New Jersey Carpenters Pension & Annuity Funds v. Biogen Idec Inc.

United States Court of Appeals
For the First Circuit

No. 07-2626

NEW JERSEY CARPENTERS PENSION & ANNUITY FUNDS; FOLKSAM ASSET
MANAGEMENT; THIRD MILLENNIUM TRADING LLP; DEERFIELD BEACH
NON-UNIFORMED MUNICIPAL EMPLOYEES RETIREMENT PLAN; PLUMBERS AND
PIPEFITTERS LOCAL NO. 520 PENSION FUND; HORATIO CAPITAL LLC,

Plaintiffs, Appellants,

CHARLES BROWN, Individually and on Behalf of All Others
Similarly Situated; ROCHELLE LOBEL; BIOGEN INSTITUTIONAL
INVESTOR GROUP; LONDON PENSIONS FUND AUTHORITY; NATIONAL
ELEVATOR INDUSTRY PENSION FUND; CARY GRILL, Individually and
on Behalf of All Others Similarly Situated,

Plaintiffs,

v.

BIOGEN IDEC INC.; WILLIAM RASTETTER; JAMES MULLEN; BURT ADELMAN;
THOMAS BUCKNUM; PETER N. KELLOGG; WILLIAM ROHN,

Defendants, Appellees.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

[Hon. William G. Young, U.S. District Judge]

Before

Lynch, Chief Judge,
Torruella, Circuit Judge,
Stafford,* District Judge.

*
Of the Northern District of Florida, sitting by
designation.
 Vincent R. Cappucci with whom Stephen D. Oestreich, Robert N.
Cappucci, Shannon L. Hopkins, Entwistle & Cappucci LLP, Sanford P.
Dumain, Richard H. Weiss, Milberg Weiss LLP, Nancy Freeman Gans,
and Moulton & Gans, PC were on brief for appellants.
James R. Carroll with whom Matthew J. Matule, Michael S.
Hines, and Skadden, Arps, Slate, Meagher & Flom LLP were on brief
for Biogen Idec Inc., William Rastetter, James Mullen, Burt
Adelman, Peter N. Kellogg, and William Rohn.
Mark A. Berthiaume with whom Timothy E. Maguire and Greenberg
Traurig LLP were on brief for Thomas Bucknum.

August 7, 2008
 LYNCH, Chief Judge. In this securities case, a drug

company, Biogen Idec Inc., conducted clinical trials and received

accelerated FDA approval for TYSABRI, a promising new drug for

multiple sclerosis and similar autoimmune diseases. The price of

the company stock increased as FDA approval was sought and granted.

Less than three months after the approval, on February 18, 2005,

continuing clinical trials of the drug revealed that two patients

had contracted a type of infection perhaps associated with the

drug. One of those patients had died. Within ten days, on

February 28, 2005, the company, after consultation with the FDA,

voluntarily withdrew the drug from the market. The share price

precipitously dropped.

This federal securities class action soon followed,

alleging the company and senior executives had intentionally

misrepresented the safety of and the market for the drug by

omission and commission. The district court dismissed the

complaint for failing to meet adequately the pleading requirements

for scienter established in the Private Securities Litigation

Reform Act of 1995 ("PSLRA"), Pub. L. No. 104-67, 109 Stat. 737.

We affirm.

I.

On March 2, 2005, a subset of the plaintiffs in this

action brought suit in federal district court against Biogen Idec

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Inc. and company executives.1 For convenience, we refer to all

defendants collectively as "Biogen," except where any are

specifically differentiated. The plaintiffs sued on behalf of a

putative class of individuals and entities who purchased Biogen

stock between February 18, 2004 and February 28, 2005, the class

period. Other duplicate class actions followed, with complaints

filed on March 10, 2005 and April 10, 2005. The actions were

consolidated and a consolidated amended complaint was filed October

13, 2006.

We accept well-pled factual allegations in the complaint

as true and draw all inferences in the plaintiffs' favor. Miss.

Pub. Empl. Ret. Sys. v. Boston Scientific Corp. (Boston

Scientific), 523 F.3d 75, 85 (1st Cir. 2008); see also Tellabs,

Inc. v. Makor Issues & Rights, Ltd., ___ U.S. ___, 127 S. Ct. 2499,

2509 (2007); ACA Fin. Guar. Corp. v. Advest, Inc., 512 F.3d 46, 52

(1st Cir. 2008). We also consider the undisputed public documents

utilized by each side in this case and considered by the district

court. See Boston Scientific, 523 F.3d at 86.

1
The individual named defendants all were senior
executives at Biogen. Specifically, at all times relevant to the
complaint, William Rastetter was Biogen's Executive Chairman and a
Director. James Mullen was Biogen's Chief Executive Officer and
President. Peter Kellogg was Biogen's Executive Vice President of
Finance and Chief Financial Officer. William Rohn was Biogen's
Chief Operating Officer. Burt Adelman was Biogen's Executive Vice
President of Development. Thomas Bucknum was Biogen's Executive
Vice President and General Counsel from November 2003 until he
resigned on March 9, 2005.

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A. TYSABRI and Its Effects

TYSABRI2 is a drug developed, manufactured, and marketed

by Biogen for the purpose of treating autoimmune diseases,

especially multiple sclerosis ("MS"), Crohn's disease, and

rheumatoid arthritis.3 Generally, autoimmune diseases cause the

human body's immune system to attack otherwise healthy tissues in

the body. TYSABRI works, in part, by preventing migration of white

blood cells throughout the body.

In MS, for example, the arrival of white blood cells to

the central nervous system causes inflammation, which in turn

destroys nerve fiber and the fatty tissue surrounding nerve fiber,

creating lesions or plaques in the nervous system. Over time,

these plaques disrupt the function of the nervous system, causing

the various symptoms of MS, including progressive physical

disability and eventual cognitive impairment. TYSABRI prevents the

2
In earlier phases, TYSABRI was known by the name Antegren
or by its generic name, natalizumab.
3
MS is described in more detail in the text. Crohn's
disease is a "subacute chronic [inflammation of the intestine] of
unknown cause, . . . characterized by patchy deep ulcers that may
cause fistulas, and narrowing and thickening of the bowel by
fibrosis and lymphocytic infiltration [infiltration of white blood
cells]." Stedman's Medical Dictionary 575 (26th ed. 1995) (entry
on "enteritis, regional enteritis").
Rheumatoid arthritis is "a systemic disease, occuring
more often in women, which affects connective tissue; . . .
accompanied by thickening of articular soft tissue . . . ; the
course is variable but often is chronic and progressive leading to
deformities and disability." Id. at 149 (entry on "arthritis,
rheumatoid arthritis").

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white blood cells from migrating to the central nervous system,

relieving the inflammation and mitigating the symptoms of MS.

Another effect of TYSABRI's mechanism of action is that

the drug could prevent white blood cells from migrating to places

in the body where they are needed. This may leave a patient

vulnerable to "opportunistic infections," which occur when

ordinarily benign organisms infect individuals with impaired immune

systems. While a healthy immune system would prevent these

organisms from causing illness, an impaired immune system may not

be able to stave off infection.

One such opportunistic infection is progressive

multifocal leukoencephalopathy ("PML"), a usually fatal disease of

the central nervous system caused by the "JC virus." The JC virus

is latent in the kidneys of almost all adults, and invades the

brain and causes PML only when the immune system is severely

impaired.

B. TYSABRI's Path to Market and the FDA Approval Process

The Food and Drug Administration ("FDA") requires any

drug to go through a series of clinical trials before it can be

approved for marketing and sales in the United States. See

generally L. Sukhatme, Note, Deterring Fraud: Mandatory Disclosure

and the FDA Drug Approval Process, 82 N.Y.U. L. Rev. 1210, 1219-20

(2007) (describing the FDA's drug approval process). After a drug

is initially tested on animals, the developer of the drug submits

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an application to the FDA for approval to test the drug on humans.

Id.; see also 21 C.F.R. § 312.20. If this request is approved,

human testing begins, and typically follows three phases, commonly

known as clinical trials. See 21 C.F.R. § 312.21. Each phase

requires the company to test the drug on a broader population and

results in more stringent monitoring and evaluation. Id.

Phase I studies generally involve twenty to eighty

subjects, and are designed to determine how the drug works in

humans and the side effects associated with increasing doses. Id.

§ 312.21(a)(1). Phase II studies usually involve no more than

several hundred subjects, and are designed to evaluate the

effectiveness of the drug, as well as common short-term side

effects and risks. Id. § 312.21(b). Phase III studies are large-

scale trials, usually involving several hundred to several thousand

subjects, and are intended to gather the information necessary to

provide an adequate basis for labeling the drug. Id. § 312.21(c).

