Judge axes Biogen class action, rips shareholder lawyers for ‘constant misrepresentation’
(Reuters) - For securities class action lawyers, losing is inevitable. Numbers vary from year to year and across different types of cases, but on average, according to the most recent report from Cornerstone Research, about 50-55% of shareholder class actions filed in federal court end up being dismissed. It’s not easy, it turns out, to assert plausible arguments that companies lied to their investors.
But few dismissal decisions, at least in my experience, castigate plaintiffs' lawyers for trying to do just that – which is why a ruling on Wednesday from U.S. District Judge William Young caught my eye.
Young dismissed a prospective class action alleging that Biogen Inc and three top executives defrauded investors about the prospects for a new Alzheimer’s treatment called Aduhelm. Shareholder lawyers from Block & Leviton had accused Biogen of making 25 false statements during the company's 2021 rollout of the drug, which led to a whopping $14 billion surge (or more than 38%) in market capitalization. The deception was revealed, according to the complaint, when demand for the drug failed to materialize and Biogen’s share price cratered.
Young concluded that none of the 25 allegedly false statements was actually false and that the complaint failed to show Biogen's fraudulent intent.
But that’s not all. The complaint, he said, had repeatedly mischaracterized what Biogen executives actually said in order to make their statements seem misleading. This “constant misrepresentation,” Young said, was fatal.
“A securities fraud complaint cannot rest on a house of cards made of mischaracterized statements,” the judge wrote.
That’s more than a dismissal. It’s an accusation.
Young did not name the plaintiffs' firms in the case, instead directing criticism at the lead plaintiff, the Oklahoma Firefighters Pension and Retirement System. But investors don't draft complaints. Their lawyers do.
Block & Leviton name partner Jeffrey Block pushed back, politely, at Young’s characterization of the firm’s 99-page complaint. “We don’t believe we misrepresented anything – we quoted what the defendants said,” Block told me. The firm, he said, had no hint during oral arguments – during which the judge asked few questions -- that Young would be so critical.
“We thought we had a strong case,” Block said. Noting the standard for dismissal motions, Block added, “It doesn’t seem like he read the complaint in the best possible light for us.” Block said the firm and its pension fund client are weighing a possible appeal of the dismissal.
Biogen, which was represented by Skadden, Arps, Slate, Meagher & Flom, said in an email statement that the company was pleased with Young’s ruling and would have no additional comment.
Block & Leviton’s probe of Biogen’s rollout of Aduhelm – a controversial drug whose accelerated 2021 approval by the U.S. Food and Drug Administration sparked a congressional review – went considerably deeper than surface-level securities filings and news stories. The firm’s investigators tracked down eight former Biogen employees who provided inside information that appeared in the shareholder complaint.
Among other allegations, the former employees contradicted assertions by Biogen executives that 900 treatment sites were “ready” to implement Aduhelm treatment when the drug was introduced. Through the former employees, shareholder lawyers learned that concerns about how the company was tracking prospective treatment centers led to an internal investigation in April 2021 -- two months before executives said publicly that 900 sites were “ready” to infuse the medication.
Other former employees alleged that Biogen knew doctors had significant concerns about the drug, including reluctance to perform lumbar punctures, which were a prerequisite to treatment with Aduhelm. In public statements, Biogen executives represented that they’d lined up deals with two prominent laboratories to conduct spinal fluid tests. But Block & Leviton’s complaint alleged that the company deliberately failed to tell investors that the real problem wasn’t testing capacity but was instead persuading treating doctors to perform the procedures to obtain fluid samples from their patients.
Biogen’s dismissal motion challenged allegations from the former employees, arguing that the complaint offered no evidence that high-ranking defendants knew anything about assertions by employees several rungs down the corporate ladder.
Biogen's motion is a straightforward analysis of why, in the company's view, shareholder allegations fell short of the specific details required to establish securities fraud. The only time Biogen accused plaintiffs' lawyers of outright misrepresentation was in refuting allegations that a July 2021 “open letter” to the Alzheimer's community from Alfred Sandrock, the company’s head of research and development, contained false statements about the FDA approval process. Biogen's lawyers said the complaint had “misleadingly” omitted some portions of the letter and “mischaracterized” others.
Young took a considerably harsher view of the shareholders’ complaint. He repeatedly faulted shareholders for asserting that Biogen executives had made false statements when, by the judge’s reading, the statements themselves were not false. In arguing that Biogen statements were deceptive, the judge said, the complaint relied on paraphrasing Biogen’s actual words and on assumptions about the allegedly false conclusions that could be inferred from Biogen statements. Those tactics are not sufficient, the judge said, to establish that Biogen’s actual statements were false, let alone that company executives had fraudulent intent.
Young said, for instance, that Block & Leviton's complaint had interpreted Biogen’s statement that 900 sites were “ready” to perform treatment with Aduhelm as a representation that all of those sites would actually prescribe the drug. “This, however, is not what [Biogen] said,” the judge wrote. “Statements of corporate executives are to be read in light of what a reasonable investor would have understood them to mean, not what a wishful, ill-informed investor would have hoped them to mean.”
The judge similarly accused plaintiffs of misrepresenting what Biogen said about the likelihood that Medicare would pay for treatment with the exceptionally expensive drug. The executives make no promises, Young said, adding that the complaint “misconstrued” their actual statements. Nor, he said, was Biogen being deceptive in touting the deal to test spinal fluid without mentioning doctors’ hesitation about performing tests.
You probably won’t be surprised to hear that Young agreed with Biogen that the complaint mischaracterized Sandrock’s letter as well.
Shareholder class actions, as I mentioned, are rarely a sure thing. But for Block & Leviton, this one has to hurt.
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