Khoja v. Orexigen Therapeutics, Inc.
| Decision Date | 13 August 2018 |
| Docket Number | No. 16-56069,16-56069 |
| Parties | Karim KHOJA, on behalf of himself and all others similarly situated, Plaintiff-Appellant, v. OREXIGEN THERAPEUTICS, INC.; Joseph P. Hagan; Michael A. Narachi; Preston Klassen, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Ramzi Abadou (argued), Khan Swick & Foti, San Francisco, California; Lewis Khan, Alexander Burns, and Scott St. John, Khan Swick & Foti LLC, Madisonville, Louisiana; for Plaintiff-Appellant.
Jessica Valenzuela Santamaria (argued) and John C. Dwyer, Cooley LLP, Palo Alto, California; Mary Kathryn Kelley and Dane R. Voris, Cooley LLP, San Diego, California; for Defendants-Appellees.
Before: A. Wallace Tashima, and Marsha S. Berzon, Circuit Judges, and Robert E. Payne,* District Judge
This is an appeal from the dismissal by the district court of an action under the Securities Exchange Act of 1934, 15 U.S.C. §§ 78a et seq. We must decide whether the district court erred in dismissing the action. We conclude that it did, in part. We also conclude that, in dismissing the action, the district court abused its discretion by improperly considering materials outside the Complaint. We also address and clarify when and how the district court should consider materials extraneous to the pleadings at the motion to dismiss stage via judicial notice and the incorporation-by-reference doctrine.
Appellee Orexigen Therapeutics, Inc. ("Orexigen") is a small biotechnology firm that develops obesity
drugs.1 At all relevant times, Orexigen employed Michael Narachi (CEO and Director), Joseph Hagan (Chief Business Officer, Treasurer, and CFO), and Preston Klassen (Head of Global Development) (collectively, the "Executive Defendants").2
Contrave is Orexigen's primary drug candidate. It was developed to treat obesity
in patients. Obese patients are at risk for major adverse cardiovascular events ("MACE"). To develop Contrave, Orexigen partnered with Takeda Pharmaceutical Co. Ltd. ("Takeda").
The Food and Drug Administration ("FDA") required Orexigen to conduct a trial of Contrave, called the "Light Study." Because obese persons are already at risk for MACE, the Light Study would assess if Contrave increased that risk. Once 25 percent of a pre-determined amount of MACE occurred, an "interim analysis" would assess if patients on Contrave were more likely to suffer MACE than those on a placebo ("25 percent interim results"). As required by the FDA, an Executive Steering Committee ("ESC"), separate from Orexigen, oversaw the Light Study. Dr. Steven Nissen, from the Cleveland Clinic, headed the ESC. A Data Monitoring Committee ("DMC") was also created to monitor the trial and report its results.
FDA guidelines require that trial results remain confidential. Orexigen entered into a data access plan ("DAP") with the ESC and the DMC. Orexigen agreed that when it received the 25 percent interim results, only "those individuals at [Orexigen] who needed to facilitate its regulatory filings with the FDA" would have access to them.
Orexigen initiated the Light Study in June 2012.
In November 2013, subject to the DAP, the DMC shared the 25 percent interim results with Orexigen. The results were unexpectedly positive. Rather than increase the risk of MACE, "Contrave reduced cardiovascular events by 41 [percent] compared with a placebo."
The Light Study administrators requested that Orexigen produce a list of individuals who knew of the 25 percent interim results. Orexigen revealed that over 100 people with a financial interest in the Light Study knew of the 25 percent interim results.
As a sanction for Orexigen's apparent leak, the FDA required that four Orexigen executives, including Klassen, sign an agreement forbidding Orexigen from disclosing the 25 percent interim results again. Another DAP further limited which Orexigen employees had access to interim results. Although the Light Study would continue, the FDA also required that Orexigen perform an entirely new trial to study Contrave's cardiovascular effects.
During a June 4, 2014, meeting about the leak, the FDA reminded Narachi and Klassen that the leaked results—representing only 25 percent of the pre-determined amount of MACE required for the study—have "a high degree of uncertainty and were likely to change with the accumulation of additional data."
Less than a month later, on July 2, 2014, Klassen submitted a provisional patent application ("2014 Patent Application") for Contrave to the United States Patent and Trademark Office ("USPTO"). The 2014 Patent Application contained the 25 percent interim results. Orexigen filed the 2014 Patent Application pursuant to 35 U.S.C. § 122, which renders patent applications confidential.
In December 2014, the European Medicines Agency ("EMA") informed Orexigen that, in March 2015, the EMA would review a draft decision to grant marketing authorization for Contrave in Europe.3 Orexigen then requested that the USPTO publish the 2014 Patent Application, thus rescinding its earlier request to keep it confidential. On February 11, 2015, the USPTO informed Orexigen that it would publish the 2014 Patent Application—which contained the confidential interim results—on March 3, 2015.
When the USPTO published the 2014 Patent Application, Orexigen filed a Form 8-K ("March 2015 Form 8-K") with the Securities and Exchange Commission ("SEC"). That filing described the 2014 Patent Application, including the Light Study and the 25 percent interim results.
