Pomerantz Achieves Victory for Investors in Acadia Class Action

In an exciting victory for aggrieved Acadia investors, on June 1, 2020, Judge Anthony J. Battaglia of the United States District Court in the Southern District of California, issued an order in In Re Acadia Pharmaceuticals Inc. Securities Litigation granting in part and denying in part Defendants’ motion to dismiss.  Tamar A. Weinrib, the Pomerantz partner leading the litigation, said “we are gratified by Judge Battaglia’s decision as it marks a significant achievement for investors seeking to recover losses due to defendants’ fraud.”

Plaintiff’s complaint alleges that Acadia issued misleading statements regarding the Company’s sole drug, NUPLAZID, which the FDA approved to treat hallucinations and delusions associated with Parkinson’s disease psychosis.  Specifically, the complaint alleges that Defendants failed to disclose, when discussing their commercialization strategies for the drug, that they paid lucrative kickbacks to doctors to encourage prescription writing despite NUPLAZID’s disturbing safety profile.

Indeed, prior to NUPLAZID’s approval, it failed three of four clinical trials and skated through the FDA approval process despite a scathing review of its safety by the FDA’s lead reviewer who recommended against the drug’s approval, simply because—with only off-label alternatives available-- it addresses “an unmet medical need.”  Following its commercialization, and unbeknownst to investors, the adverse event reports started pouring in.  Corrective disclosures regarding the mounting adverse events, the FDA’s decision to reevaluate the drug, and the Company’s improper payments to doctors to prescribe the drug led to several drops in Acadia’s stock price.

On February 27, 2018, Acadia announced fourth quarter 2017 NUPLAZID sales of $43.6 million, which was approximately $720,000 below consensus estimates. Following this news, Acadia’s stock price fell $6.24 per share, or 20%, to close at $24.92 per share on February 28, 2018, on unusually heavy trading volume.

On April 9, 2018, CNN reported that “[p]hysicians, medical researchers, and other experts told CNN that they worried that [NUPLAZID] had been approved too quickly, based on too little evidence that it was safe or effective. And given these mounting reports of deaths, they say that more needs to be done to assess Nuplazid’s true risks.” Acadia’s stock price fell $5.03 per share, or 23.4%, to close at $16.50 per share on April 9, 2018, on unusually heavy trading volume.

On April 25, 2018, CNN reported that the FDA was re-examining the safety of NUPLAZID. On this news, Acadia’s stock price fell $4.27 per share, or 21.9%, to close at $15.20 per share on April 25, 2018, on unusually heavy trading volume.

Then, on July 9, 2018, the Southern Investigative Reporting Foundation (“SIRF”) published a report entitled “Acadia Pharmaceuticals: This Is Not a Pharmaceuticals Company.” The report stated that “evidence is mounting that something is horribly wrong with Acadia’s sole drug, Nuplazid, an antipsychotic for Parkinson’s disease patients who experience episodic hallucinations and delusions” and that “Acadia has accomplished its growth in ways that have attracted intense regulatory scrutiny for other drug companies” including “dispensing wads of cash to doctors to incentivize prescription writing and downplaying mounting reports of patient deaths.” On this news, Acadia’s stock price fell $1.21 per share, or 6.8%, to close at $16.63 per share on July 9, 2018, on unusually heavy trading volume.

In its Order on defendants’ motion to dismiss, the Court upheld statements representing NUPLAZID as safe, detailing specific steps of Acadia’s commercialization efforts, and touting patient satisfaction as well as rising prescription rates, all of which failed to disclose (i) mounting reports of adverse events and deaths related to NUPLAZID post-commercialization, which raised the risk that the FDA would reconsider the drug’s safety; (ii) as a result of NUPLAZID’s deleterious safety profile and the availability of off-label alternatives, Acadia embarked on a campaign to pay off physicians to prescribe NUPLAZID; and (iii) these improper business practices raised a risk that Acadia would face regulatory scrutiny for potential violations of the Anti-Kickback Statute and Federal False Claims Act. 

In so ruling, the Court disregarded Acadia’s truth on the market arguments both because the supposedly public information had not been disclosed with sufficient intensity and because the truth on the market defense is inappropriate at this stage. The Court dismissed statements of literal truth (e.g., statements discussing net sales), statements deemed forward looking (e.g., “we expect that usage should increase and that the number of patients on drug will likely build over time”), opinion statements (e.g., we are confident NUPLAZID over time should become the standard of care for patients with hallucinations and delusions associated with PDP”), and statements the Court deemed corporate optimism (e.g., “as was the case with the field management group we hired in March 2015, this is truly an impressive group”). 

The Court also found loss causation as to all the alleged stock drops and found scienter based on allegations that Defendants had a legal obligation to track and report payments to physicians to the government, had access to the adverse event reports, focused heavily on NUPLAZID as the Company’s only drug, and three members of Acadia’s board resigned four days after NUPLAZID received FDA approval but prior to commercialization. 

In addition to denying the motion to dismiss, the Court also granted Pomerantz’s motion to strike Acadia’s 25-page brief and series of exhibits, including a 25-page chart setting forth each misleading statement and the reasons that the defendants contended they were inactionable.  Pomerantz argued that this exhibit constitutes an improper 25-page extension of argument beyond the 25-page limit.  The court agreed and declined to consider any argument set forth therein.  The Court also agreed with that Acadia improperly sought judicial notice of 56 documents (including press releases and transcripts of quarterly earnings calls), stating that, “this request ‘[r]eflects the overuse and improper application of judicial notice.”

Partner Tamar Weinrib is Lead Counsel for Pomerantz LLP in In Re Acadia Pharmaceuticals Inc. Securities Litigation.