Metzler Asset Mgmt. GMBH v. Kingsley

United States Court of Appeals
For the First Circuit

Nos. 18-1369, 18-1472

METZLER ASSET MANAGEMENT GMBH, on behalf of itself and all other
similarly situated parties;

ERSTE-SPARINVEST KAPITALANANLAGEGESELLSCHAFT MBH, on behalf of
itself and all other similarly situated parties,

Plaintiffs, Appellants/Cross-Appellees,

v.

STUART A. KINGSLEY; GEORGE A. SCANGOS; PAUL J. CLANCY;
BIOGEN INC.,

Defendants, Appellees/Cross-Appellants.

APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

[Hon. F. Dennis Saylor, IV, U.S. District Judge]

Before

Lynch, Stahl, and Barron,
Circuit Judges.

Gregg S. Levin, with whom Christopher F. Moriarity, William
H. Narwold, Motley Rice LLC, Jonathan Gardner, Labaton Sucharow
LLP, Robert M. Rothman, Mark T. Millkey, Susan K. Alexander, Andrew
S. Love, and Robbins Geller Rudman & Dowd LLP were on brief, for
appellants/cross-appellees.
James R. Carroll, with whom Michael S. Hines, Sara J. van
Vliet, and Skadden, Arps, Slate, Meagher & Flom LLP were on brief,
for appellees/cross-appellants.
June 27, 2019
 BARRON, Circuit Judge. Metzler Asset Management GmbH

("Metzler") and Erste–Sparinvest Kapitalanlagegesellschaft mbH

("Erste–Sparinvest") have been designated the lead plaintiffs,

pursuant to the Private Securities Litigation Reform Act

("PSLRA"), 15 U.S.C. § 78u-4, in a federal securities class action

that they brought against Biogen Inc. and three Biogen executives

("Biogen"). The suit alleges that Biogen and its executives

committed fraud, in violation of regulations promulgated by the

Securities and Exchange Commission pursuant to the Securities

Exchange Act, 15 U.S.C. § 78a et seq, by falsely stating that

Biogen's product, Tecfidera, was both safer and more widely used

than it was. The putative class is comprised of all purchasers of

Biogen common stock from July 23, 2014, through July 23, 2015.

The defendants moved to dismiss the suit on claim

preclusion grounds, based on this Court's earlier decision in In

re Biogen Inc. Securities Litigation, 857 F.3d 34 (1st Cir. 2017)

("Biogen I"), and for failing to plead facts "giving rise to a

strong inference" of scienter, 15 U.S.C. § 78u-4(b)(2)(A), as the

PSLRA requires that a complaint alleging fraud must in order for

it to survive such a motion. The District Court rejected the

defendants' claim preclusion argument but dismissed the suit under

the PSLRA for failing to adequately plead scienter. We affirm.

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 I.

The corporate defendant, Biogen, is a multinational

biotechnology company based in Cambridge, Massachusetts. Its

stock trades on the NASDAQ. Id. at 37. The three individual

defendants are George Scangos, who was Biogen's Chief Executive

Officer from July 23, 2014, through July 23, 2015; Paul Clancy,

who was Biogen's Chief Financial Officer and Executive Vice

President of Finance during that time; and Stuart Kingsley, who

was its Executive Vice President of Global Commercial Operations

during the same period. Id.

The plaintiffs' complaint sets forth the following

allegations. Biogen developed and sold a United States Food and

Drug Administration ("FDA") approved drug for multiple sclerosis

("MS") called Tecfidera during the relevant time period. Tecfidera

accounted for a third of Biogen's total revenue in this time frame.

As of July 23, 2014, Tecfidera bore a label that warned patients

taking the drug of an increased risk of developing lymphopenia -- a

condition of having low lymphocyte counts, leading to a weakened

immune system.

On October 22, 2014, Biogen held a third-quarter

earnings call with its investors. The company announced for the

first time publicly that an MS patient who had been regularly

taking Tecfidera had died of progressive multifocal

leukoencephalopathy ("PML"), a rare neurological disease which

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counts lymphopenia as one of its precursors. One month later,

Biogen amended the Tecfidera label to include a warning about the

risk of PML.

On January 29, 2015, Biogen provided full-year revenue

guidance for 2015. It predicted a 14% to 16% overall growth rate

for the company for the year. However, on April 24, 2015, Biogen

released first-quarter financial results for the year that showed

that Tecfidera's revenue had fallen below the market estimates.

On July 24, 2015, Biogen released its second-quarter

earnings report. The report amended the company's 2015 revenue

guidance. It lowered Biogen's predicted revenue growth from 14-16%

to 6-8% for the year. Biogen attributed its tempered expectations,

in part, to slowing Tecfidera growth.

Biogen's stock fell by more than 20% in one day due to

the second quarter earnings report. On October 9, 2015, Biogen

announced that Kingsley was leaving the company. Less than two

weeks later, the company announced that it was cutting roughly 11%

of its workforce. Id. at 39.

On August 18, 2015, a putative federal securities fraud

class action was filed in the District of Massachusetts against

the company and the same three individual defendants in the case

before us in this appeal. Id. at 36-39. The putative class in

that action consisted of persons who had purchased common stock of

Biogen between January 29, 2015, and July 23, 2015. Tehrani v.

