Deka International S.A. Luxemb, et al v. Genzyme Corporation, et al

Filing

OPINION issued by Juan R. Torruella, Appellate Judge; Kenneth F. Ripple and Rogeriee Thompson, Appellate Judge. Published. [13-1085]

Case: 13-1085

Document: 00116697102

Page: 1

Date Filed: 06/05/2014

Entry ID: 5828702

United States Court of Appeals
For the First Circuit

No. 13-1085
IN RE: GENZYME CORP. SECURITIES LITIGATION,

DEKA INTERNATIONAL S.A. LUXEMBOURG; CITY OF EDINBURGH
COUNCIL AS ADMINISTERING AUTHORITY OF THE LOTHIAN PENSION
FUND; GOVERNMENT OF GUAM RETIREMENT FUND,
Plaintiffs, Appellants,
VIVIAN OH, individually and on behalf of all other
similarly situated; JON RAHN, individually and on behalf
of all others similarly situated;
GENZYME INSTITUTIONAL INVESTORS,
Plaintiffs,
v.
GENZYME CORPORATION; HENRI A. TERMEER; DAVID P. MEEKER;
MICHAEL S. WYZGA; ALLISON LAWTON; MARK R. BAMFORTH;
GEOFFREY MCDONOUGH,
Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. George A. O'Toole, U.S. District Judge]

Before
Torruella, Ripple,* and Thompson,
Circuit Judges.

*

Of the Seventh Circuit, sitting by designation.

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Daniel L. Berger, with whom Jay W. Eisenhofer, Diane T. Zilka,
Shelly L. Friedland, Grant & Eisenhofer P.A., Avi Josefson, John
Rizio-Hamilton, Ann M. Lipton, Bernstein Litowitz Berger &
Grossmann LLP, Bryan A. Wood, John H. Sutter and Berman DeValerio,
were on brief for plaintiffs-appellants.
John D. Donovan, Jr., with whom Robert G. Jones, Mark D.
Vaughn and Ropes & Gray LLP, were on brief for appellee Genzyme
Corporation.
Michael T. Marcucci, with whom John D. Hanify and Jones Day,
on brief for appellees Termeer, Meeker, Wyzga, Lawton, Bamforth and
McDonough.
Richard A. Samp, with whom Cory L. Andrews and Washington
Legal Foundation, on brief as amicus curiae.

June 5, 2014

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TORRUELLA, Circuit Judge.
of

the

District

Court

of

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Entry ID: 5828702

This is an appeal from orders

Massachusetts

granting

Defendants-

Appellees' motion to dismiss, and subsequently denying PlaintiffsAppellants'

post-judgment

motions

to

amend

the

complaint.

Plaintiffs, a class of investors, brought this securities fraud
action against Genzyme Corporation ("Genzyme"), and several company
executives (the latter hereinafter collectively referred to as the
"individual defendants").
("complaint")

charges

The Consolidated Class Action Complaint

all

defendants

with

acts

constituting

securities fraud in violation of Section 10(b) of the Securities
Exchange Act, and with violations of Section 20(a) on the part of
the individual defendants.
Upon de novo review, we agree with the district court
that the complaint fails to meet the exacting pleading standard
that securities fraud claims must satisfy.

The allegations set

forth in the complaint fail to convey a cogent and compelling
inference of deceitful intent, or reckless disregard of the truth,
on the part of defendants.

Scienter has not been pled, and,

accordingly, we affirm the district court's order of dismissal.
We also find, not without taking some exception, that the
district court did not abuse its discretion in denying plaintiffs'
post-judgment motion to amend the complaint.

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I. Background
As this is a review of a motion to dismiss, we recite the
facts of the case as alleged in the nonmoving party's complaint,
resolving any ambiguities in their favor.

Ocasio-Hernández v.

Fortuño-Burset, 640 F.3d 1, 5 (1st Cir. 2011).
Genzyme

is

an

international

pharmaceutical

company

engaged in the business of developing and selling biologics.
Biologics, as opposed to chemically-synthesized pharmaceuticals,
stem from natural sources and are developed through a complex
manufacturing process designed to mitigate the ever-present risk of
contamination.

Companies wishing to market biologics to the

general populace must obtain approval from the Food and Drug
Administration ("FDA") through a biologics license application
("BLA").
At the time of the conduct at issue in this case, three
of Genzyme's main products were biologics related to the treatment
of rare metabolic disorders resulting from the absence of certain
enzymes (lyosomal storage disease, or "LSD" drugs).

Cerezyme,

Fabrazyme and Myozyme were developed to treat the rare Gaucher,
Fabry, and Pompe diseases, respectively.

In 2008, both Cerezyme

and Fabrazyme were greater earners than Myozyme, bringing in
approximately $1.7 billion in revenue combined.
was

an

up-and-coming

treatment

that

had

However, Myozyme

recently

become

the

fastest-growing product in Genzyme's history, jumping from $59

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million in revenue in 2006 to $296 million in 2008.
reason

for

competition.

the

products'

success

was

a

Entry ID: 5828702

A substantial

complete

lack

of

All three are considered "orphan" drugs under the

Orphan Drug Act of 1983, 21 U.S.C. §§ 360aa-ee, which grants
limited monopolies to companies that develop drugs to treat rare
disorders that might not otherwise be commercially viable for
development and production. Genzyme's monopoly of Cerezyme expired
in 2001, with Fabrazyme and Myozyme scheduled to expire in 2010 and
2013, respectively.
In April of 2006, the FDA approved Genzyme's BLA for
Myozyme
facility.
("160L")

manufactured

in

Genzyme's

Framingham,

Massachusetts,

This version of Myozyme was produced in 160-liter
bioreactors.

However,

Genzyme

soon

realized

that

production on a small scale would be insufficient to meet market
demand.

As such, Genzyme developed a manufacturing process for

creating Myozyme in a 2000-liter ("2000L") bioreactor in its
Allston,

Massachusetts

facility.

