Column: Biogen and its investors both want US appeals court to clarify class certification
The opinions expressed here are those of the author, a columnist for Reuters.
By Alison Frankel
Oct 2 (Reuters) -In a rare – and possibly unique – turn of events, both pharmacy company Biogen BIIB.O and its shareholders have asked a federal appeals court to grant mid-case review of a trial court decision certifying investors to bring class wide fraud claims.
Both sides contend that U.S. District Judge William Young of Boston misapplied the U.S. Supreme Court’s 2021 precedent from Goldman Sachs v. Arkansas Teachers Retirement System when he agreed on Sept. 5 to allow shareholders to band together to litigate their fraud claims. And both told the 1st U.S. Circuit Court of Appeals that companies and investors desperately need appellate guidance on how to interpret the Supreme Court’s instructions in the Goldman Sachs case.
Here's some background on these dueling petitions. Young initially tossed the investors’ case in 2023, but revived it in March 2024 after shareholder lawyers cited a Congressional report on the U.S. Food and Drug Administration’s unusual approval process for Biogen’s controversial Alzheimer’s drug Aduhelm.
Young allowed investors to proceed only with allegations that Biogen executives deceived the market when they said in June 2021 that Medicare coverage “is automatically presumed” after the FDA’s approval of Aduhelm.
According to shareholders, that was a lie: Biogen, they assert, knew at the time of those statements that Medicare would almost surely refuse to cover the cost of the medication for all Alzheimer’s patients.
Biogen, on the other hand, contends that the market already expected Medicare to conduct a special review to determine the scope of coverage it would provide for the medication. According to Biogen, investors cannot claim to have been defrauded by allegedly false statements about presumptive Medicare coverage because doubts about the scope of coverage were already baked into the company's share price.
Young certified a shareholder class in a docket-entry order on Sept. 5. He did not issue any accompanying opinion to explain his reasoning.
The judge’s order significantly shortened the class period proposed by investors’ lawyers at Block & Leviton.
The shareholder firm alleged that Biogen’s fraud was not fully revealed until January 2022, when Biogen’s share price fell by nearly 7% in response to the government’s announcement that Medicare would provide Aduhelm coverage only to a narrow set of patients. Biogen’s lawyers at Skadden countered that Medicare’s announcement of a special review in July 2021 put investors on full notice of the risk of narrowed coverage.
Young apparently agreed, ruling that the class period would end on the date of the Medicare announcement, not on the January 2022 date proposed by shareholders.
The judge’s order gave both sides something to complain about.
In its petition for review by the 1st Circuit, Biogen argued that Young should not have certified the investor class at all because the alleged misstatements did not affect its share price. Under Goldman precedent, Biogen said, it succeeded in rebutting the presumption of market reliance by showing that the purported misstatements had no price impact.
Biogen urged the appeals court to grant review to remind trial judges that Goldman precedent leaves no room for them to ignore or postpone consideration of the link between allegedly false statements and share price, even if that consideration overlaps with questions about the merits of investors’ claims.
“The Supreme Court’s recent decision in Goldman Sachs affirmatively requires that a court confront the price impact question on a motion for class certification,” Biogen said. “If alleged misstatements had no price impact, a class cannot be certified.”
Shareholder lawyers at Block & Leviton, meanwhile, asked the 1st Circuit to review Young’s redefinition of the class period.
Like Biogen, shareholders said the trial judge misread Goldman. But they argued that Young gave too much consideration to price impact, not too little. According to Block & Leviton, once the judge concluded that the alleged misrepresentations affected Biogen’s share price – as he clearly did, or he could not have certified the class – Young erred by apparently delving into the merits of shareholders’ allegations to conclude that the price impact dissipated after Medicare’s announcement of a review.
Shareholders told the 1st Circuit that under Goldman precedent, price impact must be a binary question at the class certification stage of securities class actions: Either alleged misstatements affected the share price or had no price impact.
Any refinement of the class period, Block & Leviton said, should instead be considered at the dismissal or summary judgment stages.
Goldman precedent does not give trial judges license for a roving examination of the market impact of allegedly fraudulent statements throughout the class period, the shareholder petition said. “Any such inquiry misunderstands the concept of ‘price impact’ and corrupts class certification into a merits-stage determination,” argued Block & Leviton.
Both sides filed their answers to the other side’s petition this week. Biogen argued that price impact is not a binary question when it comes to class certification. Trial judges are supposed to define the classes they are certifying, Biogen said, not simply adopt shareholders’ class definition.
Shareholder lawyers at Block & Leviton urged the 1st Circuit to grant both petitions. The case, shareholders said, is an excellent vehicle for the appeals court to clarify that the Supreme Court's Goldman precedent did not fundamentally change "the class certification analysis of price impact."
Neither Biogen nor its lawyers at Skadden responded to my email query on the dueling 1st Circuit petitions. Biogen, incidentally, ended a post-approval study of Aduhelm in January 2024. It took a $60 million charge in the fourth quarter of 2023 to reflect its decision to end the study and cease sales efforts for the drug.
Shareholder lawyer Jacob Walker of Block & Leviton said in an email statement that trial courts need clarity on Goldman’s application.
“Defendants across the country have been trying to use the Supreme Court’s decision in Goldman to improperly shoehorn the merits issues of loss causation and materiality into the concept of ‘price impact,’ under the mistaken premise that Goldman upended a decade of straightforward precedent,” Walker said. “We hope the 1st Circuit addresses this trend.”
(Reporting By Alison Frankel)
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