Alonzo v. Dexcom Inc.

[7] 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA [10] 11 Case No.: 24-cv-1485-RSH-VET IN RE: DEXCOM, INC. CLASS 12 ACTION SECURITIES LITIGATION ORDER GRANTING DEFENDANTS’ 13 MOTION TO DISMISS LEAD PLAINTIFF’S CONSOLIDATED [14] COMPLAINT [15] [ECF No. 29] [18] 19 Before the Court is a motion to dismiss, filed by defendants Dexcom Inc. 20 (“Dexcom”), Kevin Sayer (“Sayer”), Jereme Sylvain (“Sylvain”), and Teri Lawver 21 (“Lawver”). ECF No. 29. Pursuant to Local Civil Rule 7.1(d)(1), the Court finds the motion 22 presented appropriate for resolution without oral argument. For the reasons below, the 23 Court grants Defendants’ motion. 24 I. BACKGROUND 25 A. Lead Plaintiff’s Allegations 26 Lead Plaintiff National Elevator Industry Pension Fund brings this putative 27 securities class action against Dexcom and its current and former senior executives, Sayer 28 (Chief Executive Officer), Sylvain (Chief Financial Officer) and Lawver (former Chief 1 Commercial Officer), on behalf of all persons or entities who purchased or otherwise 2 acquired Dexcom securities between April 28, 2023 and July 25, 2024 (“Class Period”). 3 Lead Plaintiff is a multiemployer defined pension plan that purchased a significant number 4 of shares of Dexcom stock during the Class Period. Plaintiff’s Consolidated Complaint 5 (“Compl.”) alleges as follows. 6 1. CGMs 7 Dexcom is a medical device company headquartered in San Diego that designs, 8 develops, and sells continuous glucose monitoring (“CGM”) devices. Compl. ¶¶ 2, 18. 9 CGM devices utilize sensors inserted just below a user’s skin to provide regular glucose 10 readings to a compatible mobile device or dedicated monitor. Id. ¶ 2. The devices assist 11 individuals with diabetes in managing their blood glucose levels. Id. Of relevance here, 12 CGMs are used by persons falling within different categories: (1) individuals with Type 1 13 diabetes; (2) individuals with Type 2 diabetes that require intensive insulin treatment; (3) 14 individuals with Type 2 diabetes who use basal insulin, a long-acting insulin typically 15 delivered once a day; (4) individuals with Type 2 diabetes who do not use insulin therapy; 16 (5) individuals with prediabetes; and (6) others without diabetes. Id. ¶ 30. 17 2. Insulin Intensive versus Type 2 Basal Market 18 The CGM market space is dominated by Dexcom and its competitor, Abbott 19 Laboratories (“Abbott”). Id. ¶ 4. Dexcom’s most current CGM system is known as the 20 “G7” while Abbott’s is the “FreeStyle Libre 3.” Id. The market is influenced by several 21 factors, including the prescribers of CGMs, and fulfillment channels. Id. ¶¶ 34–37. 22 Diabetes patients are generally treated by endocrinologists, primary care physicians, or 23 through diabetes clinics. Id. ¶ 34. After prescription, CGMs are then sold through two 24 primary channels: pharmacies and durable medical equipment suppliers (“DMEs”). Id. ¶ 25 37. Type 2 Basal patients are more commonly treated by primary care physicians who were 26 less familiar with DMEs. Id. ¶¶ 36, 37. The CGM market is also influenced by the 27 availability of reimbursement from government health care programs. Id. ¶ 38. Prior to [28] 1 2023, while Medicare provided coverage for CGMs for Type 1 and Type 2 insulin intensive 2 patients, it did not cover CGMs for Type 2 Basal patients. Id. ¶ 39. 3 Historically, Dexcom has focused on its “heritage” business of providing CGMs to 4 Type 1 and Type 2 insulin intensive patients. Id. ¶ 42. In contrast, Abbott has been ahead 5 of Dexcom in providing CGMs to Type 2 Basal patients. Id. ¶¶ 43–44. This is largely 6 attributable to two advantages Abbott has possessed. First, Abbott has a strong presence 7 with primary care physicians due to its wide portfolio of consumer healthcare products. Id. 8 ¶ 6. Second, despite the lack of Medicare coverage, Abbott targeted Type 2 Basal patients 9 by making its CGMs more affordable to users who could pay out-of-pocket. Id. ¶¶ 6, 41. It 10 did so by selling CGMs at a lower price and offering a rebate program. Id. Consequently, 11 prior to April 2023, Abbott held a significant lead in market share over Dexcom in the Type 12 2 Basal Market. Id. ¶ 44. 