Singh v. Schikan et al

Filing 40

MEMORANDUM AND ORDER. For the aforementioned reasons, defendants' motion to dismiss is granted. This Memorandum and Order resolves docket no. 29 and the Clerk of Court is respectfully requested to close this case. Granting 29 Motion to Dismiss. (Signed by Judge Naomi Reice Buchwald on 5/4/2015) (rjm)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
----------------------------------------X
AMAR SINGH, Individually and On Behalf of
All Others Similarly Situated,
Plaintiff,
- against -

MEMORANDUM AND ORDER
14 Civ. 5450 (NRB)

HANS G.C.P. SCHIKAN, BERNDT A.E. MODIG,
GILES V. CAMPION, COLLEEN A. DEVRIES, LUC
M.A. DOCHEZ, REMI DROLLER, DAAN ELLENS,
PETER GOODFELLOW, MARTIJN KLEIJWEGT,
DAVID MOTT, PATRICK VAN BENEDEN, J.P.
MORGAN SECURITIES LLC, CITIGROUP GLOBAL
MARKETS INC., LEERINK SWANN LLC (N/K/A
LEERINK PARTNERS LLC), WEDBUSH SECURITIES
INC., KBC SECURITIES USA INC., TROUT
CAPITAL LLC, AND PROSENSA HOLDING N.V.,
Defendants.
----------------------------------------X
NAOMI REICE BUCHWALD
UNITED STATES DISTRICT JUDGE

These actions are brought under Sections 11 and 15 of the
Securities Exchange Act of 1933 against Prosensa Holding N.V.
(“Prosensa”), its underwriters, and certain of its officers and
directors (collectively, “defendants”), on behalf of a purported
class of investors who purchased or otherwise acquired shares of
Prosensa

pursuant

to

the

Registration

Statement

issued

in

connection with the company’s June 2013 initial public offering.
Presently before the Court is defendants’ motion to dismiss the
complaint pursuant to Federal Rule of Civil Procedure 12(b)(6).
For the reasons stated herein, this motion is granted.
1

BACKGROUND
I.

Factual Background
A. DMD and Drisaspersen
Duchenne muscular dystrophy (“DMD”) is a rare neuromuscular

disorder that causes progressive muscle loss, leading to severe
disability and premature death.
genetic

mutation

that

causes

Id. ¶ 48.
the

It is triggered by a

dystrophin

gene

to

produce

inadequate amounts of dystrophin, a protein needed to keep muscles
intact.

Id.

DMD primarily affects boys and young men, occurring

in about one in 3500 boys worldwide.
DMD

is

worsening

muscle

Id. ¶ 49.

weakness,

with

The main sign of

symptoms

appearing between one and four years of age.

generally

Id.

Affected

children experience developmental delays and most require fulltime

wheelchair

use

by

age

twelve.

Later

in

the

disease’s

progression, respiratory muscles weaken and cardiac function is
impacted, making the disease “universally fatal.”

The average

life expectancy for one diagnosed with DMD is twenty-seven years.
Id. ¶¶ 50-51.

There are currently no approved DMD disease-

modifying therapies.
Prosensa

is

a

Id. ¶ 51.
biotechnology

company

based

in

Leiden,

Netherlands, that “engages in the discovery and development of
RNA-modulating
disorders.”

therapeutics

Id. ¶¶ 2, 45.

for

the

treatment

of

genetic

In 2003, it entered into an exclusive

licensing agreement with the Leiden University Medical Center that
2

allowed Prosensa use of the Center’s “proprietary RNA modulation
exon-skipping technology”1 in developing treatments for DMD.

Id.

“Drisaspersen,” Prosensa’s lead product, is intended to treat DMD
by skipping exon 51 for the dystrophin gene with the help of this
technology.

Id. ¶ 55.

In October 2009, Prosensa announced a development partnership
with GlaxoSmithKline (“GSK”), under which GSK received exclusive
rights to develop and license drisasperson.

Id.

As part of this

collaboration, GSK was responsible for “fund[ing] and conduct[ing]
the clinical development and commercialization of drisaspersen,”
and had “complete control over such activities.”
10.

Reg. Stmt. at

See also id. at 11 (“GSK will fund all our costs and expenses

associated with the further clinical development of, and has sole
decision-making authority and is responsible for all research,
development, regulatory, manufacturing, marketing, advertising,
promotional, launch and sales and other commercial activities in
connection with drisaspersen . . . .

GSK has the right to make

decisions

and

regarding

the

development

commercialization

of

product candidates under the collaboration without consulting us
. . . .”).

1

As the pleadings explain, exons are sections of DNA that code for a protein
and are interspersed with introns. In the process of protein production,
introns are cut out and discarded to leave only exons. In exon skipping, the
cellular machinery is encouraged to “skip over” an exon using “molecular
patches” that mask the exon, so it can be essentially ignored during protein
production. As a result, if successful, exon skipping may be able to mask
DMD symptoms. Id. n.5.

