In re Sanofi-Aventis Securities Litigation 07-CV...

Case 1:07-cv-10279-GBD Document 89 Filed 03/30/11 Page 1 of 29

iDOCUMENTIMXSDNY'

EUMUNITED STATES DISTRICT COURT D(X

#.---

SOUTHERN DISTRICT OF NEW YORK DATE ~ °a^.

lurc8 SECURITIES MEMORANDUM DECISION AND ORDERLITIGATION

07ov10279(GBC)08cv00021(GBI)>

GEORGE B. DANIELS, District Judge:

Plaintiffs City of Edinburgh Council on behalf of the Lothian Pension Fund, New

England Carpenters Guaranteed Annuity Fund, the City of Taylor General Employees

{lc{ircnoeot System oo behalf of itself and all others similarly situated, and Carrie Soddz,

individually and on behalf of all others siimi larly situated (collectively, "Plaintiffs") brought this

action against French pharmaceutical comynny sunoQ-avendsS/\( =uauofi") and Individual

Defendants Jean-Francois Dehecq, Gerard Le Fur, Hanspeter Spek, Marc Cluzel, Jean-Pierre

Lehner, Douglas /\. Greene, and Jean-Claude Leroy. Plaintiffs assert, claims ^"[a]gainst[a]U

Defendants" for violation wf Section lO(b)ofthe Securities Exchange Act of}934,l5LT.S.C.8

7BiQhL and Rule l8b-5 thereunder, and for control party liability pursuant |n Section 20(u)o[the

Exchange Act.

Plaintiffs moved pursuant to the Hague Convention' for the issuance of a Letter of

Request directed 7h Foreign dC u]1h 0D5 0z the û Medicinesguâ r^cto V o /ûao oronôu^'^ co r c royân Agency

tn produce documents and, i[ necessary, provide tomticnmnyz See Docket #b0. I}e±eodootm"

` The Hague CoovumLionnn the Taking of Evidence Abroad io Civil mrCommercialMatters, Mar. lW ` 1970` 23\].S.T. 2555,T.LA.S. No. 7444.

z By letter, Plaintiffs revised the scope of their document requests after the motion wasfully briefed and then invoked for the firat time English Law, The Evidence (Proceedings iu

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move pursuant to Fed. R.[iy.P.]2(b)(6) and g(b)to dismiss the First Amended Complaint in

its entirety against all Defendants for failure to state uclaim, The motion tm dismiss ioDENIED

umtoDefendants s8nofi, Le Fur, and Spek. The motion to diazoimm is GRANTED unto

Defendants Dnhocq ` Cluzo|, Lehner, Greene, and Leroy.

BACKGROUND

A. PARTIES

sanofi-aventis SA (-sanofi") is the third largest pharmaceutical company in the world.

First Amended Complaint (^^F/\C')jj20. Its depository shares and depository receipts trade on

exchanges around the globe, includin g the New York Stock Exchange. The Individual

Defendants are uonofi executives who were involved iu the development ofrimonuhun1uma

commercially viable drug. FAC 21-26. Plaintiffs are purchasers o[eaoof-i securities during

the period oI February 20,2O06, through June l3,2007(beruiuotter, "Class 9oriwd"), who were

allegedly damaged as a result of sanofi's and the individual defendant's violations of federal

securities laws. F/\C ^2.

B. PROCEDURAL HISTORY

After initially filing separate lawsuits, Plaintiffs filed aConsolidated [ncnplaicd uaaofiug

section IQ(b) and section 20(a)claims. See Docket #2O, This Court dismissed Plaintiffs'

Consolidated Complaint ou Defendants' motion. See lonuSunofi-Avcndio Sees. lJtig.,20O9

LJ.8. Dist. lJEX]S8@580(S.I}.I^.l,. Sept. 25,2809), available ol Docket #54; see also Docket #

23(De/bodaoto"Modoo).

To the Memorandum Opinion and Order, this Court dismissed Plaintiffs' section lQ(h)

Other Jurisdictions) Act mfl975. See Letter from Laurie LLuzgen&. Plaintiffs' counsel, (othe]{oo. George B. Daniels (November 23,20lO).

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claim uothe grounds that: (I) Plaintiff had failed to identify any actionable misstatements ` or

material mmicdmm' 4 and (Dthe Consolidated Complaint failed to adequatelyplead acienter.`

This Court also dism issed the section 2(Vo) claim for failure bJ allege @ violation under

section 10(b). See id. al*22.

Piojnbffs subsequently moved for reconsi deration

tm the extent of granting PlobdVTb

leave i000zend. See Docket #56. This Court granted Plaintiffs' motion, havin g found that the

z This Court considered three alleged misstatements. See id. at *ll (eumnzudzioga1edernooia in Consolidated Complaint (^CC")1 1^ 102 ` 109" 110); see also id. at *10 (noting that"Plaintiffs conceded that the m ajority of the allegedly misleading statements in the complaintwere unmo1iomuhle`). This Court concluded that the Consolidate Complaint "faiUodl to set forthfacts showing that |I)lcfenduota misstated the frequency with which negative side effectsoccurred among the studies' subjects or misrepresented the test patients response to rimonabantvis-a-vis the patients receiving placebos." Id. at *14. Rather, "taken in. context with the publiclyavailable daiu," the alleged misstatements "urnouot[ed] to little more than expressions ofopinion." Id.

' Plaintiffs identified Defendants' failure to disclose omitted safety data abouthnnouabant. This Court found that the alleged omission was not actionable because "Plaintiffs[did] not allege that |oluom1Ibdoificd study data or that |I)lefeodmota concealed clinical datagathered io the trials from either the investing public oz the PIJA." ki a1*l0. The Courtthat Plaintiffs "failed to identify any specific safety data that was omitted from sanofi's publicdisclosures which defendants had an afflintative duty to disclose," id., having conceded at oralargument that "[Z)]o[endon1m did not have uua[finnu1ive duty to disclose either the contents ufthe FDA's upprovablo letter or [e]aoofi ` aroapoose tborutn." I[ at *16 n.3.

^ This Court found that Plaintiffs' allegations failed to establish either azuotive andopportunity to commit fraud orreckless. This Court reasoned that Plaintiffs profferedgeneralized motive — narriely, avoiding increased scrutiny and the existence of pipeline problenisendemic in the pharmaceutical industry at large — that, even if sufficient, was rendered untenableby Plaintiff's allegations regarding the public dissemination o[ the clinical study data at issue.Id. o1*l0'2O. This Court also reasoned that "[flt was not reckless for defendants to interpret thedrug's side effects to be either statistically insignificant orinsufficiently severe to prevent FZ)/\oppnmvable.^ ~ Id. a1*Zl Plaintiffs, the Court explained, could not "create an inference uf fraudbased on recklessness by simply alleging that [s]anofi 'might have been more cautious orconcerned' about neoative drug side effects or that they could have interpreted the clinical trialdata inu more conservative faublon." hi_

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proposed complaint "cures the fatal deficiencies in the Consolidated Complaint and

pleads violations of the federal securities lovva." See Docket #03. Plaintiffs subsequently filed

the First Amended Complaint. See Docket # 64.

C. rimnmmmbmmk

rimonabant is a compound that directly affects the brain's hunger signal by reducing tile

craving for food. FAC J[4.lu April 2O05,maoofi filed uNcnw Drug Application (^N[}A`)with

the United States Food and [}nzg /\duzinim{zaiioo (^^FD/\'') to use and promote rinuonahuoi as u

treatment for obesity iu the United States. F/\C 113. On an unknown date, the FDA

subsequently asked for information about suicidality' in the rurionabant clinical trials. FAC 4 6.

