United States District Court, D. Delaware
JUAN R. SNCHEZ, District Judge.
Plaintiff City of Lakeland Employees' Pension Plan brings this consolidated securities fraud class action on behalf of all persons who purchased the common stock of Incyte Corporation (Incyte or the Company) between April 26, 2012, and August 1, 2012 (the Class Period). Plaintiff asserts claims against Incyte and three of its officers-Chief Executive Officer Paul A. Friedman, Chief Commercial Officer Patricia S. Andrews, and Executive Vice President and Chief Drug Development and Medical Officer Richard S. Levy-for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 issued by the Securities and Exchange Commission (SEC).
Defendants have filed a motion to dismiss the Complaint for failure to state a claim pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6) and the Private Securities Litigation Reform Act of 1995 (PSLRA). For the reasons discussed below, the Court will grant Defendants' motion to dismiss and dismiss Plaintiff's claims without prejudice. Plaintiff shall have thirty days from the date of the Order accompanying this Memorandum to amend its Complaint consistent with this Memorandum.
Incyte is a biopharmaceutical company founded in 1991 that develops and commercializes small molecule drugs for treatment of various diseases. Its first and only commercially available product is a drug called Jakafi. First synthesized in 2005, Jakafi is intended to improve symptoms of patients with myelofibrosis, a severe, life-threatening bone marrow disease. In connection with obtaining FDA approval of Jakafi, Incyte conducted several clinical trials, whose subjects demonstrated significant improvements in certain symptoms after taking the drug. The clinical trials also documented patient discontinuation rates (or dropout rates)-the rate at which patients stop using Jakafi for whatever reason. The discontinuation rates recorded during the clinical trials were approximately 14% at the 24-week mark and 18% at the 48-week mark. These trials excluded severely ill patients with a platelet count below 100, 000 and a projected life-span of six months or less.
The FDA approved Jakafi for the treatment of intermediate or high-risk myelofibrosis on November 16, 2011, making it the first myelofibrosis drug to obtain such approval. Immediately following FDA approval Incyte launched Jakafi for sale and the first patient received it commercially on November 23, 2011. Plaintiff alleges after the FDA approved Jakafi and during the Class Period, Incyte experienced heightened discontinuation of Jakafi among its core patient group, which consisted of severely ill patients, many of whom had not participated in clinical studies. Severely ill patients were considered the core patient group for Jakafi because physicians tended to prescribe the drug only when a patient reached advanced stages of myelofibrosis. According to a confidential source (a former employee), there was no basis to project substantial sales from any patients with less than severe symptoms. This is because myelofibrosis is generally considered an indolent disease, which develops slowly and incrementally over time. Doctors therefore evaluate the symptoms taking a "wait and see" approach with respect to treatment, often choosing to treat just the symptoms with over-the-counter medication in the early phases, rather than the disease itself. Compl. ¶¶ 33-34. As the source explained, "[i]t's only when patients begin to get more symptomatic, in what's called more advanced intermediate stages, that drug treatment becomes employed." Id. ¶ 35. Because many patients taking Jakafi during its launch were in the advanced stages of the disease, the drug's heightened discontinuation rates for this group were the result of patient deaths or other serious side effects.
Discontinuation rates (and, conversely, persistency) were an important metric of the drug's revenue. Plaintiff alleges Defendants were aware of the heightened discontinuation rates associated with Jakafi and knew the rates from the clinical trials were lower than the actual discontinuation rates in the field. Defendants thus misled the market during the Class Period by touting the clinical studies as a benchmark for patient usage instead of revealing the higher discontinuation rates, which would negatively affect the drug's sales. Plaintiff alleges that by misrepresenting and concealing the true nature of Jakafi patient usage trends and results, Defendants artificially inflated Incyte's stock price during the Class Period.
Plaintiff's claims are based primarily on statements Defendants made during an April 26, 2012, conference call to discuss Incyte's first-quarter 2012 financial results, and in a press release issued the same day. Plaintiff alleges as a result of these statements, and analysts' response and commentary, Incyte's stock jumped 18% between April 25 and April 27. Defendants allegedly made additional false and misleading statements during health conferences on May 15, June 6, June 7, June 19, and July 12, 2012. Between April 27 and August 1, 2012 (the last day of the Class Period), Incyte's stock price climbed an additional 9%, which Plaintiff alleges was due to the misleading statements made by Defendants at these health conferences. Plaintiff contends these statements, addressed specifically below, were false and misleading because they collectively suggested the discontinuation rates for Jakafi prescriptions during the Class Period were "consistent" with the rates recorded during the clinical trials, when Defendants knew the discontinuation rates in practice were in fact much higher than those associated with the clinical trials. Id. ¶ 48.