Throughout the clinical trials, the drug company must report to the

FDA and to all participating physicians any serious and unexpected

adverse drug experiences that occur. Id. § 312.32(c)(1)(i)(A).

After Phase III, the FDA considers the results of all of the

clinical trials in determining whether to approve a drug for

market. See id. §§ 314.125(b), 314.126(a).

If a proposed drug "address[es] [an] unmet medical need"

for a "serious or life-threatening condition," like TYSABRI does,

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the FDA provides an expedited approval process. 21 U.S.C. §

356(a)(1); see also Consolidated Am. Compl. ("CAC") ¶¶ 83-85.

Through this process, which has a target for FDA action of six

months, the drug maker interacts with the FDA during drug

development and the FDA can begin reviewing portions of the drug

application before the full application is completed. See U.S.

Food and Drug Administration, Center for Drug Evaluation and

Research, FDA's Drug Review and Approval Times, available at

http://www.fda.gov/cder/reports/reviewtimes/default.htm. The FDA

can approve drugs treating life-threatening illnesses that are

significant advancements over existing treatments on the basis of

preliminary evidence prior to formal demonstration of patient

benefit.4 See 21 C.F.R. §§ 314.500, 314.510.

In August 2000, Biogen and another company, Elan Pharma

International Limited ("Elan"), announced that they had entered

into a joint collaboration agreement to bring TYSABRI to market.

The agreement required the two companies to share equally in the

revenues and costs and set up a number of joint teams, so that both

companies played a role in both the development of TYSABRI,

including clinical trials, and the marketing of TYSABRI. The

4
In an effort to strengthen FDA regulation of drugs
already approved and on the market when problems arise, Congress
enacted the Food and Drug Administration Amendments Act of 2007,
Pub. L. No. 110-85, 121 Stat. 823, which provides the FDA with
enhanced authority regarding the postmarket safety of drugs, see
id. §§ 901-21. The events in this case pre-date the statute.

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agreement also required that any information, including adverse

events, discovered by one company be reported to the other in a

timely manner.

Both the pre-clinical animal trials and the first phase

of clinical trials of TYSABRI as a treatment for MS had been

completed in the 1990s by Elan's corporate predecessor. After the

collaboration agreement, it was decided that Biogen would lead the

clinical trials for MS and Elan would lead the clinical trials for

Crohn's disease.

By September 2001, preliminary Phase II MS results had

begun yielding promising data. Biogen then began Phase III of MS

testing in December 2001 with two trials. The first trial, named

AFFIRM, sought to test whether TYSABRI was effective in slowing the

rate of disability in MS patients. The second, SENTINEL, sought to

evaluate the safety and efficacy of TYSABRI in combination with

another MS drug produced by Biogen, AVONEX.

The Phase III clinical trials for Crohn's disease began

in December 2001 and consisted of two trials: ENACT-1 (designed to

evaluate clinical responses to TYSABRI and its ability to induce

remission of Crohn's disease) and ENACT-2 (designed to evaluate the

duration and effects of TYSABRI). In July 2003, Biogen announced

that it could not act on the results of ENACT-1 because of a

"larger than expected placebo response rate." On January 29, 2004,

Biogen announced that the ENACT-2 trial had met its primary

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endpoint, and that because the ENACT-1 trial had been unsuccessful,

Biogen was beginning an additional Phase III trial, ENCORE, which

was designed to evaluate the safety and efficacy of TYSABRI in

patients with moderate to severe Crohn's disease. Altogether,

approximately 3,900 patients received TYSABRI in the three phases

of the MS and Crohn's disease clinical trials.

On February 18, 2004, Biogen announced its intention to

apply to the FDA for expedited approval for TYSABRI as a treatment

for MS, based on data from one year of its two Phase III MS trials,

AFFIRM and SENTINEL. Over the next two days, the price of Biogen

stock increased from $44.26 to $58.98, an increase of 33.3%, and

was traded at a daily volume of between six-and-a-half and nine

times greater than the average daily trading volume during the

class period. On May 25, 2004, Biogen announced that it had

submitted its application to the FDA.

The FDA then conducted a detailed analysis of the safety

and efficacy data available for TYSABRI, focusing on the data for

the MS clinical trials but also considering any serious safety

events that occurred in the Crohn's trials. For the ongoing Phase

III trials, which provided the "primary evidence of safety and

efficacy," the FDA's review considered "data through cut-off dates

ranging from March 1st to April 30th, 2004."

On November 23, 2004, Biogen announced that the FDA had

granted accelerated approval of TYSABRI and the drug was available

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for sale. The following day, the stock price rose from $57.43 to

$58.59, an increase of 2.0%.

The FDA placed no limitations on TYSABRI's use in

combination with other drugs. The package insert label included

with the drug noted only that "TYSABRI® is indicated for the

treatment of patients with relapsing forms of multiple sclerosis."

However, the package insert label did contain the following

statement relevant to the plaintiffs' claim: "The safety and

efficacy of TYSABRI in combination with other immunosuppressive

agents have not been evaluated."

C. Withdrawal of TYSABRI from the Market

At approximately noon on February 18, 2005, roughly three

months after TYSABRI was granted FDA approval, Biogen senior

officers attended a meeting where they learned that two patients

taking TYSABRI in the clinical trials had contracted PML, one of

whom had died.

Ten days later, on February 28, 2005, Biogen and Elan

suspended all clinical trials and withdrew TYSABRI from the

market.5 In a press release, Biogen announced to the public that

two patients had contracted PML, one of the two had died, and the

5
At this point, according to plaintiffs, Phase III of the
AFFIRM MS trial was completed and Phase III of the SENTINEL MS
trial was substantially completed; two of the Phase III Crohn's
disease trials were completed and an additional Phase III Crohn's
disease trial was in progress; and the Phase II rheumatoid
arthritis trials had been underway for approximately eight months.

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decision to withdraw TYSABRI was made "in consultation with [the]

U.S. Food and Drug Administration (FDA)."6 On March 30, 2005,

Biogen announced that a patient in the Crohn's disease trial who

died in 2003 had been misdiagnosed with brain cancer, and in fact

had died from PML.7

The stock market reacted strongly to the withdrawal of

the drug from the market. On February 28, Biogen's stock price

dropped from $67.28 to $38.65, a 42.5% drop. Some 118 million

shares were traded, more than thirty times the average daily

trading volume during the class period.

D. Insider Trading Allegations

Plaintiffs allege that during the class period the

individual insider defendants sold significant amounts of Biogen

stock while they knew that the share price was artificially

inflated because of the alleged misrepresentations concerning

6
A withdrawal of a drug from the market is not the same as
a voluntary recall. "Market withdrawal means a firm's removal or
correction of a distributed product which involves a minor
violation that would not be subject to legal action by the Food and
Drug Administration or which involves no violation." 21 C.F.R.
§ 7.3(j). A recall is "a firm's removal or correction of a
marketed product that the [FDA] considers to be in violation of the
laws it administers and against which the agency would initiate
legal action." Id. § 7.3(g).
7
According to the complaint, this announcement occurred on
March 1, 2005, the day after the withdrawal. CAC ¶ 7. A press
release included in the record announcing the additional PML
diagnosis, the authenticity of which is not disputed, is dated
March 30, 2005. Joint App'x at 309.

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TYSABRI. The class period ran from February 18, 2004, the day

Biogen announced it was seeking expedited FDA approval of TYSABRI,

to February 28, 2005, the day that TYSABRI was withdrawn from the

market. The alleged insider sales during the class period are as

follows.8

Defendant Rastetter, Biogen's Executive Chairman, sold

582,045 shares, approximately 78% of his shares as of February 18,

2004, the beginning of the class period, for total proceeds of

approximately $35 million. Defendant Mullen, the Chief Executive

Officer and President, sold 192,000 shares for total proceeds of

approximately $12 million, which constituted virtually all of the

shares he held as of February 18, 2004. Defendant Adelman, the

Executive Vice President of Development, sold 80,870 shares,

virtually all of the shares he held at the beginning of the class

period, for total proceeds of approximately $5 million. Defendant

Rohn, the Chief Operating Officer, sold 350,000 shares,

approximately 91% of the shares he held at the beginning of the

class period, for total proceeds of approximately $20 million.

Rohn announced his retirement on November 29, 2004, twelve days

after his final alleged insider sale, and retired on January 31,

2005. Defendant Bucknum, the General Counsel, sold 188,600 shares,

8
Each individual defendant made multiple sales on
different dates in the class period. To avoid the cumbersomeness
of listing each date and each corresponding amount, we describe
each individual defendant's sales in aggregate.

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virtually all of the shares he held at the beginning of the class

period, for total proceeds of approximately $12 million.

