Ariad Opinion Re Motion to Dismiss

8/9/2019 Ariad Opinion Re Motion to Dismiss

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UNI TED STATES DI STRI CT COURTDI STRI CT OF MASSACHUSETTS

)I N RE: ARI AD PHARMACEUTI CALS, ) CI VI L ACTI ONI NC. , SECURI TI ES LI TI GATI ON ) 13- 12544- WGY

)

YOUNG, D. J . Mar ch 24, 2015

MEMORANDUM AND ORDER

I. INTRODUCTION

Thi s i s a sharehol der cl ass act i on brought by J oseph

Br adl ey, t he Ci t y of For t Lauder dal e Pol i ce & Fi r e Ret i r ement

Syst em, Pensi on Trust Fund f or Oper at i ng Engi neer s and

Aut omot i ve I ndust r i es Pensi on Tr ust Fund, and Wi l l i am A. Gaul ,

D. M. D. ( col l ecti vel y, “t he Lead Pl ai nt i f f s”), on behal f of

t hemsel ves and al l si mi l ar l y- si t uat ed shar ehol der s, agai nst

ARI AD Phar maceut i cal s, I nc. ( “ARI AD”) , sever al of f i cer s and

di r ect or s of ARI AD ( Chi ef Execut i ve Of f i cer Har vey Ber ger , Chi ef

Fi nanci al Of f i cer Edwar d Fi t zger al d, Chi ef Medi cal Of f i cer Frank

Hal uska, and Chi ef Sci ent i f i c Of f i cer Ti mot hy Cl ackson) ( “t he

I ndi vi dual Def endant s, ” t oget her wi t h ARI AD, t he “ARI AD

Def endant s”) , and seven under wr i t er s. The under wr i t er

def endant s ar e J . P. Morgan Secur i t i es LLC, Cowen and Company,

LLC, J ef f er i es & Company, I nc. , BMO Capi t al Mar ket s Cor p. ,


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Leer i nk Swann LLC, RBC Capi t al Market s, LLC, and UBS Secur i t i es

LLC ( col l ecti vel y, “t he Under wr i t er s”).

The Lead Pl ai nt i f f s br i ng t hi s proposed cl ass act i on on

behal f of t hemsel ves and al l ot her per sons or ent i t i es who

pur chased or acqui r ed (1) any publ i cl y- t r aded ARI AD secur i t i es

bet ween December 12, 2011 and Oct ober 30, 2013 ( t he “Cl ass

Per i od”) , or ( 2) any of ARI AD’ s common st ock pur suant or

t r aceabl e t o t he secondar y of f er i ng t hat occur r ed on or about

J anuar y 24, 2013 ( “2013 St ock Of f er i ng”) and wer e damaged

t her eby. Cor r ect ed Consol . Compl . Vi ol at i ons Fed. Secs. Laws

( “Compl . ”) 1, ECF No. 131. They al l ege t hat t he ARI AD

Def endant s made a ser i es of f al se and mi sl eadi ng st at ement s and

omi ssi ons i n r egar ds t o the saf et y, ef f i cacy, and commer ci al

pr ospect s of ARI AD’ s mai n pr oduct , a cancer medi cat i on cal l ed

ponat i ni b, whi ch i s used t o t r eat chr oni c myel oi d l eukemi a. I d.

As a resul t of t hese st atement s and omi ssi ons, t he Lead

Pl ai nt i f f s al l ege that t he pr i ce of ARI AD common st ock t r aded at

ar t i f i ci al l y hi gh val ues, whi l e ARI AD conceal ed t he f ul l ext ent

of adver se event s ar i s i ng f r om t hei r c l i ni cal t r i al s. I d. ¶¶ 5-

6. Ar gui ng t hat t he I ndi vi dual Def endant s knew t he f ul l ext ent

of t he negat i ve r esul t s st emmi ng f r om t he ongoi ng cl i ni cal

t r i al s, t he Lead Pl ai nt i f f s al l ege t hat t he I ndi vi dual

Def endant s engaged i n suspi ci ous and unusual st ock sal es dur i ng

t he Cl ass Per i od. I d. ¶ 327. They al so br i ng a cl ai m agai nst


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t he ARI AD Def endant s and t he Underwr i t ers under Sect i on 11 of

t he Secur i t i es Act of 1933 ( “Sect i on 11”) f or al l eged

mi sst at ement s and omi ssi ons i n st ock of f er i ng mat er i al s. I d. ¶¶

416- 17.

The ARI AD Def endant s and t he Under wr i t er s seek di smi ssal of

al l cl ai ms agai nst t hem.

A. Procedural History

Thi s l i t i gat i on began on Oct ober 10, 2013 upon t he f i l i ng

of a cl ass act i on compl ai nt by J i mmy Wang agai nst ARI AD and f our

of i t s of f i cer s. Cl ass Acti on Compl . f or Vi ol at i ons of Fed.

Secs. Laws, ECF No. 1. The case was i ni t i al l y dr awn t o J udge

J oseph Tauro, El ec. Not i ce, Oct . 11, 2013, ECF No. 3, but was

r eassi gned t o t hi s Cour t shor t l y t her eaf t er , El ec. Not i ce, Dec.

10, 2013, ECF No. 38.

On J anuary 9, 2014, t he Cour t ent ered an order

consol i dat i ng sever al r el at ed act i ons i nt o t hi s si ngl e

l i t i gat i on, sel ecti ng l ead pl ai nt i f f s, and appr ovi ng t he

sel ect i on of l ead counsel . Or der , J an. 9, 2014, ECF No. 95.

The oper at i ve compl ai nt was f i l ed as a cor r ect ed consol i dat ed

compl ai nt by t he Lead Pl ai nt i f f s on March 25, 2014. Compl . The

compl ai nt i s di vi ded i nt o t wo di st i nct and st and- al one par t s,

t he f i r st of whi ch cont ai ns f r aud al l egat i ons ar i si ng under

Sect i on 10( b) , Rul e 10b- 5 pr omul gated t her eunder by t he Uni t ed

St ates Secur i t i es and Exchange Commi ssi on ( “SEC”) , and Sect i on


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20( a) of t he Secur i t i es Exchange Act of 1934, Compl . ¶¶ 20- 415

and t he second of whi ch cont ai ns al l egat i ons and cl ai ms ar i si ng

under Sect i on 11 of t he Secur i t i es Act of 1933. See Compl . ¶¶

416- 85.

The t wo mot i ons addr essed by t he Cour t here ar e mot i ons t o

di smi ss f or f ai l ur e t o st at e a cl ai m br ought by t he ARI AD

Def endant s and t he Under wr i t ers on Apr i l 14, 2014. ARI AD Def s. ’

Mot . Di smi ss Cor r ect ed Consol . Compl . , ECF No. 147; Mem. Supp.

ARI AD Def s. ’ Mot . Di smi ss Cor r ect ed Consol . Compl . ( “ARI AD

Def s. ’ Mem. ”) , ECF No. 148; Under wr i t er Def s. ’ Mot . Di smi ss, ECF

No. 144; Underwr i t er Def s. ’ Mem. Law Supp. Mot . Di smi ss

( “Under wr i t er Def s. ’ Mem. ”) , ECF No. 145. The Lead Pl ai nt i f f s

f i l ed an omni bus memorandum of opposi t i on t o t he mot i ons t o

di smi ss on May 21, 2014. Pl s. ’ Omni bus Mem. Law Opp. Def s. ’

Mot . Di smi ss Cor r ect ed Consol . Compl . ( “Pl s. ’ Opp’ n”) , ECF No.

157. On J une 4, 2014, t he Under wr i t er s submi t t ed a r epl y i n

f ur t her suppor t of t hei r mot i on t o di smi ss, Under wr i t er Def s. ’

Repl y Mem. Law Fur t her Supp. Mot . Di smi ss ( “Under wr i t er Def s. ’

Repl y”) , ECF No. 162, and on J une 5, 2014, t he ARI AD Def endant s

submi t t ed t hei r own r epl y memor andum. ARI AD Def s. ’ Repl y Mem.

Fur t her Supp. Mot . Di smi ss Cor r ect ed Consol . Compl . ( “ARI AD

Def s. ’ Repl y”) , ECF No. 166.


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B. Facts Alleged 1

ARI AD i s a bi ot echnol ogy company based i n Cambr i dge,

Massachuset t s, speci al i zi ng i n t he devel opment and sal e of

cancer dr ugs. Compl . ¶ 429. For sever al years, t he company

pr i mar i l y has f ocused on devel opi ng t he dr ug ponat i ni b, al so

known as I cl usi g, as a t r eat ment f or chr oni c myel oi d l eukemi a

( “CML”) . I d. I n par t i cul ar , ARI AD f ocused on devel opi ng a

f r ont - l i ne dr ug t o compet e wi t h exi st i ng dr ugs t o t r eat CML,

not i ng t hat f r ont - l i ne dr ugs ar e mor e l ucr at i ve pr oduct s t han

second- l i ne dr ugs. I d. ¶ 11 ( expl ai ni ng t hat f r ont - l i ne dr ugs

“t ypi cal l y out sel l second- l i ne t r eat ment s by many or der s of

magni t ude”) . I n t he cour se of seeki ng appr oval by t he U. S. Food

and Dr ug Admi ni st r at i on ( “FDA”) , ARI AD commenced a cl i ni cal

t r i al on Sept ember 13, 2010, r ef er r ed t o by t he par t i es as t he

PACE 2 t r i al s. I d. ¶ 47. The t r i al was “desi gned t o assess t he

1 The f act ual pl eadi ngs wer e di vi ded i nt o two par t s, t hef i r st r el at i ng t o t he Exchange Act cl ai ms and t he secondr el at i ng t o Sect i on 11 cl ai ms. The f act s suppor t i ng t he LeadPl ai nt i f f s’ Sect i on 11 cl ai ms ar e cont ai ned i n par agr aphs 429t hr ough 472 of t he corr ect ed consol i dated compl ai nt , and t heyt r aver se much l ess t er r i t or y t han t he f act ual al l egat i onssuppor t i ng t he Lead Pl ai nt i f f s’ Exchange Act cl ai ms soundi ng i nf r aud. Compar e Compl . ¶¶ 36- 393 ( suppor t i ng Exchange Actcl ai ms) wi t h i d. ¶¶ 429- 72 ( suppor t i ng Secur i t i es Act cl ai ms) . The compl ai nt i s st r uct ured as t wo i ndependent par t s, and t hesecond part cont ai ns no st at ement s i ncor por at i ng by r ef er enceany st at ement s f r om t he f i r st par t of t he compl ai nt . Theanal ysi s and concl usi ons r egardi ng t he Sect i on 11 cl ai ms arebased sol el y on the pl eadi ngs made i n the second part of t hecompl ai nt . The f act s rel evant t o bot h set s of cl ai ms ar esummar i zed i n thi s sect i on.


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ef f i cacy and saf et y of ponat i ni b i n a l ar ger subj ect gr oup”

consi st i ng of “second- l i ne” CML pat i ent s, meani ng t hose wi t h a

demonst r ated r esi st ance t o ot her , mor e est abl i shed t r eat ment s.

I d. ¶¶ 47- 49, 431. The PACE 2 pr otocol pr ovi ded f or 449 t est

subj ect s t o be t r eat ed wi t h a r ecommended dai l y dose of 45

mi l l i gr ams of t he dr ug. I d. ¶ 49. Seeki ng f undi ng f or t hei r

ongoi ng cl i ni cal t r i al s, ARI AD hel d i t s f i r st of t wo st ock

of f er i ngs i n December 2011, r ai si ng $258, 000, 000. I d. ¶ 62.

On J une 4, 2012, ARI AD announced f avor abl e i nt er i m r esul t s

at a medi cal conf er ence, ci t i ng “cl ear evi dence of a f avor abl e

saf et y and t ol er abi l i t y pr of i l e i n ponat i ni b i n r esi stant or

i nt ol er ant CML pat i ent s. ” I d. ¶ 50- 51. ARI AD al so submi t t ed an

i nt er i m r epor t t o the FDA cont ai ni ng dat a thr ough t he end of

J ul y 2012 ( t he “J ul y 2012 I nt er i m Repor t ”) . I d. ¶ 433. The

r esul t s of t hi s i nt er i m r epor t document ed adver se car di ovascul ar

event s i n t est subj ect s, i ncl udi ng t he i nci dence of “ser i ous

ar t er i al t hr ombosi s” i n ei ght per cent of pat i ent s. I d. ¶¶ 433,

435.

