City of Lakeland Employees Pension Plan v. Incyte Corporation et al

Filing 42

MEMORANDUM. Signed by Judge Juan R. Sanchez on 2/21/2014. (bkb)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
IN RE INCYTE SHAREHOLDER
LITIGATION

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:
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CIVIL ACTION
No. 13-365

MEMORANDUM
Juan R. Sánchez, J.

February 21, 2014

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.
FACTS
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-

2

counter medication in the early phases, rather than the disease itself. Compl. ¶¶ 33-34. 1 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

1

References and citations to the “Complaint” are to the Amended Consolidated Class Action
Complaint filed on August 12, 2013.
3

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. 2 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
2

Defendants made additional optimistic statements regarding the launch in the following
months. See Compl. ¶ 59 (May 15, 2012, statement by Friedman noting “[w]e are encouraged by
these first-quarter [Jakafi] sales, as well as the feedback from the field force.”); id. ¶ 62 (similar
statements by Levy on June 7, 2012); id. ¶ 64 (similar statements by Levy on June 12, 2012).
4

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. No, there hasn’t been.” Id. ¶ 50. 3
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
3

Plaintiff also alleges the Company’s Form 10-Q, filed on April 26, 2012, contained material
omissions because it did not disclose the true nature of the commercialization and patient usage
results, trends, and prospects of Jakafi as alleged in the Complaint.
5

[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. 4 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

4

Andrews again acknowledged the possibility of a deviation from the results of the clinical
studies, however, warning “there’s the wild card of what is it like in practice versus in a clinical
study. Usually it’s slightly worse compliance or sometimes much worse compliance, and so that
is still to play out.” Defs.’ Mot. to Dismiss Ex. 11, at 4.
6

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 full-year 2012 Jakafi sales. Compl. ¶ 70; accord ¶ 53, Defs.’ Mot.
to Dismiss Ex. 6, at 1 (August 2, 2012, press release stating “[w]e continue to believe that
growth will be steady as physicians gradually expand use to those appropriate patients who are
less severely ill.”).
While characterized by Plaintiff as revelations, in fact, many of these allegedly new
truths were previously disclosed. For instance, with regard to certain patients being ineligible for
the clinical trials, Friedman explained during the May 15, 2012, conference that many patients
who had received Jakafi to that point had more severe symptoms and some of these patients were
in such a late stage of the disease that they would have been precluded from participating in the
clinical trial. He again acknowledged “[i]t will take time to expand the use of Jakafi in patients
with less advanced disease.” Defs.’ Mot. to Dismiss Ex. 10, at 3; see also Compl. ¶ 62 (June 7,
2012, statement by Levy regarding Defendants’ expectations that many initial patients were too
sick to have participated in the trials), Defs.’ Mot. to Dismiss Ex. 14, at 3-4 (July 12, 2012,

7

statements by Levy noting that patients with a baseline platelet count below 100,000 were not
included in the original clinical trials).
Regarding the factors influencing Incyte’s financial guidance as to full-year sales,
Andrews stated on the April 26, 2012, earnings call that “[m]any of these physicians typically
want more information, more education, and more time prior to prescribing a new product like
Jakafi. . . . which is why we believe that, going forward, our growth rates for new prescribers and
new patients may be more gradual than what we saw in the first quarter.” Defs.’ Mot. to Dismiss
Ex. 8, at 4. At a health conference on June 6th, Andrews explained because earlier patients were
more severely ill and the physicians were following the progress of the drug, she “view[ed] the
remaining quarters of 2012 as having growth . . . of significance in a nice gradual pace. Probably
not at the level of growth that we experienced in the first quarter because there was that frontloaded in acceleration” Defs.’ Mot. to Dismiss Ex. 11, at 3.
As a result of Defendants’ announcements on August 2, 2012, (and reports issued by
analysts who considered heightened discontinuation rates to be a “key concern”), Incyte’s stock
dropped 27% in two days. See Compl. ¶¶ 71-72. After the Class Period, at another healthcare
conference on November 15, 2012, Friedman stated the Company hoped to achieve a one-year
discontinuation rate of 20% to 30% for relatively healthier patients with platelet counts above
100,000. The Company also acknowledged that following the launch, it did not have dosing
information for how to manage the severely ill patients, i.e., those with platelet counts below
100,000. 5 Andrews left the Company in August 2012, and in October 2012, Jim Daly replaced

5

Plaintiff alleges that one of the reasons Defendants’ statements regarding discontinuation rates
were false and misleading was because the lack of dosing information for patients with platelet
counts below 100,000 on Jakafi’s label during the launch contributed to higher discontinuation
rates due to side effects associated with doctors prescribing Jakafi to those patients in
inappropriately high dosages. See Compl. ¶ 58(c).
8

her as Incyte’s Chief Commercial Officer. On August 1, 2013, approximately one year after the
Class Period, Daly admitted that the discontinuation rates from the clinical trials were
“unrealistic,” stating those percentages were “probably an unrealistic hurdle, but having a 20% to
30% discontinuation rate at the end of 12 months we think that’s achievable.” Id. ¶ 80.
With respect to what Defendants knew regarding real-world discontinuation rates during
the Class Period, and whether any documentation of those rates existed at the time, Plaintiff
alleges that by virtue of their high ranking officer positions at Incyte, Defendants would have
known the truth about Jakafi’s higher discontinuation rates because they were privy to
confidential proprietary information.

Commercializing Jakafi was Incyte’s core operation

because Jakafi was its only commercial product, hence, Plaintiff infers Defendants would have
carefully tracked and therefore would have had knowledge of Jakafi’s patient useage,
discontinuation rates, and patient deaths. Former employees (identified as confidential sources
in the Complaint) noted the Company produced reports related to patient deaths on a monthly
basis and tracked these deaths “pretty intently” as of December 2011/January 2012. Id. ¶ 39.
The Company also allegedly tracked discontinuation rates and sales volume, prepared
“discontinuation reports,” and maintained data on intermediate-level risk patients and more
severe patients. Id. ¶ 92.
On March 3, 2013, Plaintiff initiated this action by filing a complaint against Defendants.
By Order of June 26, 2013, the Court consolidated this action with another pending action and
appointed City of Lakeland Employees’ Pension Plan as lead plaintiff for the class. Plaintiff then
filed the Amended Consolidated Class Action Complaint on August 12, 2013. On September 26,
2013, Defendants filed the instant motion to dismiss, which Plaintiff opposes. Oral argument on
the motion was held on December 19, 2013.