Sanofi, also on an unknown date, produced records of several cases of suicidal ideation that had

not been initially reported in the ND/\ioresponse. FAC116. Plaintiffs allege that these records

showed a "signal" of suicidality pursuant to the World Health Or ganization' s definition of the

term. FAC 116.

(]m February l7,2006,the FDA sent a000fi,u letter stating that "review o[ the proc6uica|

and clinical data raised concem about associations between rimonabant and increased

frequencies mfpsychiatric adverse events, including emicida|ih/." PAC 'l 7. The FDA directed

sanofi to obtain a formal, independent assessment of the link between rimonabant and suicidality

from [)c Kelly Posner o] Columbia University. FAC^J[7-Q.

{)n October 36, 2006, manofi muhuzittu1 the results from Dc. 9omoec`m study. FACI M

Plaintiffs allege that "the assessment showed a definite link between rimonabant and suicidality,

^ ^^QuioidaJity` or "suicidal ideation" are terms of art that are used to categorize oruogoof suicidal thoughts from fleeting suicidal feelings to the planning of a suicide attempt. FAC1-1^1


with many more patients taking rim000bunt developing suiui6 yliry than patients taking ."

FAC1 18. Plaintiffs also allege that "the link between rimonabant and auiddalitywas

statistically significant." FAC 1110.

On June l3,2007.the FDA held umeeting regarding therimmnabant application. EAC^

l6. The FDA disclosed the auicidu|i in1b000tmm that maowb had submitted on October 28,

200h, stating that -1olooparedto placebo, 2Onog rinzooahand statistically significantly iuoreoVs]

ouicido|i1y...."F/\C j l6. The FDA Advisory Committee of experts unanimously

recommended that the FDA deny muuoDà application for rimonabant. F/\C^ 16. 8auoO

withdrew its application before the FDA issued u final decision. PAC ^|8.

STANDARD OF REVIEW

A. 12(b)(6) STANDARD

^Îo survive u motion to dismiss, u complaint must contain sufficient factual rna1(cr,

accepted aa true, tn 'state u claim to relief that iu plausible ouits fbce."' Ashcroft v. TuhuL 129 S.

Ci. 1937,I949 (20O9) (quoting Bell Atl. Corp. v. Tvvon/bby, 550 U.S. 544, 57O(2807)). This

standard i»ruoi "when the plaintiff pleads factual content that oDmvs the court to draw the

reasonable inference that the defendant isliable for the misconduct alleged." bl z\court should

not dismiss acomp1uio1 for failure to state oclaim if the factual uUoQaiioua sufficiently "raise a

right to relief above the speculative levci" Tnmmbl}\550{}.8.at 555

The task of the court in ruling on a motion to dismiss is to "assess the legal feasibility of

the complaint, not to assay the weight of the evidence which might be offered in support

1bozmo[" Inmc Initial Pub. Offering Sec. Lid&,383 F.Sopp. 2d586,574(B.D.N.Y.2005)

(internal quotation marks and citation omitted). The court must accept all well-pleaded taotou]

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allegations tu the complaint as true, and draw all reasonable im the plumi diffs favor.

Chambers v. Time Warner. loc.,2Q2P.3d|47 " |52(2dCir.2V02). bo deciding u motion tV

dismiss, the Court im not limited to the face o[ the complaint. The court "may [also] consider any

written instrument attached bm the complaint, statements or documents incorporated into the

complaint bv reference, le gally required public disclosure documents filedwith the SEC, and

documents possessed by or known to the plaintiff and upon which it relied in bringing the suit."

/\?8lCon/cocbmv. Sbuar Fund. [td,493E3d07,gQ(2dCiz.2O07).

Lo the context of securities fraud claims, u complaint must meet heightened pleading

requirouzcn1m. A plaintiff must "(])specify the statements that the plaintiff contends were

fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4)

explain why the statements were fraudulent" pursuant tn Fed. ]I.Civ.9.9(z) and the Private

Securities Litigation Reform Act ofl g95(^.PSLlA`). Id. a199; see also l5[/.S.C.8

78u-4(b)(1). The PSLRA also requires that "if an allegation regarding the statement or omission

is made on information and belief, the complaint shall state with particularity all facts on which

that belief is fbrmod." 15 U.S.C. § 78u-4(b)O\.

B. SCOPE

This Court dismissed the Consolidated Complaint in its entirety after reviewing all of the

factual. uDoguiions. This Court did not, ua Plaintiffs contend, consider some Vf the alleged

nnioatutemoouia and omissions and preserve others. As reiterated at the (}na/ Argument on the

boe1uui motion, "the n|lcgcdiunu in the consolidated oonmpluint |vrorcJ totally insufficient" 10

sustain uRule 10-b(5) claim. See Oral ArgumentTranscript (November 3O,2OlC), o137.

Accordingly, this Court will not entertain "debate . . . about the sufficiency o[the allegations in

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the consolidated uoozp\uint." ki

this Court never addressed whether the misstatements or omissions

in the Consolidated Complaint were inherently insufficient as a matter o[law. Contrary to

Defendants' assertion, the mere fact that many ofthe factual allegations iothe First Amended

Complaint are verbatim or substantially similar to those in the Consolidated Complaint does not

preclude Plaintiffs from having sufficiently pled u section 10(b) or section 20(u) claim. The

issue onthe instant motion iawhether, in light of the differences, the factual allegations iuthe

First Amended Complaint are "different and clearer and sufficient to overcome . . . the

deficiencies."' kl a137-30.

SECTION 1O(b)CLAIM

Section ]0/6l makes it unlawful to ^1mo or employ, in oouuocdum with the purchase nr

sale o[ any security. .. any manipulative ordeocptive device or contrivance io contravention of

such rules and regulations aathe [SEC] may prescbhc." 15D.S.C.§78i(b). SEC Rule lOb-5,

l7CYR. 824O.l0h'5(6), states that d "shall bo unlawful for any person . . . [Uo make any

untrue statement ofomaterial fact oc1n omit io state a material fact necessary io order 1omake

the statements made, in the light of the circumstances under which they were made, not

misleading." 7w state a claim ina private action under section lO(b) and Rule lOb-5, upluintiƒ7

niust prove "(1) a material misrepresentation or ornission by the defendant; (2)anieutcr; (3) a

r To aid such an inquiry, this Court requested post-oral argument submissions from theparties. See Oral ArgumentTranscript (November 3O ` 2Ol0),u138-S9. (}u December ],20lO'Plaintiffs submitted a redline version of the First Amended Coznpioju1 identifying the new andamended allegations. [)u December l3,20\0, Defendants submitted u letter brief addressingwhy the allegations iuthe First Amended Complaint are not substantively different from theoriginal Consolidate Complaint. <}n December 20, 2010, Plaintiffs submitted ureapooam.

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connection between the misrepresentation mronziaui000udthc purchaseor sale oFu security; (4)

reliance upon the misrepresentation or omission [or transaction causation]; (5) economic loss;

and (h) loss cauaatioo." Inv, Partners, LLC.nSoieotific-&1\a\4.lnm.,552l].S.

i48,\57(0(0) (citing 0maPbmtua_ Inc. v.Bmudo,544D.S.B6,34l42i2050; Gmbmr.

CidzensDti\u. Co.,228F.3d 154, 161 (2dCir. 2000). Here , Defendants dispute only the

sufficiency ofthe F/\C with respect tothe first and second elements.