Shor t l y af t er t he submi ssi on of t he J ul y 2012 I nt er i m

Repor t , ARI AD began a new cl i ni cal t r i al ( t he “EPI C” t r i al ) ,

whi ch “was desi gned to suppor t FDA appr oval of ponat i ni b i n

newl y- di agnosed, never - t r eat ed CML pat i ent s, a. k. a. ‘ f r ont - l i ne’

CML. ” I d. ¶ 434. The pr escr i bed dosage f or t he EPI C t r i al was

al so 45 mi l l i gr ams dai l y. I d.


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On December 14, 2012, ARI AD f i l ed a Form 8- K and announced

i n a pr ess r el ease t hat t he FDA had gr ant ed accel er ated appr oval

t o mar ket ponat i ni b f or second- l i ne use. I d. ¶¶ 76- 79, 435

( not i ng t hat t he FDA r el i ed on and publ i ci zed t he dat a evi nced

i n t he J ul y 2012 I nt er i m Repor t ) . Thi s pr ess r el ease i ncl uded

t he l i st of ser i ous adver se event s t hat had occur r ed, i ncl udi ng

an ei ght per cent occur r ence of “ser i ous ar t er i al t hr ombosi s” and

f our per cent occur r ence of ser i ous congest i ve hear t f ai l ur e,

wi t h f our f at al i t i es. I d. ¶¶ 78- 79. The FDA’ s appr oval was

condi t i oned on t wo r equi r ement s: f i r st , t hat each bot t l e of

ponat i ni b i ncl ude a “bl ack box” war ni ng l abel di scl osi ng t he

occur r ence of ser i ous adver se car di ovascul ar event s i n user s,

and second, t hat ARI AD submi t f ol l ow- up PACE 2 dat a t o t he FDA.

I d. ¶¶ 110, 435- 36. A “bl ack box” war ni ng i s t he st r ongest

war ni ng l evel f or a pr escr i pt i on dr ug under FDA gui del i nes. I d.

¶¶ 81- 82. The same day as t he pr ess r el ease, ARI AD’ s shar e

pr i ce f el l t went y- one per cent . I d. ¶ 88.

One mont h l at er , ARI AD conduct ed a publ i c secondar y

of f er i ng of common st ock ( “t he Of f er i ng”) on J anuar y 24, 2013,

i d. ¶ 439, wi t h t he i nt ent i on t hat t he pr oceeds of t he Of f er i ng

be earmarked f or devel opi ng and manuf actur i ng ponat i ni b, i d. ¶

63. I n connect i on wi t h t he Of f er i ng, t he Under wr i t er s pr epar ed

mater i al s, i ncl udi ng a pr ospectus suppl ement , t o accompany

exi st i ng mat er i al s such as a shel f r egi st r at i on st at ement , a


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pr ospect us, and a number of SEC f i l i ngs ( col l ect i vel y, “t he

Of f er i ng Mat er i al s”) . I d. ¶ 441. ARI AD i ssued 15, 307, 000

shar es i n t he Of f er i ng and r ai sed $310, 000, 000. I d. ¶¶ 439- 40.

I n August 2013, ARI AD submi t t ed f ol l ow- up data f r om t he

PACE 2 t r i al s t o t he FDA. I d. ¶ 437. The new data, whi ch

cover ed t he t r i al per i od f r om August 2012 t o August 2013,

“showed [ among ot her t hi ngs] t hat t he r at e of ser i ous ar t er i al

t hr ombosi s associ at ed wi t h ponat i ni b had i ncr eased f r om 8

[ per cent ] t o 11. 8 [ per cent ] i n t he t i me si nce” J ul y 2012. I d.

Two mont hs l at er , ARI AD announced t hat t he FDA had

t er mi nat ed t he EPI C t r i al , f or ecl osi ng ponat i ni b’ s appr oval f or

f r ont - l i ne use, whi ch r esul t ed i n a st ock val ue dr op of f or t y-

one per cent . I d. ¶ 17. Shor t l y t her eaf t er , ARI AD announced

t hat t he FDA had suspended market i ng of ponat i ni b, r esul t i ng i n

a f ur t her f or t y- f our per cent dr op i n mar ket val ue. I d. The FDA

di scl osed a number of ser i ous adver se si de ef f ect s occur r i ng i n

ponat i ni b pat i ent s and st at ed t hat “[ a] t t hi s t i me, [ t he] FDA

cannot i dent i f y a dose l evel or exposur e dur at i on t hat i s saf e. ”

I d. ¶ 438.

Af t er t he Cl ass Per i od ended, ARI AD announced on December

20, 2013 t hat t he FDA was now al l owi ng t he market i ng and

di st r i but i on of ponat i ni b under a new l abel whi ch i ncl uded

addi t i onal l anguage on vascul ar occl usi ve event s and hear t

f ai l ur e. I d. ¶¶ 309- 10. Thi s r e- l abel i ng si gni f i cant l y


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nar r owed t he el i gi bl e popul at i on of CML- pat i ent s, as i t was

r el egat ed f or t hi r d and f our t h- l i ne usage. I d. ¶ 312. The FDA

i ssued i ndependent saf et y f i ndi ngs on December 18, not i ng t hat

“si mi l ar r at es of ser i ous vascul ar event s have not been observed

i n sever al ot her dr ugs of t hi s cl ass. ” I d. ¶ 313.

II. ANALYSIS: Claims Against the Defendant ARIAD

A. Standard of Review

1. The Motion to Dismiss Standard

Under t he Feder al Rul es of Ci vi l Pr ocedur e, a compl ai nt

must cont ai n “a shor t and pl ai n st at ement of t he cl ai m showi ng

t hat t he pl eader i s ent i t l ed t o r el i ef . ” Fed. R. Ci v. P.

8( a) ( 2) . To sur vi ve a Rul e 12( b) ( 6) mot i on t o di smi ss, a

compl ai nt must cont ai n suf f i ci ent f act ual mat t er , accept ed as

t rue, t o “st at e a cl ai m t o rel i ef t hat i s pl ausi bl e on i t s

f ace. ” Bel l At l . Cor p. v. Twombl y, 550 U. S. 544, 570 ( 2007) . A

mer e r eci t al of t he l egal el ement s suppor t ed onl y by concl usory

st at ement s i s not suf f i ci ent t o st at e a cause of act i on. I d. at

555.

Rel at edl y, “cour t s i ncreasi ngl y i nsi st t hat mor e speci f i c

f act s be al l eged wher e an al l egat i on i s concl usor y. ” Pl umber s’

Uni on Local No. 12 Pensi on Fund v. Nomura Asset Acceptance

Cor p. , 632 F. 3d 762, 773 ( 1st Ci r . 2011) ( ci t i ng Mal donado v.

Font anes, 568 F. 3d 263, 266, 274 ( 1st Ci r . 2009) ) . Even at t he

mot i on t o di smi ss st age, “‘ naked asser t i on[ s] ’ devoi d of


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‘ f ur t her f act ual enhancement ’ ” ar e not ent i t l ed t o a pr esumpt i on

of t r ut h. Ashcrof t v. I qbal , 556 U. S. 662, 678 ( 2009) ( quot i ng

Twombl y, 550 U. S. at 557) . “[ I ] t i s onl y when . . . concl usi ons

ar e l ogi cal l y compel l ed, or at l east suppor t ed, by the st at ed

f act s, t hat i s, when t he suggest ed i nf er ence r i ses t o what

exper i ence i ndi cat es i s an accept abl e l evel of pr obabi l i t y, t hat

‘ concl usi ons’ become ‘ f act s’ f or pl eadi ng pur poses. ” Cooper man

v. I ndi vi dual , I nc. , 171 F. 3d 43, 47- 48 ( 1st Ci r . 1999) ( quot i ng

Dart mout h Revi ew v. Dart mout h Col l ege, 889 F. 2d 13, 16 (1st Ci r .

1989) ) .

2. Standard of Review in Securities Actions

I n many secur i t i es act i ons, a hei ght ened pl eadi ng st andar d

appl i es. Thi s i s so because cl ai ms al l egi ng f r aud ar e subj ect

t o t he st r i ct er st andar ds of Feder al Rul e of Ci vi l Pr ocedur e

9( b) , and because t he Pr i vat e Secur i t i es Li t i gat i on Ref or m Act

( “PSLRA”) , Pub. L. No. 104- 67, codi f i ed at 15 U. S. C. § 78u- 4,

i mposes an even more r i gorous st andard on sci ent er al l egat i ons,

a r equi r ed el ement of f r aud cl ai ms under Sect i on 10 of t he

Exchange Act . See Lenar t z v. Am. Superconduct or Corp. , 879 F.

Supp. 2d 167, 180 ( D. Mass. 2012) . PSLRA, enact ed as a “check

agai nst abusi ve l i t i gat i on by pr i vat e par t i es, ” r equi r es t hat

pl ai nt i f f s “st at e wi t h par t i cul ar i t y bot h t he f acts const i t ut i ng

t he al l eged vi ol at i on, and t he f acts evi denci ng sci ent er , i . e. ,

t he def endant ’ s i nt ent i on ‘ t o decei ve, mani pul at e, or def r aud. ’ ”


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Tel l abs, I nc. v. Makor I ssues & Ri ght s, Lt d. , 551 U. S. 308, 313

( 2007) ( i nt er nal ci t at i on omi t t ed) .

Pl ai nt i f f s pl eadi ng a vi ol at i on of Secti on 11 of t he

Secur i t i es Act , however , t ypi cal l y “need onl y sat i sf y t he

not i ce- pl eadi ng st andar d of Fed. R. Ci v. P. 8( a) , ” si nce

sci ent er i s not an el ement of Sect i on 11. Si l ver st r and I nvs. v.

AMAG Phar m. , I nc. , 707 F. 3d 95, 102 ( 1st Ci r . 2013) . The Fi r st

Ci r cui t r ecogni zes one except i on t o t he “r el at i vel y mi ni mal

bur den” of pl eadi ng a Sect i on 11 cl ai m: when t he al l egat i ons

suppor t i ng a Sect i on 11 cl ai m sound i n f r aud, . . . t hey ar e

subj ect t o t he hei ght ened r equi r ement s of Rul e 9( b) . Shaw v.

Di gi t al Equi p. Cor p. , 82 F. 3d 1194, 1223 ( 1st Ci r . 1996) .

“[ C] our t s must ensur e t hat [ Sect i on 11 al l egat i ons] t r ul y do

‘ sound i n f r aud’ bef or e t he hei ght ened pl eadi ng st andar d . . .

at t aches. ” I n r e Number Ni ne Vi sual Tech. Cor p. Sec. Li t i g. , 51

F. Supp. 2d 1, 12 ( D. Mass. 1999) .

Her e, t he Pl ai nt i f f s’ Sect i on 10b, Rul e 10b- 5, and Sect i on

20 cl ai ms sound i n f r aud and must t heref ore meet t he r i gorous

sci ent er st andar ds under t he PSLRA. The Pl ai nt i f f s’ Sect i on 11

cl ai ms, however , do not sound i n f r aud. Compl . ¶ 417 ( “Lead

Pl ai nt i f f s do not al l ege or i nt end t o al l ege any cl ai ms or

asser t i ons of f r aud i n connect i on wi t h t hei r cl ai ms i n t hi s

sect i on of t he Compl ai nt , whi ch ar e r oot ed excl usi vel y i n

t heor i es of i nnocent and/ or negl i gent conduct t o whi ch t he


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ARI AD st ock pr i ce dr oppi ng more t han t went y per cent i n a si ngl e

day. Pl s. ’ Opp’ n 12. The Pl ai nt i f f s al l ege t hat ARI AD

cont i nued t o make posi t i ve st at ement s i n the post - appr oval

per i od, wi t h t he “f ul l t r ut h” onl y emer gi ng i n Oct ober 2013.

Compl . 16.