9

DISCUSSION
In deciding a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), this
Court must “determine whether the facts alleged in the complaint are sufficient to show that the
plaintiff has a plausible claim for relief.” Fowler v. UPMC Shadyside, 578 F.3d 203, 211 (3d
Cir. 2009). Courts must accept all of the plaintiff’s factual allegations as true and construe the
complaint in the light most favorable to the plaintiff. Phillips v. Cnty. of Allegheny, 515 F.3d
224, 233 (3d Cir. 2008). To withstand dismissal, a complaint must contain “sufficient factual
matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v.
Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556
(2007)). 6
Section 10(b) of the Securities Exchange Act makes it unlawful to “employ, in
connection with the purchase or sale of any security . . . any manipulative or deceptive device or
contrivance in contravention” of any rule promulgated by the SEC designed to protect the
investing public. 15 U.S.C. § 78j(b). Section 10(b) is enforced through SEC Rule 10b-5, which
makes it unlawful: (1) “to employ any device, scheme, or artifice to defraud,” (2) “to make any

6

When evaluating a motion to dismiss a securities fraud action, “courts must consider the
complaint in its entirety, as well as other sources courts ordinarily examine when ruling on Rule
12(b)(6) motions to dismiss, in particular, documents incorporated into the complaint by
reference, and matters of which a court may take judicial notice.” Tellabs, Inc. v. Makor Issues
& Rights, Ltd., 551 U.S. 308, 322 (2007). In connection with their motion to dismiss,
Defendants submitted a request for judicial notice of certain documents upon which Plaintiff
bases its claims. These documents include various Incyte SEC filings, press releases, and
transcripts of the conference calls during which the allegedly false statements were made.
Plaintiff does not oppose Defendants’ request for judicial notice, and because Plaintiff’s
Complaint refers to and quotes extensively from many of these documents, this Court finds it is
appropriate to consider their contents in evaluating the instant motion to dismiss. See Pension
Benefit Guar. Corp. v. White Consolidated Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993)
(holding courts may consider “undisputedly authentic documents that a defendant attaches as an
exhibit to a motion to dismiss if the plaintiff’s claims are based on the document”).
10

untrue statement of a material fact or to omit to state a material fact necessary in order to make
the statements made, in light of the circumstances under which they were made, not misleading,”
or (3) “to engage in any act, practice, or course of business which operates or would operate as a
fraud or deceit upon any person in connection with the purchase or sale of any security.” 17
C.F.R. § 240.10b-5. To state a claim for relief under Section 10(b) and Rule 10b-5, a plaintiff
must plead facts demonstrating “(1) the defendant made a materially false or misleading
statement or omitted a material fact necessary to make a statement not misleading; (2) the
defendant acted with scienter; and (3) the plaintiff’s reliance on the defendant’s misstatement
caused him or her injury.” Cal. Pub. Emps.’ Ret. Sys. v. Chubb Corp., 394 F.3d 126, 143 (3d Cir.
2004).
Because this is a securities fraud action, Federal Rule of Civil Procedure 9(b) and the
PSLRA provide additional considerations this Court must take into account when evaluating the
sufficiency of the Complaint. Under Rule 9(b) a party “alleging fraud or mistake . . . must state
with particularity the circumstances constituting fraud or mistake.” This heightened pleading
requirement “has been rigorously applied in securities fraud actions,” In re Burlington Coat
Factory Sec. Litig., 114 F.3d 1410, 1417 (3d Cir. 1997), and requires plaintiffs to “support their
allegations of securities fraud with all of the essential factual background that would accompany
‘the first paragraph of any newspaper story’—that is, the ‘who, what, when, where and how’ of
the events at issue.” In re Rockefeller Ctr. Props., Inc. Sec. Litig., 311 F.3d 198, 217 (3d Cir.
2002) (citation omitted); In re Advanta Corp. Sec. Litig., 180 F.3d 525, 534 (3d Cir. 1999). A
complaint which would normally survive a Rule 12(b)(6) motion may still fail on Rule 9(b)
grounds. In re Burlington, 114 F.3d at 1424.
In an effort to restrict abuses in securities class action litigation, Congress passed the

11

PSLRA, which added even more stringent requirements to the heightened pleading standard of
Rule 9(b). Where the plaintiff alleges the defendant made an untrue or misleading statement, the
PSLRA “imposes two exacting and distinct pleading requirements.” In re Aetna, Inc. Sec. Litig.,
617 F.3d 272, 277 (3d Cir. 2010). To state a claim under the PSLRA, a plaintiff must (1)
“specify each statement alleged to have been misleading [and] the reason or reasons why the
statement is misleading,” 15 U.S.C. § 78u-4(b)(1)(B), and (2) “state with particularity facts
giving rise to a strong inference that the defendant acted with the requisite state of mind” id. §
78u-4(b)(2). A complaint alleging securities fraud under Section 10(b) and Rule 10b-5 must
satisfy the heightened pleading requirements of both Rule 9(b) and the PSLRA. Chubb, 394
F.3d at 143-44.
Defendants primarily argue Plaintiff failed to establish the first element necessary to state
a claim for a Section 10(b) violation—that Defendants made any materially false or misleading
statements or omitted any material fact necessary to make a statement not misleading. While
Plaintiff does identify with particularity the statements it believes are false and misleading, 7 to
state a claim under the PSLRA, Plaintiff must also state with particularity “the reason or reasons
why the statement is misleading.” 15 U.S.C. § 78u-4(b)(1); see also Institutional Investors Grp.
v. Avaya, 564 F.3d 242, 259 (“The first requirement under the PSLRA obliges a plaintiff to
specify each allegedly misleading statement, the reason or reasons why the statement is
misleading, and, if an allegation is made on information and belief, all facts supporting that
belief with particularity.”). It is here that Plaintiff’s allegations fall short.

