Citations
- 348 F. Supp. 3d 530
Full opinion text
Thomas D. Schroeder, United States District Judge This is a putative federal securities class action on behalf of all persons who owned common stock of the biopharmaceutical company, Cempra, Inc. ("Cempra"), between July 7, 2015, and November 4, 2016 (the "class period"). In their amended complaint (Doc. 46), Plaintiffs seek recovery for stock losses under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 ("Exchange Act"), as amended by the Private Securities Litigation Reform Act of 1995 ("PSLRA") and Rule 10-b5 promulgated thereunder, 17 C.F.R. § 240.10b-5. The Defendants are Cempra; Prabhavathi B. Fernandes, Ph.D., Cempra's then-chief executive officer ("CEO"), president, and member of the board of directors from the company's founding in November 2005 until December 12, 2016 (Doc. 46 ¶ 22); Mark W. Hahn, Cempra's executive vice president and chief financial officer ("CFO") during the class period (Doc. 46 ¶ 25); and David W. Oldach, M.D., Cempra's chief medical officer, during the class period (together, "Defendants"). (Doc. 46 ¶ 28.) Before the court is Defendants' motion to dismiss the amended complaint for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). (Doc. 49.) Plaintiffs oppose the motion and also filed a motion to strike seven exhibits contained in the appendix to Defendants' motion (Doc. 56), which the court recently denied without opinion. (Doc. 65.)
For the reasons set forth below, Defendants' motion to dismiss will be granted. In addition, the court will address Plaintiffs' motion to strike and explain which exhibits the court considered.
I. BACKGROUND
The facts alleged in the amended complaint, which are accepted as true and viewed in the light most favorable to Plaintiffs for purposes of the present motion, and the contents of other documents which the court may consider in deciding the motion to dismiss, show the following:
Cempra is a biopharmaceutical company that develops antibiotics for the treatment of infectious diseases. (Doc. 46 ¶ 4.) Cempra's lead product, solithromycin, is being developed for the treatment of community-acquired bacterial pneumonia ("CABP"), as well as other indications. (Id. ) During the class period, solithromycin was in the late stages of its clinical development for the treatment of CABP, the seventh leading cause of death and the leading cause of death due to infection in the United States, with a reported five to ten million cases per year. (Id. ¶¶ 5-6, 36.) In August 2015, the Food and Drug Administration ("FDA") granted the drug "Fast Track" designation for the short-term (five to seven day) treatment of CABP with intravenous ("IV") and oral capsules under the FDA's Fast Track program, which is designed to facilitate the development of new drugs that have the potential to address unmet medical needs and are designed to treat serious or life-threatening conditions. (Id. ¶ 6.) On May 1, 2016, Cempra completed and submitted its New Drug Applications ("NDAs") for solithromycin to the FDA for the treatment of CABP, which qualified for eight-month priority review under the Prescription User Drug Fee Act. (Id. )
Cempra generated little revenue during the class period and depended largely on raising capital through public stock offerings to sustain its business operations and complete the clinical development of solithromycin. (Id. ¶¶ 91-92.) During this period, Cempra conducted two stock offerings in order to raise capital to fund the company's operations for combined net proceeds of approximately $170 million. (Id. ¶¶ 94-95.) In January 2016, Cempra sold 4.17 million shares of common stock at a price of $24.00 per share, resulting in net proceeds of $94 million. (Id. ¶ 94.) Between May 2016 and July 2016, Cempra sold an additional 4 million shares of common stock during an "at-the-market" offering for net proceeds of $75.1 million. (Id. ¶ 95.)
In their amended complaint, Plaintiffs allege that Defendants made false and misleading statements regarding the safety profile of the drug and failed to adequately disclose instances of drug-induced liver injury ("DILI") observed in clinical trials prior to and during the class period. (Id. ¶¶ 58-65, 67, 69-77.) According to the amended complaint, these false and misleading statements caused Cempra's common stock to trade at artificially high prices, so that when the risks were revealed by the FDA at the end of the class period, Plaintiffs suffered losses from the subsequent stock price decline. (Id. ¶¶ 12, 96-102.)
A. Solithromycin's Clinical Development Program
Solithromycin belongs to a class of antibiotics known as macrolides that are frequently prescribed to treat respiratory tract infections. (Id. ¶ 34.) Due to the serious side effects associated with another class of antibiotics known as fluoroquinolones, macrolides are the preferred first-line treatment for CABP. (Id. ¶ 35.) Solithromycin is a fourth-generation fluoroketolide macrolide-class antibiotic, which was designed to address the growing problem of antibiotic resistance among the currently-approved class of macrolides approved to treat CABP. (Id. ¶ 5.) During the class period, analysts estimated that Cempra would earn up to $2 billion a year in sales if solithromycin were approved by the FDA. (Id. ¶ 36.)
The potential risk of DILI among this particular class of macrolides was well known to both the company and potential investors prior to the class period. In 2004, the FDA approved the drug telithromycin, known by the brand name Ketek, a third-generation macrolide and the first ketolide antibiotic. (Id. ¶ 37.) Shortly after its approval, Ketek was found to cause severe adverse effects in patients, including reversible visual disturbances, loss of consciousness, myasthenia gravis (a neurological disorder associated with improper muscle regulation), and severe liver injury that resulted in liver failure, liver transplant, and death. (Id. ) These safety issues led to two congressional investigations into the FDA's approval of the drug and accusations that the FDA stifled concerns over the drug raised by its own reviewers and ignored suspicious clinical data that were later determined to be fraudulent. (Id. ¶ 37.) Ultimately, the FDA revoked Ketek's approval for treatment for all indications other than CABP and required a "black box" warning label highlighting the risk of potential liver injury. (Id. )
Cempra recognized that the approval of solithromycin depended on the company's ability to differentiate the drug from Ketek. (Id. ¶¶ 38, 69.) As a fluoroketolide, solithromycin has a nearly identical chemical structure to Ketek, except it includes an aminophenyl group with a 1, 2, 3-triazole ring as opposed to the pyridine attached to an imidazole ring in Ketek. (Id. ¶ 38.) Cempra claimed that removing the pyridine moiety would prevent the drug from inhibiting the body's nicotinic acetylcholine receptors, which purportedly caused the severe adverse effects observed with Ketek. (Id. ¶ 38, 69.)
