the FDA had concluded were inadequate to support abuse-deterrent labeling.³⁴ The application did not disclose that Endo's own consultant had found that data from substance abuse treatment facilities across the nation did "not necessarily establish that the reformulated Opana ER is tamper resistant" and also "that there were reports of higher levels of abuse of reformulated Opana ER via injection."³⁵

Endo's Chief Operating Officer Julie McHugh, Chief Scientific Officer (CSO) Ivan Gergel, and Chief Financial Officer (CFO) Alan Levin, claimed that additional data indicated reformulated Opana ER was misused at lower rates than the original formula and its generic versions.³⁶ Senior Vice President of Corporate Affairs, Blaine Davis, also commented on the drug's success in reducing intranasal abuse.³⁷ Citing this data, Endo represented that it had introduced a safer version of Opana ER in the market.³⁸

On March 21, 2013, in a second supplement to its Citizen Petition, Endo provided preliminary studies demonstrating lower abuse rates of reformulated Opana ER.³⁹ It continued to claim that the NAVAPPRO and RADARS data, which was not public, showed a reduction in abuse of intended and unintended routes of administration.⁴⁰

Meanwhile, the FDA approved abuse-deterrent labeling for reformulated OxyContin and granted OxyContin manufacturer Purdue's Citizen Petition seeking a determination that original OxyContin had been withdrawn for safety reasons.⁴¹ Seeking a similar determination, Endo submitted a third supplement to its Citizen Petition on April 23, 2013, which analogized reformulated Opana ER to reformulated OxyContin.⁴² Indeed, Endo's President and CEO at the time, Rajiv Kanishka Liyanaarchchie De Silva, explained the purpose of the supplement was to emphasize the similarities between Opana ER and OxyContin.⁴³

The two drugs were not the same. They each had...