City of Edinburgh Council for the Lothian Pension Fund v. Pfizer, Inc.

• Decision Date: 06 June 2014
• Docket Number: No. 13–2314.,13–2314.
• Citation: 754 F.3d 159
• Parties: CITY OF EDINBURGH COUNCIL as Administering Authority for the Lothian Pension Fund; ARCA S.G.R.S.P.A, Appellant v. PFIZER, INC., as successor in interest to Wyeth, a Delaware Corporation; Robert Essner; Bernard Poussot; Kenneth J. Martin; Robert R. Ruffolo; Wyeth.
• Court: U.S. Court of Appeals — Third Circuit

754 F.3d 159

CITY OF EDINBURGH COUNCIL as Administering Authority for the Lothian Pension Fund; ARCA S.G.R.S.P.A, Appellant

v.PFIZER, INC., as successor in interest to Wyeth, a Delaware Corporation; Robert Essner; Bernard Poussot; Kenneth J. Martin; Robert R. Ruffolo; Wyeth.

No. 13–2314.

United States Court of Appeals, Third Circuit.

Argued: Jan. 8, 2014.

Filed: June 6, 2014.

Jeffrey A. Almeida, Esq., Grant & Eisenhofer, Wilmington, DE, Daniel L. Berger, Esq., [Argued], Deborah A. Elman, Esq., Grant & Eisenhofer, New York, NY, Gregory M. Castaldo, Esq., Joshua E. D'Ancona, Esq., Michael K. Yarnoff, Esq., Kessler, Topaz, Meltzer & Check, Radnor, PA, for Appellants.

John Villa, Esq., [Argued], George A. Borden, Esq., David R.J. Riskin, Esq., Williams & Connolly, Washington, DC, Stephen C. Matthews, Esq., Porzio, Bromberg & Newman, Morristown, NJ, for Appellees.

Before: SMITH, SHWARTZ, and SCIRICA, Circuit Judges.

OPINION OF THE COURT

SCIRICA, Circuit Judge.

In this private securities fraud class action under the Private Securities Litigation Reform Act of 1995 (“PSLRA”), two institutional investors allege a pharmaceutical company and its executives made materially false and misleading statements in violation of the Securities Exchange Act of 1934 (the “Exchange Act”) regarding interim clinical trial data related to the development of an experimental Alzheimer's drug. The District Court granted defendants' motion to dismiss for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure. We will affirm.¹

I.

Plaintiffs-appellants City of Edinburgh Council as Administering Authority for the Lothian Pension Fund and Arca S.G.R. S.p.A. (the “Funds”) ² bring suit on behalf of a class of investors who purchased Wyeth, Inc. common stock between May 21, 2007, and July 29, 2008 (the “Class Period”). The Funds allege Wyeth and four former Wyeth executives—defendants Robert Essner, Bernard Poussot, Jr., Kenneth J. Martin, and Robert R. Ruffolo, Jr.—made materially false and misleading statements regarding the development of the experimental Alzheimer's drug bapineuzumab. Defendant Pfizer Inc. is the successor-in-interest to Wyeth, which it acquired in 2009.

The Funds bring three claims: (1) securities fraud under section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Securities and Exchange Commission (“SEC”) Rule 10b5; (2) control person liability under section 20a of the Exchange Act, 15 U.S.C. § 78t; and (3) insider trading under section 20A of the Exchange Act, 15 U.S.C. § 78t–1(a).³

A.

Approximately 5 million Americans and 26 million people worldwide suffer from Alzheimer's disease. Wyeth and Elan Corporation, plc (“Elan”),⁴ an Ireland-based pharmaceutical company, embarked on a joint venture to develop an Alzheimer's treatment that, unlike other drugs then on the market, would target the underlying causes of the disease. This joint venture produced bapineuzumab, which is designed to treat mild to moderate Alzheimer's. As required by Food and Drug Administration (“FDA”) regulations, Wyeth and Elan launched clinical trials to assess the efficacy and safety of bapineuzumab in treating Alzheimer's.⁵ In 2006, Wyeth and Elan completed Phase 1 trials of bapineuzumab and received Fast Track status from the FDA.⁶ Before announcing Phase 1 results, Wyeth and Elan began the Phase 2 trial, a controlled, double-blind study designed to measure the efficacy of bapineuzumab compared to a placebo. The companies measured bapineuzumab's efficacy using two tests, the Alzheimer's Disease Assessment Scale–Cognitive (“ADAS-cog”) and the Disability Assessment Scale for Dementia (“DAD”).