Prior to obtaining marketing approval, a developmental drug must undergo a series of pre-clinical and clinical trials to evaluate its safety and effectiveness for a particular treatment. (Id. ¶¶ 39-43.) Clinical trials are conducted in three distinct phases of clinical investigation in humans, identified as Phase 1, Phase 2, and Phase 3. (Id. ¶¶ 39-43); see 21 C.F.R. § 312.21. Each phase of clinical testing is designed to gather information on the safety and efficacy of the drug in human subjects. (Doc. 46 ¶ 43.) Phase 1 trials "are designed to determine the metabolism and pharmacologic actions of the drug in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness." (Id. ¶ 40 (quoting 21 C.F.R. § 312.21(a) ).) Phase 2 trials are exploratory studies designed to address efficacy and to determine common short-term side effects and risks. (Doc. 46 ¶ 41); 21 C.F.R. § 312.21(b). Phase 3 trials are expanded studies to address the efficacy and safety of the drug, which generally involve hundreds of, and sometimes several thousand, subjects. (Doc. 46 ¶ 43); 21 C.F.R. § 312.21(c). FDA rules and regulations require that a sponsor promptly report all drug-related serious adverse events ("SAEs"), including a single occurrence that is either uncommon or strongly associated with drug exposure, such as hepatic (i.e., liver) injury. (Doc. 46 ¶ 57 (citing 21 C.F.R. § 312.32(c)(1)(i)(A) ) ); 21 C.F.R. § 312.32(c)(1)(i) (requiring sponsor to file a report within fifteen days after a determination by the sponsor that the information qualifies for reporting as a "[s]erious and unexpected suspected adverse reaction").
Cempra's development of solithromycin for treatment of CABP involved a proposed short-term course of five to seven days, depending on the mode of administration. (Doc. 51-15 at 5, 62.) Prior to the class period, Cempra completed Phase 1 and Phase 2 trials for the oral and IV dosages of solithromycin to treat CABP, which Cempra represented demonstrated a promising safety and tolerability profile for those dosages to treat CABP. (Doc. 46 ¶ 44.) Cempra disclosed in its SEC filings that the FDA placed a partial clinical hold on a Phase 1 trial for oral solithromycin and later converted it to a full clinical hold, citing concerns that the drug may have similar toxicity issues as Ketek. (Id. ¶ 45.) Cempra was eventually allowed to proceed with the trial, which it successfully completed. (Id. ) The company assured investors that it had addressed the FDA's concerns but noted that the clinical hold indicated that the FDA may subject its NDAs to heightened scrutiny in light of the Ketek experience. (Id. )
The Phase 3 clinical trial of solithromycin taken orally for the treatment of CABP ("Solitaire-Oral trial") involved 860 subjects and was conducted between December 2012 and October 2014, while the Phase 3 clinical trial for IV treatment ("Solitaire-IV trial") involved 863 subjects and was conducted between November 2013 and September 2015. (Id. ¶ 50-51.) The Phase 3 CABP clinical trials evaluated the safety and efficacy of oral and IV solithromycin compared to moxifloxacin, a fluoroquinolone considered to be the most potent drug for CABP. (Id. ¶ 50.) Both trials had the primary objective and endpoint of demonstrating statistical non-inferiority compared to moxifloxacin, while the secondary objectives included demonstrating the safety and tolerability of the drug compared to moxifloxacin. (Id. )
Cempra reported that both of the trials met their primary and secondary objectives of demonstrating solithromycin's statistical non-inferiority as compared to moxifloxacin. (Id. ¶¶ 52, 54.) Cempra disclosed that it observed in some patients elevation of the liver enzyme alanine aminotransferase ("ALT") but stated that these elevations were generally asymptomatic and reversible. (Id. ¶¶ 52, 55.) Furthermore, the company reported that no patient in either trial met the criteria of "Hy's Law," a standard used by the FDA to predict the risk of severe DILI. (Id. ¶¶ 53, 55.) To meet Hy's Law, a patient must have an elevation of ALT or the liver enzyme aspartate aminotransferase ("AST") greater than three times the upper limit of normal ("ULN") in combination with impaired hepatic function (defined as an elevation of bilirubin (a liver byproduct) greater than two times ULN), without any evidence of an alternative cause of hepatic injury. (Id. ¶ 53; see Doc. 51-16 at 154-55 (describing Hy's Law criteria).) "A Hy's Law case predicts severe liver injury at a rate of at least 1/10 of the rate of Hy's Law cases," such that 1 case in 1,000 suggests severe injury at a rate of 1 in 10,000. (Doc. 46 ¶ 53.) However, a study of at least 3,000 patients is needed to accurately predict that no Hy's Law cases will result from a particular treatment. (Id. ¶ 53.) According to an FDA guidance document, the failure to detect a Hy's Law case does not imply that a drug with aminotransferase elevations is free from risk of severe DILI. (Id. )
In September 2015, Cempra initiated Phase 2 clinical trials to evaluate the effectiveness of solithromycin as a treatment for chronic obstructive pulmonary disease ("COPD") and non-alcoholic steatohepatitis ("NASH"). (Id. ¶ 48.) The company enrolled four patients in the Phase 2 COPD trial, where patients received a daily oral dose of 400 mg of solithromycin for twenty-eight days. (Id.; Doc. 51-11 at 15, 25, 29.) During the class period and shortly after the trial was initiated, three out of the four patients in the COPD group experienced "patterns of DILI," including ALT elevations in excess of four times ULN. (Doc. 46 ¶ 48; Doc. 51-11 at 15-17, 25-26.) After receiving twenty-three days of treatment, one patient was diagnosed with clinical cholestatic hepatitis with jaundice and was discontinued from treatment. (Doc. 46 ¶ 48; Doc. 51-11 at 15-17.) In that case, the patient's liver test results did not return to normal until twenty-nine days after being discontinued from treatment. (Doc. 51-11 at 16.) While the two other patients experienced asymptomatic ALT elevations (Id. at 25-26), one of these patients also continued to show signs of liver injury in the form of increasing ALT elevations even after treatment was discontinued. (Doc. 46 ¶ 48; Doc. 51-11 at 25-26.) In light of these developments, Cempra reduced the dosage in the ongoing Phase 2 NASH trial to an oral dose of 200 mg of solithromycin daily for seven days, followed by 200 mg oral doses three times a week for a total course of thirteen weeks of treatment. (Doc. 46 ¶ 49; Doc. 51-12 at 3.) Cempra reported this amendment in the NASH protocol at the website ClinicalTrials.gov and to investors during the company's September 30, 2016 conference call. (Doc. 46 ¶ 49.)
B. Material Misrepresentations and Omissions
During the class period, Defendants made public statements regarding the clinical results from the Phase 3 CABP trials as well as the overall safety profile of the drug. In their amended complaint, Plaintiffs challenge several of these statements, as set forth below, as material misrepresentations and omissions.
