forward-looking statements 15 relate to “future expectations and performance”
How later courts described this case
- forward-looking statements 15 relate to “future expectations and performance”
- “courts rarely dismiss a complaint on this basis.”
- “Courts may take judicial notice of publications introduced to indicate 12 what was in the public realm at the time, not whether the contents of those articles were in 13 fact true.”
Written by the judges who cited it.
The opinion
1
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8 UNITED STATES DISTRICT COURT
9 SOUTHERN DISTRICT OF CALIFORNIA
10
11 IN RE ACADIA PHARMACEUTICALS Case No.: 18-CV-01647-AJB-BGS
INC. SECRUTIES LITIGATION
12
ORDER:
13
(1) GRANTING PLAINTIFF’S
14
MOTION TO STRIKE; AND
15
(2) GRANTING IN PART AND
16
DENYING IN PART DEFENDANTS’
17 MOTION TO DISMISS THE
AMENDED CLASS ACTION
18
COMPLAINT
19
(Doc. Nos. 52, 56)
20
21 Pending before the Court are Plaintiff’s motion to strike, (Doc. No. 56), and
22 Defendants’ motion to dismiss the consolidated amended class action complaint, (Doc. No.
23 52). Defendants oppose Plaintiff’s motion, (Doc. No. 59), and Plaintiff opposes
24 Defendants’ motion, (Doc. No. 55). For the reasons set forth more fully below, the Court
25 GRANTS Plaintiff’s motion to strike and GRANTS in part and DENIES in part
26 Defendants’ motion to dismiss.
27 / / /
28 / / /
1 I. BACKGROUND
2 Plaintiff represents a class of those who acquired ACADIA securities between April
3 29, 2016, and July 9, 2018, and who are suing under the Securities Exchange Act of 1934.
4 (Doc. No. 48 ¶ 1.)1 Plaintiffs allege that on April 29, 2016, the U.S. Food and Drug
5 Administration (“FDA”) approved ACADIA’s lead drug, NUPLAZID. (Id. ¶¶ 2, 3.) Prior
6 to approval, NUPLAZID went through four randomized, controlled trials for safety and
7 efficacy. (Id. ¶ 41.) The scale used as the primary efficacy variable failed to show a
8 statistically significant improvement in psychosis symptoms in three of the trials. (Id.) The
9 fourth trial was statistically positive for efficacy, however 11.6% of trial patients
10 discontinued the trial. (Id. ¶ 42.) In August 2014, ACADIA received a “Breakthrough
11 Therapy Designation” for NUPLAZID. (Id. ¶ 43.) On September 1, 2015, ACADIA then
12 submitted a new drug application to the FDA. (Id. ¶ 45.)
13 In September 2015, Dr. Paul Andreason, the primary reviewer for the FDA of
14 ACADIA’s new drug application for NUPLAZID, issued a clinical review in September
15 2015 with a recommendation of “do not approve” based in part on the high death rate. (Id.
16 ¶ 46.) On March 29, 2016, an advisory committee voted to approve the drug. (Id. ¶ 48–49.)
17 The FDA accepted the committee’s recommendation and approved NUPLAZID the
18 following month. (Id. ¶ 50.) A black box warning was placed on NUPLAZID that indicated
19 there is an increased risk of death in elderly patients with dementia-related psychosis
20 treated with antipsychotic drugs. (Id.) On May 31, 2016, NUPLAZID commercially
21 launched. (Id. ¶ 51.)
22 Following the launch of NUPLAZID, ACADIA spent $609,556 on consulting,
23 speaking, and travel and lodging payments with payments to individual doctors as large as
24 $25,690 and $19,145. (Id. ¶ 67.) In 2017, ACADIA paid more than $8.6 million, with 62
25 doctors receiving more than $50,000 each, and 26 receiving at least $100,000. (Id. ¶ 68.)
26
27
28 1 The following facts are taken from Plaintiff’s complaint and construed as true for the limited purpose of resolving this
1 Many of the physicians who had received the consulting fee in 2016 and 2017 prescribed
2 NUPLAZID in 2016. (Id. ¶ 71.)
3 The Class Period begins on April 29, 2016, when ACADIA issued a press release
4 saying the FDA had approved NUPLAZID. (Id. ¶ 73.) On May 3, 2016, three members of
5 ACADIA’s board of directors announced they were leaving the company. (Id. ¶ 80.) On
6 November 7, 2016, ACADIA stated that it was receiving positive feedback from doctors,
7 patients, and caregivers regarding the drug, prescription growth, and net product sales. (Id.
8 ¶ 94.)