A. MATERIAL MISREPRESENTATION OR OMISSION

l ' Legal Standard

An omission is actionable only if. (a) the omitted fact is material; and (b) the speaker had

odnty to disclose the omitted fact. See Basic Inc. v. Levinson, 485U.S. 224,23l-32(l9d8);see

also id. u1239n.l7 /"[s]i|onco, absent a duty to disclose, ix not misleading under Rule 10b-5.`l;

Resnick v. Srvmrtr ` 303 P.3d 147, 154 (2dCbc 2002) ('.Poroo omission bohoactionable, the

securities laws must impose a duty to disclose the omitted information."); Z\/l Trading Corp.

Employees' Money Purchase Pension Plan & 7,numt v. Roam (hi re 1,inzo Warner Inc. Sec. Ljdg],

9F. 3)d259,267(2JCic l99])(^^|A|n omission is actionable under the securities laws only when

the corporation iasubject tooduty to disclose the omitted fadm.`).

The materiality mfauomitted fact depends upon whether there im^û 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 avuUub|u." Basic, 485 |J,S, at

23l-32(l980) (quoting TBCIudux., Inc. v.No 1oc.,42bLJ.S.438`449(1976)). Âfaot

istobo considered material if there is uoob*(andul likelihood that u reasonable person would

consider it important in [making investment dcoisioos]." /1rdelU v. Cohen Law Offices, 21 P.3d

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512, 518 (2d Cir. 1994). "Materiality is a mixed question of law and fact." Ganino v. Citizens

Utils. Co., 228 F.3d 154, 162 (2d Cir. 2000) (citing TSC Indus., 426 U.S. at 450). Thus, in the

context of a Fed. R. Civ. P. 12(b)(6) motion, "a complaint may not properly be dismissed ... on

the ground that the alleged misstatements or omissions are not material unless they are so

obviously unimportant to a reasonable investor that reasonable minds could not differ on the

question of their importance." Id. (citations omitted); accord Halperin v. Ebanker Usa.com, 295

F.3d 352, 357 (2d Cir. 2002).

There are two types of disclosure obligations. A duty may arise "expressly pursuant to

an independent statute or regulation" — i.e. an affirmative legal disclosure obligation. TheslinR

v. Biocnvision, Inc., 374 Fed. Appx. 141, 143 (2d Cir. 2010); see also Glazer v. Formica Corp.,

964 F.2d 149, 157 (2d Cir. 1992). Or, a duty may arise "as a result of the ongoing duty to avoid

rendering existing statements misleading by failing to disclose material facts." Thesling, 374

Fed. Appx. at 143. When a corporation chooses to speak, it has a "duty to be both accurate and

complete." Caiola v. Citibank. N.A., 295 F.3d 312, 331 (2d Cir. 2002). This "means only

[revealing] such [facts], if any, that are needed so that what was revealed would not be so

incomplete as to mislead." In re Bristol Myers Squibb Co. Sec. Litig., 586 F. Supp. 2d 148, 160

(S.DN.Y.2008) (citation omitted); see also In re Morgan Stanley Info. Fund Sec. Litig., 592

F.3d 347 (2d Cir. 2010); Marsh & McLennan Cos. Sec. Litig., 501 F. Supp. 2d 452, 469 (2d Cir.

2006); In re Time Warner, 9 F.3d at 267. "[A] corporation is not required to disclose a fact

merely because a reasonable investor would very much like to know that fact." In re Time

Warner, 9 F.3d at 267. Nor is a corporation required to reveal all facts on a subject by revealing

one fact. See In re Bristol Myers, 586 F. Supp. 2d at 160 (citation omitted). However, "even an

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entirely truthful statement may provide a basis for liability." Id.; McMahan v. Wherehouse

Entertainment, Inc., 900 F.2d 576, 579 (2d Cir. 1990) ("Some statements, although literally

accurate, can become, through their context and manner of presentation, devices which mislead

investors. For that reason, the disclosure required by the securities laws is measured not by

literal truth, but by the ability of the material to accurately inform rather than mislead

prospective buyers.").

2. Duty to Correct/Update: Pre-February 17, 2006 Statements

On March 9, 2005, during a conference call with investors and analysts, Plaintiffs allege

that sanofi presented the results of the recently completed RIO-Europe study. FAC ¶ 46.

Defendant Greene said, "I think at this point, we have looked at the database fairly closely and

no concerns have arisen. And as you know, we're well along in amassing the entire [safety]

database." FAC ¶ 46. Defendant Cluzel said, "On suicide, in fact, we have no signal. And if we

have one signal, it is in placebo. So, no problem." FAC ¶ 46. Plaintiffs allege in their

opposition memorandum to Defendants' motion to dismiss — but not in the FAC — that these

statements became false and misleading when sanofi received the FDA's approvable letter on

February 17, 2006. Plaintiffs contend that sanofi had a duty to correct, retract or otherwise

update its prior statements about safety and suicidality but failed to ever do so.

"[I]t is axiomatic that the Complaint cannot be amended by the briefs in opposition to a

motion to dismiss." Kosovich v. Metro Homes, LLC, 2009 U.S. Dist. LEXIS 121390, at * 15 n.6

(S.D.N.Y. Dec. 29, 2009) (quoting O'Brien v. Nat'l Prop. Analysts Partners, 719 F. Supp. 222,

229 (S.D.N.Y. 1989)); Islam v. Goord, 2006 U.S. Dist. LEXIS 71853, at *2 n.2 (S.D.N.Y. Sept.

29, 2006) (collecting cases); Fadem v. Ford Motor Co., 352 F. Supp. 2d 501, 516 (S.D.N.Y.

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2005) ("It is long-standing in this circuit that parties cannot unlezu± their pleading's

through issues raised solely in their briefs.") (collecting cases). Nevertheless, even considering

the newest set o[ allegations outberDerit , neither of the March 2005 statements are actionable.

The duty to correct, contrary to how Plaintiffs have characterized sanofi's alleged

disclosure obligation, is distinct from the duty h up/ate. `The duty to correct applies when o

company makes u historical statement that at the time made, the company believed to be true,

but as revealed by subsequently discovered information actually was not." Kowal v. IBM (In re

IBM Corporate Sec ljtig], 163 F.3d 102, ]O y 2dCir. 1998) (citation omitted). It arises -If and

when a speaker ]earns that a prior statement was misleadin g when made." Id. Alternatively, "[a]

duty to update may exist when a statement, reasonable a1 the time itiS made, becomes

misleading because ofo subsequent cvout.`` Id. utIlO. It, however, im not without limits. It

does not extend to: (l) "vague statements uf optimism ur expressions ofopioiuu"; (2) uio1ezneo\a

that are "not forward looking and do[] not contain some factual representation that remains

,alive' in the minds of investors as a continuin g representation"; or (3) statements that are not

uauLnria|. ki (citations omitted).

Plaintiffs have pled insufficient facts 10 establish that Defendants had any disclosure

obligation with respect to the March 2005 statements. The March 2005 mia1ccoonts conoui form

the basis for u duty iocorrect. Plaintiffs offer uo factual allegations demonstrating that the

oto1czneuta at issue were false u/ the time that they neremade. Here, it would require that mono6

had information conveying ouicidm1itynso"aiguu|"oru"ooncern"inMarch2UO5—oot,00

Plaintiffs allege, that such iubonrimtion was obtained 6yauuoGuftur the smtemam/ was muJeand

I


thereby now invalidates the pr i oro1u1cmcntx. x The March 2OO5 statements also cannot form the

basis for u duty to update. The statements are not fbm,ard-|ooking. Furthermore, the broader

context 0fdianumuin^t^cr^G^11DVFunccon1c^^^co]h^^^ ^ ^3vvoUomtbc|inmiîu^l^Dû^ê used by

both Defendants, l^^ l^^ ^r:uo0âb/o iO understand [ba1 oo^ wasconveying'

0 ^ a,v/8u &v^ investoruu a

only the currently available safety information, rather than projecting orpo:dictingLboovenuU

safety profile mfricoouubuu1. Thus neither of the March 2OO5 statements uo alleged are

actionable as fraudulent misrepresentations.