All but one of the alleged insider sales occurred before,

often well before, February 18, 2005, the date of the meeting where

plaintiffs allege that defendants first learned of the safety

issues with TYSABRI. The only alleged insider trading between

February 18, 2005 and the February 28, 2005 withdrawal (the end of

the class period) is by defendant Bucknum, the General Counsel. On

February 18, 2005, the same day as the meeting, Bucknum sold 89,700

shares for total proceeds of approximately $6 million, which

constituted approximately half of all the shares he held at the

beginning of the class period. The SEC filed a civil complaint

against Bucknum on January 12, 2006 for his February 18 trade. He

settled the action, paying $3 million in disgorgement and agreeing

not to serve as an officer or director of a public company for five

years. Bucknum resigned from Biogen on March 9, 2005.

E. FDA Investigation and TYSABRI's Return to Market

On March 7 and 8, 2006, the FDA's Peripheral and Central

Nervous System Drugs Advisory Committee ("Advisory Committee") held

public hearings to evaluate the potential reintroduction of

TYSABRI. In these hearings, Biogen and the FDA shared results of

further testing and analysis, and various members of the public,

including physicians and patients, gave comments.

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 On June 5, 2006, the FDA approved TYSABRI's

reintroduction into the market. The FDA's approval restricted

TYSABRI to use as a monotherapy for relapsing forms of MS; it was

not approved for use in combination with other drugs or for other

diseases. Because of the potential risk of PML, TYSABRI was

recommended only for those MS patients who do not respond to other

MS treatment. Every MS patient using TYSABRI must enroll in a risk

management program run by Biogen which closely monitors patients

for any signs of PML. In addition, the package insert label

includes a "black-box" warning, the strictest warning the FDA can

require, which warns of the risk of PML. See 21 C.F.R.

§ 201.57(c)(1); see also CAC ¶ 17. In addition, the package insert

label contains the following statement: "The safety and efficacy of

TYSABRI in combination with other antineoplastic,

immunosuppressant, or immunomodulating agents have not been

established."9

9
The FDA in 2008 approved TYSABRI to treat "moderate-to-
severe Crohn's disease in patients with evidence of inflammation
who have had an inadequate response to, or are unable to tolerate,
conventional Crohn's disease therapies." Press Release, U.S. Food
and Drug Administration, FDA News: FDA Approves Tysabri To Treat
Moderate-to-Severe Crohn's Disease (Jan. 14, 2008), available at
http://www.fda.gov/bbs/topics/NEWS/2008/NEW01775.html. TYSABRI for
Crohn's disease entails substantially the same warnings and
limitations as TYSABRI for MS, and Crohn's patients must also
enroll in the risk management program. Id.
On July 31, 2008, Biogen announced that two more patients
had contracted PML. See Todd Wallack, Despite Risks, Many Staying
with Tysabri, Boston Globe, Aug. 2, 2008, at A7. The share price

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 II.

Two days after the withdrawal of TYSABRI from the market

following the PML diagnoses of clinical trial participants, the

first group of plaintiffs brought suit against Biogen and the

individual defendants.

The consolidated amended complaint alleges that during

the class period, the defendants made material misstatements,

including material omissions of fact concerning the safety and

marketability of TYSABRI, and that this had caused the market price

of Biogen to be artificially inflated, both harming investors and

allowing individual insider defendants to enrich themselves in

excess of $137 million. The amended complaint alleges that the

acts and omissions of all of the defendants but Bucknum violated

sections 10(b) and 20(a) of the Securities Exchange Act of 1934, 15

U.S.C. §§ 78j(b) and 78t(a), and Rule 10b-5, 17 C.F.R. § 240.10b-5,

and that all of the defendants (including Bucknum) violated section

20A of the Securities Exchange Act of 1934, 15 U.S.C. § 78t-1.

In particular, the plaintiffs' amended complaint advances

a theory of material misstatements about the safety of the drug and

a related theory about material overstatements of the market for

the drug and growth in the company's sales. The amended complaint

alleges that during the class period, defendants made numerous

unqualified statements trumpeting TYSABRI's safety and efficacy and

of Biogen dropped approximately 28% on the news. Id. at A8.

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its consequent significant positive financial impact on Biogen's

profitability. When these statements were made, defendants failed

to disclose in a timely manner their knowledge of at least two

safety risks: that patients taking TYSABRI had developed

opportunistic infections (including infections other than PML) and,

in some cases, had died; and that the announced safety and efficacy

of using TYSABRI in combination with other MS drugs had never been

established. Given defendants' knowledge of these facts and the

substantial risks posed by TYSABRI, plaintiffs allege, the

defendants misrepresented the market for TYSABRI in their positive

financial forecasts. These misrepresentations and omissions, in

turn, harmed plaintiffs in their purchase and sale of securities.

In November 2006, all the defendants except Bucknum filed

a motion to dismiss. Bucknum filed a separate motion to dismiss in

January 2007. In September 2007, after oral argument, the district

court dismissed all claims against all defendants. In October

2007, the district court explained its reasoning in a separate

memorandum, which was unreported. In dismissing the section 10(b)

and the Rule 10b-5 claims, the court found that while the

plaintiffs had alleged material misrepresentations and omissions

with the appropriate specificity, they had not pled facts giving

rise to a strong inference of scienter. The court then dismissed

the section 20(a) and 20A claims because the court had found no

predicate securities violation.

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 III.

A. Pleading Requirements

On a Rule 12(b)(6) motion, we examine de novo whether a

complaint meets the PSLRA's requirements and we "accept well-pled

factual allegations in the complaint as true and make all

reasonable inferences in plaintiff's favor." Boston Scientific,

523 F.3d at 85. The complaint must allege "a plausible entitlement

to relief" in order to survive a motion to dismiss. Id. (quoting

Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1967 (2007)) (internal

quotation marks omitted). Here, the court also properly considered

certain public documents put into the record by both plaintiffs and

defendants. See id. at 86 (citing Watterson v. Page, 987 F.2d 1,

3 (1st Cir. 1993)).

The PSLRA requirements are familiar: the plaintiffs'

complaint must plead adequately (1) a material10 misrepresentation

or omission; (2) scienter; (3) a connection with the purchase or

10
Information is material if a reasonable investor would
have viewed it as "having significantly altered the 'total mix' of
information made available." Basic, Inc. v. Levinson, 485 U.S.
224, 232 (1988) (quoting TSC Indus. v. Northway, Inc., 426 U.S.
438, 449 (1976)) (internal quotation marks omitted); accord Boston
Scientific, 523 F.3d at 85; Gross v. Summa Four, Inc., 93 F.3d 987,
992 (1st Cir. 1996). Further, "[w]hile a company need not reveal
every piece of information that affects anything said before, it
must disclose facts, 'if any, that are needed so that what was
revealed [before] would not be so incomplete as to mislead.'" In re
Cabletron Sys., Inc., 311 F.3d 11, 36 (1st Cir. 2002) (quoting
Backman v. Polaroid Corp., 910 F.2d 10, 16 (1st Cir. 1990) (en
banc)).

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sale of a security; (4) reliance; (5) economic loss; and (6) loss

causation. Id. at 85; ACA Fin., 512 F.3d at 58.

The PSLRA requires that when alleging that a defendant

made a material misrepresentation or omission, a complaint must

"specify each statement alleged to have been misleading [and] the

reason or reasons why the statement is misleading." 15 U.S.C. §

78u-4(b)(1). If the allegation is "made on information and

belief," then the complaint must "state with particularity all

facts on which that belief is formed." Id.

We will assume arguendo, consistent with the district

court's opinion, that plaintiffs' amended complaint satisfied the

first element, that is, that plaintiffs pled material

misrepresentations or omissions in a sufficiently detailed manner

as to "time, place and content." Aldridge v. A.T. Cross Corp., 284

F.3d 72, 78 (1st Cir. 2002).

We turn to the question of the adequacy of the

complaint's pleading scienter. We discuss materiality only insofar

as it is relevant to the pleading of omissions said to be relevant

to scienter.

Scienter is a "mental state embracing intent to deceive,

manipulate, or defraud." Ernst & Ernst v. Hochfelder, 425 U.S.

185, 193 n.12 (1976). The plaintiff must establish that

"defendants consciously intended to defraud, or that they acted

with a high degree of recklessness." Aldridge, 284 F.3d at 82.

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The PSLRA requires that the plaintiffs' complaint, "with respect to

each act or omission . . . , state with particularity facts giving

rise to a strong inference that the defendant acted with the

required state of mind." 15 U.S.C. § 78u-4(b)(2).