Sect i on 10 of t he Exchange Act pr ovi des:

I t shal l be unl awf ul f or any per son, di r ect l y ori ndi r ect l y, by the use of any means or i nst r ument al i t yof i nt er st at e commer ce or of t he mai l s, or of anyf aci l i t y of any nat i onal secur i t i es exchange . . . ( b) To use or empl oy, i n connect i on wi t h t he pur chase or

sal e of any secur i t y . . . any mani pul at i ve ordecept i ve devi ce or cont r i vance i n cont r avent i on ofsuch rul es and regul at i ons as t he Commi ssi on maypr escr i be as necessary or appr opr i at e i n t he publ i ci nt er est or f or t he pr ot ecti on of i nvest or s.

15 U. S. C. § 78j ( b) . To st at e a cl ai m under Sect i on 10( b) of t he

Exchange Act , and Rul e 10b–5 pr omul gat ed t her eunder , t he

Pl ai nt i f f s must al l ege t hat : “( 1) i n connect i on wi t h t he

pur chase or sal e of secur i t i es, ( 2) t he def endant made a f al se

st at ement or omi t t ed a mat er i al f act , ( 3) wi t h t he r equi si t e

sci ent er , and t hat ( 4) pl ai nt i f f r el i ed on t he st at ement or

omi ssi on, ( 5) wi t h r esul t ant i nj ur y. ” Lenar t z, 879 F. Supp. 2d

at 180- 81; see al so Dur a Phar m. , I nc. v. Br oudo, 544 U. S. 336,

341 ( 2005) . Mat er i al i t y r equi r es t hat t her e be “a subst ant i al

l i kel i hood t hat t he di scl osur e of t he omi t t ed f act woul d have

been vi ewed by t he r easonabl e i nvest or as havi ng si gni f i cant l y

al t er ed t he ‘ t ot al mi x’ of i nf or mat i on made avai l abl e. ” Basi c


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I nc. v. Levi nson, 485 U. S. 224, 231–32 ( 1988) ( quot i ng TSC

I ndus. , I nc. v. Nor t hway, I nc. , 426 U. S. 438, 449 ( 1976) ) .

Because t hese cl ai ms sound i n f r aud, t he Pl ai nt i f f s must pl ead

wi t h par t i cul ar i t y, pur suant t o Rul e 9( b) and PSLRA. To sur vi ve

a mot i on t o di smi ss, “t he pl ai nt i f f must ‘ speci f y each st at ement

al l eged t o have been mi sl eadi ng [ and] t he reason or r easons why

t he st at ement i s mi sl eadi ng, ’ ” Hi l l v. Gozani , 638 F. 3d 40, 55

( 1st Ci r . 2011) ( quot i ng ACA Fi n. Guar . Cor p. v. Advest , I nc. ,

512 F. 3d 46, 58 ( 1st Ci r . 2008) ) , and each al l eged act or

omi ssi on must “st at e wi t h par t i cul ar i t y [ t he] f act s gi vi ng r i se

t o a st r ong i nf er ence t hat t he def endant act ed wi t h t he r equi r ed

st at e of mi nd. ” I d. ( quot i ng 15 U. S. C. § 78u- 4) .

1. Scienter Requirements

Secti on 10( b) r equi r es t he pl ai nt i f f t o show sci ent er , i . e.

t hat t he speaker “acted wi t h f r audul ent i nt ent or knowi ng or

r eckl ess di sr egar d of hi s obl i gat i on t o di scl ose. ” I n r e Bost on

Sci . Cor p. Sec. Li t i g. , 686 F. 3d 21, 29 ( 1st Ci r . 2012) ( ci t i ng

Aut omot i ve I ndus. Pensi on Tr ust Fund v. Text r on, I nc. , 682 F. 3d

34, 38–39 ( 1st Ci r . 2012) ) . PSLRA r equi r es t hat a st r ong

i nf er ence of sci ent er be pl ed, amount i ng t o a “cogent and at

l east as compel l i ng as any opposi ng i nf er ence one coul d dr aw

f r om t he f act s al l eged. ” Tel l abs, 551 U. S. at 324.

The Fi r st Ci r cui t i n N. J . Car pent er s Pensi on & Annui t y

Funds v. Bi ogen I DEC I nc. , 537 F. 3d 35, 55 ( 1st Ci r . 2008) ,


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est abl i shed t hat “[ i ] f t her e i s r eason t o be concer ned about

mat er i al omi ssi ons or mi sr epr esent at i ons, t he pr esence of

i nsi der t r adi ng can be used, i n combi nat i on wi t h t he ot her

evi dence, t o est abl i sh sci ent er . ” See al so Smi t h v. Fi r st

Marbl ehead Corp. , No. 13- 12121- PBS, 2014 WL 5460484, at *6 (D.

Mass. Oct . 28, 2014) ( Sar i s, J . ) ( “A st r ong i nf er ence of

sci ent er can al so be suppor t ed by i ndi r ect evi dence, ” i ncl udi ng

evi dence of “[ i ] nsi der t r adi ng, or sudden sal es of shar es by t he

def endant s, ” whi ch i s “hi ghl y pr obat i ve of sci ent er . ”) ; cf .

Mi ssi ssi ppi Pub. Emps. Ret . Sys. v. Bost on Sci . Cor p. , 649 F. 3d

5, 29 ( 1st Ci r . 2011) ( “I nsi der t r adi ng cannot est abl i sh

sci ent er on i t s own, but r at her can onl y do so i n combi nat i on

wi t h ot her evi dence. ”) .

The Pl ai nt i f f s al l ege t hat f al se and mi sl eadi ng st at ements

wer e made, essent i al l y by omi ssi on, about ponat i ni b and i t s

adver se car di ovascul ar ef f ect s, wi despr ead dosage r educt i on, and

pot ent i al f or f r ont - l i ne appr oval t hr oughout t he Cl ass Per i od,

causi ng ARI AD st ock t o t r ade at i nf l at ed pr i ces. Pl s. ’ Opp’ n

19. The ARI AD Def endant s count er t hese al l egat i ons by argui ng

t hat t he Pl ai nt i f f s ar e unabl e t o show t hat “at t he t i me t hese

st at ement s were made, t he ARI AD Def endant s knew t hat t he

st at ement s wer e f al se or t hat addi t i onal di scl osur es wer e

necessary t o make t hem not mi sl eadi ng. ” ARI AD Def s. ’ Mem. 7.

They al so posi t t hat al l eged omi ssi ons sur r oundi ng t he PACE


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t r i al and dosage r educt i ons wer e, i n f act , di scl osed and non-

mat er i al . I d. at 12. Fi nal l y, t he ARI AD Def endant s st at e t hat

al l egat i ons of t he I ndi vi dual Def endant s’ i nsi der t r adi ng wer e

mot i vat ed by nor mal , f i nanci al i ncent i ves under al l owabl e “Rul e

10b5- 1 pl ans, ” r at her t han by a per sonal pr of i t mot i ve, and do

not suppor t an i nf er ence of sci ent er . I d. at 16- 17.

Upon r evi ew of t he al l eged mi sr epr esent at i ons r egar di ng

ser i ous adver se event s, dosage r educt i ons, and f orecast s on t he

l ong- t er m saf et y and ef f i cacy of ponat i ni b, t he Cour t det er mi nes

t hat whi l e cer t ai n mater i al mi sst atement s and omi ssi ons wer e

i ndeed made by t he ARI AD Def endant s, t he Pl ai nt i f f s f ai l t o

est abl i sh that t hey wer e made wi t h sci ent er .

2. Pre-Approval Statements: Omissions Regarding

Dosage Reduction

I n t he f i r st ponat i ni b cl i ni cal t r i al , t he FDA appr oved a

maxi mum dosage of 45 mi l l i gr ams of ponat i ni b f or l ate- st age CML

pat i ent s. Pl s. ’ Opp’ n 7, 23 ( r esul t i ng f r om t he PACE 1 t r i al

whi ch t est ed saf et y and ef f i cacy acr oss di f f er ent dosage

l evel s) . As admi t t ed by Harvey Berger , t he chai r man and CEO of

ARI AD, t he onl y way t o ensur e ponat i ni b’ s success as a f r ont -

l i ne dr ug woul d be t o have a successf ul t r i al usi ng t he 45

mi l l i gr am dosage. I d. at 23- 24 ( “. . . i f t her e was wi despr ead

r educt i on of t he dosage l evel bel ow 45 mg, t hen ponat i ni b st ood


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vi r t ual l y no chance of bei ng appr oved as a ‘ f r ont - l i ne’ CML

t r eat ment . ”) .

I n December 2012, ARI AD announced i t had r ecei ved FDA

appr oval f or ponat i ni b t o t r eat pat i ent s wi t h TKI - r esi st ant or

i nt ol er ant CML, al t hough t hey had t o publ i sh a st r ong war ni ng

l abel di scl osi ng ser i ous cardi ovascul ar event s and l ower dosage

l evel s i n t he cl i ni cal st udy. Compl . ¶¶ 76- 79, 87. The

Pl ai nt i f f s ar gue t hat up t o t hi s poi nt , i nvest or s had been kept

i n t he dar k about t he over al l r at e of dosage reduct i ons

( amount i ng t o appr oxi matel y sevent y- t hr ee per cent ) t hat occur r ed

i n t he PACE 2 t r i al . Pl s. ’ Opp’ n 24 ( descr i bi ng ARI AD’ s

st at ement s on dosage r educt i ons as “vague, ” and made i n an

ef f or t t o “convey t hat dose r educt i ons wer e a r el at i vel y r ar e

occur r ence. ”) . They poi nt t o t he dr op i n shar e pr i ce f r om

$23. 88 t o $18. 93 on t he day of t he announcement as evi dence that

i nvest ors wer e surpr i sed by t he news. Compl . ¶ 88.

The ARI AD Def endant s count er t hat dosage r educt i ons had

been made known t o i nvest or s, and t hat al t er nat i vel y, t he

r educt i ons wer e not mater i al i nf ormat i on. ARI AD Def s. ’ Mem. 11.

I t i s evi dent f r om t he Def endant s’ own expl anat i on, however ,

t hat t hei r di scl osur es wer e l acki ng i n subst ance and del i ver ed

i n l i mi t ed f or a. The di scl osur es wer e descr i bed as f ol l ows: On

December 12, 2011, Chi ef Medi cal Of f i cer Fr ank Hal uska ment i oned

t hat t hr ee dosage l evel s wer e used i n t he PACE 2 t r i al and t hat


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“[ i ] n some cases, you go down t o t he next l owest l evel . ” I d.

( answer i ng an anal yst ’ s quest i on dur i ng a webcast whi ch was

l at er post ed t o ARI AD’ s websi t e) . Hi s answer made no ment i on of

t he r at e of dosage r educt i on. I n J une 2012, a cl i ni cal

i nvest i gat or st at ed t hat “a f ew” pat i ent s had t hei r ponat i ni b

dosages r educed i n or der t o cont r ol adver se event s. I d. at 11-

12 ( r espondi ng t o an audi ence member ’ s quest i on dur i ng an

i nvest or event ) . I t i s quest i onabl e how t hese t wo di scl osur es,

t he l at t er of whi ch di d not even come f r om an ARI AD of f i cer ,

const i t ut ed meani ngf ul di scl osur e of t he t ot al r at e of dosage

r educt i on af f ect i ng mor e t han hal f t he par t i ci pant s i n t he PACE

2 st udy.

The ARI AD Def endant s al so ar gue t hat even i f t he dosage

r educt i ons wer e not di scl osed, t hey di d not const i t ut e mat er i al

i nf or mat i on under t he “t ot al mi x of i nf or mat i on” st andar d,

because t he over al l r esul t s of t he PACE 2 t r i al “undi sput abl y

showed ponat i ni b t o be ef f i caci ous, a concl usi on endorsed by FDA

when i t appr oved t he drug i n December 2012. ” ARI AD Def s. ’ Mem.

12.