9 In April 2018, CNN published an article that expressed concern over reports of
10 deaths from NUPLAZID and concerns that the drug had been approved too quickly. (Id. ¶
11 121.) On April 9, 2018, ACADIA’s stock price fell 23.4%. (Id. ¶ 122.) Two weeks later,
12 the FDA announced it would reexamine NUPLAZID’s safety. (Id. ¶ 125.) ACADIA’s
13 stock dropped 21.9% on April 25, 2018. (Id. ¶ 126.)
14 On July 9, 2019, the Southern Investigative Reporting Foundation (“SIRF”)
15 published a report that ACADIA accomplished its commercial success by “dispensing
16 wads of cash to doctors to incentivize prescription writing and downplaying mounting
17 reports of patient deaths.” (Id. ¶¶ 132–33.) On July 9, 2019, ACADIA’s stock price dropped
18 6.8%. (Id. ¶ 134.)
19 Over four months later, ACADIA filed a prospectus supplement containing a
20 statement that said the company had “received a civil investigative demand, or CID, from
21 the DOJ pursuant to the Federal False Claims Act requesting certain documents and
22 information related to our sales and marketing of NUPLIZAD.” (Id. ¶ 135.) The DOJ
23 investigation is ongoing. (Id.)
24 On July 19, 2018, Plaintiff filed a complaint in this litigation. (Doc. No. 1.) On
25 February 26, 2019, the Court granted consolidation, appointed lead plaintiff, and lead
26 counsel. (Doc. No. 41.) Following that Order, Plaintiff filed a consolidated complaint.
27 (Doc. No. 48.) On June 7, 2019, Defendants filed the instant motion to dismiss. (Doc. No.
28
1 52.) On July 23, 2019, Plaintiff filed the instant motion to strike. (Doc. No. 56.) This Order
2 follows.
3 II. LEGAL STANDARD
4 A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of a plaintiff’s
5 complaint and allows a court to dismiss a complaint upon a finding that the plaintiff has
6 failed to state a claim upon which relief may be granted. See Navarro v. Block, 250 F.3d
7 729, 732 (9th Cir. 2001). “[A] court may dismiss a complaint as a matter of law for (1) lack
8 of a cognizable legal theory or (2) insufficient facts under a cognizable legal claim.”
9 SmileCare Dental Grp. v. Delta Dental Plan of Cal., 88 F.3d 780, 783 (9th Cir. 1996)
10 (citation and internal quotation marks omitted). However, a complaint will survive a
11 motion to dismiss if it contains “enough facts to state a claim to relief that is plausible on
12 its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). In making this
13 determination, a court reviews the contents of the complaint, accepting all factual
14 allegations as true, and drawing all reasonable inferences in favor of the nonmoving party.
15 Cedars-Sinai Med. Ctr. v. Nat’l League of Postmasters of U.S., 497 F.3d 972, 975 (9th Cir.
16 2007).
17 Notwithstanding this deference, the reviewing court need not accept “legal
18 conclusions” as true. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). It is also improper for a
19 court to assume “the [plaintiff] can prove facts that [he or she] has not alleged.” Associated
20 Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526
21 (1983).
22 III. DISCUSSION
23 A. Plaintiff’s Motion to Strike
24 Plaintiff filed a motion pursuant to Federal Rules of Civil Procedure 12(f), Local
25 Civil Rule 7.1(h), and the Court’s inherent authority, to strike Exhibit A to the Declaration
26 of Peter M. Adams in Support of Defendants’ Motion to Dismiss the Amended Class
27 Action Complaint and references thereto in Defendants’ Memorandum in Support of
28 Motion to Dismiss. (Doc. No. 56-1 at 2.)
1 Federal Rule of Civil Procedure 12(f) provides district courts with the right to “strike
2 from a pleading an insufficient defense or any redundant, immaterial, impertinent, or
3 scandalous matter.” Fed. R. Civ. P. 12(f). All district courts have the inherent right to
4 control their own dockets. See, e.g., Landis v. N. Am., 299 U.S. 248, 254 (1936). The Ninth
5 Circuit has affirmed that this power includes the right to strike documents other than
6 pleadings from its dockets. See Lamos v. Astrue, 275 F. App’x 617, 618 (9th Cir. 2008);
7 see also Smith v. Frank, 923 F.2d 139, 142 (9th Cir. 1991). This District limits briefs filed
8 in support motions to “a total of twenty (25) pages in length per party,” absent leave from
9 the Court. Local Civil Rule 7.1(h).