To

differentiate

the

two

products, Genzyme termed the 2000L Myozyme "Lumizyme." Genzyme was
able

to

obtain

quick

approval

for

Lumizyme

with

European

pharmaceutical regulators, but needed to reapply for a new BLA with
the FDA for the U.S. market.

Genzyme also planned to obtain

regulatory approval to develop a 4000-liter ("4000L") version of
Myozyme at its plant in Geel, Belgium, for the European market. In
the meantime, Myozyme quickly became an unquestionable success for

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Genzyme.

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Analysts considered approval of the Lumizyme BLA to be

critical for Genzyme's future earning potential, as it represented
a large untapped market for an in-demand product.
Genzyme initially revealed its plans for the Lumizyme BLA
on the first day of the Class Period, October 24, 2007.

During a

conference call, David Termeer, who served as Genzyme's CEO, told
investors

that

"supplemental"

the
BLA

company
for

had

filed

an

Lumizyme

based

off

previously-approved 160L Myozyme BLA.1

application
of

the

for

a

company's

Termeer stated he expected

that approval of the supplemental BLA would occur in the first
quarter of 2008.

He also gave a positive outlook for all three of

Genzyme's LSD drugs.
On April 21, 2008, however, the FDA notified Genzyme that
a supplemental BLA was insufficient, and it would need to submit a
separate BLA for Lumizyme approval.

After Genzyme submitted the

revised BLA in May, the FDA gave Genzyme a "PDUFA date" of
November 29, 2008, as mandated by the Prescription Drug User Fee
Act ("PDUFA") of 1992,

21 U.S.C. §§ 379g-h.2

Termeer continued to

1

A "supplemental" BLA allows companies to obtain rapid,
streamlined approval for drugs that are substantially similar to
previously-approved products.
2

The PDUFA allows the FDA to collect fees for applications, but
requires the FDA to set a target date for approval of the
application. This target date, however, is not a guarantee of
approval nor is it binding on the FDA.
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give an optimistic outlook for Lumizyme approval throughout the
summer of 2008.
In September of 2008, Genzyme's manufacturing facility in
Geel, Belgium, suffered a bioreactor failure. At the time, Genzyme
had been working towards approval from European regulators to
develop

Myozyme

at

the

4000L

scale

at

Geel.

An

internal

investigation ensued as to the cause of the breakdown, which was
unknown at the time.

Genzyme did not publicly disclose the

bioreactor failure at that time.

Notwithstanding these events, in

February of 2009, Genzyme secured approval from the European
Medicines Agency ("EMEA") to produce Myozyme 4000L at Geel.
In October of 2008, the FDA conducted an inspection of
the Allston, Massachusetts plant.

The FDA routinely conducts

inspections to determine if facilities are complying with Current
Good Manufacturing Practices ("CGMP") standards for biologics
manufacturers.

As a result of the inspection, the FDA noted

several variations from CGMP at Allston.

The FDA summarized these

findings in a Form 483 ("October 2008 Form 483").

The form was

sent to Termeer, as it is common protocol for the FDA to present
Forms 483 to top management officials.

A Form 483 contains

advisory language that make clear it lists only "inspectional
observations and do[es] not represent a final agency determination
regarding your compliance."

Genzyme responded to the October 2008

Form 483 on October 31, 2008, with a proposed plan to remedy the

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problems by March 31, 2009, though it did not receive an immediate
reply from the FDA.

The October 2008 Form 483 made no mention of

the Lumizyme BLA and it did not otherwise note that the drug's
approval process might be jeopardized.
Briefly

after

receiving

the

October

2008

Form

483,

Genzyme conducted a conference call with market analysts on
October 22, 2008.

No mention was made of the October 2008 Form 483

or of Genzyme's response.

One analyst asked Allison Lawton3 if

anything had been discussed during a recent FDA Advisory Committee
meeting that could affect the Lumizyme BLA.

Though no defendant

mentioned the October 2008 Form 483, Lawton stated that "[i]t was
really just a discussion about the biochemical differences [between
Myozyme and Lumizyme]" and that the clinical data was "the most
important piece."

On that note, Senior Vice President Geoffrey

McDonough shared the news that the FDA Advisory Committee had
confirmed the clinical effectiveness of Lumizyme at the 2000L
scale, stating that "the likelihood of approval seems to be more
certain."

During this conference call, Termeer projected that

analysts could expect a return of $4.70 per share in 2009, a figure
that assumed approval of Lumizyme in November of 2008.

3

At that

Lawton held numerous positions with Genzyme during the class
period, including Head of Regulatory Organization; Senior Vice
President of Global Access, Quality Systems & Regulatory Affairs;
Senior Vice President of Regulatory Affairs and Corporate Quality
Systems; and her current position as Senior Vice President of
Global
Product
Access.
Generally
speaking,
Lawton's
responsibilities focused on regulatory compliance.
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time, the PDUFA date the FDA had provided Genzyme continued to be
November 28, 2008.
Also

in

November,

the

Allston

plant

experienced

an

episode of bioreactor failure similar to the one experienced at the
Geel plant months earlier.

These events slowed manufacturing for

the company and forced Genzyme to ramp down production of Cerezyme
and Fabrazyme at Allston.

The company dipped into its supply of

Cerezyme, Fabrazyme, and Myozyme to make up for the manufacturing
shortage, which left Genzyme vulnerable to a lack of supply that
could affect sales if problems continued.

Though an investigation

of the causes of the equipment failures at Allston and Geel was
underway, the bioreactor failures were not disclosed to investors
at that time. However, company officials did inform investors that
"tight" Myozyme inventories could potentially limit sales unless
the company could secure European approval of a 4000L version of
Lumizyme for production in Geel, which it would eventually secure
a few months later in February of 2009.
That

same

month,

the

FDA

informed

Genzyme

that

it

considered aspects of its application to be a major amendment to
its earlier Lumizyme BLA, and that it would take more time to
review the changes.
February 28, 2009.

