United States Court of Appeals
For the First Circuit
No. 22-1773
NADIA SHASH, individually and on behalf of all others similarly
situated; AMJAD KHAN, individually and on behalf of all others
similarly situated,
Plaintiffs, Appellants,
VICTOR D. MENASHE,
individually and on behalf of all others similarly situated,
Plaintiff,
v.
BIOGEN, INC.; MICHEL VOUNATSOS; ALFRED W. SANDROCK, JR.;
SAMANTHA BUDD HAEBERLEIN,
Defendants, Appellees,
JEFFREY D. CAPELLO; MICHAEL R. MCDONNELL,
Defendants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Indira Talwani, U.S. District Judge]
Before
Barron, Chief Judge,
Howard and Gelpí, Circuit Judges.
Robert K. Kry, with whom Fu Shek Rocky Li, Sara E. Margolis,
Swara Saraiya, MoloLamken LLP, Laurence M. Rosen, and The Rosen
Law Firm, P.A. were on brief, for appellants.
Audra J. Soloway, with whom Daniel S. Sinnreich, Danielle J.
Marryshow, Paul, Weiss, Rifkind, Wharton & Garrison LLP, William
J. Trach, and Latham & Watkins LLP were on brief, for appellees.
October 11, 2023
GELPÍ, Circuit Judge. Following a significant drop in
Biogen Inc.'s stock price, Plaintiff-Appellant Nadia Shash and
other investors (collectively, "investors") brought a securities
fraud class action alleging that Defendants-Appellees1
("Defendants") violated sections 10(b) and 20(a) of the Securities
Exchange Act of 1934. Specifically, investors contend that
Defendants concealed data that, if revealed, would have
established that Defendants' statements about its Alzheimer's
disease drug's clinical trials were misleading. Defendants moved
to dismiss, and the district court granted the motion, concluding
that investors failed to adequately allege a misleading statement
or omission, scienter, and loss causation. For the reasons
explained herein, we affirm the district court's dismissal of
investors' securities fraud claims, except with respect to one
particular statement for which we conclude that investors'
pleadings adequately stated a claim.
I. Background
When reviewing a motion to dismiss, we recount the
underlying facts as alleged in the complaint, "supplemented by
certain materials the [D]efendants filed in the district court in
1 The Defendants are Biogen, Inc. ("Biogen") and three of
Biogen's then-upper-level executives, Michel Vounatsos, Alfred W.
Sandrock, Jr., and Samantha Budd Haeberlein.
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support of their motion to dismiss."2 Constr. Indus. & Laborers
Joint Pension Tr. v. Carbonite, Inc., 22 F.4th 1, 4 (1st Cir. 2021)
(quoting Mehta v. Ocular Therapeutix, Inc., 955 F.3d 194, 198 (1st
Cir. 2020)). Our recitation refers to the investors' second
amended complaint and omits any conclusory allegations. See
Ponsa-Rabell v. Santander Sec. LLC, 35 F.4th 26, 30 n.2 (1st Cir.
2022).
A. Facts
Biogen is a publicly traded biotechnology company
headquartered in Cambridge, Massachusetts, that develops and
manufactures products to treat a variety of diseases and disorders.
This case revolves around Biogen's Alzheimer's disease treatment,
aducanumab.
Alzheimer's disease is a neurodegenerative disease of
the brain, characterized by the progressive loss of cognitive
function. Although the progression of the disease is well
understood, its cause remains unknown. A leading hypothesis
theorizes that the protein amyloid beta builds up in the brain and
forms into larger structures called plaques, which interfere with
2 Before the district court, investors moved to exclude
certain documents offered by Defendants. Investors did not
contest, however, the court's consideration of full transcripts of
calls and presentation slides where Defendants made the allegedly
misleading statements. Thus, we consider these exhibits when
necessary to contextualize the statements at issue. See Clorox
Co. P.R. v. Proctor & Gamble Com. Co., 228 F.3d 24, 32 (1st Cir.
2000).
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synaptic connections, resulting in loss of cognition and other
symptoms.
Aducanumab is a monoclonal antibody that specifically
targets aggregated amyloid beta. Biogen believed that aducanumab
could slow the progression of Alzheimer's disease by removing the
amyloid plaque present in patients' brains. Before Biogen could
seek approval from the Food and Drug Administration ("FDA") to
market the antibody, aducanumab had to go through a series of
studies to establish its tolerability, safety, and efficacy. At
issue here are the reported results of aducanumab's Phase III
trials: ENGAGE and EMERGE.
ENGAGE (Study 301) and EMERGE (Study 302) were
identically designed, double-blinded, placebo-controlled studies
that were conducted independently, with ENGAGE beginning one month
ahead of EMERGE. Each study had three dosage arms: placebo,
aducanumab low dose, and aducanumab high dose. Two-thirds of the
studies' participants carried the APOE4 gene ("carriers"), which
predisposes a carrier to developing both Alzheimer's disease and
ARIA,3 an aducanumab side effect. APOE4 carriers were equally
distributed across the studies' three arms. While the studies
were ongoing, Biogen amended the dosing protocol for carriers
3 ARIA is an acronym for Amyloid Related Imaging
Abnormalities, which include fluid buildup in the brain and
bleeding due to microhemorrhages.
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twice. The first amendment, Protocol Version 3 ("PV3"), allowed
carriers to titrate (gradually increase) to their target dose
following an ARIA event once their symptoms resolved.4 The second
amendment, Protocol Version 4 ("PV4"), increased the maximum high
dose of aducanumab for carriers from 6 mg/kg to 10 mg/kg, meaning
that, after the amendment, all high dose patients were titrated to
10 mg/kg regardless of carrier status.
To test aducanumab's efficacy over the course of the
studies, Biogen selected five assessment tools, which measured a
patient's cognition and function, and used biomarker tracking and
special imaging to measure amyloid plaque reduction in patients'
brains.5 Patients were evaluated upon entering the study and then
again at six months, twelve months, and eighteen months. The
studies' protocol required an independent group to perform a
futility analysis once 50% of the participants had the opportunity
to complete the primary efficacy assessment at the end of eighteen
months (Week 78). If the analysis showed that aducanumab was
unlikely to prove effective, meaning that the studies had less
4 Prior to PV3, patients who experienced ARIA could only
resume treatment at the next lower dose once ARIA resolved. The
amendment also allowed more patients to continue treatment by
suspending dosing rather than discontinuing treatment permanently.
5 These assessments are referred to as clinical endpoints.
The CDR-SB scale, which measures both cognition and function, was
designated as the primary endpoint for both studies.
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than a 20% chance of meeting their primary endpoint, the studies
were to be terminated early.
ENGAGE and EMERGE began in August 2015 and September
2015, respectively. The cutoff date for data used in the futility
analysis was December 28, 2018; however, Biogen continued to
collect data beyond that point. On March 21, 2019, Biogen publicly
announced that the studies met the futility criteria and were being
terminated. Subsequently, Biogen's stock price fell over 29%.
