Tiaa-Cref Large-Cap Growth Fund v. Allergan PLC

NOT FOR PUBLICATION

OPINION

Katharine S. Hayden, U.S.D.J.

I. Introduction

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In this “opt-out” action arising from a securities class action pending before this Court, plaintiff investors allege that the defendant pharmaceutical company Allergan plc, seven of its top executives-Paul M. Bisaro, Brenton L. Saunders, R. Todd Joyce, Maria T. Hilado, Sigurdur O. Olafsson, David A. Buchen, and A. Robert D. Bailey, and its Board of Directors (collectively, “Allergan”) knowingly misled investors by failing to disclose its purported participation in a generic drug price-fixing conspiracy in violation of Sections 10(b), 14(a), and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Sections 11, 12, and 15 of the Securities Act of 1933 (the “Securities Act”).

Before the Court is Allergan's motion to dismiss the amended complaint under Rule 12(b)(6) (D.E. 36), arguing that plaintiffs' claims under both the Securities Act and the Exchange Act are untimely. Allergan also argues that plaintiffs' market-allocation theory allegations are not pled with the particularity required under the Private Securities Litigation Reform Act of 1995 (the “PSLRA”), 15 U.S.C. § 78u-4. For the reasons expressed in this opinion, Allergan's motion to dismiss is denied.

II. Factual Background

The amended complaint (D.E. 32) alleges as follows.

A. The Parties

Plaintiffs are funds and accounts managed by wholly-owned subsidiaries of Teachers Insurance and Annuity Association of America, a financial services organization. (Id. ¶ 48.) Plaintiffs allege that they purchased or otherwise acquired Allergan securities at artificially inflated prices between October 29, 2013 and November 3, 2016 (the “relevant period”), and suffered damages as a result of federal securities law violations. (Id.)

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Corporate defendant Allergan is a pharmaceutical company incorporated in Ireland with its administrative headquarters located in Parsippany, New Jersey. (Id. ¶ 49.) Over the last several years, Allergan has been involved in three acquisitions relevant to this lawsuit. In July 2014, Allergan acquired Forest Laboratories through a series of merger transactions. (Id. ¶ 50.) In November 2014, Allergan was acquired by the corporation Actavis plc, adopting Allergan plc as its new global name. (Id. ¶ 51.) In July 2015, Teva announced its agreement with Allergan to acquire Actavis Pharma, Allergan's generics business, for $33.75 billion in cash and $6.75 billion in Teva stock, and the acquisition was completed in August 2016. (Id. ¶ 52.)

The first seven defendants in the caption of the amended complaint (the “individual defendants”) are former and current high-ranking corporate officers of Allergan who allegedly made false and misleading statements or omissions in Allergan's SEC materials and/or during Allergan's earnings calls. (See Id. ¶¶ 53-60.) Bisaro served as Allergan's CEO and president between October 2013 and July 2014. (Id. ¶ 53.) Saunders replaced Bisaro in July 2014 and serves as Allergan's current CEO and president. (Id. ¶ 54.) Joyce served as Allergan's CFO from October 2009 to December 2014, when Hilado assumed the role. (Id. ¶¶ 55-56.) From April 2012 until June 2014, Olafsson served as director of Allergan and president of Actavis Pharma, the segment that included Allergan's generics business. (Id. ¶ 57.) Buchen was Allergan's chief legal officer and secretary from April 2012 through July 2014, and then served in an executive vice president capacity until May 1, 2016. (Id. ¶ 58.) Bailey was an executive vice president for Allergan and has served as its chief legal officer and secretary since July 2014. (Id. ¶ 59.) The remaining named defendants (the “director defendants”) served on Allergan's Board of Directors in 2014 and/or 2015. (Id. ¶¶ 61-75.)

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The amended complaint pleads a category of defendants called “co-conspirators” that “participated . . . with Allergan in the anticompetitive conduct alleged [in the amended complaint].” (Id. ¶ 76.) Plaintiffs provide the following non-exhaustive list of co-conspirators in the amended complaint: “Lannett; Impax; Heritage; Mylan; Teva; Aurobindo; Epic Pharma, LLC (“Epic”); West-Ward Pharmaceutical Corporation (“West-Ward”); Akorn, Inc. (“Akorn”); Camber Pharmaceuticals, Inc. (“Camber”); Lupin Pharmaceuticals, Inc. (“Lupin”); Mutual Pharmaceutical (“Mutual”); Par Pharmaceutical Companies, Inc. (“Par”); Perrigo; Dr. Reddy's Laboratories, Inc. (“Dr. Reddy's”); Sandoz, Inc. (“Sandoz”); Taro Pharmaceutical Industries Ltd. (“Taro”); and Zydus Pharmaceuticals (USA), Inc. (“Zydus”).” (Id.)