The Phase 2 trial was not scheduled for completion until 2008, and Wyeth and Elan said they did not expect to release any Phase 2 trial data until that time. The focus of the Funds' complaint is a joint press release issued on May 21, 2007 (the “May 2007 Release”), announcing the companies' decision to initiate a Phase 3 clinicaltrial, subject to FDA approval, in the second half of 2007. The May 2007 Release stated (emphasis added):

Elan ... and Wyeth ... today announce the decision to initiate a Phase 3 clinical program of ... Bapineuzumab.... This decision was based on the seriousness of the disease and the totality of what the companies have learned from their immunotherapy programs, including a scheduled Interim look at data from an ongoing Phase 2 study, which remains blinded. No conclusion about the Phase 2 study can be drawn until the study is completed and the final data are analyzed and released in 2008. Phase 3 clinical trial design will be finalized with regulatory agencies, and subject to regulatory approval, it is intended for the trial to begin in the second half of 2007.

The Funds contend that at the time Wyeth issued the May 2007 Release the company knew—but did not disclose—that the Phase 2 interim results did not support the decision to initiate the Phase 3 trial.⁷ The Funds' two confidential witnesses ⁸ allege the interim results showed bapineuzumab had failed pre-specified criteria for efficacy and revealed serious adverse safety risks. Wyeth disputes this allegation, arguing the Phase 2 results showed “statistically significant and clinically meaningful benefits” among an important patient subgroup—non-carriers of the Apolipoprotein E4 (“ApoE4”) gene who are believed to make up 40 to 70 percent of Alzheimer's patients, or approximately 2 to 3.5 million Americans. Further, Wyeth contends CW1's statements confirm its interpretation of the subgroup data—CW1 noted the Phase 2 interim results were “interesting” and “warranted further testing” with regard to non-carriers of the ApoE4 gene but only as an additional Phase 2 trial, not as a Phase 3 trial. And Wyeth notes it had to obtain FDA approval to initiate the Phase 3 trial,⁹ on which the companies spent “millions of dollars of their own assets.”

The Funds also argue the May 2007 Release was misleading in light of a prior statement made on October 5, 2006, by defendant Ruffolo, Wyeth's head of research, at the company's annual meeting for securities analysts. Ruffolo stated orally that the companies planned to conduct an interim review of the Phase 2 results at the end of 2006 in order to determine whether and how to proceed to a Phase 3 trial:

Now, again, we don't have any results from this [Phase 2] study at all, but we have a planned interim look at the data at the end of the year. And, based on this interim look, we could do two things. One, depending on the data, we could advance directly into Phase III in the first half of 2007, but the results would have to be spectacular. We don't know what results we're going to get. Alternatively, we could complete the study and then move to the next interim look, which would be in the first half of 2007.

Despite defendants' explicit warning in the May 2007 Release that “[n]o conclusion about the Phase 2 study can be drawn” and that initiation of Phase 3 would be “subject to regulatory approval,” the Funds allege Ruffolo's remarks led them to interpret the May 2007 Release's statement that the Phase 3 trial would commence early based in part on the Phase 2 interim results to mean those results were “spectacular.”

On June 17, 2008, Wyeth and Elan issued a press release (the “June 2008 Release”) disclosing “preliminary findings” from the Phase 2 study. The June 2008 Release reported that the Phase 2 trial failed to meet its objectives as to the entire study population and reported serious adverse events among both placebo- and bapineuzumab-treated patients. But it noted that based on “[p]ost-hoc analyses,” bapineuzumab showed “statistically significant and clinically meaningful benefits” among non-carriers of the ApoE4 gene who are believed to make up 40 to 70 percent of Alzheimer's patients. Accordingly, the June 2008 Release announced the companies' conclusion that the results of the Phase 2 trial, as well as its safety findings, supported the decision to proceed with the Phase 3 trial.¹⁰

On July 29, 2008, Wyeth and Elan revealed the Phase 2 results through a joint press release, conference presentation, and investor conference call. Despite the disclosure in the June 2008 Release that the Phase 2 trial had failed to meet its overall objectives, the Funds contend investors only learned for the first time on July 29 that the Phase 2 trial was nearly a complete failure—the results showed no efficacy and revealed serious safety concerns. According to CW1, the final Phase 2 results did not differ significantly from the Phase 2 interim results referenced in the May 2007 Release.

B.

The District Court granted defendants' first motion to dismiss on February 10, 2012, holding the Funds had not adequately alleged defendants made any materially false or misleading statements and defendants had no duty to disclose allegedly omitted details. On December 21, 2012, the District Court granted the Funds leave to file a second amended complaint. On April 22, 2013, the District Court again dismissed the Funds' claims, holding (1) the Funds failed to adequately allege defendants made any affirmatively false or misleading statements, (2) defendants had no duty to disclose additional information about the Phase 2 interim results, and (3) the Funds failed to sufficiently plead a predicate Exchange Act violation required to maintain their control person liability and insider trading claims.

On appeal, the Funds contend the District Court erred in dismissing their section 10(b) and Rule 10b–5 claims for failure to adequately plead falsity. The Funds also argue defendants' statements and actionstriggered a duty to disclose full and complete material information to investors about the Phase 2 interim results. And the Funds challenge the District Court's dismissal of their control person liability and insider trading claims.

We review de novo the District Court's decision to grant defendants' Rule 12(b)(6) motion to dismiss. See ...