Thi s ar gument , t hat event ual FDA appr oval excused t he

di scl osur e of cer t ai n f act s i n hi ndsi ght , i s pr obl emat i c because

i t i gnor es t he “t ot al mi x” f r amewor k f or mat er i al i t y. Al t hough

t he Pl ai nt i f f s concede t hat adver se event r eport s wer e made

avai l abl e (al bei t “bur i ed” i n t he FDA websi t e i n J ul y 2012) , and


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wer e di scussed i n part i n ARI AD’ s December 11t h pr ess r el ease,

t he f act t hat t he st ock val ue pl ummeted t went y- one percent on

December 14t h, when ARI AD announced t hat ei ght per cent of

pat i ent s suf f er ed ser i ous car di ovascul ar adver se event s,

suggest s t hat t hi s i nf or mat i on had a pal pabl e i mpact on t he

mar ket . Compl . ¶¶ 78- 79, 88. These speci f i c di scl osur es

omi t t ed mat er i al i nf or mat i on t o ARI AD i nvest or s, especi al l y i n

l i ght of how i mpor t ant t he 45 mi l l i gr am dosage l evel was f or

obt ai ni ng f r ont - l i ne appr oval . See Hi l l , 638 F. 3d at 55 ( 1st

Ci r . 2011) ( “[ T] he pl ai nt i f f must ‘ speci f y each st at ement

al l eged t o have been mi sl eadi ng [ and] t he reason or r easons why

t he st at ement i s mi sl eadi ng. ’ ”) ( quot i ng ACA Fi n. Guar . , 512

F. 3d at 58) . Whi l e dosage r educt i on r ates wer e mater i al

i nf or mat i on, whet her t he Pl ai nt i f f s have al l eged t hi s mat er i al

mi sr epr esent at i on wi t h sci ent er i s l ess cl ear , and i s di scussed

i n Sect i on I I B4 bel ow.

3. Pre-Approval Statements: Positive Forecast on

Ponatinib’s Safety and Efficacy

Throughout t he pre- appr oval st age, ARI AD r egul ar l y updat ed

i nvest or s r egar di ng t he pot ent i al appr oval and mar ket abi l i t y of

ponat i ni b, not i ng ongoi ng i nci dent s of adver se event s i n t he

PACE 2 popul at i on. ARI AD’ s f orecast r emai ned sunny t hr oughout

t he Cl ass Per i od, descr i bi ng adver se event s as “manageabl e” and

“wel l - t ol er at ed. ” Compl . ¶ 3. Ear l y i n t he Cl ass Per i od,


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Ber ger t ol d i nvest or s t hat he expect ed ponat i ni b t o gener at e

more than $600, 000, 000 i n short t erm sal es and over $900, 000, 000

i n l ong- t er m sal es. Pl s. ’ Opp’ n 7. I n a December 2011 pr ess

r el ease, ARI AD announced t hat pr el i mi nary data f r om t he PACE

t r i al pr esent ed a “f avor abl e saf et y and t ol er abi l i t y pr of i l e of

ponat i ni b i n r esi st ant or i nt ol er ant CML pat i ent s, ” Compl . ¶

146- 47 (not i ng t hat t he Cl ass Per i od began on December 12, 2011,

one day af t er t he f i l i ng of ARI AD’ s For m 8- K and pr ess r el ease) .

Thi s press r el ease l i st ed common adver se event s as i ncl udi ng

“r ash, ” “t hr ombocyt openi a, ” “dry ski n, ” “abdomi nal pai n, ” and

“headache, ” and noted f our on- st udy deaths as possi bl y r el ated

t o ponat i ni b. I d. ¶ 146 ( omi t t i ng any ment i on of car di ovascul ar

si de ef f ect s) . On J anuar y 12, 2012, Ber ger spoke at a

heal t hcar e conf er ence “di st i ngui sh[ i ng] ponat i ni b f r om i t s

compet i t ors” as a “new cl ass of drugs. ” Pl s. ’ Opp’ n 7- 8. On

Febr uary 13, 2012, Ber ger comment ed t hat “[ i ] t appears cer t ai nl y

f r om t he pr el i mi nar y dat a . . . [ a] dver se event s . . . ar e qui t e

manageabl e and . . . not somet hi ng t he physi ci ans ar e concerned

about . ” Compl . ¶ 163.

On December 11, 2012, an i nvest ment bank, Cowen and

Company, publ i shed an anal yst r epor t whi ch opi ned t hat

“[ p] onat i ni b’ s pr of i l e cont i nues t o l ook ver y beni gn, wi t h f ew

worr i some si gnal s. ” Compl . ¶ 233. The most severe si de ef f ect

di scussed was a f i ve per cent r at e of pancr eat i t i s, but t he


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r epor t noted that “onl y one pat i ent di scont i nued t her apy because

of pancreat i t i s . ” I d.

Emphasi zi ng t hat Berger and ot her company of f i cers had

“r eal t i me access” and “dai l y dat a t o t he pat i ent l evel , ” Pl s. ’

Opp’ n 20, t he Pl ai nt i f f s argue t hat t he ARI AD Def endant s knew of

much mor e sever e si de ef f ect s t hat wer e not di scl osed unt i l

December 2012, i ncl udi ng ser i ous ar t er i al t hr ombosi s i n ei ght

per cent of t r i al pat i ent s, congest i ve hear t f ai l ur e or l ef t

vent r i cul ar dysf unct i on i n f our per cent of pat i ent s ( wi t h f our

f at al i t i es) , and “t r eat ment - emer gent hyper t ensi on” i n si xt y-

seven per cent of pat i ent s, Compl . ¶ 148. These adver se event s

wer e r eport ed i n t he J ul y 2012 I nt er i m Repor t , whi ch f or med t he

basi s of t he December 2012 FDA approval and bl ack box war ni ng

r equi r ement . I d. ¶¶ 433, 435.

Was ARI AD under an obl i gat i on t o di scl ose t he ser i ous

adver se event s t o i nvest ors pr i or t o t he December 2012 pr ess

r el ease? Thi s Cour t concl udes t hat i t was. I n Mat r i xx

I ni t i at i ves, I nc. v. Si r acusano, 131 S. Ct . 1309, 1321 ( 2011) ,

t he Supr eme Cour t af f i r med t hat Sect i on 10( b) “do[ es] not cr eate

an af f i r mat i ve dut y t o di scl ose any and al l mat er i al

i nf or mat i on. ” Rat her , t he pl ai nt i f f must pr ove t hat “t he

def endant made a st at ement t hat was ‘ mi sl eadi ng as t o a mat er i al

f act , ’ ” whi ch woul d have creat ed “a subst ant i al l i kel i hood t hat

t he di scl osur e of t he omi t t ed f act woul d have been vi ewed by t he


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r easonabl e i nvest or as havi ng si gni f i cant l y al t er ed t he ‘ t ot al

mi x’ of i nf or mat i on made avai l abl e. ’ ” I d. at 1318 ( quot i ng

Basi c, 485 U. S. at 231- 32, 238; accor d Bost on Sci . Cor p. , 686

F. 3d at 27 ( 1st - Ci r . 2012) . Addr essi ng whet her t he di scl osur e

of speci f i c ser i ous adver se event s shoul d have been di scl osed,

t he Supr eme Cour t i n Mat r i xx hel d that t he i nci dence of anosmi a

( l oss of smel l ) i n user s of t he dr ug, Zi cam, al t hough not

ar i si ng t o a l evel of st at i st i cal si gni f i cance, was mat er i al

i nf ormat i on t o t he reasonabl e i nvest or and ought t hus have been

di scl osed. Mat r i xx, 131 S. Ct . at 1321 ( “Gi ven t hat medi cal

pr of essi onal s and r egul at or s act on t he basi s of evi dence of

causat i on t hat i s not stat i st i cal l y si gni f i cant , i t stands to

r eason t hat i n cer t ai n cases reasonabl e i nvest or s woul d as

wel l . ”) .

The ARI AD Def endant s ar gue t hat t hey wer e not obl i gat ed t o

di scl ose t hese ser i ous adver se event s because t here was no pr oof

t hat ponat i ni b caused t he car di ovascul ar event s at t he t i me

ARI AD spoke about ponat i ni b’ s saf et y and t ol er abi l i t y. ARI AD

Def s. ’ Mem. 9. Speci f i cal l y, t hey ar gue t hat ser i ous ar t er i al

i schemi c event s and cardi ovascul ar i ssues wer e due t o

pr eexi st i ng r i sk f act or s i n t he st udy gr oup and t hat t he t r i al ’ s

si ngl e- ar m desi gn di d not al l ow t he FDA t o concl ude whet her

ponat i ni b caused t he adver se event s. I d. They acknowl edge t hat

even had t hey known of t he adver se events pr i or t o t he December


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2012 pr ess r el ease, t hey ( and “i ndependent cl i ni cal

i nvest i gat or s”) t r ul y bel i eved t hat ponat i ni b was not t he cause.

I d. ( ci t i ng I n r e Ri gel Phar m. I nc. Sec. Li t i g. , 697 F. 3d 869,

880 n. 8 ( 9t h Ci r . 2012) , whi ch hel d “as l ong as t he omi ssi ons do

not make t he act ual st at ement s mi sl eadi ng, a company i s not

r equi r ed t o di scl ose ever y saf et y- r el at ed r esul t f r om a cl i ni cal

t r i al , even i f t he company di scl oses some saf et y- r el at ed r esul t s

and even i f i nvest or s woul d consi der t he omi t t ed i nf or mat i on

si gni f i cant . ”) . Second, t he ARI AD Def endant s cl ai m t hat t hey

had “no way of knowi ng t hat FDA woul d ul t i mat el y requi r e a boxed

warni ng f or adver se event s t hat nei t her ARI AD nor FDA l i nked t o

ponat i ni b, ” i d. , whi ch as a resul t , r ender s t hei r posi t i ve

st atement s not mi sl eadi ng. 2

2 The Cour t r ej ect s ar guments based on what ARI AD or

i nvest or s shoul d have gl eaned f r om avai l abl e dat a, whet her i twas what ARI AD i t sel f shoul d have medi cal l y concl uded or whati nvest or s shoul d have f i gur ed out on t hei r own. The Pl ai nt i f f sargue t hat as medi cal expert s, t he ARI AD Def endant s were “hi ghl yski l l ed at i nt er pr et i ng dr ug dat a” and “shoul d have r eachedessent i al l y t he same concl usi on as t he FDA’ s expert s whenpr esent ed wi t h t he same dat a” i n r egards t o the boxed warni ng.Pl s. ’ Opp’ n 22. Ar gui ng what t he ARI AD Def endant s “shoul d have”concl uded as t o cl i ni cal dat a i s no subst i t ut e f or t hespeci f i ci t y of f act s needed at t he mot i on t o di smi ss st age. Thi s al so appl i es t o t he Def endant s, who weakl y asser t t hatARI AD i nvest or s had access t o al l of t he adver se event sdi scl osed on December 11, 2011, and “[ a] r med wi t h t hi s dat a,i nvest or s had al l t he t ool s t o dr aw t hei r own concl usi onsr egar di ng ponat i ni b’ s saf et y and ef f i cacy pr of i l e. ” ARI ADDef s. ’ Repl y 8. These ar gument s f ai l t o suppor t ei t her par t i es’posi t i on.


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Regardl ess, t he Supr eme Cour t has hel d that ser i ous adver se

event s and f at al i t i es can be deemed mat er i al t o i nvest or s even

at non- si gni f i cant r at es. Mat r i xx, 131 S. Ct . at 1322- 23

( hol di ng t hat t he occur r ence of anosmi a i n appr oxi mat el y t en

Zi cam user s, was deemed mater i al i nf ormat i on t o i nvest ors even

t hough t he r at e of anosmi a was not “st at i st i cal l y si gni f i cant ”) .

The f act t hat ARI AD’ s st ock pr i ce dropped mor e t han t wenty

percent on December 14, 2012 wi t h t he “r evel at i on of t he

si gni f i cant saf et y i ssues, ” Pl s. ’ Opp’ n 12, and dr opped agai n on

Oct ober 9, 2013, wi t h t he announcement of more cardi ovascul ar

adver se event s and t he suspensi on of t he EPI C t r i al , i d. at 16,

st r ongl y i ndi cat es t hat t hese adver se event s wer e mat er i al t o

ARI AD i nvest ors. See al so Compl . ¶¶ 283- 85 ( t he Oct ober 2013

di scl osur e i ndi cat ed a hi gher r at e of ser i ous ar t er i al

t hr ombosi s i n 11. 8 per cent of subj ect s, and a st udy- wi de dosage

r educt i on t o 30 mg of ponat i ni b) . Even anal yst s noted t hey wer e

unaware of ser i ous i schemi c event s unt i l t he December 2012

i ssuance of a bl ack box war ni ng, st at i ng t hat “t he l ar ge number

of si de ef f ect s and t he sever i t y of t he si de ef f ect s came as a

sur pr i se t o t he i nvest ment communi t y. ” Pl s. ’ Opp’ n 12- 13.

