AG Funds, L.P. v. Sanofi (In re Sanofi Sec. Litig.)

• Decision Date: 28 January 2015
• Docket Number: Nos. 13 Civ. 8806PAE,14 Civ. 2211PAE.,s. 13 Civ. 8806PAE
• Citation: 87 F.Supp.3d 510
• Parties: In re SANOFI SECURITIES LITIGATION. AG Funds, L.P., et al., Plaintiffs, v. Sanofi, Genzyme, Christopher Viehbacher, David Meeker, and Jerome Contamine, Defendants.
• Court: U.S. District Court — Southern District of New York

87 F.Supp.3d 510

In re SANOFI SECURITIES LITIGATION.AG Funds, L.P., et al., Plaintiffs

v.Sanofi, Genzyme, Christopher Viehbacher, David Meeker, and Jerome Contamine, Defendants.

Nos. 13 Civ. 8806PAE

14 Civ. 2211PAE.

United States District Court, S.D. New York.

Signed Jan. 28, 2015.

Brett D. Stecker, Daniella Quitt, Robert I. Harwood, Brett D. Stecker, Harwood Feffer LLP, Jeremy Alan Lieberman, Pomerantz LLP, New York, NY, Christopher L. Nelson, The Weiser Law Firm, P.C., Berwyn, PA, for Plaintiffs.

John Solak, pro se.

John A. Neuwirth, Joshua Sanders Amsel, Weil, Gotshal & Manges LLP, New York, NY, for Defendants.

OPINION & ORDER

PAUL A. ENGELMAYER, District Judge:

In these related cases brought under the securities laws, plaintiffs claim that the pharmaceutical company Sanofi, its predecessor Genzyme, and three company executives (collectively, “defendants,” “Sanofi,” or “the company”) made false and misleading statements about Lemtrada, a multiple sclerosis (“MS”) drug, while it was under review by the U.S. Food and Drug Administration (“FDA”). Although plaintiffs find multiple faults with Sanofi's public pronouncements, their core allegation is that defendants failed to disclose concerns the FDA had expressed about the “single-blind” design used in Lemtrada's clinical trials, and that this omission made Sanofi's public statements about Lemtrada false and misleading.

Plaintiffs allege violations of §§ 10(b), 18, and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78a et seq. (the “Exchange Act”); §§ 11 and 12 of the Securities Act of 1933, 15 U.S.C. § 77a et seq. (the “Securities Act”); and state blue sky laws. Pending now are defendants' motions to dismiss both complaints for failure to state a claim, under Federal Rules of Civil Procedure 12(b)(6) and 9(b). For the following reasons, the Court grants these motions in full and dismisses both complaints.

I. Background¹

Sanofi, based in Paris, is the fifth largest pharmaceutical group in the world. CAC ¶¶ 2, 39; AGC ¶¶ 14, 21. In 2011, Sanofi acquired Genzyme, a pharmaceutical company based in Cambridge, Massachusetts. CAC ¶ 8; AGC ¶¶ 15, 25. At the time, Genzyme was in the process of developing and testing a MS drug called alemtuzumab, commonly known as “Lemtrada.” CAC ¶ 6; AGC ¶ 22.

Largely because Sanofi and Genzyme could not agree on a valuation of Lemtrada, Sanofi issued contingent value rights (“CVRs”) to all Genzyme shareholders as part of the acquisition. CAC ¶ 9; AGC ¶ 24. The CVRs were tradable on the open market. CAC ¶ 39; AGC ¶ 3. They entitled holders to cash payments upon the achievement of certain milestones. One important milestone was obtaining FDA approval for Lemtrada by March 31, 2014. CAC ¶ 10; AGC ¶ 26.

After completing the Genzyme acquisition, Sanofi continued to move Lemtrada forward in the clinical testing and FDA approval process. See CAC ¶¶ 12, 15; AGC ¶ 52.

On November 8, 2013, the FDA Advisory Committee on Peripheral and Central Nervous System Drugs (“Advisory Committee”) issued a briefing report that “sharply criticized” Sanofi's application for FDA approval of Lemtrada. CAC ¶ 19; see also AGC ¶ 55. Based on the Report, it was apparent that the FDA would not approve Sanofi's application. See id. That day, the price of the CVRs declined from $2.00 to $0.77 per share. CAC ¶ 22; AGC ¶ 57. Soon after, the FDA formally rejected Sanofi's application. CAC ¶ 25; AGC ¶ 58. The price of the CVRs thereafter declined to $0.32 per share. CAC ¶ 26; AGC ¶ 58. On November 14, 2014, however, well after the filing of these lawsuits, the FDA reversed its initial decision and approved Lemtrada for use by certain MS patients. See 13 Civ. 8806, Dkt. 55.

Plaintiffs are individuals and corporations that purchased CVRs before November 8, 2013.² CAC ¶ 1; AGC ¶ 5. They allege that, before the release of the November 8, 2013 FDA Report that triggered a sharp drop in the CVRs' price, defendants made misleading and incomplete statements about the likelihood of obtaining timely FDA approval for Lemtrada, the drug's safety and efficacy, and the results of the ongoing clinical trials. See CAC ¶ 13; AGC ¶ 2. Most centrally, plaintiffs claim that the FDA had conveyed to Genzyme executives that the single-blind design of Lemtrada's clinical trials could bias the study, such that the trial results would have to be particularly robust to overcome that design impediment, see, e.g., CAC ¶ 23; AGC ¶ 36, and that Genzyme's and later Sanofi's failure to disclose that interim feedback made its encouraging statements about the drug's prospects misleading, see CAC ¶ 21; AGC ¶ 37.