3. Duty to Disclose

The remainder ofthe F/\C identifies omissions byoummfi during the Class Period when

mauofiaffimuudvely spoke about the FDA approval process and dmouahun('o safety profile.

Plaintiffs allege that sanot"i publicly touted rimonabant and released only good news about

rirnouabunt. Plaintiffs contend that, as 000uaequcuoc, onnob's statements misled investors

regarding the commercial viability of rimonabant by — namely, "leading investors to believe that

there had been no material change to the likelihood of FDA approval," and that "everything was

going fioewith the FDA review procema,"by withholding bad news such u y information about

the FDA's concerns and the risk ofauicida|dy. FAC ^9 ' 12; Oral ArgumentTranscript, m147.

y|uiuiiDfs argue that these disclosures were required, not hyuu uƒfiouo1ive legal obligation, but

rather by the duty tohc complete and accurate when making public statements.

Here, Defendants are not entitled to dismissal o{ the Ff\C ou the basis that they lacked u

^ The strongest allegations — namely, sanofi's produc tion of records of severaladdi tionalcases of suicidal ideation and the FDA's requirement that asmofi obtain ofbouu| assessment o[upossible link between dozouobaut and auiciduJity— identified by Plaintiffs refer to events tha t

occurred after March 9`2OO5.

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^ ^ »^^W^sC^&e the G^cid^tr^^Dn^mz. Rather, based upon the FAC, san0fi is

corporation that was regularly commenting about a pending drug application and Plaintiffs target

the misleading iolo[mm(ium conveyed b» those statements, SaDofi had ununvvaivab|u duty tobe

both accurate and complete when it spoke toinvestors. Regardless of whether Inc

Carter-Wallace, Inc. S*c^ Ljdg. or its progeny ioqposeJuuaffirmative disclosure obligation on

uunofidurog the Class Period, the absence of an affirmative obliga tion does not shield a drug

corporation from disclosure obligations that maybe imposed by other independent 'grounds. 150

F.3d153 ' 157(2dCir. l9YQ)(Codcr-Wollo»eU; cf. Cain|u,295F.3du{33I(^^[I-]bo lack ofuu

independent duty is not ... a defense to ... liability because upon choosing to speak, one must

* Cudm-YVulluco l provided tbut°[d]rug companies need not disclose isolated reports ofillness suffered by users oI their drugs until those reports provide statistically mi ifiouoievidence that the ill may bucaused by — rather than randomly associated wid-'ueoofthedrugs and are sufficiently serious and frequent to affect future carningm." See also In reCarter-Wallace Sec. /jiig. (Carter-WallaceU) ` 22UF.3d30,4\ (2dCk. 2000) (^^Cudcz-YVaUucehad no sound reason to doubt the commercial viability of Felbatol or the value of its inventoryuntil the reports of Fe1hgo|-uasouiutcd deaths became statistically miguiflcuod.''). However, theSupreme Court recently rejected dzcbrigbi-linerulc expressed in CuoLor-\Yol|aoo lbyholdingthat the mere absence of statistically significant evidence does not demonstrate a lack ofcou1oriu|iiy:

Application ^f Basic's "total mix" standard does not mean that phanna mbm)manufacturersmust disclose all reports o[ adverse evooVs. .. . The fact that u user ofa drug has suffered uuadverse event, standin g alone, does not mean that the drug caused that event. The questionremains whether a reasonable investor would have viewed the nondisclosed information ashaving significantly altered the "total mix" of infoiniation made available.... [T]he mereexistence of reports of adverse events -- which says nothing in and of itself about whetherthe Jzog is causing the uJrerao events — will not satisfy this standard. Something more isneeded, but that something more is not limited tostatisticalsignificance andcan comefroin"the source, content, and context of'the reports. This contextual inquiry may reveal in somecases that reasonable investors would have viewed reports vfadverse events ua material eventhough the reports did not provide statistically aignifiountevidence ofo causal link.

See 88u1hxs Initiatives. Inc. v.5ioaoua000,2011O.S.LEX1S24\h ` at *2V-3U(U.S. Mar. ZZ,2O\l) (internal citations and quotation marks omitted; emphas

is added). Defendants' or8ument

is thus unavailing as to both whether un uffi0001ive duty to disclose existed and whether itsalleged omissions were material.

1.3


speak truthfully and "). Defendants have not identified any case law oc statutes or

rcû|ud ooonaLbxtau^^^mtuodhcnvino. ûnoûynotcngugeinuO]ro^divocooductdhu1udolcado

investors under any circumstances.

The issue at the pleading stage is whether the FAC contains sufficient factual allegations

to establish that suuufi`m stutcozno1a were misleading (i.e. duty to disclose) in light ofthe

omission o[onaioiol facts (ie.zuutchalitv). The Second Circuit has "dra*nndistinction

between concepts ofu duty to disclose and ';honevur,./bcroibodutytodisc1000

mdnea from uneed to avoid false o, misleading statements "the inquiries as to duty and

coalesce." bz Time 9^3d ^2b7 (citing

^^l Formicamaterialitycou âc^. r^ /cuc , ^ a uzc/ v^ Corp., 964

172d 149, 157 (2d Cic. 1992)l. A plaintiff need only demonstrate the materiality of the omitted

facts because "[flf a reasonable investor would so regard the omitted fact [as material], it Is

difficult 10 imagine u circumstance where the prior statement would not he rendered misleadi ng

iu the absence of the Jisc|aounu." Rta1^67-03^ ^^l^bo|b^r |{bôoni^^d fact] cmoa(itudcu oiu\eûl` ^

information, and whether nondisclosure of the [omitted fact] renders the orig inaldimc]ouorc

misleading, remain questions for the trier of fact, and maybe resolved by summary iudgment

when <boro is no disputed issue of material fact.' ~ bL at 268,

u. Statements Made After February /7, 20A6, and Before October 26, 2006

The [AC identifies three atuteoco{aooudcaftczFebruory/7,20Vh,[be date ouwhich

ounofi received the FI)Auppnovub1e letter, and before October 2'17 , 2006, the date nmwhich

sanoD submitted the results ofDr. Pooncr"o independent, bucou| assessment iothe Fl)A. m Each

" The summary chart attached to Plaintiffs' December 20, 2010, post-oral argumentsubmission iden1ificmthree statements during the time period in question but does not list the

14


of these statements are alleged Nbe"false and misleading" because of the following omitted

facts: (l) the FDA's concerns regarding the relationship betweendmonabant and suicidality//;

and (2) the FDA's request for an independent formal assessment 0f the risk 0fauicidality.0

One statement alleged during this time pcn* od constitutes an actionable omission. On

February 24,20Od, Plaintiffs allege that sauoD held a fourth quarter 20D5 earnings conference

call for investors and analysts. FAC1 50. Gauufi allegedly made a presentation that emphasized

the enormous market potential for rimonabant in the United States and confin-ned a third quarter

or fourth quarter launch date. F/\C1[50. Suoob, through Defendant l.c Fur, discussed the

February l7 ` 2UO6 FDA letter regarding hcuoouburt,stating:

So as you know, iu the uou-approvmhle letter that pve received *u Bimooubao( ` theFDA asked mstoperfhonan additional clinical study in smoking cessation. Butin the uypremzbleletter, no additional trial im obesity has been requested kvtheagency and v/e will meet the FDA io the coming vvueko to address uUrenzoioiogissues.