Fi nal l y, ARI AD i t sel f seemed t o t r eat adver se event s as havi ng

been caused by ponat i ni b, as evi denced by how ponat i ni b use was

di scont i nued i n pat i ent s exper i enci ng ar t er i al t hr ombot i c


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event s, and by t he not ed occur r ences of “t r eat ment - emergent

hyper t ensi on” i n t he t r i al . Compl . ¶¶ 78- 79.

The mar ket ’ s r eact i on t o t he December 2012 di scl osures

st r ongl y suggest s t hat t he r at es of ser i ous i schemi c event s

al t er ed t he “t ot al mi x” of i nf or mat i on r el i ed on by i nvest or s.

Even though ARI AD was not obl i ged to di scl ose al l adver se event s

f r om t hei r cl i ni cal t r i al s, Mat r i xx, 131 S. Ct . at 1321, t he

market ’ s sharp r eact i on t o t he bl ack box warni ng, combi ned wi t h

ARI AD’ s own assessment of adverse event s as havi ng been caused

by ponat i ni b, i ndi cat es t hat t he r at e of ser i ous car di ovascul ar

event s shoul d have been di scl osed i n a non- mi sl eadi ng manner .

Whet her t he ARI AD Def endants made t hese posi t i ve st at ement s

knowi ng t hey wer e mi sl eadi ng i s not expl i ci t l y suppor t ed i n t he

pl eadi ngs. The ARI AD Def endant s ar gue t hat t he Pl ai nt i f f s f ai l

t o speci f y when and what i nf or mat i on was known at t he t i mes pre-

appr oval st at ement s were made t o i nvest ors. ARI AD Def s. ’ Mem.

8. For exampl e, ear l y st at ement s f r om December 2011 t hat

ponat i ni b was “wel l t ol er ated” may have wel l been t r ue at t he

t i me t hey were made, because ser i ous i schemi c event s ( di sor ders

r el at ed t o t he def i ci ency of bl ood f l ow t o a par t of t he body)

wer e not obser ved unt i l a f ul l year l at er . I d. ( ci t i ng t o t he

J ul y 23, 2012 “updat ed dat a cut - of f dat e” where i schemi c event s

wer e measured i n ei ght per cent of pat i ent s) . I ndeed, t he

Pl ai nt i f f s al l ege t hat t he J ul y 2012 I nt er i m Repor t dat a wer e


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“f act s cont empor aneousl y known” t o ARI AD at t he t i me t he

st at ement s were made, Compl . ¶ 151, but how t hi s const i t ut es a

“consci ous[ ] i nt en[ t ] t o def r aud” or a “hi gh degr ee of

r eckl essness, ” I n r e Genzyme Cor p. Sec. Li t i g. , 754 F. 3d 31, 40

( 1st Ci r . 2014) ( quot i ng Bost on Sci . Cor p. , 523 F. 3d at 85) , i s

l ef t unexpl ai ned. Fi r st , t he f act t hat ARI AD was under t he

cl ose super vi si on of t he FDA i n t he r un- up t o i t s event ual

appr oval cut s st r ongl y agai nst any i nf er ence t hat ARI AD was

act i ng r eckl essl y i n hi di ng ser i ous i schemi c event s f r om

i nvest or s. Second, t he compl ai nt i s devoi d of speci f i c

al l egat i ons as t o how ARI AD or t he I ndi vi dual Def endant s

act i vel y sought t o conceal negat i ve i nf or mat i on f r om i nvest or s

or t he FDA. Whi l e t hi s Cour t vi ews ser i ous i schemi c event s as

mat er i al i nf or mat i on t o i nvest or s, t he Pl ai nt i f f s have not

demonst r at ed how t hese pr e- approval omi ss i ons were made wi t h

i nt ent t o def r aud and, as a r esul t , sci ent er i s not her e

adequat el y al l eged.

4. Post-Approval Statements: Continuing Positive

Outlook on Ponatinib’s Success

The Pl ai nt i f f s al l ege t hat af t er r ecei vi ng second- l i ne FDA

approval i n December 2012, t he Def endants cont i nued t o make

st atement s at t empt i ng to convi nce t he market t hat t he negat i ve

announcement s r egardi ng t he bl ack box warni ng l abel were mi nor

set backs, and t hat ponat i ni b was on i t s way t o f r ont - l i ne


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appr oval . Pl s. ’ Opp’ n 25. The Pl ai nt i f f s cl ai m t hat par t i al ,

mi sl eadi ng di scl osur es were made i n ARI AD’ s March 2013 Form 10- K

and For m 8- K, i n i t s Apr i l 2013 I nvest or Conf er ence Cal l , i n t he

May 2013 Form 10- Q, and at a heal t hcar e conf erence and

shar ehol der meet i ng. See Compl . ¶¶ 248- 282. For exampl e,

anal yst s wer e t ol d t hat “[ adver se event s] ar e l i kel y due t o t he

under l yi ng di sease and pr e- exi st i ng condi t i on of t he pat i ent s, ”

i d. ¶ 247, and t hat “ARI A[ D] noted no maj or hur dl es t o

[ ponat i ni b] adopt i on i n t he est i mat ed 2, 500 CML pat i ent s

swi t chi ng f r om al t er nat i ve [ t yr osi ne- ki nase i nhi bi t or s] , whi ch

we bel i eve i s i l l ust r at ed by t he ear l y use of t he dr ug i n t he

2nd- l i ne set t i ng. ” I d. ¶ 265. At a J une 2013 heal t hcar e

conf erence host ed by Gol dman Sachs, Berger st at ed t hat “t he

pat i ent s i n t he PACE t r i al wer e heavi l y skewed i n t er ms of

pr eexi st i ng mul t i pl e car di ovascul ar r i sk f actor s . . . . So,

t hi s i s not your aver age popul at i on. ” I d. ¶ 274.

The Pl ai nt i f f s cl ai m t he “f ul l t r ut h” was r eveal ed t o t he

market i n Oct ober 2013, marki ng the end of t he Cl ass Per i od.

I d. ¶ 380. The t ur ni ng poi nt came when ARI AD announced t hat i t

was pausi ng enr ol l ment i n al l cl i ni cal st udi es of ponat i ni b

pendi ng changes i n dose and ot her modi f i cat i ons, and t hat t he

dose f or cur r ent pat i ent s enr ol l ed i n t hei r Phase 3 EPI C t r i al

woul d be r educed t o 30 mi l l i gr ams acr oss t he gr oup. I d. ¶ 283.

Fur t her , ARI AD di scl osed t hat t he ponat i ni b t r i al s woul d be


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modi f i ed t o excl ude pat i ent s wi t h a hi st or y of ar t er i al

t hr ombosi s r esul t i ng i n hear t at t ack or st r oke. I d. Thi s i s

not sur pr i si ng, i n l i ght of t he addi t i onal PACE 2 r esul t s

r el eased on t hi s dat e, whi ch i ncl uded an i ncr eased per cent age of

pat i ent s wi t h ser i ous ar t er i al t hr ombosi s ( now 11. 8 per cent of

t r i al subj ect s) , ser i ous venous occl usi on i n 2. 9 per cent of

subj ect s, and a t went y per cent combi ned r ate of non- ser i ous and

ser i ous car di ovascul ar adver se event s. I d. ¶ 284 ( r ef l ect i ng

dat a f r om t went y- f our mont hs of t he cl i ni cal st udy) . Thi s news

caused ARI AD’ s shar e pr i ce t o dr op si xt y- si x per cent i n val ue,

f r om $11. 31 t o $5. 83 per shar e. I d. ¶ 285. The same day,

Hal uska cont i nued t o bl ame pr e- exi st i ng r i sk f act or s i n t he PACE

2 pat i ent popul at i on, and st ated t hat “we ar e ver y conf i dent

t hat at t he end of t he day, wi t h t he dose r educt i on scheme t hat

we have and t he hi gh ci r cul at i ng l evel s t hat can be achi eved

wi t h l ower doses t han 45 mi l l i gr ams, t hat t he EPI C [ Phase 3]

t r i al has an excel l ent l i kel i hood of bei ng a posi t i ve t r i al wi t h

an appr opr i at e benef i t / r i sk bal ance. ” I d. ¶ 288.

The ARI AD Def endant s ar gue t hat t hei r st at ements wer e not

mi sl eadi ng because al l of t he chal l enged i nf or mat i on r egar di ng

ser i ous adver se events was di scl osed i n the December 2012 boxed

warni ng and pr ess r el ease. ARI AD Def s. ’ Mem. 13. Because t hi s

i nf ormat i on and warni ng i ncl uded t he r ate of dose r educt i on and

i nci dence of adver se event s, t he ARI AD Def endant s argue t hat


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t hey cannot be l i abl e f or subsequent st at ement s expr essi ng t hei r

cont i nui ng conf i dence i n t he dr ug. I d. They r el y on I n XM

Sat el l i t e Radi o Hol di ngs Sec. Li t i g. , 479 F. Supp. 2d 165, 181

( D. D. C. 2007) , whi ch st ated: “[ A] company has no dut y t o

di spar age i t s own compet i t i ve posi t i on i n t he mar ket wher e i t

has pr ovi ded accur ate hard dat a f r om whi ch anal yst s and

i nvest ors can dr aw t hei r own concl usi ons about t he company' s

condi t i on and t he val ue of i t s st ock. ” ( i nt er nal ci t at i ons

omi t t ed) . The ARI AD Def endant s f ur t her at t ack t he Pl ai nt i f f s’

al l egat i ons as f ai l i ng t o st at e what i nf or mat i on ARI AD knew at

t he t i me t hey made t he post - appr oval st at ement s, speci f i cal l y,

what f act s wer e “cont r ary to the opt i mi sm ARI AD was port r ayi ng

publ i cl y. ” ARI AD Def s. ’ Repl y 9. I n r esponse, t he Pl ai nt i f f s

r el y on general al l egat i ons t hat ARI AD “must have known, because

i t event ual l y knew, t hat t he r at e of car di ovascul ar event s had

i ncreased. ” I d.

Here, t he Def endant s have t he st r onger argument . Whi l e t he

Compl ai nt cont ai ns r epor t s f r om anal yst s t hat mar k f r ust r at i on

wi t h t he par t i al di scl osur es and t he ensui ng di ps i n st ock

pr i ce, Compl . ¶ 298 ( “Management had r epeat edl y asser t ed saf ety

concer ns f or [ ponat i ni b] wer e a Wal l St r eet mi sconcept i on”) , t he

Pl ai nt i f f s do not pi npoi nt exactl y what cl i ni cal t r i al dat a was

known by t he Def endant s i n 2013 at t he t i me t hey made post -


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appr oval st at ement s t out i ng t he saf et y and ef f i cacy of

ponat i ni b.

5. Scienter: Insider Trading Allegations

Accor di ngl y, t he Cour t t akes a cl oser l ook at t he

Pl ai nt i f f s’ al l egat i ons of i nsi der t r adi ng t o see i f t hese

cl ai ms bol st er t hei r sci ent er t heor y. The Pl ai nt i f f s at t empt t o

bol st er t hei r sci ent er t heor y wi t h al l egat i ons t hat t he

I ndi vi dual Def endant s, al l ARI AD of f i cer s, engaged i n sudden and

unusual sal es of st ock dur i ng t he Cl ass Per i od. Compl . ¶¶ 93-

97. Al t hough t he Pl ai nt i f f s pr ovi de a cogent ar gument t hat

i nsi der t r adi ng was t aki ng pl ace, t hi s evi dence, al ong wi t h al l

ot her al l egat i ons of sci ent er , i nsuf f i ci ent l y suppor t s t hat

mater i al mi sr epr esent at i ons wer e knowi ngl y or r eckl essl y made by

t he ARI AD Def endants.