Following the termination of aducanumab's Phase III
studies, Biogen conducted its own internal review of the clinical
data, including the data collected in the interim between the
futility cutoff and when the studies ended. Said review revealed
that when ENGAGE and EMERGE were analyzed independently -- as
opposed to together, with their data being pooled as the futility
analysis called for -- EMERGE's high dose arm met the primary and
secondary efficacy endpoints. Biogen shared this with the FDA and
in June 2019 met with the agency to discuss pathways to approval
for aducanumab. The end result was a collaborative Biogen/FDA
working group dedicated to analyzing and understanding
aducanumab's Phase III clinical data.
On October 22, 2019,6 seven months after Biogen
terminated the ENGAGE and EMERGE studies, Biogen announced, during
6 This is the first day of the class period for the current
litigation.
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a third-quarter earnings call, its belief that post hoc analysis
(conducted after futility was announced) of the Phase III clinical
data supported a regulatory filing for aducanumab. Specifically,
Alfred W. Sandrock, Jr. ("Sandrock"), Biogen's then-Chief Medical
Officer and Executive Vice President of Research and Development,
told investors:
Our primary learning from these data is that
sufficient exposure to high dose aducanumab
reduced clinical decline across multiple
clinical endpoints. This reduction in
clinical decline was statistically
significant in EMERGE, and we believe that
patients -– that the data from patients who
achieved sufficient exposure to high dose
aducanumab in ENGAGE support the findings of
EMERGE. After consultation with the FDA, we
believe that the totality of these data
support a regulatory filing.
He explained the changed perspective on aducanumab's futility as
follows:
[P]atients included in the futility analysis
were those who had enrolled early in the
trials and those early enrolling patients had
a lower average exposure to aducanumab in
large part due to two protocol amendments that
occurred sometime after the start of the
trials. These two protocol amendments were
put in place precisely to enable more patients
to reach high dose aducanumab, and for a
longer duration. As a consequence, the larger
dataset available after trial cessation
included more patients with sufficient
exposure to high dose aducanumab.
Sandrock also told investors "that there is a very sort of sharp
dose response" and that "you have to get to high dose aducanumab"
because "intermediate dosing at least in an 18-month trial is not
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enough." During the same call, Samantha Budd Haeberlein ("Budd
Haeberlein"), Biogen's then-Vice President of Clinical Development
and later Senior Vice President/Head of the Neurodegeneration
Development Unit, agreed with Sandrock and stated:
Although the primary and secondary endpoints
were not met in ENGAGE in post analysis, the
subset of patients who received sufficient
exposure to 10 milligram per kilogram
aducanumab in this case, at least 10 doses of
10 milligram per kilogram showed similar
results to the comparable population from
EMERGE, in terms of both amyloid plaque
reduction and reduced clinical decline on CDR-
SB. . . . I think what we have learned clearly
is that dose is very important, but that if
individuals do receive 10 milligrams per
kilogram then they do have an efficacious
response.
The next day, during an interview on MSNBC, Michel Vounatsos
("Vounatsos"), Biogen's then-Chief Executive Officer, said the
following:
What we demonstrate is that
[aducanumab] . . . is able to erode and
eliminate the plaque leading to the benefits
we see in terms of cognition for the patients.
It reduces basically the decline and we can
see effects such as on memory orientation,
language, but also functionally the ability to
take care of oneself.
After Biogen's positive public statements about
aducanumab in October 2019, the company presented its topline Phase
III results on December 5, 2019, at an Alzheimer's disease
conference. During said presentation, Budd Haeberlein stated:
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To summarize, the aducanumab Phase III
[topline] results. Following early
termination based on futility, we analyzed a
larger dataset. And this showed that in
EMERGE, the high dose reduced clinical decline
as measured by the primary and secondary
endpoints. In ENGAGE, aducanumab did not
reduce the clinical decline. In a post-hoc
analysis, data from a subset of patients
exposed to the high dose of aducanumab support
the positive findings of EMERGE.
Biogen repeated these aducanumab findings on several subsequent
occasions: during a question-and-answer session with investors on
December 5, 2019; during a 2019 fourth-quarter earnings call on
January 30, 2020; during a presentation of aducanumab's Phase III
topline results on April 2, 2020; during a 2020 second-quarter
earnings call on July 22, 2020; during a presentation of
aducanumab's Phase III topline results at an Alzheimer's disease
conference on July 29, 2020; and during a presentation of
aducanumab's Phase III topline results at the Chinese National
Conference on Neurology on September 19, 2020. During the 2020
second-quarter earnings call, Sandrock took his aducanumab
statements further when he said, "[Y]ou really need to get to the
higher dose" and "I think our data are all consistent with that."
In July 2020, Biogen applied for FDA approval of
aducanumab. The FDA convened an Advisory Committee, whose primary
role generally is "to provide independent advice that will
contribute to the quality of the agency's regulatory
decision-making and lend credibility to the product review
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process." Given the controversy surrounding the clinical trials,
stock analysts believed that the Advisory Committee's decision was
critical for aducanumab's future.
Prior to the Advisory Committee meeting, Biogen and the
FDA jointly prepared briefing materials, which the FDA published
on its website on November 4, 2020. The materials laid out
Biogen's position -- largely mirroring its public statements about
aducanumab -- followed by the FDA's responses. The FDA's
commentary was overwhelmingly favorable, stating, among other
things, that "the applicant has provided substantial evidence of
effectiveness to support approval." The notable exception was a
report prepared by the FDA's statistical reviewer, Tristan Massie
("Massie"). The report's opening summary stated Massie's belief
that "the totality of the data does not seem to support the
efficacy of the high dose" and that "there is no compelling
substantial evidence of treatment effect or disease slowing and
that another study is needed to confirm or deny the positive study
and the negative study." The report went on to detail
subgroup-level analyses supporting Massie's conclusions.7
7Massie's report revealed, among other things, that clinical
outcomes for high dose noncarriers, who received the greatest
number of 10 mg/kg doses of aducanumab and experienced fewer
treatment interruptions, were statistically insignificant when
compared to placebo; that carriers achieved better clinical
outcomes than noncarriers in EMERGE; that carriers had worse
clinical outcomes following the PV4 dose increase; that, in both
studies, high dose patients whose treatment was interrupted by
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On November 4, 2020 -- the day the briefing materials
were released -- Biogen's stock price closed at $355.63 a share.
A day later, the stock price fell to $328.90 a share. On
November 6, 2020,8 trading in Biogen stock was halted while the
Advisory Committee met to discuss aducanumab. After a full day of
review, the Advisory Committee voted almost unanimously that it
was unreasonable to consider EMERGE as "primary evidence of
effectiveness of aducanumab for the treatment of Alzheimer's
disease," even in light of the post hoc analyses from ENGAGE and
support from an aducanumab Phase I study. The next trading day,
November 9, 2020, Biogen's stock closed at $236.26 a share. The
FDA ultimately approved aducanumab under an accelerated approval
pathway in June 2021.
