Bos. Ret. Sys. v. Alexion Pharm., Inc.

• Decision Date: 19 August 2021
• Docket Number: Civil No. 3:16-cv-2127(AWT)
• Citation: 556 F.Supp.3d 100
• Parties: BOSTON RETIREMENT SYSTEM, Individually and on Behalf of All Others Similarly Situated, Plaintiff, v. ALEXION PHARMACEUTICALS, INC., Leonard Bell, David L. Hallal, Vikas Sinha, David Brennan, David J. Anderson, Ludwig N. Hantson, and Carsten Thiel, Defendants.
• Court: U.S. District Court — District of Connecticut

556 F.Supp.3d 100

BOSTON RETIREMENT SYSTEM, Individually and on Behalf of All Others Similarly Situated, Plaintiff,

v.ALEXION PHARMACEUTICALS, INC., Leonard Bell, David L. Hallal, Vikas Sinha, David Brennan, David J. Anderson, Ludwig N. Hantson, and Carsten Thiel, Defendants.

Civil No. 3:16-cv-2127(AWT)

United States District Court, D. Connecticut.

Signed August 19, 2021

David A. Slossberg, Jeffrey P. Nichols, Hurwitz Sagarin Slossberg & Knuff LLC, Milford, CT, for Plaintiff.

Audra J. Soloway, Pro Hac Vice, Daniel J. Kramer, Pro Hac Vice, Paul, Weiss, Rifkind, Wharton & Garrison, LLP, New York, NY, David A. Ring, Wiggin and Dana LLP, New Haven, CT, Robyn E. Gallagher, Wiggin & Dana, Hartford, CT, for Defendants Alexion Pharmaceuticals Inc., Leonard Bell, David L. Hallal, Vikas Sinha.

David A. Ring, Wiggin and Dana LLP, New Haven, CT, Robyn E. Gallagher, Wiggin & Dana, Hartford, CT, Audra J. Soloway, Daniel J. Kramer, Paul, Weiss, Rifkind, Wharton & Garrison, LLP, New York, NY, for Defendants David Brennan, David J. Anderson, Carsten Thiel.

David A. Ring, Wiggin and Dana LLP, New Haven, CT, Robyn E. Gallagher, Wiggin & Dana, Hartford, CT, for Defendant Ludwig Hantson.

RULING ON MOTION TO DISMISS

Alvin W. Thompson, United States District Judge Lead Plaintiffs the Public Employee Retirement System of Idaho and Erste-Sparinvest Kapitalanlagegesellschaft mbH bring this action, under Section 10(b) of the U.S. Securities Exchange Act of 1934 (the "Exchange Act") and Securities and Exchange Commission ("SEC") Rule 10b-5 promulgated thereunder, on behalf of themselves and all others similarly situated (collectively, the "Plaintiffs") who purchased or otherwise acquired the publicly traded common stock of Alexion Pharmaceuticals, Inc. ("Alexion") between January 30, 2014 and May 26, 2017 (the "Class Period"), subject to certain exclusions. They assert the following claims against Alexion and seven of its current and former executives (the "Individual Defendants", with Alexion and the Individual Defendants being referred to collectively as the "Defendants"): in Count I, a claim against the Defendants for violation of the Exchange Act and SEC Rule 10b-5; in Count II, a claim against the Defendants for violation of the Exchange Act and SEC Rule 10b-5(a) and (c); and in Count III, a claim against the Individual Defendants for violation of Section 20(a) of the Exchange Act. The Defendants move to dismiss the Plaintiffs’ Amended Consolidated Class Action Complaint (the "Amended Complaint") pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6), as well as the Private Securities Litigation Reform Act ("PSLRA"), 15 U.S.C. § 78u-4, et seq. For the reasons set forth below, the motion to dismiss is being granted in part and denied in part.

I. FACTUAL BACKGROUND

A. Alexion's Business

Alexion is a Boston, Massachusetts-based pharmaceutical company that specializes in the development and manufacture of orphan drugs, i.e., drugs used to treat a disease affecting fewer than 200,000 people in the United States. See 42 U.S.C. § 287a-1(c). Until recently, Alexion had only one drug in its commercial phase, i.e. Soliris

. Soliris treats two rare diseases: paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS). Soliris does not cure patients who have those diseases, but it reduces the patients’ symptoms so that they can live life generally without symptoms. Soliris is used to treat only about 11,000 people worldwide. Soliris generated 99% of Alexion's revenues in 2015. It costs between $500,000 and $700,000 per patient per year.

To raise awareness about Soliris

and its ability to assist patients with the rare diseases PNH and aHUS, Alexion engaged in disease-education programs with doctors and laboratories who knew very little about the diseases and how they affected patients, how to test for them and how to treat patients. Alexion disclosed that it "partner[ed] with medical experts" to help present "[s]trong scientific evidence" to "[o]vercome misperceptions" and to "[r]aise awareness of morbidities [and] mortality." (Defs.’ Mem. of Law Supp. Mot. to Dismiss Am. Consolidated Class Action Compl. ("Defs.’ Mem."), Ex. 1, at 17, ECF No. 130-1.) Alexion also disclosed that it "[d]eveloped lab partnerships" to "[o]ptimize routine testing" for PNH and aHUS. (Id., Ex. 3, at 5.)

