Sec. Litig. v. Genzyme Corp. (In re Genzyme Corp.)

• Decision Date: 05 June 2014
• Docket Number: No. 13–1085.,13–1085.
• Citation: 754 F.3d 31
• Parties: In re GENZYME CORP. SECURITIES LITIGATION, Deka International S.A. Luxembourg; City of Edinburgh Council as Administering Authority of the Lothian Pension Fund; Government of Guam Retirement Fund, Plaintiffs, Appellants, Vivian Oh, individually and on behalf of all other similarly situated; Jon Rahn, individually and on behalf of all others similarly situated; Genzyme Institutional Investors, Plaintiffs, v. Genzyme Corporation; Henri A. Termeer; David P. Meeker; Michael S. Wyzga; Allison Lawton; Mark R. Bamforth; Geoffrey McDonough, Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

754 F.3d 31

In re GENZYME CORP. SECURITIES LITIGATION,Deka International S.A. Luxembourg; City of Edinburgh Council as Administering Authority of the Lothian Pension Fund; Government of Guam Retirement Fund, Plaintiffs, Appellants,Vivian Oh, individually and on behalf of all other similarly situated; Jon Rahn, individually and on behalf of all others similarly situated; Genzyme Institutional Investors, Plaintiffs,

v.Genzyme Corporation; Henri A. Termeer; David P. Meeker; Michael S. Wyzga; Allison Lawton; Mark R. Bamforth; Geoffrey McDonough, Defendants, Appellees.

No. 13–1085.

United States Court of Appeals, First Circuit.

June 5, 2014.

Daniel L. Berger, with whom Jay W. Eisenhofer, Diane T. Zilka, Shelly L. Friedland, Grant & Eisenhofer P.A., Avi Josefson, John Rizio–Hamilton, Ann M. Lipton, Bernstein Litowitz Berger & Grossmann LLP, Bryan A. Wood, John H. Sutter and Berman DeValerio, were on brief for plaintiffs-appellants.

John D. Donovan, Jr., with whom Robert G. Jones, Mark D. Vaughn and Ropes & Gray LLP, were on brief for appellee Genzyme Corporation.

Michael T. Marcucci, with whom John D. Hanify and Jones Day, on brief for appellees Termeer, Meeker, Wyzga, Lawton, Bamforth and McDonough.

Richard A. Samp, with whom Cory L. Andrews and Washington Legal Foundation, on brief as amicus curiae.

Before TORRUELLA, RIPPLE,^* and THOMPSON, Circuit Judges.

TORRUELLA, Circuit Judge.

This is an appeal from orders of the District Court of Massachusetts granting Defendants–Appellees' motion to dismiss, and subsequently denying Plaintiffs–Appellants' post-judgment motions to amend the complaint. Plaintiffs, a class of investors, brought this securities fraud action against Genzyme Corporation (“Genzyme”),and several company executives (the latter hereinafter collectively referred to as the “individual defendants”). The Consolidated Class Action Complaint (“complaint”) charges all defendants with acts constituting securities fraud in violation of Section 10(b) of the Securities Exchange Act, and with violations of Section 20(a) on the part of the individual defendants.

Upon de novo review, we agree with the district court that the complaint fails to meet the exacting pleading standard that securities fraud claims must satisfy. The allegations set forth in the complaint fail to convey a cogent and compelling inference of deceitful intent, or reckless disregard of the truth, on the part of defendants. Scienter has not been pled, and, accordingly, we affirm the district court's order of dismissal.

We also find, not without taking some exception, that the district court did not abuse its discretion in denying plaintiffs' post-judgment motion to amend the complaint.

I. Background

As this is a review of a motion to dismiss, we recite the facts of the case as alleged in the nonmoving party's complaint, resolving any ambiguities in their favor. Ocasio–Hernández v. Fortuño–Burset, 640 F.3d 1, 5 (1st Cir.2011).

Genzyme is an international pharmaceutical company engaged in the business of developing and selling biologics. Biologics, as opposed to chemically-synthesized pharmaceuticals, stem from natural sources and are developed through a complex manufacturing process designed to mitigate the ever-present risk of contamination. Companies wishing to market biologics to the general populace must obtain approval from the Food and Drug Administration (“FDA”) through a biologics license application (“BLA”).

At the time of the conduct at issue in this case, three of Genzyme's main products were biologics related to the treatment of rare metabolic disorders resulting from the absence of certain enzymes (lyosomal storage disease, or “LSD” drugs). Cerezyme, Fabrazyme and Myozyme were developed to treat the rare Gaucher, Fabry, and Pompe diseases, respectively. In 2008, both Cerezyme and Fabrazyme were greater earners than Myozyme, bringing in approximately $1.7 billion in revenue combined. However, Myozyme was an up-and-coming treatment that had recently become the fastest-growing product in Genzyme's history, jumping from $59 million in revenue in 2006 to $296 million in 2008. A substantial reason for the products' success was a complete lack of competition. All three are considered “orphan” drugs under the Orphan Drug Act of 1983, 21 U.S.C. §§ 360aa-ee, which grants limited monopolies to companies that develop drugs to treat rare disorders that might not otherwise be commercially viable for development and production. Genzyme's monopoly of Cerezyme expired in 2001, with Fabrazyme and Myozyme scheduled to expire in 2010 and 2013, respectively.

