Court Opinion

ID: 3047402
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Date Created: 2015-10-13 23:21:27.544816+00
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Opinions of the United
2009 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

1-30-2009

AK Elec Pension Fund v. Pharmacia Corp
Precedential or Non-Precedential: Precedential

Docket No. 07-4500

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                                            PRECEDENTIAL

          UNITED STATES COURT OF APPEALS
               FOR THE THIRD CIRCUIT

                   Nos. 07-4500 & 07-4564

        ALASKA ELECTRICAL PENSION FUND;
  CITY OF SARASOTA FIREFIGHTERS' PENSION FUND;
 INTERNATIONAL UNION OF OPERATING ENGINEERS
 LOCAL 132 PENSION PLAN; NEW ENGLAND HEALTH
 CARE EMPLOYEES PENSION FUND; PACE INDUSTRY
  UNION-MANAGEMENT PENSION FUND; CHEMICAL
  VALLEY PENSION FUND OF WEST VIRGINIA, as Class
        Representatives, on behalf ofthemselves and
                all other similarly situated

                               v.

      PHARMACIA CORPORATION; PFIZER, INC.;
   FRED HASSAN; DR. G. STEVEN GEIS; CARRIE COX

  Alaska Electrical Pension Fund; City of Sarasota Firefighters'
  Pension Fund; International Union of Operating Engineers
Local 132 Pension Plan; New England Health Care Employees
Pension Fund; Pace Industry Union-Management Pension Fund;
        Chemical Valley Pension Fund of West Virginia,

                                         Appellants in 07-4500

             Pharmacia Corporation; Pfizer, Inc.;
         Fred Hassan; Dr. G. Steven Geis; Carrie Cox,

                                         Appellants in 07-4564

 APPEAL FROM THE UNITED STATES DISTRICT COURT
           FOR THE DISTRICT OF NEW JERSEY
(D.C. Civil Nos. 3-03-cv-01519, 3-03-cv-01691, 3-03-cv-01808,
        3-03-cv-01964, 3-03-cv-02149, 3-03-cv-02283)
      District Judge: The Honorable Anne E. Thompson
                 Argued: November 21, 2008

Before: BARRY, CHAGARES, Circuit Judges, and RESTANI,*
                     Judge

              (Opinion Filed: January 30, 2009)

Eric A. Isaacson, Esq. (Argued)
Arthur C. Leahy, Esq.
Matthew P. Montgomery, Esq.
Coughlin, Stoia, Geller, Rudman & Robbins
655 West Broadway
Suite 1900
San Diego, CA 92101-0000

Peter S. Pearlman, Esq.
Cohn, Lifland,Pearlman, Herrmann & Knopf
Park 80 Plaza West One
Saddle Brook, NJ 07663-0000

Counsel for Appellants/Cross Appellees

Gregg S. Levin, Esq.
Joshua C. Littlejohn, Esq.
Joseph F. Rice, Esq.
Ann K. Ritter, Esq.
Motley Rice
28 Bridgeside Boulevard
P.O. Box 1792
Mount Pleasant, SC 29465-0000

Counsel for Appellant/Cross-Appellee Pace Industry Union-
Management Pension Fund

*
   Honorable Jane A. Restani, Chief Judge, United States Court
of International Trade, sitting by designation.
                              2
Jonathan M. Hoff, Esq. (Argued)
Jason M. Halper, Esq.
Joshua R. Weiss, Esq.
Cadwalader, Wickersham & Taft
One World Financial Center
New York, NY 10038-0000

William A. Dreier, Esq.
Steven A. Karg, I, Esq.
Robert Mahoney, Esq.
Norris, McLaughlin & Marcus
721 Route 202-206
P.O. Box 5933
Bridgewater, NJ 08807-0000

Counsel for Appellees/Cross Appellants

                   OPINION OF THE COURT

BARRY, Circuit Judge

       In this securities fraud class action, plaintiffs allege that
defendants violated §§ 10(b) and 20(a) of the Securities Exchange
Act of 1934 by making, with scienter, materially false statements
about a clinical study of Celebrex, a popular anti-inflammatory
medication. In particular, defendants are alleged to have misled
investors by distorting the study’s results with the intent to show
that Celebrex had a better safety profile than similar medications.
Finding the action to be untimely, the District Court granted
summary judgment to defendants. This appeal and cross-appeal
followed.

