United States District Court, D. Massachusetts
STEVEN EMERSON, individually and on behalf of all others similarly situated, SHELDON GRONER, BARRY HEANY, MARK HANESS, SCOTT HARTMANN, SATYA KUNAPULI, LIRIO FIOCCHI, RAUL ZAMUDIO, and OMER YUKSEL, Plaintiffs,
GENOCEA BIOSCIENCES, INC., WILLIAM D. CLARK, JONATHAN POOLE, and SETH HETHERINGTON. Defendants.
MEMORANDUM AND ORDER
B. Saris, Chief United States District Judge.
bring this class action against Genocea Biosciences, Inc. and
three of its corporate officers alleging violations of
Section 10(b) of the Securities Exchange Act of 1934 (the
“Exchange Act”) and SEC Rule 10b-5 (Count I). The
suit also brings derivative claims against the officers,
President and Chief Executive Officer William D. Clark, Chief
Financial Officer Jonathan Poole, and Chief Medical Officer
Seth Hetherington, under Section 20(a) of the Exchange Act
(Count II). Plaintiffs allege that Defendants violated the
Exchange Act and Rule 10b-5 by making materially misleading
statements to investors about its clinical test results for a
genital herpes immunotherapy treatment called GEN-003.
the Court are (1) Defendants' motion to dismiss all
counts for failure to state a claim (Docket No. 59) and (2)
Plaintiffs' motion to strike certain exhibits and
documents submitted in support of Defendants' motion to
dismiss (Docket No. 69). For the reasons stated below, after
hearing, Defendants' motion to dismiss is ALLOWED.
Because the Court only relied on the uncontested documents,
the Court need not rule on the motion to strike the other
are drawn from Plaintiffs' consolidated amended complaint
(“Compl.”)(Docket No. 49), as well as documents
uncontested by Plaintiffs. At this stage of the litigation, the
Court must “accept all factual allegations in the
complaint as true.” See Tellabs, Inc. v. Makor Issues
& Rights, Ltd., 551 U.S. 308, 322 (2007) .
Genital Herpes Simplex Virus
is an early-stage biopharmaceutical company based in
Cambridge, Massachusetts, that researches, develops, and
seeks to bring to market T cell vaccines to treat infectious
diseases. Compl. ¶¶ 2, 20. Throughout the proposed
Class Period - March 31, 2016 through September 25, 2017 -
Genocea's only product candidate in active clinical
development was a genital herpes immunotherapy treatment
called GEN-003. Id. ¶¶ 1, 3.
genital herpes simplex virus (HSV-2) is an incurable disease.
Id. ¶ 30. After a patient is initially
infected, the herpes virus can remain latent in the body
until it periodically and sporadically reactivates; such
reactivation is highly variable in individual patients.
Id. ¶¶ 30-31. While the virus is active,
it travels to a patient's skin and mucus membrane in a
process known as “viral shedding.” Id.
¶ 30. During active periods a patient may also develop
genital lesions - sometimes referred to as
“outbreaks” - because of the virus. The virus can
be sexually transmitted during viral shedding even
if the patient appears “asymptomatic” i.e.,
does not appear to have genital lesions. Id. ¶
time GEN-003 was in clinical trials, there were already
products on the market to treat genital herpes, either
through a daily pill to decrease the risk of transmission and
outbreaks or through pills that patients take once an
outbreak occurs to lessen the pain and discomfort.
Id. ¶ 3. One drug, acyclovir, is very effective
in minimizing genital lesion outbreaks and is “dirt
cheap.” Id. ¶ 30. Defendants were
developing GEN-003 as a therapeutic vaccine, which could be
administered every six to twelve months, rather than daily,
to patients already infected with the virus. Id.
¶¶ 3, 27-28.
Phase 2b Clinical Trial
in 2012, Genocea tested GEN-003's efficacy in three
phased clinical trials - Phase 1/2a, Phase 2, and Phase 2b.
Id. ¶ 4. During each of the phases,
participants were randomly assigned to receive either a dose
of the vaccine or a placebo. Id. ¶ 5. To
establish a baseline viral shedding rate for each patient,
Genocea instructed trial participants to swab their genital
areas twice-daily for 28 days before receiving any treatment.