1. July 7, 2015 Press Release
On July 7, 2015, Cempra issued a press release announcing that it had completed enrollment for the Solitaire-IV Phase 3 trial. (Doc. 46 ¶ 58.) The press release contained a quote from Fernandes, which stated in relevant part: "We remain on track to announce the top line results before year-end 2015. We believe that these results, coupled with our successful Solitaire Oral results, which we announced in January, will provide a compelling clinical data set in our solithromycin NDA submission, expected in 2016." (Id. )
2. October 16, 2015 Press Release
On October 16, 2015, Cempra issued a press release announcing positive topline results from its Solitaire-IV trial. (Id. ¶ 54.) The company reported that the trial met the primary and secondary objectives of statistical non-inferiority compared to moxifloxacin. (Id. ) With regard to safety, Cempra disclosed that there were fatalities that occurred with similar frequency in both arms of the study due to pneumonia or its complications during the study period. (Id. ) The company noted that more treatment-related adverse events were observed with solithromycin (34.3%) than moxifloxacin (13.1%), but stated that this difference was largely attributable to infusion site reactions of mild and moderate severity. (Id. ) Cempra reported that 2.1% of IV solithromycin patients discontinued the drug due to adverse infusion-related events and noted that infusion site pain is a common side effect of intravenous macrolides but is not generally noted with fluoroquinolones such as moxifloxacin. (Id. ) Cempra also reported that SAEs occurred in 6.9% of solithromycin patients and 5.4% of moxifloxacin patients, but only three SAEs were considered drug-related. (Doc. 51-5 at 7; see Doc. 46 ¶ 55.) Only two of the three SAEs were associated with solithromycin; all were allergic reactions. (Doc. 51-5 at 7.) Cempra also noted that ALT elevations were observed in both treatment arms, reporting that Grade 3 ALT elevations (explained as ALT elevations of between 3 to 8 times ULN) were observed in 8.2% of solithromycin patients and 3.4% of moxifloxacin patients, and Grade 4 ALT elevations (explained as ALT elevations greater than 8 times ULN) were observed in 0.7% of solithromycin patients and 0.5% of moxifloxacin patients. (Id. ) Cempra reported that "[t]reatment emergent ALT elevations were generally asymptomatic, reversible, and not associated with increased bilirubin" and "[n]o solithromycin patient met Hy's Law criteria of concurrent ALT and bilirubin elevations post-baseline." (Doc. 46 ¶ 59 (emphasis omitted).)
3. October 16, 2015 Conference Call
On October 16, 2015, Cempra held a conference call to discuss the topline results from the Solitaire Oral-IV trial. (Id. ¶ 60.) In response to a question from an analyst regarding whether any symptomatic ALT elevations were observed during the course of the clinical trial, Oldach provided the following response:
We've gone through all of these cases and looked carefully at them. There were a few patients, for instance, that had infusion pain but no symptoms relatable to right upper quadrant or liver pain. But we want to be very careful about that. So before we say categorically absolutely none, we will be going back through their cases two more times before we declare that. But generally, no symptoms, no evidence of hepatic injury that was symptomatic or with bilirubin elevation. So that was just a cautionary statement on our part just so we could be absolutely certain. But our impression is none.
(Id. ) Fernandes further noted, "And remember, the [data management committee] has seen each of these, you know, any significant ALT elevation, during the study and did not do anything." (Id. (alteration in original).)
4. October 22, 2015 Earnings Call
On October 22, 2015, Cempra held its third quarter earnings call. (Id. ¶ 61.) During her opening remarks, Fernandes made the following statement:
As one would expect, in both Phase 3 trials, these we saw some Grade 3 ALT elevation, and to a much lesser extent some Grade 4 ALT elevations. In almost all cases of ALT elevations among solithromycin recipients, these elevations occurred early, peaked on day four - remember, it is day one through seven - and their levels were typically declining by day seven, despite continued study drug dosing. These ALT increases were asymptomatic and resolved post treatment.
No solithromycin recipient met Hy's Law criteria, defined as simultaneous ALT and bilirubin elevation - another liver factor - following dosing. There was no evidence of drug hypersensitivity reaction. For instance, one involving a combination of rash, fever, and ALT elevation, and other symptoms.
(Id. ¶ 61.) Fernandes made additional statements during the earnings call that ALT elevations were reversible. (Id. ¶ 62 ("Now with the IV, yes, we saw a few more ALT [treat]. But again, they are all reversible." (alteration in original) ); Id. ¶ 63 ("[M]ost of those ALTs came down during treatment. Many of them were down in two weeks. All of them were down in the three-week visit, the short-term follow-up visit. Okay. So there is no issue with that. So they all disappeared. That is why they are called reversible.").) David Moore, Cempra's executive vice president and chief commercial officer, also reiterated that "we have not seen hepatic dysfunction in any patient due to the study drug in our Phase 3 program." (Id. ¶ 62.)
When questioned by an analyst regarding the potential for liver toxicity, Fernandes responded as follows: "But let me again say: there is no liver toxicity. There is no hepatic toxicity. This was reversible ALT elevation and there has been no hepatic toxicity. So there is no evaluation of hepatic toxicity because we don't have any." (Id. ¶ 64.) She later emphasized that "[Ketek ] ALT and our ALT have nothing to do with hepatic toxicity." (Id. ¶ 65 (alteration in original).)
5. November 19, 2015 Jefferies Global Healthcare Conference
On November 19, 2015, Cempra participated in the Jefferies Global Healthcare Conference. (Id. ¶ 67.) Fernandes spoke at the conference and made the following statements regarding the Phase 3 CABP trials in her opening remarks:
Now when we announced some of the effects of the drug, we did mention liver enzyme increases. ALT increases. And you can see that with the intravenous, we had slightly more ALTs than in the oral, which is listed in the bottom, the Grade 3 and the Grade 4.
[...]
Now the most important things, none of them had any symptoms. They were all reversible, and there was no bilirubin increase in any of these patients. And that is a key point. If you are on this drug, if you don't measure ALTs, you won't even know because there's no symptoms at all, in these patients, and they are all reversible.
[...]
We recorded every single thing the patient said. If there was redness, if there was itching, if there was tingling, anything minor was recorded. And we are an honest company; we put out all the data.
(Id. )
6. January 7, 2016 Prospectus
On January 7, 2016, Cempra filed a prospectus with the Securities and Exchange Commission ("SEC") in connection with a stock offering. (Id. ¶ 69.) The prospectus stated in relevant part:
Through ongoing research, we have developed multiple ways to differentiate solithromycin from Ketek. Our research suggests these side effects may be caused by the pyridine moiety, which forms a part of the structure of Ketek. We have demonstrated that pyridine inhibits the action of nicotinic acid acetylcholine receptors that could result in the side effects caused by Ketek.
