METZLER ASSET MANAGEMENT GMBH, on behalf of itself and all other similarly situated parties; ERSTE-SPARINVEST KAPITALANANLAGEGESELLSCHAFT MBH, on behalf of itself and all other similarly situated parties, Plaintiffs, Appellants/Cross-Appellees,
STUART A. KINGSLEY; GEORGE A. SCANGOS; PAUL J. CLANCY; BIOGEN INC., Defendants, Appellees/Cross-Appellants.
APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF MASSACHUSETTS[Hon. F. Dennis Saylor, IV, U.S.
S. Levin, with whom Christopher F. Moriarity, William H.
Narwold, Motley Rice LLC, Jonathan Gardner, Labaton Sucharow
LLP, Robert M. Rothman, Mark T. Millkey, Susan K. Alexander,
Andrew S. Love, and Robbins Geller Rudman & Dowd LLP were
on brief, for appellants/cross-appellees.
R. Carroll, with whom Michael S. Hines, Sara J. van Vliet,
and Skadden, Arps, Slate, Meagher & Flom LLP were on
brief, for appellees/cross-appellants.
Lynch, Stahl, and Barron, Circuit Judges.
BARRON, CIRCUIT JUDGE.
Asset Management GmbH ("Metzler") and
Erste-Sparinvest Kapitalanlagegesellschaft mbH
("Erste-Sparinvest") have been designated the lead
plaintiffs, pursuant to the Private Securities Litigation
Reform Act ("PSLRA"), 15 U.S.C. § 78u-4, in a
federal securities class action that they brought against
Biogen Inc. and three Biogen executives ("Biogen").
The suit alleges that Biogen and its executives committed
fraud, in violation of regulations promulgated by the
Securities and Exchange Commission pursuant to the Securities
Exchange Act, 15 U.S.C. § 78a et seq, by
falsely stating that Biogen's product, Tecfidera, was
both safer and more widely used than it was. The putative
class is comprised of all purchasers of Biogen common stock
from July 23, 2014, through July 23, 2015.
defendants moved to dismiss the suit on claim preclusion
grounds, based on this Court's earlier decision in In
re Biogen Inc. Securities Litigation, 857 F.3d 34 (1st
Cir. 2017) ("Biogen I"), and for failing
to plead facts "giving rise to a strong inference"
of scienter, 15 U.S.C. § 78u-4(b)(2)(A), as the PSLRA
requires that a complaint alleging fraud must in order for it
to survive such a motion. The District Court rejected the
defendants' claim preclusion argument but dismissed the
suit under the PSLRA for failing to adequately plead
scienter. We affirm.
corporate defendant, Biogen, is a multinational biotechnology
company based in Cambridge, Massachusetts. Its stock trades
on the NASDAQ. Id. at 37. The three individual
defendants are George Scangos, who was Biogen's Chief
Executive Officer from July 23, 2014, through July 23, 2015;
Paul Clancy, who was Biogen's Chief Financial Officer and
Executive Vice President of Finance during that time; and
Stuart Kingsley, who was its Executive Vice President of
Global Commercial Operations during the same period.
plaintiffs' complaint sets forth the following
allegations. Biogen developed and sold a United States Food
and Drug Administration ("FDA") approved drug for
multiple sclerosis ("MS") called Tecfidera during
the relevant time period. Tecfidera accounted for a third of
Biogen's total revenue in this time frame. As of July 23,
2014, Tecfidera bore a label that warned patients taking the
drug of an increased risk of developing lymphopenia -- a
condition of having low lymphocyte counts, leading to a
weakened immune system.
October 22, 2014, Biogen held a third-quarter earnings call
with its investors. The company announced for the first time
publicly that an MS patient who had been regularly taking
Tecfidera had died of progressive multifocal
leukoencephalopathy ("PML"), a rare neurological
disease which counts lymphopenia as one of its precursors.
One month later, Biogen amended the Tecfidera label to
include a warning about the risk of PML.
January 29, 2015, Biogen provided full-year revenue guidance
for 2015. It predicted a 14% to 16% overall growth rate for
the company for the year. However, on April 24, 2015, Biogen
released first-quarter financial results for the year that
showed that Tecfidera's revenue had fallen below the
24, 2015, Biogen released its second-quarter earnings report.
The report amended the company's 2015 revenue guidance.
It lowered Biogen's predicted revenue growth from 14-16%
to 6-8% for the year. Biogen attributed its tempered
expectations, in part, to slowing Tecfidera growth.
stock fell by more than 20% in one day due to the second
quarter earnings report. On October 9, 2015, Biogen announced
that Kingsley was leaving the company. Less than two weeks
later, the company announced that it was cutting roughly 11%
of its workforce. Id. at 39.
