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Erste-Sparinvest Kapitalanlagegellschaft MBH v. Seres Therapeutics, Inc.

United States District Court, D. Massachusetts

March 30, 2018




         I. Introduction

         Plaintiffs Erste-Sparinvest Kapitalanlagegellschaft MBH (“ESK”) and Oklahoma Law Enforcement Retirement System (“OLERS”) (collectively, “Plaintiffs”) have filed this lawsuit against Defendants Seres Therapeutics, Inc., Roger J. Pomerantz (“Pomerantz”) and Michele Trucksis (“Trucksis”) (collectively, “Seres”) individually and on behalf of a proposed class of similarly situated persons alleging violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder (Count I), 15 U.S.C. § 78j; 17 C.F.R. 240.10b-5, and Section 20 of the Exchange Act (Count II), 15 U.S.C. § 78t. D. 32. Defendants have moved to dismiss. D. 43. For the reasons stated below, the Court ALLOWS the motion.

         II. Standard of Review

         On a motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Fed.R.Civ.P. 12(b)(6), the Court must determine if the facts alleged “plausibly narrate a claim for relief.” Schatz v. Republican State Leadership Comm., 669 F.3d 50, 55 (1st Cir. 2012) (internal citation omitted). Reading the complaint “as a whole, ” the Court must conduct a two-step, context-specific inquiry. García-Catalán v. United States, 734 F.3d 100, 103 (1st Cir. 2013). First, the Court must perform a close reading of the claim to distinguish the factual allegations from the conclusory legal allegations contained therein. Id. Factual allegations must be accepted as true, while conclusory legal conclusions are not entitled credit. Id. Second, the Court must determine whether the factual allegations present a “reasonable inference that the defendant is liable for the misconduct alleged.” Haley v. City of Boston, 657 F.3d 39, 46 (1st Cir. 2011). In sum, the complaint must provide sufficient factual allegations for the Court to find the claim “plausible on its face.” García-Catalán, 734 F.3d at 103.

         The Court will dismiss a pleading that fails to include “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “To avoid dismissal, a complaint must provide ‘a short and plain statement of the claim showing that the pleader is entitled to relief.'” García-Catalán, 734 F.3d at 102. “A pleading that offers ‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action will not do.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 555). “Nor does a complaint suffice if it tenders ‘naked assertion[s]' devoid of ‘further factual enhancement.'” Id. (quoting Twombly, 550 U.S. at 557) (alteration in original). “In determining whether a [pleading] crosses the plausibility threshold, ‘the reviewing court [must] draw on its judicial experience and common sense.'” García-Catalán, 734 F.3d at 103 (internal citations omitted).

         III. Factual Background

         A. The Parties

         Seres is a start-up biopharmaceutical company focusing on developing products intended to restore the function of an imbalanced (“dysbiotic”) human microbiome, the bacteria, fungi and viruses naturally present in the human gut. D. 32, ¶¶ 4, 25. Seres has its headquarters in Cambridge, Massachusetts, and its stock is traded publicly on NASDAQ. D. 32, ¶ 24. Pomerantz is Seres's Chairman, President and Chief Executive Officer (“CEO”). D. 32, ¶ 26. Trucksis is Seres's Chief Medical Office (“CMO”) and Executive Vice President (“EVP”). D. 32, ¶ 27.

         ES is an Austrian investment company responsible for managing fund assets. D. 32, ¶ 22. OLERS is a retirement plan responsible for managing assets for its members. D. 32, ¶ 23. ES and OLERS both purchased Seres stock during the alleged class period of June 25, 2015, to July 29, 2016 (“Class Period”), and ES and OLERS were appointed as lead plaintiffs on December 28, 2016. D. 32, ¶ 21.

         B. Development of SER-109

         Seres was developing SER-109 for regulatory approval and commercialization. D. 32, ¶ 32. SER-109 is a pill-based treatment that aims to prevent a particular kind of infection of the colon that causes severe and persistent diarrhea (“CDI”), in a manner that is less invasive and less harsh on the human microbiome than currently approved treatments. Id.