(Id. ) While the surrounding context of the prospectus is not referenced in Plaintiffs' amended complaint, this statement appeared in a section discussing several potential risks associated with the development and commercialization of solithromycin. (Doc. 51-7 at 21-24.) The challenged statement in the prospectus appeared within a section entitled: "We might not successfully differentiate solithromycin from telithromycin (Ketek ), a macrolide found to cause severe side effects." (Id. at 23.) Notably, the amended complaint omits the final two sentences of the paragraph, which states: "If our research is proven to be incorrect or if solithromycin demonstrates similar side effects, the FDA might not approve solithromycin, or if already approved, might withdraw approval, require us to conduct additional clinical trials or require warnings on product labeling, which would significantly harm our ability to generate revenues from solithromycin." (Id. at 24.) The prospectus goes on to caution that "[b]ecause of the Ketek experience, the macrolide class is likely to be carefully scrutinized by the FDA." (Id. )
In addition, the prospectus highlights several additional risks to investors. Acknowledging that the company had no products that had been approved for sale, the prospectus emphasized that "[o]ur near-term prospects are substantially dependent on our ability to develop and commercialize solithromycin ...." (Id. at 21.) The prospectus further noted "[w]e believe we have completed all the clinical trials necessary to support the NDA for solithromycin for CABP and have a sufficient database of both efficacy and safety. However, the FDA may disagree with our assessment and may require additional clinical data to support approval." (Id. at 22.) In addition, the prospectus also stated that "[t]he results of either of our ongoing studies of the effectiveness of solithromycin as a treatment for NASH and COPD or any other study or trial involving solithromycin, if negative, could have an adverse effect on FDA and other regulatory approval of solithromycin as a treatment for CABP as well our commercialization efforts for solithromycin and market acceptance of the same." (Id. at 24.)
7. January 14, 2016 J.P. Morgan Healthcare Conference
On January 14, 2016, Cempra participated in the J.P. Morgan Healthcare Conference. (Doc. 46 ¶ 70.) Defendant Fernandes spoke at the conference and made the following statements in her opening remarks with regard to the clinical results from the Phase 3 CABP trials:
We would also like to show you some of the ALT results. This is the liver enzyme results. Macrolides that are excreted by the liver and are known to cause liver enzyme increases. You see the label from azithromycin, which is over there, that you see ALT increases. This does not give you the idea that this is hepatic toxic [sic]. To have hepatic toxicity, you have to have bilirubin increases, which causes - which shows damage to the liver cells. So, ALT increases plus bilirubin equals what is called [Hy's Law] and that means liver toxicity. We did not have any case in those numbers which you see there, which had both ALTs as well as bilirubin, not one in those entire two studies.
So, we did not believe we had any side effects of liver toxicity in these particular patients.
I will also point out that they were asymptomatic, so there was nobody who would actually - know in real life during treatment that there was even any ALT increase. What is even more important is the gra[ph] at the very bottom. Even while on study drug, the ALT levels came down. So, if it was toxic, it would not come down, obviously it would stay up. So the liver learned to handle the drug, and then it came down. So we are very pleased with the safety of this as well as the efficacy.
(Id. (alterations in original).)
8. April 13, 2016 Needham Healthcare Conference
On April 13, 2016, Fernandes spoke at the Needham Healthcare conference. (Id. ¶ 71.) While noting that the drug would be subject to review by the FDA Advisory Committee due to the prior Ketek experience, she stated that "we have very clearly differentiated solithromycin from Ketek based on its mechanism of action and the reason for its adverse event." (Id. ) She further stated that "[w]e have also shown the benefit of our drug used in monotherapy up against moxifloxacin, which is not a very safe drug, and we have a very good fully safety [sic] package for that. The benefit is obvious, that it needs to have an outpatient as well as hospital drug." (Id. )
9. May 2, 2016 Earnings Call
During a May 2, 2016 earnings call, Fernandes made the following statement during a question-and-answer session with a securities analyst regarding potential "sources of controversy" before the FDA Advisory Committee:
So we have worked very hard, together with safety experts, people who have consulted in the past with other companies, with the FDA and so on, very aware of liver safety. We do believe that on the ketek issue, we are over that hurdle, because we have shown the mechanisms as to why ketek was toxic.
However, we do have ALT. So our job is to make a comparison to the older macrolides like [erythromycin ], [azithromycin ], clarithromycin. All of them do have ALT increases. We have that too. But you must remember that every one of them came down, some of them even - most of them even while on study drug. So we don't believe there is a big concern.
(Doc. 46. ¶ 72.)
10. September 12, 2016 Morgan Stanley Global Healthcare Conference
On September 12, 2016, Cempra participated in the Morgan Stanley Global Healthcare conference. (Id. ¶ 73.) During a question-and-answer session at the conference, Hahn made the following statement regarding the safety profile of solithromycin: "What we see is what you expect from a macrolide: you expect ALTs to go up in the early days, and come back down. Even in continued therapy, we saw ALT levels coming right back down." (Id. ¶ 73.)
In response to a question from an analyst about how solithromycin differs from Ketek, Hahn responded:
We've done a lot of work characterizing what caused those issues [with Ketek ]. And, mechanistically, we looked at the molecule and saw what we think the bad actor is, and we did a lot of work to identify what that bad actor caused. And it was visual disturbance; it was exacerbation of myasthenia gravis ; and it was liver toxicity.
All three were related to this same one bad actor called a pyridine. So if we look at solithromycin, we see that solithromycin doesn't have that bad actor on the molecule. It's a completely different structure. And in all of our trials - we have exposed over 2,000 patients and subjects over the years, and nobody has had any of those same types of issues that the folks had experienced with Ketek. So we expect the questions will come up in the [Advisory Committee meeting], but we don't - we think that we've adequately addressed those questions and we don't think there will be any issues.
(Id. ¶ 74.) When questioned during the same conference call regarding how the FDA Advisory Committee panel will view the ALT elevations observed during the clinical trials, Hahn responded:
We think they will ask questions about those, most certainly. But we've gone through exhaustive work internally. We've hired independent consultants and advisors. We've got an advisory, or a consulting firm that brought in panels of experts and have gone through the data. What we see is what you expect from a macrolide: you expect ALTs to go up in the early days, and come back down. Even on continued therapy, we saw the ALT levels coming right back down.
(Id. )
11. September 30, 2016 Conference Call
During a conference call on September 30, 2016, Cempra disclosed the interim results from the Phase 2 NASH trials. (Id. ¶¶ 49, 76.) With regard to the dosing change that occurred in the trial, Defendant Oldach stated:
When dosing solithromycin for longer durations, we've observed ALT elevation and since one of the goals of this trial [is] to determine the optimal regimen for longer treatment period, we adjusted the dose to 200 milligrams daily for one week, followed by 200 milligrams three times a week. The lower dose is supported by the mouse model and human PK data that suggest it might be efficacious. We hope to confirm this dosing regimen in the study and we are very excited with the therapeutic effects and safety profile we have seen thus far.