10 Plaintiff argues that Defendants submitted an exhibit, totaling 25 pages, for the sole
11 purpose of presenting additional arguments against falsity which they could not fit in their
12 Memorandum of Points and Authorities. The Court agrees. Defendants try to assert the
13 argument that this is simply a chart for the Court’s convenience, however, that is not the
14 case. While the Court does appreciate charts to simplify complex arguments, Defendants
15 utilized this chart to identify 108 statements encompassing 38 paragraphs of the complaint
16 in a 25-page chart. This is simply an extension of Defendants’ argument and thus,
17 Defendants’ have exceeded the 25-page limit for their briefs. See e.g., Jiangchen v.
18 Rentech, Inc., No. CV 17-1490-GW (FFMx), 2017 WL 10363990, at *4 (C.D. Cal. Nov.
19 20, 2017) (striking an appendix that highlighted what defendants contended were defects
20 in plaintiff’s pleadings).
21 Defendants argue that the Court should still consider Exhibit A as good cause exists
22 to allow extra pages. (Doc. No. 59 at 3–4.) However, Defendants would have needed to
23 seek leave of the Court prior to filing their brief. Defendants failed to do so.
24 Accordingly, the Court GRANTS Plaintiff’s motion to strike.
25 B. Defendants’ Request for Judicial Notice
26 Defendants request judicial notice of fifty-six (56) documents. Federal Rule of
27 Evidence 201 states that a “court may judicially notice a fact that is not subject to
28 reasonable dispute because it: (1) is generally known within the trial court’s territorial
1 jurisdiction; or (2) can be accurately and readily determined from sources whose accuracy
2 cannot reasonably be questioned.” Fed. R. Evid. 201(b).
3 However, this request reflects “[t]he overuse and improper application of judicial
4 notice.” Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 998 (9th Cir. 2018), cert.
5 denied 139 S. Ct. 2615 (2019). Many of the documents for which Defendants seek judicial
6 notice are not appropriate for judicial notice. For example, Defendants seek judicial notice
7 of several press releases, (see, e.g., Doc. No. 52-2, Exs. 11, 14, 15, 18, 21, 24, 27, 31, 34,
8 39, 44, 45), and transcripts of quarterly earnings calls, (see, e.g., Doc. No. 52-2, Exs. 12,
9 13, 17, 20, 23, 26, 29, 33, 36, 47), but the Court may not take judicial notice of these
10 documents. See Von Saher v. Norton Simon Museum of Art at Pasadena, 592 F.3d 954,
11 960 (9th Cir. 2010) (“Courts may take judicial notice of publications introduced to indicate
12 what was in the public realm at the time, not whether the contents of those articles were in
13 fact true.”) (internal quotation marks omitted).
14 Further, given the number of documents Defendants seek to have considered, the
15 Court finds that such documents would more be appropriate in connection with a motion
16 for summary judgment. See Wright & Miller, 5C Fed. Prac. & Proc. Civ. § 1366, at 159
17 (“As the language of [Rule 12(b)(6) ] suggests, federal courts have complete discretion to
18 determine whether or not to accept the submission of any material beyond the pleadings
19 that is offered in conjunction with a Rule 12(b)(6) motion and rely on it, thereby converting
20 the motion, or to reject it or simply not consider it.”). However, the Court does not convert
21 the instant motion to dismiss to a motion for summary judgment. Accordingly, the Court
22 DENIES Defendants’ request for judicial notice.
23 C. Defendants’ Motion to Dismiss
24 Defendants assert that Plaintiffs fail to state a claim under Section 10(b) since
25 Plaintiff fails to identify any actionable misstatement or omission, fails to adequately plead
26 scienter, and fails to adequately plead loss causation. (See generally Doc. No. 52-1.)
27 Further, Defendants argue that Plaintiff has failed to state a claim under Section 20(a). (See
28 generally id.)
1 Section 10(b) of the Exchange Act forbids: (1) the use or employment of any
2 deceptive device, (2) in connection with the purchase or sale of any security, and (3) in
3 contravention of Securities and Exchange Commission rules and regulations. 15 U.S.C. §
4 78j(b); see Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 341 (2005). Additionally,
5 Rule 10b–5, promulgated by the SEC under Section 10(b), forbids the making of any
6 “untrue statement of a material fact” or the omission of any material fact “necessary in
7 order to make the statements made not misleading.” 17 C.F.R. § 240.10b–5; see Dura, 544
8 U.S. at 341. To succeed in a private civil action under Section 10(b) and Rule 10b–5, a
9 plaintiff must establish “(1) a material misrepresentation (or omission); (2) scienter, i.e., a
10 wrongful state of mind; (3) a connection with the purchase or sale of a security; (4) reliance
11 ...; (5) economic loss; and (6) loss causation, i.e., a causal connection between the material
12 misrepresentation and the loss.” Dura, 544 U.S. at 341–42.