FACj|5|.

An investor could have understood this statement to moan that, with respect to

rimouabant as an obesity drug, the FDA had made no other requests and/or that the FDA

August 2,2000 statement alleged in paragraph 58nf the FAC.

// "After submission af the dcuouubazdNDAin April 2O05,the FDA had requested andSmnofi had produced additional patient records that showed o`sigoa|'or possible causalrelationship bo"wcourinonubmm1 and auioidality. Based on that production ofmuioidu6h/dataand as a result of the FDA's concerns about the association between dnumuabau(and increasedfrequencies of suicidality, in Februar y 2006 the a gency required defendants to reassess the datafrom the o|iuiou| trials to iovemdgo1c for other cases ofuuicidoiity." FAC III 52(u) ` 59(u).

/z "The FDA required defendants to obtain aoindependent, formal assessment of the riskofmuioldaliiy from Dr. 9ooner^m group mt Columbia University io order io investigate the signalfor suioidu1ity detected during review of the NI)A." FAC 52(h), 59(h).

15


approval process was on track without any major concerns. This statement specifically

addresses the content of the February 17, 2006 FDA letter, and disclosing the omitted facts may

have provided a more complete picture of rimonabant's approval status, and thus significantly

contributed to the total mix of information available to investors. Plaintiffs' factual allegations

are sufficient to establish that the omitted facts were material and thereby that sanofi may have

come under a duty to disclose one or both of the omitted facts.

The remaining statements during this time period are not actionable as alleged. On March

22, 2006, during a conference call for analysts and investors discussing fiscal year 2005, Plaintiffs

allege that sanofi again made its February 24, 2006 presentation, but that an unidentified sanofi

representative stated, "You know everything concerning rimonabant." FAC ¶ 55. 13 This

statement constitutes mere puffery - i.e. an "exaggerated or general statement[] that make[s] no

specific claims on which [reasonable persons] can rely." Pelman v. McDonald's Corp., 237 F.

Supp. 2d 512, 528 n.14 (S.D.N.Y. 2003). No reasonable investor could have been led by this

statement to believe that sanofi had publicly disclosed all available information regarding

rimonabant. 14 A reasonable investor may have expected, as Plaintiffs contend, that they were

aware of the material facts about rimonabant, but such desire to know did not impose a duty to

disclose upon sanofi." Even the mere fact that Plaintiffs can identify infornation not known by

13 "You know everything concerning rimonabant. 1 can just add that we are currentlyworking with the FDA concerning rimonabant, but I'm sorry to say that but you're pretty sure ofwhat I said that I will not comment anymore about rimonabant." FAC ¶ 55.

" Plaintiffs admit this conclusion: "Standing alone, an assertion that `you knoweverything' could be passed off as unactionable hyperbole and, of course, investors did notexpect to know èverything' about the drug." Pls. Mem., at 12.

1' The omission of facts that may be material or significant by hindsight does not rendertheir omission at a prior time misleading. This Court must engage in a statement-by-statement

16


investors does T10t render this statement materially false, absent a demonstration that such

information should have been known pursuant to some duty to disclose. Thus, this statement

constitutes puffery and isnot actionable auu matter of law. See Novak V.Ka8auks ' 7\6 F.3d 300,

315 (2d Cir. 2000 1) (material facts do not include "statements containing simple economic

projections, expressions of optimism, and other pufferv"); accord Rombach v Cbuns,3j5F.3d

164, 174 (2d Cir. 2004) ("expressions of puffery and corporate optimism do not give rise to

securities violations").

On May 5.20Ob. dur ing uconference call for investors and analysts discussing first

quarter 20O6 earnings, Plaintiffs allege that saooDresponded tn questions regarding the launch

date for riououmbuntin the United States. FAC 1155. Defendant Spok stated that ^^[W]e are still

planning and we continue to plan for a launch also in the U.S. in the second half of 2006." FAC

^56, " This statement expresses gcnood corporate optimism regardin g dmouubantand thus is

analysis to make such ado1ooniva\ion at the pleading stage.

16 The entire exchange reproduced iu the FAC 1 56 in as haUo`vo:

[PRUDENTIAL SECURITIES AYJAIYST]: Thank you. A few questions. Oil Aooroplia,unoyouguysstill lu@ingforu second 6ulf/JAV6/launch in the U.S.?

^`+

[8yGK]: Tim, thank you for your questions, 0uAumoplia,I think vvc can say absolutely nothing else.We remain confident and prepared to launch Acomplia during the second half of 2005 - in 2006,excuse me. We remain ino permanent exchange with the FDA.

*^^

[B&ERR[L[ LYNCH y

^NA[YST]: Hi, good morning. 76ao^s for taking oyquc yriona. Firstly, onAccomplia. can you just confirm that you have had a meeting with the FDA post your approvable letterand Uzmt]wmr second &wlflaunch guidance is based *o the discussions you've hadJ0nnm that rmoedmgy

[SPBK]: Then, on the ongoing conversation with the FDA, I cannot confirm to you that vvu had onemeeting, uy your question has been posed. I said earlier that vve are bna permanent dialogue with theagency and I have nothing to add to this. But as also previousl y stated, yes, we are stillplanning and wecontinue m plan for u launch also ie the U.S.6x the second 6x//of 2806.

17


not actionable uau matter of law. /r See Rombach, ^55F.3du1I74; Novak, 216F.3dat315.

Plaintiffs have failed 10 plead sufficient factual uUer»tooa to demonstrate that this

statement constituted something other than oreuuioc corporate optimism, Plaintiffs never allege

any facts that would demonstrate that, at the time the statement was made, Defendants were

either not planning for a launch in the second half of 2006 or not planning to continue such

efforts in the ft[turc. P\uio{lDb have also riot alleged any facts that would demonstrate that u

reasonable investor could have understood this statement to convey u guarantee about the timing

or success o{ the dmomouhunt|uuocb." Whether oanob'u optimism was, byhindsight,

uon'urrun1cd ^^do[ca] not give rise to securities violations" because '^[u]p to ayuio\, companies

ouuothu permitted (o operate with m hopeful ou1look." Bbuzhuob,355F.3de1l74(cidn~Shields

nCit)druat Bancorp, Ino.,25F.3d|l24,l|2 g-]U(2d CIT. l994)).

b. Statements MadeA/ter October 2di2006, and Before June /7,%P07

The F/\C identifies five statements made after October 20,2OOO, the date ouwhich

oaunU submitted the results ntDr. Posocr"siodopcodeot, formal assessment 10 the FDA, and

before June l? ` 2OO7,the date nn which the FDA disclosed the uuicidulity information ou

buumnohanL /v Each statement is alleged to be "false and misleading" because of the omission of

various facts.