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Biogen, Inc., No. 15-13189, 2015 WL 7302132, at *1 (D. Mass. Nov.

18, 2015). The suit alleged that Biogen and the three executives

had fraudulently misled investors, in violation of Sections 10(b)1

and 20(a)2 of the Securities Exchange Act of 1934, see 15 U.S.C.

§§ 78j(b), 78t(a), regarding Tecfidera's usage rates in light of

the PML incident. Tehrani, 2015 WL 7302132, at *1.

Notice of the action was published pursuant to the PSLRA,

which establishes procedures for bringing securities class

actions. See id. at *2. In accordance with those procedures, on

November 17, 2015, the District Court preliminarily appointed GBR

Group Ltd. ("GBR") "lead plaintiff" in the matter, a status that

Congress created in the PSLRA "to increase the chances that

securities fraud cases are brought by investors who have

substantial and genuine interests in the litigation." Id.

On January 19, 2016, GBR filed an amended complaint.

The amended complaint changed the class period, such that it ran

from December 2, 2014, through July 23, 2015. Biogen I, 857 F.3d

at 36.

1
Section 10(b), as set forth in 15 U.S.C. § 78j(b), makes it
unlawful "[t]o use or employ, in connection with the purchase or
sale of any security . . . any manipulative or deceptive device or
contrivance in contravention of such rules and regulations as the
Commission may prescribe."
2
Section 20(a), as set forth in 15 U.S.C. § 78t(a), creates
"[j]oint and [s]everal" liability for "[e]very person who,
directly or indirectly, controls any person liable under any
provision of this chapter or of any rule or regulation thereunder."

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 Biogen moved to dismiss the complaint. The District

Court granted that motion as to both the Section 10(b) and 20(a)

claims. See Biogen I, 193 F. Supp. 3d 5, 56 (D. Mass. 2016).

GBR moved to vacate the order of dismissal and for leave

to file a second amended complaint with the District Court under

Federal Rules 59(e) and 60(b)(2). In re Biogen Inc. Sec. Litig.,

No. 15-13189, 2016 WL 5660329, at *3 (D. Mass. Sept. 28, 2016).

The motion requested that the District Court vacate the order of

dismissal based on the new scienter allegations in the proposed

second amended complaint. Id. The District Court denied the

motion. Id. at *6. The District Court determined that the

plaintiffs could have discovered the evidence on which they were

based earlier with reasonable diligence. Id.

GBR appealed both the dismissal of the complaint for

failure to state a claim as well as the denial of its motion to

vacate that dismissal and for leave to file the second amended

complaint. As discussed below, that appeal ultimately ended in

affirmance of the District Court. During the pendency of the

appeal in that case, however, separate Biogen stockholders filed

a subsequent putative class action in the District Court on October

20, 2016, against Biogen and certain of its executives on behalf

of a class of investors in the company. Metzler Asset Mgmt. GmbH

v. Kingsley ("Biogen II"), 305 F. Supp. 3d 181, 205, 202 (D. Mass.

2018). They alleged that, through its comments to investors,

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Biogen misled the market about Tecfidera's safety profile and

discontinuation rates.

This new action is the one before us on appeal. It,

too, asserts violations of Sections 10(b) and 20(a) of the

Securities Exchange Act. Nonetheless, it differs from the first

putative class action that had been filed against Biogen in three

ways. First, the class period for the putative class in the new

suit began on July 23, 2014, as opposed to December 2, 2014.

Second, the complaint in the new suit alleged that Biogen had made

additional misleading statements not referenced in the prior suit

and also set forth statements from confidential witnesses ("CWs")

to prove scienter that had not been referenced in the complaint in

the earlier suit. These newly alleged statements included ones

that had been set forth in the amended complaint in the earlier

putative class action that the District Court rejected for not

having been included in a timely manner. See Biogen I, 857 F.3d

at 45-46. Third, the new suit alleged that, in addition to making

fraudulent statements regarding Tecfidera's usage rate, Biogen

executives also made fraudulent statements about the drug's safety

profile.

On February 1, 2017, the District Court preliminarily

appointed Metzler and Erste–Sparinvest -- not GBR -- to be the

lead plaintiffs in this new suit pursuant to the PSLRA. See

Metzler Asset Mgmt. GmbH v. Kinglsey, No. 16-12101, 2017 WL 438731

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(D. Mass. Feb. 1, 2017). Plaintiffs also filed a motion to stay

the District Court proceedings pending resolution of the appeal of

the earlier action. That motion was denied. Id. at *4.

On May 12, 2017, we affirmed the District Court's order

of dismissal for lack of sufficient allegations of scienter in

Biogen I. Biogen I, 857 F.3d at 46. In so doing, we also held

that the confidential witness statements provided by the

plaintiffs were "insufficiently particular" to prove scienter.

Id. at 41. Finally, we denied the plaintiffs' motion to vacate

and file a second amended complaint. Id. at 45.

Following Biogen I, Biogen moved to dismiss the

complaint in the putative class action that is now before us for

failing to adequately plead scienter and on claim preclusion

grounds. The District Court rejected the claim preclusion argument

but agreed that the complaint in the new suit failed to plead facts

sufficient to create a strong inference of scienter. Biogen II,

305 F. Supp. 3d at 205, 222. The appeal from that ruling then

followed.

