In re Biogen Inc. Securities Litigation, 051217 FED1, 16-1976
|Court:||United States Courts of Appeals, Court of Appeals for the First Circuit|
|Attorney:||Michael P. Canty, with whom Jonathan Gardner, Guillaume Buell, Labaton Sucharow LLP, Andrea M. Landry, Thornton Law Firm LLP, Peretz Bronstein, Yitzchak E. Soloveichik, and Bronstein Gewirtz & Grossman LLC were on brief, for appellants. James R. Carroll, with whom Michael S. Hines, Sara J. van Vl...|
|Judge Panel:||Before Lynch, Lipez, and Kayatta, Circuit Judges.|
|Opinion Judge:||LYNCH, Circuit Judge.|
|Party Name:||IN RE: BIOGEN INC. SECURITIES LITIGATION v. BIOGEN INC.; GEORGE A. SCANGOS; PAUL J. CLANCY; STUART A. KINGSLEY, Defendants, Appellees. GBR GROUP, LTD., Plaintiff, Appellant, NICOLE TEHRANI, Plaintiff,|
|Case Date:||May 12, 2017|
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS [Hon. F. Dennis Saylor, IV, U.S. District Judge]
Michael P. Canty, with whom Jonathan Gardner, Guillaume Buell, Labaton Sucharow LLP, Andrea M. Landry, Thornton Law Firm LLP, Peretz Bronstein, Yitzchak E. Soloveichik, and Bronstein Gewirtz & Grossman LLC were on brief, for appellants.
James R. Carroll, with whom Michael S. Hines, Sara J. van Vliet, and Skadden, Arps, Slate, Meagher & Flom LLP were on brief, for appellees.
Before Lynch, Lipez, and Kayatta, Circuit Judges.
LYNCH, Circuit Judge.
This securities case involves allegations that corporate officials misled the public about the effect of one patient's death on sales of Tecfidera, a drug for multiple sclerosis ("MS") and the company's leading source of revenue.
GBR Group, Ltd. ("GBR") is the lead plaintiff in a putative class action against Biogen Inc. ("Biogen") and three Biogen executives (together, "the defendants") alleging violations under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"). See 15 U.S.C. §§ 78j(b), 78t(a). The plaintiffs' initial amended complaint alleged that, from December 2, 2014 to July 23, 2015 (the "Class Period"), the defendants knowingly misled the investing public regarding the impact that the death of a patient taking Tecfidera had on sales of Tecfidera.
The district court dismissed the initial amended complaint with prejudice, for failure to meet the heightened pleading requirements of the Private Securities Litigation Reform Act ("PSLRA"). In re: Biogen Inc. Sec. Litig.
(Biogen), 193 F.Supp.3d 5, 12-13 (D. Mass. 2016); see 15 U.S.C. §§ 78u-4, 78u-5. The court then denied the plaintiffs' subsequent motion under Federal Rules of Civil Procedure 59(e) and 60(b)(2) to vacate the judgment and for leave to file a second amended complaint to include purportedly new evidence. GBR appeals the dismissal of the initial amended complaint and particularly emphasizes its appeal from the denial of the motion to vacate the judgment and for leave to amend the complaint.
We reject these claims and affirm on both issues. We agree, on de novo review, that the initial amended complaint fails to plead particularized facts giving rise to a strong inference of scienter, as required by the PSLRA. And there was no error or abuse of discretion in the denial of the motion to vacate the judgment and for leave to file a second amended complaint.
Biogen, whose stock trades on the NASDAQ, is a biopharmaceutical company that develops, manufactures, and markets medication for the treatment of neurological disorders. During the relevant period, defendant George Scangos was Biogen's Chief Executive Officer, defendant Paul Clancy was its Chief Financial Officer and Executive Vice President of Finance, and defendant Stuart Kingsley was its Executive Vice President of Global Commercial Operations. The Class Period is from December 2, 2014 to July 23, 2015.
One of the four principal drugs Biogen markets for MS treatment is Tecfidera, which the FDA approved for use in March 2013 and which Biogen began selling during the second fiscal quarter of 2013. Tecfidera has been a significant source of revenue for Biogen, and it was regularly accounting for a third of Biogen's total quarterly revenues by the start of the Class Period. Tecfidera's revenue growth depended on three factors: (1) the number of patients recently diagnosed with MS who started their treatment on Tecfidera ("new starts"); (2) the number of patients who switched over to Tecfidera from other drugs; and (3) the growth of the MS drug market.