Congress did not define what qualifies as a "strong

inference" in the PSLRA, but in Tellabs, the Supreme Court held

that in order to be "strong," an "inference of scienter must be

more than merely plausible or reasonable -- it must be cogent and

at least as compelling as any opposing inference of nonfraudulent

intent." Tellabs, 127 S. Ct. at 2504-05.11

Scienter must be examined by looking at the complaint as

a whole. See Boston Scientific, 523 F.3d at 86; ACA Fin., 512 F.3d

at 59. A court must weigh "not only inferences urged by the

plaintiff . . . but also competing inferences rationally drawn from

the facts alleged." Boston Scientific, 523 F.3d at 86 (quoting

Tellabs, 127 S. Ct. at 2504) (internal quotation marks omitted).

"[W]here there are equally strong inferences for and against

11
The district court misspoke when it said the Supreme
Court's decision in Tellabs had "largely conform[ed] to the
preexisting standard in this circuit," Dist. Ct. Mem. at 11, in
adopting as adequate to show a "strong inference" of scienter the
standard of whether "a reasonable person would deem the inference
of scienter cogent and at least as compelling as any opposing
inference one could draw from the facts alleged." Tellabs, 123 S.
Ct. at 2510. In fact, Tellabs overruled our decision in In re
Credit Suisse First Boston Corp., 431 F.3d 36, 49 (1st Cir. 2005),
as we recognized in ACA Financial, 512 F.3d at 59. The lapse is of
no consequence; the district court articulated the correct legal
standard for scienter. Whether it correctly applied that standard
is what is at issue in this appeal.

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scienter, Tellabs now awards the draw to the plaintiff." ACA Fin.,

512 F.3d at 59 (citing Tellabs, 127 S. Ct. at 2510).

Of particular import to this case is another proposition.

A statement cannot be intentionally misleading if the defendant did

not have sufficient information at the relevant time to form an

evaluation that there was a need to disclose certain information

and to form an intent not to disclose it. See id. at 62 (finding

that statements were not established to be materially misleading

where there was "nothing in the amended complaint to establish that

the defendants were aware of facts, at the time they made their

predictions, that would have made those predictions unreasonable");

see also, e.g., Crowell GST Trust v. Possis Med., Inc., 519 F.3d

778, 783 (8th Cir. 2008); Winer Family Trust v. Queen, 503 F.3d

319, 327-29 (3d Cir. 2007); Higginbotham v. Baxter Int'l Inc., 495

F.3d 753, 757-60 (7th Cir. 2007).

B. Plaintiffs' Allegations of Misleading Statements

We describe emblematic examples12 of the alleged

misleading statements and the plaintiffs' allegations that

defendants knew at the time these statements were misleading.

(1) A statement in a February 18, 2004 press release

attributed to the defendants that: "In previous clinical trials,

the following adverse events occurred more commonly with

12
Only seven of the over eighty statements that the
plaintiffs excerpt in the complaint are included here. These
statements are representative of the others.

-21-
natalizumab when compared to placebo: headache, nausea, abdominal

pain, infection, urinary tract infection, pharyngitis and rash.

Serious adverse events have included infrequent

hypersensitivity-like reactions." CAC ¶¶ 164-165.

(2) A statement, attributed to defendant Mullen, Biogen's

Chief Executive Officer and President, during a March 2, 2004

conference call with analysts that:13

Now, I want to focus really on the
current state of the MS market, I know a lot
of people are beginning to think about that
very carefully after this announcement two
weeks ago. In the US, there is approximately
400 to 450,000 MS patients of which 300 to
350,000 in the relapsing forms, we consider
that the eligible market, that market is
slightly over half penetrated. That's about
180,000 patients in the US are on one of the
interferons or Copaxone. There is more than
50,000 quitters, that number is hard to
quantify but we think that's the right
ballpark and there is about 10 to 15,000 new
patients diagnosed annually. And when you

13
We agree with the district court that the statements
including financial projections were based on present facts
relating to the safety of TYSABRI and so do not fall under the
statutory safe harbor for forward-looking statements. See 15
U.S.C. § 78u-5.
In analyzing a forward-looking statement, the aspect of
the statement that is based on the present fact must be
distinguished from the aspect of the statement that is a future
projection. See In re Stone & Webster, Inc., Sec. Litig., 414 F.3d
187, 213 (1st Cir. 2005). "The safe harbor, we believe, is
intended to apply only to allegations of falsehood as to the
forward-looking aspects of the statement." Id. Here, the
plaintiffs' allegations of fraud, putting aside their merit,
concern defendants' knowledge of the underlying facts of the safety
and efficacy of TYSABRI at the time the statements were made.

-22-
 think about the EU marketplace, you can pretty
much just double all those numbers except the
penetration is a little bit less. So there is
huge, there is still a huge unmet need out
there. [W]e do believe that this innovative
therapy will offer hope to a large number of
patients and the market will grow
significantly in the US and Europe.

CAC ¶¶ 178, 180.

(3) Defendant Adelman, the Executive Vice President of

Development, made the following statement during the same March 2,

2004 conference call:

We know that there are patients who have some
degree of disease activity either as measured
by relapse rate and/or MRI while they are on
any of the current therapies, and that's why
the clinical development program for this
product includes not only a placebo-controlled
trial as a standalone therapy, but includes
study where we look at the efficacy of
Antegren when added to patients already on
interferon who still have some evidence of
disease activity. So, I think it's going to
be broadly applicable to the entire population
of patients with MS who are or are not on
therapy, who still have evidence of disease
activity.

CAC ¶ 181.

(4) A statement, attributed to Mullen, in an April 30,

2004 earnings report that: "We've had an excellent start to the

year. Both revenue and earnings results are up strongly. The U.S.

filing of ANTEGREN by mid-year is on track. . . . With access to

two large scale manufacturing facilities on both coasts, the

Company is well-positioned to fulfill ANTEGREN's blockbuster

potential." CAC ¶¶ 199, 208.

-23-
 (5) A statement, attributed to defendant Rohn, the Chief

Operating Officer, in a July 28, 2004 earnings report that: "We are

convinced of Antegren's blockbuster potential. . . . We believe

the potential MS market over the next few years will grow to

roughly $6 billion, up from $3.6 billion today, and we believe

Antegren will not only expand the market but also capture a lion's

share of the market." CAC ¶¶ 234, 235.

(6) A statement, attributed to Adelman, during a July 28,

2004 conference call with analysts that: "[T]here is no evidence

that Antegren is associated with accelerated disease activation or

relapse as we've seen with other potential targeted therapies to

lymphocyte trafficking and you know, we have a huge safety database

and these issues have not come up in conversation, you know, with

any regulatory authority." CAC ¶¶ 237, 238.

(7) A statement, attributed to Mullen, at a January 11,

2005 healthcare conference that AVONEX was the "ideal combination

product along with Tysabri, it's the only product that has proven

efficacy along side in addition to Tysabri." CAC ¶ 297.

C. Scienter

Even if plaintiffs met the standard of showing a material

misrepresentation or omission, as we assume arguendo they did, they

must still allege facts giving rise to a "strong inference" of

scienter. "Knowingly omitting material information is probative,

although not determinative, of scienter." Boston Scientific, 523

-24-
F.3d at 87; see also Aldridge, 284 F.3d at 83 ("[T]he fact that the

defendants published statements when they knew facts suggesting the

statements were inaccurate or misleadingly incomplete is classic

evidence of scienter."). The plaintiffs allege that defendants'

knowledge of the misleading nature of the statements, combined with

the individual defendants' insider trading, gives rise to a strong

inference of scienter.

The situation involved here is paradigmatic of securities

fraud cases against drug development companies where a promising

drug or medical device is approved by the FDA and then later proves

to have health risks which affect the market for the drug. See,

e.g., Oran v. Stafford, 226 F.3d 275 (3d Cir. 2000); In re Carter-

Wallace, Inc. Sec. Litig. (Carter-Wallace I), 150 F.3d 153 (2d Cir.

1998); In re Pfizer Inc. Sec. Litig., No. 04-9866, ___ F. Supp. 2d.

___, 2008 WL 2627131 (S.D.N.Y. July 1, 2008); In re Elan Corp. Sec.

Litig., 543 F. Supp. 2d 187 (S.D.N.Y. 2008); In re Bayer AG Sec.

Litig., No. 03-1546, 2004 WL 2190357 (S.D.N.Y. Sept. 30, 2004);

Anderson v. Abbott Labs., 140 F. Supp. 2d 894 (N.D. Ill. 2001); In

re Abbott Labs. Sec. Litig., 813 F. Supp. 1315 (N.D. Ill. 1992); In

re Pfizer, Inc. Sec. Litig., No. 90-1260, 1990 WL 250287 (S.D.N.Y.

1990).