7

As discussed below, there is one exception to this finding. It is currently not clear whether
Plaintiff contends Defendants’ predictions regarding growth in Jakafi sales and a future increase
in prescriptions given to patients in the earlier stages of the disease are actionable. See, e.g.,
Compl. ¶¶ 46, 53, 59-62, 64 (stating Defendants’ expectations in that regard).
12

In evaluating the sufficiency of Plaintiff’s allegations as to how and why Defendants’
statements are misleading, the Court must examine the various reasons provided by Plaintiff and
the “true facts” alleged, which “are of paramount importance in this inquiry because they provide
the exclusive basis for [Plaintiff’s] claims that the various statements made throughout the Class
Period were materially false and misleading.” Chubb, 394 F.3d at 145. The gravamen of
Plaintiff’s action is that Defendants misled the market by representing that Jakafi’s actual
discontinuation rates during the Class Period were equal to the rates observed during the clinical
trial. To satisfactorily allege that Defendants’ statements were misleading under this theory,
Plaintiff must plead particularized facts showing (1) Defendants actually represented that
Jakafi’s discontinuation rates in practice during the Class Period were consistent with
discontinuation rates recorded during the clinical trials, and (2) concrete data existed during the
Class Period indicating discontinuation rates in practice were in fact significantly higher than the
clinical trial rates. Plaintiff cannot make either showing. 8
First, Plaintiff has not pointed to any statements made by Defendants indicating the actual
discontinuation rates for Jakafi during the Class Period were the same or consistent with the rates
recorded during the clinical trials. While Defendants made certain statements suggesting the
clinical trials could serve as a reference point to evaluate future discontinuation rates, any
remarks to that effect came with significant caveats. Defendants never claimed to have any real
world data about discontinuation rates in any of the statements on which Plaintiff relies. Indeed,

8

To state a claim for a Section 10(b) violation Plaintiff would also have to establish scienter,
which requires alleging particular facts “giving rise to a strong inference that the defendant acted
with the required state of mind.” 15 U.S.C. § 78u-4(b)(2); see also Tellabs, 551 U.S. at 322-23.
Establishing scienter under Plaintiff’s theory of liability would require an additional showing that
not only did data exist showing a significant divergence between the in-practice and clinical trial
discontinuation rates, but also that Defendants knew about and had access to this data during the
Class Period. For the reasons discussed below, the Court need not reach this inquiry.
13

a fair reading of the actual statements at issue shows the Defendants uniformly communicated to
investors that it was too early to tell whether the discontinuation rates in practice would be
consistent with the rates observed in the clinical trials.

Defendants repeated this refrain

throughout the Class Period. See Compl. ¶ 60 (May 15, 2012, statement by Andrews noting it
was simply “too early to talk about discontinuations or adherence to therapy,” but referring
audience members to the 14% and 18% figures associated with the clinical trials); id. ¶ 61 (June
6, 2012, statement by Andrews that “[i]t’s way too early to have a sense of discontinuation
rate[s] or compliance in the real world, but we do look to our clinical trial data to inform what we
believe is likely to happen”); cf. id. ¶ 52 (April 26, 2012, statement by Andrews noting it was too
early in the launch to have much insight into dose reduction).
Plaintiff characterizes certain statements as misleadingly equating discontinuation rates
recorded in practice with the clinical trial rates, but a close look at the statements permits no such
inference. During the April 26, 2012, conference call, Andrews was asked about early patient
dropouts and the general tolerability of the drug. She responded, “there’s really been nothing
that we hadn’t anticipated. . . . 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. Andrews’s reference to the clinical
trials in this statement concerned the general tolerability of the drug among those who
participated in the clinical trials. Potentially heightened discontinuation rates in the real world
were, according to Plaintiff, largely a byproduct of the fact that physicians prescribed Jakafi
mostly to patients in the advanced stages of the disease, including patients ineligible for the
clinical trials—making the heightened rates attributable to patient deaths, not the general

14

tolerability of the drug. 9 A statement during the Class Period suggesting Jakafi’s tolerability was
consistent with the findings in the clinical trials cannot be considered false or misleading absent
allegations Jakafi was not generally well tolerated in practice. No such allegations exist.
Plaintiff also argues that during the same conference call, Andrews falsely stated “the
patients that go on the drug, the severely ill ones, stay on for a very long time.” Oral Arg. Tr. 50,
Dec. 19, 2013, (emphasis added). The record does not support this characterization of her
statement. During the call, Andrews was asked if she could talk about an estimate for duration
of therapy for patients on Jakafi. She responded as follows:
So MF is a chronic disease, and Jakafi is a chronic medicine, so we would expect,
just as we saw in the clinical trials, that many patients who go on [the] drug do, in
fact, stay on it for many years. However, there will always be some patients who
stay on it less and some who stay on it very long periods of time.
Defs.’ Mot. to Dismiss Ex. 8, at 16. This statement cannot reasonably be understood to suggest
that severely ill patients stay on Jakafi for long periods of time. Indeed, Andrews specifically
acknowledged that some patients stay on Jakafi for many years, but others do not. 10 Instead, her
comment illustrates the unremarkable and truthful observation that Jakafi is a chronic medicine
used to treat a chronic illness.
In a separate exchange on the conference call, Andrews was asked whether there was
9

Even if Andrews’s comments in this regard did refer to discontinuation rates associated with
the severely ill and patient deaths, the comments included a warning that discussion of inpractice rates would be premature. She stated “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.” Compl. ¶ 49.
10

