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In re Regulus Therapeutics Inc. Securities Litigation

United States District Court, S.D. California

September 5, 2019



          Barry Ted Moskowitz, Judge

         This is a putative securities class action filed on behalf of all purchasers of common shares of Regulus Therapeutics, Inc. (“Regulus”) between February 17, 2016 and June 12, 2017, inclusive (the “Class Period”). Plaintiffs allege that Defendants Regulus, Joseph P. Hagan, Paul C. Grint, M.D., and Michael Huang, M.D.[1] made misleading statements regarding a pharmaceutical product being developed by Regulus that artificially inflated its common stock prices during the Class Period. Based thereon, Plaintiffs assert claims for violation of Section 10(b) of the Securities Exchange Act, 15 U.S.C. § 78j(b), Rule 10b-5, 17 C.F.R. § 240.10b-5, and Section 20(a) of the Securities Exchange Act, 15 U.S.C. § 78t(a). (ECF No. 19.) Defendants move to dismiss Plaintiffs' Consolidated Complaint under Federal Rule of Civil Procedure 12(b)(6). (ECF No. 22.)

         I. BACKGROUND

         Regulus is a biopharmaceutical company that was developing a drug (“RG-101”) to treat the hepatitis C virus (“HCV”). (ECF No. 19, ¶¶ 2, 27-28.) As part of the process of seeking approval from the United States Food and Drug Administration (“FDA”) to market and sell RG-101 to the public, Regulus was required to submit an investigational new drug application (“IND”) to obtain approval to test RG-101 on human subjects (i.e., to engage in “clinical” studies). See 21 C.F.R. §§ 312.20, 312.40. Generally, an IND must contain, inter alia, “[a] summary of the pharmacological and toxicological effects of the drug in animals, and to the extent known, in humans.”[2] 21 C.F.R. § 312.23(a)(5)(ii).

         In late 2015 and early 2016, Regulus initiated its first clinical trials. (ECF No. 19, ¶¶ 3-4.) On February 17, 2016, Regulus issued a press release in which it announced interim results from one of the clinical trials. (Id. ¶ 56.) Notably, the press release included a statement that “[t]o date, RG-101 has been generally well tolerated with the majority of adverse events considered mild or moderate, and with no study discontinuations.”[3] (Id. ¶¶ 56-57; see also id. ¶ 64.) In a conference call discussing the interim results held that same day, however, Defendants disclosed two serious adverse events (each, an “SAE”) experienced during the study and that an independent investigator had determined that one of the SAEs was “possibly” related to RG-101.[4] (Id. ¶¶ 58, 61; ECF No. 22-4, at 7, 11.) Nevertheless, Defendant Huang downplayed the importance of these SAEs during the call, noting that they “occurred several weeks after dosing” and in a patient population suffering from “chronic hepatitis C [and] other medical issues.” Defendant Grint did the same, stating that the SAEs were “not concerning” to Defendants because the test subjects had HCV and thus “[t]here's multiple other comorbidities as you follow a set of patients like this over a prolonged period of time, [such that] you are going to get serious adverse events reported by definition.” (ECF No. 19, ¶ 61; ECF No. 22-4, at 11, 14.) Defendant Grint repeated similar messaging in an earnings call held on February 22, 2016. (ECF No. 19, ¶ 67 (“[W]e're certainly not worried about the safety profile of RG-101 or in fact the reports SAEs. . . . Just to remind you, these are patients that have chronic hepatitis C, they have multiple other co-morbid conditions, and we're following them for very prolonged periods of time, and we'd expect to see other things reported over a follow-up period.”).)

         On April 15, 2016, Regulus hosted a conference call to present additional interim results from the clinical trials, including further discussion of the two SAEs identified during the February 16 conference call. (Id. ¶ 77; see also ECF No. 22-5 (April 15, 2016 conference call edited transcript).) During that call, Defendant Grint stated that while ”[i]nvestigators . . . determined that” the first SAE, a “transient episode of dyspnea, ”[5] was “not related to” RG-101, further investigation was ongoing to determine the cause of the second SAE, “an event of jaundice.”[6](ECF No. 19, ¶ 77-78; see also Doc. 22-6, at 16 (Regulus slide presentation accompanying conference call stated “Jaundice (Daklinza arm) - Possibly related to Study Drug[.] 56-year old male presented with jaundice, fatigue, abdominal pain, and nausea 21 days after completion of therapy. Clinical chemistry showed significantly elevated total and direct bilirubin with minimal changes in transaminases. Ultrasound indicated potential sludge/debris in biliary tract and gallbladder wall thickening. Additional medical history included diabetes (not well-controlled) and alcohol use. Work-up ongoing to determine etiology. Patient currently recovering and remains active in study with favorable virologic response.”).) Nevertheless, Defendant Hagan stated during the call that “treatment with RG-101 has shown an encouraging and consistent safety profile in clinical studies to date.” (ECF No. 19, ¶ 77.)