13 i. Manner of Pleading
14 Defendants assert that Plaintiff’s complaint is a “puzzle pleading” and does not
15 comply with the PSLRA or Rule 9(b). (Doc. No. 52-1 at 20.) Plaintiff’s complaint contains
16 a designated section entitled “Materially False and Misleading Statements Issued During
17 the Class Period.” (Doc. No. 48 at 23.) While the Court notes that Plaintiff’s complaint
18 does contain large block quotes, Plaintiff’s complaint does single out the actual statements
19 that are the basis of Plaintiff’s securities fraud claim. Cf. Primo v. Pac. Biosciences of Cal.,
20 Inc., 940 F. Supp. 2d 1105, 1112 (N.D. Cal. 2013); Lifschitz v. NextWave Wireless Inc.,
21 No. 08CV1697-LAB (WMC), 2010 WL 11512356, at *3 (S. D. Cal. Mar. 5, 2010); In re
22 Pixar Sec. Litig., 450 F. Supp. 2d 1096, 1100 (N.D. Cal. 2006). Accordingly, the Court
23 does not find that Plaintiff’s complaint is a “puzzle pleading.”
24 / / /
25 / / /
26 / / /
27 / / /
28 / / /
1 ii. Not Actionable Statements
2 Defendants assert that the alleged misstatements are not actionable because they are
3 accurate statements of fact, forward looking statements, expressions of opinion, and
4 corporate optimism.2 (Doc. No. 52-1 at 20–22.)
5 Defendants explain that Plaintiff alleges certain statements such as “Net sales rose
6 to 15.3 million” are misstatements. However, this statement is a true statement. To the
7 extent, Plaintiff seeks to hold Defendants liable for statements that are true, the Court grants
8 Defendants’ motion to dismiss. See 15 U.S.C. § 78u-4(b)(1); see, e.g., In re Sanofi Sec.
9 Litig., 155 F. Supp. 3d 386, 404 (S.D.N.Y. 2016); In re Splash Tech. Holdings, Inc. Sec.
10 Litig., 160 F. Supp. 2d 1059, 1077 (N.D. Cal. 2001).
11 Defendants contend that several of the statements are forward-looking and protected
12 by the PSLRA safe harbor. The Court agrees. Forward-looking statements are protected by
13 the PSLRA safe harbor. See 15 U.S.C. § 78u-5(c)(1); Police Ret. Sys. of St. Louis v.
14 Intuitive Surgical, Inc., 759 F.3d 1051, 1059 (9th Cir. 2014) (forward-looking statements
15 relate to “future expectations and performance”). For example, the following statements
16 are in fact forward-looking, “we will need to increase awareness and education,” “we
17 expect that usage should increase and that the number of patients on drug will likely build
18 over time,” and “we’re going to show the benefits and we’re going to help guide the
19 physician in seeing why NUPLAZID would be their best choice.” (Doc. No. 48 ¶¶ 77, 82.)
20 Plaintiff argues that these statements describe Defendants’ current commercialization plan
21 and the risk warnings were boilerplate, accordingly these statements are not subject to the
22 safe harbor provision. (Doc. No. 55 at 23.) However, these statements were in relation to
23 future expectations and performance. Accordingly, to the extent, Plaintiff seeks to hold
24 Defendants liable for statements that are forward-looking, the Court grants Defendants’
25 motion to dismiss.
26
27 2 As explained above, the Court grants Plaintiff’s motion to strike Defendants’ Exhibit A. Accordingly, the Court will only
address the statements that were contained in Defendants’ motion to dismiss. The Court will not evaluate every statement
28 Defendants identified in Exhibit A and determine whether they are accurate statements of fact, forward looking statements,
1 Next, Defendants contend that Plaintiff attacks statements of opinion. However, the
2 statements that Defendants point to are not statements of opinion. While Defendants only
3 include the partial quotations in their motion in reading the selected statements in their
4 entirety, it is clear some of these are not statements of opinion. For example, in paragraph
5 89 of the complaint, the statement, “we are very pleased to see it appears both on the side
6 effects and tolerance side as well as on the efficacy side, everything is supportive of the
7 profile that we – that the drug demonstrated in clinical trials,” is simply not an opinion.
8 (Doc. No. 48 ¶ 89.) Further, Defendants assert that in paragraph 94 the statement contains
9 the words “I’m especially pleased,” however, paragraph 94 contains no such language. (Id.
10 ¶ 94.) However, statements such as “we are confident NUPLAZID over time should
11 become the standard of care for patients with hallucinations and delusions associated with
12 PDP,” is a statement of opinion. This statement does improperly form the basis of a
13 securities fraud claim. (Id. ¶ 77); see, e.g., In re Downey Sec. Litig., No. CV08-3261-JFW
14 (RZx), 2009 WL 736802, at *6 (C.D. Cal. Mar. 18, 2009). The Court will not parse through
15 the entire complaint to determine which statements are opinion and which are not, but to
16 the extent Plaintiff is relying on statements of opinion, the Court grants Defendants’ motion
17 to dismiss.
