This post is the second of two posts discussing In re Biogen Inc. Securities Litigation, No. 15-13189-FDS (D. Mass. June 23, 2016).

In In re: Biogen, the United States District Court for the District of Massachusetts granted Biogen Inc. and Biogen executives George Scangos, Paul Clancy, and Stuart Kingsley’s (“Individual Defendants”) (collectively, “Defendants”) motion to dismiss against GBR Group, Ltd.’s (collectively, “Plaintiffs”) putative class action.  The court found that Plaintiffs had not sufficiently alleged a “strong inference” of scienter.  

Plaintiffs claimed the Individual Defendants violated Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and SEC Rule 10b-5 (“Count One), that Defendants violated SEC Rules 10b-5(a) and 10b-5(c) (“Count Two”), and that the Individual Defendants violated Section 20(a) of the Exchange Act (“Count Three”).  The Plaintiffs allege the violations occurred when Defendants made materially misleading statements and omissions about Tecfidera, which caused class members to purchase Biogen’s stock at artificially inflated prices. 

Complaints under Section 10(b) of the Exchange Act, to state a claim for securities fraud, a private litigant must allege: (1) material misrepresentation or omission; (2) scienter; (3) a connection with the purchase or sale or security; (4) reliance; (5) economic loss; and (6) causation.  The Private Securities Litigation Reform Act of 1995 (“PSLRA”) requires complaints under Section 10(b) and Rule 10b-5 to show a strong inference of scienter, and that each statement was misleading and the reasons why.   Allegations of scienter must show intent to defraud or a high degree of recklessness.  The PSLRA also provides a safe harbor provision for “forward-looking” statements.

Under the element of scienter, Plaintiffs pointed to ten confidential witnesses (“CWs”) who “generally corroborat[ed]” that the Individual Defendants knowingly misled investors about the impact on Biogen of the PML Death.  Nonetheless, the court found the CWs failed to allege any specific facts suggesting fraud, and noted none of them ever spoke with any of the Individual Defendants.  See Id.  (“Notably absent from those allegations are any specific facts about the sales, such as a measurement of the sales decline, why sales were declining, whether the decline was due to lower new starts and switches or higher discontinuations, or how the sales decline affected the company's financial guidance.”). 

Plaintiffs also alleged that: (1) the Individual Defendants had the motive and opportunity to misrepresent Tecfidera’s growth; (2) Individual Defendants must have known Tecfidera’s revenue guidance was wrong as a result of their “positions and access to ‘prescription and sales information’”; and (3) that the Individual Defendant’s knew or were reckless in not knowing about the impact on sales because revenues was a “main source of revenues” and therefore part of Biogen’s “core operations.” 

The court dismissed each argument accordingly.  It noted that allegations of motive and opportunity needed to show more than usual executive concerns, the general and conclusory assertions provided did not support an inference of scienter, and courts were “hesitant” to apply the “core operations” standard without other significant evidence of intent or recklessness. See Id. (“Based on the complaint as a whole, plaintiffs' asserted inference of scienter may be plausible, but it is not strong, cogent, or compelling.”).

Accordingly, the court dismissed Count One. The court noted that Plaintiffs conceded Count Two for “scheme” liability in its opposition brief. Finally, the court found Count Three failed to state a claim for an underlying violation of the Exchange Act.

The court granted the Defendants’ motion to dismiss with prejudice.

The primary materials for this case may be found on the DU Corporate Governance website.