II.

To establish claim preclusion, the defendant must show

that "(1) the earlier suit resulted in a final judgment on the

merits, (2) the causes of action asserted in the earlier and later

suits are sufficiently identical or related, and (3) the parties

in the two suits are sufficiently identical or closely related."

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Airframe Sys., Inc. v. Raytheon Co., 601 F.3d 9, 14 (1st Cir.

2010). The District Court rejected Biogen's claim preclusion

argument. See Biogen II, 305 F. Supp. 3d at 205. The District

Court did not question whether Biogen I represented a final

judgment, as it plainly did. Id. at 204. Nor did the District

Court rule that that the causes of action in the two cases were

not related or identical, as it found that they were. Id. Instead,

the District Court rejected the contention that GBR, as lead

plaintiff under the PSLRA in Biogen I, could "adequate[ly]

represent" the class in Biogen II, such that the plaintiffs in the

two actions may be deemed to be sufficiently "identical," as they

must be for claim preclusion to apply. Id. at 205.

The District Court explained that the putative class in

Biogen I was not certified through Federal Rule of Civil Procedure

23 and thus remained merely a "proposed class action[.]" Id.

(citing Smith v. Bayer Corp., 564 U.S. 299, 316 (2011)). For that

reason, the District Court ruled, GBR could not, by virtue of its

role as the lead plaintiff under the PSLRA in Biogen I, be deemed

to have "adequate[ly] represented" the putative class in Biogen

II.

In reaching this conclusion about whether the members of

the putative class in Biogen II were adequately represented by GBR

in Biogen I, the District Court relied on the Supreme Court's

ruling in Smith. There, the Supreme Court held that a consumer's

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motion for class certification was not precluded by a previous

decision denying a similar motion for class certification to a

different party. Smith, 564 U.S. at 304-05. The Court stated,

"[w]e could hardly have been more clear [in Taylor v. Sturgell,

553 U.S. 880 (2008)] that a 'properly conducted class action,'

with binding effect on nonparties, can come about in federal courts

in just one way -- through the procedure set out in Rule 23." Id.

at 316.

Biogen argues that the District Court erred in this

aspect of its claim preclusion analysis. Biogen contends that the

PSLRA's process for appointing a lead plaintiff sufficed to ensure

that GBR, in its role as lead plaintiff of the putative class in

Biogen I, did adequately represent the interests of the putative

class in Biogen II, even though the class in Biogen I had not been

certified at the time of the dismissal of that action. Thus,

Biogen contends that the dismissal in Biogen I could be preclusive

of the claims brought by the putative class in Biogen II, even

though GBR is not the lead plaintiff for that putative class.

In challenging Biogen's claim preclusion argument, the

appellants contend that the protections afforded absent parties by

the PSLRA are not as robust as those afforded by the requirements

set forth in Rule 23 itself, due to the preliminary nature of the

PSLRA's lead plaintiff appointment procedures. Indeed, as

multiple courts have recognized, nothing about lead plaintiff

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appointment pursuant to the PSLRA is "dispositive with respect to

the ultimate certification of the class and designation of a class

representative." Greebel v. FTP Software, Inc., 939 F. Supp. 57,

62 n.4 (D. Mass 1996); Dempsey v. Vieau, 130 F. Supp. 3d 809, 813

(S.D.N.Y. 2015) ("Lead plaintiff designation does not abnegate the

necessity of class certification . . . ."). Consequently, the

argument proceeds, lead plaintiff appointment pursuant to the

PSLRA is simply too preliminary for a lead plaintiff of an

as-yet-uncertified class to be deemed on that basis alone to be an

adequate representative for claim preclusion purposes of a class

in a subsequent action. Dempsey, 130 F. Supp. 3d at 813.

In addition to this potential problem with Biogen's

claim preclusion contention here, there is another that is more

particular to this case. The proposed class in Biogen II includes

stockholders who purchased Biogen securities between July 23,

2014, and December 2, 2014. This group of purchasers was not

included in the class proposed in Biogen I. Biogen does not

explain how the lead plaintiff in Biogen I could be thought to

have adequately represented those members of the proposed class in

Biogen II who are not only represented by different lead plaintiffs

but also were not even members of the putative class in Biogen I.

We need not, however, resolve the claim preclusion issue

definitively here. Even if we were to assume that the adequate

representation requirement could not be satisfied here, such that

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the plaintiffs' claim is not precluded, the suit in Biogen II would

still have to be dismissed. As we next explain, the District Court

properly ruled that, under the PSLRA, the plaintiffs failed to

adequately plead scienter for purposes of surviving a motion to

dismiss for failure to state a claim.

III.

To state a claim under Section 10(b)3 of the Securities

Exchange Act, plaintiffs must adequately plead "(1) a material

misrepresentation or omission; (2) scienter; (3) a connection with

the purchase or sale of a security; (4) reliance; (5) economic

loss; and (6) loss causation." Biogen I, 857 F.3d at 41. Scienter

is defined as either the "intentional or willful conduct designed

to deceive or defraud investors" or "a high degree of

recklessness." Id. (internal quotations omitted).