Accordingly, the FDA set a new PDUFA date of
Genzyme promptly disclosed this information to

investors, stated that it expected Lumizyme to be approved by the

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new PDUFA date, and that this news would not affect the projected
earnings of $4.70 per share for 2009.
Over the next several months, the defendants maintained
that Lumizyme would be approved and the company was in a good
position to meet increasing demand for Cerezyme and Fabrazyme.
During one conference call with analysts, an investor asked for
more information about "incomplete process validation runs" at the
4000L plant in Geel.

These runs were affected by the bioreactor

failures, the cause for which was unknown at the time.

McDonough

stated that "the way to think about that is part of the normal
development process that we would undergo for any new facility."
European authorities approved 4000L Myozyme for manufacture in Geel
shortly thereafter in February of 2009.
Having received no response from the FDA as to its
proposed remedies to the October 2008 Form 483, Genzyme submitted
a supplemental response to the FDA on February 23, 2009. Four days
later, the FDA replied with a Formal Warning Letter ("February
Warning Letter"), as well as a Complete Response Letter, both
addressed to Termeer and later published on the FDA website.
Complete

Response

Letter

stated

that

the

FDA

would

The

withhold

approval of Lumizyme until the issues in the February Warning
Letter were addressed. The February Warning Letter reiterated many
of the issues that were contained in the October 2008 Form 483,
while also critiquing Genzyme's proposed remedies as insufficient.

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On

March

2,

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2009,

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Genzyme

issued

a

Entry ID: 5828702

press

release

disclosing both the February Warning Letter and the Complete
Response Letter.

Genzyme also disclosed the October 2008 Form 483

for the first time.

That same day, Genzyme filed the company's

Form 10-K for 2008, which stated that the February Warning Letter
reiterated many of the problems first identified in the October
2008 Form 483, and that approval of Lumizyme was conditioned on
resolution of these issues.
Genzyme held a conference call that same afternoon,
during which Termeer notified investors that Lumizyme would not be
approved by the expected PDUFA date of February 28, 2009.

While

making these disclosures, Genzyme maintained that it would be able
to address all of the issues the FDA had raised and that it would
obtain approval of Lumizyme several months down the road.

A

contemporaneous press release quoted Termeer as saying that the
issues could be resolved "within three to six months" and that the
company was "confident that the products produced at the Allston
facility

continue

to

meet

the

highest

quality

and

safety

standards." During the conference call, Lawton stated that Genzyme
was confident that they could respond in full to the February
Warning Letter by the end of the week.
Corporate

Operations

and

Senior Vice President of

Pharmaceuticals

Mark

Bamforth

told

investors that the issues raised by the February Warning Letter
would not have an impact on Genzyme's ability to produce drugs

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manufactured at Allston, including Cerezyme and Fabrazyme.

In

light of the news, Genzyme adjusted its projections to account for
a six-month delay in Lumizyme approval, predicting a 12-cent per
share drop and a $60 million decrease in Myozyme revenue.
Not surprisingly, the market reacted negatively to this
news.

JP Morgan commented that "we remain troubled at the lack of

disclosure of the Form 483 issuance last fall, since we believe
investors would have been more cautious on near-term Myozyme
approval."

Some also criticized Genzyme for issuing a press

release after trading closed on Monday despite receiving the letter
on Friday, and some suspected that a four percent drop in Genzyme
stock on Friday could be attributed to early leakage of the
letters.

After the March 2, 2009 disclosures, Genzyme's shares

fell by $4.04, or approximately seven percent.
On

March

24,

2009,

Genzyme's

anticipated Lumizyme approval in mid-2009.

2008

Annual

Report

On April 22, 2009,

Genzyme reported its earnings for the first quarter of 2009, with
Myozyme sales falling more than $20 million below estimates.
Genzyme again attributed this to "tight" Myozyme supply, but did
not disclose the bioreactor problems in Geel or Allston. That same
day, Lawton told investors that the Lumizyme BLA was on schedule
and said that "at this point we've actually resolved all of any
outstanding items with [the] FDA."

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The FDA reinspected the Allston plant in mid-May of 2009,
but did not issue any warnings or advisory materials at that time.
After this inspection, Genzyme adjusted its timeline for the
Lumizyme BLA approval and resubmitted its BLA to the FDA.

The

company acknowledged that a PDUFA was likely six months away, but
was optimistic that the FDA would work with them to expedite
approval.
On June 16, 2009, Genzyme detected a third bioreactor
failure event, the second such outbreak in Allston.

This time,

Genzyme publicly announced the bioreactor failure, and acknowledged
that it had suffered two such events in Allston and Geel in late
2008.

Genzyme explained that internal investigations had recently

shown the failures were due to the outbreak of a rare virus,
Vesivirus 2117. In order to sanitize the plant, Genzyme halted all
production of Cerezyme and Fabrazyme in Allston.

As Genzyme had

already begun selling off its Cerezyme and Fabrazyme inventory in
order to increase Allston production of Myozyme, this led to
further supply constraints on these drugs.
Genzyme denied to investors that the Vesivirus 2117
contaminations were linked to the CGMP issues identified by the
FDA, stating that the FDA had signed off on plant conditions during
their May 2009 re-inspection. Termeer stated that no formal letter
signing off on the plant had been received, but Lawton said that
while they had no written communication, they had positive verbal

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communication from the FDA inspectors. While Genzyme stated it had
not yet identified the source of the viral outbreaks, it believed
the virus was related to the raw materials used in the biologics.
The company also predicted it would not need another inspection and
that Lumizyme was on track for November 2009 approval, or possibly
earlier.
Genzyme released its second quarter earnings statements
on July 22, 2009.
Genzyme

adjusted

considerably.