                     I. Factual Background

      Celecoxib, known and marketed commercially as Celebrex,
is an anti-inflammatory prescription drug sold by defendant

                                -3-
Pharmacia Corporation. Substantially more expensive than many
other nonsteroidal anti-inflammatory drugs (“NSAIDs”),
Celebrex’s promise was rooted in the hope that it would cause
fewer gastrointestinal (“GI”) side-effects than the less costly
NSAIDs.1 To help the hope become a reality, defendants2
commissioned a long-term clinical study of Celebrex’s effect on
the GI system, the Celecoxib Long-term Arthritis Safety Study
(“CLASS study”). This litigation focuses on the aftermath of that
study.

       According to the complaint, the results of the CLASS study
were a disappointment to defendants: Celebrex did not show the
desired reduction in GI side-effects as compared to the other drugs
studied. Fearing a decrease in sales and stock price, defendants
allegedly undertook to distort the results of the study so that it
would appear that Celebrex possessed a better GI safety profile
than, in fact, it did. Towards this end, in April 2000, defendants
released only the results from the first six months of the CLASS
study; those results, divorced from the entire set of data, were
capable of positive construction.

       Defendants released the truncated results of the CLASS
study with great fanfare, declaring that the study “shows that
Celebrex has a truly exceptional safety profile,” and that “the long-
term outcome data paints a clear and compelling picture of
Celebrex’s safety versus NSAIDs.” (Joint App. (“JA”) 59, 64.)
Some documents issued by defendants noted that the CLASS study
lasted a full thirteen months, but the reason for excising the last
seven months from the analysis was not revealed.

       1
        Unlike traditional NSAIDs, which inhibit both the COX-1
and COX-2 enzymes, Celebrex is a selective COX-2 inhibitor.
Because the inhibition of COX-1 enzymes often leads to negative
GI side-effects, it was hoped that selective COX-2 inhibitors would
not possess the harmful side-effects associated with traditional
NSAIDs.
       2
        Defendants include Pharmacia Corp., Pfizer, Inc., and
individual defendants Fred Hassan, Steven Geis, and Carrie Cox.

                                 -4-
        Scientists affiliated with defendants then drafted an article
based on the truncated results and submitted it for publication to
the Journal of the American Medical Association (“JAMA”). As
would become known only later, however, neither defendants nor
the article’s authors informed JAMA that the data in the article was
incomplete. In September 2000, JAMA published the article,
which reached the following conclusion: “The overall incidence of
GI symptoms experienced by patients taking [Celebrex] was
significantly lower than by those taking NSAIDs, as was the rate
of withdrawal [from the study] due to GI intolerability.” (Id. at
45.)

       Defendants hoped to convince the FDA to allow Celebrex
to be marketed without the standard GI warning label required for
other NSAIDs, and so submitted the complete data from the
CLASS study to the FDA in June 2000. FDA staff members, in
preparation for hearings on the warning label issue, reviewed the
data. On February 6, 2001, the reports of those staff members were
published on the FDA’s website, alongside defendants’ own report.
Defendants’ report defended the decision to use only the truncated
data, asserting that data after the six-month point was biased in
favor of the comparator drugs:

       The GI safety data presented are for the six-month
       treatment timepoint based on the analysis of risk
       factors prespecified in the protocol. In brief, a
       disproportionate withdrawal of patients at high risk
       of an ulcer complication from the entire study was
       observed after six months (depletion of susceptibles).
       Additionally, a significantly greater withdrawal of
       patients on diclofenac for GI intolerance occurred
       during the initial six months of the study. The
       withdrawal of patients for GI intolerance
       prematurely removed a group at high risk for ulcer
       complications and symptomatic ulcers from the
       diclofenac treatment arm (informative censoring).