B. Procedural History
Investors commenced the current class action seven days
after the Advisory Committee meeting, alleging violations of
section 10(b) of the Securities Exchange Act of 1934 ("Exchange
Act"), codified at 15 U.S.C. § 78j(b), as implemented by Securities
and Exchange Commission ("SEC") Rule 10b-5, codified at 17 C.F.R.
§ 240.10b-5 ("section 10(b) claim"), and section 20(a) of the
ARIA had numerically better outcomes; that more high doses did not
result in better clinical outcomes; and that there was no
correlation between amyloid plaque reduction and clinical
outcomes.
8 This is the last day of the class period for the pending
litigation.
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Exchange Act, codified at 15 U.S.C. § 78t(a) ("section 20(a)
claim"). Specifically, investors claimed that Biogen made
misleading statements about aducanumab's dose-response
relationship and about the correlation between plaque removal and
clinical improvement by concealing subgroup-level clinical data
("subgroup data") that demonstrated that Biogen's statements were
false.9 Following an agreed upon transfer to the District of
Massachusetts,10 Defendants moved to dismiss the investors' second
amended complaint, claiming that investors failed to sufficiently
plead a materially false or misleading statement or omission,
scienter, loss causation, and reliance for their section 10(b)
claim.11 The district court held, in a detailed opinion, that the
pleadings were lacking as to a misleading statement or omission,
9 Investors' complaint also claimed that Biogen made
misleading statements about regional variations in aducanumab's
clinical data and about the correlation of EMERGE's secondary
clinical endpoints; however, those arguments are not pressed on
appeal and are therefore waived. See Vargas-Colón v. Fundación
Damas, Inc., 864 F.3d 14, 24 (1st Cir. 2017) (deeming waived
arguments that a party fails to develop on appeal).
10 Investors originally filed their complaint in the United
States District Court for the Central District of California. The
case was transferred pursuant to 28 U.S.C. § 1404(a), which
provides that "[f]or the convenience of parties and witnesses, in
the interest of justice, a district court may transfer any civil
action to any other district or division where it might have been
brought or to any district or division to which all parties have
consented."
11 The Defendants also moved to dismiss investors' section
20(a) claim based on their assertion that the required underlying
securities law violation -- investors' section 10(b)
claim -- failed.
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scienter, as well as loss causation, and allowed Defendants' motion
to dismiss, extinguishing both of investors' securities fraud
claims. This timely appeal followed.
II. Standard of Review
"To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to 'state a claim to
relief that is plausible on its face.'" Mehta, 955 F.3d at 205
(quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). In a
securities case, the complaint must also satisfy the Private
Securities Litigation Reform Act's ("PSLRA") heightened pleading
requirements. Thant v. Karyopharm Therapeutics Inc., 43 F.4th
214, 222 (1st Cir. 2022). We review de novo a Federal Rule of
Civil Procedure 12(b)(6) dismissal. Id.
III. Discussion
Given that investors' section 20(a) claim is dependent
on the existence of an underlying securities violation, this appeal
turns on whether investors adequately pled their section 10(b)
claim. See Metzler Asset Mgmt. GmbH v. Kingsley, 928 F.3d 151,
158 n.3 (1st Cir. 2019); Carbonite, Inc., 22 F.4th at 6.
"Section 10(b) of the Securities Exchange Act of 1934
forbids the 'use or employ, in connection with the purchase or
sale of any security . . . , [of] any manipulative or deceptive
device . . . .'" Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551
U.S. 308, 318 (2007) (alteration in original) (quoting § 78j(b)).
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SEC Rule 10b-5, which implements section 10(b), makes it unlawful
"[t]o make any untrue statement of a material fact or to omit to
state a material fact necessary in order to make the statements
made, in the light of the circumstances under which they were made,
not misleading." § 240.10b–5.
Accordingly, plaintiffs asserting a section 10(b) claim
"must adequately plead '(1) a material misrepresentation or
omission; (2) scienter; (3) a connection with the purchase or sale
of a security; (4) reliance; (5) economic loss; and (6) loss
causation.'" Thant, 43 F.4th at 222 (quoting In re Biogen Inc.
Sec. Litig., 857 F.3d 34, 41 (1st Cir. 2017)). The first, second,
and sixth requirements are at issue here: material
misrepresentation or omission, scienter, and loss causation.
In addition to pleading the elements for a section 10(b)
claim, the PSLRA requires that plaintiffs "specify each statement
alleged to have been misleading, [and] the reason or reasons why
the statement is misleading." Carbonite, Inc., 22 F.4th at 6
(alteration in original) (quoting 15 U.S.C. § 78u-4(b)(1)). The
PSLRA further requires that a complaint "state with particularity
facts giving rise to a strong inference that the defendant acted
with [scienter]," the second element of a section 10(b) claim.
Id. at 9 (alteration in original) (quoting § 78u-4(b)(2)(A)). The
PSLRA does not specify the pleading standard applicable to the
other elements of a section 10(b) claim, such as loss causation,
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see Katyle v. Penn Nat'l Gaming, Inc., 637 F.3d 462, 471 n.5 (4th
Cir. 2011); however, as we explain later, we need not decide that
particular issue here. See infra note 15.
Before turning to the case at hand, we pause to chart
our analytical course. One of Defendants' allegedly misleading
statements -- "So consistent with the findings from ENGAGE and
EMERGE, you really need to get to the higher dose. And I think
our data are all consistent with that." -- stands out from the
rest. As discussed, infra, we conclude that investors adequately
alleged a section 10(b) claim as to this particular statement.
Because the remainder of Defendants' allegedly misleading
statements fail to clear the PSLRA's heightened pleading standard
for scienter, we simply assume, without deciding, that those
statements are materially misleading before proceeding to our
scienter analysis. See Mehta, 955 F.3d at 207; In re Ariad
Pharms., Inc. Sec. Litig., 842 F.3d 744, 750 (1st Cir. 2016). We
conclude our analysis by addressing investors' loss causation
allegations. Having established these guideposts, we proceed to
our analysis.
A. Material Misrepresentation or Omission
"To survive a motion to dismiss under the securities
law, a complaint must adequately plead statements [or omissions]
that were 'misleading as to a material fact.'" Thant, 43 F.4th at
222 (quoting Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27,
- 16 -
38 (2011)). Thus, a violation requires "a false, or misleadingly
omitted, statement of fact." Carbonite, Inc., 22 F.4th at 7.
Here, the district court found, and the parties do not dispute,
that the statements at issue constitute opinions. While the
Supreme Court has distinguished opinions from statements of fact,
Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension
Fund, 575 U.S. 175, 183 (2015) ("[A] statement of fact ('the coffee
is hot') expresses certainty about a thing, whereas a statement of
opinion ('I think the coffee is hot') does not."), the Court has
also explained that couching a statement in terms of an opinion,
by using language like "I think" or "I believe," does not
automatically render the statement not misleading, id. at 193.