Alexion also engaged with patients to increase awareness and provide them with support. Alexion disclosed that it educated patients about the risks of PNH and aHUS, as well as that it has "financially supported non-profit organizations which assist patients in accessing treatment for PNH and aHUS," including "patients whose insurance coverage leaves them with prohibitive co-payment amounts or other expensive financial obligations." Alexion Pharms., Inc., Annual Report (Form 10-K) at 29 (Feb. 10, 2014).¹

B. The Individual Defendants

Defendant Leonard Bell ("Bell") was the principal founder of Alexion and served as the Chief Executive Officer ("CEO") of the company from January 1992 to March 31, 2015. He also served as Chairman of Alexion's Board of Directors from October 2014 to May 10, 2017.

Defendant David L. Hallal ("Hallal") served as Alexion's CEO from April 1, 2015, until his resignation on December 12, 2016. From November 2012 through March 2015, Hallal served as Alexion's Chief Commercial Officer ("CCO"). He held other senior management positions in the company prior to November 2012.

Defendant Vikas Sinha ("Sinha") served at all relevant times as Alexion's Chief Financial Officer ("CFO") and Executive Vice President, until his resignation on December 12, 2016.

Defendant David Brennan ("Brennan") served as Alexion's interim CEO from December 12, 2016 until March 27, 2017.

Defendant David J. Anderson ("Anderson") served as Alexion's CFO beginning on December 12, 2016. On May 23, 2017, he resigned from that position, but stayed on until his replacement took over in July 2017.

Defendant Ludwig N. Hantson ("Hantson") has served as Alexion's CEO since March 27, 2017, when the Board of Directors approved him to replace interim CEO Brennan.

Defendant Carsten Thiel ("Thiel") served as Alexion's CCO from September 2015 until June 1, 2017.

C. The Plaintiffs’ Allegations of Illegal and Unethical Practices

According to the Plaintiffs, the disclosures made by the Defendants about Alexion's business model told only part of the story of Soliris's

financial success. The Plaintiffs allege that Alexion grew its sales of Soliris through illegal and unethical practices, which included pressuring or frightening patients to begin or continue treatment with Soliris ; misappropriating patients’ confidential personal health information in violation of the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"); and funneling illegal kickbacks through charities in violation of 42 U.S.C. § 1320a-7b (the "Anti-Kickback Statute"). These allegations are based on a May 24, 2017 Bloomberg article regarding the company's practices and interviews with confidential witnesses who worked in various positions at Alexion.

1. Sales practices

The Plaintiffs allege that Alexion violated industry standards and ethical codes when it used high-pressure sales practices to get patients to start or continue using Soliris

. Alexion had an internal policy, pushed by Bell, that the company should "own every PNH patient in the world." (Am. Consolidated Class Action Compl. ("A.C." or "Amended Complaint") ¶ 123, ECF No. 121.) Alexion executives provided company-payroll nurses with scripts that instructed them to inform patients that they were "going to die" if they stopped taking Soliris. (Id. ¶ 124.) Nurses were also instructed to "plant a seed that maybe [the patient's] doctor isn't doing the best thing for" the patient. (Id. ¶ 130). One Soliris patient stated that she "felt like they were scaring [her]." (Id. ¶ 134). According to the Plaintiffs, Bell and Hallal were involved in meetings in which these sales tactics were discussed, including meetings where nurses were required to "literally justify [to Bell and Hallal] every single patient that stopped taking Soliris." (Id. ¶ 121.)

Industry standards and ethical codes were allegedly violated by these sales practices. First, the Plaintiffs allege that Alexion violated the Department of Health and Human Services Office of Inspector General's guidelines against "white-coat" marketing ("OIG Guidelines"), which prohibit using physicians or other health care professionals to market items and services to patients. Second, the Plaintiffs allege that Alexion violated the Pharmaceutical Research and Manufacturers of America ("PhRMA") Code,² which requires pharmaceutical company representatives to "act with the highest degree of professionalism and integrity" when engaging with medical personnel. (A.C. ¶ 85.) Third, they allege that the company's practices also violated the Code of Ethics for Nurses, which requires that nurses engage in "[h]onest discussions" with patients, and that nurses "identify, and wherever possible, avoid conflicts of interest," and disclose those conflicts to relevant parties. (Id. ¶ 88.)

2. Relationships with partner labs

The Plaintiffs allege that, in order to locate patients suffering from PNH and aHUS, Alexion developed partnerships with laboratories around the country and used them to engage in illegal practices. They allege that Alexion failed to disclose that it provided partner labs with a reagent to test for PNH free of charge, and in exchange, the partner labs would provide Alexion with copies of the patients’ test results. These results included confidential patient information that could not be disclosed without express patient authorization pursuant to HIPAA and the regulations promulgated thereunder. See, e.g., 45 C.F.R. § 164.508(a)(3). The test results, which included several identifying details, were then sent to Alexion's sales team, which would "descend[ ] on the doctor" to encourage prescribing...