3

B. The Drisaspersen “DEMAND” Studies
In

September

2010,

GSK

initiated

a

Phase

II

study

of

drisaspersen (“DEMAND-II”), which would be completed in April
2013.

Am. Cmplt. ¶¶ 7, 56.

The 53-participant, 48-week trial

compared two different doses of drisaspersen with a placebo.
Stmt. at 91.

Reg.

The trial’s primary endpoint was defined as “the

distance walked in the six minute walk test (or ‘6MWD’) between
the placebo group and the continuous active-treatment group at a
dose of six mg/kg/week after twenty-four weeks.”2

Id.

In December 2010, GSK began a Phase III study (“DEMAND-III”),
with results expected to be announced in the fourth quarter of
2013. Id. ¶ 8. The study was a randomized, double-blind, placebocontrolled trial, assessing drisapersen at a dose of six mg/kg/week
in 186 boys with a primary endpoint of the 6MWD at forty-eight
weeks.

Id.

Notably,

DEMAND-III

compared to DEMAND-II.3

had

lessened

enrollment

criteria

as

“For example, the DEMAND-II study only

enrolled boys capable of standing up from the floor in seven

2

“The six minute walk test (6MWT) is a test that measures the distance a
subject can walk in 6 minutes using a standardized corridor length and
turning point at each end (the six minute walk distance or 6MWD). This test
has been used in observational research studies to follow the natural history
of DMD disease progression over time as subjects gradually lose the ability
to walk.” Am. Cmplt. ¶ 60.

3

As defendants note, “[w]hile Phase II studies are typically ‘well
controlled, closely monitored, and conducted in a relatively small number of
patients,’ Phase III studies are expanded significantly and ‘usually include
from several hundred to several thousand subjects.’” Def’s Br. at 5 (quoting
21 C.F.R. § 312.21).

4

seconds or less, whereas the DEMAND-III study had no maximum time
for standing up. The lessening of the enrollment criteria resulted
in the subject children being older and having more advanced
DMD than those subjects in the DEMAND-II study.”

Id. ¶ 9.

See

Reg. Stmt. at 93 (“A total of 53 DMD subjects aged 5 and above
with a rise from the floor of less than 7 seconds were recruited
[for DEMAND-II].”); id. at 94 (“The [DEMAND-III] study assesses .
. . drisaspersen . . . in 186 boys over five years of age and with
a minimum 6MWD of 75 meters at enrollment.”).

DEMAND-III also

utilized a wider range of locations and new testing sites.

“In

fact, the DEMAND-III study was conducted at 44 centers in 19
countries (compared to the DEMAND-II study which was conducted at
only 13 centers).”

Am. Cmplt. ¶ 11.

In April 2013, following the completion of the DEMAND-II
trial, Prosensa and GSK presented abbreviated results from the
study.

Id. ¶ 57.

The companies announced that drisaspersen had

conferred a significant difference in walking distance compared to
the placebo, specifically reporting a 117-foot difference in the
distance

walked

in

six

minutes

drisaspersen versus placebo.
While

undertaking

these

between

those

treated

with

Id.
clinical

trials,

Prosensa

faced

increasing competition from Sarepta Therapeutic’s “eteplirsen,”
which was also in clinical trials at the time of Prosensa’s IPO
and was acknowledged in the Registration Statement as its key DMD
5

competitor.
before

Id. ¶ 64.

Prosensa’s

In particular, on June 19, 2013, nine days

planned

initial

public

offering,

Sarepta

reported a continued sustained benefit in walking distance through
eighty-four weeks of its phase 2b, 12-person study.

Id. ¶ 69.

C. The Registration Statement
In anticipation of its initial public offering, Prosensa
filed a Registration Statement with the SEC on May 24, 2013, and
filed six subsequent amendments, the last of which was filed on
June 27, 2013.

Id. ¶ 74.

The Registration Statement provided

investors with background on DMD, tracking “the natural history of
the disease” (the progression of a disease process in an individual
over time), and explaining the use of the 6MWD in assessing DMD’s
natural history.4
served

as

distance

a

Id. ¶¶ 59-61.

“[c]onceptual

performance

by

It also included a graph, which

representation

DMD

patients

of

and

6-minute

healthy

walking

controls,”

illustrating “the typical decline in 6MWD performance by boys with
DMD over age 7.”

Id. ¶ 63; Reg. Stmt. at 89.

With regard to DEMAND-II, it stated that “[a] Phase

II

placebo-controlled study of drisapersen in 53 DMD patients was

4

See, e.g., Reg. Stmt. at 88 (“Several key studies have demonstrated the
effect of DMD on 6MWD. One study reported an average 57 meter decrease at 52
weeks from baseline in average 6MWD by boys with DMD, whereas comparable
healthy boys showed an average increase in 6MWD of 13 meters. A more recent
study of 113 boys reported an average decrease in 6MWD of 23 meters in the
first year of observation and 65 meters in the second year. In the latter
study, when grouped by age, boys below 7 years remained stable with a slight
increase in average 6MWD in the first and second years, but the average 6MWD
of boys over 7 declined by about 42 meters and 80 meters, respectively.”).

