In re Celgene Corp. Sec. Litig., 2019 WL 6909463 (D.N.J. Dec. 19, 2019)

On December 19, 2019, Judge John Michael Vazquez of the District of New Jersey partially denied a motion to dismiss a putative securities class action complaint filed against biopharmaceutical company Celgene and certain of its executives.

Plaintiff’s allegations relied heavily on purported information from former Celgene employees, consultants, and scientists, and arose out of Celgene’s statements concerning three drugs that Celgene was developing as revenue replacements for its blockbuster multiple myeloma drug, Revlimid, which has a patent set to expire in 2022.  Judge Vazquez analyzed allegations relating to each drug in turn.

GED-0301

Judge Vazquez first found that plaintiff failed to plead that Celgene made material representations or omissions regarding GED-0301, a drug Celgene acquired for $710 million that was designed to treat Crohn’s disease.  Plaintiff alleged that even after Celgene had “effectively given up on GED-0301,” it continued to make statements about the drug’s efficacy and anticipated market launch to investors.  But the Court did not find it plausible that Celgene continued with a large-scale, expensive Phase III trial merely for the sake of appearances.  Furthermore, the Court found that Celgene provided a legitimate reason—the recommendation from an independent committee—for ultimately ending GED-0301’s Phase III trial.  The Court granted Celgene’s motion to dismiss allegations about GED-0301, holding that in order to state a claim plaintiff must provide more concrete information as to Celgene’s purported decision to abandon GED-0301.

Otezla

Judge Vazquez next analyzed whether Celgene’s 2015 and 2016 statements that it was “on track” to meet 2017 sales projections for Otezla, an oral medication used to treat psoriatic arthritis and psoriasis, were actionable.  Plaintiff alleged that as early as July 2016, Celgene received warnings that the Otezla projections were unattainable. According to plaintiff’s confidential sources, Celgene’s strategy to provide rebates and discounts to insurers and pharmacy benefit managers was fatally flawed and ultimately drove down the market price for Otezla.  Plaintiff alleged that the flawed strategy, coupled with alleged internal reports that Otezla was an inferior product to its competitors, all but guaranteed Celgene would not meet its 2017 projections.  However, Judge Vazquez concluded that several of Celgene’s “on track” statements were accompanied by appropriate cautionary language and thus were protected by the PSLRA’s safe harbor for forward looking statements and for the relevant statements without cautionary language, plaintiff failed to allege the statements were made with actual knowledge of falsity and thus were similarly not actionable.  Nevertheless, the Court found that an executive’s 2017 statement regarding sales projections was actionable because plaintiff pleaded facts alleging that the executive was explicitly warned in the third quarter of 2016 that Celgene was not going hit its 2017 Otezla projection and alleging that he, along with another executive, directed Celgene’s forecasting team to conceal the lack of sales growth.

Ozanimod

Turning finally to allegations relating to Ozanimod, a drug developed to treat relapsing multiple sclerosis, Judge Vazquez concluded that Plaintiff adequately pleaded Celgene made materially misleading statements about its New Drug Application (“NDA”).  Specifically, Celgene disclosed in its Form 10-K that it had submitted an NDA for Ozanimod to the FDA, but allegedly omitted the fact that, during a Phase I trial, it had discovered metabolites, which refers to products that remain after a drug is broken down by the body.  Under FDA guidance, the discovery of metabolites triggers the need for additional testing.  While Celgene truthfully stated that it submitted the NDA, the Court held that the disclosure was actionable because of plaintiff’s allegations that Celgene knew the FDA would not approve the NDA without additional testing after the discovery of metabolites.

The Celgene decision demonstrates that in describing NDAs in public disclosures, companies must exercise caution when omitting facts that may arguably bear on a drug’s ultimate path to approval and commercialization.