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Dahhan v. Ovascience, Inc.

United States District Court, D. Massachusetts

July 31, 2018

FADI DAHHAN, Individually and on Behalf of All Others Similarly Situated, Plaintiff,
v.
OVASCIENCE, INC., et al, Defendant.

          MEMORANDUM & ORDER

          Indira Talwani, United States District Judge.

         Lead Plaintiff Freedman Family Investments LLC (“Freedman Family”) brings this action against Defendants OvaScience, Inc. (“OvaScience”), Michelle Dipp, and Jeffrey Young. Count I of the Amended Class Action Complaint [#27] alleges that OvaScience and Dipp artificially raised the market price of OvaScience's stock by disseminating false and misleading information and failing to disclose material facts, in violation of Section 10(b) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder. Count II alleges that Dipp and Young are liable under Section 20(a) of the Exchange Act, because they were controlling persons of OvaScience and thus had the ability to prevent issuance of false statements. Defendants move to dismiss the claims against them for failure to state a claim on which relief may be granted, pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons that follow, Defendants' motion is DENIED.

         I. Background[1]

         OvaScience is a fertility company launched in 2011. Compl. ¶ 2 [#27]. It has developed to the point of commercialization only one potential treatment. Id. That treatment, known as AUGMENT, involves “harvesting mitochondria from [a woman's immature egg cells (also called “egg precursor cells” or “EggPC cells”)] and injecting them into her egg at the time of [in vitro fertilization (“IVF”)] in order to supplement the energy level in the egg and to address problems caused in the development of newly formed embryos by inadequate energy in the cell division process.” Id.

         OvaScience first sought to launch AUGMENT in the United States. Id. ¶ 3. When it began its U.S.-based study in February 2013, OvaScience stated that it would commercialize the treatment only if it showed “positive efficacy and safety.” Id. ¶¶ 3, 35-36.

         OvaScience subsequently received a letter from the Food and Drug Administration (“FDA”) advising OvaScience to file an investigational new drug application for AUGMENT. Id. ¶ 37. “Instead of facing that [review and approval process] and pursuing clinical data evidencing AUGMENT's efficacy, ” OvaScience “discontinued its U.S.-based clinical study and transferred its study overseas.” Id. ¶ 38. It developed a plan that involved partnering with IVF clinics in other international regions, first providing free treatment cycles, and then turning them into commercial centers for the treatment. Id. ¶ 39. In January 2014, OvaScience stated that it would introduce these programs “for physicians to gain experience using AUGMENT and to generate data.” Id. ¶ 39. OvaScience announced a plan to initiate 40 to 60 AUGMENT cycles in 2014, that these initial cycles would be free, but with the goal of ultimately charging for AUGMENT by the end of 2014. Id. ¶ 41.

         At its first Investor Day on December 17, 2014, Defendants announced that AUGMENT had performed 150 cycles by the end of 2014, and had “transitioned some of its IVF clinics to commercial centers.” Id. ¶ 14. Treatment added $15, 000 to $25, 000 to the cost of each IVF cycle, and involved an invasive procedure, id. ¶ 58, but Defendants nonetheless stated that they expected 1, 000 paying patients in 2015. Id. ¶¶ 45-47. In response to this news, OvaScience stock increased from a closing price of $29.38 on December 16, 2014, to $47.85 on December 19, 2014, a 62.87% increase in value. Id. ¶ 48.

         OvaScience completed a secondary public offering of the company's stock on January 13, 2015. Id. ¶¶ 6, 77. Through the offering, OvaScience sold 2, 645, 000 shares of common stock at $50.00 per share, raising $132.25 million. Id. ¶ 77.

         On March 17, 2015, Defendants released abstracts containing the first AUGMENT clinical data. Id. ¶ 50. The fact that Defendants had released some data was encouraging to investors, who had not expected metrics at that time. Id. ¶ 51. OvaScience's stock price on March 25, 2015, closed at $49.80. Id. ¶ 53.

         Defendants then issued two additional press releases on March 26 and March 28, and held a public conference call on March 27 regarding the actual data. Id. ¶¶ 50, 117. The results revealed data for only 34 patients from two clinics, even though OvaScience had offered free AUGMENT cycles to 150 patients at that point. Id. ¶ 51. While Defendants highlighted a purported pregnancy success rate of 53% for the Canadian patients, that rate was based on a subset of women who had developed viable embryos for transfers, and did not include those who did not develop any viable embryos. Id. ¶ 52. The real pregnancy success rate was approximately 27% of the Canadian patients, and 23.5% for all 34 patients (including the non-Canadian patients). Id. ¶¶ 52, 117. By contrast, the success rate of IVF without AUGMENT for a similar patient population is 33%. Id. ¶¶ 55-56. OvaScience's stock price dropped to $38.18 by March 30, 2015. Id. ¶ 120.

         Through August, Defendants continued to reassure the market that OvaScience was on track to sell 1, 000 cycles in 2015. Id. ¶¶ 58-59. But between January and August, 2015, Defendants sold, at most, 17 AUGMENT cycles. Id. ¶ 66.

         On September 29, 2015, Defendants revealed that OvaScience had only had approximately 35 commercial patients in 2015, and that the majority of those treatments occurred in September 2015. Id. ¶¶ 62, 66. OvaScience's stock price dropped by 40.98% on the day of the announcement, and fell further the following trading day. Id. ¶ 63.

         II. ...


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