Due to the shutdown of the Allston plant,
its

projections

for

the

year

downward

A press release accompanying the earnings statement

revealed Genzyme's plans for 4000L Myozyme/Lumizyme in the United
States for the first time. On a conference call, Termeer explained
that in order to "simplify operations in Allston" and dedicate all
of the reactors to Cerezyme and Fabrazyme, the company would not be
pursuing commercial sales of 2000L Lumizyme in the United States.
Rather, the company hoped to obtain BLA approval of 2000L Lumizyme,
and then file a supplemental BLA for 4000L Lumizyme manufactured in
Geel.

During the call, McDonough conceded that even if 2000L

Lumizyme

was

approved

in

November

of

2009,

approval

of

a

supplemental BLA would take at least four additional months,
meaning commercial sales of Lumizyme in the U.S. would not take
place until at least 2010.

Following this news, Genzyme's shares

dropped approximately eight percent.

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On July 27, 2009, the FDA sent a letter to Genzyme,
stating that it planned to reinspect the plant due to Genzyme's
inadequate response to several of its concerns.

According to the

FDA, Genzyme had yet to validate the cryoshippers -- special
equipment designed to transport biological material in a frozen
state -- despite earlier promises to do so.

Similarly, Genzyme

had failed to implement promised maintenance procedures.

Genzyme

disclosed the letter to the public on July 31, 2009 and received a
negative response from the market.

Shares fell an additional 7.75

percent following the disclosure.
Meanwhile, the shortage of Cerezyme and Fabrazyme caused
regulators to take action.

The FDA reached out to several of

Genzyme's competitors for help addressing the shortage of these
drugs in July of 2009.

The FDA fast-tracked approval for drugs

manufactured by Genzyme competitor Shire in an effort to treat
Gaucher and Fabry diseases.

In August of 2009, Genzyme admitted

that the continuing shortage of Cerezyme and Fabrazyme meant that
those drugs were in danger of losing their lucrative "orphan"
monopoly.
On

August

14,

2009,

Termeer,

Lawton,

Bamforth

and

Executive Vice President David Meeker wrote a private, undisclosed
letter to the FDA addressing the organization's recent concerns.
The letter acknowledged "systemic causes" for the problems in
Allston and stated that "[w]e plan to make fundamental systemic and

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The letter further recognized

that "the viral investigation . . . . must be completed in the
context of the broader compliance remediation activities."

The

letter also acknowledged the FDA's most recent observations and
proposed new remedies to address the concerns.

Publicly, Genzyme

continued to project Lumizyme approval in November of 2009.
On the final day of the Class Period, November 13, 2009,
several events transpired.

First, Genzyme and the FDA issued a

public notice to healthcare providers, explaining that vials of
Cerezyme, Fabrazyme, and Myozyme were discovered to have been
contaminated with foreign particles, such as steel and non-latex
rubber. The notice warned that ingesting such particles could have
serious negative health effects on patients.
That same day, the FDA sent a second Form 483 ("November
2009 Form 483") to Termeer, as well as a second Complete Response
Letter, once again suspending the Lumizyme BLA.

The November 2009

Form 483 noted numerous CGMP violations, including several problems
that had been first pointed out in the October 2008 Form 483.
Genzyme disclosed the form shortly after these events were made
public; Genzyme's shares dropped sharply once again, declining more
than seven percent.
In the post-class period, defendants held a conference
call to address the issues stemming from the November 2009 Form 483
and the denial of the Lumizyme BLA.

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that many of the issues relating to the contaminated drugs were
related to the plant's fill/finish capabilities, the process in
which vials are filled and then sealed.

During the call, Termeer

traced many of the issues in Allston back to 2006, when the company
decided to add Myozyme production lines on top of existing lines
for Cerezyme and Fabrazyme.

The resulting inventory shortage that

occurred for Cerezyme and Fabrazyme "clearly can never happen
again," Termeer stated.

During that same call, Meeker conceded

that the problems related to fill/finish were the result of old
equipment in the Allston facility and that the company had been
aware of the problems, stating that the problem was "not new" and
"these were elements that we obviously knew about."

Shortly

thereafter, Genzyme announced it would shut down the Allston plant,
abandon pursuit of a 2000L Lumizyme BLA, and move forward with
attempting to receive approval for 4000L Lumizyme manufactured in
Geel.
The end of the road approached as the FDA filed a
complaint in federal court on May 24, 2010 to permanently enjoin
Genzyme from committing violations of the Food, Drug and Cosmetics
Act, 21 U.S.C. §§ 310-399f.

As a result, the FDA and Genzyme

entered into a consent decree requiring Genzyme to pay $175 million
in fines, transfer certain operations out of Allston, and undertake
a

comprehensive

remediation

plan

independent experts.

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under

the

supervision

of

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The plaintiffs, on behalf of all purchasers of Genzyme
stock during the relevant time period, filed their complaint in
this action on March 1, 2010, suing Genzyme Corporation, Termeer,
Meeker, Lawton, McDonough, Bamforth and Chief Financial Officer
Michael Wygza.
the

Securities

The complaint alleges that the defendants violated
Exchange

Act

by

making

false

or

misleading

statements to investors in connection to the Allston plant and the
Lumizyme BLA approval process.
The defendants filed a motion to dismiss the complaint
for failure to state a claim upon which relief could be granted,
and the district court dismissed the complaint on March 30, 2012.
While the court found that "plaintiffs' theory is plausible, and
perhaps even reasonable," the allegations in the complaint were
"too speculative to give rise to a strong inference of scienter"
under the heightened pleading standards of the Private Securities
Litigation Reform Act ("PSLRA"), 15 U.S.C. § 78u-4(b).

As the

dismissal of the complaint was with prejudice, the plaintiffs moved
for relief from judgment and for leave to amend the complaint. The
district court denied both motions on December 21, 2012, finding
that any new evidence plaintiffs wished to present could have been
presented earlier.

This appeal followed.

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II. Discussion
A. The order of dismissal
As with any motion to dismiss, our analysis centers on
the complaint, and we accept all well-pleaded factual allegations
as true and draw all a reasonable inferences in favor of the
plaintiff.