(Id. at 381.)

       The FDA staff reports, stating in part as follows, disagreed
with defendants’ reliance on the truncated data:

                                 -5-
       • A rheumatologist’s report stated that it was
       “unclear” that the rationale put forth by defendants
       “represented a significant bias in assessment of the
       outcome.” (Id. at 631.)
       • A gastroenterologist’s report stated that defendants’
       “rationale for analyzing the first 6 months as a
       meaningful endpoint independent of the success at
       the study completion is not convincing.” (Id. at
       472.) However, this report also stated that “[t]he six-
       month analysis will be reviewed only as a potentially
       supportive analysis.” (Id. at 482.)
       • A statistician’s report rejected the six-month
       analysis as “not valid,” and asserted that there was
       “no reason to include information only in the first 6
       months.” (Id. at 666.)

        These reports were prepared to assist the FDA’s Arthritis
Advisory Committee (“Advisory Committee”) in deciding whether
to recommend the label change sought by defendants. The day
after the publication of the reports, the Advisory Committee held
hearings on the issue, and ultimately declined to recommend the
label change. The staff reports and the Advisory Committee’s
recommendation received substantial media attention. The market
also took note of the disappointing outcome: between February 6-8,
2001, the price of Pharmacia’s stock dropped approximately 9.0%.

       After these events, defendants issued a series of positive
statements about Celebrex’s GI safety profile as well as about the
chances for a label change. Defendants claimed, for example, that
the CLASS study data presented a “compelling case” for a label
change, and that because the CLASS study was “an extremely
rigorous and complex trial,” it was “difficult for the [Advisory
Committee] to analyze.” (Id. at 171, 1519.)

       Financial analysts also continued to rate Pharmacia’s stock
positively. Even while noting the reduced chances for a label
change and the disagreement over the results of the CLASS study,
JP Morgan, Merrill Lynch, Lehman Brothers, and Bank of America
all continued to rate Pharmacia’s stock as a “buy” or “strong buy.”
Several analysts noted the challenge to defendants’ use of truncated

                                 -6-
data: JP Morgan wrote that the staff reports called the six-month
analysis “unjustified and invalid,” and Bloomberg News wrote that
defendants were only able to show a benefit “by looking at selected
parts of the data – a practice discouraged by the [FDA].” (Id. at
714, 719.)

       Months later, on August 5, 2001, the Washington Post
reported that defendants had withheld the full CLASS study data
from JAMA. In the article, JAMA’s editor described herself as
“disheartened” and stated that “a level of trust . . . was, perhaps,
broken.” (Id. at 203.) Additionally, a scientist who wrote an
editorial published in conjunction with the JAMA article stated that
he was “flabbergasted” when he saw the complete data; another
scientist “said he complained to JAMA after noticing differences
between the published [JAMA] report and the data presented to the
FDA.” (Id. at 203-04.)

        After the Washington Post article raised the red flag of
impropriety, other sources began to question defendants’ good
faith. For example, an article from The Sunday Times noted that
the scandal involving the CLASS study had inspired medical
journals to “stop drug firms from ‘cheating’ on medical studies.”
(Id. at 1360.) On June 1, 2002, an article in the British Medical
Journal called the “explanations for [the] serious irregularities [in
the JAMA article] . . . inadequate.” (Id. at 757.) The article also
stated that “[p]ublishing and distributing overoptimistic short term
data using post hoc changes to the protocol, while omitting
disappointing long term data of two trials . . . is misleading.” (Id.)
Following the publication of this article, the price of Pharmacia’s
stock dropped 7% in three days.