Three mtuiumcn1u identified in the F/\C involve aonofi'm interpretation of the results of

/r The PSLRA safe harbor ia inapplicable because the statement "has both aforward- looking aspect and an aspect that encompasses a representation oIpresent tacL" In reNunolNeiwotko Corp. Sec. Litig., 238 F. Sopp. 2d 613 ` 629 (S.[).N.1/. 2003).

m The FAC lacks any factual allegations regarding the falsity of sanofi's statementat thetime i{ was made, precluding the duty incorrect. The Ff\C also lacks any fails to establish uduty io update because aanoD made u general statement ofnphonism.

m^The summary chart attached to 9}ubdiDs` I)eoeuzbcr 20, 2010 ' post-oral argumentsubmission identifies five uiuiemco1s during the time period inquestion.

l8


rimmnabant clinical trials. On October 27,2(06,sanofi ` s press release announced the

publication uF the RIO-0iabetcs Study, stating that "results of[IO Diabetes] were

with the data from the entire RIO [ i clinical trial programme . . . . Side effects were

mainly mild, transient, [uud- self-limiting ,...`` FAC ^6^. (}n November 4,20Ah. during m

conference call hosted by Credit-Suisse, Plaintiffs allege that Defendant Cluzel and another

ouonD representative made a presentation on the market for rimouubmz. PAC ^b9. One ofthe

slides stated Lbo1: "Long term exposure did not identify new or increased rinko." FAC 1î 69.

Finally, on December 5 ' 2086, during o conference call for analysts and investors, Plaintiffs

allege that snuoOproocnted the results uf the SERENADE clinical trial. Defendant Green stated

that, [T]he safety profile was consistent with what we've seen in the past, which we found

rouomurine." FACJ| 72.

Plaintiffs challenge sanofi's publicly stated interpretations of the results of various

clinical studies, statements which are essentially no different than opinions .2' To property plead

that such statements were materially misleading, Plaintiffs must "allege 'with particularity'

'provable facts' to demonstrate that the statement ofopinion io both objectively and subjectively

bdae." Bond [}ôoduni1 'Fuodv. TJoUabCorp., 2003 U.S. Dist. LEXIS 7838, at *I5 (G.l}.N.1/.

May V ` 2003) (citing Va. Bankshares, Inc. v. Sandberg, 5OlTJ.8.lUO3`l094(lPgl)),a8Pd,87

[ed. Aopz.772(2dCir. Feb. l0 ` 2OO4) (summary on]cz); see also Pudauyv.Robertson

Giepbeox, Inc., 318 F. Sopp. 2d 146` 154(SD,N.Y. 2004) ("[A] material misstatement of

opinion is by its na1ocu utblms m|a1onnoo1 ` not about the objective world, but about the defendant's

own belief Essentially, proving the falsity ofthe oLatenncu1 . is the same as provin g ocicnter,

2() persons may disagree over how tm uoo)yzn data and interpret results, andneither lends itself <o objective conclusions.

19


since the statement (unlike a statement of fact) cannot be false at all unless the speaker is

knowingly misstating his truly held opinion."). That is, Plaintiffs "must show both that the

[Defendants] did not actually hold the belief or opinion stated, and that the opinion stated was in

fact incorrect." Id. (emphasis in original; citations omitted).

Here, the FAC lacks sufficient factual allegations to satisfy either requirement. Plaintiffs

cannot premise a fraud claim upon a mere disagreement with how sanofi chose to interpret the

results. 21 Plaintiffs never allege any facts, even on information and belief, demonstrating that

sanof's publicly expressed opinions were different than or contradicted by the true opinions of

sanofi or any of the Individual Defendants. There is no basis to conclude that sanofi

characterized the results of the clinical trial or rimonabant's safety profile in a manner

inconsistent with what they believed to be the truth. Plaintiffs have also failed to offer any

specific allegations of contemporaneous institutional knowledge that could be ascribed to sanofi

that rendered the publicly expressed opinions false. None of the omitted facts identified for each

of the statements raise a conflict between sanofi's knowledge and its publicly expressed

opinion .2' Therefore, none of the statements of opinion are actionable.

2 ' See In re Salomon Analyst AT&T Litig., 350 F. Supp. 2d 455, 466 (S.D.N.Y. 2004)("It is not sufficient for these purposes to allege that an opinion was unreasonable, irrational,excessively optimistic, not borne out by subsequent events, or any other characterization thatrelies on hindsight or falls short of an identifiable gap between the opinion publicly expressedand the opinion truly held."); Podany v. Robertson Stephens, Inc., 318 F. Supp. 2d 146, 154(S.D.N.Y. 2004) ("It is not sufficient to allege, as plaintiffs have done in both cases addressedhere, that it would have been possible to reach a different opinion than that reached by defendantbased on information available to defendant at the time, or even that the defendant's opinion wasunreasonable. A securities fraud action may not rest on allegations that amount tosecond-guesses of defendants' opinions about the future value of issuers' stock -second-guessesmade all too easy with the benefit of hindsight.").

22 With respect to the October 27, 2006 statement and the December 5, 2006 statement,the omitted facts do not raise a conflict. FAC ¶¶ 59, 64, 74. The FDA's concerns and requests,

20


One statement identified in the EAC pertains toaaoofi ` u submission of data. On October

]\ ` 2O00 ' during u conference call for investors and analysts, ao analyst asked, "'m7moadditional

data submitted? Was additional data not oVbo/ittcd?"FAC ^ 66. SnDOfi, through Defendant

Spek, responded, "We have received an approvable letter and usually, and also in this case, an

opprovable letter contains questions. \Ve have answered <mthose questions and usthe

/g?prwvub/o letter did not umk6xr new additional clinical trials, consequently it/souoimr/orxne

amxiiy that we have not xmhmmitted new data ba this respect." FAC^0b. Plaintiffs allege that the

otutouzentn/us ^^[a)om and misleading" because ofthe following omitted facts: (u) "the FDA had

requested and sanofi had produced additional patient records that showed a 'signal' or possible

causal relationship hetvecuciruouabont and muicidulih/`; (h) the FDA required defendants (u

reassess the data from the clinical trials to investigate for other cases of suicidality and Dr. Kelly

Posner commenced an independent, formal assessment; (c) Defendants "submitted new data to

the FDA, specifically the results of Dr. Pomncz`s auicidu|ityoouemanocn<"; (d) "the independent

umucssnueut . . . showed a statistically significant link between dnaonuban1 arid auiciJuliiy." FAC

1/67.

as well the results nf Dr. Pomuer`m assessment, are wholly irrelevant to the accuracy ofsamft`sapcci^c characterizations nf the results of either clinical study. The fact that suiciduiiiyimmoreprevalent amongst the rimonabant group than the placebo group (i.e. a result from the RIOstudy) does not address whether the overall safety results of the RIO study were consistentacross houonubuu1trials. Plaintiffs du not offer, for example, [actual allegations ofclinical trialswith substantially different findings from the RIO study orside effects io the RIO study thatwere both serious and pervasive. Similarly, the fact that maoofi submitted results from anindcpcudro1, foonu] assessment separate from the SERENADE study does not address whetherthe overall safety results of the SERENADE study were consistent with what was observed inthe past. Absent additional allegations, neither statement has been demonstrated as false. Withrespect to the November g , 2006 statement, the same is also true. The omitted facto,F/\C ^j 70,suggest that Plaintiffs could have reached a different conclusion but they do not demonstrate thatmunefi`mu(u{enueni are 6dse.