(Id. ¶ 76.) Cempra did disclose that one patient in the Phase 2 NASH study experienced asymptomatic ALT elevations of 4.5 times ULN after receiving an oral dose of 200 mg of solithromycin for twenty-eight days. (Doc. 51-12 at 4-5.) Cempra reported that this patient was briefly discontinued from the study, but he successfully completed the study and his ALT levels returned to normal upon receiving the reduced dosing of 200 mg of solithromycin three times per week. (Id. at 5.)
When questioned whether the dosage change was made after a patient in the NASH trial was temporarily discontinued from treatment due to ALT elevations, Fernandes responded:
No, we had already lowered the dose at that time. Because if you look at the modeling, the long-term dosage and our experience with it is saying that - that was more of a redundant study to show that one would be a long-term chronic dose and if you look at azithromycin, for instance with CF, in multiple doses for many weeks. It's dosed three times a week so it's not unusual for macrolides, which happen to linger intercellularly for long periods of time. That you should reduce the dose of chronic dosing.
(Doc. 46 ¶ 76.) When later questioned during the conference call regarding the amendment to the protocol, Fernandes stated that "[t]he driver [behind the decision to alter dosages] was efficacy as well as safety." (Doc. 51-12 at 9.) She also noted that "I will remind you that in our CABP trial, which we presented to you, we have seen ALT increases even during the five to seven days of treatment which comes back." (Doc. 46 ¶ 75.)
During the conference call, Fernandes made various statements touting the overall safety profile of the drug. With regard to the NASH trial, she stated:
[W]e also wanted to show that solithromycin, of course, we believe it, is incredibly safe, even in the liver and this is the last straw which breaks the camel's back, right? So we wanted to test it in the worst case situation and tested it and we are now very comfortable with the drug.
[...]
"[A]ll of the safety data - every human exposure is submitted as part of the law. We have submitted data until at the end of August and all data comes in, every part will be exposed. And we're very pleased with the safety of the drug. And it will provide a lot of benefits to patients in many categories now and so we're very pleased with it. We're proud to be able to submit this data.
(Id. ¶ 76.) At no point did Cempra directly reference the Phase 2 COPD trial or disclose any additional information regarding the adverse events observed during the Phase 2 COPD trial, apart from noting that ALT elevations had been observed when dosing solithromycin for longer durations. (Id. ¶¶ 49, 76; see Doc. 51-12 at 3.)
12. October 27, 2016 Earnings Conference Call
On October 27, 2016, Cempra conducted its third quarter 2016 earnings conference call. (Doc. 46 ¶ 77.) In response to a question from a securities analyst regarding potential concerns at the FDA arising from the prior Ketek experience, Fernandes made the following statement:
So, we started this molecule, Ketek happened, and from day one we had to differentiate it. So, we showed that the pyridine on [telithromycin ] was responsible for all those bad adverse events, including the hepatotoxicity.
And the visual effect was really the canary in the coalmine because they saw in all their clinical trials and the same receptor in the eye and the same receptor in the liver, which has caused those effects. And we now have to differentiate the ALT increases that have shown to occur with all macrolides and all antibiotics because of the large dose and show what that is a result of. That is not a Ketek effect. And so we have spent a lot of time doing that sort of work. And our clinical trial data really shows that this has had a great deal of efficacy and all of those ALTs were reversible and asymptomatic, as you remember.
(Id. ¶ 77 (alteration in original).)
C. Revelation of Negative Information Regarding Solithromycin
On November 2, 2016, the FDA Antimicrobial Drugs Advisory Committee released a briefing document ("FDA Briefing Document") in advance of its upcoming Advisory Committee meeting on November 4, 2016. (Id. ¶ 8.) FDA Advisory Committees provide independent and expert advice to the FDA on technical, scientific, and policy issues associated with various matters, including NDAs. (Id. ) The FDA Briefing Document provided an extensive analysis of the clinical data from solithromycin's development program. (Id. ) It noted, among other things, that "in general, transaminase elevations in the majority of patients appeared to be asymptomatic and generally transient." (Doc. 51-15 at 34.) It also acknowledged that "no patient in the phase 3 trials fulfilled Hy's Law criteria." (Id. ) But it cautioned:
With fewer than 1000 CABP patients exposed to solithromycin for 5-7 days, the ability to detect a Hy's Law signal was limited by both the number of patients and short duration of exposure.
(Id. ) Ultimately, the FDA Briefing Document provided the following assessment:
In the solithromycin development program to date, a range of patterns of liver injury associated with exposure to solithromycin were observed. There was a spectrum of both hepatocellular and cholestatic signatures of hepatotoxicity, in one case accompanied by eosinophilia and suggesting hypersensitivity as a mechanism for liver injury. These findings were noted among a relatively small number of patients treated with solithromycin for CABP (n=920), normal healthy volunteers exposed to the drug in PK studies, and a small number of patients administered solithromycin in studies of other conditions. We conclude that these findings comprise a genuine liver injury signal.
(Doc. 46 ¶ 8; Doc. 51-15 at 35.) The FDA Briefing Document further concluded that Cempra failed to adequately differentiate solithromycin from Ketek, noting:
Despite the differences in chemical structure, the hepatic adverse effects seen with solithromycin during its development program exceed the pre-marketing hepatic signal seen with [Ketek ]. Significant gaps in knowledge of the hepatic toxicity profile of solithromycin exist.
(Doc. 51-15 at 35 (emphasis omitted).)
Attached to the FDA's Briefing Document was a memorandum by FDA's Mark Avigan, M.D., an Associate Director for the Critical Path Initiatives and hepatologist for the FDA ("Avigan memorandum"). (Id. at 61.) The memorandum provided an in-depth analysis of the hepatic risk associated with solithromycin. In the memorandum, Avigan detailed what he identified as thirteen potential instances of "[s]olithromycin-induced liver injury," including eight patients who participated in the Phase 3 CABP trials and five patients who suffered liver injuries during Cempra's Phase 1 or Phase 2 clinical trials that either occurred during or before the class period. (Doc. 46 ¶ 83; Doc. 51-15 at 74-87.) In addition to describing the eight instances of "[s]olithromycin-induced liver injury" that occurred during the Phase 3 CABP clinical trials, the Avigan memorandum stated that a "substantially higher percentage" of patients experienced ALT elevations greater than three times the ULN compared with those patients who received moxifloxacin in the Phase 3 CABP trials, including one patient who experienced ALT levels in excess of 20 times ULN. (Doc. 51-15 at 88.)
