556 F.Supp.3d 100
D. Conn.2021Background:
- Alexion, a pharmaceutical company, relied almost entirely on Soliris (an orphan drug) for revenue; Soliris accounted for ~99% of 2015 revenue and high per‑patient prices.
- Plaintiffs allege Alexion drove sales via illegal/unethical practices: high‑pressure sales to patients and doctors; partner labs providing patient test results (alleged HIPAA issues); and conditioned charitable donations/assistance to steer Medicare/Medicaid patients (alleged anti‑kickback violations).
- Internal and external scrutiny began November 2016 (delayed 10‑Q; Audit Committee probe); Dec. 2016 saw CEO and CFO departures; Jan. 4, 2017 Audit Committee announced a material weakness (tone at the top; pull‑in sales); May 2017 saw Brazilian raids, executive departures, and a Bloomberg exposé that prompted further stock declines.
- Plaintiffs (lead public pension funds) brought a class action under §10(b)/Rule 10b‑5 (Counts I–II) and §20(a) control‑person liability (Count III), alleging false/misleading statements (including SOX certifications) and concealment of illegal practices.
- The court evaluated falsity/materiality, PSLRA/Rule 9(b) particularity and scienter pleading, loss causation, Rule 10b‑5(a)/(c) “scheme” liability, and §20(a) culpable participation.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Materiality/falsity of statements about sources of revenue and diagnostic/awareness programs | Statements touting patient‑identification/diagnostic programs were misleading because they omitted that sales were driven by illegal/unethical practices | Disclosures of revenue and description of programs were sufficient; no duty to disclose uncharged conduct or characterize practices pejoratively | Court: many statements that specifically attributed growth to diagnostic/awareness programs were actionable half‑truths (duty to disclose whole truth). Dismissed claims for a few generalized statements (e.g., Misstatement 8) and for PhRMA compliance statements (puffery) (Misstatements 21–22). |
| Scienter (who) | Plaintiffs relied on confidential witnesses, an outside‑counsel Brazil report, admissions about "tone at the top," executive departures, and core‑operations to show conscious recklessness/knowledge for Alexion and certain officers | Defendants argued plaintiffs plead no specific facts showing knowledge/recklessness for many individual defendants; resignations and general disclosures insufficient | Court: Strong inference of scienter adequately pleaded as to Alexion and senior executives Bell and Hallal. Scienter not adequately pleaded for Sinha, Brennan, Anderson, Hantson, and Thiel for Counts I & II (those defendants dismissed from Counts I & II). |
| SOX (Section 302) certifications | Certifications were false because filings contained material misstatements/omissions and because a material weakness existed (tone at the top) dating to 2015; so certifiers knowingly misrepresented controls and filings | Defendants said plaintiffs failed to allege deficient internal controls for many reporting periods and that later certifications lacked allegations tying them to control failures | Court: SOX certifications tied to filings that contained pleaded material misstatements are actionable. But plaintiffs failed to plead falsity re: internal‑controls portions of the certifications for the Jan 4, 2017 10‑Q, Feb 16, 2017 10‑K, and Apr 27, 2017 10‑Q (those SOX claims dismissed to that extent). |
| Loss causation / corrective disclosures | Market declines following incremental disclosures (delayed 10‑Q & Audit Committee probe, executive departures, Brazil raid, Bloomberg exposé) revealed the concealed risks and supported loss causation | Defendants argued earlier disclosures were vague or already known; Bloomberg recapitulated known claims and thus could not be a corrective disclosure | Court: Loss causation adequately pled — corrective disclosures and materializations (series of announcements, raids, departures, Bloomberg article and analyst reactions) plausibly connected alleged misrepresentations to stock declines. |
Key Cases Cited
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (holistic, burden‑shifting test for pleading a strong inference of scienter)
- Amgen Inc. v. Connecticut Ret. Plan & Tr. Funds, 568 U.S. 455 (2013) (elements of a §10(b) / Rule 10b‑5 claim)
- Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (2011) (omissions/duty to disclose not coextensive with investor desire; materiality rules)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for pleadings)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standards and conclusory allegations)
- Basic Inc. v. Levinson, 485 U.S. 224 (1988) (materiality measured by whether disclosure would alter the "total mix" of information)
- TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438 (1976) (materiality standard)
- Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000) (specificity required when alleging defendants had access to contrary internal reports)
- In re Vivendi, S.A. Sec. Litig., 838 F.3d 223 (2d Cir. 2016) (half‑truths and misleading omissions analysis)
- Lorenzo v. SEC, 139 S. Ct. 1094 (2019) (scheme liability under Rule 10b‑5(a) and (c) for dissemination of false statements)