                     II. Procedural History

        This action was initiated on April 7, 2003, when the first
securities fraud class action complaint was filed. Related actions
were shortly thereafter consolidated into it. The District Court
denied defendants’ motion to dismiss and granted plaintiffs’
motion for class certification, but shortened the class period by
more than a year, finding that investors could not have reasonably
relied on defendants’ alleged misrepresentations after February 6,
2001, the date on which the FDA staff reports were published.

                                 -7-
        Defendants subsequently moved for summary judgment on
statute of limitations grounds, asserting that if reliance was
unreasonable after February 6, 2001, plaintiffs must necessarily
have been on inquiry notice of their claims at that time. Because
the first securities fraud suit was filed on April 7, 2003, and the
statute of limitations for § 10(b) claims is two years, see 28 U.S.C.
§ 1658(b), defendants asserted that plaintiffs’ claims were
untimely. The District Court agreed, and granted defendants’
motion for summary judgment.

      The cross-appeals of the parties are now before us for our
consideration.

           III. Jurisdiction and Standard of Review

       The District Court had jurisdiction pursuant to 15 U.S.C. §
78aa. We have jurisdiction pursuant to 28 U.S.C. § 1291. We
exercise plenary review over the Court’s decision to grant
defendants’ motion for summary judgment and the decision to deny
their motion to dismiss. See, e.g., Mest v. Cabot Corp., 449 F.3d
502, 510 n.7 (3d Cir. 2006); Farber v. City of Patterson, 440 F.3d
131, 134 (3d Cir. 2006). The decision to certify a class action and
the determination of the class period are reviewed for abuse of
discretion. Holmes v. Pension Plan of Bethlehem Steel Corp., 213
F.3d 124, 136 (3d Cir. 2000).

                       IV. Legal Analysis

        There are a number of issues before us on these appeals.
Plaintiffs challenge, first and foremost, the District Court’s grant
of summary judgment on statute of limitations grounds. Plaintiffs
also dispute the Court’s determination of the class period. On
cross-appeal, defendants assert that the Court erred in denying their
motion to dismiss, and in granting plaintiffs’ motion for class
certification. We address each of these issues in turn.

       A. Inquiry Notice and the Statute of Limitations

       The District Court determined that investors were on inquiry
notice of possible securities fraud as of February 2001. The statute
of limitations will begin to run when the plaintiff is on inquiry

                                 -8-
notice. “Whether the plaintiffs, in the exercise of reasonable
diligence, should have known of the basis for their claims depends
on whether they had sufficient information of possible wrongdoing
to place them on inquiry notice or to excite storm warnings of
culpable activity.”3 Benak ex rel. Alliance Premiere Growth Fund
v. Alliance Capital Mgmt., L.P., 435 F.3d 396, 400 (3d Cir. 2006)
(internal citations and quotations omitted). The inquiry notice
determination requires a “totally objective” analysis that pinpoints
the time at which “a reasonable investor of ordinary intelligence
would have discovered the information [demonstrating possible
liability] and recognized it as a storm warning.” Mathews v.
Kidder, Peabody & Co., Inc., 260 F.3d 239, 252 (3d Cir. 2001).

        In line with this objective analysis, plaintiffs are “presumed
to have read prospectuses, quarterly reports, and other information
relating to their investments.” Id. However, the hypothetical
reasonable investor need not be a scientific expert; to the contrary,
the relevant inquiry is whether a reasonable investor of “ordinary
intelligence” would have recognized the available information as
indicative of possible fraud. Id.

        Inquiry notice seeks to deter putative plaintiffs from sitting
on their hands, awaiting the discovery of the elusive smoking gun.
Inquiry notice will thus be triggered when plaintiffs “should have
discovered the general fraudulent scheme,” In re NAHC, Inc. Secs.
Litig., 306 F.3d 1314, 1326 (3d Cir. 2002) (internal citations and
quotations omitted), and “cannot avoid the time bar simply by
claiming they lacked knowledge of the details or narrow aspects of
the alleged fraud.” Benak, 435 F.3d at 400 (internal citations and
quotations omitted).