Levy reinforced this qualification during the call. The questioner followed up on Andrews’s
remarks, asking if there was anything in the clinical trial data that suggested any duration of use.
Levy answered by pointing out the results of the Phase II study showed “at that point, the median
duration of treatment was about three years,” but added, “as Pat said, clinical trials and real
world can be somewhat different, and we just can’t assess whether the real world is going to be
matching that number yet. That’s something we’ll look at over the next couple of years.” Defs.’
Mot. to Dismiss Ex. 8, at 16.
15

anything anecdotal regarding patients dropping off the drug earlier than expected and she
responded in the negative. Compl. ¶ 50. The analyst’s question, however, did not seek a
comparison with the clinical trials, but instead asked about Defendants’ expectations, which were
tempered by the acknowledged reality that doctors were, during the Class Period and the months
following the launch, prescribing Jakafi disproportionately to the severely ill. See id. ¶¶ 62, 63
(stating Defendants’ expectations regarding severely ill patients on Jakafi). 11 That doctors were
prescribing Jakafi primarily to the severely ill during its launch was disclosed from the very
beginning of the Class Period, in the press release associated with Incyte’s first-quarter earnings
announcement.
Operating from the unsupported premise that Defendants did in fact equate verifiable
Class Period discontinuation rates with those from the clinical trials, Plaintiff next attempts to
establish fraud by undermining the relevance of the clinical trial discontinuation rates to inpractice discontinuation rates.

The Complaint does not specify any actual in-practice

discontinuation rates, but according to Plaintiff, the reasons the clinical trials did not serve as an
adequate reference point were threefold:
1. At Jakafi’s launch, the core patient group for this drug was severely ill
patients due to the slow-developing nature of myelofibrosis, which led
physicians to employ a wait-and-see approach to its treatment, only using a
drug like Jakafi when patients approached advanced intermediate stages.
2. The Company’s touted clinical studies had little to no application to severely
11

There is case law suggesting an anecdotal increase in patient dropouts during the Class Period
need not be disclosed, particularly if any such increase was in line with Defendants’
expectations. See In re Viropharma, Inc. Sec. Litig., No. 02-1627, 2003 WL 1824914, at *6
(E.D. Pa. Apr. 7, 2003) (“Drug interaction data that is not statistically significant need not be
disclosed in order to prevent prior statements about a drug’s safety from becoming materially
misleading.” citing Oran v. Stafford, 226 F.3d 275, 284 (3d Cir. 2000))). This point is
significant when considering Plaintiff’s failure to allege with particularity the existence of any
concrete or statistically significant data generated by the Company that was in conflict with
Defendants’ statements.
16

ill patients who had not participated in those studies and thus were an
“unrealistic” benchmark for patient usage and discontinuation rates among
that patient population.
3. The dosage information that the Company had originally suggested was too
high for the Company’s severely ill patient population with lower platelet
counts, causing increased discontinuation rates (lack of persistency) among
this core patient group.
Compl. ¶¶ 58, 66. 12 Yet far from being reasons why Defendants’ statements were misleading,
these factors prompted Defendants to characterize their conclusions as tentative. Not only did
Defendants qualify their statements by noting it was too early to draw any conclusions regarding
discontinuation rates, they also described in detail the reasons why it could be possible that the
in-practice rates might not be consistent with the clinical trial rates.
With regard to Plaintiff’s first reason, both the Complaint’s allegations and the
documents incorporated by reference show Defendants repeatedly acknowledged the fact that
severely ill patients were a significant subset of those being prescribed Jakafi during the Class
Period. This information was not omitted or misrepresented. For instance, in the April 26, 2012,
press release, Friedman acknowledged physicians at the time were prescribing Jakafi “primarily
for their more severely ill patients.” Id. ¶ 46; see also Defs.’ Mot. to Dismiss Ex. 5, at 1. In the
earnings call the same day, Andrews stated the “usage [of Jakafi] is definitely at the moment in
12

Paragraph 58 of the Complaint lists the reasons why the April 26, 2012, statements were
allegedly materially false and misleading; paragraph 66 refers to the reasons why the statements
made at the health conferences were allegedly materially false and misleading. These reasons
are substantively identical. Paragraph 58 contains two additional allegations regarding Incyte’s
SEC filings. The first is that the Company’s first-quarter 2012 Form 10-Q was materially false
and misleading because it failed to disclose materially adverse conditions to the market. The
second is that the Sarbanes-Oxley Act certification executed by Friedman included a misleading
representation that the Form 10-Q did not contain any untrue statements or material omissions
when in reality, Defendants “knew but failed to disclose that the Company’s true drop-out rates
were significantly higher than clinical studies and that the studies were not reflective of actual
performance.” Compl. ¶ 58(g). These proffered reasons simply incorporate the other substantive
allegations in the Complaint as the underlying basis for another misrepresentation or omission
and therefore need not be considered independently.
17

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 even explained why doctors initially took a wait and see approach
and prescribed Jakafi primarily to those at late stages of the disease, stating “[r]emember that [a]
physician has the first belief of do no harm, they want to make sure that this is going to be the
right drug for the right patient population hence we always expected that initial uptake would be
in the more severely ill patient[s].” Defs.’ Mot. to Dismiss Ex. 10, at 4.
It is not clear from the face of the Complaint whether Plaintiff challenges Defendants’
expressed expectations that doctors would, in the future, increasingly prescribe Jakafi to less
severely ill patients as the doctors became more comfortable with the drug. See, e.g., Compl. ¶¶
46, 53, 59-62, 64 (stating Defendants’ expectations in that regard). Assuming Plaintiff does
contend these predictions were false or misleading, the Complaint is devoid of allegations
showing how or why Defendants did not have a reasonable basis to believe that over time,
discontinuation rates would decline as healthier patients were prescribed the drug in increasing
numbers. 13 Moreover, Defendants correctly predicted that Jakafi’s sales would gradually grow
over time, and these predications were often pegged to an expectation that there would
eventually be an increase in healthier patients taking Jakafi. Compare Defs.’ Mot. to Dismiss
Exs. 5, 6, 91-95 (showing gradual growth in sales) with Compl. ¶¶ 46, 53, 59-62, 64, 70, and

