Zaidi v. Adamas Pharmaceuticals, Inc.

Background

The court considered a motion to dismiss filed by Adamas Pharmaceuticals, Inc., Gregory T. Went, Alfred G. Merriweather, and Richard A. King. The opinion identifies Ralph Martinez as the lead plaintiff, suing on behalf of investors who acquired Adamas securities between August 8, 2017, and March 4, 2019. Martinez alleged violations of Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5.

The allegations concerned GOCOVRI, Adamas’s drug for levodopa-induced dyskinesia, a movement disorder associated with levodopa treatment. Martinez challenged statements about insurance payers’ coverage and reimbursement decisions, physicians’ and patients’ responses, and Adamas’s specialty-pharmacy distribution program, called Onboard. He alleged that the defendants knew about problems involving GOCOVRI’s cost, similarity to immediate-release amantadine, coverage restrictions, patient and physician responses, and prescription fulfillment.

The court had previously dismissed an earlier amended complaint with leave to amend. This order addressed the second amended class-action complaint.

Pleading standards and judicial notice

Under Federal Rule of Civil Procedure 12(b)(6), the court evaluated whether the complaint stated a plausible claim for relief. Because the claims involved alleged fraud, the complaint also had to describe the alleged misconduct with particularity under Rule 9(b) and satisfy the heightened requirements of the Private Securities Litigation Reform Act. The court also considered allegations based on former employees, concluding that the additional allegations sufficiently described one former employee’s duties and responsibilities.

The defendants asked the court to consider 28 exhibits, including Securities and Exchange Commission filings, press releases, analyst reports, and earnings-call transcripts. The court granted the request in part, subject to the limits of judicial-notice and incorporation-by-reference rules. It denied the request as to Exhibit 3 because the court did not rely on it, and denied the request as to Exhibit 13, an SEC Form 4 filed on King’s behalf, because the defendants had not provided enough context for the relevant purchase.

Alleged misrepresentations

The court found that Martinez adequately alleged that several statements were materially misleading. These included certain statements in paragraph 160, statements identified in paragraphs 165, 167, 169, 173, 177, 179, 183, 185, 187, 189, 193, 196, 202, 206, 209, and 211, and statements concerning payer “step-through” requirements, coverage delays, patient successes, physician feedback, and the performance of Onboard.

The court dismissed claims based on King’s statement that payers supported GOCOVRI at its listed price because Martinez did not identify the “lowest pricing tier” or otherwise provide enough facts to show that the statement was materially misleading. It also dismissed claims based on several other statements, including statements the court treated as puffery, non-actionable opinion, or insufficiently supported allegations of falsity.

The court specifically ruled that Went’s statement describing Onboard as a “seamless access experience” was puffery and dismissed claims based on that statement with prejudice. The court also dismissed claims based on an SEC filing statement about third-party logistics, pharmacy, and distribution partners because the alleged facts concerned payer restrictions and prescribing decisions rather than failures by those partners.

Scienter

“Scienter” means the required intent or deliberate recklessness when making an alleged securities-fraud statement. The court considered the allegations as a whole, including information from former employees, access to internal data, the timing of the statements, and the absence of suspicious stock sales.

As to Merriweather, the court found that Martinez had not adequately alleged scienter. The allegations that payer decisions were reported to defendants were based on unsupported information and belief. Martinez also did not allege that Merriweather actually received relevant prescription-fulfillment data or that former employees had direct contact with him. The court therefore granted the motion to dismiss the claims against Merriweather.

As to King and Went, the court found that allegations about payer-survey results were sufficient to show that King had information contradicting one pre-launch statement about whether payers would require a step-through before covering GOCOVRI. But Martinez did not adequately allege that King received the physician-survey results connected to another challenged statement. The court also found that the time gap between the earlier payer surveys and later statements, together with the lack of specific information linking King and Went to relevant data at the time of those statements, was insufficient to establish scienter for the post-launch statements. The court granted the motion to dismiss those claims.

Control-person claim and leave to amend

A Section 20(a) claim is a claim that a person is liable for controlling someone who committed a primary securities-law violation. Because Martinez did not adequately allege a primary Section 10(b) violation against Merriweather or Went, the court granted the motion to dismiss the Section 20(a) claim against them. Martinez could pursue the Section 20(a) claim against King, subject to the court’s other limitations.

The court concluded that further amendment might not be futile and granted Martinez one final opportunity to address the identified deficiencies, if he could do so in good faith and comply with Rule 11. Overall, the court granted in part and denied in part the defendants’ motion to dismiss. The court set February 3, 2023, as the deadline for an amended complaint, February 24, 2023, for defendants to answer or otherwise respond, and March 31, 2023, for the initial case-management conference.