6

completed

and

demonstrated

a

statistically

significant

and

clinically important difference in the primary endpoint, which
was the distance walked in the six minute walk test, or 6MWD,
between the placebo group and the continuous active-treatment
group at a dose of 6 mg/kg/week after 24 weeks.

This clinically

meaningful benefit was maintained after 48 weeks of treatment, and
drisapersen was well tolerated throughout the duration of this
study.”

Am.

Cmplt.

¶

58;

Reg.

Stmt.

at

1.

Later

in

the

Registration Statement, it provided more details about the design
and implementation of the study, explaining that “GSK initiated
this exploratory placebo-controlled study of drisaspersen at a
6mg/kg (subcutaneous) dose in September 2010.

The study consisted

of three arms [further described at length] . . . . A total of 53
DMD subjects aged 5 and above with a rise from the floor of less
than 7 seconds were recruited.
efficacy.”
With
informed

Reg. Stmt. at 93.
regard

to

investors

drisapersen
expected

The primary endpoint was 24-week

in

was
the

DEMAND-III,

that

“[a]

initiated
fourth

the

pivotal

in

December

quarter

of

Registration
Phase
2010,

2013.

III

Statement
study

of

and results are
This

study

is

a

randomized, double-blind and placebo-controlled trial, assessing
drisapersen at a dose of 6 mg/kg/week in 186 boys.
endpoint is the 6MWD at 48 weeks.”
2.

The primary

Am. Cmplt. ¶ 81; Reg. Stmt. at

Again, it provided additional information on the study several
7

pages later, stating that “GSK initiated this ongoing pivotal
randomized, double-blind, placebo controlled study in December
2010.

The study assesses once-weekly subcutaneous administration

of drisaspersen at 6 mg/kg dosing in 186 boys over five years of
age and with a minimum 6MWD of 75 meters at enrollment.

The goal

of the study is demonstrate a mean improvement of 30 meters in
6MWD at 48 weeks compared with placebo. . . . Enrollment is
complete.

Results are currently expected to be made public in the

fourth quarter of 2013.”

Reg. Stmt. at 94.

The Registration Statement also included information about
the sites used in the studies.

It noted that “clinical trials are

conducted in countries outside the European Union and the United
States, which may . . . expose us to risks associated with clinical
investigators who are unknown to the EMA or the FDA, and different
standards of diagnosis, screening and medical care.”

Id. at 14.

It further specified that “Phase II clinical trials are generally
conducted in a limited patient population . . . [while] Phase III
clinical trials are undertaken in large patient populations to .
. . further test for safety in an expanded and diverse patient
population at multiple, geographically dispersed clinical trial
sites.”

Id. at 107.

Specifically regarding drisaspersen, it

announced that “[t]o date, over 300 patients have participated in
clinical studies of drisapersen at more than 50 trial sites in 25
countries . . . .” Id. at 2, 83.
8

On June 27, 2013, GSK announced that the FDA had verbally
notified GSK that drisaspersen had been granted “breakthrough
therapy designation” for treatment of DMD.
Prosensa

subsequently

amended

its

Am. Cmplt. ¶¶ 12, 75.

Registration

Statement

to

include information about this designation.
The same day, June 27, 2013, the SEC declared the Registration
Statement effective, and Prosensa priced its IPO, which ultimately
closed on July 8, 2013.

Id. ¶¶ 12-13, 77.

It sold more than 6.9

million shares to the public for $13 per share.

Id. ¶¶ 14, 78.

D. DEMAND-III Results Announced
On September 20, 2013, Prosensa and GSK issued a press release
in which they announced that drisaspersen had not met its primary
endpoint in the DEMAND-III study.

Id. ¶¶ 16, 89; see also id. ¶

89

difference

(“[T]here

was

no

treatment

in

key

secondary

assessments of motor function: 10-meter walk/run test, 4-stair
climb and North Star Ambulatory Assessment.”).

In a subsequent

conference call, Prosensa management stated that those receiving
the placebo had decreased fifty-three meters on the 6MWD, whereas
those receiving the drug had decreased forty-two meters, a minimal
difference.

In addition, they announced that roughly ten percent

of those given placebo and ten percent of those given treatment
had lost ambulation altogether.

Id. ¶ 90.

“When asked by an

analyst to explain the different outcomes between the Phase II
(DEMAND-II)

and the Phase

III (DEMAND-III) efficacy
9

outcomes,

Defendant Schikan admitted that the Phase II study included ‘a
younger

patient

population

with

better

performance.’

[He]

explained that the average age in the Phase III testing in the
treatment group that received the drug was 8.3 years old versus
approximately 7 years old in the Phase II testing,” such that the
“Phase II study was ‘designed to recruit to a younger age . . .
..”

Id. ¶ 92.
Following this announcement, the share price dropped from a

high of $24 per share to close on September 20 at $7.14 per share.5
Id. ¶ 97.
ended

Subsequently, on January 13, 2014, GSK and Prosensa

their

partnership,

with

Prosensa

retaining

drisaspersen and programs for the treatment of DMD.
Finally,

on

November

Pharmaceutical

Inc.