See Carbonite, Inc., 22 F.4th at 7. "[A] reasonable investor may,
depending on the circumstances, understand an opinion statement to
convey facts about how the speaker has formed the opinion -- or,
otherwise put, about the speaker's basis for holding that view."
Omnicare, Inc., 575 U.S. at 188; see Carbonite, Inc., 22 F.4th at
7 ("[A] statement in the form of an opinion . . . may convey three
facts: that the speaker has such a belief; that the belief fairly
aligns with the facts known to the speaker; and . . . that the
speaker has made the type of inquiry that a reasonable investor
would expect given the circumstances."). Thus, "if the real facts
are otherwise, but not provided, the opinion statement will mislead
its audience." Omnicare, Inc., 575 U.S. at 188.
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The statement that concerns us here is the following:
"So consistent with the findings from ENGAGE and EMERGE, you really
need to get to the higher dose. And I think our data are all
consistent with that." (Emphasis added). We hereinafter refer to
this remark as the "all data" statement. Per Carbonite, the "all
data" statement plausibly conveyed three facts: that Sandrock
genuinely believed all of Biogen's data was "consistent with"
needing to get to high dose aducanumab to benefit clinically; that
Sandrock's opinion "fairly align[ed] with the facts known" to him
when he made the statement; and that Sandrock's opinion was
informed by "the type of inquiry that a reasonable investor would
expect given the circumstances." See 22 F.4th at 7. Investors
point to certain subgroup data as evidence that Sandrock's "all
data" statement did not "fairly align[]" with the facts known to
Biogen at the time.
Specifically, investors allege that subgroup data
revealed the following: noncarriers, who received high dose
aducanumab from the start and who had fewer treatment
interruptions, did not achieve better clinical outcomes, and, when
compared to placebo, the benefit for this group was "virtually
nil"; carriers, who received high dose aducanumab following PV4,
did not experience better clinical outcomes after the dosing
protocol change (in EMERGE, carriers' CDR-SB scores got slightly
worse); and carriers in ENGAGE are the only subgroup who "did
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better" on high dose aducanumab. Investors contend that by failing
to disclose this subgroup data, Defendants "omitted material
information necessary to render [their] statement[] not
misleading."12 We agree. Taking these allegations as true, as we
must on a motion to dismiss, Brennan v. Zafgen, Inc., 853 F.3d
606, 613 (1st Cir. 2017), the complaint plausibly alleges that not
all of Biogen's data was "consistent with" "need[ing] to get to
the higher dose" of aducanumab -- some patients did better on a
lower dose and others experienced the same lack of clinical benefit
whether they were on the higher dose or not. Thus, by failing to
disclose the subgroup data, which would have contextualized their
"all data" claim, the complaint plausibly alleges that Defendants'
omission misled investors.
Nevertheless, to survive a motion to dismiss, the
misleading statement must also be material. See Thant, 43 F.4th
at 222 (noting "neither factor alone is sufficient"). "A fact is
material if it is substantially likely 'that the disclosure of the
omitted [or misrepresented] fact would have been viewed by the
reasonable investor as having significantly altered the "total
mix" of information made available.'" Carbonite, Inc., 22 F.4th
12Defendants do not plead ignorance of said subgroup data,
and, based on their statements, cited by investors in the
complaint, it is reasonable to infer that they knew the results of
subgroup analysis. For example, Defendants implicitly referred to
the carrier subgroup when discussing PV4's impact on data, given
that carriers were the only patient population impacted by PV4.
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at 8 (alteration in original) (quoting Basic Inc. v. Levinson, 485
U.S. 224, 231–32 (1988)).
We conclude that investors met the materiality burden
here as to the "all data" statement. Per investors, Defendants
premised their explanation of why ENGAGE failed on the importance
of reaching high dose aducanumab. And FDA approval of aducanumab
was dependent on ENGAGE's data providing some support for EMERGE's
positive results or, at the very least, being "understood well
enough to be dismissible." It logically follows then that whether
all of Biogen's data supported high dose aducanumab, or only some,
was "a significant part of the mix of information [a reasonable
investor would have] considered in evaluating [Biogen] as an
investment," given that FDA approval of aducanumab had not yet
occurred when the statement was made. See id. Thus, investors
have adequately alleged that Sandrock's "all data" statement was
a "material misrepresentation or omission." And, as explained
supra, we simply assume arguendo that Defendants' remaining
statements are misleading, insofar as they relate to aducanumab's
general efficacy, and proceed to investors' next pleading hurdle,
scienter.
B. Scienter
Scienter is "a mental state embracing intent to deceive,
manipulate, or defraud." Mehta, 955 F.3d at 206 (quoting Tellabs,
Inc., 551 U.S. at 319). "To establish scienter, [a] plaintiff
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must 'show either that the defendants consciously intended to
defraud, or that they acted with a high degree of recklessness.'"
Carbonite, Inc., 22 F.4th at 8 (quoting Kader v. Sarepta
Therapeutics, Inc., 887 F.3d 48, 57 (1st Cir. 2018)). In this
context, recklessness requires more than "simple, or even
inexcusable, negligence"; rather, recklessness is "a highly
unreasonable omission" amounting to "an extreme departure from the
standards of ordinary care, and which presents a danger of
misleading buyers and sellers that is either known to the defendant
or is so obvious that the actor must have been aware of it."
Mehta, 955 F.3d at 206 (quoting Brennan, 853 F.3d at 613).
To determine whether an inference of scienter is
"strong," a court must engage in "a comparative evaluation" by
weighing the "inferences urged by the plaintiff" against
"competing inferences rationally drawn from the facts alleged."
Tellabs, Inc., 551 U.S. at 314. This evaluation must be done
holistically, viewing the complaint in its entirety, as opposed to
examining individual claims in isolation. Id. at 322-23. Only
where a reasonable person would deem the inference of scienter
"cogent and at least as compelling as any opposing inference of
nonfraudulent intent," will the pleading survive the PSLRA's
exacting standard. Id. at 309, 314 (explaining that an inference
of scienter that is "merely plausible or reasonable" will not
suffice). Having laid out some of the basic principles governing
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section 10(b) claims, we return to the case at hand, beginning
with Sandrock's "all data" statement.
1. Sandrock's "All Data" Statement
Having concluded, supra, that Sandrock's "all data"
statement was misleading given the nature of the statement and the
existence of at least some contradictory subgroup data, we next
ask whether, as investors claim, Defendants' failure to disclose
said subgroup data amounted to "an extreme departure from the
standards of ordinary care . . . which presents a danger of
misleading buyers and sellers that is either known to the
[Defendants] or is so obvious that the [Defendants] must have been
aware of it." Mehta, 955 F.3d at 206 (quoting Brennan, 853 F.3d
at 613). We conclude that it was such a departure.