13

The Complaint’s one allegation on this point is a statement from a former employee that
“Incyte did not have a sound basis to project substantial sales from any patients who had lessthan-severe symptoms.” Compl. ¶ 33. This allegation is wholly conclusory and insufficiently
pleaded. It is nonspecific in time and there are no accompanying facts showing how this former
employee was in a position to know whether this assertion was true either during or after Jakafi’s
launch. See Chubb, 394 F.3d at 148 (describing requirements for allegations attributed to
confidential sources). Additional pleading deficiencies with respect to Plaintiff’s confidential
sources are discussed below.
18

Defs.’ Mot. to Dismiss Ex. 6, at 1 (August 2, 2012, press release stating “[w]e continue to
believe that growth will be steady as physicians gradually expand use to those appropriate
patients who are less severely ill.”).
Plaintiff’s second point regarding the exclusion of the severely ill from the original
clinical trials is another fact Defendants repeatedly disclosed throughout the Class Period. See
Defs.’ Mot. to Dismiss Ex. 10, at 3 (May 15, 2012, statement by Friedman explaining “most of
the patients receiving Jakafi thus far . . . have more severe symptoms and larger spleen, in fact a
subset of the patients . . . the severity of their disease would have precluded them from
participating in the Phase III trial”); id. at 8 (statement by Andrews explaining “the
discontinuations might be higher because the patients that were sicker or more severely ill . . .
would go on the drug and they might not have been able to actually be eligible for the clinical
trial and that would also be true with patients who had platelets less than 100,000”); Compl. ¶ 62
(June 7, 2012, statement by Friedman noting high proportion of patients “too sick to get into the
trial”).
Plaintiff’s third reason Defendants’ statements were misleading involves allegations that
the dosage information originally provided on Jakafi’s label was too high for the severely ill
patients, causing heightened discontinuation rates. The product label at the time of the launch
did not specifically suggest a starting dose for patients who began drug treatment with platelet
counts lower than 100,000, even though the drug was approved for these patients. See Defs.’
Mot. to Dismiss Ex. 2 (June 2012 label). 14 The label did recommend a specific starting dose for

14

Incyte’s April 26, 2012, press release did warn the public, however, that dose-related side
effects could occur and “[p]atients with platelet counts less than 200 X 109/L at the start of
therapy are more likely to develop thrombocytopenia during treatment.” Defs.’ Mot. to Dismiss
Ex. 5, at 5. The press release further advised “[t]hrombocytopenia was generally reversible and
was usually managed by reducing the dose or temporarily withholding Jakafi.” Id.
19

patients with platelet counts higher than 200,000, and a reduced starting dose for patients with
counts between 100,000 and 200,000.

Id.

Plaintiff alleges the lack of a starting dose

recommendation for patients with platelets below 100,000 heightened the in-practice dropout
rates because the severely ill patients “could not tolerate higher doses of the drug that were
originally prescribed.” Compl. ¶ 76. This theory is flawed, however, because the Complaint
contains no allegations allowing this Court to reasonably infer that any physicians did in fact
prescribe Jakafi at inappropriately high doses to patients with platelet counts lower than 100,000.
Plaintiff has also failed to establish any connection between Jakafi’s label at launch and
any potentially misleading statement made by Defendants. If it were not already clear from
reading Jakafi’s label, which provided specific dosage recommendations for patients with
platelet counts over 100,000, Levy stated on June 7, 2012, that Jakafi’s “current package insert
does not give a starting dose recommendation for patients with platelet count less than 100,000.”
Defs.’ Mot. to Dismiss Ex. 12, at 6. And as Plaintiff acknowledges in the Complaint, Jakafi’s
drug label was eventually updated to include suggested dosages for more severely ill patients
with lower platelet counts. See Compl. ¶ 5; see also Defs.’ Mot. to Dismiss Ex 2.2 (June 2013
label). The label update occurred after the Company conducted a further clinical trial involving
severely ill patients with platelets lower than 100,000. Compl. ¶ 76. As a result of this
additional trial, more information became available with regard to proper dosage for that subset
of patients. Id. These facts are wholly consistent with Andrews’s remarks during the Class
Period that it was “too early in the launch to have much insight into dose reduction.” Id. ¶ 52.
Although Defendants disclosed the underlying factors potentially influencing real-world
discontinuation rates, Plaintiff argues Defendants failed to explain the implications of those
factors. But Defendants did in fact connect the dots, acknowledging “discontinuations in the real

20

world might be higher than the clinical studies, attributable to the severely ill patient population,”
Compl. ¶ 60; see also id. ¶ 61 (alleging Andrews acknowledged “discontinuation rates might
‘temporarily’ increase as a result of the severely ill patient population”). Contrary to Plaintiff’s
suggestions, Defendants cautioned investors not to automatically assume the rates in the clinical
trials would be illustrative of the rates in practice, because, as Andrews stated on May 15, 2012,
“there’s the wild card of what is it like in practice versus in a clinical study. Usually it’s slightly
worse compliance or sometimes much worse compliance, and so that’s still to play out.” Defs.’
Mot. to Dismiss Ex. 10, at 4. Plaintiff also maintains that by highlighting Defendants’
disclosures of the underlying factors that could cause actual discontinuation rates to diverge,
Defendants are asserting a “truth on the market” defense, which is inappropriate on a motion to
dismiss. Plaintiff is mistaken. Because a truth on the market defense presupposes the existence
of misleading statements in the first place, there can only be a truth on the market defense if the
allegations are first sufficient to establish a fraud on the market. For the reasons discussed at
length in this Memorandum, Plaintiff has failed to make this showing. 15
Plaintiff has also failed to allege with the requisite specificity that any data existed during
the Class Period showing the Company was in fact experiencing heightened discontinuation rates
at that time. Defendants’ Class Period statements, which collectively communicated that it was
too early to tell whether discontinuation rates in practice would approach the rates seen in
15

