LOCAL NO. 8 IBEW RETIREMENT PLAN & TRUST, on behalf of itself and all others similarly situated, Plaintiff, Appellant,
VERTEX PHARMACEUTICALS, INC.; JOSHUA BOGER, Ph.D.; JEFFREY LEIDEN, Ph.D.; PETER MUELLER, Ph.D.; PAUL SILVA; ELAINE ULLIAN; NANCY J. WYSENSKI, Defendants, Appellees.
FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
MASSACHUSETTS [Hon. F. Dennis Saylor IV, U.S. District Judge]
F. Lawrence, with whom David R. Scott, Joseph P. Guglielmo,
Beth A. Kaswan, Donald A. Broggi, and Scott Scott,
Attorneys at Law, LLP, were on brief, for appellant.
F. Sylvia, with whom Andrew Nathanson, Matthew D. Levitt,
Rebecca L. Zeidel, and Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C., were on brief, for appellees.
Torruella, Kayatta, and Barron, Circuit Judges.
KAYATTA, Circuit Judge.
the course of clinical trials for an experimental drug
combination intended to treat a fatal lung disease, Vertex
Pharmaceuticals, Inc. ("Vertex") announced interim
results that overstated the improvement in lung function
exhibited in a group of patients receiving the combination
treatment. Following this announcement, Vertex's stock
price rose from $37.41 per share to close at $64.85 three
weeks later. It then lost some of its gain, dropping to
$57.80, after Vertex corrected the initial release's
overstatement. Acting on behalf of all those who acquired
Vertex stock during the period in which the overstatement
stood uncorrected, Local No. 8 IBEW Retirement Plan &
Trust ("Local No. 8") filed this securities fraud
class action complaint against Vertex and six past and
current Vertex employees. The district court dismissed the
complaint, finding that it failed to create a strong
inference that the defendants had acted with scienter, the
requisite mental state. See Local No. 8 IBEW Ret. Plan v.
Vertex Pharm., Inc., 140 F.Supp.3d 120, 137 (D. Mass.
2015). We agree and so affirm.
of the world's largest biotechnology companies, Vertex
researches, develops, and sells treatments for a variety of
ailments. In 1998, Vertex began working on drugs to combat
cystic fibrosis, a fatal and as yet incurable lung disease.
In early 2012 it gained Food and Drug Administration
("FDA") approval to market a drug, Kalydeco, to
treat patients with a rare form of the disease. This
approval, along with a contemporaneous drop in the value of
Vertex's stock due to Vertex's diminishing returns
from another product line, prompted Vertex to focus its
energies on developing a more broadly marketable cystic
pursuit of this aim, Vertex explored a "combination
therapy, " in which a cystic fibrosis patient first
undergoes a course of treatment with an experimental drug
called VX-809 and only then begins taking Kalydeco. Hoping
that this combination would be effective against the most
common form of cystic fibrosis, Vertex began a three-phase
clinical investigation required for FDA approval. See
N.J. Carpenters Pension & Annuity Funds v. Biogen IDEC
Inc., 537 F.3d 35, 39 (1st Cir. 2008) (describing the
FDA approval process); 21 C.F.R. § 312.21 (describing
the three phases of clinical investigation). On May 7, 2012,
while the second phase of this process was ongoing, Vertex
issued a press release announcing interim results drawn from
roughly half of the 108 enrolled patients. The press release
focused in particular on one of the principal markers used to
evaluate the effectiveness of a cystic fibrosis treatment:
lung function, as measured by the amount of air a patient is
capable of exhaling in one second. According to the press
[o]f those who received [the combination therapy],
approximately 46 percent (17/37) experienced an absolute
improvement from baseline to Day 56 [of the trial period] in
lung function of 5 percentage points or more, and
approximately 30 percent (11/37) experienced an absolute
improvement from baseline to Day 56 of 10 percentage points
or more. None of the patients treated with placebo (0/11)
achieved a 5-percentage point or more improvement from
baseline to Day 56 in lung function.
press release described these results as "exceed[ing]
[Vertex's] expectations, " although it cautioned
that "complete data" were not yet available and
that "the final outcomes of this clinical trial or
future clinical trials . . . may be less favorable than the
interim analysis reported today, or may not be favorable at
same day, Vertex held a conference call for media and
investors. On the call, Vertex's Executive Vice President
and Chief Scientific Officer, Peter Mueller
("Mueller"), described the interim results as
"really, really fantastic" and went on to say,
"I have never seen anything like this."