13 3. Dexcom Promotes Opportunities in Type 2 Basal Market 14 In April 2023, the Centers for Medicare & Medicaid Services (“CMS”)1 expanded 15 medical coverage for CGMs to Type 2 Basal patients. Id. ¶¶ 7, 45. In response, Dexcom 16 began to promote this expansion as an opportunity for the company to capture a greater 17 share of the Type 2 Basal market, emphasizing to investors Dexcom’s expanded sales force 18 and strong relationships with DMEs. Id. ¶¶ 7, 47. 19 Unbeknownst to investors, however, Dexcom allegedly faced three obstacles 20 negatively impacting its ability to capture market share. Id. ¶¶ 8, 48. First, Dexcom’s sales 21 force lacked established relationships with primary care physicians. Id. ¶ 48. Second, 22 Dexcom lacked a similar rebate program to Abbott’s prior to the Medicare expansion and 23 had therefore not achieved the market penetration and brand loyalty Abbott possessed. Id. 24 Finally, Dexcom’s transition to using pharmacies as its primary fulfillment channel rather [26] 27 1 CMS is the federal agency that administers the federal Medicare and Medicaid program. See https://www.usa.gov/agencies/centers-for-medicare-and-medicaid-services [28] 1 than DMEs hindered its ability to compete. Id. ¶¶ 37, 48. These disadvantages caused 2 Dexcom to lag behind Abbott in the Type 2 Basal market for the remainder of 2023. Id. ¶ 3 50. According to Plaintiff, Dexcom purportedly hid these disadvantages to investors, 4 instead painting a picture of early success. Id. ¶¶ 50–53. 5 4. Dexcom Expands and Reorganizes Sales Force 6 In late 2023, after consistently losing ground to Abbott, Dexcom expanded and 7 reorganized its sales force. Id. ¶ 54. At the same time, however, Dexcom continued to put 8 forward a positive message as to its performance in the Type 2 Basal market. Id. ¶¶ 54–56. 9 On April 25, 2024, during an earnings call, Dexcom raised the midpoint of its revenue 10 guidance. Id. ¶ 57. At the same time, Defendants discussed the sales force expansion 11 Dexcom had undertaken and continued to claim they were “taking share” in the Type 2 12 Basal market. Id. ¶¶ 58–59. On June 5, 2025, during a conference, Defendants stated they 13 were “happy” with their full year revenue guidance. Id. ¶ 62. 14 5. Decline in Dexcom Stock Price 15 On July 25, 2024, Dexcom reduced its full-year revenue guidance by $300 million. 16 Id. ¶ 12. In contrast to their earlier statements, Defendants conceded Dexcom was “not 17 doing wonderful in the basal space” and its sales force expansion was a reactive move to 18 stem loss in market share. Id. ¶ 64. The news caused Dexcom’s stock price to drop by more 19 than 40%. Id. ¶ 12. 20 B. Procedural Background 21 This consolidated action combines three securities class actions against Defendants: 22 Alonzo v. Dexcom Inc., et al., 24cv1485-RSH-VET, Oakland County Employees’ 23 Retirement Systems et al. v. Dexcom Inc., et al., 24cv1804-RSH-VET and Carnes v. 24 Dexcom Inc., et al., 24cv1809-RSH-VET (“Related Actions”). 25 On December 13, 2024, the Court consolidated the Related Actions and appointed 26 the National Elevator Industry Pension Fund as Lead Plaintiff and Robbins Geller as Lead 27 Counsel pursuant to the Private Securities Litigation Reform Act of 1995 (“PSLRA”). ECF 28 No. 19 at 15–16. 1 On January 27, 2025, pursuant to the Court’s direction, Lead Plaintiff filed a 2 Consolidated Complaint—the operative pleading in this case. ECF No. 27. The 3 Consolidated Complaint asserts claims for: (1) violation of § 10(b) of the Securities 4 Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 promulgated thereunder; and (2) 5 violation of § 20(a) of the Exchange Act. Compl. ¶¶ 170–185. On March 13, 2024, the 6 Defendants filed the instant motion to dismiss. ECF No. 29. Plaintiff filed an opposition, 7 and Defendants filed a reply. ECF Nos. 32; 34. 8 II. LEGAL STANDARD 9 Securities fraud complaints, like this one, “face heightened pleading requirements.” 