21

'


This statement is actionable because Plaintiffs have alleged sufficient facts to establish

that SPek`m response could have been misleading 0ma reasonable investor. Ihorcwerotwn

truthful but conzplet ^complete responses 8onofi could have declined tn

answer — that is, make nn0000mnoton additional data submissions o(the content ofthe FDA

appnovable\e1tec Or Defendants could have answered ^^yem.` , Defendants, uu identified bythe

omitted facts, had submitted additional data. Thus, io choosing io comment on additional data

submissions, Defendants could not provide a truthful and complete response without conveyi ng

to the public that additional data had been requested and submitted. The mere fact that un

analyst asked the question indicates that it may not have been obvious to a reasonable investor

that ammoO was ouhozddng new data to the FD/\. By answering °°oo," Sock's response could

have led a reasonable investor to believe that sanofi had not submitted new data on some issue

thnt concerned the FDA. This is plausible even with Spek`s "in this respect" clarification. The

reality im that the alleged omitted facts are sufficiently related to this statement that disclosing

such information may have ai 'fioaoUyoon1ribu1cdtodhoto1ulcoiuofbo{brno1ionuvuiimb|oio

iuveutocy . Plaintiffs' factual allegations are sufficient to establish that the omitted facts were

material and thereby that maooG may have oouzc under o duty to disclose some or all of the

omitted facts. Accordingly, this statement imactionable,

The final mto1cmocut identified io the FAC was made in mpnosm re/cumc entitled

'3§rnVmmbaz US: Update" on February l2,2007. FAC^7S. SeooD stated that, "The Group

also announced the submission of the SERENADE clinical study report today in the

23 Au the Court noted x1 Oral Argument oo the pending motion, i<io clear that thereasonable way 10 interpret the analyst's question ia"have You been asked to submit new data oosome issue that the FDA had some concern ebouL." Oral Argument Transcript, at 32.

22


nn/una8a/INDAxmhem/tted&/ the FDA." F/^^^73. This statement is not actionable. This

statement conveys u clear and accurate historical lac{. No ,caaouab}o investor would have

construed this statement to make any representation regard ing any o[ the omitted facts — that is,

the FDA's concern about suinida]ih/, the FDA's request for an independent formal assessment of

the risk of suicidality, the results of Dr. Posner's study that were submitted to the FDA, or

sonofi`m submission of Dr. Poauor"s results. See FAC^ 74. No reasonable investor could have

been mislead to ho]iovc something io contradiction tn the omitted facts. The statement conveys

no infoiniation about the status of the approval process, the submission of data, or the available

results. The omitted [bota do not even relate to the results or findings of the 8EllEN/1DB

clinical study. Plaintiffs cannot seize upon sanofi's use of the word "update" in the title or

sanofi's cursory discussion of the completion of a specific clinical trial to require disclosure of

all facts or results o[ interest imPlaintiffs. The omitted facts are objectively and obviously

uoiozyqrLmd to the statement at issue. Plaintiffs have thus failed to demonstrate that this

statement was misleading.

In sum, dhcF/\C identifies two statements by eunofi that could constitute actionable

omissions — (1) "[I]n the approvable letter, no additional trial in obesity has been requested by

the agcocy,"FAC1 jl; and (2)^^[VY]o have not submitted new du¢a,"FAC ^bb.

B. Soientm

1 'Legal Standard

To state u claim under Section lU0b\ and Rule |Ob-5,a plaintiff must plead, inter a|im,

that each defendant "acted with scienier ' e mental state embracing intent |o deceive, manipulate,

nrdoftoud." TcDubs, Inc. v.Mukoz Issues & Rights, L1d.,55l[].3.908,3l9(28O7)(citing Ernst

23


Ernst v. Hocbfekior, 425 U.S. 185, 193'194 (1976)\. (loa motion k) dismiss, the court

"consider the complaint io its cntiroty,"inqu iring "whether all o[ the facts alleged, taken

cnibcdivc|>\ giverise u/a strong inference o[scicxtor not whether any individual allegation,

scr^îzmdî^luôu,^^^^^^^^.`^ Id, at 323. "NJ court must consider plausible,

nonculpabbexplanatiooufor the defendant's conduct, as well as inferences favoring the

pluiu1i[f." Td. at "/\ complaint will survive ... onh/ifuroaoonublepecoouv,oulddeernUhe

inference of scienter cogent and at least as compelling as any opposing inference one could draw

from the facts ulleged." Id. A plaintiff can satisfy this requirement by "alleging [particularized -

facts (t) showing that the defendant had both motive and opportunity to commit the fraud or '2)

constituting strong circumstantial evidence of conscious misbehavior or recklessness." ATSI

Connno'no. Inc. v. 8bour pund. ltd., 493 F.3J 07, 09(2dCic 2007); oon also 15 U.S.C. 8

78u'4(b)(2) (PSLRA requirement to ^ûtm1u with particularity facts giving rise to am1uoug

inference that the defendant acted with the required roonia| mtu1o, scioo1or.").

2. Motive and Opportunity

Plaintiffs allege that "defendants were . . . motivated to conceal the link [between

rimooabant and ouioidality] in order to gain approval of outstanding drug applications by

regulatory bodies other than the FDA before the truth about the drug crnnrgcd.°FACT37.

Sanofi allegedly had outstanding applications with the European Commission, Mexico,

Switzerland and Brazil that "were set \o be, and were, acted on before the FDA Advisory

2' When the defendant is a corporation, "the pleaded facts must create a strong inferencethat someone whose intent could be imputed 1V the corporation acted with the requisite suien1er."Teamsters Local 445 Freight Div. Pension Fund n. I)yuox Capital, Inc., 531 E, .3d 190` 195 (2dCic2O08' "In most cases, the most straightforward way to raise such an inference for acorporate defendant will Weto plead it for uu individual defendont." Id.

24


Committee had achance to address the rimonabant safety data and disclose the link, ` FAC ^j37.

Plaintiffs further allege that aunufi ` u '\nis|cudiog statements and material nruioainnu hc|ncd . . .

uc|l more than C68 million worth ofziruuuubuui outside the United States" during the class

period. PAC 1|37.

Plaintiffs' factual allegations are insufficient, as a matter of law, to establish that sanofi

had u motive to cooncodaucudLica fraud. Plaintiffs have only identified generalized nnodvea.

The desire to have udrug application approved, m even approved bvmultiple authorities, can bu

ascribed to any pharmaceutical company. Simdurly, the desire to maximize revenue from u

product can 6e ascribed Nany for-profit company in any industry. zx Neither motive is

^âufUcicndy concrete for purposes o[ interring ocicoic/" Chill v. General Elec. Co`l0lF.3d

263, 268 (2d Cir. I996); see also BC/\ 8cLocal 134, 553 E]d at I98 ("Motives that are common

to most corporate officers, such as the desire for the corporation to appear profitable and the

desire to keep stook prices high to iuc»uusc officer compensation, do not constitute 'motive' for

purposes o[ this iuguiry."); Novak, 2l6 F]do1307'O0 (defendants must have ^bcocfiUcdio

some concrete and personal way from the purported liaud.").

3. Conscious Misbehavior moRecklessness

"Where motive is not apparent, it is still possible to plead ooieu1crbyidentifying

circumstances indicating conscious behavior 6v the defendant, though the strengthof the

" Identifying the amount of rimonabant sold during the Class Period misconstrues therequirement that "plaintiffs cnuo1 uoaed u concrete and personal benufit to the individualdefendants resulting from the 0mud."Ku|oitr. Eichler, 264B.3d 131, 139 (2dCir. 2001).Plaintiffs do not offer any factual allegations suggesting that ouoo6made the allegedly materialomissions im order 10 sell a certain amount ofdrnooahanL The 'no û±iDs`

. }nn^ u/allegation is that sunofi desired to sell druonabuot. The fact that monoO ultimately no|d,6bOmillion worth ofrimouubuut does not personalize the general motive,

25


circumstantial allegations must becorrespond ingly " }{ubzit, 264F,3do1 142.