Here, investors sufficiently alleged facts from which we
can infer that Defendants were aware of the contradictory subgroup
data and that their failure to disclose said data was "a highly
unreasonable omission," giving rise to a strong inference of
scienter. Loc. No. 8 IBEW Ret. Plan & Tr. v. Vertex Pharms., Inc.,
838 F.3d 76, 80 (1st Cir. 2016) (quoting In re Smith & Wesson
Holding Corp. Sec. Litig., 669 F.3d 68, 77 (1st Cir. 2012)). The
complaint plausibly claims that Biogen invested tremendous
resources into carefully analyzing aducanumab's Phase III data.
Moreover, Defendants repeatedly discussed PV4's impact on said
data. Since PV4 only impacted carriers of the APOE4 gene, the
- 22 -
logical inference is that Biogen analyzed aducanumab's data based
on carrier/noncarrier subgroups and therefore knew that at least
some data did not support high dose aducanumab. Given Defendants'
awareness of the inconsistent subgroup data, it follows that
Defendants must have known that their failure to disclose said
data risked misleading investors precisely because of what the
"all data" statement represented -- that their "data [was] all
consistent with" "need[ing] to get to the higher dose" of
aducanumab. (Emphasis added); see Mehta, 955 F.3d at 206 (quoting
Brennan, 853 F.3d at 613).
It is also clear that Defendants' failure to disclose
said subgroup data was "an extreme departure from the standards of
ordinary care." Id. (quoting Brennan, 853 F.3d at 613). In
December 2019, Defendants explained that they were presenting
topline results but were intentionally withholding
carrier/noncarrier subgroup data pending regulatory review of
aducanumab and that Biogen "look[ed] forward to presenting all the
data" "in due time." Months later, in July 2020, Sandrock made
the "all data" statement, despite Defendants knowing that at least
some contradictory subgroup data existed, which undermined said
claim. Defendants then continued to withhold the subgroup data,
despite publicly presenting aducanumab's topline results, until
November 2020, when the Advisory Committee briefing materials were
made public. Taken together, these allegations establish that
- 23 -
Defendants knew they had subgroup data inconsistent with the "all
data" statement and consciously chose to hold back only the data
that was inconsistent with their public claim. Such conduct is
akin to the "bad faith misrepresentation of scientific data" that
the Third Circuit, in Alaska Electrical Pension Fund v. Pharmacia
Corp., held established scienter. 554 F.3d 342, 344, 352 (3d Cir.
2009) (deciding that scienter was sufficiently pled where a company
allegedly distorted its drug's clinical results by presenting only
six months of favorable data from a thirteen-month study, without
revealing that the dataset presented was incomplete). Thus, we
similarly hold that investors adequately alleged scienter as to
Sandrock's "all data" statement. See id. at 352.
2. Defendants' Remaining Statements
As we explain, infra, we reach the opposite conclusion
for Defendants' other statements pertaining to aducanumab's
general efficacy, which we assume are misleading for purposes of
our scienter analysis. Said statements could only be made with
scienter if Defendants "knew or should have known that their
failure to disclose [the subgroup data] 'present[ed] a danger of
misleading buyers or sellers'" as to aducanumab's clinical effect.
City of Dearborn Heights Act 345 Police & Fire Ret. Sys. v. Waters
Corp., 632 F.3d 751, 758 (1st Cir. 2011) (second alteration in
original) (quoting Greebel v. FTP Software, Inc., 194 F.3d 185,
198 (1st Cir. 1999)). Our review leads us to conclude that, even
- 24 -
if Defendants were aware of the subgroup data, it is not evident
or inferable from the complaint that Defendants knew or believed
that said data undermined their statements about aducanumab's
general efficacy.
Investors' complaint lacks allegations similar to those
that we have previously found sufficient for scienter:
"admissions, internal records or witnessed discussions suggesting
that at the time they made the statements claimed to be misleading,
the defendant officers were aware that they were withholding vital
information or at least were warned by others that this was so."
In re Ariad Pharms., Inc. Sec. Litig., 842 F.3d at 751 (quoting In
re Bos. Sci. Corp. Sec. Litig., 686 F.3d 21, 31 (1st Cir. 2012)).
First, despite the resources Defendants allegedly committed to
reviewing the clinical data, there is no allegation that
Defendants -- or anyone else at Biogen for that matter -- knew
that the subgroup data undermined aducanumab's effectiveness when
Defendants made their public statements. See Maldonado v.
Dominguez, 137 F.3d 1, 9-10 (1st Cir. 1998) (explaining that
"scienter 'may not rest on a bare inference that a defendant "must
have had" knowledge of the facts'" (quoting Barker v. Henderson,
Franklin, Starnes & Holt, 797 F.2d 490, 497 (7th Cir. 1986))). We
have previously remarked that a defendant's close attention to
clinical data "is only helpful in establishing scienter if that
close attention would have revealed an incongruity so glaring as
- 25 -
to make the need for further inquiry obvious." Vertex Pharms.,
Inc., 838 F.3d at 82; see Metzler Asset Mgmt. GmbH, 928 F.3d at
162 (explaining that the fact that leadership monitored data does
not alone create a strong inference of scienter). Here, we find
it difficult to say that the "incongruity" between the subgroup
data and Biogen's conclusion as to aducanumab's efficacy was
"glaring" where it involved the interpretation of significant
amounts of data through complex statistical analysis.13
Second, the complaint does not claim that, at the time
Biogen made the efficacy statements at issue, Biogen had been
warned that the subgroup data undermined its conclusion about
aducanumab's clinical effect.14 In fact, the complaint is devoid
13Massie's report, which revealed the allegedly contradictory
subgroup data, "contained almost one hundred pages of statistical
analyses" and was "dense to the point of being impenetrable."
14 Investors' appellate briefs assert that Massie warned
Biogen about his concerns, however, the complaint contains no such
allegation, so "we do not consider this argument in assessing
whether the complaint has stated a claim." See Vertex Pharms.,
Inc., 838 F.3d at 83-84 (setting aside an argument that the
plaintiff raised only in their appellate brief when considering a
failure-to-state-a-claim motion).
Investors ask us to take judicial notice of a congressional
report detailing the contact between the FDA and Biogen, but, even
if we were to do so, said report does little to move the needle.
Per the report, the Division of Biometrics (Massie's group) "raised
concerns about the analyses" and conveyed to their FDA counterparts
and Biogen their belief that "substantial evidence of
effectiveness was not met." Staff of H.R. Comm. on Oversight &
Reform & Comm. on Energy & Commerce, 117th Cong., Rep. on The High
Price of Aduhelm's Approval: An Investigation into FDA's Atypical
Review Process and Biogen's Aggressive Launch Plans, at 20 n.80
(Dec. 2022). Even accepting these facts as true, we are still
left to guess what specific concerns Massie's group raised and
- 26 -
of any allegation about how or when Defendants learned that the
subgroup data potentially undermined their conclusion about
aducanumab's efficacy. See In re Ariad Pharms., Inc. Sec. Litig.,
842 F.3d at 751 (explaining that the complaint failed to create a
strong inference of scienter where it lacked specific allegations
about when the defendant learned the facts at issue). Massie's
report was published, along with the other Advisory Committee
briefing material, on November 4, 2020 -- about a month and a half
after the last allegedly misleading statement was made. And we
have previously made clear that fraud cannot be established by
hindsight. See id.