         On June 27, 2016, Regulus issued a press release announcing that the FDA had verbally issued a “clinical hold” on RG-101 after Regulus reported a second jaundice SAE in another clinical trial.[7] (Id. ¶ 91.) In a conference call held that same day, Defendant Grint again downplayed the importance of the SAEs, stating that both patients had comorbidities and attendant treatment that could potentially explain their jaundice. (Id. ¶¶ 95-96; ECF No. 22-7, at 4, 8 (“In addition to chronic hepatitis C, the [first jaundice SAE] patient had poorly controlled diabetes, requiring insulin therapy, and a history of alcohol abuse. . . . This second serious adverse event of jaundice occurred 117 days after receiving a single dose of RG-101 in our Phase 1 U.S. IND study in an HCV patient who also had end-stage renal disease requiring dialysis. In addition to his renal insufficiency and HCV infection, this patient also had poorly controlled type II diabetes requiring insulin therapy, coronary artery disease with prior open-heart surgery, high cholesterol, high blood pressure, and recent herpes zoster infection requiring the oral antiviral, Acyclovir. The patient is on over a dozen concomitant medications, including blood pressure medications, statin therapy, and insulin. . . . [W]e only have two cases, but if one looks for common themes both these patients had long-standing type II diabetes. They were both poorly-controlled diabetics, on insulin, with a number of other underlying medical conditions.”).) In response to an analyst's inquiry whether the FDA would require Regulus to identify the cause of the jaundice SAEs prior to the FDA lifting the clinical hold, Defendant Grint stated that, despite having an “extensive nonclinical program on RG-101, including dosing in nonhuman primates, ” they had not observed “any hint of bilirubin elevation” in any of the nonclinical studies, the results of which were included in the original IND submission that led to the initiation of the clinical studies. In response to the analyst's follow-up inquiry whether any of the preclinical studies “uncovered anything of bilirubin or liver toxicity source, ” Defendant Grint stated “no[, ] Bilirubin is not something that we've seen. . . . we haven't seen any bilirubin increases in our chronic tox studies.” (ECF No. 19, ¶ 96; ECF No. 22-7, at 9-10.) Regulus's common stock share price declined from $5.01 on June 27, 2016 to $2.54 on June 28, 2016. (ECF No, 19, ¶ 93.)

         On July 27, 2016, Regulus issued a press release announcing that it had “received written communication from the [FDA] outlining information required to resolve the clinical hold[, ]” including, inter alia, “detailed safety data analysis from preclinical and clinical studies; exploration of potential mechanisms for hepatoxicity in non-clinical models; [and] review and input from independent hepatoxicity experts[.]” (ECF No. 19, ¶ 100.) Regulus's common stock share price declined from $4.10 on July 27, 2016 to $3.57 on July 28, 2016. (Id. ¶ 102.)

         On August 2, 2016, Regulus held an earnings call to discuss its 2016 second quarter results. (Id. ¶ 103; ECF No. 22-8 (August 2, 2016 earnings call edited transcript).) During that call, Defendant Grint addressed the FDA's request for documentation, stating that “[m]uch of what is being asked of us is information we have or can obtain over the next couple of months.” In response to analysts' follow- up questions regarding how many additional studies would be needed to satisfy the FDA, Defendant Grint stated that Regulus had already “conducted a significant formal toxicology program” with regards to RG-101, that Defendants had “not seen increases in bilirubin in a number of different animal species or studies that [they had] conducted[, ]” that there were “a limited set of [additional] studies [they were] contemplating, ” and that, while “there [was] no obvious mechanism that would associate” RG-101 with the increases in bilirubin that caused the jaundice SAEs, they “ha[d] some ideas . . . [they would] continue to pursue.” (ECF No. 19, ¶ 103; ECF No. 22-8, at 4, 6-9.)