"Intentional misconduct b y easily ideu1fiedsince it encompasses deliberate illegal bubuvinc...

." Novak, 2}6F.3da1300. Recklessness, on the other hand, exists where the conduct im"highly

unreasonable" and "represents an extrerne departure from the standards of ordinary care" inlight

of the fact that "the danger was either known to the defendant or so obvious that the defendant

must have been aware ofit. KubdL264F.3do1|42 (quoting Carter-Wallace iZ2UF.3dai30);

Novak, 2\6F.3do]3O8. ^^[S]eondtioa fraud claims typically have suffioedto state a claim based

on recklessness when they have specifically alleged defendants' knowledge of facts or access to

information contradicting their public m<o1omuenta." kl (quoting Novak, Zl0F.3do1]O8).

The factual allegations in the FAC are sufficient to raise a strong inference that sanofi's

alleged omission constituted recklessness. Plaintiffs have specifically alleged that oanofi and the

individual defendants who were speakers had either knowledge of or access to the omitted facts.

^ zoWith respect F 24, 2006 Plaintiffs allege that the FDA sent ommfi the

approvmblm letter expressing concern over the risk ofsuicjdu|itv and requesting a formal,

independent assessment oosuioiduli{yonFebruary 17, 2006. FAC m 7. Plaintiffs also allege that

Defendant Le Fur, the speaker who addressed the contents of the February 17, 2006 approvable

letter, served ua Senior Executive Vice President o{ Scientific and Medical Affairs, and was

rcupmuaib}s thrzuooi^mdu^ un^r^ôdiu^to investors and the ozarkmtouthe status ofaanofiù

pbuouaccutiou| pipeline and new drug applications. FAC^^22,31. Plaintiffs also

allege that the Individual Defendants 44didinfluence and control ... the decision-making oithe

Company, including the content and dissemination of the various statements which [9]Iain6ffs

z« For the omitted facts at issue, see notes )l and 12.

26


contend are false and misleading" and "participated in conference calls with investors and were

provided with or had unlimited access to copies of the Company's reports, press releases, public

filings and other statements, alleged by [P]laintiffs to be misleading." FAC 11127.

With respect to the October 31, 2006 statement, 27 Plaintiffs allege that the FDA directed

sanofi to obtain a foiinal, independent assessment of the risk of suicidality. FAC ¶ 7. Plaintiffs

allege that Dr. Posner conducted the assessment, FAC ¶ 8, and that her results — namely, a

definite, statistically significant link between rimonabant and suicidality, FAC ¶ 10 — placed

sanofi's FDA application in "extreme peril." FAC ¶ 11. Plaintiffs allege that, on October 26,

2006, sanofi had submitted the assessment results to the FDA. FAC ¶¶ 10, 11. Furthermore, in

addition to the general allegations recited above, Plaintiffs allege that Defendant Spek, the

speaker who addressed whether sanofi had submitted additional data to the FDA, served as

Executive Vice President of Pharmaceutical Operations, and was responsible for monitoring and

reporting to investors and the market on the status of sanofi's pharmaceutical pipeline and new

drug applications. FAC ¶¶ 24, 3 L" These allegations are sufficient to raise a strong inference

of scienter.

2' For the omitted facts at issue, see pg. 21.

28 Additionally, the October 31, 2006 statement presents a situation where sanofi wasdirectly nonresponsive to a question. The analyst asked sanofi a question about the submissionof new data. Sanofi answered with information about additional clinical trials. This suggeststhat sanofi may have been avoiding the question and thus by implication avoiding the disclosureof the allegedly material omitted facts. At the present stage, the circumstances surrounding thisactionable statement are sufficient to raise a strong inference of scienter by sanofi and DefendantSpek.

27


SECTION 20(a) CONTROL PERSON LIABILITY CLAIM

^-Co establish aphruu facie ooac of control person liability, u plaintiff must show 8\ u

primary violation hv the controlled person, (2) control 0fthe nryvio]o1orby[bedefeodunt,

and []) that the defendant was, in some rneuoioglu1 sense, mcu|nabkr partic ipant in the unotuo|kd

person's fruud." See ATS}Cnozo\uos,49SB3da1l08; SEC v. First Jersey Sec_ lnc.,l0lF.3d

14501472(2dCk1996). Here, Defendants chal lenge solely the pleading of the third element.

Plaintiffs' ibotuu| allegations are sufficient 10 aumiujn aoendoo 20(a) claim against

Defendants Lo Fur and Spnk. See Latin r. Goldman Sachs Grout buc.,5O8P. Supp.2d22|,

246 (S.Q.N.Y. 2006) ("[I]n order to withstand ocnodon to dismiss, uaeotion 20(u) o|uirn must

allege, at a minimum, particularized facts of the controlling person's conscious misbehavior or

recklessness."); see, ,InocClT Group Inc. See. Lid^..^DlOU.0.[>imt.^^^J^574b7òt*l5

(S.D.N.T. June lO,2OlO). Each uf these Individual Defendants was o decision-making offioia/

who onudcao allegedly fraudulent statement about droonubout. Each also had, aapreviously

discussed, knowledge o[ur access to the omitted facts that u]legudly rendered his statements

misleading, and thus for the purposes of the pleading stage engaged in conduct that may

constitute recklessness,

Plaintiffs' (bciuu) ullsgu1imuo, however, are insufficient with respect to the nibur

individually named Defendants —Dobocq,C|u7e|, Lehner, Greene, and Leroy. None o[these

Individual Us5cnduntm are alleged tw have made either of the statements that constitute actionable

omissions. Plaintiffs fail to allege any particularized facts indicating that any of these Ind ividual

Defendants had "actual control" over the statements that were made, In re Alstom, 406 F. Supp.

2d at 487 (citations emitted), mr otherwise played some discernible role io the making ofthose

28


aiu1euzou(m. Merely generally alleging that these Individual Defendants were decision-making

officials m had access to material information im inadequate circumstantial evidence that doe s

no1indioot involvement ^\ ûud Plaintiffs have thus failed to cotah|iabcurvo uoperpetratingzuc ^

culpable participation ns{ouoyo[tbomoludividucd[)e(endouto. Therefore, Plaintiffs have failed

to state uScciiou 20(u) claim against them.

CONCLUSION

Defendants onoofi,LoFur, and Spekù motion ho dismiss imDENIED. Plaintiffs' Section

20(a) Claim is DISMISSED as to Individual Defendants Jean-Francois Dehecq, Marc Cluzel,

Jean-Pierre Lehner, [)oVglua A. (]zecuo ` and Jean-Claude l.comy.

Plaintiffs' motion for the issuance of a letter of request pursuant to the Hague Convention

io DENIED without prejudice 1ununev/uUor1be parties engage iodiauovery.m

Dated: New York, New York

March 3O,2011

SO ' BBRE0:

^^ '^^^^^^G^^ DANIELS

United States District Judge

D First, Plaintiffs effectively withdrew their original motion 6yuo longer seeking reliefpursuant to the Hague Convention, when it requested that this Court issue a revised letter ofrequest |n the British High Court based upon English Law. Second, Plaintiffs amended theirrequest ina significant manner after the briefing period o|oszd, and Defendants have not beenafforded a full and fair opportunity tm be heard. Finally, discovery iu currently stayed pursuantto aecdou4(b)(3)(I}) of the P8LJlA ` and Plaintiffs have not yet attempted to obtain the requesteddocuuzuu10 from the Defendants.

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