In the April 26, 2012, press release regarding Incyte's first-quarter financial results, Incyte's CEO Paul Friedman stated the "early response to Jakafi is encouraging" and the launch was "proceeding well." Id. ¶ 45. In the same press release, Friedman acknowledged physicians at the time were prescribing Jakafi "primarily for their more severely ill patients" but went on to note "we expect to see a gradual increase in the use of Jakafi among appropriate patients with less severe disease." Id. ¶ 46; see also Defs.' Mot. to Dismiss Ex. 5, at 1. During a conference call with analysts the same day, the Company's COO, Patricia Andrews, made similar statements about the launch "going well, " noting, "[m]ost of our assumptions regarding initial patient use, physician mix, payer acceptance, and patient access are close to what we anticipated." Compl. ¶¶ 47-48. She also discussed usage trends, acknowledging that the "useage [of Jakafi] is definitely at the moment in that more severe patient population. And we still have significant inroads to make there, as well as over the longer term in a patient population less burdened by the disease." Defs.' Mot. to Dismiss Ex. 8, at 7.
Andrews also participated in a question-and-answer session with analysts during the call. When asked about estimates for duration of therapy for patients on Jakafi, Andrews stated that since myelofibrosis is a chronic disease, and Jakafi is a chronic medicine, "many patients who go on [the] drug do, in fact, stay on it for many years." Compl. ¶ 51. Another analyst asked Andrews about dose reduction related to Jakafi and she answered the question by noting it was too early to have any significant insight into that issue. Id. ¶ 52. When asked specifically about discontinuation rates and the general tolerability of the drug, Andrews responded
there's really been nothing that we hadn't anticipated, because we had done, really, an extensive amount of market research. So I think that it's very much meeting our expectations in how we thought things would happen. Possibly initial uptake was a little bit faster than we thought, but that aside-and then, as far as early tolerability of the drug, which we know is very tolerable, but how is it in the real world, it would be too early for us to have significant insight into that. You know, the drug's not been on the market that long, and most patients would have done one or two months of therapy at most. But we have a high level of confidence, based on the results from the clinical trials, that this is a well tolerated drug.
Id. ¶ 49. In response to a follow-up question as to whether there had been anything "anecdotal about patients dropping off the drug earlier than you would have expected, " Andrews stated, "No. there hasn't been." Id. ¶ 50.
At a May 15, 2012, healthcare conference, Andrews repeated her earlier remarks that it was simply "too early to talk about discontinuations or adherence to therapy" but referred audience members to the 14% and 18% figures associated with the clinical trials. Id. ¶ 60. She then explained that discontinuations would likely be higher in the real world than in the clinical studies due to the severely ill patient population for whom the drug was being prescribed. Id. After addressing the reasons why discontinuation rates could potentially be higher in practice, Andrews noted that in the future she "would expect that discontinuations would decline and [ad]herence would increase just because the patient population becomes healthier." Id.
On June 6, 2012, Andrews made similar comments regarding discontinuation rates, noting although it was too early to have a sense of discontinuation rates in the real world, "[w]e don't have anything at the moment, which would lead me to think that [discontinuation rates] would be significantly different from what we saw in the [clinical] studies that I cited." Compl. ¶ 61. After noting the possibility of a temporary increase in discontinuation rates due to the severely ill patient population being prescribed Jakafi, Andrews confirmed her belief that "[a]s we move into [a healthier] patient population, actually the reverse might occur and you might see less discontinuations." Id.
During the June 7, 2012, conference, Friedman stated "[w]hat we expected to see when the drug was first approved was a higher proportion of patients who were too sick to get into the trial but were waiting for [the] drug. And we did see that; a lot of that is washed through. Product is growing nicely and steadily, just as Pat Andrews and her marketing team had predicted" Id. ¶ 62. Andrews and Levy expressed similar sentiments at the June 19, and July 12, 2012, conferences, that the phenomenon of more severely ill patients on Jakafi during launch was "to be expected." Id. ¶ 63; see also Defs.' Mot. to Dismiss Ex. 13, at 1-2. Nevertheless, Defendants were pleased with the success of the launch and the positive feedback from physicians regarding the drug, and predicted a steady increase in growth as more and more patients in the less advanced stages of the disease began taking Jakafi.
According to the Complaint, the "truth" regarding Jakafi's discontinuation rates was revealed when Defendants issued Incyte's second quarter 2012 financial results on August 2, 2012. During a call with analysts, Andrews explained that some of the earliest patients were so ill that they would not have been eligible for the clinical trials. Compl. ¶ 67. She also stated it was still too early to discern any meaningful information regarding discontinuation rates, but acknowledged the discontinuation rates from the clinical trials reflected "the low end of the discontinuation rates we are likely to see commercially." Id. ¶ 67; see also id. ¶ 68 (statement by Friedman noting the discontinuation rates are "going to be probably slightly higher than the 14% to 18%, which is what you would expect out in the field as opposed to a controlled trial."). Defendants also disclosed that the time it would take to "evolve the use of Jakafi in the more severely ill patients... to the less severely ill" had an effect on the financial guidance Defendants issued regarding ...