Hill v. Gozani, 638 F.3d 40, 55 (1st Cir. 2011).

In

order to survive a motion to dismiss, the complaint must plead
sufficient facts to render the plaintiff's entitlement to relief
plausible, and not merely possible.
550

U.S.

544,

557

(2007).

As

Bell Atl. Corp. v. Twombly,
to

allegations

of

fraud

in

particular, Federal Rule of Civil Procedure Rule 9(b) requires
plaintiffs to plead the circumstances of fraud with heightened
specificity.

Hill, 638 F.3d at 55.

To state a claim for securities fraud under Section
10(b), a plaintiff must allege: (1) a material misrepresentation or
omission; (2) scienter, or a wrongful state of mind; (3) in
connection with the purchase or sale of a security; (4) reliance;
(5) economic loss; and (6) loss causation.

In re Stone & Webster,

Inc., Sec. Litig., 414 F.3d 187, 195 (1st Cir. 2005).

A complaint

alleging violations of Section 10(b) must plead facts giving rise
to a "strong inference" of scienter. 15 U.S.C. § 78u-4(b)(2).
Scienter

may

be

pled

by

"showing

that

defendants

either

'consciously intended to defraud, or that they acted with a high
degree of recklessness.'"

Miss. Pub. Emps. Ret. Sys. v. Bos.

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Scientific Corp., 523 F.3d 75, 85 (1st Cir. 2008)(internal citation
omitted).

An inference of scienter is "strong" only if it is

"cogent and at least as compelling as any opposing inference one
could draw from the facts alleged."

Tellabs, Inc. v. Makor Issues

& Rights, Ltd., 551 U.S. 308, 324 (2007).

"[W]here there are

equally strong inferences for and against scienter, Tellabs now
awards the draw to the plaintiff." ACA Fin. Guar. Corp. v. Advest,
Inc., 512 F.3d 46, 59 (1st Cir. 2008).
The 140 page complaint, though seemingly an attempt at
artful pleading, is an ill organized and convoluted collection of
364 paragraphs.

The events are not alleged chronologically, and

the happenings that plaintiffs allege were concealed, as well as
the statements alleged to be misleading, are often not clearly
paired to related events, dates, characters or a time-line.

Not

without considerable difficulty, we have endeavored to organize the
allegations of fraud into three main categories.
the

circumstances

October

2008

Form

surrounding
483.

We

We first discuss

the

alleged

concealment

then

discuss

the

of

purported

the
non-

disclosure of the viral outbreaks at the Allston and Geel plants.
Finally,

we

address

the

defendants's

allegedly

misleading

assertions of Lumizyme's timely approval and disingenuous revenue
and performance projections.

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1. October 2008 Form 483
As to the October 2008 Form 483, plaintiffs essentially
contend that defendants concealed the form with fraudulent intent.
This theory fails for several reasons, not the least persuasive of
which is the fact that defendants ultimately disclosed the form not
long after its relevance became apparent to Genzyme.
After the FDA carried out its inspection of the Allston
plant sometime between late September and early October 2008, it
issued the October 2008 Form 483 to CEO Termeer. The form detailed
several observations regarding potential compliance problems with
CGMPs.

The FDA did not postpone the PDUFA date for Lumizyme of

November 29, 2009 by way of the October 2008 Form 483, nor did the
form otherwise state that the Lumizyme BLA had been compromised.
Shortly thereafter, on October 22, 2008, Genzyme issued
a press release, and held a conference call with analysts regarding
the general state of affairs at the company. During the conference
call, executives generally touted positive projections for Genzyme.
As to approval of the Lumizyme BLA in particular, CEO Termeer
referenced

the

recent

decision

by

an

FDA

advisory

committee

approving the therapy, and stated that they were "working very hard
with the FDA to get everything done at that time, [the as of yet
PDUFA date of November 29, 2008] that still needs to be done."
Asked by an analyst if anything had been discussed during the
"closed manufacturing session" that might affect BLA approval for

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Lumizyme, Lawton replied that the discussion mainly centered on the
differences

in

the

scale

of

production

between

Myozyme

and

Lumizyme, and on the clinical data on Lumizyme; an FDA advisory
panel had recently vouched for the clinical effectiveness of
Lumizyme.

Neither Lawton nor any other defendant made any mention

of the October 2008 Form 483 at that time.
Towards the end of November, the FDA informed Genzyme
that the Lumizyme BLA was substantially distinct from the Myozyme
BLA, and that it would require more time to review the application.
The PDUFA date was extended to February 28, 2009. Genzyme promptly
disclosed the new PDUFA date to investors, but not the earlier
receipt of the October 2008 Form 483.
Defendants would not make any mention of the October 2008
Form 483 until March 2, 2009, shortly after receipt of the February
Warning Letter and the first Complete Response Letter, both of
which addressed some of the observations in the October 2008 Form
483.

All three documents were disclosed simultaneously, that same

day.
We first note that Section 10(b) does not create an
affirmative duty to disclose.

In re Bos. Scientific Corp. Sec.

Lit., 686 F.3d 21, 27 (1st Cir. 2012).

A duty to disclose

information earlier omitted arises only when affirmative statements
were made and the speaker "fail[ed] to reveal those facts that are

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needed so that what was revealed would not be so incomplete as to
mislead."

Id.
The

facts

alleged

here

quite

nicely

track

this

proposition. Though the October 2008 Form 483 was not disclosed by
Genzyme at the time it was issued by the FDA, it was disclosed
roughly four months later upon Genzyme's receipt of the February
Warning Letter and the first Complete Response Letter, which
formalized some of the October 2008 Form 483's observations.

It

was these latter two communications that crystalized the relevance
of the October 2008 Form 483 to defendants earlier positive
statements regarding Lumizyme's approval.