The Pl ai nt i f f s suppor t t hei r sci enter t heor y by

hi ghl i ght i ng t he I ndi vi dual Def endant s’ l ar ge and unusual Cl ass

Per i od st ock sal es whi ch generated “enormous abnormal pr of i t s, ”

especi al l y i n l i ght of t he f act t hat ponat i ni b was ARI AD’ s most

i mpor t ant pr oduct . Pl s. ’ Opp’ n 28; see al so Compl . 103.

I t i s cl ear t hat t he f our I ndi vi dual Def endant s engaged i n

vast l y di f f er ent sal es pr act i ces bef or e t he Cl ass Per i od as

compar ed t o dur i ng t he Cl ass Per i od: st ock sal es pri or t o the

Cl ass Per i od t ot al ed $666, 000, but sal es dur i ng t he Cl ass Per i od

exceeded $28, 000, 000. Pl s. ’ Opp’ n 28. Ber ger , f or exampl e, di d


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pl ans are not a cogni zabl e def ense to sci ent er al l egat i ons on a

mot i on t o di smi ss where, as here, t hey were adopt ed dur i ng t he

Cl ass Per i od”) . Ber ger ’ s t r adi ng pl an, enact ed i n l at e December

2012 af t er t he announcement of FDA appr oval , “was pur por t edl y

desi gned t o sel l 100, 000- shar e bl ocks of st ock at mont hl y

i nt erval s f r om March t hr ough August 2013 whenever ARI AD’ s share

pr i ce r ose above a pr e- det er mi ned f l oor pr i ce” whi ch al l owed

Ber ger t o r eal i ze over $16, 000, 000 i n pr of i t s. Compl . ¶ 94.

The I ndi vi dual Def endant s expl ai n t hat t he sharp cont r ast s

i n sal es were based on t ax r easons and were enact ed af t er

adver se event s f r om t he PACE t r i al wer e di scl osed. ARI AD Def s. ’

Mem. 14 ( “A gener i c pr of i t mot i ve . . . i s t oo uni ver sal t o

demonst r at e sci ent er i n a speci f i c case. ”) ; see al so ARI AD

Def s. ’ Repl y 12- 13. Mor eover , t hey ar gue t hat t he Pl ai nt i f f s

f ai l t o demonst r ate how t hese t r adi ng pl ans wer e used “t o avoi d

a st ock pr i ce dr op ant i ci pat ed f r om t hei r f or eknowl edge of a

r el ease of bad news. ” I d. at 13.

Thi s Cour t acknowl edges t hat t he sheer cont r ast i n t r adi ng

vol ume and f r equency bef ore and af t er t he Cl ass Per i od support s

an al l egat i on of i nsi der t r adi ng, suggest i ng t hat st r at egi c

sal es wer e made i n l i ght of key non- publ i c i nf or mat i on ar i si ng

f r om t he PACE t r i al . But t he al l egat i ons of i nsi der t r adi ng do

not amount t o a st r ong i nf er ence of sci ent er , even coupl ed wi t h

ot her al l egat i ons i n t he compl ai nt . As anal yzed above, t he


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compl ai nt gener al i zes cl ai ms t hat I ndi vi dual Def endant s

knowi ngl y wi t hhel d mat er i al i nf or mat i on r el at i ng t o r esul t s of

t he PACE 2 t r i al . The Pl ai nt i f f s f ai l t o connect exact

di scl osur es wi t h speci f i c conduct or i nsi de knowl edge of

cl i ni cal dat a. Even wi t h t hei r st r onger i nsi der t r adi ng cl ai m,

t he Pl ai nt i f f s ar e unabl e t o connect exact t r adi ng per i ods wi t h

speci f i c, negat i ve resul t s f r om t he cl i ni cal t r i al . Thi s l eaves

t he Cour t unabl e t o gl ean a st r ong i nf er ence of sci ent er f r om

t he f act s al l eged. On t hi s basi s, t he Cour t GRANTS t he ARI AD

Def endant s’ Mot i on t o Di smi ss Sect i on 10 and Rul e 10b- 5 cl ai ms

f or a f ai l ur e t o st at e a cl ai m.

C. Count II: Section 20(a) Claims

Because cl ai ms br ought under Sect i on 20( a) of t he Exchange

Act ar e der i vat i ve of Rul e 10b- 5 cl ai ms, l i abi l i t y can at t ach

onl y t o a per son who i s l i abl e f or vi ol at i ng a subst ant i ve

pr ovi si on of t he Exchange Act . See Hi l l , 638 F. 3d at 53; see

al so J anus Capi t al Gr p. , I nc. v. Fi r st Der i vat i ve Tr ader s, 131

S. Ct . 2296, 2310 ( 2011) ( “More i mport ant l y, a person who i s

l i abl e under § 20( a) cont r ol s anot her “per son” who i s “l i abl e”

f or a secur i t i es vi ol at i on. ”) ( i nt er nal ci t at i on omi t t ed) .

Because t he Cour t di smi sses Sect i on 10 cl ai ms agai nst t he ARI AD

Def endant s, no Sect i on 20 l i abi l i t y can be assi gned t o t he f our

I ndi vi dual Def endant s named i n t hi s act i on.


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D. Conclusion

The Cour t GRANTS t he ARI AD Def endant s’ mot i ons t o di smi ss

Count s I and I I under Sect i on 10 and Sect i on 20. The

Pl ai nt i f f s’ Sect i on 11 and Sect i on 15 cl ai ms are di scussed bel ow

i n conj unct i on wi t h the same cl ai ms brought agai nst t he

Under wr i t er s.

III. ANALYSIS: Claims Against the Underwriters Defendant

The Pl ai nt i f f s al l ege t hat t he ARI AD and Under wr i t er

Def endant s are l i abl e under Sect i on 11 of t he Secur i t i es Act of

1933 f or al l eged mi sst at ement s and omi ssi ons i n st ock of f er i ng

mat er i al s. Compl . ¶ 416. ARI AD and t he Underwr i t er Def endant s

seek di smi ssal of al l Sect i on 11 cl ai ms agai nst t hem on t he

basi s t hat t he Pl ai nt i f f s l ack st andi ng and t hat t hey f ai l t o

st at e a cl ai m. 4 See ARI AD Def s. ’ Mem. 17- 20; see al so

Under wr i t er Def s. ’ Mem. 1.

A. Legal Standard: Section 11 and Section 15 of the

Securities Act

Sect i on 11 of t he Secur i t i es Act cr eat es a cause of act i on

empower i ng pur chasers of secur i t i es of f er ed under a f al se or

mi sl eadi ng regi st r at i on st at ement t o sue cer t ai n enumer at ed

par t i es. Speci f i cal l y, t he st at ut e “i mpos[ es] a st r i ngent

4 The Under wr i t er s provi ded si gni f i cant l y mor e i n- dept hbr i ef i ng on Sect i on 11 cl ai ms t han di d t he ARI AD Def endant s.Accor di ngl y, t hi s sect i on of t he Memor andum and Or der wi l l f ocusheavi l y on t he ar gument s pr esent ed i n t he Under wr i t er s’ br i ef s,al t hough t he Cour t wi l l addr ess bot h t he ARI AD Def endant s andUnder wr i t er s’ mot i ons t o di smi ss.


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st andar d of l i abi l i t y on t he par t i es who pl ay a di r ect r ol e i n a

r egi st er ed of f er i ng, ” Her man & MacLean v. Huddl est on, 459 U. S.

375, 381- 82 ( 1983) , a cat egor y whi ch i ncl udes par t i ci pat i ng

under wr i t er s. See 15 U. S. C. § 77k( a) ( 5) . As ment i oned above,

t he Sect i on 11 cl ai ms i n t hi s act i on do not sound i n f r aud and

ar e subj ect t o the or di nar y pl eadi ng st andar ds under Rul e 12 of

t he Feder al Rul es of Ci vi l Pr ocedur e.

Sect i on 15 of t he Secur i t i es Act i mposes secondar y

l i abi l i t y on “cont r ol per sons” of a company f or vi ol at i ons of

Sect i ons 11 and 12 of t he Secur i t i es Act . J oi nt and sever al

l i abi l i t y at t aches “onl y t o t he ext ent pr i mar y l i abi l i t y f i r st

at t aches to a ‘ cont r ol l ed per son. ’ ” Lenar t z, 879 F. Supp. 2d at

188 ( “Sect i on 15 i mposes j oi nt and sever al l i abi l i t y on any

per son who, t hr ough st ock owner shi p, agency or ot her wi se,

cont r ol s any per son l i abl e under Sect i on 11 or Sect i on 12. ”) .

To prove a vi ol at i on, t he pl ai nt i f f s “must al l ege 1) an

under l yi ng vi ol at i on by t he cont r ol l ed per son or ent i t y and 2)

t hat t he def endant s cont r ol l ed t he vi ol at or . ” I n r e Ever gr een

Ul t r a Shor t Oppor t uni t i es Fund Sec. Li t i g. , 705 F. Supp. 2d 86,

96 ( D. Mass 2010) ( Gor t on, J . ) ( ci t i ng Al dr i dge v. A. T. Cr oss

Cor p. , 284 F. 3d 72, 85 ( 1st Ci r . 2002) ) .


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B. Standing

The ARI AD Def endant s and Under wr i t er s chal l enge t he

Pl ai nt i f f s’ st andi ng t o br i ng Sect i on 11 cl ai ms agai nst t hem. 5

See Underwr i t er Def s. ’ Mem. 4- 8; see al so ARI AD Def s. ’ Mem. 17-

20. Accor di ng t o t he Under wr i t er s, t he Pl ai nt i f f s have not

suf f i ci ent l y al l eged t hat t hey pur chased ARI AD shar es i ssued

under t he chal l enged 2013 Of f er i ng, as opposed t o ARI AD shar es

i ssued i n pr evi ous st ock of f er i ngs. Under wr i t er Def s. ’ Mem. 5-

6.

Sect i on 11 conf er s st andi ng onl y on per sons who acqui r ed

t he speci f i c secur i t i es i ssued under t he chal l enged r egi st r at i on

st at ement . 15 U. S. C. § 77k( a) ( r ef er r i ng t o “any per son

acqui r i ng such secur i t y”) . Thi s r equi r ement i s sat i sf i ed

whet her t he pl ai nt i f f pur chased shar es i n t he publ i c of f er i ng

i t sel f or i n t he secondar y mar ket , so l ong as t he pl ai nt i f f can

t r ace t he or i gi n of hi s shar es back t o t he of f er i ng i n di sput e.

I n r e Number Ni ne, 51 F. Supp. 2d. at 11- 12. I t f ol l ows t hat a

per son hol di ng shar es i ssued i n a di f f er ent , undi sput ed of f er i ng

does not have st andi ng t o j oi n a Sect i on 11 act i on, as he cannot

be sai d t o have rel i ed on t he pur por t edl y f r audul ent

5 Chal l enges t o Sect i on 11 st andi ng l i ke t hi s one at t ackst at ut or y st andi ng, not Ar t i cl e I I I st andi ng. See Cooper man v.I ndi vi dual , I nc. , 171 F. 3d 43, 47 n. 3 ( 1st Ci r . 1999) . The j ur i sdi ct i on of t he Cour t i s t heref or e not at i ssue whenconsi der i ng such a chal l enge. See I n r e Eat on Vance Corp. Sec.Li t i g. , 219 F. R. D. 38, 41- 42 ( D. Mass. 2003) ( Har r i ngt on, J . ) .


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r egi st r at i on mat er i al s. See Pl umber s’ Uni on Local No. 12

Pensi on Fund, 632 F. 3d at 768 n. 5 ( i ncor por at i ng by r ef er ence

and quot i ng t he hol di ng i n Barnes v. Osof sky, 373 F. 2d 269, 273

( 2d Ci r . 1967) , t hat onl y “t hose who pur chase secur i t i es t hat

ar e t he di r ect subj ect of t he pr ospect us and r egi st r at i on

st atement ” may br i ng a Sect i on 11 cl ai m) .