10 Okla. Firefighters Pension & Ret. Sys. v. Nektar Therapeutics (In re Nektar Therapeutics 11 Sec. Litig.), 34 F.4th 828, 835 (9th Cir. 2022). At the pleading stage, a complaint stating 12 claims “under § 10(b) and Rule 10b-5 must satisfy the dual pleading requisites of Federal 13 Rule of Civil Procedure 9(b) and the PSLRA.” Nat’l Elevator Indus. Pension Fund v. 14 VeriFone Holdings, Inc. (In re VeriFone Holdings, Inc. Sec. Litig.), 704 F.3d 694, 701 (9th 15 Cir. 2012). “These requirements present no small hurdle for the securities fraud plaintiff.” 16 Id.; see Glazer Capital Mgmt., L.P. v. Forescout Techs., Inc., 63 F.4th 747, 765 (9th Cir. 17 2023) (“[T]he PSLRA imposes formidable pleading requirements to properly state a claim 18 and avoid dismissal under Rule 12(b)(6).”) (internal quotation marks omitted). 19 III. ANALYSIS 20 Plaintiff alleges Defendants made fourteen false and misleading statements between 21 April 27, 2023 and June 5, 2024 in violation of § 10(b) of the Exchange Act and Rule 10b22 5. Compl. ¶¶ 67–104. Each “statement” consists of a paragraph or multiple paragraphs of 23 text with select portions bolded and italicized. Compl. ¶¶ 67, 69, 71, 73, 75, 77, 79, 81, 83, 24 85, 89, 91, 93. Defendant contends Plaintiff’s Consolidated Complaint should be dismissed 25 as it is unclear which specific statements Plaintiff alleges are false and misleading. ECF 26 No. 34 at 6–7. The Court agrees. 27 “In the securities fraud context, the term ‘puzzle pleading’ refers to a pleading that 28 requires a defendant and the court to ‘match up’ the statements that form the basis of the 1 plaintiff’s claims with the reasons why those statements are misleading.” In re Cisco Sys. 2 Inc. Sec. Litig., No. C 11-1568 SBA, 2013 WL 1402788 , at *5 (N.D. Cal. Mar. 29, 2013). 3 “[P]uzzle pleadings fail to set forth a short and plain statement of their claims in violation 4 of Rule 8(a), to make each allegation simple, concise and direct in violation of Rule 8 and 5 to fulfill the more exacting pleading requirements of the Private Securities Litigation 6 Reform Act of 1995 (PSLRA) for violations of the Exchange Act.” Primo v. Pac. 7 Biosciences of Cal., Inc., 940 F. Supp. 2d 1105, 1112 (N.D. Cal. 2013). 8 Here, Plaintiff’s Consolidated Complaint does not make clear which “statements” it 9 alleges are false and misleading. As one example, Plaintiff challenges a statement made by 10 Sylvain on June 7, 2023, enumerated in the Consolidated Complaint as Statement No. 3, 11 in response to an analyst question as to whether Dexcom “ha[s] the capacity to bring on a 12 significant number of those [Type 2 Basal] patients if you haven’t maybe added reps in a 13 period of time.” Compl ¶ 71. 14 Sylvain answered: 15 Yes. So great question. And so far, I’ll tell you anecdotally, it’s gone very well. There’s been a lot of interest in it. The challenge, of course, [16] is it’s generally sold through the DME and so it will take a little bit of 17 time to quantify it. But anecdotally, people have been very excited about basal coverage. [18] 19 In terms of capacity, when we doubled the size of the sales force, the focus was calling on high decile prescribers of all insulin, including [20] basal. And so the inroads have been made there. So from a coverage 21 perspective, while we may want to expand coverage a little bit from the sales force, it wouldn’t be a material step change in how we’re going. [22] It’d be normal as part of our thoughts around investments. So we do 23 have a sizable sales force. [24] Id. (emphasis in original). 25 Upon initial review, Plaintiff’s use of bold and italics on only certain portions of this 26 passage appears intended to direct the attention of Defendants and the Court to the 27 allegedly false and misleading statements. Nevertheless, the allegations in the Consolidated 28 Complaint are directed only to Sylvain’s response that “the focus” of Dexcom’s sales force 1 expansion “was calling on high decile prescribers of all insulin, including basal” and that 2 Dexcom had a “sizable sales force.” Id. It is not clear if Plaintiff is also challenging 3 Sylvain’s statement that Dexcom had “doubled the size” of its sales force or that “inroads” 4 had been made. Plaintiff’s use of emphasis does not appear to be “a reliable guide to 5 determining which statements are alleged to be false, as bolded statements sometimes do 6 not turn out to be actionable, while non-bolded statements sometimes are actionable.” In 7 re Splash Tech. Holdings, Inc. Sec. Litig., 160 F. Supp. 2d 1059, 1074 (N.D. Cal. 2001); 8 see United Ass’n Nat’l Pension Fund v. Carvana Co., No. CV-22-02126-PHX-MTL, 2024 9 WL 863709 , at *10 (D. Ariz. Feb. 29, 2024) (“[M]erely bolding and italicizing swaths of 10 text does not assist the Court in determining which statements are allegedly misleading or 11 why.”). 