18 Defendants argue that Plaintiff relies on statements of corporate optimism. Again,
19 as above, the Court will not parse through each statement of the complaint. However, as
20 examples, the Court finds that the statements such as “there are good reasons for physicians
21 to consider switching their patients,” (Doc. No. 48 ¶ 82), and “we saw solid month-over-
22 month prescription growth,” (Id. ¶ 91) may form the basis for a securities fraud claim. See
23 Warshaw v. Xoma Corp., 74 F,3d 955, 959 (9th Cir. 1996) (“general statements of
24 optimism, when taken in context, may form a basis for a securities fraud claim.”) However,
25 statements such as “as was the case with the field management team we hired in March of
26 2015, this truly is an impressive group,” (Doc. No. 48 ¶ 77), is a statement of corporate
27 optimism and cannot form the basis of a securities fraud claim. See Intuitive Surgical, 759
28 F.3d at 1060. Thus, to the extent Plaintiff relies upon statement of corporate optimism, the
1 Court grants Defendants’ motion to dismiss.
2 Accordingly, Plaintiff must base his complaint on statements that are actionable.
3 Plaintiff has currently based his complaint on actionable statements and some not
4 actionable statements. Thus, to the extent Plaintiff bases his causes of action on not
5 actionable statements, the Court GRANTS Defendants’ motion to dismiss.
6 iii. Materially False or Misleading Statements
7 Defendants argue that the alleged misstatements are not misleading as ACADIA
8 fully disclosed the trial results, the post-marketing events were public, and ACADIA had
9 no duty to accuse itself of wrongdoing. (Doc. No. 52-1 at 22–27.) To allege an actionable
10 false or misleading statement, a plaintiff must “specify each statement alleged to have been
11 misleading, the reason or reasons why the statement is misleading, and, if an allegation
12 regarding the statement or omission is made on information and belief, ... state with
13 particularity all facts on which that belief is formed.” In re Rigel Pharms., Inc. Sec. Litig.,
14 697 F.3d 869, 877 (9th Cir. 2012) (quoting 15 U.S.C. § 78u-4(b)(1)). This is a demanding
15 standard, requiring a plaintiff to allege with specificity “contemporaneous statements or
16 conditions,” Ronconi v. Larkin, 253 F.3d 423, 432 (9th Cir. 2001), that demonstrate both
17 “how and why the statements were false” when made, Metzler Inv. GMBH v. Corinthian
18 Colleges, Inc., 540 F.3d 1049, 1071–72 (9th Cir. 2008).
19 a. Disclosure of the Clinical Trial Results
20 Defendants assert that Plaintiff cannot establish a plausible claim. First, Plaintiff
21 asserts that Defendants failed to disclose “that patients treated with NUPLAZID during the
22 Phase III trial died at twice the rate of patients treated with placebo.” (Doc. No. 48 ¶ 74.)
23 Defendants assert that this information was publicly accessible in The Lancet and they
24 expressly referred investors to the article. (Doc. No. 52-1 at 23.) Defendants are asserting
25 the truth of the market defense. At this stage, the Court agrees with Plaintiff that this it
26 would be inappropriate to dismiss based on this defense. In re Iso Ray, Inc. Sec. Litig., 189
27 F. Supp. 3d 1057, 1073 (E.D. Wash. 2016); In re Amgen Inc. Sec. Litig., 544 F. Supp. 2d
28 1009, 1025 (C.D. Cal. 2008) (“courts rarely dismiss a complaint on this basis.”) Further,
1 the information must be transmitted to the public “with a degree of intensity and credibility
2 sufficient to effectively counter-balance any misleading impression created by the insiders’
3 one-sided representations.” In re Iso Ray, Inc. Sec. Litig., 189 F. Supp. 3d at 1073. Pointing
4 investors to read an article may not qualify as transmitting the information to the public
5 with a degree of intensity and credibility sufficient to effectively counter-balance any
6 misleading impression. Accordingly, Plaintiff has established a plausible misleading claim
7 based on the mortality rate.
8 Next, Defendants contend that Plaintiff does not assert any facts to support several
9 bases to establish misleading statements. First, Plaintiff faults Defendants for failing to
10 disclose that “the risk of death was higher for NUPLAZID as compared to other
11 antipsychotic drugs.” (Doc. No. 48 ¶ 87.) Second, Plaintiff accuses Defendants of failing
12 to disclose, “that patients with [PDP] were also at greater risk of death even if they did not
13 suffer from dementia.” (Id. ¶¶ 50, 87.) And lastly, Plaintiff accuses Defendants of lying to
14 investors by failing to tell them that Dr. Andreason recommended against approval before
15 the advisory committee meeting. (Id. ¶¶ 46, 74.) The Court finds that Plaintiffs have alleged
16 sufficient facts to establish that failure to disclose these factors were in fact misleading to
17 investors. See Brody v. Transitional Hospitals Corp., 280 F.3d 997, 1006 (9th Cir. 2002)
18 (finding that a statement is misleading if it would give a reasonable investor the
19 “impression of a state of affairs that differs in a material way from the one that actually
20 exists.”) Furthermore, this information is simply not trivial and immaterial, and thus was
21 worthy of disclosure.