Within two days of the withdrawal of TYSABRI from the

market, this securities fraud lawsuit was filed. The theory of the

original complaints was that defendants knew much earlier than

-25-
disclosed that TYSABRI would cause PML. That theory appears to

have been abandoned in favor of a theory, in the consolidated

amended complaint, that defendants knew TYSABRI would cause a range

of opportunistic infections other than PML and that TYSABRI used in

combination with other drugs created a substantial safety risk, and

yet they failed to disclose this to the investing public and the

FDA. The key theme of the suit is that Biogen and the defendants

were aware or at least were recklessly unaware of greater safety

risks with TYSABRI for opportunistic infections, particularly in

combination with other MS therapies, than had been announced to the

public, and then intentionally failed to disclose this information

in order to keep share prices high. Plaintiffs' claim is not only

that Biogen misled the investing public, but that Biogen misled the

FDA in order to achieve accelerated FDA approval.

The reports which companies make to the FDA about drug

trials are not generally made public. See P. Lurie & A. Zieve,

Sometimes the Silence Can Be Like the Thunder: Access to

Pharmaceutical Data at the FDA, Law & Contemp. Probs., Summer 2006,

at 85, 89. And so the investing public has few alternatives to

double-check the accuracy of a drug company's statements to the

public or to the FDA about the safety of an experimental drug.

Fraud on the FDA is, to be sure, prohibited, see 21 U.S.C. § 331,

and the FDA has statutory power to catch, punish, and deter such

fraud, see id. § 372 (FDA empowered to conduct investigations); id.

-26-
§ 332 (FDA can seek injunctive relief); id. § 333 (FDA can pursue

criminal prosecutions and civil penalties); Buckman Co. v.

Plaintiffs' Legal Comm., 531 U.S. 341, 349-50 (2001). Sometimes

FDA data becomes public much later, as in this case, where both

sides use information from the FDA Advisory Committee hearings on

March 7-8, 2006 to attempt to characterize what was known during

the class period.

By the same token, the investing public is well aware

that drug trials are exactly that: trials to determine the safety

and efficacy of experimental drugs. And so trading in the shares

of companies whose financial fortunes may turn on the outcome of

such experimental drug trials inherently carries more risk than

some other investments. This is true even when the FDA has given

fast-track approval to a new drug.

Against this background we analyze plaintiffs' various

theories.

1. PML Deaths and Other Opportunistic Infections

Plaintiffs' initial complaints alleged that defendants

knew of PML deaths from the SENTINEL combination therapy trial

earlier than February 18, 2005 and failed to timely disclose the

information. If plaintiffs have not abandoned this claim, it fails

anyway. We agree with the district court that there is no evidence

of record which makes this claim of knowledge before February 18,

2005 a permissible inference.

-27-
 Plaintiffs' primary theory advanced on appeal is that the

defendants knew earlier of a series of opportunistic infections

from use of TYSABRI including but not limited to PML, they failed

to adequately disclose these risks, and they announced market

projections they knew to be too optimistic in light of the risk of

all opportunistic infections.14 Plaintiffs allege the causal

connection between TYSABRI's market share and a higher risk of all

opportunistic infections was demonstrated by the market's reaction

to the withdrawal of the drug from the market on February 28, 2005

and the limitations placed on TYSABRI when it was later

reintroduced.

The plaintiffs argue that TYSABRI was withdrawn not only

because of the PML deaths but also because of the other

opportunistic infections. The defendants respond that they meant

what they said when, in the press release announcing the withdrawal

of the drug, they specified that TYSABRI was being voluntarily

withdrawn from the market because of the PML deaths. Again, we

agree with the district court that no plausible inference can be

drawn from the allegations and documents that the reason TYSABRI

was withdrawn was something other than the PML deaths.

14
These opportunistic infections include pulmonary
aspergillosis, pneumocystis carinii pneumonia, cryptosporidial
gastroenteritis, Mycobacterium avium intracellular pneumonia, and
Burkholderia cepacia pneumonia.

-28-
 That analysis does not itself end any claim by plaintiffs

of securities fraud. It may still be true that a reduction in the

market for TYSABRI based on the risk of opportunistic infections

other than PML would have an effect on Biogen's share prices. But

even then, defendants cannot have committed fraud if they did not

know at the time that the failure to provide additional information

was misleading. See ACA Fin., 512 F.3d at 62 ("There is nothing in

the amended complaint to establish that the defendants were aware

of facts, at the time they made their predictions, that would have

made those predictions unreasonable . . . ."); Boston Scientific,

523 F.3d at 86 ("Securities actions raise questions of what

corporate managers knew and when they knew it." (emphasis added)).

Plaintiffs' amended complaint fails to allege facts both

(1) as to when defendants had information about non-PML

opportunistic infections and (2) that the information available

sufficiently suggested a causal relationship between TYSABRI and

non-PML opportunistic infections.

The plaintiffs rely heavily on the information disclosed

in the initial November 2004 approval of the drug, on the hearings

held by the FDA Advisory Committee on March 7-8, 2006, and on the

"black-box" warning labels the FDA required when TYSABRI was

reintroduced on June 5, 2006 for a more limited market. They also

rely on some other evidence, including confidential source

allegations.

-29-
 We must take it as true from plaintiffs' allegations that

one of the potential risks of TYSABRI, given its mechanism of

action, was the risk of resulting opportunistic infections. The

FDA said as much in its November 2004 medical review recommending

the drug for accelerated approval. Joint App'x at 448 ("[G]iven

the mechanism of action of natalizumab, this [opportunistic

infections] issue deserves continued scrutiny . . . to more fully

characterize the effect of natalizumab on the immune system.").

This risk was one reason for the continued scrutiny of the drug

which did occur, during the remaining two years of trials and in

examining post-marketing experiences.

Plaintiffs claim that the FDA gave its approval only

because defendants hid data from it about opportunistic infections.

This is a very serious charge and is not substantiated by the

allegations in the complaint or the documents in the record. The

FDA's accelerated approval was granted in November 2004.

Plaintiffs allege defendants were aware by February 2004 of "all

incidents of death and innumerable opportunistic infections that

occurred during [prior] trials."15 Pls.' Br. at 10.

15
Plaintiffs claim that this knowledge existed because the
following trials had been completed and their data had been
unblinded by the following dates: (1) Phase I of the MS trials by
1995; (2) Phase II of the MS trials by September 2001; (3) Phase II
of the Crohn's trials by May 23, 2001; (4) Phase III of the Crohn's
ENACT-1 study by July 2003; (5) Phase III of the Crohn's ENACT-2
study by January 29, 2004; (6) the first year of Phase III of the
MS trials by February 18, 2004.

-30-
 Biogen submitted its application to the FDA on May 25,

2004 and, on June 28, 2004, announced the FDA had designated

TYSABRI for priority review. During the review process the FDA

evaluated safety data primarily from the Phase III MS clinical

trials and considered data from the ongoing Crohn's disease

studies. The cut-off dates for data reviewed ranged from March 1

to April 30, 2004. We thus take April 30, 2004 as a cut-off date

for information that the FDA would have known. If the FDA were

misled, as plaintiffs assert, it was with respect to pre-April 30,

2004 data. There is no evidence which permits any inference the

defendants intentionally failed to disclose relevant data to the

FDA between April 30, 2004 and when the FDA gave approval on

November 23, 2004, or from the approval date to the withdrawal of

the drug on February 28, 2005.

The plaintiffs' claim that Biogen hid data from the FDA

is not based on any FDA finding that this was true. Rather, it is

based primarily on plaintiffs' reading of after-the-fact statements

about earlier events made (a) by a Biogen employee at the post-

withdrawal Advisory Committee hearings, (b) by an FDA employee at

the same hearings, and (c) by confidential sources.

The Biogen employee, Dr. Michael Panzara, presented data

at the hearings from both the MS and the Crohn's disease trials.

In total, 3,900 patients received TYSABRI in both sets of trials.

In the MS trials, a total of three patients developed opportunistic

-31-
infections, including the two who developed PML. During the

Crohn's disease trials, five patients were diagnosed as having

suffered from opportunistic infections, including one patient who

had been diagnosed with PML. This results in an incidence rate of

0.2%, including the PML infections. If the PML were excluded, the

incidence rate would be even lower.

There is no basis to conclude that these results,

excluding the PML infections, were statistically significant.

There is no plausible inference from the reports of just five

patients with non-PML opportunistic infections that the defendants

knew of any causal relationship between the use of TYSABRI and the

separate opportunistic infections diagnosed for the five patients,

and then intentionally withheld data. "[T]he receipt of an adverse

report does not in and of itself show a causal relationship between

[a drug] and the illness mentioned in the report." In re Carter-

Wallace, Inc. Sec. Litig. (Carter-Wallace II), 220 F.3d 36, 41 (2d

Cir. 2000). "Some adverse events may be expected to occur

randomly, especially with a drug designed to treat people that are

already ill." Id.