As to Cempra's effort to distinguish solithromycin from Ketek, the Avigan memorandum stated that "the impact of the elimination of the terminal pyridine-imidazole in solithromycin on risk for hepatotoxicity remains hypothetical, since the direct in vivo effects of this structural change on liver injury have yet to be determined." (Id. at 65.) The Avigan memorandum further noted that "[t]he sponsor has put forth a so far unproven argument that despite their pharmacological and structural similarities as ketolides, solithromycin is marked by a substantially lower potential to cause severe hepatotoxicity than [Ketek ]." (Id. at 91.) The Avigan memorandum concluded:
The presence of one case of clinically significant cholestatic hepatitis with jaundice in the relatively small exposure population of the Solithromycin Development [COPD] Program that required early discontinuation of the study drug together with the robust ALT signal seen in the CABP trials leaves an open question concerning the actual "real world" population-level risk for serious DILI associated with solithromycin, even with short duration therapeutic use.
(Id. at 92 (emphasis added).) Following the publication of the FDA Briefing Document and Avigan memorandum, Cempra's common stock price dropped from $18.65 to $7.30 per share, a decline of 61% on higher-than-average trading volume. (Doc. 46 ¶ 84.)
On November 4, 2016, the FDA Advisory Committee held its hearing, and trading in Cempra's stock was halted for the day. (Id. ¶ 85.) The Advisory Committee panel voted unanimously to approve the efficacy of solithromycin, but it concluded, by a vote of 12-1, that Cempra had not adequately characterized the risk of hepatotoxicity and liver injury. (Id.; Doc. 51-16 at 311, 322.) Notwithstanding, a slight majority of the panel (7-6) voted that the efficacy of solithromycin for the treatment of CABP outweighed the risks, including hepatotoxicity. (Doc. 51-16 at 336.)
On Monday, November 7, 2016, Cempra's common stock price declined from $7.55 to $6.85 per share, a decline of 9.3% on higher than average trading. (Doc. 46 ¶ 86.) Cempra reported on December 12, 2016, that Fernandes had retired from her position effective immediately, but she would continue to be paid under contract as a consultant to the company for one year. (Id. ¶ 22.)
On December 29, 2016, Cempra announced that the FDA had issued a Complete Response Letter for solithromycin, recommending a 9,000 patient clinical trial to assess the hepatotoxicity profile of the drug prior to receiving approval. (Id. ¶ 88.) The FDA further indicated that even if the drug was approved, its label would need to disclose adequate information about hepatotoxicity risk. (Id. ¶ 11.) Cempra's stock price fell an additional 57%, declining from $6.10 to $2.60 per share on higher-than-average trading volume. (Id. ¶¶ 11, 88.)
D. Procedural History
Plaintiffs brought three securities class action lawsuits against Cempra. (Doc. 40 at 2.) After the court consolidated the cases under this first-filed action (Id. at 11-12), Plaintiffs filed an amended complaint alleging violations of Section 10(b) of the Exchange Act against all Defendants and violations of Section 20(a) of the Exchange Act against Defendants Fernandes, Hahn, and Oldach. (Doc. 46.) In their amended complaint, Plaintiffs allege Defendants made false and misleading statements regarding the safety profile of solithromycin and failed to adequately disclose instances of DILI observed in clinical trials prior to and during the class period. (Id. ¶¶ 58-65, 67, 69-77.)
Defendants move to dismiss the consolidated complaint, contending that Plaintiffs have failed to allege material false or misleading statements or allege sufficient facts to give rise to a strong inference of scienter under the PSLRA's heightened pleading standards. (Docs. 49, 50.) Plaintiffs move to strike seven exhibits in the appendix to the Defendants' motion. (Doc. 56.) On July 24, 2018, the court held a hearing on the pending motions.
II. ANALYSIS
A. Motion to Strike
Preliminary to the consideration of Defendants' motion to dismiss, Plaintiffs move to strike seven exhibits contained in the appendix that Defendants submitted in support of their motion to dismiss pursuant to Federal Rule of Civil Procedure 12(d). (Doc. 56.) As the court indicated by separate order (Doc. 65), while Plaintiffs frame their request as a motion to strike the challenged exhibits, the court has construed the motion as one to exclude the exhibits from consideration pursuant to Rule 12(d). Cf. Fed. R. Civ. P. 12(f) (permitting the court to "strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter"); Fed. R. Civ. P. 7(a) (defining "pleading").
The challenged exhibits are as follows:
(1) Cempra Form 8-K filed with the SEC on November 17, 2015 (Doc. 51-6);
(2) Carlos M Barrera et al., Efficacy and safety of oral solithromycin versus oral moxifloxacin for treatment of community-acquired bacterial pneumonia : a global, double-blind, multicentre, randomised, active-controlled, non-inferiority trial (SOLITAIRE-ORAL), 16 Lancet Infectious Diseases 421 (2016) (Doc. 51-9);
(3) Thomas M. File Jr. et al., SOLITAIRE-IV: A Randomized, Double-Blind, Multicenter Study Comparing the Efficacy and Safety of Intravenous-to-Oral Solithromycin to Intravenous-to-Oral Moxifloxacin for Treatment of Community-Acquired Bacterial Pneumonia, 63 Clinical Infectious Diseases 1007 (2016) (Doc. 51-13);
(4) Cempra's FDA briefing document, which was publicly filed on November 2, 2016, in advance of the FDA Advisory Committee meeting (Doc. 51-14);
(5) FDA Advisory Committee minutes from the meeting held on November 4, 2016 (Doc. 51-17);
(6) Form 4s for Oldach, which were filed with the SEC on three separate occasions during the class period (Doc. 51-18);
(7) Form 4s for Fernandes & Hahn, which were filed with the SEC on January 5, 2016. (Doc. 51-19.)
Even though matters outside the pleadings are generally not considered on a Rule 12(b)(6) motion, see Fed. R. Civ. P. 12(d) ; Am. Chiropractic Ass'n v. Trigon Healthcare, Inc., 367 F.3d 212, 234 (4th Cir. 2004), "the court can consider 'documents attached to the complaint, documents incorporated by reference in the complaint, or matters of judicial notice' without converting a motion to dismiss into one for summary judgment." Plymouth Cty. Ret. Ass'n v. Primo Water Corp., 966 F.Supp.2d 525, 536 (M.D.N.C. 2013) (quoting Sun Chem. Trading Corp. v. CBP Res., Inc., No. 1:01CV00425, 2004 WL 1777582, at *3 (M.D.N.C. July 29, 2004) ). "Courts may consider documents attached to a motion to dismiss 'so long as they are integral to the complaint and authentic.' " Id. (quoting Sec'y of State for Def. v. Trimble Navigation Ltd., 484 F.3d 700, 705 (4th Cir. 2007) ); Zak v. Chelsea Therapeutics Int'l, Ltd., 780 F.3d 597, 606-08 (4th Cir. 2015) ; Goines v. Valley Cmty. Servs. Bd., 822 F.3d 159, 165-67 (4th Cir. 2016). "[I]n a securities fraud case, the court may consider 'public documents quoted by, relied upon, incorporated by reference or otherwise integral to the complaint.' " Plymouth, 966 F.Supp.2d at 536-37 (quoting In re Royal Ahold N.V. Secs. & ERISA Litig., 351 F.Supp.2d 334, 349 (D. Md. 2004) ).