Securities Analysts responded immediately and positively to the revelations about Contrave. One called the 25 percent interim results the "holy grail" for cardiometabolic disease treatment.
Orexigen's stocks surged. The day before the 25 percent interim results were revealed, Orexigen's stock closed at $5.79 per share. After the revelation, the stock peaked at $9.37 per share, and closed at $7.64 per share on an unusually high trading volume. Soon after, on March 13, 2015, and pursuant to Orexigen's Incentive Award Plan, Narachi and Klassen registered six million Orexigen shares.
It was not all good news, though. A March 3, 2015, Forbes article reported that a senior FDA official stated that the FDA was "very disappointed by Orexigen's actions."4 The FDA official further warned that the 25 percent interim results should not be misinterpreted. On March 5, 2015, another Forbes article quoted an FDA official "condemning Orexigen's SEC filing as ‘unreliable,’ ‘misleading,’ and ‘likely false.’ " Two days later, shares of Orexigen's common stock slid almost six percent to close at $8.01 and, the following day, slid 16 percent to as low as $6.76 in intraday trading.
Weeks later, on March 26, 2015, the ESC informed Orexigen that, as the Light Study reached 50 percent completion ("50 percent interim results"), the Light Study no longer indicated a heart benefit from Contrave, contrary to what the earlier 25 percent interim results suggested. Also, because Orexigen again disclosed the 25 percent interim results in the March 2015 Form 8-K, the ESC voted unanimously to halt the Light Study.
Dr. Nissen, the Chair of the ESC, worked with Takeda to draft a press release disclosing the new Light Study data and the termination of the Light Study. Takeda approved the press release, but Orexigen did not.
On May 8, 2015, Orexigen filed two forms with the SEC: a press release on a Form 8-K ("May 2015 Form 8-K"), and its Quarterly Report on Form 10-Q ("May 2015 Form 10-Q").
The May 2015 Form 8-K described the Light Study, stating, in part, "[t]he clinical trial program also includes a ... trial known as the Light Study." The May 2015 Form 10-Q stated that "additional analysis of the interim results or new data from the continuing Light Study ... may produce negative or inconclusive results, or may be inconsistent with the conclusion that the interim analysis was successful."
That same day, Orexigen hosted a conference call with investors and analysts. An analyst asked Klassen said that the "Light Study is continuing and we are continuing to engage both Orexigen and Takeda with the FDA and with ESC and DMC regarding ultimately the status of the study, but it's an ongoing entity as of right now."
Regarding the 50 percent interim results, an analyst asked "I assume you're not going to be releasing that; are you going to be sending it to the FDA?" Klassen responded:
[W]e're in ongoing discussions related to that and I don't think we're going to go into the details, because again that's a look that [the] DMC does. As a plan, they look at the 25% to 50% and 75%, but it's really on the 25% analysis that was used for regulatory purposes. So if any of that status changes, then we would of course announce that.
Narachi said, in part:
So, if the decision is made to terminate the trial early and focus resources on the next [trial], which is what we have been advocating, then I think results would come out sooner ... if you decide to stop the study now there will be additional events, so these details are being discussed and worked out and as we make formal decisions there, you'll learn more about the availability of data from the study.
(Emphasis in Comp.)
Again referencing the Light Study, an analyst asked "if you could provide an estimate of the time or the strategy for disclosure around the fate of the Light Study—is that something that you need to disclose ...?" Narachi said:
I think that that would be something we disclose . As [Klassen] said, there are active discussions between...
To continue reading
Request your trial
-
R.J. Reynolds Tobacco Co. v. Cnty. of San Diego
...or incorporated by reference therein, and any documents properly subject to judicial notice. See, e.g. , Khoja v. Orexigen Therapeutics, Inc. , 899 F.3d 988, 999 (9th Cir. 2018) (judicial notice and incorporation by reference); Vasquez v. Los Angeles Cnty. , 487 F.3d 1246, 1249 (9th Cir. 20......
-
Neighborhood Mkt. Ass'n, Inc. v. Cnty. of San Diego
...or incorporated by reference therein, and any documents properly subject to judicial notice. See, e.g. , Khoja v. Orexigen Therapeutics, Inc. , 899 F.3d 988, 999 (9th Cir. 2018) (judicial notice and incorporation by reference); Vasquez v. Los Angeles Cnty. , 487 F.3d 1246, 1249 (9th Cir. 20......
-
GEO Grp., Inc. v. Newsom
...or incorporated by reference therein, and any documents properly subject to judicial notice. See, e.g. , Khoja v. Orexigen Therapeutics, Inc. , 899 F.3d 988, 999 (9th Cir. 2018) (judicial notice and incorporation by reference); Harris v. Cty. of Orange , 682 F.3d 1126, 1132 (9th Cir. 2012) ......
-
Stewart v. Kodiak Cakes, LLC
...consider the exhibits under the separate doctrines of judicial notice and incorporation-by-reference. See Khoja v. Orexigen Therapeutics, Inc. , 899 F.3d 988, 998 (9th Cir. 2018) ("Both of these procedures permit district courts to consider materials outside a complaint, but each does so fo......