Plaintiffs also cite the testimony of the FDA's Dr. Alice

Hughes at the post-withdrawal Advisory Committee hearings, who

stated that there were seventeen deaths during the clinical trials,

thirteen of which involved patients taking TYSABRI. But plaintiffs

allege that only four of those were a result of an opportunistic

-32-
infection (two being PML), and have not pled there was any causal

significance evident from the data. Moreover, there is contrary

evidence. During these same hearings, the FDA's Deputy Director of

Neurology Products, Dr. Marc Walton, stated: "We were not impressed

that the overall mortality rate was markedly different than we

might expect in MS studies." And before the drug was approved, the

FDA's Deputy Director of the Office of Drug Evaluation, Dr. David

Ross, wrote to his superior that the deaths to date in the clinical

studies "d[id] not represent a clear safety signal."

Further, the plaintiffs also have failed to allege when

the information on the non-fatal opportunistic infections became

known. Many of the infections occurred in the Crohn's disease

trials, but at least three of these trials were ongoing after

January 29, 2004, and so the infections may have occurred or become

known after the relevant time periods.

Plaintiffs advance the proposition that the fact "that

even one opportunistic infection occurred is significant enough to

put TYSABRI's safety and marketability in question." Pls.' Br. at

30 n.16. In the absence of an allegation or inference of proof of

any statistical significance of the occurrence of one or more non-

PML opportunistic infections, the statement is simply not true and

is also incorrect as a matter of law.

Indeed, there are no allegations by plaintiffs that

defendants knew of a significant risk of non-PML opportunistic

-33-
infections while the FDA was reviewing TYSABRI. No strong

inference can be drawn that defendants knowingly or recklessly

withheld material information from the FDA in order to get fast-

track review and accelerated approval.

Nor do any statements by FDA officials support such an

inference. Plaintiffs argue that the November 23, 2004 memo from

the FDA's Dr. David Ross, discussed above, which recommended the

approval of TYSABRI, establishes that Biogen withheld data. Dr.

Ross stated: "The events reported do not appear to represent

infections due to opportunistic pathogens . . . ." It is not

plausible to read this as evidence of wrongdoing by Biogen;

plaintiffs have not even presented a viable theory that the

statement means that data was withheld, as opposed to what it

says.16

This leaves only the allegations based on confidential

sources. Our standard for evaluating whether confidential source

material is sufficient under the PSLRA is as follows:

[W]here plaintiffs rely on confidential
personal sources but also on other facts, they

16
Plaintiffs also advance a theory that defendants knew or
recklessly disregarded information that TYSABRI "turn[ed] off" the
immune system. CAC ¶ 382. At most this is a hypothesis and would
hardly support a plausible inference of scienter when the data from
the clinical trials do not. The plaintiff overstates a 2004
hypothesis by Dr. Lawrence Steinman in a journal article that there
is "at least a theoretical concern that recipients of the therapy
would become generally compromised in their ability to fight
infection."

-34-
 need not name their sources as long as the
latter facts provide an adequate basis for
believing that the defendants' statements were
false. Moreover, even if personal sources
must be identified, there is no requirement
that they be named, provided they are
described in the complaint with sufficient
particularity to support the probability that
a person in the position occupied by the
source would possess the information alleged.
In both of these situations, the plaintiffs
will have pleaded enough facts to support
their belief, even though some arguably
relevant facts have been left out.

Cabletron, 311 F.3d at 29 (quoting Novak v. Kasaks, 216 F.3d 300,

314 (2d Cir. 2000)) (block quotation). Consequently, we "look at

all of the facts alleged to see if they 'provide an adequate basis

for believing that the defendants' statements were false.'" Id.

(quoting Novak, 216 F.3d at 314). "This involves an evaluation,

inter alia, of the level of detail provided by the confidential

sources, the corroborative nature of the other facts alleged

(including from other sources), the coherence and plausibility of

the allegations, the number of sources, the reliability of the

sources, and similar indicia." Id. at 29-30.

Defendants argue that Tellabs requires us to revise our

law on confidential sources, but we believe our law on this point

is unchanged. They cite to the Seventh Circuit's decision in

Higginbotham, 495 F.3d at 756 (because of Tellabs, court must

"discount" confidential source allegations). But plaintiffs

overstate their position, even as to Seventh Circuit law. See

Makor Issues & Rights, Ltd. v. Tellabs Inc., 513 F.3d 702, 712 (7th

-35-
Cir. 2008) (finding confidential source allegations sufficient

where they are "numerous and consist of persons who from the

description of their jobs were in a position to know at first hand

the facts to which they are prepared to testify"); id. ("[T]he

absence of proper names does not invalidate the drawing of a strong

inference from informants' assertions.").

Tellabs requires that all information in plaintiffs'

complaint be evaluated. 127 S. Ct. at 2509. We think that

includes confidential source information, subject to the

restrictions stated in our case law. We have never said a

complaint would survive if it were based only on confidential

source allegations. Indeed, we have said there must be a hard look

at such allegations to evaluate their worth. See Cabletron, 311

F.3d at 30 ("[C]ourts can competently make a careful evaluation of

securities fraud pleadings based on anonymous sources, and separate

frivolous complaints from those with potential merit.").

Scienter involves wrongdoing by high-level company

officials; low-level employees or consultants may well know of the

wrongdoing and wish to disclose it but fear retaliation if their

names appear among the accusers. Legislatures, both federal and

state, have recognized similar fears in enacting anti-retaliation

statutes and in encouraging whistle-blowers. Some allowance at the

motion to dismiss stage for consideration of confidential sources

in litigation is consistent with those policies. See

-36-
id. ("Employees or others in possession of important information

about corporate malfeasance may be discouraged from stepping

forward if they must be identified at the earliest stage of a

lawsuit."); Novak, 216 F.3d at 314 ("Imposing a general requirement

of disclosure of confidential sources . . . could deter informants

from providing critical information to investigators in meritorious

cases or invite retaliation against them.").

Before discovery, a confidential source would wish to

remain unnamed, as "a suit might never be brought or if brought

might be settled before any discovery [i]s conducted." Makor

Issues & Rights, 513 F.3d at 711. We decline to adopt a rule which

would exclude confidential source allegations which have every

indication both that the source had access to information and that

the information has the earmarks of credibility, simply because the

identity of the source is not initially revealed.17 And we see no

reason to exclude consideration of such information from the

evaluation of whether plaintiffs' strong inferences of scienter are

at least as plausible as defendants' inferences.

17
Indeed, Higginbotham presented a different problem: the
identities of the confidential sources in that case would never
have been revealed, 495 F.3d at 757, so the reliance on
confidential sources in the complaint was apparently solely a
device by plaintiffs to get past a motion to dismiss and into
discovery.

-37-
 Here, however, the allegations made by the confidential

sources, even if we assume them to be true, still do not create a

strong inference of scienter.

Plaintiffs allege that one confidential source, "CS 3,"

a neurologist who was involved in the clinical trials for MS,

confirmed the existence of several serious opportunistic infections

during the MS and Crohn's disease trials, and the source

specifically cited one opportunistic infection that occurred during

the MS trials and two from the Crohn's disease trials. CAC ¶ 144.

However, this allegation does not indicate when during the trials

these infections became known. Moreover, the allegation does not

contribute anything additional to plaintiffs' case. Dr. Panzara

said during the FDA hearings that three patients in the MS trials

and five patients in the Crohn's disease trials developed

opportunistic diseases, and Dr. Hughes stated that there were two

deaths during the clinical trials attributable to non-PML

opportunistic diseases. We discussed earlier the shortcomings of

these allegations in establishing the requisite scienter. Nothing

is added by the existence of a confidential source who states that

there were "several" opportunistic infections during the trials and

cites three.18 Similarly, nothing is added by the allegation, even

18
Plaintiffs also allege that "in CS 3's opinion," many of
the problems with TYSABRI "were the result of executives at Biogen
being excessively aggressive in getting" the drug to the market.
CAC ¶ 146. As with any bald assertion, this gets plaintiffs
nowhere.

-38-
if true, that another confidential source, "CS 4," was aware of

"serious opportunistic infections" during the Crohn's disease

trials. CAC ¶ 145.

Plaintiffs also point to statements by two other

confidential sources. "CS 5," a neurologist involved with the

SENTINEL Phase II trial, stated that five participants in the

Crohn's disease trials developed cancer, as opposed to one patient

in the placebo group, and he was concerned about the types of

cancer the patients had contracted, which included malignant

melanoma and cervical cancer. CAC ¶ 147. Again, there is no

indication as to when during the trials these occurrences became

known. Regardless, assuming it to be true, the allegation that

five people developed cancer in clinical trials involving hundreds

of people does not itself support a plausible inference that

defendants knew that TYSABRI increased the risk of patients

developing cancer, let alone an inference that TYSABRI increased

the risk of opportunistic infections, which are distinct from

cancer.