       Our recent decision in In re Merck & Co., Inc. Securities,
Derivative, & ‘ERISA’ Litigation, 543 F.3d 150 (3d Cir. 2008)
(hereinafter “Merck”) informs our decision here. In Merck, we

       3
        Plaintiffs do not contend that they “exercised reasonable
due diligence and yet were unable to discover their injuries.”
Mathews v. Kidder, Peabody, & Co., Inc., 260 F.3d 239, 252 (3d
Cir. 2001). Thus, if we find storm warnings of fraud, plaintiffs’
claims are untimely.

                                 -9-
were faced with a similar set of factual circumstances: after a
long-term clinical study of Merck’s own blockbuster drug, Vioxx,
the company published a questionable interpretation of the study’s
results, allegedly in order to boost Vioxx’s sales and Merck’s stock
price. The questionable interpretation advanced by Merck
attempted to explain why patients taking Vioxx experienced a
higher rate of negative cardiovascular events than patients taking
the study’s comparator drug, naproxen. This so-called naproxen
hypothesis emphasized the possibility that naproxen had a positive
impact on the cardiovascular system, and discounted the possibility
that Vioxx had a negative impact.

        The science behind this explanation was debatable, and,
consequently, the FDA scolded Merck for its repeated promotion
of the naproxen hypothesis. In a public warning letter issued to
Merck, the FDA called the marketing campaign for Vioxx “false,
lacking in fair balance, or otherwise misleading . . . . and
[minimizing of] the potentially serious cardiovascular findings.”
Id. at 156 (internal citations and quotations omitted). The FDA
ordered Merck to send letters to doctors in order “to correct false
or misleading impressions and information.” Id. at 157. Despite
the public nature of these strong words, as well as, inter alia, news
reports questioning the naproxen hypothesis and consumer lawsuits
alleging negative cardiovascular effects from Vioxx, we found that
investors were not on inquiry notice of securities fraud.

        Most importantly for our purposes here, Merck found that
inquiry notice, in securities fraud suits, requires storm warnings
indicating that defendants acted with scienter. “Thus, to trigger
storm warnings of culpable activity, in the context of a claim
alleging falsely-held opinions or beliefs, investors must have
sufficient information to suspect that the defendants engaged in
culpable activity, i.e., that they did not hold those opinions or
beliefs in earnest.” Id. at 166 (emphasis added) (internal citations
and quotations omitted).

       Accordingly, for investors to be on inquiry notice of § 10(b)
claims, there must be some indication that defendants did not, in
fact, hold the views expressed. Inquiry notice requires storm
warnings of “culpable activity.” See Benak, 435 F.3d at 400.
Under § 10(b), a corporation does not engage in culpable activity

                                -10-
unless it acted with scienter.4 Scienter is not incidental to § 10(b),
it is elemental.5

       In support of a finding of inquiry notice in February 2001,
defendants point to the drop in the price of Pharmacia’s stock, the
FDA staff reports, the Advisory Committee meeting, analyst
reports discussing the events at the FDA, and the fact that the full
length of the CLASS study had long been publicly known.
Whatever else those facts may have indicated, they did not provide
storm warnings of possible fraud.

        For one thing, the drop in stock price following the events
of February 6-8, 2001 did not indicate fraud or even the possibility
of fraud. Rather, the drop in price is easily explained by the fact
that the market had been expecting that the FDA would approve a
label change. When the Advisory Committee issued a negative
recommendation, the market reacted accordingly. But mere
investor disappointment does not ipso facto imply fraud.