B. The Generic Drug Market

Generic drugs are “drugs that are pharmaceutically equivalent in dosage, form, route of administration, strength or concentration and have the same active ingredients as the reference-listed brand name drug.” (Id. ¶ 77.) The Drug Price Competition and Patent Term Restoration Act, commonly known as the Hatch-Waxman Act, was enacted in 1984 to “simplif[y] the regulatory hurdles for bringing generic drugs to market.” (Id. ¶¶ 78-79.) More specifically, the Act eliminated the requirement that generic drug companies file costly New Drug Applications (“NDA”) to obtain FDA approval. (Id. ¶ 79.) Instead, generic drug companies may file an Abbreviated NDA (“ANDA”) relying on the safety and efficacy data supplied by the original NDA holder for a given drug, and need not include clinical trial data with their filing. (Id.)

A generic drug must meet certain standards set by the FDA to ensure that the generic drug is “essentially an exact substitute” for the brand-name drug. (Id. ¶ 80.) However, the first generic drug to enter the market will generally be priced 15-20% lower than the brand-name drug. (Id. ¶ 81.) The Hatch-Waxman Act provides the company marketing that first generic

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drug a 180-day exclusivity period. (Id.) After the 180-day period, generic competitors enter the market, and, as more of them do, the price of the generic drugs generally declines until an “equilibrium” price point is reached - i.e., at or close to the manufacturers' marginal production costs - which results in a significant savings for consumers. (Id. ¶ 82.)

C. Government Investigations into Generic Drug Price-Fixing Scheme

This lawsuit followed a number of investigations into the generic pharmaceutical industry.

In late 2013, a survey conducted by the National Community Pharmacist Association (the “NCPA”) revealed that various generic drugs had experienced “dramatic price increases.” (Id. ¶ 11.) Concerned by the potential negative impact the price hikes could have on elderly consumers, the NCPA's CEO wrote a letter to Congress in January 2014 requesting an oversight hearing. (Id.) By July 2014, the State of Connecticut began issuing subpoenas to drug manufacturers requesting documents relating to generic drug pricing. (Id. ¶ 12.) Three months later, Senator Bernie Sanders and Representative Elijah E. Cummings sent letters to 14 generic drug manufacturers demanding information relating to 10 drugs that had experienced dramatic price increases between 2012 and 2014. (Id.)

As part of its ongoing investigation into the generic pharmaceutical industry, the DOJ convened a grand jury in the Eastern District of Pennsylvania in November 2014. Several generic pharmaceutical companies and their executives-including a number of co-conspirators that raised the prices of some of their generic drugs at or close to the same time that Allergan increased its prices-received subpoenas in connection with the DOJ's investigation. (Id. ¶ 13.)

On August 6, 2015, media outlets reported that Allergan disclosed in an SEC filing that it had also received a DOJ subpoena seeking information on the marketing and pricing of its

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generic drugs. More specifically, the media outlets reported that in June 2015, Allergan “bec[ame] the biggest company yet to draw scrutiny in the government's widening antitrust probe of the industry, ” and joined other companies that had “made similar disclosures in the past several months.”^[1] The news that Allergan had been subpoenaed by the DOJ caused Allergan's common share price to fall $17.17 per share, or approximately 5% from its prior closing price. Allergan's preferred share price fell $39.24 per share, or approximately 3.5% from its previous closing price. (Id. ¶ 15.)

On November 3, 2016, media outlets reported that U.S. prosecutors were “bearing down on generic pharmaceutical companies, ” including Allergan, “in a sweeping criminal investigation into suspected price collusion, ” and further reported that “the first charges could emerge by the end of the year.” (Id. ¶ 17.) That same day, Allergan's common share price fell $9.07 per share, or approximately 4.58%. Its preferred share price fell $30.03 per share,...