Notably, even if the Defendants were on notice of
Massie's analyses at the time of their public statements, the
complaint lacks any allegation that the Defendants honestly
believed Massie's interpretation of the data over their own. See
Vertex Pharms., Inc., 838 F.3d at 82 (concluding scienter
inadequately pled, in part, because the complaint lacked
allegations that the defendants disbelieved their publicly
reported study results or viewed the results as contradictory);
Yan v. ReWalk Robotics Ltd., 973 F.3d 22, 41 (1st Cir. 2020)
(explaining that "mere knowledge" of a fact is insufficient for
whether the basis for Massie's effectiveness conclusion was the
subgroup data now at issue. Such "guesswork [is] inconsistent
with the PSLRA['s] pleading standard." Vertex Pharms., Inc., 838
F.3d at 86.
- 27 -
scienter, absent an "allegation strongly implying that defendants
had reason to believe their omission[] [of the fact] to be
fraudulent"); Metzler Asset Mgmt. GmbH, 928 F.3d at 162 (concluding
scienter insufficiently pled, in part, because the complaint's
allegations did not reveal whether what was publicly said by
defendants was "known by them to be misleading"). The fact that
the FDA, minus Massie's group, agreed with Biogen's interpretation
of the data -- while not a section 10(b) liability
shield -- supports the inference that Biogen sincerely disbelieved
Massie's interpretation of the subgroup data as undermining
aducanumab's efficacy and that the failure to disclose said data
in this context was not made with the requisite "intent to deceive,
manipulate, or defraud." Mehta, 955 F.3d at 206 (quoting Tellabs,
Inc., 551 U.S. at 319).
Despite the lack of direct evidence of scienter as to
Defendants' efficacy statements, see Brennan, 853 F.3d at 615 n.8,
investors contend that the complaint still states facts from which
we can infer that Biogen intentionally, or at least recklessly,
withheld clinical data to mislead investors about aducanumab's
clinical effect. We note that "where a complaint is devoid of any
direct-evidence allegations, the indirect-evidence allegations in
the complaint will need to do more work to carry the burden of
raising a 'strong inference of scienter' on their own." Id.
Cognizant that "[e]ach individual fact about scienter may provide
- 28 -
only a brushstroke," we assess each asserted fact individually
before considering "the resulting portrait" and weighing them
cumulatively. Vertex Pharms., Inc., 838 F.3d at 81 (alteration in
original) (quoting In re Cabletron Sys., Inc., 311 F.3d 11, 40
(1st Cir. 2002)).
First, investors -- citing Pharmacia Corp., 554 F.3d at
344-45, 352 -- allege that Biogen's selective reporting of
aducanumab's clinical data contributes to a strong inference of
scienter. While we agree with investors' reasoning as to the "all
data" statement, we find the case less persuasive when applied to
Defendants' general efficacy statements. Biogen explained, during
its first public statement about aducanumab after announcing
futility, that the "details of subgroups is something that will
come . . . later." Then, following the company's initial
statements in October 2019, Biogen made clear that it was
presenting only aducanumab's topline results publicly. While
investors take issue with Biogen's decision not to release all
patient-level data, unlike the defendant in Pharmacia Corp.,
Biogen was transparent about what data it was withholding from
investors. And in contrast to the "all data" statement, the
complaint lacks any indication that Defendants believed the
subgroup data undermined their efficacy statements. In that
regard, scienter cannot be inferred from the failure to disclose
the subgroup results at the time the general statements about
- 29 -
aducanumab's efficacy were made because Biogen's own analysis of
the data is not fully discredited by the subgroup data. "[A]
legitimate disagreement over scientific data does not give rise to
a securities fraud claim . . . ." Id. at 352; see Carbonite, Inc.,
22 F.4th at 9-10; Vertex Pharms., Inc., 838 F.3d at 81-83 (finding
that the defendants' attention to a drug study would not have
revealed any obvious incongruity in the publicly announced study
results that turned out to be erroneous, in part, because the
complaint did not allege that "scientists in general, much less
those at Vertex, regarded the reported results as implausible").
In contrast, as explained supra, Biogen's "all data" statement
does not amount to "a legitimate disagreement over scientific
data," Pharmacia Corp., 554 F.3d at 352, as that statement is
necessarily discredited by Biogen's knowledge that its subgroup
data was not all consistent with needing to take a higher dose.
Thus, we cannot conclude that Defendants' selective reporting of
data amounted to a "bad faith misrepresentation" in the general
efficacy context.
Next, investors contend that Biogen's willingness to
manipulate its statistical data makes it more likely that the
company deliberately or recklessly withheld subgroup data. As
support, investors point to the fact that Biogen tasked its
statisticians with reviewing the failed Phase III studies to
"salvage any data that could support aducanumab's approval."
- 30 -
Additionally, investors allege that Biogen diverged from its
prespecified analysis plan for evaluating the correlation between
clinical outcomes and amyloid beta levels after unblinding the
data. These acts, according to investors, allowed Biogen to
conceal unfavorable data, which supports an inference of scienter.
The negative inference investors urge us to draw from
Biogen's alleged data manipulation is undercut, however, by the
fact that Biogen disclosed its use of post hoc analyses, which the
FDA assisted with and endorsed, following the Phase III studies'
failure. See Mehta, 955 F.3d at 208 (explaining that a company's
informative disclosure cuts against an inference of scienter). In
Biogen's very first statement about pursuing a regulatory filing
for aducanumab, the company explained that its team had spent
months analyzing the original and expanded dataset following the
termination of the studies, including performing "exploratory
analysis." Biogen reiterated that its conclusions were based on
post hoc analyses on subsequent occasions as well. The mere fact
that Biogen engaged in post hoc analysis cannot support a strong
inference of scienter where Biogen did not mislead investors about
the methodology employed. See Kleinman v. Elan Corp., 706 F.3d
145, 155-56 (2d Cir. 2013) (concluding that a plaintiff's objection
to a pharmaceutical company's use of post hoc analysis as
methodologically unsound does not give rise to a strong inference
of scienter).
- 31 -
Investors next assert that Biogen's departure from its
past reporting practices when it came to aducanumab's Phase III
data contributes to a strong inference of scienter. Specifically,
the complaint alleges that when Biogen presented the results of an
earlier aducanumab study (Study 103), the company released the raw
data, whereas they declined to do so with the Phase III results.