At t he mot i on t o di smi ss st age, t he r el evant i ssue f or t he

Cour t t o anal yze i s whet her t he Pl ai nt i f f s adequat el y have pl ed

t hat t hey pur chased secur i t i es t r aceabl e to t he chal l enged

of f er i ng. The par t i es i n t hi s act i on di sagr ee as to t he

appr opr i at e st andar d of pl eadi ng. The Pl ai nt i f f s cont end t hat

gener al al l egat i ons, aki n t o not i ce pl eadi ng, ar e suf f i ci ent i n

t he Fi r st Ci r cui t . Pl s. ’ Opp’ n 35- 37. But t he Under wr i t er s

ar gue t hat i n t he wake of Bel l At l ant i c Cor p. v. Twombl y, 550

U. S. 544 ( 2007) , and Ashcr of t v. I qbal , 556 U. S. 662 ( 2009) ,

mor e i s r equi r ed.

1. This Court’s Rule Prior to Twombly and

Iqbal

Case l aw pr ecedi ng the publ i cat i on of Twombl y and I qbal

shows t hat i n t he Di st r i ct of Massachuset t s pr i or t o 2007, t hi s

i ssue was set t l ed by a l i ne of cases anal yzi ng t he i mpact of

Gust af son v. Al l oyd Co. , I nc. , 513 U. S. 561 ( 1995) , on Sect i on


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11 st andi ng. 6 Thi s Cour t ’ s pr act i ce has been t o hol d gener al

al l egat i ons suf f i ci ent t o sur vi ve a mot i on t o di smi ss f or l ack

of st andi ng. E. g. I n r e Number Ni ne, 51 F. Supp. 2d at 9, 11- 12

( denyi ng a mot i on t o di smi ss because t he compl ai nt al l eged

si mpl y t hat t he pl ai nt i f f s pur chased secur i t i es “i n or t r aceabl e

t o” t he cont est ed st ock of f er i ng) . Thi s i s consi st ent wi t h t he

pr e- 2007 r ul i ngs of ot her sessi ons i n t he Di st r i ct of

Massachuset t s. See, e. g. , I n r e Tr anskar yot i c Ther api es, I nc.

Sec. Li t i g. , 319 F. Supp. 2d 152, 159 ( D. Mass. 2004) ( Zobel ,

J . ) ( hol di ng a pl ai nt i f f ’ s al l egat i on t hat he pur chased shares

t r aceabl e t o a speci f i c of f er i ng suf f i ci ent t o st at e a Secti on

11 cl ai m) ; I n re WebSecur e, 182 F. R. D. at 367- 68 ( D. Mass. 1998)

( O’ Tool e, J . ) ( r ul i ng t hat pr oper st andi ng was pl ed by

unvar ni shed al l egat i ons t hat pl ai nt i f f s “pur chased t hei r st ock

pur suant t o or t r aceabl e t o t he def ect i ve Regi st r at i on

St at ement ”) ( quot at i on mar ks omi t t ed) ; Cooper man v. I ndi vi dual ,

I nc. , No. 96- 12272- DPW, 1998 WL 953726, at *7 ( D. Mass. May 27,

1998) ( Woodl ock, J . ) ( “Pl ai nt i f f s have st andi ng under Sect i on 11

6 I n t he wake of Gust af son, t hi s Cour t and ot her sessi ons i nt he Di st r i ct of Massachuset t s det er mi ned t hat hol der s ofsecur i t i es “t r aceabl e t o” a f r audul ent of f er i ng had Sect i on 11st andi ng even i f t hey di d not di r ect l y pur chase t hose secur i t i esf r om t he i ssuer at t he t i me of t he of f er i ng. I n comi ng t o t hi sconcl usi on, t hi s Cour t and i t s col l eagues consi st ent l y deni edmot i ons t o di smi ss f or l ack of st andi ng i n f avor of pl ai nt i f f swho had made onl y al l egat i ons, wi t hout more, t hat t hei r shar eswer e t r aceabl e t o a cont est ed of f er i ng. These r ul i ngsi ndi r ectl y af f i r m t hat gener al al l egat i ons of t he ki nd pl ed i nt hi s act i on wer e enough t o sur vi ve a mot i on t o di smi ss.


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i f t hey pur chased shar es . . . ‘ t r aceabl e t o’ t he publ i c

of f er i ng. Because Pl ai nt i f f s al l ege as much i n t he Compl ai nt , I

wi l l not gr ant t he mot i on t o di smi ss on t hi s gr ound. ”) af f ’ d on

ot her grounds, 171 F. 3d 43 ( 1st Ci r . 1999) . Thi s i ssue has not

been squar el y addr essed by t he Fi r st Ci r cui t or r evi si t ed i n t he

Di st r i ct of Massachuset t s si nce t he publ i cat i on of Twombl y and

I qbal .

2. Developments Since Twombly and Iqbal

J ur i sprudence i s emer gi ng i n at l east one ot her ci r cui t

hol di ng t hat Sect i on 11 st andi ng must be pl ed wi t h gr eater

par t i cul ar i t y t han t he st andar d ar t i cul at ed above. The most

pr omi nent deci si on pr omul gat i ng t hi s i nt er pr et at i on r ecent l y was

r ender ed by t he Ni nt h Ci r cui t i n I n r e Cent ur y Al umi num Co. Sec.

Li t i g. , 729 F. 3d 1104 ( 9t h Ci r . 2013) . I n t hat case, t he Ni nt h

Ci r cui t obser ved t hat al t hough gener al al l egat i ons of t r aceabl e

st ock pur chases wer e “pr obabl y” suf f i ci ent t o sur vi ve a mot i on

t o di smi ss bef ore 2007, “I qbal and Twombl y moved us away f r om a

syst em of pur e not i ce pl eadi ng. ” I d. at 1107.

The Ni nt h Ci r cui t appl i es t hi s pr i nci pl e by r equi r i ng

par t i cul ar f actual speci f i ci t y when t he pl ai nt i f f s hol d shar es

t hat coul d have been i ssued i n any one of mul t i pl e st ock

of f er i ngs. Under I n r e Cent ur y Al umi num, t hi s st andar d

expr essl y cannot be sat i sf i ed by a “concl usor y al l egat i on” t hat

pl ai nt i f f s pur chased st ock di r ect l y t r aceabl e t o a par t i cul ar


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of f er i ng. I d. at 1108. Because “exper i ence and common sense

t el l us t hat . . . [ such] af t er mar ket pur chaser s usual l y wi l l

not be abl e t o t r ace t hei r shar es back to a par t i cul ar

of f er i ng, ” pl ai nt i f f s must “al l ege f act s f r om whi ch we can

r easonabl y i nf er t hat t hei r s i t uat i on i s di f f er ent . ” I d. at

1107- 08.

The I n r e Century Al umi num pl ai nt i f f s at t empt ed t o

accompl i sh t hi s by showi ng that t hey pur chased shares dur i ng

per i ods of ext r eme change i n t r adi ng vol ume and st ock pr i ce,

l i kel y at t r i but abl e t o t he i ssuance of new shar es f l oodi ng t he

secondar y mar ket . I d. at 1108. But t he Ni nt h Ci r cui t r ul ed

t hat such evi dence was i nsuf f i ci ent t o suppor t a r easonabl e

i nf er ence t hat t he pl ai nt i f f s’ shar es wer e t r aceabl e t o any

par t i cul ar of f er i ng. “[ T] he ‘ obvi ous al t er nat i ve expl anat i on’

[ was] t hat [ t he shar es] coul d i nst ead have come f r om t he pool of

pr evi ousl y i ssued shar es. Pl ai nt i f f s’ al l egat i ons [ wer e]

consi st ent wi t h t hei r shar es havi ng come f r om ei t her sour ce. ”

I d. ( ci t i ng Twombl y, 550 U. S. at 567) ( i nt er nal ci t at i on

omi t t ed) . Wi t hout “f act s t endi ng t o excl ude t he possi bi l i t y

t hat t he al t er nat i ve expl anat i on i s t r ue, ” t he pl ai nt i f f s’

expl anat i on was “mer el y possi bl e r at her t han pl ausi bl e. ” I d.

At t he di str i ct cour t l evel , a spl i t on t hi s i ssue i s

emer gi ng. I n addi t i on t o t he deci si ons of di st r i ct cour t s bound

by thi s pr ecedent , at l east t wo di st r i ct cour t deci si ons out si de


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3. Maintaining the Court’s Previous Rule

I n t he absence of addi t i onal gui dance or evi dence t hat t he

Ni nt h Ci r cui t i s not an out l i er among ci r cui t s on t hi s i ssue,

t hi s Cour t t akes a conservat i ve appr oach t o t he Under wr i t er s’

chal l enge and hews t o t he est abl i shed pr e- Twombl y st andard.

Thi s Cour t hol ds t hat gener al al l egat i ons t hat t he Pl ai nt i f f s

hol d t r aceabl e shar es ar e suf f i ci ent t o pl ead st andi ng under

Sect i on 11, even i f t hose al l egat i ons are unaccompani ed by more

speci f i c cor r obor at i ng al l egat i ons.

Under t hi s r ul e, t he Pl ai nt i f f s’ compl ai nt passes must er ,

and t he Cour t DENI ES t he ARI AD and Underwr i t er Def endants’

mot i on t o di smi ss f or l ack of st andi ng.

C. Material Misstatements and Omissions

The Under wr i t er s ar gue i n t he al t er nat i ve t hat t he

Pl ai nt i f f s have f ai l ed t o al l ege act i onabl e mi sst at ement s or

omi ssi ons made i n t he Of f er i ng Mater i al s. To make out a Sect i on

11 vi ol at i on, t he Pl ai nt i f f s “need onl y show a mat er i al

mi sst at ement or omi ssi on t o est abl i sh [ t hei r ] pr i ma f aci e case. ”

Herman & MacLean, 459 U. S. at 382 ( 1983) . The Fi r st Ci r cui t has

i dent i f i ed f our el ement s t hat must be al l eged: “( 1) t hat [ t he

company’ s] pr ospect us cont ai ned an omi ssi on; ( 2) t hat t he

omi ssi on was mater i al ; ( 3) t hat def endant s wer e under a dut y t o

di scl ose t he omi t t ed i nf or mat i on; and ( 4) t hat such omi t t ed


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i nf ormat i on exi st ed at t he t i me t he pr ospect us became

ef f ect i ve. ” Cooper man, 171 F. 3d at 47.

I n t hei r compl ai nt , t he Pl ai nt i f f s r ef er t o mi sst at ement s

and omi ssi ons i n t hr ee ar eas: ( 1) t he al l eged i ncr easi ng

i nci dence of “ser i ous car di ovascul ar adver se event s” r el at ed t o

ponat i ni b t hr oughout 2012, e. g. , Compl . ¶ 446, ( 2) t he al l eged

i nf easi bi l i t y of t he r ecommended pr escr i bed 45 mi l l i gr am dose of

ponat i ni b i n t he maj or i t y of pat i ent s, e. g. , i d. ¶ 447- 48, and

( 3) t he al l egedl y dwi ndl i ng pot ent i al of ponat i ni b’ s appr oval

f or f ront - l i ne use, e. g. , i d. ¶ 449. The Pl ai nt i f f s

addi t i onal l y al l ege t hat t he Of f er i ng Mat er i al s f ai l ed t o

di scl ose “t hat t he i nci dence of adver se car di ovascul ar event s i n

PACE 2 had or was r easonabl y expect ed t o have a mat er i al . . .

unf avor abl e i mpact on . . . r evenues, ” i n vi ol at i on of I t em 303

of Regul at i on S- K. I d. ¶ 472 ( i nt er nal quot at i on mar ks

omi t t ed) .

Accor di ng t o the Under wr i t er s, al l mat er i al i nf or mat i on

r el at ed t o t hese cl ai ms and exi st i ng as of J anuar y 2013 was

f ul l y and accur at el y di scl osed. They cont end t hat t he

Pl ai nt i f f s have f ai l ed adequat el y t o al l ege t hat t hei r

asser t i ons r egar di ng adver se car di ovascul ar event s, dosage, and

ponat i ni b’ s pot ent i al f or f r ont - l i ne use wer e t r ue and known t o

t he Under wr i t er s at t he t i me of t he J anuar y 2013 st ock of f er i ng.

See Underwr i t er Def s. ’ Mem. 8- 20.


