Chester Cnty. Emps. Ret. Fund v. Alnylam Pharm., Inc.
| Decision Date | 30 October 2020 |
| Docket Number | Index No.: 655272/2019 |
| Citation | 2020 NY Slip Op 33627 (U) |
| Parties | CHESTER COUNTY EMPLOYEES RETIREMENT FUND, Individually and on Behalf of All Others Similarly Situated, Plaintiff, v. ALNYLAM PHARMACEUTICALS, INC, JOHN M. MARAGANORE, MICHAEL P. MASON, DENNIS A. AUSIELLO, MICHAEL W. BONNEY, JOHN K. CLARKE, MARSHA H. FANUCCI, STEVEN M. PAUL, DAVID E.I. PYOTT, PAUL R. SCHIMMEL, AMY W. SCHULMAN, PHILLIP A. SHARP, KEVIN P. STARR, GOLDMAN SACHS & CO. LLC, J.P. MORGAN SECURITIES LLC, BARCLAYS CAPITAL INC., CREDIT SUISSE SECURITIES (USA) LLC, PIPER JAFFRAY & CO., JMP SECURITIES LLC, NEEDHAM & COMPANY, LLC, CHARDAN CAPITAL MARKETS, LLC and B. RILEY FBR, INC., Defendants. |
| Court | New York Supreme Court |
DECISION AND ORDER
Motion Sequence Number: 001
I. BACKGROUND
This case is brought, pursuant to sections 11, 12(a)(2) ad 15 of the Securities Act of 1933 (the 1933 Act), as a class action on behalf of all parties who purchased common stock of Alnylam Pharmaceuticals (Alnylam or the Company) in the Company's public offering on November 14, 2017. According to the amended complaint ("Complaint", NYSCEF Doc. No. 29), the Company used a Registration Statement which contained untrue statements of material fact and omitted material information about a drug it was developing and which was closest to production, patisiran. Specifically, the Company had no scientific evidence to support obtaining approval of patisiran to treat cardiomyopathy, thereby limiting the market potential of the drug.
Defendants include all of the underwriters of the offering (Goldman Sachs& Co, JP Morgan Securities, Barclays Capital Inc., Credit Suisse Securities (USA) LLC, Piper Jaffray & Co., JMP Securities LLC, Needham & Co., LLC, Chardan Capital Markets, and LLC, B Riley FBR, Inc. ( the Underwriters). Plaintiff also names individual defendants who were officers at the Company and who signed off on the Registration Statement: John Maraganore (CEO and director on the board of directors), Michael Mason (VP of Finance and Treasurer), Dennis Ausiello (director), Michael Bonney (director), John Clarke (director), Marsha Fanucci (director), Steven Paul (director), David Pyott (director) Paul Shimmel (director), Amy Schulman (director), Phillip Sharp (director), Kevin Starr (director) (together the Individual Defendants).
As additional background to the issues in the case, according to the Complaint, "Clinical trials have three types of endpoints: (i) primary (ii) secondary; and (iii) exploratory. According to the Food and Drug Administration, a primary point is the outcome that establishes "the effectiveness, and/or safety features, of the drug in order to support regulatory action." Secondary end points are used to "provide evidence that a particular mechanism underlies a demonstrated clinical effect." Exploratory endpoints "are included [in clinical trials] to explore new hypotheses" (Complaint, ¶ 62) ("Compl. ¶ ___").
II. FACTS
As this is a motion to dismiss the amended complaint, the facts are taken from the amended complaint (Compl, NYSCEF Doc. No. 29) and are assumed to be true.
The Company is a pharmaceutical company that develops new drugs based on RNA interference (RNAi). At the time of the public offering, the Company did not have any drug on the market and was making no money. It was trying to develop drugs in three different areas (genetic medicines, cardio-metabolic diseases, and hepatic infectious diseases). The Company filed a shelf Registration Statement with the SEC on or about May 5, 2017 (Compl. ¶ 40). In August of 2017, the Company presented its most promising drug as patisiran, which targets a specific gene to treat a very rare and fatal disease (about 50,000 people, worldwide, have it).
The Registration Statement for the offering cautioned investors to only rely on information in the Registration Statement in evaluating the offering, and to rely on later filed documents, if they conflicted with earlier filed documents (Compl. ¶ 46). On or about November 14, 2017,Underwriters purchased and sold 5.6 million shares of Company stock in connection with the offering (id. at ¶ 49). The offering generated $785 million for the Company and over $20 million for the Underwriters.