Investors contend that this change gives rise to an inference that
Biogen intentionally withheld the data because said data would
have otherwise undercut its public statements about aducanumab's
efficacy. They further claim that when Biogen stated, "We have
nothing to hide," Biogen was falsely reassuring investors that it
was withholding subgroup data for regulatory reasons only. This
is investors' most compelling argument for scienter.
Nevertheless, investors' allegations cannot be viewed in a vacuum
and must be compared to the innocent inferences drawn from the
same facts. See Tellabs, Inc., 551 U.S. at 314.
We are not left to wonder why Biogen changed its
reporting practices. The company explained its decision during a
question-and-answer session with investors on December 5, 2019:
"[L]ook, this will soon be under review at regulatory authorities.
And so for that reason, we're very sensitive about what we want to
present now." There is merit to Defendants' justification for
withholding aducanumab's Phase III subgroup data. Unlike when
Biogen released the Study 103 results, Biogen was facing an
- 32 -
impending regulatory filing for "the first Alzheimer's disease
therapy that does more than treat symptoms." And, as investors'
complaint mentions, Biogen was not the only company developing
Alzheimer's therapies. Further, crediting investors' theory
implies that Biogen was more concerned about the public's reaction
to the subgroup data than the FDA's, who had access to all of
Biogen's data and was ultimately responsible for deciding
aducanumab's fate. This defies common sense, even considering
investors' claims about collusion between Biogen and the FDA, which
we proceed to next. See Nguyen v. Endologix, Inc., 962 F.3d 405,
415 (9th Cir. 2020) (explaining that "the PSLRA neither allows nor
requires us to check our disbelief at the door" in concluding that
it was illogical for a company to promise FDA approval of a medical
device that they knew was really "unapprovable"). Thus, we find
the deceitful inference investors urge from Biogen's change in
reporting practices less compelling when compared to the competing
innocent explanation, particularly given the absence of any
allegation that Defendants believed the subgroup data contradicted
their efficacy statements.
Investors also point to the many irregularities in
aducanumab's FDA approval process as evidence of scienter. They
note, for example, that Biogen and the FDA met or communicated
almost daily for three months to analyze aducanumab's data, that
Biogen and the FDA worked together to prepare "highly atypical
- 33 -
joint briefing materials" for the Advisory Committee, that the FDA
submitted leading questions designed to support approval to said
committee, and that the FDA decided as early as June 2019 to push
aducanumab through the approval process. Investors suggest,
citing Aldridge v. A.T. Cross Corp., 284 F.3d 72 (1st Cir. 2002),
that Biogen's willingness to bend rules makes it more likely that
the company intentionally or recklessly concealed the subgroup
data to mislead investors about aducanumab's clinical effect. It
is not clear from the complaint, however, what rule investors
allege Biogen violated. In fact, investors' irregularity
allegations focus more on the FDA's conduct throughout the approval
process than Biogen's and thus offer little meaningful insight
into whether Defendants knew, or recklessly disregarded, that they
would mislead investors about aducanumab's efficacy by failing to
disclose the subgroup data.
Finally, investors ask us to infer that Biogen's
leadership knew about the problematic subgroup data, or were
reckless for not investigating it further, given that aducanumab's
approval was "critical to Biogen's financial success." Per
investors, the fact that aducanumab "would be the most profitable
treatment ever approved by the FDA" and was "make-or-break for the
company" indicates that Biogen was paying close attention to the
clinical data. But, as we explained supra, "close attention" is
not enough where, as here, the "incongruity" between the subgroup
- 34 -
data and Defendants' efficacy statements was not obvious. See
Vertex Pharms., Inc., 838 F.3d at 82. Scienter requires more than
"simple, or even inexcusable, negligence." Mehta, 955 F.3d at 206
(quoting Brennan, 853 F.3d at 613).
Viewed collectively, investors' allegations fail to
raise a strong inference that Defendants intentionally or
recklessly withheld subgroup data so as to mislead investors about
aducanumab's efficacy. The complaint contains no allegation that
Defendants knew the subgroup data undermined their efficacy
statements; that they were warned that this was so prior to making
said statements; that, even if Defendants were aware of Massie's
analyses, they credited his conclusion as to aducanumab's clinical
effect over their own; or that the inconsistency between the
subgroup data and Defendants' efficacy statements was glaringly
obvious to Defendants. Additionally, Defendants' explanation for
their decision to withhold the subgroup data and public
disclosures -- about what data was released and about their use of
post hoc analyses -- undercut the negative inferences investors
ask us to draw. Investors' scienter allegations with respect to
Defendants' general efficacy statements are simply not as
compelling as the opposing, innocent inferences drawn from the
facts. See Tellabs, Inc., 551 U.S. at 314.
Nevertheless, having concluded, supra, that investors'
claim, pertaining to Sandrock's "all data" statement, cleared the
- 35 -
first two section 10(b) pleading hurdles, we proceed to the final
leg of our analysis.
C. Loss Causation
To survive a Rule 12(b)(6) motion as to loss causation,
a plaintiff must "provide a defendant with some indication of the
loss and the causal connection that the plaintiff has in mind."
Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 347 (2005); see
Bricklayers & Trowel Trades Int'l Pension Fund v. Credit Suisse
Sec. (USA) LLC, 752 F.3d 82, 86 (1st Cir. 2014) ("To prove loss
causation, a plaintiff must show a sufficient connection between
the fraudulent conduct and the losses suffered." (cleaned up)).15
A plaintiff may do so by:
(1) identifying a "corrective disclosure" (a
release of information that reveals to the
market the pertinent truth that was previously
concealed or obscured by the company's fraud);
(2) showing that the stock price dropped soon
after the corrective disclosure; and
(3) eliminating other possible explanations
for this price drop, so that the factfinder
can infer that it is more probable than not
that it was the corrective disclosure -- as
opposed to other possible depressive
15 While the precise pleading standard for loss causation
remains unsettled in our circuit, we need not decide whether "a
short and plain statement of the claim showing that the pleader is
entitled to relief" suffices, Fed. R. Civ. P. 8(a)(2), or whether
"a party must state with particularity the circumstances
constituting fraud," Fed. R. Civ. P. 9(b), because, here,
investors' complaint satisfies either standard. See Mass. Ret.
Sys. v. CVS Caremark Corp., 716 F.3d 229, 239 n.6 (1st Cir. 2013).
- 36 -
factors -- that caused at least a
"substantial" amount of the price drop.
CVS Caremark Corp., 716 F.3d at 237-38 (quoting FindWhat Inv. Grp.
v. FindWhat.com, 658 F.3d 1282, 1311-12 (11th Cir. 2011)). Said
allegations must be plausible, meaning "supported by 'factual
content that allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged.'" Id. at
237 (quoting Iqbal, 556 U.S. at 678). With this standard in mind,
we proceed to investors' claimed chain of events.