Under the PSLRA, to survive a motion to dismiss for

failure to state a claim, plaintiffs must "state with particularity

facts giving rise to a strong inference that the defendant acted

with [scienter]." 15 U.S.C. § 78u-4(b)(2)(A) (emphasis added).

"For an inference of scienter to be strong, 'a reasonable person

3 As the plaintiffs' Section 20(a) claims are necessarily
dependent on the existence of a Section 10(b) violation, our
analysis need only address the deficiencies in the plaintiffs'
Section 10(b) claims in order to uphold the District Court's
decision. See ACA Fin. Guar. Corp. v. Advest, Inc., 512 F.3d 46,
67 (1st Cir. 2008) ("The plain terms of [S]ection 20(a) indicate
that it only creates liability derivative of an underlying
securities violation.").

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would [have to] deem [it] cogent and at least as compelling as any

opposing inference one could draw from the facts alleged.'" Biogen

I, 857 F.3d at 41 (alterations in original) (quoting Tellabs, Inc.

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

The District Court dismissed the plaintiffs' suit in

Biogen II after determining that none of the statements that the

plaintiffs allege that the individual Biogen executive defendants

made were of a kind that could give rise to the "strong inference"

of scienter that the PSLRA requires. On that basis, the District

Court concluded that the claims against each of these executives

individually, as well as the claims against Biogen itself, must be

dismissed. Cf. Biogen I, 857 F.3d at 37, 41. Our review of the

District Court's ruling on scienter is de novo. See id. at 41.

To make their case on appeal, the plaintiffs focus on

six statements in their complaint that the District Court held, in

making its scienter ruling, were at least "plausibly misleading."

Biogen II, 305 F. Supp. 3d at 206, 212.4 These statements fall

into two general categories: (1) those that pertain to Tecfidera's

4 For the purpose of this appeal, we will assume, favorably
to plaintiffs, that the District Court was correct in concluding
that these six statements were, in fact, "plausibly misleading."
Although we do not definitively conclude that these six statements
are plausibly misleading, we will nonetheless refer to them
throughout the opinion as the six "plausibly misleading"
statements for clarity's sake.

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safety profile, and (2) those that pertain to Tecfidera's usage

rate. We consider the statements in each category in turn.

Before doing so, however, we note that although the

statements that we focus on were made by, respectively, Alfred

Sandrock (Biogen's Chief Medical Officer), Doug Williams (Biogen's

Executive Vice President of Research and Development) and

Kingsley, only Kingsley is a defendant in his own right. Thus, it

is unclear what role, if any, the statements by Sandrock and

Williams serve in the plaintiffs' fraud claims against Kingsley,

Scangos, and Clancy. But, even if we assume that Williams's and

Sandrock's statements somehow could be imputed to these three

individual defendants, as the plaintiffs appear implicitly to

assume in their briefing to us in contending that the District

Court erred in dismissing the claims against them, the plaintiffs'

argument would still fail.

A.

The first category of statements on which the plaintiffs

in this appeal rely with respect to the claims against the

individual defendants concerns Tecfidera's safety profile. The

plaintiffs point to two such statements, the first of which was

made on September 11 by Sandrock. According to the complaint,

Sandrock stated at that time that "Tecfidera continues to provide

patients with effective oral treatment for MS that is supported by

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a growing body of data reinforcing its benefits and favorable

safety profile."

The complaint alleges that Sandrock made this statement

before Biogen's October announcement of the PML-related death, and

the plaintiffs do not contend that any of the individual defendants

knew about that death before Sandrock made this statement.5 The

plaintiffs nevertheless contend that the District Court erred in

concluding that the complaint failed adequately to allege that

Sandrock made the statement with the "intentional or willful"

design to deceive investors.

To make this case, the plaintiffs point out that, in

August and September of 2014, Dr. Ben Thrower, the medical director

at the Shepherd Center in Atlanta, notified Keith Ferguson, the

company's senior sales director, and Eric Hall, the medical science

liaison for Biogen, that his research showed that patients who

were taking Tecfidera had a higher risk of developing low

lymphocyte counts than Biogen had originally disclosed. The

complaint further alleges that, for this reason, Dr. Thrower chose

to discontinue Tecfidera prescriptions for approximately 200 of

his patients and to stop issuing new prescriptions for the drug.

5
CW 15's statements that Biogen had already prepared a
response for a potential PML-related death is not to the contrary.
That the company had a PML-related contingency in place for a drug
that it already knew -- and disclosed -- caused low lymphocyte
counts is not surprising and does not indicate that Sandrock made
the statement at issue deceitfully.

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The complaint also alleges that he told Ferguson and Hall about

this development.

But, according to the complaint, Sandrock in his

September 2014 statement said only that Tecfidera was "effective"

at treating MS and that its safety profile was "supported by a

growing body of data." Nothing about Dr. Thrower's alleged

statements to Hall and Ferguson about his own research

findings -- especially given the limited slice of the market on

which those findings were based -- contradicts the statements that

the complaint alleges that Sandrock made. See Geffon v. Micrion

Corp., 249 F.3d 29, 36 (1st Cir. 2001) ("Even if the statements at

issue were material and false or misleading, the evidence does not

support a finding that defendants knew the statements would

materially mislead the investing public." (emphasis omitted)).