This rings particularly

true given the advisory language that accompanies all Forms 483, to
the

effect

that

the

circumstances

noted

therein

are

merely

observational in nature, and do not represent the FDA's final
word.4

That

it

was

not

disclosed

at

an

earlier

time

that

plaintiffs' would have preferred, does not amount to a breach of
the duty to disclose, if there ever was one.

ACA Fin. Guar. Corp.,

512 F.3d at 61.

4

The parties debate the state of the law as to the materiality of
Forms 483. Because we find the complaint does not sufficiently
plead scienter, we need not reach this particular question. We
note however, the Eight Circuit's view that Forms 483 in general,
as is the case with any other purported evidence, may or may not be
material depending on the circumstances of each case. See Pub.
Pension Fund Gr. v. KV Pharm. Co., 679 F.3d 972, 983 (8th Cir.
2012).
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More

Page: 24

importantly,

and

Date Filed: 06/05/2014

fatal

to

this

theory

Entry ID: 5828702

of

the

complaint, the allegations regarding the October 2008 Form 483 fall
well short of pleading a strong inference of scienter.

Dearborn

Heights Act 345 Pol. & Fir. Ret. Sys. v. Waters Corp., 632 F.3d
751, 757 (1st Cir. 2011)("A plaintiff must allege facts that make
an inference of scienter 'more than merely plausible or reasonable
-- it must be cogent and at least as compelling as any opposing
inference of nonfraudulent intent'")(internal citation omitted).
At the time of the issuance of the October 2008 Form 483, the PDUFA
date of November 29, 2008 had been left unchanged.

Furthermore,

also around that same time an FDA advisory committee vouched for
the clinical effectiveness of Lumizyme therapy, indeed a crucial
step

in

the

approval

process.

Though

it

is

possible

that

defendants acted with scienter under these circumstances, the
inference of the requisite intent to defraud is certainly not
cogent or compelling.

Id.

It is more likely that defendants made

no mention of the October 2008 Form 483, because, given the
observational nature of such forms, the fact that it made no
mention of the Lumizyme approval process, and more importantly,
given other significant factors that pointed to Lumizyme approval
-- recent endorsement from the FDA advisory committee, and a steady
PDUFA date -- they likely believed Genzyme continued to be on the
path towards Lumizyme approval.

Tellabs, 551 U.S. at 324 ("A

complaint will survive, we hold, only if a reasonable person would

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deem the inference of scienter cogent and at least as compelling as
any opposing inference one could draw from the facts alleged.").
Finally, the fact the Genzyme promptly disclosed the
extended PDUFA date -- which was extended in late November for
reasons unrelated to the October 2008 Form 483 -- and that the
October 2008 Form 483 was disclosed only a few months later, in
early March of 2009, along with a full and prompt disclosure of the
February Warning Letter and the first Complete Response Letter,
further undercut any inference of fraudulent intent on the part of
defendants. See In re The First Marblehead Corp. Sec. Lit., 639 F.
Supp. 2d 145, 163 (D. Mass. 2009)(finding that corporation's
related informative disclosures negate inference of scienter).
2. Bioreactor failures and viral contamination events
Plaintiffs'

claim

that

defendants'

failure

to

contemporaneously disclose the bioreactor failure events at its
Geel and Allston facility, while simultaneously insisting on the
expected approval of the Lumizyme BLA, is also indicative of
scienter.

As with the alleged non-disclosure of the October 2008

Form 483, these allegations also fail to amount to a strong
inference of fraudulent intent.
Genzyme initially came across a bioreactor run failure at
its Geel plant in September of 2008.

The cause of the bioreactor

run failure was unknown at the time. Accordingly, Genzyme launched
an investigation into the matter.

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another bioreactor failure event occurred, this time at the Allston
plant.

A second bioreactor failure event occurred at the Allston

plant sometime in late May of 2009, the third such event for
Genzyme.

Shortly

thereafter,

Genzyme

publicly

disclosed

the

bioreactor failures, the cause of which it had only recently
discovered upon conclusion of a months-long investigation, and
informed investors that the culprit was the rare Vesivirus 2117.
Plaintiffs claim that defendants concealed the viral
contamination
purportedly,
Lumizyme BLA.

events
that

with

these

deceitful

issues

would

intent,
hamper

as

they

approval

knew,
of

the

For a number of reasons, this theory fails as well.

As an initial matter, the bioreactor run failures at the
Geel plant bore no relation to FDA approval of the Lumizyme BLA for
production at the Allston plant.

Information regarding that event

is, therefore, immaterial to Lumizyme's BLA approval at Allston.
Hill, 638 F.3d at 57 ("[I]nformation is material only if its
disclosure would alter the total mix of facts available to the
investor and if there is a substantial likelihood that a reasonable
shareholder

would

consider

decision.")

(internal

it

important

quotations

and

to

the

citations

investment
omitted).

Furthermore, the EMEA issued a press release in January of 2009
noting that the manufacturing difficulties at Geel were being
investigated by the company.

Thus, the problems at Geel were not

quite a mystery.

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As to the specific circumstances regarding any of the
three bioreactor run failures at either plant, and as with the
October 2008 Form 483, defendants had no affirmative duty to
disclose them.

In re Bos. Scientific, 686 F.3d at 27.

This is

particularly so considering that -- even reading the complaint in
the light most favorable to the plaintiffs -- the cause of these
events was unknown to defendants, and would remain a mystery for
several months while an investigation was underway.

Furthermore,

at no point before Genzyme disclosed the results of its internal
investigation did the FDA give any indication that the bioreactor
run failures would hinder approval of the Lumizyme BLA.
Also, throughout the period while the investigation was
underway, Genzyme kept the market informed by way of several press
releases that supply of Myozyme would remain constrained until EMEA
gave approval of Lumizyme production at the Geel facility.
the

EMEA

approved

Geel

for

production

of

Lumizyme,

When

Genzyme

nonetheless continued to inform the market of their diminishing
supply of all of their LSD therapeutics, as production slowed
because of the bioreactor failures.

