412 F.Supp.3d 453
S.D.N.Y.2019Background
- Bristol-Myers announced Checkmate-026 (testing Opdivo, a PD-1 checkpoint inhibitor) in 2014; company did not specify what PD-L1 level constituted “strong” expression in public descriptions of the trial.
- Merck’s contemporaneous Keynote-024 study defined “PD-L1 strong” as ≥50% tumor-cell PD-L1 expression; plaintiffs say industry usage made a 5% cutoff inconsistent with “strong.”
- August 5, 2016: Bristol-Myers announced Checkmate-026 failed to show Opdivo outperformed chemotherapy and disclosed a 5% PD-L1 cutoff; stock fell ~16%.
- October 9, 2016: company said the study design prevented conclusions for patients above the 5% cutoff; stock fell again ~10%.
- Plaintiffs (public pension funds) sued under Section 10(b)/Rule 10b-5 and Sections 20(a) and 20A, alleging misrepresentations about trial design and omissions about the PD-L1 cutoff; defendants moved to dismiss.
- Court granted dismissal for failure to plead scienter (no strong inference of fraudulent intent) and dismissed control-person claims; plaintiffs were granted leave to amend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiffs pleaded actionable misrepresentations under §10(b)/Rule 10b-5 | Company mischaracterized trial population by saying “strongly PD-L1+” without disclosing that cutoff was 5% | Statements were vague/non-actionable and not shown to be false at the time | Claims dismissed—court focused on failure to plead required scienter for §10(b) liability |
| Whether plaintiffs alleged scienter via motive/opportunity | Defendants sought to protect proprietary info and profit by keeping stock price high; some insiders sold shares | Motives are generalized; sales were not shown to be unusual or profitable and some insiders increased holdings | Motive/opportunity theory insufficient to create strong inference of scienter |
| Whether plaintiffs alleged scienter via conscious misbehavior/recklessness | Defendants knew industry practice (e.g., Merck’s 50% definition) and Bristol-Myers’ prior 5% uses showed awareness that 5% was not "strong" | No specific contemporaneous documents or communications show defendants knew of an industry consensus; post hoc statements and prior uses do not establish recklessness | Allegations too conclusory and non-specific; no strong inference of recklessness or intent |
| Whether control-person liability under §§20(a) and 20A lies | Officers are control persons responsible for the alleged primary violations | Control claims fail if no primary securities-law violation is pleaded | Dismissed because plaintiffs failed to plead a primary violation |
| Remedy: leave to amend | Plaintiffs sought leave to replead | Defendants opposed dismissal but not repleading | Court granted leave to amend within 30 days |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility standard for Rule 12(b)(6))
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading must permit reasonable inference of liability)
- ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (heightened pleading in securities fraud contexts)
- Novak v. Kasaks, 216 F.3d 300 (requirements for pleading fraud and scienter specificity)
- Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148 (elements of §10(b)/Rule 10b-5 claims)
- Kalnit v. Eichler, 264 F.3d 131 (motive/opportunity and recklessness standards for scienter)
- ECA, Local 134 IBEW Joint Pension Trust v. JP Morgan Chase Co., 553 F.3d 187 (strong inference standard for scienter)
- Acito v. IMCERA Group, Inc., 47 F.3d 47 (stock sales not probative of motive absent unusual circumstances)