Thus, even assuming that Sandrock's statement was "plausibly

misleading" and made with knowledge of Thrower's conclusions, we

find insufficient support for a "strong inference" that Sandrock

spoke with the intent to deceive investors. And thus, the

allegations regarding Sandrock fail to establish a "strong

inference" of scienter as to even him, let alone as to any

individual defendant.

The only other "plausibly misleading" statement that

concerns the drug's safety profile to which the plaintiffs point

is one that, according to the complaint, Williams made in April of

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2015. In it, Williams allegedly stated that "there's no real

change in the benefit/risk profile of the drug for patients with

MS. So it's pretty much status quo at the moment."

By April of 2015, according to the complaint, Biogen had

already disclosed the PML death and updated the drug's label to

account for the increased understanding of its risk. Given that

none of the findings by the researchers that the plaintiffs cite

aver that the drug was less safe than these revised disclosures,

we do not see how the plaintiffs can plausibly suggest that

Williams was aware that the drug was less safe than these revised

disclosures suggested. Therefore, even if, drawing all inferences

in favor of the plaintiff, one could conclude that Williams's

statement -- read in a vacuum -- was misleading, one could not

draw a "strong inference" from that statement that it was said

with an "intent to deceive," given what the record shows about

Biogen's earlier disclosures and the state of Williams's knowledge

of the drug's safety profile. See City of Dearborn Heights Act

345 Police & Fire Ret. Sys. v. Waters Corp., 632 F.3d 751, 760

(1st Cir. 2011) ("[A]ttempts to provide investors with warnings of

risks generally weaken the inference of scienter." (alteration in

original) (quoting Ezra Charitable Tr. v. Tyco Int'l, Ltd., 466

F.3d 1, 8 (1st Cir. 2006)).

We turn, then, to the four "plausibly misleading"

statements that pertain to Tecfidera's usage rates. All four

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statements were allegedly made by Kingsley, who is an individual

defendant. But, we find no basis for concluding that any of these

statements permit us to infer the necessary intent to deceive that

could suffice to create the "strong inference" of scienter that

the PSLRA requires. And, even the cumulative weight of these

statements and the CW evidence discussed below would not suffice.

We first address the January 29, 2015 statement by

Kingsley that "Tecfidera [was] on track to become the most

prescribed therapy for MS worldwide." The plaintiffs argue that

this statement was misleading and creates the "strong inference"

of scienter on Kingsley's part, because at the time of the

statement, Kingsley knew about both the PML death and about

Tecfidera's declining sales and discontinuation rates.

At the time that Kingsley made the statement, however,

Biogen had already disclosed to the public the news of the PML

death, had already changed the drug's label, had already publicized

that it expected the drug's growth rate to "slow," and had already

disclosed that the drug's discontinuation rates were higher than

expected. Moreover, during the conference call on which Kingsley

made the statement at issue, he also noted that the company had

observed "moderating" growth for the drug at the end of 2014 and

expected that trend to continue into the new year. Given these

disclosures pointing against sales growth, it is hard to

characterize Kingsley's statement that he believed Tecfidera would

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"become the most-prescribed therapy for MS worldwide" as anything

other than misguided optimism. See Fire & Police Pension Ass'n of

Colo. v. Abiomed, Inc., 778 F.3d 228, 244 (1st Cir. 2015) (holding

that defendants' informative disclosures "undercut any inference

of scienter"). Accordingly, we fail to see how one could

characterize Kingsley as having had the requisite intent to deceive

when he made this statement, such that one could draw the "strong

inference" of scienter required by the PSLRA.

We, turn, then, to three statements of Kingsley's from

January 29, 2015, to February 25, 2015, in which, according to the

complaint, he stated that there had not been any "meaningful

change" in Tecfidera's discontinuation rates and that those rates

were "consistent with historical averages." As previously

mentioned, at the time that Kingsley made these statements, the

company had already disclosed to investors that Tecfidera's

discontinuation rate was higher than Biogen would have hoped but

that the company aimed to "get better performance in the

discontinuation rates over a longer period of time." Given the

statements in which Kingsley had been forthcoming about the status

of Tecfidera's discontinuation rates, we do not see how Kingsley's

early 2015 refrain that the company had not seen "meaningful

change" in the drug's discontinuation rate and that the rates were

"consistent with historical averages" may fairly be characterized

as having been made with the "intent to deceive." Id.

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 In arguing otherwise, plaintiffs point to statements set

forth in the complaint that were allegedly made by CWs. The

complaint contains statements made by seventeen CWs regarding

their observations on Tecfidera's sales, discontinuation rates,

and safety profile. Ten of the seventeen CWs referenced in the

complaint were also referenced in the complaint in Biogen I (CWs

1-10).6 In addition to referring to seven new CWs (CWs 11-17),

the Biogen II complaint also includes multiple new statements from

four of the CWs (CWs 1, 3, 7, and 8) who were included in the

original Biogen I complaint.

In Biogen I, our Court found that none of the CWs'

statements included in that complaint were probative of the

defendants' scienter because they were imprecise, did not contain

information that was directly communicated to the individual

defendants, or concerned events that occurred after the individual

defendants made the plausibly misleading statements at issue in

that case. See Biogen I, 857 F.3d at 42-43. That logic applies

with equal force here, insofar as the plaintiffs have reprised

their argument that the statements by CWs set forth in the Biogen

I complaint illustrate that Kingsley made his four plausibly

misleading statements with the requisite scienter.

