United States District Court, D. Massachusetts
JOHN J. GERNETH, Individually and on Behalf of All Others Similarly Situated Plaintiff,
CHIASMA, INC., et al., Defendants.
MEMORANDUM AND ORDER
J. Casper United States District Judge
John Gerneth (“Gerneth”) brings claims against
Defendants Chiasma, Inc. (“Chiasma”), Mark W.
Leuchtenberger (“Leuchtenberger”), Mark J.
Fitzpatrick (“Fitzpatrick”), Todd Foley
(“Foley”), John Scarlett
(“Scarlett”), Ansbert Gadicke
(“Gadicke”), Dror Brandwein
(“Brandwein”), Bard Geesaman
(“Geesaman”), Scott Minick
(“Minick”), David Stack (“Stack”),
Vincent Miles (“Miles”),  William Blair & Company,
LLC (“William Blair”), Cowen and Company, LLC
(“Cowen”), Barclays Capital Inc.
(“Barclays”) and Oppenheimer & Co. Inc.
“Defendants”), alleging that Defendants violated
Section 11 of the Securities Act, 15 U.S.C. § 77k
(“Section 11”) (Count I), and that the Individual
Defendants violated Section 15 of the Securities Act (Count
II). D. 30. Defendants now move to dismiss the complaint
pursuant to Fed.R.Civ.P. 12(b)(6). D. 62. For the reasons
stated below, the Court DENIES the motion.
Standard of Review
Court will grant a motion to dismiss pursuant to Fed.R.Civ.P.
12(b)(6) if the complaint fails to plead sufficient facts
that “state a claim to relief that is plausible on its
face.” Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007). When considering a motion to dismiss, the
Court is tasked with “separat[ing] the factual
allegations from the conclusory statements in order to
analyze whether the former, if taken as true, set forth a
‘plausible, not merely a conceivable, case for
relief.'” Juárez v. Select Portfolio
Servicing, Inc., 708 F.3d 269, 276 (1st Cir. 2013)
(quoting Ocasio-Hernández v.
Fortuño-Burset, 640 F.3d 1, 12 (1st Cir. 2011)).
In conducting this examination, the court must not
“attempt to forecast a plaintiff's likelihood of
success on the merits, ” id. (internal
quotation marks omitted), but instead “give the
plaintiff the benefit of all reasonable inferences.”
Ruiz v. Bally Total Fitness Holding Corp., 496 F.3d
1, 5 (1st Cir. 2007) (citing Rogan v. Menino, 175
F.3d 75, 77 (1st Cir. 1999)).
following summary is based upon the allegations in the
amended complaint, D. 30, which are accepted as true for the
consideration of the motion to dismiss. Chiasma is a
late-stage biopharmaceutical company with its principal place
of business in Newton, Massachusetts. D. 30, ¶ 16. The
company's primary business since 2001 has been applying
its proprietary Transient Permeability Enhancer
(“TPE”) technology to develop and sell drugs for
oral delivery that were previously only available in
injectable form. D. 30, ¶¶ 3, 53-55. Chiasma was
focused on developing the first oral drug for the treatment
of acromegaly, a hormonal growth disorder that causes excess
production of growth hormone. D. 30, ¶¶ 4, 48, 55.
oral acromegaly treatment, Mycapssa, is an oral capsule form
of octreotide, a previous injectable treatment, using the TPE
technology. D. 30, ¶¶ 3-4, 47, 52-53. Mycapssa
would be the first oral treatment for acromegaly available on
the market. D. 30, ¶ 51. Upon Mycapssa's approval
and success, Chiasma intended to use its TPE technology to
develop oral delivery treatments of other drugs that are now
only available as injections. D. 30, ¶¶ 4, 53.
decided to seek approval for Mycapssa using the FDA's
505(b)(2) hybrid New Drug Application (“NDA”)
pathway. D. 30, ¶ 77. 505(b)(2) allows the applicant to
rely partially upon previously submitted clinical studies
submitted by prior applicants in support of other drugs. D.
30, ¶ 40. Chiasma performed Phase 1 trials for Mycapssa,
D. 30, ¶ 62, and relied upon previously conducted
clinical studies of octreotide's injectable drugs in lieu
of a Phase 2 trial, D. 30, ¶¶ 55, 111.
March 2012 and November 2014, Chiasma conducted a single-arm,
open label, multi-center, baseline-controlled Phase 3 trial
to observe whether patients with acromegaly maintained safe
and effective responses to treatment when switched from
injectable octreotide to Mycapssa. D. 30, ¶ 64. The
Phase 3 trial was not conducted in the United States because
the FDA required six months of monkey toxicity data to
approve enrollment in a U.S. site and Chiasma only had three
months of monkey toxicity data. Id. The Phase 3
trial was conducted in two phases: a seven-month “Core
Treatment Phase, ” followed by an optional six-month
“Extension Phase.” D. 30, ¶ 65. Out of 155
patients enrolled in the Phase 3 trial, 102 completed the
Core Treatment Phase and 82 completed the Extension Phase. D.