Even if Defendants did need to resort to a truth on the market defense, such a defense can
succeed on a motion to dismiss if “the company’s SEC Filings or other documents disclose the
very information necessary to make their public statements not misleading.” Wallace v. Sys. &
Computer Tech. Corp., No. 95-6303, 1997 WL 602808, at *10 (E.D. Pa. Sept. 23, 1997) (citing
In re Stac Elec. Sec. Litig., 89 F.3d 1399, 1410 (9th Cir. 1996)). Here, the documents upon
which Plaintiff relied in its Complaint show repeated disclosures of the information that would
render Defendants’ statements not misleading. Thus, if a truth on the market defense were
asserted and applicable on this motion to dismiss, its success is not necessarily foreclosed by the
current procedural posture.
21

clinical trials, are only potentially misleading if—at the time the statements were made—there
existed concrete data conclusively showing that discontinuation rates in practice were in fact
much higher than the clinical trial rates. In this regard, Plaintiff contends Defendants’ statements
were false and misleading because the “Defendants knew through, or recklessly disregarded,
extensive market research, discontinuation reports, and constant monitoring that discontinuation
rates were higher than expected due to patient death and serious side effects.” Compl. ¶ 58(d).
This allegation, which concerns both the falsity of Defendants’ statements and Defendants’
knowledge of their falsity, prompts two separate inquiries.

The first is whether Plaintiff

sufficiently alleged that information inconsistent with Defendants’ statements existed during the
Class Period; the second is whether Plaintiff sufficiently alleged Defendants acted with scienter.
Because Plaintiff failed to satisfy the first inquiry, this Court need not reach the second. 16
Put simply, Plaintiff has not alleged with the requisite particularity that there was
16

Because the Court finds the Complaint must be dismissed on the basis that Plaintiff has failed
to sufficiently allege the existence of material misrepresentations or omissions, an analysis of
whether the Complaint adequately pleaded facts giving rise to a strong inference of scienter is
unnecessary. This Court notes, however, that many of the reasons why Plaintiff has failed to
sufficiently allege the existence of any false or misleading statements are equally applicable to
whether Defendants acted with scienter. Defendants’ statements during and after the Class
Period both indicate it was too early during the Class Period to provide information on
discontinuation rates experienced in the field. The consistency of their statements make it
difficult for the Court to infer Defendants were in possession of any concrete data regarding inpractice discontinuation rates during the Class Period, let alone concrete data showing that inpractice rates were significantly higher than the rates recorded during the clinical trials. The
mere facts that Defendants were involved in marketing research, Compl. ¶ 40, or were, as
leading executives, generally in a position to know of heightened discontinuation rates are not,
on their own, enough to establish scienter. See In re Advanta, 180 F.3d at 539 (“It is well
established that a pleading of scienter may not rest on a bare inference that a defendant must
have had knowledge of the facts.” (internal quotation marks omitted)). While this Court
recognizes Plaintiff relies on other allegations regarding stock sales during the Class Period,
taking the facts alleged as a whole, this Court cannot currently conclude on the basis of the
Complaint that it was just as likely that Defendants acted with scienter as the inference they did
not. See Tellabs, 551 U.S. at 323-24. Nor can this Court conclude that the existence of
significantly heightened discontinuation rates in practice was a fact “so obvious that the actor
must have been aware of it.” Avaya, 564 F.3d at 267 n.42.
22

anything to know regarding discontinuation rates during the Class Period that was inconsistent
with Defendants’ statements. In reaching this conclusion, the Court begins by considering
Plaintiff’s allegation that the Company generated contemporaneous “discontinuation reports”
showing the actual discontinuation rates were “significantly different” than those recorded in the
clinical trials. See Compl. ¶ 58(d), Pl.’s Opp’n at 9. Many of these allegations assert, in
conclusory fashion, that discontinuation reports existed, but none provide sufficient detail to
meet the pleadings standards imposed by Rule 9(b) and the PSLRA. Where, as here, allegations
are made on information and belief, “the complaint must not only state the allegations with
factual particularity, but must also describe the sources of information with particularity,
providing the who, what, when, where and how of the sources, as well as the who, what, when,
where and how of the information those sources convey.” Avaya, 564 F.3d at 253. More
specifically, where allegations are based on alleged internal reports, the Third Circuit has
instructed a plaintiff must, for example, “specify the internal reports, who prepared them and
when, how firm the numbers were or which company officers reviewed them.” Chubb, 394 F.3d
147 (quoting In re Scholastic Corp. Sec. Litig., 252 F.3d 63, 72 (2d Cir. 2001)).
Plaintiff has provided none of the particularized facts required by Chubb, nor have they
described the who, what, when, where, and how of the information associated with or contained
within the alleged discontinuation reports. Plaintiff does not state who authored the reports; who
specifically reviewed the reports (aside from the conclusory assertion they were made available
to Defendants); what data informed the reports or what these reports allegedly revealed regarding
the “true” nature of the discontinuation rates in practice, apart from alleging the reports showed
discontinuation rates were “higher” during the Class Period than the rates from the clinical trials.

23

See Compl. ¶ 7.17 Because Plaintiff has failed to provide particularized facts regarding the
generation of any reports and the information allegedly contained in them, the Court cannot infer
the reports exist and contain information inconsistent with Defendants’ statements. See Chubb,
394 F.3d at 145 (“[U]nless plaintiffs in securities fraud actions allege facts supporting their
contentions of fraud with the requisite particularity mandated by Rule 9(b) and [the PSLRA],
they may not benefit from inferences flowing from vague or unspecified allegations—inferences
that may arguably have been justified under a traditional Rule 12(b)(6) analysis.”) (quoting In re
Rockefeller, 311 F.3d at 224). In the absence of such an inference, Plaintiff cannot establish
Defendants made any false or misleading statements or omitted any material information, and the
Complaint must be dismissed.
In addition to alleging the existence of contemporaneous “discontinuation reports,”
Plaintiff also relies on certain confidential sources to establish that information existed during the
Class Period showing discontinuation rates in practice were in fact much higher than rates
associated with the trials. “Where, as here, plaintiffs lack documentary evidence such as internal
memoranda, reliance on confidential sources to supply the requisite particularity for their fraud
claims . . . assumes a heightened importance.” Avaya, 564 F.3d at 261 (citations and internal
quotation marks omitted). In general, a confidential source’s allegations must be described with
“sufficient particularity to support the probability that a person in the position occupied by the
source would possess the information alleged.” Chubb, 394 F.3d at 148 (quoting Novak v.
Kasaks, 216 F.3d 300, 313-14 (2d Cir. 2000)). Thus, when considering confidential sources’
17

