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Emerson v. Genocea Biosciences, Inc.

United States District Court, D. Massachusetts

December 6, 2018



          Patti B. Saris, Chief United States District Judge.


         Plaintiffs 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.

         Before 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 documents.


         Facts are drawn from Plaintiffs' consolidated amended complaint (“Compl.”)(Docket No. 49), as well as documents uncontested by Plaintiffs.[1] 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) .

         A. Genital Herpes Simplex Virus

         Genocea 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.

         The 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. ¶ 31.

         At the 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.

         B. The Phase 2b Clinical Trial

         Beginning 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.

         In 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. ¶ 55.

         On 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.

         On 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.

         On 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.

         According 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. Id.

         SEC 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. ¶¶ 83-84.

         On May 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 investors ...

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