         On December 6, 2016, Regulus held another conference call wherein it discussed RG-101's progress with corporate analysts. (ECF No. 19, ¶ 115; ECF No. 22-10 (December 6, 2016 conference call edited transcript).) During that call, Grint outlined efforts taken by Regulus in response to the FDA's request for information and stated that “[w]e've undertaken a lot of additional work that we believe that we have a good idea of how [RG-]101 maybe [sic] associated with some of the impacts we see in patients and we believe that we have a good part forward and that's basically what we're going to be submitting to the FDA.” Asked to elaborate on “how [RG-]101 maybe [sic] associated with some of the side effects, ” Grint stated that while Regulus had “done a lot of pre-clinical work” and had not “seen any changes in bilirubin” therein, continued investigation had revealed some “interesting biology” that would be included in Regulus's response to the FDA. (ECF No. 19, ¶ 115; ECF No. 22-10, at 31, 33.)

         On January 27, 2017, Regulus issued a press release announcing that, despite having submitted a “complete response to the FDA's initial request for information, which included identification of a potential mechanism of hyperbilirubinemia . . . [and] a proposal to mitigate this risk[, ]” the FDA had decided to maintain its clinical hold on RG-101 until it received “a final preclinical study safety report”, final results from certain clinical trials, and additional expert feedback and that Regulus anticipated providing its complete response to the FDA in the “fourth quarter of 2017.” (ECF No. 19, ¶ 118; ECF No. 22-11 (press release).) Regulus's common stock share price declined from $2.25 on January 27, 2017 to $1.30 on January 30, 2017. (ECF No, 19, ¶ 120.)

         On March 2, 2017, Regulus issued a press release and held a conference call in which it announced that four additional SAEs involving elevated bilirubin (but not necessarily jaundice) had been reported in the RG-101 clinical trials.[8] (ECF No. 19, ¶¶ 121, 123.) On May 4, 2017, Regulus issued a press release that announced the resignation of Grint as well as the severance compensation he would receive from Regulus. (Id. ¶ 131; ECF No. 22-12 (press release).) In an earnings call held that same day, Grint stated that his resignation was part of a larger “corporate restructuring to streamline [Regulus's] operations” and “extend [its] cash runway through potential significant milestones in 2018.” (ECF No. 19, ¶ 132.) Regulus's common stock share price declined from $1.70 on May 4, 2017 to $1.20 on May 5, 2017. (Id. ¶ 134.)

         On June 12, 2017, Regulus issued a press release announcing that “[c]omprehesive pre-clinical investigation and thorough evaluation of the clinical data from RG-101 . . . led to the identification of a bilirubin transport mechanism as the likely cause for the cases of hyperbilirubinemia” observed in the clinical studies, Regulus was discontinuing the development of RG-101. (ECF No. 19, ¶ 135.) Regulus's common stock share price declined from $1.40 on June 9, 2017 to $1.10 on June 12, 2017. (ECF No, 19, ¶ 137.)

         II. STANDARD

         A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) should be granted only where a plaintiff's complaint lacks a “cognizable legal theory” or sufficient facts to support a legal claim. Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1988). When reviewing a motion to dismiss, the allegations of material fact in the plaintiff's complaint are taken as true and construed in the light most favorable to the plaintiff. Parks Sch. of Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). Because Plaintiffs claims allege securities fraud, however, they are not subject to the general notice pleading standard of Federal Rule of Civil Procedure 8(a). Rather, Plaintiffs “must meet the higher, exacting pleading standards of Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act (PSLRA).” Or. Pub. Emps. Retirement Fund v. Apollo Grp., Inc., 774 F.3d 589, 603-04 (9th Cir. 2014) (citing Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 313-14 (2007)). Nevertheless, dismissal is appropriate only where “the complaint fails to ‘state a claim to relief that is plausible on its face.” Curry v. Yelp Inc., 875 F.3d 1219, 1224-25 (9th Cir. 2017) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

         Federal Rule of Civil Procedure 9(b), which demands heighted pleading standards for fraud or mistake, applies to all elements of a claim under Section 10(b). Id. at 605. Rule 9(b) requires that “[in] alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b); see also In re Cutera Sec. Litig., 610 F.3d 1103, 1108 (9th Cir. 2010) (“To surmount a motion to dismiss, the investors must thus plead facts sufficient to plausibly articulate with particularity the circumstances constituting fraud.” (internal quotations and citations omitted)). The PSLRA requires that for any misleading statement or omission alleged in a securities fraud action, “the complaint shall 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, the complaint shall state with particularity all facts on which that belief is formed.” 15 U.S.C. § 78u-4(b)(1); Or. Pub. Emps. Retirement Fund, 774 F.3d at 604. In addition, when proving “that the defendant acted with a particular state of mind, the complaint shall, with respect to each act or omission . . . 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)(A); Or. Pub. Emps. Retirement Fund, 774 F.3d at 604.

         III. REQUEST FOR ...

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