In re Ariad Pharm., Inc., Sec. Litig.

• Decision Date: 24 March 2015
• Docket Number: Civil Action No. 13–12544–WGY.
• Citation: 98 F.Supp.3d 147
• Parties: In re ARIAD PHARMACEUTICALS, INC., Securities Litigation.
• Court: U.S. District Court — District of Massachusetts

98 F.Supp.3d 147

In re ARIAD PHARMACEUTICALS, INC., Securities Litigation.

Civil Action No. 13–12544–WGY.

United States District Court, D. Massachusetts.

Signed March 24, 2015.

Jimmy Wang, pro se.

Andrei V. Rado, Ariana J. Tadler, Arvind Khurana, Melissa Ryan Clark, Milberg LLP, Avi Josefson, Gerald H. Silk, John C. Browne, Kristin Ann Meister, Bernstein Litowitz Berger & Grossman LLP, Carol C. Villegas, Matthew C. Moehlman, Jonathan Gardner, Labaton Sucharow LLP, New York, NY, Glen DeValerio, Berman DeValerio, Boston, MA, for Plaintiffs.

John F. Sylvia, Andrew Nathanson, Matthew D. Levitt, Rebecca L. Zeidel, Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, PC, Brian C. Devine, Brian E. Pastuszenski, Goodwin Procter, LLP, Boston, MA, Mark Holland, Mary K. Dulka, Goodwin Procter LLP, New York, NY, for Defendants.

MEMORANDUM AND ORDER

WILLIAM G. YOUNG, District Judge.

I. INTRODUCTION

This is a shareholder class action brought by Joseph Bradley, the City of Fort Lauderdale Police & Fire Retirement System, Pension Trust Fund for Operating Engineers and Automotive Industries Pension Trust Fund, and William A. Gaul, D.M.D. (collectively, “the Lead Plaintiffs”), on behalf of themselves and all similarly-situated shareholders, against ARIAD Pharmaceuticals, Inc. (“ARIAD”), several officers and directors of ARIAD (Chief Executive Officer Harvey Berger, Chief Financial Officer Edward Fitzgerald, Chief Medical Officer Frank Haluska, and Chief Scientific Officer Timothy Clackson) (“the Individual Defendants,” together with ARIAD, the “ARIAD Defendants”), and seven underwriters. The underwriter defendants are J.P. Morgan Securities LLC, Cowen and Company, LLC, Jefferies & Company, Inc., BMO Capital Markets Corp., Leerink Swann LLC, RBC Capital Markets, LLC, and UBS Securities LLC (collectively, “the Underwriters”).

The Lead Plaintiffs bring this proposed class action on behalf of themselves and all other persons or entities who purchased or acquired (1) any publicly-traded ARIAD securities between December 12, 2011 and October 30, 2013 (the “Class Period”), or (2) any of ARIAD's common stock pursuant or traceable to the secondary offering that occurred on or about January 24, 2013 (“2013 Stock Offering”) and were damaged thereby. Corrected Consol. Compl. Violations Fed. Secs. Laws (“Compl.”) 1, ECF No. 131. They allege that the ARIAD Defendants made a series of false and misleading statements and omissions in regards to the safety, efficacy, and commercial prospects of ARIAD's main product, a cancer medication called ponatinib, which is used to treat chronic myeloid leukemia.

Id. As a result of these statements and omissions, the Lead Plaintiffs allege that the price of ARIAD common stock traded at artificially high values, while ARIAD concealed the full extent of adverse events arising from their clinical trials. Id. ¶¶ 56. Arguing that the Individual Defendants knew the full extent of the negative results stemming from the ongoing clinical trials, the Lead Plaintiffs allege that the Individual Defendants engaged in suspicious and unusual stock sales during the Class Period. Id. ¶ 327. They also bring a claim against the ARIAD Defendants and the Underwriters under Section 11 of the Securities Act of 1933 (“Section 11”) for alleged misstatements and omissions in stock offering materials. Id. ¶¶ 416–17.

The ARIAD Defendants and the Underwriters seek dismissal of all claims against them.

A. Procedural History

This litigation began on October 10, 2013 upon the filing of a class action complaint by Jimmy Wang against ARIAD and four of its officers. Class Action Compl. for Violations of Fed. Secs. Laws, ECF No. 1. The case was initially drawn to Judge Joseph Tauro, Elec. Notice, Oct. 11, 2013, ECF No. 3, but was reassigned to this Court shortly thereafter, Elec. Notice, Dec. 10, 2013, ECF No. 38.

On January 9, 2014, the Court entered an order consolidating several related actions into this single litigation, selecting lead plaintiffs, and approving the selection of lead counsel. Order, Jan. 9, 2014, ECF No. 95. The operative complaint was filed as a corrected consolidated complaint by the Lead Plaintiffs on March 25, 2014. Compl. The complaint is divided into two distinct and stand-alone parts, the first of which contains fraud allegations arising under Section 10(b), Rule 10b–5 promulgated thereunder by the United States Securities and Exchange Commission (“SEC”), and Section 20(a) of the Securities Exchange Act of 1934, Compl. ¶¶ 20–415 and the second of which contains allegations and claims arising under Section 11 of the Securities Act of 1933.See Compl. ¶¶ 416–85.