Finally, "CS 6," a data entry clerk who worked for Biogen

from May to December of 2004, alleged that the number of adverse

events being reported to the company concerning TYSABRI was on

average between fifty and sixty per day; that in June 2004 and just

prior to TYSABRI's approval in November 2004, this volume was

"extremely high, particularly when compared to other clinical

-39-
trials" in which this confidential source was involved; and that

"many" of these adverse reports were "serious," such as an increase

in the size of tumors and "complaints suggesting symptoms of PML."

CAC ¶¶ 148-149.

With the exception of this last assertion, these

allegations say nothing about the nature of the adverse event

reports and therefore, even if true, cannot support an inference

that it was known that TYSABRI causes opportunistic infections. As

for the claim that there were a number of "serious" adverse event

reports, even assuming this to be true, the source provides no

information regarding whether these reports were confirmed, whether

the symptoms being reported were shown to have any connections to

opportunistic infections, or even whether any connections were made

between the symptoms being reported and a patient's use of

TYSABRI.19 Again, "the receipt of an adverse report does not in and

of itself show a causal relationship between [a drug] and the

illness mentioned in the report." Carter-Wallace II, 220 F.3d at

41.

Plaintiffs' claims as to non-PML opportunistic infections

fail to meet the scienter standards of the PSLRA.

19
At one point in their complaint, when discussing an FDA
adverse event report, plaintiffs appear to count each reported
adverse event as a new adverse event, even if some of the reports
were follow-up reports to already-reported adverse events. See CAC
¶ 153. This resulted in higher counts of adverse events, since one
adverse event involving one patient was counted multiple times.

-40-
 2. Combination Therapy Claims

In a related but distinct set of claims, plaintiffs

allege that defendants affirmatively stated that TYSABRI was safe

when used in combination with other drugs when in fact they had no

reasonable basis to believe so. This is different from the

allegations that defendants knew of the risk of opportunistic

infections but did not disclose the risk.

Plaintiffs point out the two PML diagnoses which led to

withdrawal of the drug occurred during the clinical trials of

TYSABRI in combination with AVONEX, Biogen's other MS drug. And

when the FDA approved the reentry of TYSABRI into the market, the

package insert contained the following warning about the use of

TYSABRI with other MS therapies: "Concurrent use of antineoplastic,

immunosuppressant, or immunomodulating agents may further increase

the risk of infections, including PML and other opportunistic

infections, over the risk observed with use of TYSABRI alone."

The plaintiffs allege that the use of TYSABRI in

combination therapy was highly material to TYSABRI's future market

share because approximately 180,000 patients or "slightly over

half" of the potential MS market was on other MS drugs. CAC ¶ 180.

a. Waiver

Before addressing the merits of the argument, we look to

whether it has been waived. The defendants argue that this

combination therapy theory has been waived because plaintiffs did

-41-
not brief it in their opposition to the motion to dismiss.

Further, the district court did not comment on the theory at all.

The theory is, however, plainly stated in the amended

complaint. See CAC ¶¶ 402-404. It was the defendants' motion to

dismiss which failed to mention or brief the theory, thus failing

to call the court's attention to it. Plaintiffs may have been

unwise not to brief the theory in their opposition and thus be sure

the district court was aware of it. However, plaintiffs did refer

to the theory, albeit briefly, at oral argument in the district

court. Defendants' failure to brief in their motion to dismiss a

theory raised by the complaint should not be rewarded by finding

waiver by plaintiffs. Cf. Peterson v. Highland Music, Inc., 140

F.3d 1313, 1318 (9th Cir. 1998) (finding that defendants did not

waive on appeal its defense of lack of personal jurisdiction when,

in the absence of any allegations of "deliberate, strategic

behavior," defendants contested jurisdiction only in their initial

pleading and did not raise the issue again until appeal). Neither

side advances the cause by hiding the ball from the district court.

Cf. Adden v. Middlebrooks, 688 F.2d 1147, 1156-57 (7th Cir. 1982)

(finding no waiver by defendants even though defendants never

raised issue after initial pleading until supplemental briefing was

ordered by the appellate court, but warning that "[defendants] are

well advised to brief fully all grounds . . . in their favor").

b. Merits

-42-
 On the merits, the plaintiffs' theory -- that defendants

had no reasonable basis to say at the time they made their

statements that TYSABRI was safe in combination with AVONEX -- is

not nearly as compelling as opposing inferences from the undisputed

facts in the record. First, and most importantly, at the time

these statements were made, the FDA had approved TYSABRI for use

with AVONEX after contemplating any safety risks. In the FDA's

medical review of the drug before approval, the FDA analyzed data

from the first year of the SENTINEL trial, which tested TYSABRI in

combination with AVONEX. In the "Safety" section of the review,

the FDA noted that "[n]atalizumab's overall safety profile was

similar in Studies 1801 [TYSABRI as a monotherapy] and 1802

[TYSABRI in combination with AVONEX]," suggesting that "co-

administration of [AVONEX] does not necessitate a change in that

natalizumab dose to maintain safety." Biogen included similar

language as part of the original package insert label accompanying

TYSABRI. Addendum to Defs.' Br. at 5.

Plaintiffs point to this language in the original label

as evidence that defendants falsely implied that TYSABRI was safe

when used in combination with AVONEX. When viewed along with the

FDA review described above and the new package insert label after

TYSABRI's re-introduction, the inference of scienter is less than

compelling. The original label's "Indications and Usage" section,

which described the FDA-approved uses of the drug, noted that:

-43-
"TYSABRI® is indicated for the treatment of patients with relapsing

forms of multiple sclerosis." Addendum to Defs.' Br at 4. The new

package insert label specifically states that TYSABRI should be

used on its own: "TYSABRI® is indicated as monotherapy for the

treatment of patients with relapsing forms of multiple sclerosis .

. . ." Joint App'x at 538 (emphasis added). Also, as discussed

above, the label comes with a warning of the risk of TYSABRI when

used in combination with other MS therapies.

Based on these undisputed facts, we find the defendants'

inference more compelling: up until the first diagnosis of PML, no

significant safety risk had been associated with use of TYSABRI as

a combination therapy. To the contrary, one of the clinical trials

(SENTINEL) was focused on the safety and efficacy of TYSABRI in

combination with AVONEX. Once the diagnoses of PML occurred and

the drug was withdrawn, Biogen recognized that a safety risk may

exist when TYSABRI is used as a combination therapy because the two

instances of PML had occurred in the SENTINEL trial. This was

reported to the FDA and discussed in the Advisory Committee

hearings. When the FDA re-approved the drug for use in June 2006,

it was only as a monotherapy, and Biogen disclosed this in the

label accordingly.

Defendants may have based their optimistic financial

projections on a broader market that includes TYSABRI being used

with AVONEX. But plaintiffs have not raised a plausible inference

-44-
that defendants knew at the time these projections were made that

TYSABRI used with AVONEX was unsafe. As a result, we cannot say

that either defendants' representations about TYSABRI as a

combination therapy or the ensuing forecasts about market share

were misleading at the time they were made. There is no strong

inference of scienter.

3. Insider Trading Allegations

If there is reason to be concerned about material

omissions or misrepresentations, the presence of insider trading

can be used, in combination with the other evidence, to establish

scienter. Boston Scientific, 523 F.3d at 92; Greebel v. FTP

Software, Inc., 194 F.3d 185, 197-98 (1st Cir. 1999); Shaw v.

Digital Equip. Corp., 82 F.3d 1194, 1204 (1st Cir. 1996).

Here, we have already discounted the inferences of

scienter from claims about failure to disclose the risk of non-PML

opportunistic infections and of safety concerns with combination

therapy. Even if defendants' statements were arguably misleading,

plaintiffs have not sufficiently alleged that the statements were

intentionally so; that is, that defendants had any reason to know

their statements were misleading before February 18, 2005, the day

of the meeting where the defendants first learned of the PML

diagnoses. Thus, any insider trading which occurred during the

class period until February 18, 2005 cannot be used to support a

strong inference of scienter, since "[i]nsider trading cannot

-45-
establish scienter on its own."20 Boston Scientific, 523 F.3d at

92.

We are, however, concerned by the only allegations of a

sale on or after February 18, 2005: the allegations that Bucknum,

the General Counsel, sold 89,700 shares for total proceeds of

approximately $6 million on February 18, 2005. The SEC

investigated this sale and an agreement was reached under which

Bucknum disgorged profits of $3 million. As best as can be

inferred from the documents in evidence, Bucknum proposed his sale

to his broker at 8:45am, Biogen's legal department approved the

sale at 10:00am, the meeting at which PML was discussed was at

12:00pm, and Bucknum instructed his broker to sell the shares at

1:30pm. Plaintiffs do not allege that any individual defendant

knew before the noon meeting of the patient death from PML, that an

agenda containing that information was circulated in the morning,

or even who first learned the information and when. There is no

20
We need not address the defendants' arguments that
defendant Rohn's trading was immunized because of its proximity to
his retirement and that much of the individual defendants' trading
occurred pursuant to Rule 10b5-1 plans. An examination of publicly
available SEC filings shows that at least two defendants, Rastetter
and Adelman, entered into Rule 10b5-1 plans during the class
period. See, e.g., Biogen Idec Inc., Form 8-K: Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 (SEC File No. 0-19311, Dec. 13, 2004), Item 8.01 (Rastetter
entered into two plans on December 13, 2004); Biogen Idec Inc.,
Form 8-K: Current Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (SEC File No. 0-19311, Oct. 18,
2004), Item 8.01 (Adelman entered into a plan on October 18, 2004).