August 18, 2015, a putative federal securities fraud class
action was filed in the District of Massachusetts against the
company and the same three individual defendants in the case
before us in this appeal. Id. at 36-39. The putative
class in that action consisted of persons who had purchased
common stock of Biogen between January 29, 2015, and July 23,
2015. Tehrani v. Biogen, Inc., No. 15-13189, 2015 WL
7302132, at *1 (D. Mass. Nov. 18, 2015). The suit alleged
that Biogen and the three executives had fraudulently misled
investors, in violation of Sections 10(b)and
20(a) of the Securities Exchange Act of 1934,
see 15 U.S.C. §§ 78j(b), 78t(a), regarding
Tecfidera's usage rates in light of the PML incident.
Tehrani, 2015 WL 7302132, at *1.
of the action was published pursuant to the PSLRA, which
establishes procedures for bringing securities class actions.
See id. at *2. In accordance with those procedures,
on November 17, 2015, the District Court preliminarily
appointed GBR Group Ltd. ("GBR") "lead
plaintiff" in the matter, a status that Congress created
in the PSLRA "to increase the chances that securities
fraud cases are brought by investors who have substantial and
genuine interests in the litigation." Id.
January 19, 2016, GBR filed an amended complaint. The amended
complaint changed the class period, such that it ran from
December 2, 2014, through July 23, 2015. Biogen I,
857 F.3d at 36.
moved to dismiss the complaint. The District Court granted
that motion as to both the Section 10(b) and 20(a) claims.
See Biogen I, 193 F.Supp.3d 5, 56 (D. Mass. 2016).
moved to vacate the order of dismissal and for leave to file
a second amended complaint with the District Court under
Federal Rules 59(e) and 60(b)(2). In re Biogen Inc. Sec.
Litig., No. 15-13189, 2016 WL 5660329, at *3 (D. Mass.
Sept. 28, 2016). The motion requested that the District Court
vacate the order of dismissal based on the new scienter
allegations in the proposed second amended complaint.
Id. The District Court denied the motion.
Id. at *6. The District Court determined that the
plaintiffs could have discovered the evidence on which they
were based earlier with reasonable diligence. Id.
appealed both the dismissal of the complaint for failure to
state a claim as well as the denial of its motion to vacate
that dismissal and for leave to file the second amended
complaint. As discussed below, that appeal ultimately ended
in affirmance of the District Court. During the pendency of
the appeal in that case, however, separate Biogen
stockholders filed a subsequent putative class action in the
District Court on October 20, 2016, against Biogen and
certain of its executives on behalf of a class of investors
in the company. Metzler Asset Mgmt. GmbH v. Kingsley
("Biogen II"), 305 F.Supp.3d 181, 205, 202
(D. Mass. 2018). They alleged that, through its comments to
investors, Biogen misled the market about Tecfidera's
safety profile and discontinuation rates.
new action is the one before us on appeal. It, too, asserts
violations of Sections 10(b) and 20(a) of the Securities
Exchange Act. Nonetheless, it differs from the first putative
class action that had been filed against Biogen in three
ways. First, the class period for the putative class in the
new suit began on July 23, 2014, as opposed to December 2,
2014. Second, the complaint in the new suit alleged that
Biogen had made additional misleading statements not
referenced in the prior suit and also set forth statements
from confidential witnesses ("CWs") to prove
scienter that had not been referenced in the complaint in the
earlier suit. These newly alleged statements included ones
that had been set forth in the amended complaint in the
earlier putative class action that the District Court
rejected for not having been included in a timely manner.
See Biogen I, 857 F.3d at 45-46. Third, the new suit
alleged that, in addition to making fraudulent statements
regarding Tecfidera's usage rate, Biogen executives also
made fraudulent statements about the drug's safety
February 1, 2017, the District Court preliminarily appointed
Metzler and Erste-Sparinvest -- not GBR -- to be the lead
plaintiffs in this new suit pursuant to the PSLRA. See
Metzler Asset Mgmt. GmbH v. Kinglsey, No. 16-12101, 2017
WL 438731 (D. Mass. Feb. 1, 2017). Plaintiffs also filed a
motion to stay the District Court proceedings pending
resolution of the appeal of the earlier action. That motion
was denied. Id. at *4.
12, 2017, we affirmed the District Court's order of
dismissal for lack of sufficient allegations of scienter in
Biogen I. Biogen I, 857 F.3d at 46. In so
doing, we also held that the confidential witness statements
provided by the plaintiffs were "insufficiently
particular" to prove scienter. Id. at 41.
Finally, we denied the plaintiffs' motion to vacate and
file a second amended complaint. Id. at 45.
Biogen I, Biogen moved to dismiss the complaint in
the putative class action that is now before us for failing
to adequately plead scienter and on claim preclusion grounds.
The District Court rejected the claim preclusion argument but
agreed that the complaint in the new suit failed to plead
facts sufficient to create a strong inference ...