6 Of the seven "new" confidential witnesses included in the
present complaint (CWs 11-17), two (CWs 11 and 12) were included
in the Second Amended Complaint that our Court rejected as untimely
in Biogen I. See Biogen I, 857 F.3d at 45-46.

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 As to the additional statements not included in the

Biogen I complaint, the District Court similarly rejected them as

not probative of the defendants' scienter because they failed to

"set forth specific facts" that directly conflicted with the six

"plausibly misleading" statements that the District Court

highlighted. Biogen II, 305 F. Supp. 3d at 214-15 (emphasis in

original). The District Court went on to note -- based on logic

similar to that which we applied in Biogen I -- that these

statements' relevance is further diminished by the fact that the

complaint does not allege that any of the CWs ever spoke with any

of the individual defendants or otherwise shared with them their

observations. Id. at 215 n.29.

On appeal, the plaintiffs do reference the statements of

one CW in particular, CW 13. According to the plaintiffs, CW 13

explained that "everyone in leadership had access to reporting

metrics" and that leadership frequently monitored the "new start"

rates for Tecfidera as part of the process for producing their

sales projections.

But, the fact that Biogen's leadership monitored

Tecfidera's reporting metrics does not in and of itself suffice to

create the "strong inference" that Kingsley made his four

statements about Tecfidera's discontinuation rates with the

requisite intent to deceive. We would expect responsible

management to engage in such monitoring. As a result, before one

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could infer what plaintiffs ask, one would need to know what

Kingsley learned from such monitoring, and whether what he learned

was at odds with any of his "plausibly misleading" statements.

Yet, the complaint alleges no facts that are illuminating in that

regard.

The only additional confidential witness statement that

the plaintiffs expressly reference in their brief's section on

individual scienter is the statement made by CW 1. That witness

allegedly said that Biogen instructed Area Business Managers to

"downplay the significance of the PML death" when attempting to

convince doctors to prescribe the drug. But, the complaint does

not allege that Sandrock, Williams, or Kingsley was aware of this

alleged instruction by the company. Nor do we see why such an

instruction gives rise to an inference that Kingsley's public

assessment of the drug's actual usage was inaccurate, let alone

intentionally deceitful.

As to the statements concerning safety, the plaintiffs

do not dispute that Biogen disclosed the PML death to investors

and the public. Moreover, nothing in CW 1's alleged statement

reveals that what Sandrock and Williams actually said publicly

about the drug's safety was known by them to be misleading.

In their briefing to us, the plaintiffs expressly

reference a number of other confidential witness statements to

support their arguments that the three individual defendants

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possessed the requisite scienter. But, the plaintiffs do not

allege that any of the confidential witnesses who made these

statements spoke with Kingsley before he made his statements about

the discontinuation rates, and most of these confidential

witnesses are, by the complaint's account, several levels removed

from the company's executive team. See Biogen II, 305 F. Supp. 3d

at 215 n.29 ("The complaint does not allege that any of

the . . . confidential witnesses ever spoke with one of the named

defendants."); see also Fire & Police Pension Ass'n of Colo., 778

F.3d at 245 (noting that "none of the witnesses were in senior

management positions, and they appear to have had relatively little

ongoing contact with senior management" (internal quotations

omitted)).

B.

The plaintiffs do separately argue that they can meet

their burden to allege that Biogen (though, we presume, not any of

the individual defendants) had the requisite scienter under a

theory of "corporate scienter." Specifically, the plaintiffs

contend that, if the complaint plausibly alleges that one of the

company's employees made a misleading statement to investors

without scienter and "an individual within Biogen’s management

team . . . knew or had access to information" that showed that

this misleading statement was not true, then Biogen can be found

to have had the requisite scienter on a corporate scienter theory.

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The plaintiffs then proceed to contend that the record provides

support for finding a "strong inference" of scienter on this basis,

in light of the six "plausibly misleading" statements in the

complaint that we have just reviewed, the company's failure to

correct them, and the allegations that the complaint sets forth

regarding what persons within the company knew or what the company

may itself be charged with having known. And, the plaintiffs

further contend, the District Court erred by failing even to

address this basis for finding scienter vis à vis the claims

against Biogen.

The plaintiffs attempt to make the case for their showing

of corporate scienter as follows. They allege that Ferguson and

Hall knew, due to their conversation with Dr. Thrower, that

Tecfidera was less safe than the company stated publicly when

Sandrock said that "Tecfidera continues to provide patients with

effective oral treatment for MS that is supported by a growing

body of data reinforcing its benefits and favorable safety

profile," and when Williams said that "there's no real change in

the benefit/risk profile of the drug for patients with MS. So

it's pretty much status quo at the moment." The plaintiffs argue

that Ferguson and Hall may be understood to have had this knowledge

because, as the complaint alleges, Dr. Thrower discussed with

Ferguson and Hall his research that Tecfidera could cause lower

lymphocyte counts than the company originally disclosed.

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 But, the fact that Dr. Thrower and researchers like Dr.

