In re Biogen: United States District Court Dismisses Fraud Class Action Claims Against Biogen Inc. – Part I

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

In In re Biogen the District Court in the District o Massachusetts held that the complaint brought by lead plaintiff GBR Group, Ltd. on behalf of a class of similarly situated persons (“Plaintiffs”) against three Biogen executives (“Individual Defendants”)(collectively, “Defendants”) did not contain sufficient allegations of scienter.

According to the complaint, Biogen sells the pharmaceutical, Tecfidera, which was the company’s core product from the third quarter 2013 through December 2015. In October 2014, a patient died from progressive multifocal leukoencephalopathy while using Tecfidera (“PML Death”) as part of a clinical study. Despite the death, Individual Defendants and Biogen made and released statements projecting optimism. During an earnings call on October 22, 2014, Clancy stated “There is meaningful, still meaningful growth in Tecfidera.”

Plaintiffs alleged the Individual Defendants violated: Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 (“Count One”), Defendants violated: Rules 10b-5(a) and 10b-5(c) under a theory of “Scheme liability” (“Count Two”), and Individual Defendants violated Section 20(a) of the 1934 Exchange Act (“Count Three”). The Plaintiffs alleged 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.

Section 10(b) of the Exchange Act and Rule 10b-5 provides a cause of action for certain misstatements or omissions.  To sufficiently make out a claim, a plaintiff 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”) added a safe harbor for certain “forward-looking information.”  Such statements will not be actionable if “accompanied by a meaningful cautionary statement” or not made “with actual knowledge”.  15 U.S.C. § 78u–5(c)(1)

In addressing the claims made by Plaintiffs, the court first determined that a number of the alleged misrepresentation constituted forward-looking statements. The court found that statements in Biogen’s fourth-quarter-earnings press release and statements by Clancy during earnings calls were accompanied by sufficient cautionary language and therefore were protected by the safe-harbor provision. 

The court did determine, however, that Plaintiffs had sufficiently alleged the falsity of statements suggesting that the PML death “was having little or no negative impact on Tecfidera sales”.  Although not the “only inference” that could be drawn from the statements, the court agreed that it was “at least plausible” that the statements were false and misleading. 

As for the Section 20(a) claims, the court found the statements made by Individual Defendants were not actionable since they did not state a claim for an underlying violation.

Accordingly, the court granted Defendants’ motion to dismiss Section 10(b), Rule 10b-5(b), and Section 20(a) claims. In Plaintiffs’ opposition to Defendants’ motion to dismiss, Plaintiffs conceded that the Rule 10b-5(a) and (c) claims should be dismissed.

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