24,

announced

2014,
that

Prosensa
BioMarin

and
would

rights

to

Id. ¶ 98.
BioMarin
offer

to

purchase all outstanding Prosensa shares for $17.75 per share,
roughly thirty-six percent above the IPO share price.

II.

Id. ¶ 100.

Procedural Background
Plaintiff Amar Singh filed an initial class action against

defendants on July 18, 2014.

On September 16, 2014, Patricia Voit

filed a motion to serve as lead plaintiff, which we granted on
October 9, 2014.

5

At the time this action was filed on July 18, 2014, Prosensa stock was
trading at approximately $9 per share.

10

On December 29, 2014, plaintiffs filed the Amended Complaint.
This complaint alleges that “the Registration Statement contained
materially

false

and/or

misleading

statements

and/or

omitted

material information . . . concerning the development status of
drisapersen, the DEMAND-III study, the prospects for drisapersen’s
regulatory

approval,

and

the

future

commercial

prospects

of

drispersen,” in violation of Section 11 and Section 15 of the
Securities Act.

Am. Cmplt. ¶ 15.

Specifically, plaintiffs claim

that the Registration Statement failed to disclose that: (1) “the
enrollment

criteria

for

DEMAND

III

had

been

substantially

relaxed,” (2) “the Company utilized various locations and new
testing sites in . . . DEMAND III,” (3) “the DEMAND-III clinical
study was flawed due to its relaxed enrollment criteria,” (4) “due
to the significantly different patient populations in the DEMANDII and DEMAND-III studies, comparisons of the two clinical studies
would

be

rendered

unreliable,”

and

(5)

“Defendants

lacked

a

reasonable basis for their positive statements concerning . . .
drisaspersen.”

Id.

On February 12, 2015, defendants filed a joint motion to
dismiss the Amended Complaint for failure to state a claim under
Rule 12(b)(6).

The motion was fully briefed on April 15, 2015,

and oral argument was held on April 23, 2015.

11

DISCUSSION
I.

Legal Standards
On a motion to dismiss under Rule 12(b)(6), the Court must

accept as true all factual allegations in the complaint and draw
all reasonable inferences in plaintiff's favor. ATSI Commc’ns,
Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) (“ATSI”);
Grandon v. Merrill Lynch & Co., 147 F.3d 184, 188 (2d Cir. 1998).
Nonetheless, “[f]actual allegations must be enough to raise a right
of relief above the speculative level, on the assumption that all
of the allegations in the complaint are true.”

Bell Atl. Corp. v.

Twombly, 550 U.S. 544, 555 (2007); see also Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009).

Thus, a plaintiff must allege “enough facts

to state a claim to relief that is plausible on its face.”

If a

plaintiff “ha[s] not nudged [his] claims across the line from
conceivable to plausible, [his] complaint must be dismissed.”
This pleading standard applies in “all civil actions.”

Id.

Iqbal, 556

U.S. at 684 (internal quotation marks omitted).
To state a claim under Section 11 of the Securities Act, “a
plaintiff need show that a registration statement: (1) contained
an untrue statement of material fact; (2) omitted to state a
material fact required to be stated therein; or (3) omitted to
state a material fact necessary to make the statement therein not
misleading.”

Arfa v. Mecox Lane Ltd., 10 Civ. 9053, 2012 WL

697155, at *4 (S.D.N.Y. Mar. 5, 2012) aff'd, 504 F. App'x 14 (2d
12

Cir. 2012) (internal quotation mark omitted).

When pleading an

actionable omission, plaintiffs must, “at a minimum, plead facts
to demonstrate that allegedly omitted facts both existed, and were
known or knowable, at the time of the offering.”

Scott v. Gen.

Motors Co., 12 Civ. 5124 LTS-JLC, 2014 WL 4547837, at *5 (S.D.N.Y.
Sept. 15, 2014).
requirement

there

In addition, “[t]o fulfill the materiality
must

be

a

substantial

likelihood

that

the

disclosure of the omitted fact would have been viewed by the
reasonable investor as having significantly altered the total mix
of information made available.” Arfa, 2012 WL 697155, at *5
(quoting Basic Inc. v. Levinson, 485 U.S. 224, 231 (1988)).
Finally, Section 15 provides for “control person” liability,
and requires that a plaintiff show (1) a primary violation of the
Securities Act and (2) “control” by the defendant. See Rombach v.
Chang, 355 F.3d 164, 177–78 (2d Cir. 2004).

II.

Analysis

A. No Misstatements or Omissions
i. Plaintiffs’ Argument
We first note that, as confirmed by plaintiffs’ counsel at
oral argument, plaintiffs have not alleged that the Registration
Statement

contained

Argument Tr. at 2.
alleged

omissions

any

affirmative

misstatements.

See

Oral

Rather, plaintiffs’ complaint concerns only
regarding

certain

differences

between

the

DEMAND-II and DEMAND-III studies: namely, DEMAND-III’s reduced
13

enrollment criteria and, to a lesser extent, its expanded testing
locations.

