Biondolillo v. Roche Holding AG, 2019 WL 2498928 (D.N.J. June 17, 2019)
On June 17, 2019, Senior Judge Anne E. Thompson granted a motion to dismiss an action alleging that Roche Holding AG and four executives misled investors by failing to disclose a conflict of interest on the part of a study’s trial investigator.
Plaintiffs alleged that Roche’s statements regarding one of its drug trials were misleading because Roche failed to disclose that it had paid millions of dollars in consulting fees and other payments to a doctor who served as one of the trial investigators and co-authored a publication of the study.
The New York Times published an article revealing Roche’s payments to the doctor, stating that he had “put a positive spin on the results of two Roche-sponsored clinical trials that many others considered disappointments.” And the medical journal that had published the doctor’s study subsequently published a correction to disclose the doctor’s conflict of interest. Despite these revelations, however, Roche’s stock price “barely moved” and, in fact, increased in the days following the disclosure.
Plaintiffs brought claims under the Exchange Act based on Roche’s failure to disclose the doctor’s alleged conflict of interest. The district court, while noting the novelty of whether it was misleading to publish clinical trial results without disclosing a conflict of interest, dismissed the action because plaintiffs had failed to plead the required materiality and loss causation elements.
The court explained that “if a company discloses information that it had previously withheld, and the company’s stock price does not change upon that disclosure, then the information disclosed is not material.” Similarly, absent an actual decline in stock price following such disclosure, a plaintiff cannot plead the necessary loss causation. The district court reasoned that, because “Roche’s stock price barely moved—and even increased” after the disclosure of the doctor’s alleged conflict of interest, plaintiffs had necessarily failed to adequately plead both materiality and loss causation. The Court further noted that, while Roche’s stock price declined several days following the medical journal’s correction to the published study, materiality is determined by “the period immediately following disclosure.”
This case is a reminder that the absence of a stock price decline following the disclosure of allegedly material information can be a powerful argument in favor of dismissal, and should be utilized whenever a disclosure does not immediately result in a notable decline in a company’s stock price.