Genzyme's constant reports to

that effect continued until it informed investors of the second
bioreactor run failure at Allston, shortly after conclusion of
their

investigation,

when

the

ascertained.

-27-

cause

of

these

events

was

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Throughout this period, Genzyme also timely and promptly
disclosed the revised PDUFA date handed down by the FDA in November
of 2008, the February Warning Letter and the first Complete
Response Letter. Plaintiffs provide no support for the proposition
that

defendants

failures.

knew

all

along

the

cause

of

the

bioreactor

They ultimately rest support for an inference of

scienter on failure to disclose circumstances at Genzyme facilities
that were, at best, only partially known to defendants.

However,

Genzyme's efforts to keep the market informed of tightening product
supplies, and of relevant and important exchanges it held with the
FDA, coupled with the fact that the results of the investigation
were relatively promptly disclosed, run counter to any inference of
scienter.

In re First Marblehead, 639 F. Supp. 2d at 163 (D. Mass.

2009).
Moreover, and again, as a general matter, a corporation
cannot

be

expected

to

inform

the

market

of

any

developments that might possibly affect stock value.

and

all

In re Boston

Scientific, 686 F.3d at 27 ("[C]ompanies do not have to disclose
immediately all information that might conceivably affect stock
prices . . . .").

This general principle is particularly relevant

here, where the defendants did not immediately know the cause of
the first two bioreactor run failures at Geel and Allston.
Bioreactor failures can indeed come about for different reasons.
Accordingly, on these facts, it was proper for Genzyme to open an

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inquiry into the matter, and to wait for a complete picture to
become apparent before making any formal announcements.

See N.J.

Carpenters Pen. & Ann. Funds v. Biogen IDEC Inc., 537 F.3d 35, 45
(1st Cir. 2008); see also Higginbotham v. Baxter Int'l. Inc., 495
F.3d 753, 761 (7th Cir. 2007) ("Managers cannot tell lies but are
entitled to investigate for a reasonable time, until they have a
full story to reveal.").

Under these circumstances, where Genzyme

kept the market apprised of supply shortages, we are not compelled
to infer that defendants acted with fraudulent intent by taking the
time to investigate, and discover, what was essentially unknown to
them.
3. Assurances of Lumizyme approval and projections
Plaintiffs' also assert, though more generally, that
defendants deceived the market by repeatedly assuring investors and
analysts alike that the BLA for Lumizyme would be approved in a
timely fashion.

To the extent that defendants' statements were

positive yet generally qualified, were accompanied by disclosures
of relevant exchanges with the FDA, and generally tracked the PDUFA
dates set by the FDA, we find these general statements were not
misleading.
The FDA initially set a PDUFA date for the Lumizyme BLA
of November 29, 2008. During the October 22, 2008 conference call,
defendants touted Lumizyme's recent advances with the FDA at the
clinical trial stage.

McDonough in particular mentioned they

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expected the FDA to take action by the PDUFA date, and that the
likelihood of approval "seemed" to be "taking a more solid shape."
Termeer remarked that they were "working very hard with the FDA to
get

everything

done"

by

the

PDUFA

date.

These

are

hardly

categorical statements, and were well within the expectations set
by the PDUFA date.

Furthermore, lest we forget, the October 2008

Form 483 made no mention of any risk to Lumizyme approval, and,
again, the therapy's clinical effectiveness had been recently
backed by an FDA advisory committee.
Late in November of 2008, the FDA informed Genzyme that
the Lumizyme BLA would require more time for review, as certain
aspects of the current application were significantly different
from the earlier supplemental one. The FDA issued a new PDUFA date
of February 28, 2009, and until that time, Genzyme's public
communications conveyed the general message that Lumizyme was on
track for approval at that date.

Considering the February 2009

PDUFA date was early in the year, Genzyme maintained that it did
not expect this delay to affect revenue projections for 2009.
Upon receipt of the February Warning Letter and the first
Complete Response Letter, Genzyme relayed to investors that, by way
of these communications, the FDA had cautioned that Lumizyme
approval would not occur until the problems identified by the FDA
were resolved.

Though defendants employed rather rosy language to

express optimism that Genzyme would eventually be able to appease

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the FDA, their statements as to when the Lumizyme approval would
come about were far from categorical, and they were clear that
approval would be months away.
From that point forward, throughout most of 2009, all of
Genzyme's

communications

generally

optimistic,

categorical.

regarding

yet

forward

the

approval

looking

and

process

were

certainly

not

Genzyme projected the company's belief that the

problems related to the Lumizyme BLA were being addressed, and the
expectation that Lumizyme approval would come about at some point
later in 2009.
supplemented,

by

Genzyme's communications were accompanied, and
full

and

prompt

disclosure

of

all

relevant

communications from the FDA, and periodic submissions to the SEC,
as well as revised earnings projections.
On June 16, 2009, Genzyme announced the second bioreactor
run failure at Allston, and as a result of its investigation,
explained the cause for that failure and the earlier October 2008
event. Investors were made aware that the Allston plant would halt
production while the plant was sanitized in order to purge the
viral contamination.

Genzyme also announced that performance

projections, as well as product supplies, would obviously be
negatively affected.
On July 27, 2009, the FDA informed Genzyme it would
reinspect the Allston plant.

Genzyme disclosed the upcoming

investigation in a July 31, 2009 press release.

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On November 13, 2009, the last day of the class period,
the FDA issued Genzyme another Form 483 ("November 2009 Form 483"),
and a second Complete Response Letter, this time withholding
approval of Lumizyme.

Genzyme announced receipt of both documents

only several days later, and hosted a conference call announcing
that, due to another viral outbreak, it would have to shut down
Allston once again.

Genzyme again made clear that these events

would negatively impact earnings.
The

bulk

of

the

statements

plaintiffs

claim

were

misleading, were mere forward-looking projections that are not
actionable Section 10(b) transgressions.