Essentially, plaintiffs argue that defendants knew or

should have known at the time the Registration Statement was filed
that, as a result of these differences, the DEMAND-III study was
fundamentally flawed and was not likely to produce positive results
as

DEMAND-II

had.

Accordingly,

plaintiffs

contend,

the

Registration Statement should have highlighted these differences
and should have disclosed the negative impact these differences
would likely have on the study’s findings and therefore on the
drug’s prospects.
Plaintiffs do not dispute, however, that the key details of
both studies, including their respective enrollment criteria and
DEMAND-III’s expanded testing universe, were disclosed in the
Registration Statement.

See Reg. Stmt. at 93 (Phase II Study

involved “53 DMD subjects aged 5 and above with a rise from the
floor of less than 7 seconds.”); id. at 94 (Phase III study
involved “186 boys over five years of age with a minimum 6MWD of
75 meters at enrollment”); id. at 107 (“Phase II clinical trials
are generally conducted in a limited patient population . . . .
Phase

III

clinical

trials

are

undertaken

in

large

patient

populations . . . in an expanded and diverse patient population at
multiple, geographically dispersed clinical trial sites.”); id. at
2, 83 (“To date, over 300 patients have participated in clinical
studies of drisapersen at more than 50 trial sites in 25 countries
14

. . . .”).

Thus, no facts per se were omitted from the prospectus.

Cf. In re Progress Energy, Inc., 371 F. Supp. 2d 548, 552 (S.D.N.Y.
2005) (“[I]t is indisputable that there can be no omission where
the allegedly omitted facts are disclosed.”).
Rather, what plaintiffs allege is lacking in the Registration
Statement is essentially an extra level of disclosure spelling out
inferences and drawing conclusions for investors.

See, e.g., Pl’s

Opp’n at 19 (“[T]he Registration Statement utterly failed to
connect the fact that . . . the older patient population used to
enroll the Demand-III study would . . . compromise the results of
that study . . . .”) (emphasis added).

However, defendants were

not required to draw out such inferences or to make such forecasts
in

order

to

provide

complete

and

accurate

disclosures.

Nonetheless, we address each of plaintiffs’ specific claims of
nondisclosure below, see Am. Cmplt ¶ 15; supra at 11, concluding
that no claim is actionable under Section 11.
ii. Alleged Failure to Highlight or Characterize
Differences in the Studies (Claims 1 and 2)
Plaintiffs first allege that defendants failed to disclose
that “the enrollment criteria for DEMAND III had been substantially
relaxed” and that DEMAND-III used many more new testing sites.
Again, plaintiffs concede that facts regarding these topics were
included in the Registration Statement, but fault defendants for
failing to emphasize these particular changes and for failing to
note that these changes were likely to negatively impact the study.
15

However,
Statement

the

in

studies

sections

were

described

helpfully

in

entitled

the

Registration

“Ongoing

Clinical

Development” (sub-headed “Clinical Trials and Drisaspersen”) and
“Government Regulation - Clinical Trials,” with each study or type
of study listed chronologically therein.

The Statement therefore

did not need to highlight these differences as the relevant
information--each study’s design and results, if available--was
easily located and the studies were accurately described seriatim,
allowing investors to compare the trials themselves.

See, e.g.,

Arfa v. Mecox Lane Ltd., 10 Civ. 9053, 2012 WL 697155, at *6
(S.D.N.Y. Mar. 5, 2012) aff'd, 504 F. App'x 14 (2d Cir. 2012)
(finding no misstatement or omission where registration statement
included

chart

with

relevant

information,

such

that

“simple

comparison” of chart’s components would have revealed the fact
that was the subject of the claim); In re TVIX Sec. Litig., 12
Civ. 4191 LTS, 2014 WL 2575776 (S.D.N.Y. June 9, 2014) aff'd sub
nom. Elite Aviation LLC v. Credit Suisse AG, 588 F. App'x 37 (2d
Cir. 2014) (finding no Section 11 claim where plaintiffs “contend
that the Offering Documents should have spelled out and quantified
particular risks”).
Similarly, the fact that information about the studies was
set out logically under appropriate headings, alongside related
information, demonstrates that it was not impermissibly “buried
beneath other information,” as plaintiffs assert.
16

Cf., e.g., In

re Flag Telecom Holdings, Ltd. Sec. Litig., 618 F. Supp. 2d 311,
325 (S.D.N.Y. 2009) (finding information impermissibly buried
where “defendants rely on . . . scattered disclosures in various
amendments,

annexes

and

exhibits

to

the

Prospectus

and

Registration Statement”); In re Alstom SA, 406 F. Supp. 2d 433,
453 (S.D.N.Y. 2005) (finding information impermissibly buried
where it was “separated into two, non-consecutive footnotes” and
“the language used . . . makes it virtually impossible to discern
what exactly the company is alluding to”); Comas v. Merrill Lynch
& Co., 92 Civ. 6560 (KC), 1993 WL 800778, at *4 n.3 (S.D.N.Y. July
2, 1993) (finding disclosure regarding underwriter not buried even
in the middle of a lengthy prospectus because it was “logically
located in a section entitled “UNDERWRITING”).
Nor

were

defendants’

disclosures

deficient

because

they

failed to characterize the differences between the studies in a
certain way.