Zamvil concluded on the basis of their own research that Tecfidera

could cause lower lymphocyte counts than was originally understood

does not, in and of itself, suffice to contradict the assertions

that Tecfidera was "effective" at treating MS and that this fact

was "supported by a growing body of research." For that reason,

even if we were to assume that the statement was plausibly

misleading and that Hall's and Ferguson's knowledge of Dr.

Thrower's research -- or any of the other research cited by the

plaintiffs -- could be imputed to the company as a whole, that

knowledge would still fail to create the "strong inference" of

scienter on Biogen's part. That is so, we emphasize, even if we

were to accept the plaintiffs' theory of corporate scienter.

Similarly, the plaintiffs argue that Dr. Thrower's

statements to Hall and Ferguson show that the company knew that

the drug's usage rates were lower than was publicized. But, we

fail to see how the knowledge that one doctor -- whose patients

constituted less than 0.2% of all Tecfidera users -- would no

longer prescribe Tecfidera could suffice to show that the company

understood the drug's usage rate to be at odds with any statement

regarding its usage that had been made publicly. For that reason,

once again, Ferguson and Hall's knowledge of what Dr. Thrower had

allegedly told them about his own experience with the drug does

not suffice to establish the "strong inference" of scienter, even

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if we were inclined to impute what Ferguson and Hall knew to the

company overall in the way that the plaintiffs contend that we

must under their expansive theory of "corporate scienter."7

The plaintiffs also point to statements made by the

confidential witnesses to support their contention that the

complaint adequately alleges that employees in the company knew

that the statements by Kingsley that the District Court found to

be "plausibly misleading" were untrue. They then proceed to argue

from that contention that the complaint's allegations suffice to

create a "strong inference" of scienter on the company's part, in

consequence of Kingsley's plausibly misleading statements

regarding the drug's usage. But, the alleged statements at issue

either were not made with sufficient particularity, see Biogen I,

875 F.3d at 42 (noting that the confidential witness statements

did not "quantify the magnitude of the sales decline at the company

level. [Nor did they] explain with any precision" the cause of

7 Plaintiffs' reliance on CW 12's statements as evidence of
corporate scienter does little to strengthen their position.
According to the plaintiffs, Craig Brown, Biogen's Regional
Director, noted that CW 12's regional sales numbers declined after
Dr. Thrower stopped prescribing Tecfidera to his patients. This
statement simply speaks to the fact that individuals in the company
were aware that, at least for a time, Dr. Thrower's decision would
have an impact on their sales in the Atlanta region where CW 12
was stationed. CW 12's observation does not indicate that anyone
in the company knew Kingsley's statements about Tecfidera's
discontinuation rate nationally were in any way untrue such that
those observations would create the "strong inference" of scienter
necessary to survive a motion to dismiss under the PSLRA.

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the decline in sale) or did not describe events that took place

before Kingsley's three statements concerning the drug's

discontinuation rates, see id. at 42-43 (describing "a significant

timing problem" with many of the confidential witness statements,

as most of them described declines in Tecfidera sale that occurred

after Kingsley made the three plausibly misleading statements at

issue here).

For example, plaintiffs reference the statements made by

CW 11 that Biogen was aware that Tecfidera sales would decline

after the PML death was announced and "drastically lowered sales

targets for the drug." But, the plaintiffs never explain how

reductions in sales targets in November of 2014 indicate that that

anyone in the company was aware that discontinuation rates were

higher than Kingsley's statements indicated in early 2015. After

all, the fact that the company reduced sales targets does not,

necessarily, mean that actual sales fell at a commensurate rate.

Accordingly, while these statements do indicate that employees in

the company were concerned about the impact the PML death would

have on Tecfidera sales, they do not create a "strong inference"

that someone in the company's management team knew that Kingsley's

generalized statements about the drug's discontinuation rates were

untrue.

Similarly, CW 14's statements that there were "lots of

discontinuations" in the New York region after the PML death was

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announced do not suffice to support the plaintiffs attempt to show

that the District Court erred in dismissing the claims against

Biogen. The fact that one employee observed an unspecified

increase in discontinuation rates in New York in November of 2014

does not create a strong inference that the Biogen management team

knew that Kingsley's early 2015 statements about the drug's

discontinuation rates company-wide were untrue. In fact,

according to the complaint, at the time that Kingsley made those

statements, the company had already disclosed to investors that

the drug's discontinuation rates were higher than expected.

Finally, the plaintiffs point to CW 1's statement about

having participated in "emergency" conference calls in December of

2014 and January of 2015 regarding Tecfidera's declining sales.

But, the plaintiffs do not describe what specifically was

communicated to the employees during those calls, and nothing in

the complaint suggests that CW 1 received any information during

them that directly conflicted with the four "plausibly misleading"

statements attributed to Kingsley.

Moreover, the few confidential witness statements

alleged in the complaint that were particularized and

appropriately timed concerned narrow slices of the market for the

sale of the drug. For example, CW 17 -- an Executive Territory

Business Manager -- reported that his Tecfidera sales dropped 25%

after the PML death. But, the fact that his individual sales

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experienced a decline does not indicate that he knew that

Kingsley's generalized assessments of the magnitude of the change

in discontinuation rates nationally for the company were untrue.8

C.

