Tung v. Bristol-Myers Squibb Company

Background

Jennifer Tung brought the action individually and on behalf of others similarly situated. The opinion states that Arkansas Public Employees Retirement System and Louisiana Sheriffs’ Pension and Relief Fund were appointed lead plaintiffs. The proposed class sought damages for alleged misstatements by Bristol-Myers Squibb Company (BMS) and its executives concerning the Checkmate-026 clinical trial, which tested Opdivo against chemotherapy for non-small cell lung cancer.

The complaint alleged that BMS repeatedly described the trial as involving patients with “strong” PD-L1 expression while declining to disclose the working definition of that term. BMS later disclosed that participants needed PD-L1 expression of at least 5%. The trial failed to show that Opdivo was more effective than chemotherapy, and BMS later announced that the data did not provide statistically significant conclusions about Opdivo’s effectiveness for patients with expression above 5%. The opinion states that BMS’s common stock fell approximately 16% after the first announcement and approximately 10% after the later announcement.

The lead plaintiffs asserted claims under Sections 10(b), 20(a), and 20A of the Securities Exchange Act of 1934. A prior version of the complaint had been dismissed for failure to adequately plead scienter, meaning the required intent to deceive, manipulate, or defraud, or conscious recklessness. The plaintiffs were allowed to amend and filed the second amended complaint. The defendants again moved to dismiss.

Legal standard

At the motion-to-dismiss stage, the court accepted the complaint’s factual allegations as true and drew reasonable inferences in the plaintiffs’ favor. But securities-fraud claims must satisfy heightened pleading requirements under Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act. The complaint had to identify the allegedly misleading statements or omissions, explain why they were misleading, and plead particularized facts supporting a strong inference of scienter.

Scienter

The court first held that the second amended complaint still failed to plead scienter. The plaintiffs relied on an alleged industry-wide understanding that 5% PD-L1 expression was “low” or “minimal” and that 50% expression was “strong.” They supported this theory with an expert’s statements, information from former BMS employees, BMS’s statements about harmonizing PD-L1 testing methods, and allegations about certain executives’ departures.

The court concluded that these allegations did not show that an industry-wide definition existed or, more importantly, that BMS executives knew of such a definition when they made the challenged statements. The former employees’ information showed at most that BMS knew Merck used a 50% threshold. The court treated that as insufficient to establish an industry-wide standard. It also concluded that the expert’s opinion could not substitute for particularized factual allegations showing that the alleged standard reached BMS or was known by its executives.

The court further concluded that the additional circumstantial allegations did not create a compelling inference of conscious misbehavior or recklessness. BMS’s plan to participate in efforts to harmonize PD-L1 assays could instead suggest that the industry had not yet settled on common definitions. The court also found that the allegations about executive departures did not add enough to the scienter analysis.

The plaintiffs separately relied on insider trading to show motive and opportunity to commit fraud. They alleged that individual defendants sold BMS stock before the trial’s failure was disclosed, including sales that produced more than $55 million in profit. The court found that the executives generally sold the same overall percentage of their holdings before and during the class period, and that most trades occurred under predetermined trading plans. Although three executives made notable sales in May 2016 outside such plans, the court held that those trades, considered with the other allegations, did not create the required strong inference of scienter.

Material misstatements or omissions

The court also held that the second amended complaint did not adequately allege a materially false or misleading statement or omission. It identified three categories of alleged statements: BMS’s descriptions of the trial as focusing on “strong” PD-L1 expression; BMS’s failure to disclose the precise eligibility cutoff; and statements expressing confidence in the trial’s success.

The court concluded that the plaintiffs had not shown that “strong” had a settled industry meaning that made BMS’s usage false or misleading. The court also rejected the theory that BMS had to disclose the exact cutoff because that theory depended on the same unestablished industry standard. The court treated the statements expressing confidence in the trial as forward-looking statements or opinions that the plaintiffs had not shown were misleading.

Sections 20(a) and 20A claims

The court ruled that the claims under Sections 20(a) and 20A also failed. Those claims depended on an adequately pleaded primary securities-law violation. Because the plaintiffs had not adequately pleaded scienter or a materially false or misleading statement under Section 10(b), the court held that no primary violation had been alleged.

Disposition

The court granted the defendants’ motion to dismiss the Second Amended Consolidated Class Action Complaint and dismissed the complaint with prejudice. The clerk was asked to close the case.