The opinion of the court was delivered by: BY THE COURT; STEWART DALZELL
Plaintiffs are individuals who purchased common stock or call options, or sold put options, of U.S. Bioscience from April 12, 1991 through January 31, 1992. They bring this action on their own and as representatives of a class against U.S. Bioscience, Inc. ("Bioscience") and several of its officers and directors, alleging violations of the federal securities laws and negligent misrepresentation.
All defendants except James E. Moore filed a motion to dismiss portions of plaintiffs' complaint for failure to state a claim upon which relief can be granted and for failing to satisfy the pleading requirements of Fed.R.Civ.P. 9(b). James E. Moore filed his own motion to dismiss, proffering arguments similar to the other defendants'.
In the motions to dismiss, defendants seek dismissal of most of plaintiffs' claims. At oral argument on October 16, 1992, however, the defendants abandoned several of the arguments in their motions. Tr. of oral argument at 9-10, 25-29. What remain are defendants' requests that we dismiss plaintiffs' claims against the outside directors (Jonah Shacknai, Maxwell Gordon, Allen Misher and Moore) and John Toy, and that we strike several paragraphs from the complaint for failure to plead with requisite particularity or, under Rule 12(f), for immateriality. Tr. of oral argument at 9-10.
By these motions, as amended by the gloss made at the oral argument, defendants raise important issues regarding the extent of scienter that may legitimately be inferred or imputed in cases under the federal securities laws. As will be seen, notwithstanding the substantiality of defendants' arguments on both motions to dismiss, we do not believe ourselves to be at liberty to embrace them at this early stage.
When considering a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), we must take all allegations contained in the complaint as true and construe them in a light most favorable to the plaintiff. H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 249, 109 S. Ct. 2893, 2906, 106 L. Ed. 2d 195 (1989); Rocks v. City of Phila., 868 F.2d 644, 645 (3d Cir. 1989). Those allegations are as follows.
Plaintiffs allege in their complaint that U.S. Bioscience is a pharmaceutical company specializing in the development and marketing of chemotherapeutic drugs for treating patients with cancer and allied diseases. Through licensing agreements, Bioscience acquired the rights to develop and market ten drugs that the company believed would be effective in treating cancer and allied diseases. The most promising of these drugs was Ethyol, a chemotherapy and radiation therapy protective agent. It was this drug, and the prospects for its approval by the United States Food and Drug Administration (FDA), that was the lodestar for the market price of Bioscience stock, which was and is traded on the American Stock Exchange.
Plaintiffs contend that defendants knew about the importance of Ethyol to the market value of the company, and, in order to drive up the stock price, issued, or permitted to be issued, many false and misleading statements regarding the efficacy of Ethyol and its prospects for FDA approval. Plaintiffs claim that these misrepresentations artificially inflated the price of Bioscience stock during the class period, and allowed all of the individual defendants in this action, except Moore and Kriebel, to realize handsome gains by selling Bioscience stock during that time.
Plaintiffs identify several allegedly false and misleading statements in their complaint. Many of these statements appear in the company's April 12, 1991 report on Securities and Exchange Commission Form 10-K (the "10-K"). The company reported in the 10-K that "Ethyol has exhibited what the Company believes is a unique capability to prevent or reduce the most serious side effects . . . of the major forms of both chemotherapy and radiation therapy." Complaint P 80. Another statement in the 10-K reads: "Ethyol has been tested as a chemotherapy protective agent in over 20 clinical trials involving more than 450 patients. Data from these trials indicates that Ethyol can reduce . . . toxicities." Complaint P 84. Plaintiffs contend that these statements, along with others in the document, were false and misleading because the clinical trials for Ethyol had not produced the stated results. They also allege statements in the 10-K were false and misleading that suggested that the "clinical trials" comported with Food and Drug Administration protocol when, plaintiffs aver, they did not comply with FDA protocol.
Plaintiffs also cite one allegedly false and misleading statement made by defendant Schein, the President, CEO and Chairman of the Board of Directors of Bioscience. Complaint PP 44, 99. They allege that at a conference of securities analysts in San Francisco on November 19, 1991, Dr. Schein announced, "the FDA called us yesterday and told us to put clinical trials on hold; they are taking us to the first available panel hearing." Id. Plaintiffs contend that this statement was false because the FDA had not in fact directed that the company put the trials on hold. They allege that it was misleading because the FDA only directs that clinical trials be halted when the results are so positive that it would be unethical to deprive the control group patients of the benefits of drug under investigation. As evidence of the statement's materiality, plaintiffs note that on the day of the conference, the announcement appeared in the Wall Street Journal and Bioscience stock rose dramatically to $ 47 1/8 from $ 39 5/8, where it had closed the day before. Complaint P 100. Moreover, the stock continued to rise until November 21, 1991, when it closed at $ 62 3/4, a 58% increase in price in three days. Id.3
As noted above, defendants significantly narrowed the scope of their motions to dismiss at oral argument on October 16, 1992. They now request that we (1) dismiss paragraphs 80 through 89 which enumerate allegedly false and misleading statements in the 10-K for failure to state a claim or meet the minimum requirements of Fed.R.Civ.P. 9(b); (2) dismiss the case as to Gordon, Misher, Toy, Moore and Shacknai for failure to plead scienter in compliance with Fed.R.Civ.P. 9(b); (3) dismiss paragraphs 90 and 98, which contain allegedly false and misleading statements by defendant Kriebel, because the statements therein cannot be the basis for actionable misrepresentations under the securities laws; and (4) dismiss paragraphs 109 and 110 and a portion of paragraph 7 which contain statements by securities analysts because the statements therein are immaterial. See Tr. of oral argument at 9-10.
In order to avoid dismissal on a 12(b)(6) motion, a complaint must satisfy the pleading requirements of Rule 9(b). Fed.R.Civ.P. 9(b). That rule provides:
In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of ...