By contrast, the law is clear that companies need

not depict facts in a negative or pejorative light or draw negative
inferences to have made adequate disclosures.

See, e.g., Klamberg

v. Roth, 473 F. Supp. 544, 551 (S.D.N.Y. 1979) (“[S]o long as
material facts are disclosed or already known, it is not deceptive
to fail to ‘characterize’ those facts with ‘pejorative nouns and
adjectives,’

or

to

fail

to

verbalize

all

adverse

inferences

expressly.”); Solow v. Citigroup, Inc., 10 Civ. 2927 (RWS), 2012
WL 1813277, at *4 (S.D.N.Y. May 18, 2012) aff'd, 507 F. App'x 81
17

(2d Cir. 2013) (“[A defendant is] not obligated to characterize
its performance or future outlook in negative terms, speculate on
future

negative

results

or

paint

themselves

in

the

most

unflattering light possible.”); Harrison v. Rubenstein, 02 Civ.
9356 (DAB), 2007 WL 582955, at *13 (S.D.N.Y. Feb. 26, 2007) (“[A
company is] under no duty to ‘to direct conclusory accusations at
itself or to characterize its behavior in a pejorative manner’ in
its public disclosures.”).

Rather, having disclosed the factual

information on the studies’ design, the Registration Statement
does not fail simply because it does not use the eye-catching or
negative phrasing that plaintiffs would have wished, such as that
DEMAND-III “drastically lessened” its enrollment criteria, Am.
Cmplt. ¶ 9, or that DEMAND-II was specifically “designed to recruit
to a younger age,” see Oral Argument Tr. at 7, 9.
iii. Alleged Failure to Disclose that DEMAND-III was
Flawed and/or Could Not be Compared to DEMAND-II
(Claims 3 and 4)
Plaintiffs’

broader

claim

that

defendants

should

have

disclosed that the differences in the DEMAND-III study would cause
it to fail, and would render comparisons between it and DEMAND-II
unreliable, is equally unavailing. First, plaintiffs do not allege
that defendants knew the actual composition of DEMAND-III (i.e.,
that it was populated by an older set of participants who would
fare worse during testing): they do not dispute that GSK, rather
than Prosensa, had control over the study and that only GSK, rather
18

than Prosensa, knew the study’s actual composition.

As such,

plaintiffs have made no allegations suggesting that defendants
could have known that the study would in fact produce worse
results.

Cf. In re ProShares Trust Sec. Litig., 889 F. Supp. 2d

644,

(S.D.N.Y.

656

2012)

aff'd,

728

F.3d

96

(2d

Cir.

2013)

(rejecting claim of misstatement or omission based on plaintiffs’
assertion that “defendants knew in advance . . . that large losses
would

occur”

because

any

knowledge

or

calculation

would

“necessarily rely on . . . inputs [that] could not be known in
advance”).
In the absence of data establishing that DEMAND-III would not
meet

its

endpoints,

defendants

were

not

required

negative results or to hypothesize its failure.6

to

predict

See, e.g.,

Schoenhaut v. Am. Sensors, Inc., 986 F. Supp. 785, 792 (S.D.N.Y.
1997) (finding no Section 11 claim where “[t]here is no allegation
that any defendant actually expected that sales . . . would decline
following the offering,” and “the Complaint merely alleges that
the

Prospectus

failed

to

predict

that

the

Company's

future

prospects were not going to be as bright as its past”); Fisher v.
Ross, 93 Civ. 0275 (JGK), 1996 WL 586345, at *7 (S.D.N.Y. Oct. 11,
1996) (“The plaintiff also argues that Ilio was experiencing delays

6

Indeed, the statement by defendant Schikan on which plaintiffs repeatedly
seek to rely--in which he hypothesizes that the different results in DEMANDII and DEMAND-III may spring from the difference in the ages of the studies’
participants, see Am. Cmplt. ¶ 92--was made only after the results of the
study were announced, as a conjecture colored by hindsight.

19

in obtaining letters of credit . . . and that the delays had
adversely

affected

Ilio's

financial

performance.

.

.

.

The

undisputed evidence demonstrates, however, that the facts as they
existed at the time of Prospectus were disclosed in the Prospectus[
and] that the adverse impact of the delayed letters of credit was
not recognized until well after the Offering Period . . . . The
plaintiff's [Section 11] claim is classic fraud by hindsight and
cannot survive.”); Shiry v. Moore, 94 Civ. 1485 (SBA), 1995 U.S.
Dist. LEXIS 22054, at *28 (N.D. Cal. 1995) (“Plaintiffs claim that
SciClone should have predicted that it was likely that . . . the
Phase III trial . . . would not show a statistically significant
treatment effect. This does not state a claim for securities fraud
because Defendants had no duty to predict the outcome of the
blinded trial.”).
The conclusion that defendants were not required to posit
that their study might fail is all the more appropriate where, as
here, such speculation would have been based solely on facts
disclosed in the Registration Statement, from which investors were
equally free to assess the study’s likelihood of success.