30, ¶ 67.
February 2013, Chiasma entered into a licensing agreement
with F. Hoffman-La Roche Ltd. and Hoffman-La Roche Inc.
(collectively, “Roche”). D. 30, ¶ 5. Roche
promised a $65 million upfront payment and possible future
payments based on development and commercial milestones of up
to $530 million in exchange for the right to develop and
commercialize Mycapssa after FDA approval. D. 30,
¶¶ 5, 71. In May 2014, having received the
finalized Phase 3 data, Roche and Chiasma met with the FDA to
identify any “major unresolved problems” before
submitting the NDA. D. 30, ¶¶ 6, 74, 77, 84, 100,
105, 112-113, 115, 119. In July 2014, Roche terminated its
licensing agreement with Chiasma, D. 30, ¶¶ 6, 74,
but Chiasma stated that Roche's executives were pleased
with the Phase 3 trial results, and that its termination was
a strategic decision to avoid becoming “more deeply
involved in the endocrinology sector, ” D. 30, ¶
April 17, 2015, Chiasma submitted its draft Registration
Statement on Form S-1 to the Securities and Exchange
Commission (“SEC”), along with a preliminary
prospectus. D. 30, ¶ 83. Chiasma submitted its
registration statement on Form S-1 to the SEC, along with a
prospectus on Form 424(b)(4), D. 64-1 (the
“Prospectus”). D. 30, ¶ 85. Chiasma
submitted the Mycapssa 505(b)(2) NDA to the FDA on June 15,
2015. D. 30, ¶¶ 77-78. Chiasma submitted an
amendment to its registration statement on Form S-1/A on July
6, 2015. Id. Chiasma's initial public offering
took place on July 15, 2015. D. 30, ¶ 85. By the time
the IPO was complete on July 21, 2015, Chiasma had received
net proceeds of approximately $106.5 million. Id. On
November 18, 2015, after the markets closed, Roni Mamluk
(“Mamluk”) of Chiasma disclosed during a
quarterly earnings conference call that during the May 2014
pre-NDA meeting, the FDA had raised specific questions about
(1) Chiasma's ability to get approval of its NDA for
Mycapssa under the 505(b)(2) pathway; (2) the duration of the
Phase 3 trial; and (3) the durability of Mycapssa's
effect on its Phase 3 trial patients. D. 30, ¶ 115. On
the same call, Malmuk assured investors that Chiasma had
addressed these FDA concerns and that there were “no
question[s] any more” with respect to durability or the
505(b)(2) pathway. D. 30, ¶ 116. Malmuk stated that
Chiasma had “a clear path forward with the FDA.”
April 14, 2016, the market became aware of news that the FDA
would reject the Mycapssa NDA, D. 30, ¶ 117, causing
negative effects on analysts' price targets, D. 30,
¶¶ 10, 120-123. On April 15, 2016, Chiasma
announced that the FDA had issued a Complete Response Letter
(“CRL”) explaining its denial of the Mycapssa
NDA. D. 30, ¶ 87. On April 18, 2016, Chiasma offered
more detailed reasoning from the CRL, including that the FDA
did not believe the NDA had offered substantial evidence of
efficacy and that Chiasma would need to conduct another
clinical trial to resolve this deficiency. D. 30, ¶ 88.
Chiasma also explained that the FDA had “expressed
concerns” about “certain aspects” of the
Phase 3 trial, and among other recommendations it suggested
that Chiasma conduct its new trial in the United States, and
that the trial have a longer duration. D. 30, ¶ 89. On
another conference call on April 18, 2016, before the markets
opened, Leuchtenberger said that during a second pre-NDA
meeting in December 2014, the FDA had expressed that
Chiasma's Phase 3 trial, as constructed, would not be as
informative as some alternatives, but that these issues would
not preclude Chiasma from filing the Mycapssa NDA. D. 30,
¶ 119. The same day, Chiasma's common stock price
dropped more than 63%, falling to $3.75 per share from its
first closing price of $10.17. D. 30, ¶¶ 11, 124.
original complaint was filed on June 9, 2016. D. 1. After
being appointed as lead plaintiff for the putative class,
Gerneth filed an amended complaint on February 10, 2017. D.
30. Defendants have now moved to dismiss the complaint. D.
62. The Court heard the parties on the pending motion and
took this matter under advisement. D. 73.