22 b. Post Marketing Events
23 Defendants next argue that the FAERS data cannot give rise to a claim for fraud by
24 omission because the data was public record and investors were presumed to have access
25 to it. (Doc. No. 52-1 at 25); see Philco Invs. v. Martin, No. C10-02785 CRB, 2011 WL
26 4595247, at *9 (N.D. Cal. Oct. 4, 2011) (investors “presumably” had access to FAERS
27 data); see also Tadros v. Celladon Corp., 738 F. App’x 448, 448 (9th Cir. 2018) (rejecting
28 omission claim where omitted facts had been publicly disclosed); McGoveny v. Aerohive
1 Networks, Inc., 367 F. Supp. 3d 1038, 1056 (N.D. Cal. 2019); Paskowitz v. Pacific Capital
2 Bancorp, No. CV 09-6449 DW (JCx), 2009 WL 4911850, at *6 (C.D. Cal. Nov. 6, 2009).
3 However, as described above, Defendants’ assertion of the truth of the market defense at
4 this stage is inappropriate. Further, FAERS data files only contain raw data and “[a] simple
5 search of FAERS data cannot be performed with these files by persons who are not familiar
6 with creation of relational databases.” (Doc. No. 55 at 24.) In Philco, the plaintiffs were
7 sophisticated investors in the pharmaceutical industry and the data had been referenced in
8 public disclosures. See Philco Invs., No. C10-02785 CRB, 2011 WL 4595247, at *9. That
9 is not the case here. There are no facts present that Plaintiff was a sophisticated investor in
10 the pharmaceutical industry and this data was not referenced in a public disclosure by
11 Defendants.
12 Defendants also argue that there are no facts alleged that show that the FAERS
13 reports raised a “red flag” or were inconsistent with anything Defendants said. (Doc. No.
14 52-1 at 25.) However, the FDA decided to revaluate the drug’s safety based on these
15 reports. (Doc. No. 48 ¶ 125.) Accordingly, Plaintiff has adequately pled that the statements
16 were false or misleading because they failed to disclose reports of death in patients taking
17 NUPLAZID.
18 c. Duty to Disclose Kickbacks
19 Lastly, Defendants argue that they did not have a duty to accuse itself of wrongdoing.
20 (Doc. No. 52-1 at 26.) “[F]ederal securities laws do not require a company to accuse itself
21 of wrong-doing.” In re Volkswagen “Clean Diesel” Mktg., Sales Practices & Prods. Liab.
22 Litig., 258 F. Supp. 3d 1037, 1043 (N.D. Cal. June 28, 2017). While this is true, Plaintiffs
23 argument is that Defendants had a duty to accurately describe its business practices, which
24 included kickbacks to physicians. See In re Qualcomm Inc. Sec. Litig., No. 17CV121-JAH-
25 WVG, 2019 WL 1239301, at *4 (S.D. Cal. Mar. 18, 2019). Here, Defendants did discuss
26 their commercialization strategy. Defendants discussed specific aspects of their strategy in
27 NUPLAZID’s success and rising prescription rates. Thus, as the complaint alleges,
28 kickbacks were a part of Defendants business practices. As Defendants chose to discuss
1 their commercialization strategy, they had a duty to disclose that they were allegedly
2 paying physicians to prescribe NUPLAZID. Accordingly, Plaintiff has adequately pled that
3 the statements were false or misleading because they failed to disclose payments to
4 physicians.
5 iv. Scienter
6 “Scienter is [the] essential element of a § 10(b) claim.” Lipton v. Pathogenesis Corp.,
7 284 F.3d 1027, 1032 (9th Cir. 2002). The Supreme Court has explained that scienter for
8 purposes of Section 10(b) and Rule 10b–5 is “the defendant’s intention to deceive,
9 manipulate or defraud.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 308
10 (2007). The complaint must “state with particularity facts giving rise to a strong inference
11 that the defendant acted with the required state of mind.” Id. (quoting 15 U.S.C. § 78u–
12 4(b)(2)). This means a plaintiff “must provide, in great detail, all the relevant facts forming
13 the basis of her belief” that the defendant has acted with “deliberate recklessness or intent.”
