On June 9, 2022, Judge David O. Carter of the United States
District Court for the Central District of California granted a
motion to dismiss a putative class action lawsuit alleging
violations of Sections 10(b) and 20(a) of the Securities Exchange
Act (the "Exchange Act") and Rule 10b-5 thereunder, and
Sections 11 and 15 of the Securities Act of 1933 (the
"Securities Act") against a healthcare company (the
"Company"), its directors, and the underwriters of the
Company's initial public offering. R. Brian Terenzini v.
GoodRx Holdings, Inc. et al., No. 2:20-cv-11444, (C.D. Cal.
June 9, 2022). Plaintiffs alleged in their amended complaint that
at the time of the Company's IPO it failed to disclose in its
Registration Statement and subsequent investor communications the
significant risk of competition from a large online retailer. The
Court held that—as with the original
complaint—plaintiffs failed to allege actionable
misstatements or omissions as well as scienter and granted
defendants' motion to dismiss with prejudice.
According to the amended complaint, the Company is a healthcare
technology platform that provides consumers with direct price
information and discounts on prescription drugs. Plaintiffs alleged
that the Company generates revenue primarily from fees it receives
from Pharmacy Benefit Managers ("PBMs") who negotiate
drug discounts. According to plaintiffs, the Company conducted its
IPO on August 28, 2020, which launched above its share offering
price and raised $1 billion in gross proceeds. The Company also
filed a Registration Statement and Prospectus with the SEC in
connection with the IPO which, according to plaintiffs, included
representations that the Company was a "market leader,"
was the only "significant direct-to-consumer channel" for
PBMs, and that it had contract provisions in place restricting PBMs
from "circumventing our platform [or] redirecting volumes
outside of our platform." Plaintiffs further alleged that
shortly after the Company's IPO, a competitor launched its own
prescription drug discount program, which involved partnering with
a third company for which the Company allegedly was a founding
partner. According to the amended complaint, the Company's
stock price dropped to below its initial IPO price after the
competitor's service launched. Plaintiffs brought suit alleging
that defendants knew about the upcoming launch of the
competitor's service at the time of the IPO and did not
disclose that information to investors either in the offering
documents or in subsequent investor conference calls. The Court
granted defendants' motion to dismiss with leave to amend, and
plaintiffs filed the amended complaint.
The Court first considered plaintiffs' allegations that
defendants violated Section 10(b) of the Exchange Act by failing to
disclose the likelihood of the competitor launching its service. In
dismissing the original complaint, the Court held that the
complaint lacked specific factual allegations establishing that
defendants were aware of the competitor's plans to launch its
service when the Company announced its IPO. In considering the
amended complaint, the Court noted that plaintiffs relied on the
same deficient allegations from their original complaint and merely
"emphasize[d] claims made in their first complaint about the
business relationship between [the Company] and [the competitor] as
circumstantial evidence that defendants knew that [the Company]
intended to enter the online pharmaceutical market."
Accordingly, the Court once again dismissed plaintiffs' Section
10(b) claims. While the Court noted that it need not consider
plaintiffs' allegations of scienter after dismissing their
Section 10(b) claims, it nonetheless noted that it agreed with
defendants that plaintiffs' allegations of scienter
"suffered from the same lack of facts as their 10(b)
claims."
The Court next dismissed plaintiffs' claims under Regulation
S-K. Regarding Item 303 of Regulation S-K, the Court found that
plaintiffs failed to allege any facts showing defendants knew of an
adverse trend, the material impact of that trend, and that the
future material impacts are reasonably likely to occur from the
present-day perspective. In particular, the Court referred back to
its initial order dismissing the complaint, finding again that
plaintiffs failed to allege facts sufficient to demonstrate that
defendants had knowledge of the competitor's plans to launch
its service, and that any lack of disclosure here would be akin to
failing to "disclose the future." For similar reasons the
Court also found that the complaint failed to allege a claim under
Item 105 of Regulation S-K, which requires a "discussion of
the material factors that make an investment in the registrant or
offering speculative or risky."
Addressing plaintiffs' claims that the Company's IPO stock
price did not represent its true value as a basis for damages under
Section 11 of the Securities Act, the Court noted that it dismissed
the claims in plaintiffs' initial complaint because "the
statute's language is clear that the starting point for damages
is the price that plaintiffs actually paid for the stocks, capped
at the IPO price, meaning $33/share." The Court held that
plaintiffs' amended complaint failed to plead any new legal
arguments or facts, and therefore dismissed on the same
grounds.
Finally, the Court dismissed plaintiffs' control person claims
under Section 20(a) of the Exchange Act and Section 15 of the
Securities Act, as plaintiffs failed to sufficiently allege any
predicate primary violations of the Exchange Act or the Securities
Act. The Court dismissed all claims with prejudice, finding that
plaintiffs were given leave to amend, but they failed to include
sufficient facts in their amended complaint and that further
opportunity to amend would be "an exercise in
futility."
R. Brian Terenzini v. GoodRx Holdings, Inc. et al.
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