-46-
allegation that Bucknum knew of the information before he sought

permission to sell the stock. Perhaps Bucknum acted on insider

information in the sense of failing to refrain from trading once he

learned of the PML death. It is notable that plaintiffs excluded

Bucknum from their section 10(b) claim; the claim is against Biogen

and the other individual defendants. But no one else among the

defendants traded that day.

Based solely on Bucknum's trading, a strong inference of

scienter on the part of Biogen and the other individual defendants

cannot be drawn.21 See Abrams v. Baker Hughes Inc., 292 F.3d 424,

435 (5th Cir. 2002) (noting that "even unusual sales by one insider

do not give rise to a strong inference of scienter" when other

insiders had not engaged in suspicious trading during the class

period); see also, e.g., Southland Sec. Corp. v. INSpire Ins.

21
Plaintiffs may be arguing that Bucknum himself violated
an independent duty to disclose under section 10(b) because he did
not abstain from trading after learning of the incidences of PML.
See Shaw, 82 F.3d at 1203 ("There is no doubt that an individual
corporate insider in possession of material nonpublic information
is prohibited by the federal securities laws from trading on that
information unless he makes public disclosure."). We need not
decide this issue, however, because plaintiffs elected not to
pursue a section 10(b) claim against Bucknum as an individual.
If the plaintiffs are arguing that Biogen itself had a
duty to disclose because of Bucknum's trading, that proposition is
unsupported by the law. The duty to "disclose or abstain" carries
over to the corporation when the corporation itself trades in its
own stock, and there is no such allegation here. See, e.g., id. at
1203-04; San Leandro Emergency Med. Group Profit Sharing Plan v.
Philip Morris Cos., 75 F.3d 801, 814-15 (2d Cir. 1996).

-47-
Solutions, Inc., 365 F.3d 353, 369 (5th Cir. 2004); San Leandro

Emergency Med. Group Profit Sharing Plan v. Philip Morris Cos., 75

F.3d 801, 814 (2d Cir. 1996); Acito v. IMCERA Group, 47 F.3d 47, 54

(2d Cir. 1995). Moreover, Bucknum made none of the statements

alleged to be misleading, and there is no specific allegation that

Bucknum was any more knowledgeable than any of the other individual

defendants. See Ronconi v. Larkin, 253 F.3d 423, 436 (9th Cir.

2001) ("One insider's well timed sales do not support the 'strong

inference' required by the statute where the rest of the equally

knowledgeable insiders act in a way inconsistent with the inference

that the favorable characterizations of the company's affairs were

known to be false when made." (footnote omitted)).

What is clear is that neither Biogen nor any other

individual defendant sold any shares during the class period after

they learned of the PML death on February 18. No strong inference

of scienter in plaintiffs' favor arises in an absence of insider

sales by these defendants.

D. New Claims About Shortened Class Period on Motion
To Dismiss

1. Lateness of Assertion of Claim

The plaintiffs filed four successive complaints in this

matter over a period of twenty months before oral argument on the

motions to dismiss on September 11, 2007.22 Despite ample

22
They also sought to file yet another complaint after the
court entered a dismissal order.

-48-
opportunity to assert their claims earlier, plaintiffs came up with

a new theory, the shortened class period theory, in their

memorandum in opposition to the motion to dismiss. The district

court permitted argument on the theory but was not persuaded.

Indeed, the court does not discuss the theory at all in its

memorandum supporting its ruling on the motion to dismiss.

Defendants argue the theory was waived. Our concern

about theories raised for the first time by plaintiffs in response

to defendants' motions to dismiss in securities cases is based in

part on traditional notions of waiver and in part on the unusual

requirements of the PSLRA. In enacting the PSLRA, Congress

intended to raise the standards plaintiffs must meet to survive a

motion to dismiss, for defendants to have a fair chance to test the

viability of a complaint, and for courts to carefully scrutinize

complaints. See Tellabs, 127 S. Ct. at 2509. That deliberate

scheme is thrown into disarray when new theories are first produced

in response to a motion to dismiss. The need for clarity and

specificity about what plaintiffs' theories actually are is

undercut. The PSLRA did not impose special burdens on Fed. R. Civ.

P. 15(a), regarding amendments of complaints. See ACA Fin., 512

F.3d at 56. But plaintiffs here did not attempt to present this

new theory in any of their amended complaints. That meant neither

the court nor defendants had prior notice of the theory, much less

prior opportunity to consider whether the theory met the PSLRA

-49-
standards. The district court would have acted well within its

discretion in declining to permit advancement of the new theory.

And in future cases, honoring the purposes of the PSLRA, we may

decline to hear arguments challenging dismissal based on belatedly

advanced theories not contained clearly in amended complaints.

2. Merits of Shortened Class Period Claim

Here, even considering the theory, it fails.

There was a ten-day period between the earliest knowledge

on February 18, 2005 of one PML death and the potential PML

diagnosis of a second patient, and the announcement on February 28,

2005 that TYSABRI was being withdrawn due to the PML diagnoses.

That was a reasonable period of time for defendants to make their

disclosures.23 See Higginbotham, 495 F.3d at 761 ("Managers cannot

tell lies but are entitled to investigate for a reasonable time,

until they have a full story to reveal.").

At a minimum, Biogen needed to understand whether PML was

caused by TYSABRI. This entailed understanding whether both

patients with PML had any medical history showing they were

susceptible to PML and sorting through whether, if there were a

23
The district court reasoned at oral argument that the
theory must fail because defendants had no duty to disclose in that
period because they made no public statements. However, because
there had been prior statements about the drug's risks which would
have been material to Biogen's financial health, there was a duty
to disclose within a reasonable time. See Cabletron, 311 F.3d at
36 (noting a duty to correct prior statements in light of
subsequent developments). There is no need to discuss whether
there were other sources of an obligation to disclose.

-50-
causal connection, it involved TYSABRI alone or an interaction

between TYSABRI and AVONEX, since both patients were participating

in the combination trial. During the ten-day period, the company

was also cooperating with the FDA.

The company would have behaved irresponsibly (and

possibly in violation of the securities laws) if it had made a

public announcement which was possibly inaccurate because the

situation of the PML incidences had not yet been adequately

investigated. This obligation on drug companies to investigate and

to be accurate in their material public statements holds even when

the adverse information comes from clinical trials on drugs to

treat very ill patients. See id. at 758 ("Knowing enough to launch

an investigation ([the defendants] could not simply assume that the

initial report of bad news was accurate) is a very great distance

from convincing proof of intent to deceive."); id. at 760-61

("Prudent managers conduct inquiries rather than jump the gun with

half-formed stories as soon as a problem comes to their

attention."); cf. Carter-Wallace I, 150 F.3d at 157 ("Drug

companies need not disclose isolated reports of illnesses . . .

until those reports provide statistically significant evidence that

the ill effects may be caused by -- rather than randomly associated

with -- use of the drugs and are sufficiently serious and frequent

to affect future earnings.").

IV.

-51-
 Because the complaint has not pled a strong inference of

scienter against either Biogen or any of the individual defendants,

we do not reach the question of whether it is possible to raise a

strong inference of scienter against the company without doing so

against any individual defendants. See Teamsters Local 445 Freight

Div. Pension Fund v. Dynex Capital Inc., No. 06-2902, ___ F.3d ___,

2008 WL 2521676, at *4 (2d Cir. June 26, 2008); Makor Issues &

Rights, 513 F.3d at 710.

In addition to their claims under section 10(b) and Rule

10b-5, the plaintiffs pled claims under sections 20(a) and 20A of

the Securities Exchange Act of 1934, 15 U.S.C. §§ 78t(a) and 78t-1.

Because we have found that plaintiffs have not adequately alleged

an underlying 10b-5 violation, those claims must fail. See ACA

Fin., 512 F.3d at 67-68; In re Stone & Webster, Inc., Sec. Litig.,

424 F.3d 24, 27 (1st Cir. 2005); In re Advanta Corp. Sec. Litig.,

180 F.3d 525, 541 (3d Cir. 1999).

The decision of the district court is affirmed.

-52-