         Seres conducted a Phase 1b/2 clinical study of SER-109 in 2013-2014 to evaluate its safety and efficacy. D. 32, ¶ 33. In September 2014, Seres announced the results of the Phase 1b/2 study. D. 32, ¶ 35. It announced that twenty-six of thirty patients across both enrolled groups in the Phase 1b/2 study (87%) had achieved the primary efficacy endpoint, measured by the patient being CDI-free eight weeks after treatment, and an overall “clinical cure rate” of 97% . Id. Three other patients were CDI-free at the eight-week mark, but had experienced recurrences during the period of the study. Id. The Phase 1b/2 study was done without an investigational new drug application (“IND”), which would have allowed the FDA to review Seres's testing and manufacturing protocols. D. 32, ¶¶ 36-37.

         In June 2015, Seres completed its IPO, and on June 26, 2015, became a publicly traded company on NASDAQ. D. 32, ¶¶ 55-56. At the time of the IPO, Seres's stock was $18 per share. D. 32, ¶ 56. On the first day of its listing on NASDAQ for public trading, the share price closed at $51.40 per share. Id.

         Seres began a Phase 2 clinical study of SER-109. D. 32, ¶ 43. The FDA required Seres to conduct the Phase 2 study under an IND, meaning their manufacturing practices were subject to review and would have to be followed in the same manner as they would after the drug's approval, when the drug would be available commercially. Id. As a result, Seres transitioned the manufacture of SER-109 in-house for the Phase 2 study, whereas the drug had been manufactured by physicians at the clinical testing sites during the Phase 1b/2 study. D. 32, ¶¶ 44-45, 47. Seres also had to create a “new formulation” of SER-109 for the Phase 2 trial, eliminating any variations in dosing and strength. D. 32, ¶ 48.

         The Phase 2 study measured the same primary efficacy endpoint as Phase 1b/2 - i.e., whether patients were CDI-free eight weeks after treatment. D. 32, ¶ 57. The Phase 2 study was, unlike Phase 1b/2, double-blinded and placebo-controlled. Id. It also included an “open label extension study, ” through which any patient who suffered from a recurrence of CDI during the Phase 2 study, from the placebo or SER-109 groups, would be able to receive an additional SER-109 treatment. D. 32, ¶ 65. Seres explained that this extension would encourage patient enrollment and provide “additional safety data and . . . greater understanding of the impact of a second dose of SER-109.” Id. The estimated “primary completion date” of Phase 2 was originally March 2016, anticipating a total of 87 test subjects, D. 32, ¶¶ 57, 71, although Seres had originally disclosed in June 2015 that it expected results to the Phase 2 trial sometime in the middle of 2016, D. 32, ¶ 83.

         C. Phase 2 Interim Results

         Plaintiffs allege, based on a confidential witness who was a senior executive in manufacturing and quality at Seres during the Class Period (“CW1”), [1] that Trucksis would have received updates and information regarding the Phase 2 study. D. 32, ¶ 68. Furthermore, despite the Phase 2 study being double-blinded, Plaintiffs allege that Defendants were receiving real-time updates about the interim results from medical monitors at the testing sites and clinics dealing with patients who had relapsed. D. 32, ¶¶ 67, 69. Plaintiffs' consulting expert, Ms. Chew (“Chew”), [2]who is referenced in the amended complaint, states that real-time synchronization of patient data with the company sponsoring the drug trial is an industry standard practice intended to allow companies to track safety data. D. 32, ¶ 70. Plaintiffs allege that this information would have been gathered and available in February 2016. D. 32, ¶ 71.

         Plaintiffs also allege that Defendants were aware of negative interim results because patients in the Phase 2 study experienced a “high rate of serious adverse events” (“SAEs”), and patients in the SER-109 group experienced more SAEs than those in the placebo group. D. 32, ¶ 72.

         D. Phase 2 ...

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