12 This issue is evident in numerous other challenged statements. As another example, 13 Plaintiff challenges a statement made by Sayer during Dexcom’s October 26, 2023 14 earnings conference call, enumerated in the Consolidated Complaint as Statement No. 8: [15] As a reminder, Medicare coverage went live in mid-April for people 16 with type 2 diabetes using basal insulin only as well as certain non17 insulin individuals that experience hypoglycemia. Collectively, these 2 populations represent nearly 7 million people in the U.S. with 18 approximately half being of Medicare age. [19] Encouragingly, commercial coverage continues to build for this group. 20 We have established market-leading levels of basal-only 21 reimbursement as payers clearly recognize the potential for better outcomes driven by DexCom. This further supports our industry low 22 out-of-pocket cost for our customers. With a full quarter of broad 23 coverage now under our belt, we continue to be very encouraged by early prescribing trends for this cohort. We noted last quarter that we 24 experienced an immediate uptick in new patient starts once coverage 25 went live, and we have seen a clear continuation of this trend since that time. In fact, we delivered another record Medicare new patient start 26 quarter in Q3 as physicians have quickly adjusted their prescribing 27 patterns to match the new reimbursement landscape. [28] 1 While early, basal adoption trends look very similar to those we previously experienced once broad coverage became available for [2] intensively managed type 2 diabetes. We view this as a very positive 3 sign of things to come. Importantly, when you combine this broader coverage with our leading sensor technology, we feel incredibly [4] confident in our market position. Since the launch of G7, we have 5 gained share across all reimbursed channels and patient segments in the U.S. and that trend continued this quarter. [6] 7 Compl. ¶ 81 (emphasis in original). Statement No. 8 encompasses three paragraphs of text. 8 In the paragraphs immediately following the statement, however, Plaintiff alleges only that 9 Sayer’s representations that Defendants were “very encouraged by early prescribing 10 trends” and Dexcom was continuing to “gain[] share across all reimbursed channels and 11 patient segments” were false and misleading. Id. 12 Once again, this does not encompass all the language that Plaintiff bolded and 13 emphasized. It remains unclear whether Plaintiff is also alleging that Sayer’s statements 14 that “basal adoption trends look very similar to those we previously experienced once broad 15 coverage became available for intensively managed type 2 diabetes” and that Defendants 16 felt “incredibly confident in our market position” are false and misleading. Id. Plaintiff’s 17 use of bold and italicized text again does not serve as a reliable indicator of which specific 18 statements within these three paragraphs are being challenged. 19 Nor is this problem confined to multi-paragraph statements. For example, Plaintiff 20 challenges a statement made by Sylvain during a January 8, 2024 conference, enumerated 21 in the Consolidated Complaint as Statement No. 10, in response to an analyst question 22 regarding Dexcom’s announcement of acquiring new patients as to whether there was 23 “[a]ny way to size how much was basal versus nonbasal because our doc checks remain 24 just so enthusiastic about CGM for these patients now with reimbursement.” Id. ¶ 85. 