Vertex's Chief Executive Officer ("CEO"),
Jeffrey Leiden ("Leiden"), also expressed
confidence in the results, saying that they were
"driving us to . . . plan for potential market entries
sooner than we had previously planned" and that,
"[p]ending final data this summer and discussions with
regulators, we look forward to accelerating the development
of our [cystic fibrosis] combination regimen." Nancy
Wysenski ("Wysenski"), at that time Vertex's
Chief Commercial Officer and Executive Vice President,
further noted that the number of patients who stood to
benefit from the combination treatment under review exceeded
70, 000--a market that could translate into billions of
dollars in potential sales.
stock price swiftly responded to the announcement of the
promising interim results. On May 7, 2012, the day of the
announcement, Vertex stock closed at $58.12 per share--up
from the prior close of $37.41, with a trading volume forty
times higher than average. By May 25, 2012, the closing price
had risen to $64.85 per share. Meanwhile, five Vertex
employees named as defendants in this suit--Joshua Boger
("Boger"), then Vertex's Director; Paul Silva
("Silva"), who had formerly served as Vertex's
Vice President and Corporate Controller; Elaine Ullian
("Ullian"), Vertex's co-lead independent
director; Mueller; and Wysenski--sold a total of 539, 313
shares of Vertex stock, collecting almost $32 million in all.
29, 2012, Vertex announced in a press release that the
interim results that had so energized its market prospects
had overstated the improvement in lung function exhibited
among the Phase 2 patients receiving the combination
treatment. The error, as Vertex acknowledged that day in a
conference call, stemmed from a "misinterpretation"
as to whether the results Vertex had received from the
third-party statistical analysis vendor reflected the
absolute improvement in the patients' lung function or,
rather, the improvement relative to the patients'
baseline levels of lung function. When evaluated properly,
Vertex's press release explained, the data showed that 35
percent of the patients taking the combination treatment
(rather than 46 percent, as had initially been reported
experienced an absolute improvement of 5 percent or more, and
that 19 percent (rather than 30 percent, as had initially
been reported) experienced an absolute improvement of 10
percent or more. Immediately following the announcement of
the corrected results, the closing price of Vertex stock
experienced its greatest decline in three years, dropping to
$57.80 per share, down from $64.85 per share on May 25, yet
still well up from the May 4 close of $37.41.
short of two years later, Local No. 8 filed a class-action
complaint against Vertex--as well as Boger, Leiden, Mueller,
Silva, Ullian, and Wysenski--on behalf of all those who, like
Local No. 8, had acquired Vertex stock between the
announcement of the overstated interim results on May 7,
2012, and the announcement of the corrected results on May
29, 2012. The complaint charged all defendants with
securities fraud under section 10(b) of the Securities
Exchange Act of 1934 ("Exchange Act"), 15 U.S.C.
§ 78j(b), and the Securities and Exchange
Commission's Rule 10b-5, 17 C.F.R. § 240.10b-5. It
also charged the six individual defendants with joint and
several liability under section 20(a) of the Exchange Act, 15
U.S.C. § 78t(a), for the alleged securities fraud, on
the theory that these defendants "controlled Vertex,
and/or controlled other Individual Defendants"; and
charged Boger, Mueller, Silva, Ullian, and Wysenski with
insider trading under section 20A of the Exchange Act,
id. § 78t-1(a). The gravamen of the alleged
fraud, according to the complaint, is that, "[w]hen
faced with . . . study results that seemed too good to be
true, Defendants, rather than checking the results, turned a
blind eye, accepting and promoting unlikely data that offered
them a windfall on the sale of their stock."
defendants moved to dismiss for failure to state a claim,
see Fed.R.Civ.P. 12(b)(6), arguing that the facts
alleged in the complaint fail to generate a strong inference
that the defendants acted with the mental state required to
render them liable under section 10(b) and Rule 10b-5. The
district court agreed. It found as well that Local No.
8's section 20(a) and section 20A claims could not
survive in the absence of a proper section 10(b) and Rule
10b-5 claim, and dismissed the complaint. See Local No.
8, 140 F.Supp.3d at 137. This timely appeal ensued.