Tung v. Bristol-Myers Squibb Co.

Decision Date30 September 2019
Docket Number18-CV-1611 (JPO)
Citation412 F.Supp.3d 453
Parties Jennifer TUNG et al., Plaintiffs, v. BRISTOL-MYERS SQUIBB COMPANY et al., Defendants.
CourtU.S. District Court — Southern District of New York

Joseph Alexander Hood, II, Jeremy Alan Lieberman, Pomerantz LLP, New York, NY, William H. Narwold, Motley Rice LLC, Hartford, CT, for Plaintiffs.

Yosef J. Riemer, Matthew Osborn Solum, Kirkland & Ellis LLP, New York, NY, for Defendants.


J. PAUL OETKEN, District Judge:

In 2014, Defendant Bristol-Myers Squibb Company announced a clinical trial to test the efficacy of one of its newest anticancer drugs. The trial failed, which precipitated a drop in the company's stock price. Plaintiffs now bring this putative shareholder class action, alleging that public statements by Bristol-Myers and its officers mischaracterized the experimental design of the trial, thereby overstating the likelihood of the trial's success. The plaintiffs bring claims under Rule 10b-5 and Sections 10(b), 20(a), and 20A of the Securities Exchange Act. For the reasons that follow, the claims are dismissed.

I. Background

The following facts are taken from the operative complaint and, for purposes of this motion to dismiss, are assumed to be true.

Defendant Bristol-Myers Squibb Company is a pharmaceutical company whose product portfolio includes anticancer drugs. (Dkt. No. 44 ("Compl.") ¶ 24.) During the relevant class period — January 27, 2015 to October 9, 2016 (Compl. at 1) — the company's officers included Defendants Michael Giordano, Fouad Namouni, Francis M. Cuss, Giovanni Caforio, Lamberto Andreotti, and Charles A. Bancroft (Compl. ¶¶ 25–29, 32).

Prior to and during the class period, Bristol-Myers began focusing significant attention on immuno-oncology, a relatively new field of cancer research that explores the ability of the body's own immune system to fight cancer. (Compl. ¶ 35.) In particular, Bristol-Myers began developing the drug Opdivo (also called nivolumab), which belongs to a class of immunotherapy drugs known as "checkpoint inhibitors." (Compl. ¶¶ 38, 42.) Immune "checkpoints" are cellular mechanisms that prevent the body's immune system from attacking healthy cells. (Compl. ¶ 37.) One particular immune checkpoint centers around PD-L1, a protein that, when present on healthy cells, prevents the immune system from attacking them (specifically, by binding to PD-1, a protein present on the immune system's T-cells, which are attack cells). (Id. ) But cancer cells can take advantage of this checkpoint by themselves expressing the PD-L1 protein, which disables the body's immune system from attacking and allows the cancer to grow unchecked. (Id. ) PD-1 checkpoint inhibitors are drugs that inhibit cancer cells from doing so, causing the immune system to attack the cancer cells. (Id. )

It follows that the efficacy of PD-1 checkpoint inhibitors depends in part on the level at which a patient's cancer cells express PD-L1. (Compl. ¶ 49.) The lower the natural rate of PD-L1 expression by cancer cells, the less likely it is that a drug inhibiting PD-L1 expression will make any difference. (See Compl. ¶¶ 48–49.) Thus, when designing a study to test the efficacy of a PD-1 checkpoint inhibitor, a company must first determine how high a patient's expression of PD-L1 must be to qualify for inclusion in the study. In doing so, the company faces a trade-off: The higher the cut-off, the more likely that the study will yield positive results. (See, e.g. , Compl. ¶ 81.) But the lower the cut-off, the more patients are opened up for potential treatment. (See, e.g. , Compl. ¶ 98.)

In January 2014, Bristol-Myers announced a new clinical trial, Checkmate-026, that sought to determine whether Opdivo would outperform chemotherapy as a treatment for non–small cell lung carcinoma, the most common type of lung cancer. (Compl. ¶¶ 61–62.) An initial description stated that "the purpose of this study is to show that [Opdivo] will improve [outcomes] in subjects with strongly Stage IV or Recurrent PD-L1+ non-small cell lung cancer when compared to chemotherapy." (Compl. ¶ 64 (emphasis omitted).) Similar representations were made elsewhere. (See, e.g. , Compl. ¶¶ 125–30.) Bristol-Myers did not, however, clarify how much PD-L1 expression was required for a patient to "strongly" express PD-L1. (See Compl. ¶ 71.)