25 Sylvain responded: 26 Yes. So as we think about those patients, and we’ll get the full final patients numbers in soon. We know it’s trending that way. You’re [27] seeing – you’re right. You’re seeing a very strong adoption in the basal 28 population, that unmet need is significant. And so you continue to see 1 outperformance in basal, but you’re also seeing a really strong performance continuing in the intensive markets, both type 1 and type [2] 2. [3] 4 Id. ¶ 86 (emphasis in original). In the paragraphs immediately following, Plaintiff contends 5 only that Sylvain’s statement Dexcom was “continu[ing] to see outperformance in basal” 6 was false and misleading, but does not reference the other highlighted portion of the 7 paragraph—“[w]e know it’s trending that way.” Id. Once again, the Court is left uncertain 8 as to why certain portions of Statement No. 10 were both highlighted and discussed, while 9 other portions were merely highlighted without further explanation. 10 Rather than lend clarity, Plaintiff’s opposition to Defendants’ motion to dismiss 11 introduces additional ambiguity. In opposition, Plaintiffs argue that Defendants have 12 “distorted” Statement Nos. 3, 8 and 10 above (and other statements) by claiming only the 13 italicized portions are being challenged “while omitting the full statements.” ECF No. 32 14 at 21. This explanation—without any further meaningful detail—does not direct 15 Defendants or the Court as to what precisely Plaintiff is challenging, if not the italicized 16 portions. 17 In short, “plaintiffs have left it up to defendants and the court to try to figure out 18 exactly what the misleading statements are, and to match the statements up with the reasons 19 they are false or misleading.” In re Autodesk, Inc. Sec. Litig., 132 F. Supp. 2d 833 , 842 20 (N.D. Cal. 2000). “By failing to articulate exactly which statements Plaintiff asserts to be 21 false or misleading, Plaintiff in effect insulates the Complaint from review, e.g., for 22 defenses like puffery or PSLRA’s Safe Harbor.” Lu v. Align Tech., Inc., 417 F. Supp. 3d 23 1266, 1275 (N.D. Cal. 2019). 24 For these reasons, the Court holds Plaintiff has failed to plead its claims in 25 compliance with Rule 8 and the PSLRA. See Lifschitz v. NextWave Wireless Inc., No. 26 08CV1697-LAB (WMC), 2010 WL 11512356 , at *4 (S.D. Cal. Mar. 5, 2010) (“[T]he 27 Court agrees with the characterization of Plaintiffs’ complaint as a puzzle-pleading, and 28 would rather operate from a complaint that’s not a puzzle in determining the more operative 1 || question whether Plaintiffs have actually alleged the elements of a violation of section 2 || 10(b) of the Securities Exchange Act.”). 3 CONCLUSION 4 For the above reasons, the Court GRANTS Defendants’ motion to dismiss WITH 5 || LEAVE TO AMEND. See Knappenberger v. City of Phx., 566 F.3d 936, 942 (9th Cir. 6 2009) (“Leave to amend should be granted unless the district court determines that the 7 || pleading could not possibly be cured by the allegation of other facts.”’) (internal quotation 8 ||marks omitted). 9 If Lead Plaintiff chooses to file a First Amended Consolidated Complaint, Plaintiff 10 ||must do so within fourteen (14) days of the date of this Order. Plaintiff should clearly 11 ““specify each statement alleged to have been misleading, the reason or reasons why the 12 || statement is misleading, and, if an allegation regarding the statement or omission is made 13 information and belief, the complaint shall state with particularity all facts on which 14 || that belief is formed.” 15 U.S.C.S. § 78u-4. To the extent Plaintiff is contending an entire 15 || passage is false and misleading, Plaintiff must separately address each statement in the 16 || larger passage, explaining why that statement was false or misleading when made and how 17 || the statement was made with the requisite scienter. 18 Defendants’ time to respond to the operative pleading will begin to run on the earlier 19 || of the date Plaintiff files a First Amended Consolidated Complaint or fourteen (14) days 20 || from the date of this Order. 21 IT IS SO ORDERED. 22 || Dated: May 14, 2025 23 Jebut ¢ How Hon. Robert S. Huie United States District Judge