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cl i ni cal t r i al s, as t hat r epor t was t he basi s f or t he FDA’ s

deci si on t o gr ant condi t i onal appr oval . I d. Accor di ng t o t he

Pl ai nt i f f s’ compl ai nt , t he J ul y 2012 I nt er i m Repor t “showed an

i ncr ease i n bot h adver se and ‘ ser i ous’ adver se car di ovascul ar

event s i n pat i ent s t aki ng ponat i ni b. ” I d. ¶ 433. Accor di ngl y,

t he dr ug’ s bl ack box war ni ng was r equi r ed t o l i st sever al t ypes

of adver se car di ovascul ar event s exper i enced by ponat i ni b-

t r eat ed pat i ent s and speci f i cal l y di scl ose t hat “ser i ous

ar t er i al t hr ombosi s occur r ed i n 8 [ per cent ] of . . . pat i ent s. ”

I d. ¶ 435.

b. August 2013 Results as a Basis for Alleging

Trends Between July 2012 and January 2013

The Under wr i t er s vi gorousl y at t est t hat t hese devel opments

and under l yi ng dat a wer e f ul l y di scl osed i n t he Of f er i ng

Mat er i al s. Under wr i t er Def s. ’ Mem. 8. The Pl ai nt i f f s do not

di sput e t hi s, but t hey poi nt out t hat by t he t i me of t he st ock

of f er i ng, ARI AD had col l ect ed appr oxi mat el y si x mont hs of

addi t i onal cl i ni cal t r i al dat a beyond J ul y 2012, none of whi ch

was pr ovi ded t o par t i ci pat i ng i nvest or s. Pl s. ’ Opp’ n 38. The

December di scl osur e t hat ei ght per cent of pat i ent s exper i enced

ar t er i al t hr ombosi s was, accor di ng t o t he Pl ai nt i f f s, onl y a

“snapshot i n t i me of adver se event dat a” as of J ul y 2012,

“r eveal [ i ng] not hi ng about t he t r ends or uncer t ai nt i es t hen

known t o Def endant s” as of J anuary 2013. I d. at 39. The


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Pl ai nt i f f s’ compl ai nt and br i ef go on t o al l ege t hat t he PACE 2

data f r om J ul y 2012 t hr ough J anuary 2013 was unf avorabl e and

“gave r i se t o mat er i al , adver se f act s, t r ends, and

uncer t ai nt i es” r equi r i ng di scl osur e, “i ncl udi ng t hat adver se

event s wer e i ncr easi ng over t i me. ” I d. at 38; see al so Compl .

¶¶ 446- 49.

These char act er i zat i ons ar e based on a r eport submi t t ed t o

t he FDA i n August 2013, pr ovi di ng el even mont hs of f ol l ow- up

dat a on t he PACE 2 cl i ni cal t r i al s af t er J ul y 2012. I d. ¶ 437.

The August 2013 r epor t showed, f or exampl e, “t hat t he r at e of

ser i ous ar t er i al t hr ombosi s associ at ed wi t h ponat i ni b had

i ncreased f r om 8 [ per cent ] t o 11. 8 [ per cent ] i n t he t i me si nce

t he J ul y 2012 I nt er i m PACE 2 Repor t . ” I d.

The Under wr i t er s poi nt out t hat t he August 2013 r epor t

pr ovi des aggr egat ed dat a f r om bot h bef or e and af t er t he J anuar y

2013 st ock of f er i ng. Under wr i t er Def s. ’ Mem. 12. The

Pl ai nt i f f s’ al l egat i ons r el y on t he r epor t ’ s r esul t s wi t hout

di f f er ent i at i ng bet ween pr e- and post - of f er i ng dat a. Accor di ng

t o t he Under wr i t er s, t hi s l ack of speci f i ci t y pr event s t he Cour t

f r om bei ng abl e t o dr aw a reasonabl e i nf er ence t hat t he adver se

t r ends est abl i shed as of August 2013 were known as of J anuary

2013. I d.


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c. Pleading Standard Under Shaw

The Under wr i t er s’ ar gument i s a compel l i ng one. Even

t hough Rul e 9( b) pl eadi ng st andar ds do not appl y her e, t hi s

Cour t has hel d that when a compl ai nt pl eads “ t he al l eged

nondi scl osur e of i nf ormat i on pr emi sed on a subsequent

announcement or di scl osur e of such i nf ormat i on, ” such

al l egat i ons “addr ess mat t er s of pr oj ect i on or f or ecast t o whi ch

a st r i ct er s t andar d of pl eadi ng at t aches. ” I n r e Number Ni ne,

51 F. Supp. 2d at 24. Such hei ght ened pl eadi ng i s r equi r ed i n

t he Fi r st Ci r cui t because of t he r i sk t hat “the pl ai nt i f f ’ s

cl ai m of nondi scl osur e may be i ndi st i ngui shabl e f r om a cl ai m

t hat t he i ssuer shoul d have di vul ged i t s i nt er nal pr edi ct i ons

about what woul d come of t he undi scl osed i nf ormat i on. ” Shaw, 82

F. 3d at 1211 ( 1st Ci r . 1996) . Thus, whi l e al l egat i ons that

di scl osur e was requi r ed i n “r el at [ i on] t o a speci f i c, ver i f i abl e

f act ” ar e accept ed as t r ue under t he cl assi c di smi ssal st andar d,

al l egat i ons t hat i nf or mat i on shoul d have been di scl osed as “a

mat t er of j udgment or pr oj ect i on” are not ent i t l ed t o the same

benef i t of t he doubt . I n r e Number Ni ne, 52 F. Supp. 2d at 24.

Si nce t he Pl ai nt i f f s’ al l egat i ons r egar di ng adver se

car di ovascul ar event s f al l i n t he l at t er cat egor y, t he quest i on

f or t he Cour t t o r esol ve i s whet her “t he al l egedl y undi scl osed

i nf or mat i on i s suf f i ci ent l y remot e i n t i me or causat i on f r om t he

ul t i mat e event s of whi ch i t pur por t edl y f or ewar ned. ” Shaw, 82


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F. 3d at 1211. That means det ermi ni ng whether t he i ncr easi ng

t r end i n adver se car di ovascul ar event s “i s of such a nat ur e t hat

i t i s r easonabl e t o i nf er i t s exi st ence at t he t i me of t he

Of f er i ng f r om a di scl osur e some ei ght mont hs l at er . ” I n r e

Number Ni ne, 51 F. Supp. 2d at 16.

d. Fact-Specific Analysis

“As desi r abl e as br i ght - l i ne r ul es may be, t hi s quest i on

cannot be answered by r ef erence t o such a r ul e. ” Shaw, 82 F. 3d

at 1210. Pr evi ous deci si ons addr essi ng t hi s subj ect t ur n on

f act - i nt ensi ve and cont ext ual anal ysi s. See, e. g. , Cooper man,

171 F. 3d at 48 ( hol di ng t hat t he depart ur e of t he def endant

company’ s CEO i n J ul y 1996 suppor t ed a reasonabl e i nf erence that

mat er i al i nf or mat i on r egar di ng conf l i ct wi t hi n t he boar d of

di r ect or s was omi t t ed f r om Mar ch 1996 of f er i ng mat er i al s,

because “[ o] ur exper i ence i ndi cat es t hat Boar d- l evel conf l i ct s .

. . do not ar i se or di sappear over ni ght ”) ( i nt er nal quot at i on

mar ks and ci t at i on omi t t ed) ; Shaw, 82 F. 3d at 1211 ( hol di ng that

di sast r ous end- of - quar t er r esul t s suppor t ed a r easonabl e

i nf er ence t hat mat er i al i nf or mat i on was omi t t ed f r om a

pr ospect us f i l ed el even days bef or e t he end of t he quar t er , wi t h

no ment i on of t he comi ng “ext r eme depar t ur e” f r om pr evi ous

f i nanci al per f ormance) ; I n r e Number Ni ne, 52 F. Supp. 2d at 17

( hol di ng t hat an i nvent ory markdown ei ght mont hs af t er a publ i c

of f er i ng di d not suppor t a r easonabl e i nf er ence t hat mat er i al


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i nf or mat i on about t he i nvent ory’ s obsol escence was omi t t ed f r om

t he pr ospect us, i n par t because “t he comput er i ndust r y i s a

f i el d mar ked by r api d t echnol ogi cal advances”) ( i nt er nal

quot at i on mar ks and ci t at i on omi t t ed) .

The i nst ant case present s a cl ose cal l . On t he one hand,

t he si x mont hs of dat a col l ect ed f r om August 2012 t o J anuar y

2013 r epr esent s a si gni f i cant , al bei t not over whel mi ng, por t i on

of t he t hr ee- year PACE 2 st udy, and i t cover s hal f of t he per i od

t r acked by t he August 2013 f ol l ow- up st udy t hat caused t he FDA

t o suspend sal es and market i ng of t he dr ug. Fur t her , t he FDA’ s

Oct ober 2013 saf et y announcement r ef er r ed t o an “i ncr easi ng rate

and pat t ern” of adver se event s and warned t hat “[ i ] n some

pat i ent s, f at al and ser i ous adver se event s have occur r ed as

ear l y as 2 weeks af t er st ar t i ng I cl usi g [ ponat i ni b] t her apy. ”

Compl . ¶ 438. Gi ven t he al l eged i mport ance of ponat i ni b t o

ARI AD, see Compl . ¶ 429, i t i s l i kel y t hat t he pr ogr ess of t he

PACE 2 was cl osel y moni t ored, meani ng t hat any t r ends pr esent i ng

i n t he dat a l i kel y woul d be known al most i mmedi at el y. These

f act s are consi st ent wi t h a concl usi on t hat ARI AD knew at t he

t i me of t he Of f er i ng t hat t he pr ognosi s f or ponat i ni b was even

wor se t han t he J ul y 2012 r esul t s suggest ed.

On t he ot her hand, i t i s common sense t hat data col l ect ed

over t oo shor t of an i nt er val cannot be a basi s f or r el i abl e

concl usi ons about somethi ng so compl ex and mul t i var i abl e as a


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cancer t r eatment dr ug. I f t he Of f er i ng had occur r ed t wo weeks

af t er t he J ul y 2012 i nt er i m r epor t cut - of f dat e, i t i s unl i kel y

t hat t he Pl ai nt i f f s woul d cl ai m a Secti on 11 vi ol at i on f or t he

omi ssi on of t wo weeks of f ol l ow- up dat a. The quest i on i s

t her ef or e as f ol l ows: i s si x mont hs of f ol l ow- up dat a enough t o

t r i gger a r easonabl e i nf er ence t hat a r el i abl e t r end was

evi dent ?

One possi bl e t ouchst one coul d be t he act i ons of t he FDA.

Agai n, t he FDA based i t s December 2012 deci si on t o appr ove

ponat i ni b wi t h a bl ack box war ni ng on ARI AD’ s r esul t s f r om J ul y

2012. Compl . ¶ 435. I n so doi ng, t he agency di d not exami ne

dat a col l ect ed bet ween J ul y 2012 and t he t i me of i t s deci si on.

I t i nst ead r equi r ed ARI AD t o submi t f ol l ow- up dat a over a

t wel ve- mont h wi ndow af t er the i nt er i m r epor t . I d. ¶ 436. Thi s

mi ght suggest t hat i n t he FDA’ s j udgment , dat a f r om J ul y t o

December 2012 was not l i kel y to be suf f i ci ent t o al t er t he

agency’ s assessment of ponat i ni b’ s saf et y pr of i l e. 7 The Cour t

mi ght r eason f r om t hi s t hat dat a over near l y t he same t i me

per i od, J ul y 2012 t o J anuar y 2013, si mi l ar l y coul d not have been

r el i ed on t o dr aw sound concl usi ons about ponat i ni b’ s saf et y.

7 The FDA’ s act i ons coul d al so suggest , however , nothi ngmore t han t he f act t hat i t i s a gover nment agency wi t h l i mi t edr esour ces t o moni t or phar maceut i cal cl i ni cal t r i al s. I t coul dbe t hat t he agency does not have much capaci t y t o check up ont he pr ogr ess of dr ug t r i al s

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Ariad Opinion Re Motion to Dismiss