In May 2014, Merck, a rival pharmaceutical company, published a study (called Keynote-024) testing the efficacy of its own PD-1 checkpoint inhibitor drug, Keytruda. (Compl. ¶¶ 67–68.) Merck limited Keynote-024's eligibility to those patients with "PD-L1 strong expressing tumor." (Compl. ¶ 68 (emphasis added).) Merck disclosed that its definition of "strong" included only those patients in which at least 50% of tumor cells expressed PD-L1. (Id. )

On August 5, 2016, Bristol-Myers announced that Checkmate-026 had failed to demonstrate that Opdivo outperformed chemotherapy. (Compl. ¶ 92.) Bristol-Myers also revealed that the cut-off for the targeted patient population — i.e. , patients that "strongly" expressed PD-L1 — was 5%. (Id. ) In response to this news, Bristol-Myers's stock price dropped approximately 16% from August 4 to August 5. (Compl. ¶ 100.)

On October 9, 2016, Bristol-Myers further revealed that the study's design precluded the researchers from reaching any conclusions about the efficacy of Opdivo for patients whose expression of PD-L1 were higher than 5%. (Compl. ¶ 105.) As a result, Bristol-Myers "had no means under accepted statistical methodologies of finding a significant difference between the performance of Opdivo and chemotherapy." (Compl. ¶ 108.) In response to this news, Bristol-Myers's stock price dropped more than 10% from October 7 (the nearest trading day) to October 10. (Compl. ¶ 110.)

Lead Plaintiff Arkansas Public Employees Retirement System is a public pension fund that provides retirement benefits for qualified public employees of the state of Arkansas. (Compl. ¶ 21.) Lead Plaintiff Louisiana Sheriffs Pension & Relief Fund is a governmental retirement plan providing benefits to active and retired employees of the sheriff's offices of Louisiana. (Compl. ¶ 22.) Both lead plaintiffs purchased Bristol-Myers common stock during the class period and suffered losses. (Compl. ¶¶ 21–22.)1

Plaintiffs bring suit against Bristol-Myers and various of its officers, alleging violations of section 10(b) of the Securities Exchange Act and Rule 10b-5. (Compl. ¶¶ 225–32.) Based on that alleged primary violation, Plaintiffs also allege that certain officers violated sections 20(a) and 20A of the Act. (Compl. ¶¶ 233–47.)

II. Legal Standard

To withstand a motion to dismiss under Rule 12(b)(6), a plaintiff must plead sufficient factual allegations "to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A claim is plausible if the well-pleaded factual allegations of the complaint, presumed true, permit the court to "draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Twombly , 550 U.S. at 556, 127 S.Ct. 1955 ).

"Securities fraud claims are subject to heightened pleading requirements that the plaintiff must meet to survive a motion to dismiss." ATSI Commc'ns, Inc. v. Shaar Fund, Ltd. , 493 F.3d 87, 99 (2d Cir. 2007). The heightened pleading requirements are set forth in Rule 9(b) of the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act of 1995, Pub. L. No. 104-67, 109 Stat. 737. A securities fraud complaint based on misrepresentations must "(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent." Novak v. Kasaks , 216 F.3d 300, 306 (2d Cir. 2000) (internal quotation marks omitted).

Plaintiffs have alleged violations of section 10(b) of the Securities Exchange Act, Rule 10b-5, and sections 20(a) and 20A of the Act. For the reasons that follow, each of the claims is dismissed.2

A. Claims Under Section 10(b) and Rule 10b-5

To state a claim under section 10(b) and Rule 10b-5, "a plaintiff must prove (1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation." Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc. , 552 U.S. 148, 157, 128 S.Ct. 761, 169 L.Ed.2d 627 (2008).

The requisite scienter is "an intent to deceive, manipulate, or defraud." Kalnit v. Eichler , 264 F.3d 131, 138 (2d Cir. 2001) (quoting Ganino v. Citizens Utilities Co. , 228 F.3d 154, 168 (2d Cir. 2000) ). Further — because a complaint asserting securities fraud must comply with the heightened pleading requirements imposed by Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Acta plaintiff stating a claim under section 10(b) and Rule 10b-5 must raise a "strong inference" of scienter by alleging facts showing either "(1) that defendants had the motive and opportunity to commit fraud, or (2) strong circumstantial evidence of conscious misbehavior or recklessness." ECA, Local 134 IBEW Joint Pension Trust of Chicago v. JP Morgan Chase Co. , 553 F.3d 187, 198 (2d Cir. 2009).

Here, Plaintiffs have not shown either to be true. Thus, Plaintiffs have failed adequately to plead scienter, which means that their claims under section 10(b) and Rule 10b-5 must be dismissed.

1. Fraudulent Motive and Opportunity

In order to raise a "strong inference" of scienter under the "motive and opportunity" prong, the plaintiffs must allege that Bristol-Myers or its officers stood to "benefit[ ] in some concrete and personal way from the purported fraud." Novak v. Kasaks , 216 F.3d 300, 307–08 (...

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