Plaintiffs allege that they relied on defendants' statements in deciding to acquire CVRs. CAC ¶¶ 92–97, 106; AGC ¶¶ 53–54. Based on these factual allegations, plaintiffs assert various violations of federal and state securities laws. CAC ¶¶ 100–15; AGC ¶¶ 61–106.

A. Factual Background³

1. Genzyme Develops Lemtrada

MS is “a potentially debilitating autoimmune disease that affects the brain and central nervous system of an estimated 400,000 people in the United States and 2.5 million worldwide.” CAC ¶ 78 (quoting a Boston Globe article). In the early 2000s, a non-party company, ILEX, began developing Lemtrada as a drug to combat MS. See AGC ¶ 36(a). In 2002, clinical trials of Lemtrada began. See CAC ¶ 30; AGC ¶ 36(a). In 2004, while Lemtrada was in the second of three phases of clinical trials, Genzyme acquired ILEX. See AGC ¶ 36(a). Genzyme continued the Lemtrada studies and released safety and efficacy updates on an annual basis. See Def. Decl. Exs. 14 (2005), 15 (2006), 16 (2007), 18 (2010).

One of Lemtrada's primary benefits is its unique treatment regimen: While many MS drugs must be taken daily or weekly, Lemtrada is administered intravenously during two annual courses of treatment. CAC ¶ 7. In part for this reason, in 2010, Lemtrada had an estimated value of $14 billion worldwide. Id. ¶ 6. However, Lemtrada's distinctive method of administration made it difficult or impossible to conduct “double-blind” studies—ones in which the nature of the treatment being administered is concealed from both subjects and investigators. See Def. Decl. Ex. 9, at 4 (“FDA Guidance for Industry”).⁴ The Lemtrada studies therefore had a single-blind design: The investigators were not aware of each subject's assigned treatment, but the subjects knew whether they were receiving Lemtrada or a competitor drug commonly known as Rebif. The fact that the single-blind design was being used was reported in various publicly available sources. See Def. Decl. Exs. 12, 13, 17, 22, 28–29.

As early as 2002, the year the Lemtrada clinical trials began, the FDA expressed concerns about the single-blind design of the study. CAC ¶ 23; AGC ¶ 36. In that year, the FDA advised ILEX and Genzyme that the Lemtrada clinical trials “will not provide substantial support” for a license application. AGC ¶ 36(a); see also id. ¶¶ 36(b)–(c). Defendants did not publicly disclose this interim feedback. See, e.g., CAC ¶ 13; AGC ¶ 35.

In 2005, a patient who had received Lemtrada died of sepsis, and the FDA placed the clinical trial on hold for approximately 10 months. CAC ¶ 31; AGC ¶ 36(d). Genzyme disclosed information about the hold in a press release. Def. Decl. Ex. 14, at 3, 4. A confidential witness (“CW”) employed by Genzyme between 2002 and 2012 reported that, even when the FDA lifted the hold, Genzyme employees remained concerned about Lemtrada's safety profile. CAC ¶¶ 29–32. Additionally, a Steering Committee composed of high-level Genzyme executives was “hypersensitive” to concerns about Lemtrada's safety and the potential impact of the reported adverse events on Lemtrada's commercial viability. Id. ¶ 32.

By 2006, however, the FDA's position had shifted. On November 21, 2006, for example, Genzyme met with the FDA and included the following in the minutes of the meeting:

FDA responded that a rater blinded (but patient not blinded) study may be adequate if the effect is large. However, a totally blinded study is more likely to be found persuasive if the treatment effect is relatively small.... The FDA again noted that they prefer double-blinded, controlled studies, especially for the pivotal trials.

CAC ¶ 23(a). In other words, the FDA determined that it would accept data from the clinical trials, but the treatment effect would have to be “large” to win FDA approval.

Similarly, a June 29, 2007 letter from the FDA reiterated the agency's position regarding the study design:

FDA strongly recommends that you use a double-dummy placebo control in your pivotal trials. The acceptability of your rater-blinded study will be a matter of review. If your study results reveal an extremely large effect, then FDA may potentially accept this rater-blinded design for the pivotal trials.

Id. ¶ 23(b); AGC ¶ 36(e). The FDA permitted Lemtrada to enter Phase III clinical trials in September 2007 with a single-blind design. See CAC ¶ 12; AGC ¶¶ 43, 44, 46; see also Def. Decl. Ex. 20, at 2.

On October 23, 2008, physicians involved in the Lemtrada studies published full results of the Phase II clinical trial in The New England Journal of Medicine. Def. Decl. Ex 17. This publication described the single-blind design of the study and disclosed every adverse event that had been observed to date. Id. It did not, however, disclose the FDA's stated concerns about the single-blind design of the Lemtrada studies. CAC ¶ 27; AGC ¶¶ 35, 37.

The FDA continued to express concerns about the design of the Lemtrada studies during the Phase III trials. Minutes from a March 17, 2010 meeting with Genzyme officials reflect that the FDA was:

concerned by the potential bias introduced by the absence of blinding of patients, the possibility of unblinding of EDSS raters, the initiation of alternative MS therapies after the first relapse, and the elimination of censoring. The interpretation of the results from the statistical analysis will be challenging, and extremely robust findings will be necessary to

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