In addition to documents incorporated by reference or otherwise integral to the complaint, a court may consider facts and documents subject to judicial notice, provided that the court construe such facts in the light most favorable to the non-moving party. Zak, 780 F.3d at 607. Pursuant to Federal Rule of Evidence 201, a court may " 'judicially notice a fact that is not subject to reasonable dispute,' provided that the fact is 'generally known within the court's territorial jurisdiction' or 'can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.' " Id. (quoting Fed. R. Evid. 201(b) ). Within the context of securities fraud actions, courts routinely take judicial notice of publicly available documents that discuss the subject of the case, particularly in cases such as this where there are allegations of fraud on the market. Plymouth, 966 F.Supp.2d at 536-37 ; Johnson v. Pozen Inc., No. 1:07CV599, 2009 WL 426235, at *2 (M.D.N.C. Feb. 19, 2009) ("[I]n securities fraud cases courts routinely take judicial notice of newspaper articles, analysts reports, and press releases in order to assess what the market knew at particular points in time, even where the materials were not specifically referenced in the complaint.") (collecting cases), report and recommendation adopted, No. 1:07CV599, 2009 WL 10680297 (M.D.N.C. Sept. 29, 2009). Where the contents of documents subject to judicial notice are disputed, the court can consider the fact of their publication (if publication is not disputed), but not the truth or falsity of their contents. See United States v. Townsend, 886 F.3d 441, 444 (4th Cir. 2018) ("We may take judicial notice of facts outside the record where the fact may not be reasonably disputed and is 'relevant and critical to the matter on appeal.' " (citations omitted) ); Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 1000 (9th Cir. 2018) ("Judicial notice under Rule 201 permits a court to notice an adjudicative fact if it is 'not subject to reasonable dispute.' A fact is 'not subject to reasonable dispute' if it is 'generally known,' or 'can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.' ... But a court cannot take judicial notice of disputed facts contained in such public records." (quoting Fed. R. Evid. 201(b) ) ).
At the outset, the court notes that Plaintiffs do not challenge the remaining exhibits attached to Defendants' motion. (Docs. 51-1, 51-2, 51-3, 51-4, 51-5, 51-7, 51-8, 51-10, 51-11, 51-12, 51-15, 51-16.) Each of the unchallenged exhibits is expressly referenced or otherwise relied on in the amended complaint. Accordingly, the court finds that the consideration of such exhibits is appropriate in this instance, where neither party challenges their authenticity and their content is incorporated by reference or otherwise integral to the complaint. See Plymouth, 966 F.Supp.2d at 536-37.
The first challenged exhibit is a November 17, 2015 Form 8-K that Cempra filed with the SEC, which contains a PowerPoint Presentation that Cempra presented to investors in November of 2015 regarding its clinical development program. (Doc. 51-6.) Given that Plaintiffs do not dispute the accuracy of this public disclosure filed with the SEC, the court may take judicial notice of it. See Yates v. Mun. Mortg. & Equity, LLC, 744 F.3d 874, 881 (4th Cir. 2014) (taking judicial notice of the content of relevant SEC filings and other publicly available documents in the record).
The second and third challenged exhibits are articles that were published in peer-reviewed medical journals during the class period regarding the Phase 3 CABP clinical trials. (Doc. 51-9; Doc. 51-13.) The articles contain detailed information regarding the clinical results of the Phase 3 CABP trials. For similar reasons, the court finds that it may take judicial notice of the fact of their publication during the class period. Plymouth, 966 F.Supp.2d at 537 ("Courts may take judicial notice of newspaper articles (particularly in cases such as this that allege fraud on the market) when they specifically discuss the subject of the case."); Garber v. Legg Mason, Inc., 537 F.Supp.2d 597, 612 n.4 (S.D.N.Y. 2008) (taking judicial notice of several newspaper articles reflecting market knowledge of information that had allegedly been withheld), aff'd, 347 F. App'x 665 (2d Cir. 2009).
The fourth challenged exhibit is Cempra's FDA briefing document, titled "Briefing Document for the Antimicrobial Drugs Advisory Committee," which was published on the FDA's website along with the FDA's briefing document on November 2, 2016, in advance of the FDA Advisory Committee meeting. (Doc. 51-14.) In the amended complaint, Plaintiffs represent that the allegations contained in the complaint are based upon their personal knowledge and the independent investigation of their attorneys, which included a review and analysis of the FDA "Antimicrobial Drugs Advisory Committee meeting materials." (Doc. 46 ¶ 2.) The amended complaint explicitly references the publication of Cempra's FDA briefing document along with the FDA's own briefing document on the FDA's website (Doc. 46 ¶ 81), and alleges that Plaintiffs suffered losses after Cempra's common stock price purportedly declined "[a]s a result of the November 2, 2016 disclosures," which included Cempra's disclosure that safety data showed "a significant signal for liver toxicity and liver injury." (Id. ¶¶ 81, 84, 98, 101.) The consideration of Cempra's FDA briefing document is highly relevant to the question of scienter, where Plaintiffs' amended complaint is premised on the purported dissonance between Cempra's public representations regarding the safety profile of solithromycin and the information ultimately disclosed in the FDA Briefing Document. See In re AstraZeneca Sec. Litig., 559 F.Supp.2d 453, 470-71 (S.D.N.Y. 2008) (comparing the briefing documents submitted by pharmaceutical company and the FDA in advance of FDA Advisory Committee meeting for purposes of determining whether plaintiffs adequately alleged scienter with respect to claims that defendants misrepresented the safety risks associated with a developmental drug), aff'd sub nom. State Univs. Ret. Sys. of Ill. v. Astrazeneca PLC, 334 F. App'x 404 (2d Cir. 2009). Accordingly, the court will consider Cempra's FDA briefing document, as it is incorporated by reference or otherwise integral to the complaint. See Plymouth, 966 F.Supp.2d at 536-37 ; In re AstraZeneca Sec. Litig., 559 F.Supp.2d at 470-71.
With regard to the remaining three challenged exhibits, the court concludes that it need not rely on them to resolve Defendants' motion, particularly given the comprehensive nature of the other materials that the court has determined it may consider. Thus, the court will not consider those documents. Plymouth, 966 F.Supp.2d at 537 (declining to consider challenged exhibits where unnecessary to the court's resolution of the pending motion).
B. Motion to Dismiss
Defendants move to dismiss the amended complaint for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6). (Doc. 49.)