The two motions addressed by the Court here are motions to dismiss for failure to state a claim brought by the ARIAD Defendants and the Underwriters on April 14, 2014. ARIAD Defs.' Mot. Dismiss Corrected Consol. Compl., ECF No. 147; Mem. Supp. ARIAD Defs.' Mot. Dismiss Corrected Consol. Compl. (“ARIAD Defs.' Mem.”), ECF No. 148; Underwriter Defs.' Mot. Dismiss, ECF No. 144; Underwriter Defs.' Mem. Law Supp. Mot. Dismiss (“Underwriter Defs.' Mem.”), ECF No. 145. The Lead Plaintiffs filed an omnibus memorandum of opposition to the motions to dismiss on May 21, 2014. Pls.' Omnibus Mem. Law Opp. Defs.' Mot. Dismiss Corrected Consol. Compl. (“Pls.' Opp'n”), ECF No. 157. On June 4, 2014, the Underwriters submitted a reply in further support of their motion to dismiss, Underwriter Defs.' Reply Mem. Law Further Supp. Mot. Dismiss (“Underwriter Defs.' Reply”), ECF No. 162, and on June 5, 2014, the ARIAD Defendants submitted their own reply memorandum. ARIAD Defs.' Reply Mem. Further Supp. Mot. Dismiss Corrected Consol. Compl. (“ARIAD Defs.' Reply”), ECF No. 166.

B. Facts Alleged¹

ARIAD is a biotechnology company based in Cambridge, Massachusetts, specializing in the development and sale of cancer drugs. Compl. ¶ 429. For several years, the company primarily has focused on developing the drug ponatinib, also known as Iclusig, as a treatment for chronic myeloid leukemia (“CML”). Id. In particular, ARIAD focused on developing a front-line drug to compete with existing drugs to treat CML, noting that front-line drugs are more lucrative products than second-line drugs. Id. ¶ 11 (explaining that front-line drugs “typically outsell second-line treatments by many orders of magnitude”). In the course of seeking approval by the U.S. Food and Drug Administration (“FDA”), ARIAD commenced a clinical trial on September 13, 2010, referred to by the parties as the PACE 2 trials. Id. ¶ 47. The trial was “designed to assess the efficacy and safety of ponatinib in a larger subject group” consisting of “second-line” CML patients, meaning those with a demonstrated resistance to other, more established treatments. Id. ¶¶ 47–49, 431. The PACE 2 protocol provided for 449 test subjects to be treated with a recommended daily dose of 45 milligrams of the drug. Id. ¶ 49. Seeking funding for their ongoing clinical trials, ARIAD held its first of two stock offerings in December 2011, raising $258,000,000. Id. ¶ 62.

On June 4, 2012, ARIAD announced favorable interim results at a medical conference, citing “clear evidence of a favorable safety and tolerability profile in ponatinib in resistant or intolerant CML patients.” Id. ¶ 50–51. ARIAD also submitted an interim report to the FDA containing data through the end of July 2012 (the “July 2012 Interim Report”). Id. ¶ 433. The results of this interim report documented adverse cardiovascular events in test subjects, including the incidence of “serious arterial thrombosis ” in eight percent of patients. Id. ¶¶ 433, 435.

Shortly after the submission of the July 2012 Interim Report, ARIAD began a new clinical trial (the “EPIC” trial), which “was designed to support FDA approval of ponatinib in newly-diagnosed, never-treated CML patients, a.k.a. ‘front-line’ CML.” Id. ¶ 434. The prescribed dosage for the EPIC trial was also 45 milligrams daily. Id.

On December 14, 2012, ARIAD filed a Form 8–K and announced in a press release that the FDA had granted accelerated approval to market ponatinib for second-line use. Id. ¶¶ 76–79, 435 (noting that the FDA relied on and publicized the data evinced in the July 2012 Interim Report). This press release included the list of serious adverse events that had occurred, including an eight percent occurrence of “serious arterial thrombosis ” and four percent occurrence of serious congestive heart failure, with four fatalities. Id. ¶¶ 78–79. The FDA's approval was conditioned on two requirements: first, that each bottle of ponatinib include a “black box” warning label disclosing the occurrence of serious adverse cardiovascular events in users, and second, that ARIAD submit follow-up PACE 2 data to the FDA. Id. ¶¶ 110, 435–36. A “black box” warning is the strongest warning level for a prescription drug under FDA guidelines.

Id. ¶¶ 81–82. The same day as the press release, ARIAD's share price fell twenty-one percent. Id. ¶ 88.

One month later, ARIAD conducted a public secondary offering of common stock (“the Offering”) on January 24, 2013, id. ¶ 439, with the intention that the proceeds of the Offering be earmarked for developing and manufacturing ponatinib, id. ¶ 63. In connection with the Offering, the Underwriters prepared materials, including a prospectus supplement, to accompany existing materials such as a shelf registration statement, a prospectus, and a number of SEC filings (collectively, “the Offering Materials”). Id. ¶ 441. ARIAD issued 15,307,000 shares in the Offering and raised $310,000,000. Id. ¶¶ 439–40.

In August 2013, ARIAD submitted follow-up data from the PACE 2 trials to the FDA. Id. ¶ 437. The new data, which covered the trial period from August 2012 to August 2013, “showed [among other things] that the rate of serious arterial thrombosis associated with ponatinib had increased from 8 [percent] to 11.8 [percent] in the time since” July 2012. Id.

Two months later, ARIAD announced that the FDA had terminated the EPIC trial,...