See

In re Stone &

Webster, 414 F.3d at 195; Greeble v. FTP Software, Inc., 194 F.3d
185, 201 (1st Cir. 1999) ("The safe harbor . . . . shelters
forward-looking statements that are accompanied by meaningful
cautionary statements . . . . [and] precludes liability for a
forward-looking statement unless the maker of the statement had
actual knowledge it was false or misleading.").

Defendants'

statements, though optimistic, expressed belief and not certainty,
and were accompanied by either cautionary language or further
qualifying information.

In re Stone & Webster, 414 F.3d at 195

(holding that forward-looking statements are not fraudulent even if
later

found

to

be

inaccurate,

when

they

are

accompanied

by

meaningful cautionary statements identifying information that may
cause results to differ materially from statements).

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In sum, as the district court noted, plaintiffs' account
is plausible.

However, their allegations do not muster sufficient

strength to meet the formidable pleading standard set by Congress
for securities fraud claims under Section 10(b).

The element of

materiality is wanting as to some allegations, as is the element of
falsity as to others.

But more importantly, the complaint as a

whole, as well as the allegations individually, fail to compel a
strong inference of scienter on the part of defendants.5
B. The order denying post-judgment leave to amend
Plaintiffs' challenge to the district court's denial

of

their motion to amend the complaint is, in a way, two-fold.
Plaintiffs first contend that the court erred in dismissing the
complaint

with

prejudice,

particularly

considering

district court recognized their claims were plausible.

that

the

Plaintiffs

also challenge the district court's order denying their post
judgment efforts to amend the complaint.
A Rule 15(a) motion to amend pleadings is ordinarily
granted freely.

See Fed. R. Civ. P. 15(a)(2).

However, once

judgment has been entered, the district court is without power to
entertain any amendments unless the judgment is set aside.
v. Kadant, 589 F.3d 505, 508-09 (1st Cir. 2009).

Fisher

A motion to alter

or amend a judgment may be granted under Rule 59 only if the movant

5

As plaintiffs' claims under Section 20(a) are contingent on
those under Section 10(b), we need go no further.
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demonstrates that an intervening change in controlling law, a clear
legal error, or newly discovered evidence warrants modification of
the judgment.
Cir. 2012).

Soto-Padró v. Pub. Bldgs. Auth., 675 F.3d 1, 9 (1st
We review a district court's denial of a motion to

alter judgment for abuse of discretion.

Markel Am. Ins. Co. v.

Díaz-Santiago, 674 F.3d 21, 32 (1st Cir. 2012); ACA Fin. Guar.
Corp., 512 F.3d at 55 ("Review of the denial of [a] Rule 59(e)
motion is for 'manifest abuse of discretion.'") (quoting Council of
Ins. Agents & Brokers v. Juarbe-Jiménez, 443 F.3d 103, 111 (1st
Cir. 2006)).
We construe plaintiffs' two-pronged attack as a single
challenge -- that the district court should have either altered the
judgment so as to enter a dismissal without prejudice, or should
have granted relief from judgment and allowed the submission of an
amended complaint.

Though we are somewhat concerned with the

district court's order on this front, we ultimately find that it
did not abuse its discretion in denying plaintiffs Rule 59 relief.
Plaintiffs

sought

post-judgment

leave

to

amend

the

complaint before the district court, arguing that after filing the
complaint they had continued conducting interviews with Genzyme
employees who provided information that further strengthened their
case.

They contend that these witnesses yielded valuable new

information to support new allegations that would bolster the
inference that defendants acted with fraudulent intent throughout

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the class period, and that they should be allowed to amend the
complaint to include these new allegations.
However, plaintiffs admit that most of this purportedly
new evidence was available to them well before the order of
dismissal. Indeed, many of the interviews were conducted after the
filing of the complaint, and continued after briefings on the
motion to dismiss had subsided.

But most had concluded before the

district court dismissed the complaint on March 30, 2012, two years
after the complaint had been filed. Accordingly, we agree with the
district court that this was not newly discovered, or previously
unavailable evidence, which is the only kind that would warrant
relief from judgment under Rule 59.

United States ex rel. Ge v.

Takeda Pharm. Co., 737 F.3d 116, 127 (1st Cir. 2013);

Marie v.

Allied Home Mortg. Corp., 402 F.3d 1, 7 n.2 (1st Cir. 2005).

We

thus find the district court did not abuse its discretion in
denying plaintiffs' Rule 59 motion.
We pause to note our discomfort with the district court's
choice to dismiss the complaint with prejudice. The district court
granted relief in the form petitioned for by defendants, and it is
certainly within the bounds of the district court's discretion to
dismiss with prejudice.

However, as we have done in the past, we

again make clear that the PSLRA has not modified the liberal
amendment policy of Rule 15(a).
56.

ACA Fin. Guar. Corp., 512 F.3d at

More to the point, we emphatically reiterate that the PSLRA

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does not require that orders of dismissal be with prejudice.

Id.

(quoting Belizan v. Hershon, 434 F.3d 579, 583-84 (D.C. Cir. 2006)
("[H]ad the Congress wished to make dismissal with prejudice the
norm, and to that extent supercede the ordinary application of Rule
15(a), we would expect the text of the PSLRA so to provide.")).
This is particularly so in light of the fact that the PSLRA is a
tool designed to curb vexatious litigation, not a mechanism for
denying bona fide claimants their day in court.
at 320.

Tellabs, 551 U.S.

The latter right is one that Congress specifically sought

to preserve.

Hill, 638 F.3d at 54.

Courts must be mindful of the

will of Congress, and not merely in part.

And our duty to

guarantee access to the courts, is equally paramount.
III. Conclusion
We

find

the

complaint

fails

to

marshal

sufficient

allegations to meet the required pleading standard for securities
fraud claims. We find it is particularly wanting on the element of
scienter.
We also find the district court did not abuse it's
discretion in denying plaintiffs relief from judgment. Accordingly,
we affirm the judgment of the district court.
AFFIRMED.

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