1. Standard of Review
Under Federal Rule of Civil Procedure 8(a)(2), a complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." The purpose of a motion under Rule 12(b)(6) is to "test[ ] the sufficiency of a complaint" and not to "resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses." Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992). In considering a Rule 12(b)(6) motion, a court "must accept as true all of the factual allegations contained in the complaint," Erickson v. Pardus, 551 U.S. 89, 94, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007) (per curiam), and all reasonable inferences must be drawn in the plaintiff's favor, Ibarra v. United States, 120 F.3d 472, 474 (4th Cir. 1997). To be facially plausible, a claim must "plead[ ] factual content that allows the court to draw the reasonable inference that the defendant is liable" and must demonstrate "more than a sheer possibility that a defendant has acted unlawfully." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ).
While these standards govern the consideration of a Rule 12(b)(6) motion generally, claims of securities fraud are subject to "strict pleading standards" under Federal Rule of Civil Procedure 9(b) and the PSLRA. Singer v. Reali, 883 F.3d 425, 439 (4th Cir. 2018). In addition to the requirement that "a party must state with particularity the circumstances constituting fraud" under Rule 9(b), the PSLRA "imposes additional pleading requirements to prevent Securities Exchange Act claims from being 'employed abusively to impose substantial costs on companies and individuals whose conduct conforms to the law.' " Id. at 439 (quoting Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 313, 127 S.Ct. 2499, 168 L.Ed.2d 179, (2007) ). In particular, the PSLRA establishes heightened pleading standards with respect to allegations of falsity and scienter. Zak, 780 F.3d at 606. If a plaintiff alleges that a defendant made false or misleading statements, the PSLRA requires that the plaintiff "specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief ... state with particularity all facts on which that belief is formed." 15 U.S.C. § 78u-4(b)(1). In addition, the complaint must "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." 15 U.S.C. § 78u-4(b)(2). "If those exacting pleading requirements are not satisfied, the complaint must be dismissed." Singer, 883 F.3d at 439 (citing Cozzarelli v. Inspire Pharm. Inc., 549 F.3d 618, 623 (4th Cir. 2008) ).
2. Section 10(b) Claims
In their amended complaint, Plaintiffs allege that Defendants made false and misleading statements about the safety profile of solithromycin and risk of liver injury by failing to adequately disclose instances of DILI that were ultimately revealed in the various FDA briefing materials. (Doc. 46 ¶¶ 58-83,112.) Plaintiffs identify challenged statements that generally fall into the following categories: (1) allegedly false and misleading statements regarding solithromycin's overall safety profile in the Phase 3 CABP clinical trials; (2) allegedly misleading statements concerning the differentiation of solithromycin from Ketek ; and (3) allegedly misleading statements regarding solithromycin's safety profile in the Phase 2 NASH study. (Doc. 46 ¶¶ 7, 79-80.) Defendants contend that the complaint fails to allege falsity or establish a strong inference of scienter as required under the PSLRA's heightened pleading standards. (Doc. 50 at 17-18, 33.) Defendants further claim that four of the challenged statements are non-actionable statements of opinion. (Id. at 31-33.)
Pursuant to Section 10(b) of the Exchange Act and Rule 10b-5, it is unlawful for a company to make a false or misleading statement or omission in connection with the sale of a security. 17 C.F.R. § 240.10b-5(b) ; see 15 U.S.C. § 78j(b). A plaintiff bringing a claim under Section 10(b) must establish: "(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation." Singer, 883 F.3d at 438 (quoting Stoneridge Inv. Partners, LLC v. Sci.-Atlanta, Inc., 552 U.S. 148, 157, 128 S.Ct. 761, 169 L.Ed.2d 627 (2008) ). As noted above, claims of securities fraud are subject to heightened pleading standards with respect to falsity and scienter under Federal Rule of Civil Procedure 9(b) and the PSLRA. Id.; Zak, 780 F.3d at 606.
To establish an actionable false or misleading statement or omission, "the challenged statement or omission must be factual i.e., one that is demonstrable as being true or false; it must be false, or the omission must render public statements misleading; and any statement or omission of fact must be material." Lerner v. Nw. Biotherapeutics, 273 F.Supp.3d 573, 586 (D. Md. 2017) (internal quotation marks omitted); Longman v. Food Lion, Inc., 197 F.3d 675, 682 (4th Cir. 1999). "A statement or omission is material if there is a substantial likelihood that a reasonable purchaser or seller of a security (1) would consider the fact important in deciding whether to buy or sell the security or (2) would have viewed the total mix of information made available to be significantly altered by disclosure of the fact." Lerner, 273 F.Supp.3d at 586 (internal quotation marks omitted); In re PEC Sols., Inc. Sec. Litig., 418 F.3d 379, 387 (4th Cir. 2005). "While opinion or puffery will often not be actionable, in particular contexts when it is both factual and material, it may be actionable." Lerner, 273 F.Supp.3d at 586 (quoting Longman, 197 F.3d at 683 ).
Even though "section 10(b) and SEC Rule 10b-5 'do not create an affirmative duty to disclose any and all material information,' " the "disclosure of material information is required 'when necessary to make statements made, in the light of the circumstances under which they were made, not misleading.' " Singer, 883 F.3d at 440 (quoting Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 44, 131 S.Ct. 1309, 179 L.Ed.2d 398 (2011) ). Courts have recognized that "where the duty to disclose arises from a need to avoid false or misleading statements 'the inquiries as to duty and materiality coalesce.' " In re Sanofi-Aventis Sec. Litig., 774 F.Supp.2d 549, 564 (S.D.N.Y. 2011) (quoting In re Time Warner Inc. Sec. Litig., 9 F.3d 259, 267 (2d Cir. 1993) ). The court must consider whether the statements or omissions, when read as a whole, would have misled a reasonable investor. Lerner, 273 F.Supp.3d at 587 (citation omitted).
"To demonstrate scienter, a plaintiff must show that the defendant acted with 'a mental state embracing intent to deceive, manipulate, or defraud.' " Zak, 780 F.3d at 606 (quoting Tellabs, 551 U.S. at 319, 127 S.Ct. 2499 ). The Fourth Circuit has emphasized that "raising a 'strong inference' of scienter is no small burden." Cozzarelli, 549 F.3d at 624 (citing Tellabs, 551 U.S. at 321, 127 S.Ct. 2499 ). " '[R]eckless conduct sufficient to establish a strong inference of scienter' must be 'severe,' or 'so highly unreasonable and such an extreme departure from the standard of ordinary care as to present a danger of misleading the plaintiff to the extent that the danger was either known to the defendant or so obvious that the defendant must have been aware of it.' " Lerner, 273 F.Supp.3d at 594 (first quoting Ottmann v. Hanger Orthopedic Grp., Inc., 353 F.3d 338, 344 (4th Cir.