When asked if reports actually exist showing that the dropout rates were higher in practice,
Plaintiff responded “[i]f they do, I don’t know it.” Oral Arg. Tr. 55. Plaintiff contends,
however, that it does not need to allege this information because Defendants’ statements after the
Class Period confirm that the reports existed and showed the rates were in fact higher. Plaintiff’s
allegations in this regard are addressed below.
24

statements, a court must examine the “detail provided by the confidential sources, the sources’
basis of knowledge, the reliability of the sources, the corroborative nature of other facts alleged,
including from other sources, the coherence and plausibility of the allegations, and similar
indicia.” Avaya, 564 F.3d at 261 (quoting Chubb, 394 F.3d at 147).
The Court need not consider at length the sufficiency of Plaintiff’s allegations based on
confidential sources, because Plaintiff conceded at oral argument that the sources “did not know
or were not in a position to know that the rates were higher in the actual group that was getting
the medicine versus the clinical trials.” Oral Arg. Tr. 44. 18 Because establishing a known and
verifiable discrepancy that existed during the Class Period between real-world and clinical trial
discontinuation rates is the only method by which this Court might plausibly infer Defendants’
statements were misleading, Plaintiff’s reliance on these confidential sources is unavailing.19
Plaintiff alleges one confidential source had knowledge of higher discontinuation rates based on
a conversation he or she had with Levy. See Compl. ¶ 39. Levy allegedly informed the source
“the reason for the unexpectedly high death rate was that more seriously ill patients were being
treated in practice than in clinical trials, and these more severe patients were prone to dying,
18

Plaintiff went on to note “by [and large] the four or five cooperating witnesses that are relied
on in this case are for background.” Id. This Court may consider statements made by counsel at
oral argument to clarify allegations made in the Complaint. See Maio v. Aetna, Inc., 221 F.3d
472, 485 n.12 (3d Cir. 2000).
19

Aside from the existence or non-existence of the so-called “discontinuation reports,” Plaintiff
also alleges the Company “began tracking actual patient deaths ‘pretty intently’ as of December
2011/January 2012.” Compl. ¶ 39. This allegation is also insufficient. It is not clear from the
Complaint how or if the confidential witness providing this information was in a position to
know it, and it is also not clear what was meant by “tracking,” what information that tracking
produced, and how this tracking sheds meaningful light on the discontinuation rates experienced
in the field. Cf. Chubb, 394 F.3d at 152 (finding allegations deficient where Complaint failed to
“identify the data, or source of data, used to arrive at its calculations” and where plaintiffs did
not “provide any particulars regarding the amount by which reserves were distorted, or how
much revenue was improperly recognized”).
25

given their advanced stages.” Id. 20 This information is entirely consistent, however, with what
Defendants already disclosed throughout the Class Period.

For these reasons, Plaintiff’s

allegations involving confidential sources are currently deficient both in substance and form. See
Avaya, 564 F.3d at 280 n.33.
Plaintiff also maintains Defendants’ post-Class Period statements demonstrate the falsity
of their earlier statements. Here, as in Chubb, however, “Defendants’ supposed ‘admissions’. . .
are, in fact, generally consistent with what Plaintiff[] deem[s] were Defendants’ false statements
and disclosures.” Chubb, 394 F.3d at 156. At the second quarter earnings conference call on
August 2, 2012, Defendants still maintained it was too early to determine what the
discontinuation rates would be in the field. Andrews stated the clinical trials reflected “the low
end of the discontinuation rates we are likely to see commercially.” Compl. ¶ 67 (emphasis
added). Use of the word “likely” implies it was still too early to have concrete data regarding
Jakafi’s real-world rates. Other statements included similar qualifiers. See, e.g., Compl. ¶ 68
(August 2, 2012, statement by Andrews that “we would expect [clinical discontinuation rates] to
be probably the low end of what we see commercially” (emphasis added)). Friedman continued,
“what Pat [Andrews] has said is that you would expect, when we do finally asymptote to a more
20

This statement from the Complaint is not a quote from a confidential source, and it is not clear
whether the phrase “unexpectedly high death rate” is attributable to the source. The source
stated directly “[i]t was pretty clear, perhaps there were more deaths than management might
have expected.” Compl. ¶ 39. This statement is vague, equivocal, and entirely conclusory.
Leaving aside the issues regarding how the source knew of Defendants’ expectations, the
Complaint does not indicate whether Defendants actually had any specific expectation regarding
discontinuation rates for severely ill patients or overall discontinuation rates during the Class
Period, or if they did, what those expectations were. Other allegations in the Complaint and
disclosures made by Defendants suggest that a higher death rate due to the severely ill patient
population was in fact expected by Defendants. See e.g., id. ¶ 63 (alleging Andrews stated “the
phenomenon of more severely ill patients on Jakafi was ‘to be expected.’”); Defs.’ Mot. to
Dismiss Ex. 8, at 4 (April 26, 2012, statement by Andrews noting “[o]ur market research
suggests that most patients receiving Jakafi thus far tend to have severe symptoms and larger
spleens. This is consistent with our original expectations.”).
26

or less steady-state discontinuation rate, it is 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.” Id. Not
only are these statements consistent with the message that it was too early during the Class
Period to have any meaningful information on discontinuation rates in the field, they are also
consistent with Defendants’ cautions that the rates may in fact vary.
Defendants also acknowledged on August 2, 2012, that the presence of the severely ill as
a subset of patients prescribed Jakafi in practice had an effect on the financial guidance, but
Defendants had previously disclosed this potential effect on the very first day of the Class
Period. 21 The projected revenues and sales guidance issued on August 2, 2012, prompted
negative feedback from analysts, causing Incyte’s stock price to fall.

See Compl. ¶ 71.