The Registration Statement featured patisiran as the drug closest to receiving regulatory approval. Patisiran was in a phase III clinical trial (the Apollo Study). Phase III trials are usually the final hurdle before a company submits a new drug application to the FDA. Patisiran was being tested primarily as treatment for polyneuropathy but its efficacy for treating cardiomyopathy was also being assessed (Compl. ¶¶ 3, 65-66). In September 2017, the Company announced the top line results from the Apollo Study, but did not release the data, even thought it had the data. The Company claimed the Apollo Study met its primary and secondary endpoints (that it is effective and has a clinical effect) (see id., ¶ 71). The Company described the study as supporting the use of patisiran to treat cardiomyopathy and indicated it would use that study to support its application to the FDA to use patisiran to treat cardiomyopathy (id., ¶¶ 71-78). In fact, the Apollo Study did not generate any cardiac efficacy data and so provided no support for gaining FDA approval for that use (id., ¶ 83).
Plaintiff also alleges the Registration Statement failed to disclose information required to be disclosed by regulation.
The Company submitted its application to approve patisiran for both conditions to the FDA in November 2017. On August 10, 2018, the FDA approved the drug for polyneuropathy, but denied the application regarding cardiomyopathy (id., ¶ 97). On September 7, 2018, a report from the FDA's Center for Drug Evaluation and Research (the FDA Report) became available which revealed the lack of support from the Apollo Study (id.). The FDA did not provide any explanation or insight into why it did not approve patisiran to treat cardiomyopathy (id., ¶ 98).
Plaintiff asserts:
1) Violations of Section 11 of the 1933 Act, against all defendants for the misleading Registration Statement;
2) Violation of Section 12(a)(2) of the 1933 Act, against all defendants, for the untrue or undisclosed material facts in the Registration Statement, and their failure to exercise reasonable care to determine the misstatements and omissions; and
3) Violation of Section 15 of the 1933 Act against the Company and the Individual Defendants, as persons in control of the Company.
III. ARGUMENT
Defendants move jointly to dismiss the Complaint pursuant to CPLR 3211(a)(1), (5), and (7), based on documentary evidence, arbitration/release/res judicata, and failure to state a claim for which relief can be granted. Defendants argue CPLR 3016(b)'s heightened pleading standard applies here because the claims are based upon misrepresentation, but also notes that, even under CPLR 3013's general pleading standard, "vague and conclusory" allegations cannot avoid dismissal (Memo at 8, see Lynch v Upper Crust, Inc., 294 AD2d 237, 238 [1st Dep't 2002]).
Defendants argue that the first two claims, for violations of sections 11 and 12(a)(2) of the 1933 Act, are time-barred, as the FDA report relied on by plaintiff was published on September 7, 2018, more than a year before plaintiff filed this action, and the 1933 Act has a one year statute of limitations (Memo, NYSCEF Doc. No. 38, at 3, 8-9). The FDA Report was published on the FDA's website on September 7, 2018 (id. at 9-11). That is what starts the statute of limitations running, not the republication of the report by securities analysts on September 12, where it was noticed.
The first claim, based on section 11, fails as plaintiff has not identified a specific false or misleading statement in the Offering materials. In fact, defendants argue all of the required information was provided (id. at 12-13). The Apollo Study did produce cardiac efficiency data (id. at 12-13, citing Excerpts from Alnylam Pharmaceuticals, Inc., Quarterly Report for Q3 2017 [Form 10-Q] [the Q3 Report], filed November 7, 2017, attached as Exhibit E to Drylewski aff, NYSCEF Doc. No. 33, at 19). The FDA Report noted the results of the study included "highly statistically significant positive results on all of the trial's pre-specified secondary efficacy endpoints" ). The Company's statements in the Registration Statement were accurate. The Registration Statement also warned investors that the FDA could interpret the data differently, which could have an adverse impact on the approval process (Memo at 13-14). The two statements identified by plaintiff as allegedly misleading are not actionable because they are the Company's opinions as to the interpretation of the Apollo Study data and "[r]easonable persons may disagree over how to analyze data and interpret results, and neither lends itself to objective conclusions.'" (id. at 15 quoting In re Sanofi Sec. Litig., 87 F Supp 3d 510, 543 [SDNY 201...
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