In April of 2006, the FDA approved Genzyme's BLA for Myozyme manufactured in Genzyme's Framingham, Massachusetts, facility. This version of Myozyme was produced in 160–liter (“160L”) bioreactors. However, Genzyme soon realized that production on a small scale would be insufficient to meet market demand. As such, Genzyme developed a manufacturing process for creating Myozyme in a 2000–liter (“2000L”) bioreactor in its Allston, Massachusetts facility. To differentiate the two products, Genzyme termed the 2000L Myozyme “Lumizyme.” Genzyme was able to obtain quick approval for Lumizyme with European pharmaceutical regulators, but needed to reapply for a new BLA with the FDA for the U.S. market. Genzyme also planned to obtain regulatory approval to develop a 4000–liter (“4000L”) version of Myozyme at its plant in Geel, Belgium, for the European market. In the meantime, Myozyme quickly became an unquestionable success for Genzyme. Analysts considered approval of the Lumizyme BLA to be critical for Genzyme's future earning potential, as it represented a large untapped market for an in-demand product.

Genzyme initially revealed its plans for the Lumizyme BLA on the first day of the Class Period, October 24, 2007. During a conference call, Henri Termeer, who served as Genzyme's CEO, told investors that the company had filed an application for a “supplemental” BLA for Lumizyme based off of the company's previously-approved 160L Myozyme BLA.¹ Termeer stated he expected that approval of the supplemental BLA would occur in the first quarter of 2008. He also gave a positive outlook for all three of Genzyme's LSD drugs.

On April 21, 2008, however, the FDA notified Genzyme that a supplemental BLA was insufficient, and it would need to submit a separate BLA for Lumizyme approval. After Genzyme submitted the revised BLA in May, the FDA gave Genzyme a “PDUFA date” of November 29, 2008, as mandated by the Prescription Drug User Fee Act (“PDUFA”) of 1992, 21 U.S.C. §§ 379g-h.² Termeer continued to give an optimistic outlook for Lumizyme approval throughout the summer of 2008.

In September of 2008, Genzyme's manufacturing facility in Geel, Belgium, suffered a bioreactor failure. At the time, Genzyme had been working towards approval from European regulators to develop Myozyme at the 4000L scale at Geel. An internal investigation ensued as to the cause of the breakdown, which was unknown at the time. Genzyme did not publicly disclose the bioreactor failure at that time. Notwithstanding these events, in February of 2009, Genzyme secured approval from the European Medicines Agency (“EMEA”) to produce Myozyme 4000L at Geel.

In October of 2008, the FDA conducted an inspection of the Allston, Massachusetts plant. The FDA routinely conducts inspections to determine if facilities are complying with Current Good Manufacturing Practices (“CGMP”) standards for biologics manufacturers. As a result of the inspection, the FDA noted several variations from CGMP at Allston. The FDA summarized these findings in a Form 483 (“October 2008 Form 483”). The form was sent to Termeer, as it is common protocol for the FDA to present Forms 483 to top management officials. A Form 483 contains advisory language that make clear it lists only “inspectional observations and do[es] not represent a final agency determination regarding your compliance.” Genzyme responded to the October 2008 Form 483 on October 31, 2008, with a proposed plan to remedy the problems by March 31, 2009, though it did not receive an immediate reply from the FDA. The October 2008 Form 483 made no mention of the Lumizyme BLA and it did not otherwise note that the drug's approval process might be jeopardized.

Briefly after receiving the October 2008 Form 483, Genzyme conducted a conference call with market analysts on October 22, 2008. No mention was made of the October 2008 Form 483 or of Genzyme's response. One analyst asked Allison Lawton ³ if anything had been discussed during a recent FDA Advisory Committee meeting that could affect the Lumizyme BLA. Though no defendant mentioned the October 2008 Form 483, Lawton stated that “[i]t was really just a discussion about the biochemical differences [between Myozyme and Lumizyme]” and that the clinical data was “the most important piece.” On that note, Senior Vice President Geoffrey McDonough shared the news that the FDA Advisory Committee had confirmed the clinical effectiveness of Lumizyme at the 2000L scale, stating that “the likelihood of approval seems to be more certain.” During this conference call, Termeer projected that analysts could expect a return of $4.70 per share in 2009, a figure that assumed approval of Lumizyme in November of 2008. At that time, the PDUFA date the FDA had provided Genzyme continued to be November 28, 2008.

Also in November, the Allston plant experienced an episode of bioreactor failure similar to the one experienced at the Geel plant months earlier. These events slowed manufacturing for the company and forced Genzyme to ramp down production of Cerezyme and Fabrazyme at Allston. The company dipped into its supply of Cerezyme, Fabrazyme, and Myozyme to make up for the manufacturing shortage, which left Genzyme vulnerable to a lack of supply that could affect sales if problems continued. Though an investigation of the causes of the equipment failures at Allston and Geel was...