Defendants had not previously issued any guidance with respect to sales, but their earlier
predictions were consistent the August 2, 2012, guidance implying “modest [quarter-overquarter] growth.” Id. Nevertheless, Incyte’s conservative guidance was apparently inconsistent
with and “disappointed high [Wall] Street expectations.” Id. Although Plaintiff maintains its
allegations are not contingent upon whether Defendants made accurate predictions of revenue, it
bears noting that Defendants’ predictions of gradual growth, which they maintained throughout

21

See, e.g., Defs.’ Mot. to Dismiss Ex. 8, at 4 (April 26, 2012, statement by Andrews noting
“[m]any of these physicians typically want more information, more education, and more time
prior to prescribing a new product like Jakafi. . . . which is why we believe that, going forward,
our growth rates for new prescribers and new patients may be more gradual than what we saw in
the first quarter.”); see also Defs.’ Mot. to Dismiss Ex. 11, at 3 (June 6, 2012, statement by
Andrews noting that early on Jakafi’s sales were frontloaded with prescriptions for the severely
ill, but viewing “the remaining quarters of 2012 as having growth . . . of significance in a nice
gradual pace. Probably not at the level of growth that we experienced in the first quarter because
there was that front-loaded in acceleration, but nice sustainable growth over the rest of this year
and for next year”).
27

the Class Period, turned out to be correct. See Defs.’ Mot. to Dismiss Exs. 5, 6, 91-95. 22
This Court cannot reasonably infer that any of the statements identified in paragraphs 7380 of the Complaint show conclusive and statistically significant data existed during the Class
Period indicating that discontinuation rates were much higher in practice than in the clinical
trials. Even the statement made by Daly in August 2013, one full year after the end of the Class
Period, acknowledges only that the clinical rates are “probably an unrealistic hurdle, but having a
20% to 30% discontinuation rate at the end of 12 months we think that’s achievable.” Compl. ¶
80 (emphasis added). The fact the language used by Company representatives one year later
remains tentative further suggests the Company was not, during the Class Period, in possession
of concrete information regarding the discontinuation rates experienced in practice.
Moreover, that real world discontinuation rates may have turned out to be higher than
those from the clinical studies is irrelevant because the Third Circuit has “long rejected attempts
to plead fraud by hindsight.” Chubb, 394 F.3d at 158; id. (“We have been clear that fraud cannot
be inferred merely because ‘[a]t one time the firm bathes itself in a favorable light’ but later the
firm discloses that things are less than rosy.” (quoting In re Advanta, 180 F.3d at 538)); see also
In re NAHC, Inc. Sec. Litig., 306 F.3d 1314, 1330 (3d Cir.2002) (“To be actionable, a statement
or omission must have been misleading at the time it was made; liability cannot be imposed on
the basis of subsequent events.”).
Defendants’ remaining allegedly false and misleading statements—in which Defendants
described the launch as “going well” and described the early response to Jakafi as
22

Plaintiff also asserts, as another reason why Defendants’ statements were allegedly false and
misleading, that “the increase in discontinuations at the same time that new patient additions
were only increasing minimally led to a slowdown in net patient additions.” Compl. ¶ 58(e). To
the extent Plaintiff is referring to a slowdown between first quarter sales compared to subsequent
quarters, again, the guidance issued by Defendants on August 2, 2012, was consistent with their
disclosures and their growth predictions from the outset—steady, gradual growth. See id. ¶ 53.
28

“encouraging”—are not actionable. See Compl. ¶¶ 45, 47-48, 59, 62, 64. General statements of
optimism such as these have been uniformly held to be immaterial and “too vague to be
actionable.” See In re Burlington, 114 F.3d at 1428 (holding the company’s statement it believed
it could “continue to grow net earnings at a faster rate than sales” was too vague to be relied
upon by a reasonable investor); see also Aetna, 617 F.3d at 284 (upholding the district court’s
finding that the defendants’ statements regarding “disciplined” pricing were “immaterial and not
actionable because they [were] puffery, vague and non-specific expressions of corporate
optimism on which reasonable investors would not have relied”).
For the reasons set forth above, Plaintiff has failed to adequately state a claim for a
violation of Section 10(b) of the Securities and Exchange Act. Since Plaintiff failed to state a
valid claim under Section 10(b), the Section 20(a) claims must also be dismissed. See In re
Advanta, 180 F.3d at 541. Dismissal of Plaintiff’s claims will be without prejudice, and the
Court will grant Plaintiff’s request for leave to amend the Complaint to address the failure to
plead fraud with sufficient particularity, which now requires dismissal under Rule 9(b) and the
PSLRA. 23

23

Certain concessions made by Plaintiff during oral argument suggest amendment may be futile,
as its confidential sources may not be able to establish with the requisite particularity the
allegations that data documenting and reports analyzing discontinuation rates existed during the
Class Period. If it is indeed true that Plaintiff can rely only on Defendants’ post-Class Period
statements to demonstrate the falsity of Defendants’ assertions that it was premature during the
Class Period to discuss in-practice discontinuation rates, Plaintiff may continue to be unable to
state a claim. This Court cannot at this time, however, conclude with certainty that amendment
would be futile. Because the Court is “hesitant to preclude the prosecution of a possibly
meritorious claim because of defects in the pleadings,” Plaintiff shall “be afforded an additional,
albeit final opportunity, to conform the pleadings to Rule 9(b).” In re Burlington, 114 F.3d at
1435 (quoting Ross v. A.H. Robins Co., 607 F.2d 545, 547 (2d Cir. 1979)). Having concluded
that Plaintiff failed to adequately allege the existence of any false or materially misleading
statements, the Court need not parse each statement to determine whether the safe harbor
provision of the PSLRA applies. See 15 U.S.C. § 78u-5(c) (creating a statutory allowance for
forward-looking written or oral statements). If Plaintiff is able to amend its Complaint to include
29

An appropriate Order follows.

BY THE COURT:

/s/ Juan R. Sánchez
Juan R. Sánchez, J.

the specificity necessary to state a claim under Rule 9(b) and the PSLRA, this Court will analyze
at that time whether the safe harbor and the bespeaks caution doctrine apply to immunize
Defendants’ statements from liability.
30