       4
         Thus, as defamation is not assault, so is § 10(b) not § 11.
Section 11 does not require a plaintiff to plead or to prove scienter;
§ 10(b) does. This is a distinction with a difference, both in terms
of what a plaintiff must show for recovery and in terms of what
information must be available for inquiry notice to take hold. We
did not find it necessary in Merck to discuss § 11, nor do we find
it necessary to do so here. Were this is a § 11 case, which it is not,
the evidence in the public realm as of February 2001 might well
have given rise to storm warnings of misstatements, and thus
triggered the second step of the inquiry notice analysis—the duty
to investigate potential claims.
       5
         “To state a valid claim under Rule 10b-5, a plaintiff must
show that the defendant (1) made a misstatement or an omission of
a material fact (2) with scienter (3) in connection with the purchase
or the sale of a security (4) upon which the plaintiff reasonably
relied and (5) that the plaintiff’s reliance was the proximate cause
of his or her injury.” Semerenko v. Cendant Corp., 223 F.3d 165,
174 (3d Cir. 2000) (emphasis added); see also Ernst & Ernst v.
Hochfelder, 425 U.S. 185 (1976) (requiring more than evidence of
negligence in § 10(b) cases).

                                -11-
       Neither, in our view, does the content of the FDA staff
reports suggest fraud. Defendants rely on a handful of words in
those reports: to wit, “not valid,” “unclear,” and “not convincing.”
(JA 666, 631, 472.) But the staff reports span over 250 pages of
highly complex scientific and statistical analysis. These few words
and phrases, lacking in accusatory intent and buried like needles in
a haystack, could not give rise to storm warnings of fraud.6

       The Advisory Committee meeting and concomitant negative
recommendation also could not give rise to storm warnings of
fraud; indeed, the transcript of the Advisory Committee meeting
explicitly supports a finding that the experts believed that the
dispute between defendants and the FDA was a good faith,
legitimate scientific dispute. We note, for example, the following
statements made at the Advisory Committee meeting:

       [FDA Representative]: Just to add a couple of other
       comments to that, . . . I don’t think that there were
       differences between us and the company that were
       meaningful in terms of the findings of the analyses
       that were done.
       We spent more time describing certain analyses and
       the company spent more time describing other
       analyses, but I don’t think there is any dispute that
       we have with what the company presented, and I
       think that the company understands where we were
       coming from with our analyses, and I don’t think
       that they are off target either in terms of how the
       company sees them.

(Id. at 1189.)

       [Advisory Committee Consultant]: The challenge
       here for me is that it seems to me everybody is
       speaking truth. I agree with everyone who speaks.
       I agree with the sponsor and their emphasis, I agree

       6
         Additionally, one of the staff reports described the
disputed six-month model as a “potentially supportive analysis.”
(JA 482.)

                               -12-
       with the FDA in their description . . . . It depends on
       which piece of this you pick out.

(Id. at 1154 (emphasis added).)

As should be evident by these statements, the Advisory Committee
simply did not believe that anything untoward had occurred, and
we obviously will not expect more of the reasonable investor than
we would expect of experts on the FDA’s Advisory Committee.

       Arguably the most troublesome pieces of evidence came in
the form of two analyst reports discussing the events at the FDA:
a JP Morgan report stated that the use of the truncated data was
“unjustified and invalid,” and Bloomberg News stated that
defendants could only show a benefit “by looking at selected parts
of the data – a practice discouraged by the [FDA].” (Id. at 714,
719.) Yet even in conjunction with the other evidence to which
defendants point, we simply cannot conclude that these statements
would alert a reasonable investor that fraud, as opposed to a mere
disagreement over the best method of scientific analysis, had
occurred.

       Defendants also argue that storm warnings existed by
February 2001 because no new information was revealed at that
time or later: it was always known that the CLASS study lasted
longer than six months. But while defendants had acknowledged
in April 2000 that the study lasted 13 months, there was no
indication that they deliberately withheld data from JAMA, or
improperly massaged the data, until the Washington Post article in
August 2001. The mere fact that the study lasted thirteen months,
and that there was a technical dispute between scientists about
whether to use the full data or only a portion of the data, would not
have provided storm warnings of fraud to the reasonable investor.7

       7
         In a different context in this litigation, even defendants’
counsel acknowledged as much: “Well, what does that show? That
scientists can disagree on how you interpret the data. That doesn’t
make fraud. That means people have different interpretations.”
(JA 2028 (argument in opposition to class certification).)