See,

e.g., Blackmoss Investments Inc. v. ACA Capital Holdings, Inc., 07
Civ. 10528, 2010 WL 148617, at *8 (S.D.N.Y. Jan. 14, 2010) (“The
Complaint alleges that the Prospectus failed to disclose . . .
that ACA had substantially increased its exposure to risky CDOs by
purchasing below-investment grade bonds in some of its CDO deals
20

in 2005 and 2006.
the

Prospectus

However, [there is no Section 11 claim because]
disclosed

that

ACA's

investments

included

investments in these low-grade bonds.”); In re Ultrafem Inc. Sec.
Litig., 91 F. Supp. 2d 678, 699 (S.D.N.Y. 2000) (“The defendants
were not under an obligation to disclose that [the menstrual cup
product’s] ‘prospects for mass acceptance posed an extreme risk’
. . . [because] the problems with other menstrual cup devices were
disclosed . . . [and they] provided accurate hard data from which
analysts and investors can draw their own conclusions . . . .”)
(internal quotation marks omitted); Shiry, 1995 U.S. Dist. LEXIS
22054,

at

*29

(“Plaintiffs

also

assert

that

a

[negative]

spontaneous remission rate in the Phase II trial indicated that
there would be a similar result in the Phase III trial. . . .
[However,] the Prospectus disclosed the spontaneous remission rate
in the Phase II trial, and thus Plaintiffs had sufficient facts to
form their present conclusions when they read the Prospectus.”).7
iv. Non-Actionable Critique of Study Design
Ultimately, plaintiffs’ complaint more closely resembles a
criticism

of

the

DEMAND

studies’

7

design

than

a

claim

for

Cf. also Sable v. Southmark/Envicon Capital Corp., 819 F. Supp. 324, 334
(S.D.N.Y. 1993) (“A reasonable investor will not be deceived by nondisclosure
of inferences if he or she can draw whatever inferences might be appropriate
based on disclosed facts.”); Gulf & W. Indus., Inc. v. Great Atl. & Pac. Tea
Co., 476 F.2d 687, 697 (2d Cir. 1973) (“[T]he disclosure requirements of the
securities laws require ‘nothing more than the disclosure of basic facts so
that outsiders may draw upon their own evaluative experience in reaching
their own investment decisions with knowledge equal to that of the
insiders.’”).

21

nondisclosure, a form of hindsight pleading not cognizable under
Section 11.

See Abely v. Aeterna Zentaris Inc., 12 Civ. 4711 PKC,

2013 WL 2399869, at *8 (S.D.N.Y. May 29, 2013) (rejecting the claim
that “defendants misrepresented or omitted material information
about the design and findings of the Phase 2 study” because
“plaintiff's allegations amount to a non-actionable critique of
defendants' study design”); cf. Davison v. Ventrus Biosciences,
Inc., 13 Civ. 3119 (RMB), 2014 WL 1805242, at *7 (S.D.N.Y. May 5,
2014) reconsideration denied, 13 Civ. 3119 (RMB), 2014 WL 4460346
(S.D.N.Y. July 2, 2014) (no false statements under Section 10(b)
where

plaintiffs

argued

that

“representations

regarding

the

results of the . . . Phase II studies . . . were misleading because
‘Defendants failed to disclose the inclusiveness and unreliability
of the results generated from the German Study due to the small
sample size,’” as plaintiffs “do not allege that Defendants' Class
Period statements misrepresented any facts regarding the German
Study, including its size or any other facts about its methodology,
but, instead, [essentially] criticize the study's methodology as
unreliable”); In re TVIX Sec. Litig., 2014 WL 2575776, at *4
(“‘[P]laintiffs are not allowed to plead Section 11 claims with
the benefit of 20/20 hindsight’ because ‘Section 11 claim[s] cannot
be based on a backward-looking assessment of the registration
statement.’”).

22

As noted in the Registration Statement, Phase III studies are
necessarily more expansive than Phase II studies and therefore
necessarily involve more risk. The fact that DEMAND-III ultimately
failed where DEMAND-II succeeded does not mean that defendants
knowingly designed a flawed study and then failed to disclose those
design flaws, as plaintiffs would seem to suggest; by contrast, it
indicates that the Phase III study served its intended purpose of
identifying whether the drug would provide meaningful benefit
across a wider population.

Likewise, the fact that elements of

DEMAND-III’s design may have led the drug to fall short of the
trial’s primary endpoints does not indicate that defendants knew
that or why the drug would fail, let alone that they committed
securities fraud.