14 In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 985 (9th Cir. 1999), abrogated on
15 other grounds by S. Ferry LP, No. 2 v. Killinger, 542 F.3d 776 (9th Cir. 2008). A “strong
16 inference” is one that a reasonable person would deem “cogent and at least as compelling
17 as any opposing inference one could draw from the facts alleged.” Tellabs, 551 U.S. at 324.
18 When analyzing the sufficiency of a plaintiff’s scienter pleadings, the Court must
19 “determine whether any of the allegations, standing alone, are sufficient to create a strong
20 inference of scienter.” N.M. State Inv. Council v. Ernst & Young LLP, 641 F.3d 1089, 1095
21 (9th Cir. 2011). “[I]f no individual allegation is sufficient, we conduct a ‘holistic’ review
22 of the same allegations to determine whether the insufficient allegations combine to create
23 a strong inference of intentional conduct or deliberate recklessness.” Id.
24 Here, Plaintiff alleges that scienter has been adequately pled because: (1) Defendants
25 tracked adverse events and had access to data showing that the Company paid doctors; (2)
26 three ACADIA directors resigned four days after the FDA approved NUPLAZID; and (3)
27 NUPLAZID is ACADIA’s only source of revenue. (Doc. No. 55 at 26–29.) The Court will
28 address each argument in turn.
1 First, Plaintiff argues that complaint supports a compelling inference of scienter
2 because Defendants had access to data showing that ACADIA made large payments to
3 physicians that prescribed NUPLAZID and Defendants admitted they tracked adverse
4 events. “The most direct way to show both that a statement was false when made and that
5 the party making the statement knew that it was false is via contemporaneous reports or
6 data, available to the party, which contradict the statement.” Nursing Home Pension Fund,
7 Local 144 v. Oracle Corp., 380 F.3d 1226, 1230 (9th Cir. 2004). Here, the PPACA requires
8 companies to report transfers of value to physicians to the government on an annual basis.
9 Further, Defendants have a legal obligation to submit this data to the Center for Medicare
10 and Medicaid Services. Accordingly, given the reporting requirements, Defendants cannot
11 claim ignorance of the payments, and in fact Defendants do not claim ignorance in their
12 motion. See Bartelt v. Affymax, Inc., No. 13-CV-01205-WHO, 2014 WL 231551, at *13
13 (N.D. Cal. Jan. 21, 2014). Defendants argue that there are no allegations to show what any
14 Defendant believed about the reports or payments. See In re Rigel Pharm. Sec. Litig., 697
15 F.3d 869, 883–84 (9th Cir. 2012). However, there is an inference of scienter. As alleged,
16 Defendants had access to this information and were likely aware that ACADIA was making
17 large payments to physicians that prescribed NUPLAZID with frequency.
18 Second, it is undisputed that NUPLAZID is ACADIA’s only product. Accordingly,
19 Defendants focused all their attention on successfully commercializing NUPLAZID.
20 Accordingly, the Court agrees that this supports an inference of scienter. It is likely that,
21 based on the allegations in the complaint, that they knew about the alleged scheme to pay
22 off physicians to prescribe NUPLAZID. See In re Amgen Sec. Litig., No. CV 07-2536 PSG
23 (PLAx), 2014 WL 12585809, at *11 (C.D. Cal. Aug. 4, 2014). Defendants argue that there
24 must be “red flags” so dramatic that it would be “absurd” to think that Defendants “did not
25 know that something was wrong.” Webb v. Solarcity Corp., 884 F.3d 844, 857 (9th Cir.
26 2018). Here, there were red flags. The data that Defendants do not dispute tracking clearly
27 showed red flags. Based on the allegations, the fact that NUPLAZID was ACADIA’s only
28 product supports the inference of scienter.
1 Third, it is undisputed that on May 3, 2016, three members of ACADIA’s Board of
2 Directors resigned. This was four days after the FDA approved NUPLAZID. Plaintiff
3 argues that the timing of these resignations supports scienter and suggests that they wanted
4 no part of the drug’s commercialization. While this factor alone does not support a strong
5 inference of scienter, if taken together with the other facts alleged, this fact does support
6 scienter. It is plausible that the directors resigned due to the information regarding
7 payments to physicians.
8 Accordingly, the Court DENIES Defendants’ motion to dismiss regarding the
9 element of scienter.
10 v. Loss Causation
11 Even when deceptive conduct is properly pled, a securities fraud complaint must
12 also adequately plead “loss causation.” Erica P. John Fund, Inc. v. Halliburton Co., 563
13 U.S. 804, 807 (2011). Loss causation is shorthand for the requirement that “investors must
14 demonstrate that the defendant’s deceptive conduct caused their claimed economic loss.”
