In Re Synergy Pharmaceuticals Inc. Securities Litigation
1:18-cv-00873
E.D.N.YSep 30, 2021Background
- Lead plaintiffs filed a consolidated securities class action accusing former Synergy executives (Jacob, Gemignani, Garcia, Hamilton) of making misleading statements between Nov. 10, 2016 and Nov. 13, 2017 about Trulance (a CIC drug) and a $300M CRG loan; Synergy was later removed as a defendant and filed bankruptcy during the case.
- Plaintiffs allege Trulance marketing and promotional materials portrayed a superior side-effect profile (less diarrhea) despite no head-to-head trials and alleged differences in how diarrhea was measured across trials.
- Plaintiffs allege defendants touted the CRG loan as “non-dilutive” and providing access to capital “if and when” needed, but failed to disclose a $128M cash-condition precedent that limited access to later tranches.
- Market events: Express Scripts excluded Trulance from its 2018 formulary (July 31, 2017); Synergy disclosed slowing prescription growth (Aug. 9, 2017; Nov. 9, 2017); Synergy filed the Term Loan Agreement (Nov. 9, 2017) and announced a $56M equity offering (Nov. 13, 2017); stock declines followed these disclosures.
- Procedural posture: Plaintiffs filed a Second Amended Complaint (SAC). Defendants moved to dismiss for failure to plead actionable misstatements/omissions, scienter, and (for Trulance) loss causation. The court granted the motion and dismissed the Section 10(b) and Section 20(a) claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1. Material falsity — Trulance side-effect profile | Plaintiffs: marketing and promotional statements implied Trulance had superior diarrhea profile vs. competitors; clinical-trial measurement differences show statements false | Defendants: statements were non-comparative, generic marketing/puffery, not contradicted by specific facts | Court: Statements not pleaded false with specificity; many were non-comparative/puffery; plaintiffs failed to show falsity — dismissed |
| 2. Loss causation — Trulance-related disclosures | Plaintiffs: Express Scripts exclusion and disclosures of slowed prescriptions partially corrected misstatements and caused stock losses | Defendants: No plausible causal link tying those disclosures to side-effect misstatements; other explanations possible | Court: Loss-causation too attenuated; plaintiffs failed to connect corrective disclosures to the alleged misrepresentations — dismissed |
| 3. Material misstatement/omission — CRG Loan disclosure | Plaintiffs: Describing loan as “non-dilutive” and providing capital “if and when” was misleading because omission of $128M cash-condition made access to tranches uncertain and made dilution likely | Defendants: Statements were forward-looking, opinion, or puffery; general risk disclosures and cautionary language covered statements | Court: Omission of the $128M cash-condition could be materially misleading; some statements (present-tense funding claim) actionable; forward-looking statements not protected by safe harbor because cautionary language was generic |
| 4. Scienter / Section 20(a) control-person liability | Plaintiffs: Defendants had motive (to delay disclosure before dilutive offering), access to contradictory information, SOX certifications, industry experience, and suspicious timing of corporate moves | Defendants: No personal profit or trades alleged; loan agreement was publicly filed before offering; plaintiffs fail to identify specific contradictory documents | Court: Plaintiffs failed to plead a strong, cogent inference of scienter (motive/opportunity and conscious recklessness not adequately alleged); Section 10(b) claim fails so Section 20(a) fails too — dismissed |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (sets Rule 8 pleading plausibility standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (applies plausibility standard to complaint facts)
- Rombach v. Chang, 355 F.3d 164 (2d Cir. 2004) (Rule 9(b) particularity in securities fraud pleadings)
- Stratte-McClure v. Morgan Stanley, 776 F.3d 94 (2d Cir. 2015) (court may consider SEC-filed public disclosure documents incorporated into complaint)
- ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (PSLRA and Rule 9(b) heightened pleading standards apply to securities claims)
- Dura Pharm., Inc. v. Broudo, 544 U.S. 336 (2005) (loss causation requirement for securities fraud)
- Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (2011) (duty to disclose to avoid making statements misleading)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (strong inference of scienter must be cogent and at least as compelling as alternative explanations)
- Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 575 U.S. 175 (2015) (opinion statements actionable when speaker lacked that belief or omitted facts making opinion misleading)