Rather, defendants disclosed the facts known at

the time of the IPO that would subsequently affect the study and
the stock price, and were not required to foresee the failure of
the study or the specific reasons for its hypothetical failure.
As such, defendants fulfilled their disclosure obligations and
plaintiffs’ claims are dismissed.8
B. No Unwarranted Positive Statements (Claim 5)
Defendants also challenge the Amended Complaint insofar as it
is based on allegations that the Registration Statement “lacked a

8

Defendants also argue that plaintiffs’ Section 11 claims should be dismissed
because, even if “there was some additional piece of information about study
design . . . that should have been included, any additional information would
not have been material.” Def’s Br. at 21. Because we find that the
Registration Statement did not include misstatements or omissions, we do not
reach this argument.

23

reasonable basis for [its] positive statements concerning the
development

status

of

drisapersen,

the

DEMAND-III

study,

the

prospects for drisapersen’s regulatory approval, and drisapersen’s
future commercial prospects.”
First,

defendants

argue

Am. Cmplt. ¶ 88.
that

plaintiffs

have

failed

to

identify any positive statements allegedly made by defendants and
have therefore failed to state a claim.

See, e.g., Blackmoss

Investments Inc. v. ACA Capital Holdings, Inc., 07 Civ. 10528,
2010 WL 148617, at *7 (S.D.N.Y. Jan. 14, 2010) (“For liability to
attach under either Section 11 or 12(a)(2) of the Securities Act
. . . a plaintiff must identify the statement that it deems to be
false or misleading.”) (citing Lasker v. N.Y. State Elec. & Gas
Corp., 85 F.3d 55, 57–58 (2d Cir. 1996)); In re WorldCom, Inc.
Sec. Litig., 303 F. Supp. 2d 385, 390 (S.D.N.Y. 2004) (“Although
the pleading requirements for a Section 11 claim are minimal,
Section 11 does require that a plaintiff identify an ‘untrue
statement of a material fact’ or allege that the registration
statement ‘omitted to state a material fact.’”).

Second, in the

event that a positive statement could be identified, defendants
claim that such a statement would nevertheless be protected under
the bespeaks caution doctrine as a result of risk disclosures
included in the Registration Statement.9

9

Under the bespeaks caution doctrine, “[a] forward-looking statement
accompanied by sufficient cautionary language is not actionable because no
reasonable investor could have found the statement materially misleading.”

24

Plaintiffs counter that “the false and misleading statements
alleged here concern historical or present fact,” rather than
forward-looking

statements,

and

they

assert

that

the

risk

disclosures identified by defendants in the Registration Statement
are not sufficiently directed to the omitted risks to “bespeak
caution.”
respond

See Pl’s Opp’n at 23.
to

defendants’

claim

However, plaintiffs do not

that

no

particular

positive

statements have been identified--and, indeed, do not at any point
identify a specific “positive statement” that they believe was
misleading.

Instead, they simply reiterate that defendants failed

to disclose that the study was compromised and would fail to reach
its endpoints.

As such, any claim regarding unwarranted positive

statements fails and is dismissed.
C. Section 15 Liability
Finally, because defendants have failed to state a claim under
Section 11, their “control person liability claim pursuant to
section 15 of the Securities Act . . . must also fail for want of
a primary violation.”

ECA, Local 134 IBEW Joint Pension Trust of

Chicago v. JP Morgan Chase Co., 553 F.3d 187, 207 (2d Cir. 2009);
see also, e.g., Garber v. Legg Mason, Inc., 537 F. Supp. 2d 597,

Iowa Pub. Employees' Ret. Sys. v. MF Global, Ltd., 620 F.3d 137, 141 (2d Cir.
2010). This doctrine is strictly limited to forward-looking statements, and
the cautionary language concerning those statements “must be specific,
prominent and must directly address the risk that plaintiffs claim was not
disclosed. The requirement that the cautionary language match the specific
risk is particularly important, considering that most, if not all security
offerings contain cautionary language.” In re Flag Telecom Holdings, Ltd.
Sec. Litig., 618 F. Supp. 2d 311, 322 (S.D.N.Y. 2009).

25

618

(S.D.N.Y.

2008)

aff 1 d,

347 F. App 1 X 665

(2d Cir.

2009)

("As

there are no surviving primary violations upon which plaintiffs
could rest these claims, plaintiffs
dismissed.")

Plaintiffs'

1

Section

claims are

Section 15
claims

15

are

therefore

dismissed.

CONCLUSION

For the aforementioned reasons, defendants' motion to dismiss
is granted. 10

This Memorandum and Order resolves docket no. 29 and

the Clerk of Court is respectfully requested to close this case.

SO ORDERED.

Dated:

New York, New York
May 4, 2015

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NAOMI REICE BUCHWALD
UNITED STATES DISTRICT JUDGE

We deny plaintiffs' cursory request for leave to amend, made in one
sentence "on the final page of their brief in opposition to defendants'
motion to dismiss, in boilerplate language and without any explanation[,
either in writing or at oral argument,) as to why leave to amend was
warranted." Food Holdings Ltd. v. Bank of Am. Corp., 423 F. App'x 73, 76
Cir. 2011); see also Malin v. XL Capital, Ltd., 312 F. App'x 400, 402-03
Cir. 2009).
10

26

(2d
(2d