15 Id. Thus, like a plaintiff claiming deceit at common law, the plaintiff in a securities fraud
16 action must demonstrate that an economic loss was caused by the defendant’s
17 misrepresentations, rather than some intervening event. Dura, 544 U.S. at 343–44. The
18 burden of pleading loss causation is typically satisfied by allegations that the defendant
19 revealed the truth through “corrective disclosures” which “caused the company’s stock
20 price to drop and investors to lose money.” Halliburton, 573 U.S. at 808.
21 Plaintiff alleges that there were three stock drops. On April 9, 2018, the stock
22 dropped 23.4%. On April 25, 2018, the stock dropped 21.9%. Finally, on July 9, 2018, the
23 stock dropped 6.8%. On April 9, 2018, CNN reported that “[p]hysicians, medical
24 researchers and other experts told CNN that they worried that [NUPLAZID] had been
25 approved too quickly, based on too little evidence that it was safe or effective.” (Doc. No.
26 48 ¶¶ 17, 121.) Defendants argue that this article simply rehashed the already-public
27 FAERS data. However, as explained above, the FAERS data is raw data and a simple
28 search cannot be done. Accordingly, the Court finds this argument unpersuasive.
1 On April 25, 2018, CNN reported that the FDA was re-examining NUPLAZID.
2 (Doc. No. 48 ¶¶ 19, 125.) Defendants argue that the announcement of an investigation
3 without more is insufficient to establish loss causation. See Loos v. Immersion Corp., 762
4 F.3d 880, 890 (9th Cir. 2014); see also Meyer v. Greene, 710 F.3d 1189, 1201 (11th Cir.
5 2013); Mauss v. Nuvavsive, Inc., No. 13-cv-2005 JM (JLB), 2014 WL 6980441, at *6–7
6 (S.D. Cal. Dec. 9, 2014). Further, Defendants allege the investigation alleged to nothing
7 being amiss and therefore, Plaintiff could not allege “more.” However, the fact that the
8 FDA affirmed its approval of NUPLAZID “does not ipso facto immunize [Defendants]
9 from liability.” See In re Amgen Sec. Litig., No. CV 07-2536 PSG (PLAx), 2014 WL
10 12585809, at *22 (“the issue before the Court is no whether the FDA … approved Amgen’s
11 products as safe and effective, but whether Defendants violated securities laws.”) Thus,
12 Plaintiff has alleged loss causation for the stock drop on April 25, 2018.
13 On July 9, 2018, the stock dropped following the SIRF report that cited to data on
14 Defendants’ payments to doctors and NUPLAZID prescriptions and alleged that
15 Defendants must have been “dispensing wads of cash to doctors to incentivize prescription
16 writing.” (Doc. No. 52-1 at 32.) Defendants allege that this report also simply rehashed the
17 CNN article and the data regarding payments was already public. Defendants explain that
18 repackaging public information does not constitute a disclosure. Further, Defendants argue
19 that using public information to form an opinion is really only disclosure of the opinion
20 itself. See Meyer, 710 F.3d at 1199. However, as pled, the allegations create a sufficient
21 connection between the misrepresentations and the decline in stock price. See Constr.
22 Workers Pension Tr. Fund v. Genoptix, Inc., No. 10CV2502-CAB (DHB), 2013 WL
23 12123841, at *7–8 (S.D. Cal. Mar. 22, 2013).
24 Thus, the Court DENIES Defendants’ motion to dismiss regarding loss causation.
25 / / /
26 / / /
27 / / /
28 / / /
1 vi. Section 20(a)
2 Section 20(a) imposes liability on control persons. 15 U.S.C. § 78t(a). “To establish
3 || liability under Section 20(a), a plaintiff must first prove a primary violation of Section
4 || 10(b) or Rule 10b-5.” Kelly v. Electronic Arts, Inc., 71 F. Supp. 3d 1061, 1068 (N.D. Cal.
5 ||2014). Since Plaintiff has adequately pled a Section 10(b) claim and Defendants only
6 || challenged Plaintiff’s Section 20(a) claim on that basis, the Court finds that Plaintiff has
7 adequately pled a Section 20(a) claim. Accordingly, the Court DENIES Defendants’
8 || motion to dismiss regarding Section 20(a).
9 Vv. CONCLUSION
10 Based on the foregoing, the Court GRANTS in part and DENIES in part
11 ||Defendants’ motion to dismiss. Plaintiff must ensure that the statements upon which he
12 || bases his allegations are actionable statements. Plaintiff will have forty-five (45) days from
13 || the date of this Order to file an amended complaint addressing the deficiencies noted herein
14 |}.
15 IT ISSO ORDERED.
16
17 || Dated: June 1, 2020 © ¢
18 Hon. Anthony J. attaglia
19 United States District Judge
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