Biogen released its third-quarter 2014 financial results on October 22, 2014. The company reported total revenues of $2.51 billion, an increase of 3.7% from the previous quarter, as well as third-quarter revenue from Tecfidera alone of $787.1 million: a 12.4% increase from the previous quarter, but a lower growth rate than those of the previous four quarters (growth rates of 49.1%, 39.0%, 27.1%, and 38.5%, respectively). On the same date, Biogen held an earnings call to discuss the third-quarter report and announced, for the first time, that an MS patient had died of progressive multifocal leukoencephalopathy (the "PML death" or "PML incident"). The patient had taken Tecfidera for more than four years in a clinical study. At the time this information was released, Kingsley stated publicly that Tecfidera growth was "moderat[ing]."
The FDA issued a warning to the public about the PML death on November 25, 2014, and Tecfidera's label in the United States was updated to describe the risk of PML death on December 3, 2014, one day after the beginning of the Class Period. On December 2, 2014, the first day of the Class Period, Clancy told analysts that investors should be "mindful" of the fact that Tecfidera discontinuation rates (the rates at which patients discontinued use of Tecfidera) were higher than the company had hoped.
On January 29, 2015, Biogen issued full-year revenue guidance for 2015, in which it stated that it expected overall revenue growth of 14% to 16%. The initial amended complaint alleges that the "[d]efendants reiterated that Tecfidera performance remained strong and stated that they had not seen any meaningful change in discontinuation rates, " and that stock analysts accepted this characterization. At the time of this announcement, Kingsley also stated that there was a moderation in new Tecfidera starts and cited, among other things, the updated label describing the PML incident. He then made similar remarks during a conference on February 25, 2015 -- that is, about halfway through the first quarter of 2015.
On April 24, 2015, Biogen released its first-quarter results for 2015, announcing Tecfidera revenue of $825 million, "below the market's consensus estimates." Scangos stated at that time that "Tecfidera had a more challenging quarter, due to a number of issues, including an overall slowing of the MS market, the recent launch of Plegridy, the single PML case reported last year, and some first-quarter financial dynamics . . . ." He emphasized that "our long-term outlook for Tecfidera, and for our entire MS portfolio, remains strong." From April to July, the defendants continued to express optimism about Tecfidera, stating that its performance had "stabilized" since the announcement of the PML incident and that data suggested positive "momentum." At four analyst conferences in May 2015, Biogen executives noted that Tecfidera's growth was slowing and named the PML incident as one factor in that slowed growth.
On July 24, 2015, the day after the end of the Class Period, Biogen released its second-quarter earnings report. Biogen announced revenue of $883 million from Tecfidera, which was a 7.1% increase from the first quarter but less than the $916 million of Tecfidera revenue from the last quarter of 2014. Also that day, the company revised its 2015 revenue guidance, lowering its estimate of overall revenue growth from 14-16% to 6-8%. The decrease in the guidance was "based largely on revised expectations for the growth of Tecfidera." Biogen's stock fell over 20% in one day in response to the announcement.
Nearly two months after the end of the Class Period, on September 18, 2015, Kingsley stated at a health care conference that "some kind of a downtick in the safety profile that would have some kind of an impact on physician behavior" had been expected in the wake of the PML incident, but that "we couldn't tell, " and that the PML incident was "a pretty big change statement for a broad base of physicians." [The plaintiffs characterize these as "evidentiary admissions."] On October 9, 2015, Biogen announced that Kingsley was leaving the company. On October 21, 2015, Biogen announced cuts that would eliminate about 11% of its workforce.
Nicole Tehrani filed the initial "bare-bones" complaint alleging securities fraud on August 18, 2015. After a status conference on November 17, 2015, the district court appointed GBR as the lead plaintiff and granted the plaintiffs an additional sixty days, as they requested, to file an amended complaint.
The plaintiffs filed their amended complaint on January 19, 2016. The amended complaint alleges claims under Section 10(b) of the Exchange Act and Rule 10b-5 thereunder (Counts I & II), and under Section 20(a) of the Exchange...
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