                                -13-
        Finally, defendants’ own reassuring statements after the
Advisory Committee meeting foreclose their argument here. In
reaction to the Advisory Committee’s negative recommendation,
defendants defended the results of the CLASS study, and their use
of the truncated data. Defendants stated that they had a
“compelling case” for a label change, and that it had been “difficult
for the [Advisory Committee] to analyze” the study because it was
“an extremely rigorous and complex trial.” (Id. at 171, 1519.)

        These reassuring statements operate as a sort of antidote to
any storm warnings that may have existed. See, e.g., Merck, 543
F.3d at 167 n.14 (“We have recognized that reassurances can
dissipate apparent storm warnings if an investor of ordinary
intelligence would reasonably rely on them to allay the investor’s
concerns.”) (internal citations and quotations omitted). Just as we
require investors to act upon public information indicating fraud,
so, too, do we allow them to rely upon corporate statements
discounting the possibility of malfeasance.8

       The totality of the evidence in the public realm as of
February 2001 did not indicate a possibility of fraud or even hint
at any malfeasance or intentional impropriety; rather, the evidence
only supported the view that there existed a legitimate dispute over
scientific and statistical models.9 But for inquiry notice of § 10(b)

       8
         Corporations are, of course, unlikely to admit to culpable
conduct, and we do not purport to state a rule that precludes a
finding of inquiry notice until they do so. But, under circumstances
such as these, where the evidence of wrongdoing is entirely
speculative, reassuring statements are a relevant consideration.
       9
          Indeed, after the events of February 2001, reports
portrayed Celebrex’s outlook positively, and took seriously
defendants’ truncated analysis. (See, e.g., JA 716 (JP Morgan
analysis stating there is some “support[] [for Pharmacia’s]
contention that there was a [justified reason to limit the analysis to
six months], but the FDA statisticians dispute this”); id. at 1707-08
(calling “the scientific evidence on this question . . . unclear”).)

   Additionally, numerous financial analysts retained Pharmacia’s

                                -14-
claims, we require some reason to suspect that defendants did not
genuinely believe the accuracy of their statements. No such
evidence surfaced until the publication of the Washington Post
article which stated that defendants withheld data from JAMA.

        We conclude that investors are not put on inquiry notice of
fraud when, in the context of this case, an apparently legitimate
scientific dispute arises between the FDA and a pharmaceutical
company, and note that the Private Securities Litigation Reform
Act (“PSLRA”), 15 U.S.C. § 78u-4, itself suggests this conclusion.
A rule that would place investors on inquiry notice of fraud the
moment that the FDA questions the seemingly good faith scientific
analysis of a pharmaceutical company would encourage putative
plaintiffs to file premature securities suits. In imposing heightened
pleading requirements, Congress evinced an intent to discourage
such suits; our inquiry notice jurisprudence reflects this intent.

       For inquiry notice to take hold, there must be some indicia
of potential malfeasance. Because no such indicia existed here, we
will vacate the District Court’s grant of summary judgment.10

                 B. Length of the Class Period

       Largely for the reasons discussed above, we also find that
the District Court erred in terminating the class period in February
2001. Particularly in light of defendants’ repeated defense of the

stock at a “buy” or “strong buy” rating. See Merck, 543 F.3d at
157-58 (noting that, during the relevant period, “securities analysts
were of one voice in their projections for Merck and Vioxx;
. . . all maintained their ratings for Merck stock at ‘buy’ or ‘hold’
and/or continued to project increased future revenues for Vioxx”).

       10
         We note that inquiry notice – in securities fraud suits and
otherwise – is alive and well in this Court. Neither in Merck nor
here have we replaced inquiry notice with an actual notice
standard. Here, we merely conclude that, in the absence of any
indication that defendants did not believe the truth of their own
statements, investors were not on inquiry notice of § 10(b) claims.