Finally, we address the plaintiffs "additional scienter"

arguments. Here, the plaintiffs argue that the District Court did

not properly credit their allegations that the defendants knew or

should have known that the public statements that had been made by

Kingsley regarding Tecfidera were misleading because Tecfidera was

part of the company's "core operations"; many of the plausibly

misleading statements were "repeated" and "specific"; and Biogen

operates in a highly regulated industry. We disagree.9

8 The plaintiffs additionally point to CW 15's and CW 16's
knowledge that the company had prepared a response to a PML-linked
death well in advance of the October 2014 announcement. According
to the plaintiffs, the fact that the company did so reveals that
the company knew for some time that the drug could cause PML and
yet failed to acknowledge this reality in its public disclosures.
However, as stated previously with regard to the plaintiffs'
individual scienter claims, we fail to see how a company's
preparation for a worst-case scenario indicates that the company
knew that such a scenario would come to pass. Consequently, we
similarly reject the plaintiffs' reliance on CW 15's and CW 16's
statements as they pertain to their corporate scienter
contentions, as we conclude that even if we were to impute CW 15's
and CW 16's knowledge to the company, the plaintiffs would still
fail to create a "strong inference" of scienter.
9 Plaintiffs also argue that, because only a short period of
time passed between the defendants' "plausibly misleading"
statements and the fraud's alleged "disclosure," it can be assumed
that the plaintiffs knew that their statements were misleading at
the time that they were made. However, it appears that the
plaintiffs did not make this argument to the District Court below,

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 In pressing the "core operations" theory, the plaintiffs

contend that, when "facts critical to a business’s core operations

or an important transaction generally are so apparent[,] knowledge

[of those facts] may be attributed to the company and its key

officers," even if those officers did not, in actuality, know the

critical information. Bodri v. GoPro, Inc., 252 F. Supp. 3d 912,

932 (N.D. Cal. 2017). But, as we have explained, the plaintiffs

fail to identify any allegations in the complaint that show that

anyone in the company had knowledge regarding the drug's safety

profile and sales that contradicted the company's public

representations. So, the "core operations" theory also does little

to aid the plaintiffs' case. S. Ferry LP, No. 2 v. Killinger, 542

F.3d 776, 784-85 (9th Cir. 2008) ("As a general matter, 'corporate

management's general awareness of the day-to-day workings of the

company's business does not establish scienter -- at least absent

some additional allegation of specific information conveyed to

management and related to the fraud' or other allegations

supporting scienter." (quoting Metzler Inv. GmbH v. Corinthian

Colls., Inc., 534 F.3d 1068, 1087 (9th Cir. 2008))).

In this regard, the precedents on which the plaintiffs

rely -- see, e.g., Stratte-McClure v. Morgan Stanley, 784 F. Supp.

2d 373, 389 (S.D.N.Y. 2011); Crowell v. Ionics, Inc., 343 F. Supp.

and we thus do not consider it. See United States v. Swiss American
Bank, Ltd., 191 F.3d 30, 37 (1st Cir. 1999).

- 31 -
2d 1, 19 (D. Mass. 2004) -- are distinguishable. In each, the

record contained much stronger evidence of knowledge within the

company of fraudulent practices than is set forth in the

allegations in the plaintiffs' complaint here. Compare Crowell,

343 F. Supp. 2d at 19 (explaining that the low-level witnesses had

received an email stating that a mid-level vice president ordered

a company-wide practice of fraudulently inflating sales numbers

and thus that, even if the corporate officers were personally

unaware of the fraudulent sales practice, generally -- that

knowledge could be imputed to them though the core operations

theory), with Lenartz v. Am. Superconductor Corp., 879 F. Supp. 2d

167, 183 n.9 (D. Mass. 2012) (rejecting the plaintiffs' core

operations theory where the facts offered to prove that the

defendant's actions were fraudulent were "less clear" than the

"particularized facts" of Crowell).

The plaintiffs' "highly regulated industry" theory

suffers from the same defect. According to the plaintiffs, because

"Biogen operates in the heavily regulated pharmaceuticals

industry," one can infer "that the Individual Defendants were

acutely aware of safety-related concerns [related to Tecfidera]."

But, if by "safety concerns" the plaintiffs mean the alleged

statements from Dr. Thrower to Ferguson and Hall regarding Dr.

Thrower's research on Tecfidera, then we have already explained

the problem with this theory. Even if we were to assume that the

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individual defendants were aware of Dr. Thrower's comments to

Ferguson and Hall, none of the six "plausibly misleading"

statements so clearly conflicts with Dr. Thrower's assessment of

the drug -- especially given the other safety disclosures the

company made prior to those statements -- that there exists a

"strong inference" that any of those six statements were made with

the intent to deceive.

Nor can the plaintiffs succeed in pressing their case on

appeal based on their contention that the defendants' repeated

specific statements about the drug show that they knew that their

public disclosures were misleading when made and thus that there

is a "strong inference" of scienter not only as to them but also

as to Biogen. We may assume that a plausibly misleading statement

was made publicly more than once. But nothing in the complaint

alleges facts that indicate that anyone in Biogen's management had

knowledge that was sufficiently in conflict with any of the six

"plausibly misleading" public statements to permit the conclusion

that the company had the requisite intent to deceive in permitting

those statements to have been made and in not having corrected

them in some respect.

IV.

For the foregoing reasons we affirm the District Court's

judgment granting the motion to dismiss.

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