Investors' complaint alleges the following: Massie's
report was released on November 4, 2020, as part of the joint
briefing material; the report, which revealed the truth about
Biogen's prior fraudulent statements about aducanumab, was
"dense," "written for . . . world-renowned experts," followed 246
pages of effusive briefing material, and bore a "DRAFT" watermark;
investors purchased Biogen stock on the same day that the report
was released or, at most, a day later; the stock price did not
drop immediately following the release of the report because, for
the foregoing reasons, it took time for the market to appreciate
the merits of Massie's report; the market's delayed reaction to
the report is corroborated by analysts' coverage of the briefing
materials; and Biogen's stock price began to drop on November 5,
2020, and "collapsed" on November 9, 2020, the next possible
trading day for Biogen stock, when the market fully grasped the
- 37 -
significance of Massie's report. The district court declined to
credit these allegations, asserting that "causation is not tied to
when the market reacts to information, but rather when that
information became available to the public." The court then
concluded that investors failed to adequately plead loss causation
because the alleged corrective disclosure, Massie's report, was
published before investors purchased Biogen stock. Implicit in
the district court's decision is the presumption that any hit to
Biogen's stock price would have immediately followed the
Defendants' corrective disclosure and thus was already accounted
for in the stock's price when investors purchased shares. Finding
no such per se rule in our circuit's loss causation precedent, we
conclude otherwise.
At the outset, we pause to note that the district court
did not reach the questions of whether the Massie report was a
corrective disclosure, insofar as it "reveal[ed] to the market [a]
pertinent truth that was previously concealed or obscured by
[Biogen]'s [alleged] fraud," or whether investors sufficiently
"eliminat[ed] other possible explanations for [Biogen stock's]
price drop." Id. (quoting FindWhat.com, 658 F.3d at 1311-12).
Because Defendants' arguments as to loss causation largely mirror
the district court's decision -- focusing on the timing of the
alleged corrective disclosure -- any argument that the Massie
report did not otherwise meet the definition of a corrective
- 38 -
disclosure by revealing new information to the market or that other
"depressive factors" caused the stock price to drop are thus
waived. See United States v. Zannino, 895 F.2d 1, 17 (1st Cir.
1990). And because we find that investors' loss causation
allegations plausibly indicate that Biogen's stock price dropped
after Massie's report revealed the company's misstatements about
aducanumab, our loss causation determination turns exclusively on
whether a gap in time, between when said misstatements were exposed
and the subsequent price drop, nevertheless renders the investors'
theory of loss causation per se implausible.
Having reviewed our circuit's loss causation precedent,
we find nothing requiring that a stock's price must drop
immediately following a corrective disclosure for loss causation
to be sufficiently pled. Nor did the district court cite any
support for this premise. Investors assert that our decision in
In re Xcelera.com Securities Litigation, 430 F.3d 503 (1st Cir.
2005), stands for the proposition that markets may take more than
one day to absorb information. But we disagree with their
assessment of our holding there.16 Nevertheless, precedent from
16In In re Xcelera.com Securities Litigation, while
addressing the reliance element of a securities fraud claim, we
credited plaintiffs' expert's event study, which showed "the
effect of company-specific information over longer windows of two,
three, and five days"; however, we did so "because Plaintiffs'
event study capture[d] the same-day reaction of Xcelera's stock
price to company-specific events." 430 F.3d at 513 n.11. While
we went on to positively cite authority discussing marketplace
- 39 -
other circuits, which we find persuasive, addresses delayed market
reactions in the loss causation context.
The Fifth Circuit, discussing loss causation in Lormand
v. US Unwired, Inc., explained that where a "disclosure was
followed immediately by a stock price increase rather than a
decrease," loss causation could still be adequately pled because
"[t]he market could plausibly have had a delayed reaction" and
"[t]he actual timing [of a loss] is a factual question," disputes
over which are "not enough to dismiss a complaint that alleges a
specific causal link." 565 F.3d 228, 267 n.33 (5th Cir. 2009).
The Ninth Circuit held similarly, in In re Gilead Sciences
Securities Litigation, when the court explained that "[a] limited
temporal gap between the time a misrepresentation is publicly
revealed and the subsequent decline in stock value does not render
a plaintiff's theory of loss causation per se implausible." 536
F.3d 1049, 1058 (9th Cir. 2008); see also Mineworkers' Pension
Scheme v. First Solar Inc., 881 F.3d 750, 754 (9th Cir. 2018)
("That a stock price drop comes immediately after the revelation
of fraud can help to rule out alternative causes. But that
sequence is not a condition of loss causation." (citations
omitted)). The Tenth Circuit agreed in Nakkhumpun v. Taylor. 782
cause-and-effect relationships over two-day windows, id., such was
not essential to our holding. Thus, In re Xcelera.com Securities
Litigation does not settle this matter as investors suggest.
- 40 -
F.3d 1142, 1154 (10th Cir. 2015) (concluding that loss causation
was adequately pled despite a "concern about the attenuated
relationship between the false statement and materialization of
the risk . . . because the significance of intervening events[,]
[if any existed,] created a fact issue that could not be resolved
in a motion to dismiss under Rule 12(b)(6)"). And in Singer v.
Reali, the Fourth Circuit concluded that plaintiffs had adequately
alleged loss causation where the complaint stated that the
company's stock price dropped on October 18, 2011, in part, because
of a corrective disclosure revealed the day prior in a Form 8-K
filing. 883 F.3d 425, 447 (4th Cir. 2018). These cases are
instructive.
Here, the issue of when Biogen's stock price actually
dropped is a question of fact. See Lormand, 565 F.3d at 266 n.33.
Given that such questions are not properly resolved by the court
on a motion to dismiss, id.; Nakkhumpun, 782 F.3d at 1154,
investors' allegations cannot be per se implausible simply because
a gap in time separates the price drop from the corrective
disclosure. Thus, dismissal of investors' complaint was not
warranted where the allegations contained therein otherwise
plausibly established that Biogen's stock price dropped after
Massie's report revealed the company's misstatements about
aducanumab. See CVS Caremark Corp., 716 F.3d at 242 (concluding
that "allegations [we]re sufficiently plausible to foreclose
- 41 -
dismissal" where they "indicate[d] that the drop in CVS Caremark's
share price was causally related to its misstatements").
IV. Conclusion
For the foregoing reasons, we REVERSE the district
court's dismissal of the section 10(b) and section 20(a)17 claims
predicated upon Sandrock's "all data" statement. We otherwise
AFFIRM the dismissal of investors' remaining fraud claims. The
case is remanded for further proceedings consistent with this
opinion. No costs are awarded.
17 The district court dismissed the section 20(a) claim
without analysis based upon its finding that investors' section
10(b) claim failed. As such, we vacate that dismissal insofar as
it pertains to the "all data" statement. See In re Ariad Pharms.,
Inc. Sec. Litig., 842 F.3d at 753 n.4.
- 42 -
Shash v. Biogen Inc.
Combined Opinion