Id. ¶ 36. Participants then received three
injections at 21-day intervals of either the vaccine or
placebo. Id. ¶ 42. Immediately following the
last injection, each participant swabbed his or her genital
areas again twice-daily for 28 days (“immediately
post-dosing”). Participants then swabbed again for 28
days at six months post-dosing, and twelve months
post-dosing. Id. ¶¶ 36, 42. Participants
submitted their swabs for viral shedding analysis, as well as
forms with self-reported lesion recurrences for analysis of
genital lesion rates. Id. ¶36.
anticipation of commercialization, Genocea announced a Phase
2b trial which would test a modified version of GEN-003.
Id. ¶ 53. Up until this point, GEN-003 had been
manually formulated; the modified GEN-003 would be
manufactured using a commercial, scalable process.
Id. ¶ 53. The goal of Phase 2b was to ensure
that the new formulation remained safe and effective, and the
primary end point for the phase was the reduction in viral
shedding rates immediately post-dosing. Id.
¶¶ 53-54. Secondary endpoints of the Phase 2b trial
included viral shedding rate reductions at six and twelve
months post-dosing and reductions in genital lesion
recurrence. Id. ¶¶ 54. The Phase 2b trial
contained two dose groups and one placebo control group.
Id. ¶ 55. The two doses were a 60 µg per
protein/50 µg of Matrix-M2 dose (“60/50
dose”), and a 60 µg per protein/75 µg of
Matrix-M2 dose (“60/75 dose”). Id.
September 29, 2016, Genocea revealed results for the
study's primary endpoint, the Phase 2b viral shedding
results for immediately post-dosing. Id. ¶ 73.
The company found that the 60/50 dose produced a 40%
reduction in viral shedding and was statistically significant
compared to both the baseline and placebo. Id.
¶ 73. The 60/75 dose showed a 27% decrease in viral
shedding, but that result was not statistically significant
against either the baseline rate or placebo control group.
Id. ¶ 73. The press release stated, in part:
The study achieved its primary endpoint, with GEN-003
demonstrating a statistically significant reduction of 40 per
cent in the rate of viral shedding in the 60 μg per
protein/50 μg of Matrix-M2 dose group compared to both
baseline and placebo. The viral shedding rate reduction for
this dose was consistent with its performance at the same
time point in a prior Phase 2 trial.
Id. ¶ 73. On an earnings call held the same
day, CMO Hetherington emphasized that GEN-003's viral
shedding rate reduction results for Phase 2b were
“consistent with the statistically significant 41%
reduction that we observed for this dose group in the prior
Phase 2 trial, this gives us great confidence that the effect
is robust and replicable.” Id. ¶ 75.
November 3, 2016, CEO Clark announced that the six month
post-dosing viral shedding results for Phase 2b would be
released “later in the first half of 2017.”
Id. ¶ 76. The six month viral shedding results
would not be released with the six month genital lesion
results; this differed from the reporting schedule used
previously in Phase 2. Id. ¶ 76.
January 5, 2017, Genocea released the Phase 2b six month
post-dosing genital lesion results. Id. ¶ 57.
At six months post-dosing, two different GEN-003 doses
produced statistically significant reductions in genital
lesion rates both against participants' baseline and the
placebo control group. Id. ¶ 57. The press
release announced, “Positive 6-Month Results from
GEN-003 Phase 2b Clinical Trial - Trial meets statistical
significance vs. placebo for multiple clinical endpoints
through six months.” Id. ¶ 78. The
release did not mention the Phase 2b six month post-dosing
viral shedding results. Id.
to two confidential witnesses, at a company-wide meeting
following the announcement of the six month genital lesion
results, Clark announced that there was “no
interest” from potential funding partners in sponsoring
the planned Phase 3 trials for GEN-003. Id. ¶
60. Clark stated the company was going to focus more heavily
on its oncology program. Id. A confidential witness
also noted that layoffs occurred after the meeting.
filings in February reiterated that the “viral shedding
rate reduction data at six months post dosing [was] expected
in the first half of 2017.” Id. ¶¶
5, 2017, Genocea filed its first quarter 10-Q, which
summarized the genital lesion data that Genocea announced in
January 2017, describing it as “positive.”
5/5/2017 Form 10-Q, Q1 2017 at 21. The company still did not
disclose the Phase 2b six month viral shedding results, but
stated “viral shedding rate reduction data at
six-months and twelve-months post dosing is expected in the
middle of 2017.” Id. The form also reassured