                                -15-
CLASS study and their optimism regarding a potential label
change, it was reasonable for plaintiffs to rely upon defendants’
statements until the publication of the Washington Post article on
August 5, 2001.11 Cf. Basic, Inc. v. Levinson, 485 U.S. 224 (1988)
(outlining presumption of reliance in fraud-on-the-market securities
suits). Accordingly, we will reverse the Court’s order limiting the
class period to February 5, 2001.12

                         C. Cross-Appeal
                       1. Motion to Dismiss

        The District Court correctly denied defendants’ motion to
dismiss. In that motion, defendants asserted that plaintiffs failed to
meet the pleading requirements of the PSLRA, focusing on the
admittedly thin two paragraphs of the Amended Complaint labeled
“Scienter Allegations.” (JA 270-71.) When examined as a whole,
however, the Amended Complaint is replete with allegations that
defendants acted with the requisite scienter. See Tellabs, Inc. v.
Makor Issues & Rights, Ltd., 127 S. Ct. 2499, 2509 (2007)
(requiring courts to “consider the complaint in its entirety”). In
particular, the Amended Complaint documents the alleged scheme
to trick JAMA, and thus the investment community, by using only

       11
          The appropriate date is August 5, 2001, and not the later
date, May 31, 2002, of the British Medical Journal article. As of
August 5, 2001, investors should have known that there was a
possibility that defendants’ claims were false. Any new
information found in the British Medical Journal article is different
in only degree, and not in kind.
       12
          Plaintiffs also challenge the District Court’s decision to
seal the record and presumably our decision to continue the seal
pending appeal. We will leave the question of continued sealing to
the District Court. We note, however, that we are unpersuaded by
the Court’s reliance on the so-called “self-critical analysis
privilege” as a basis for sealing. The self-critical analysis privilege
has never been recognized by this Court and we see no reason to
recognize it now. Cf. Union Pac. R.R. Co. v. Mower, 219 F.3d
1069, 1076 n.7 (9th Cir. 2000) (calling the privilege “novel,” and
noting that the Ninth Circuit has not recognized the privilege).

                                 -16-
the truncated data.

        While it is true that a legitimate disagreement over scientific
data does not give rise to a securities fraud claim, plaintiffs alleged
something quite different: a bad faith misrepresentation of
scientific data. Those allegations are sufficient to withstand the
“[e]xacting pleading requirements” of the PSLRA, which require
that the allegations give rise to a strong inference of scienter. See,
e.g., Tellabs, Inc., 127 S. Ct. at 2504–10. The District Court
correctly denied defendants’ motion to dismiss.

                      2. Class Certification

       Defendants also argue that the District Court’s decision to
grant plaintiffs’ motion for class certification was in error. The
gravamen of this argument is that the results of the CLASS study
were immaterial as a matter of law in light of the lack of movement
in stock price following the initial release of those results in April
2000. We disagree.

        Plaintiffs’ own expert acknowledges that the announcement
of the results of the CLASS study “had little measurable effect on
[Pharmacia’s] stock price.” (JA 1298.) But that fact does not
negate a finding of materiality when the market was expecting that
the results of the study would be positive, and plaintiffs have
presented evidence indicating precisely that. (See id. (citing
Morgan Stanley report written the day after the CLASS study
results were released that states, “we are making no change to our
forecasts, as we had anticipated the study to corroborate the strong
safety profile of the product”).) And, of course, the materiality of
the alleged misrepresentations is self-evident when we look at the
market’s negative reaction—to the tune of a nine-percent drop in
stock price in three days—when defendants’ analysis of the
CLASS study was questioned in February 2001.13

                           V. Conclusion

       13
           We also reject, without further discussion, defendants’
argument that the District Court erred in denying their motion to
strike certain documents.

                                 -17-
       For the foregoing reasons, we will vacate the judgment of
the District Court, and remand for proceedings consistent with
this Opinion.

                              -18-