United States District Court, S.D. California
KARIM KHOJA, on behalf of himself and all others similarly situated, Plaintiff,
OREXIGEN THERAPEUTICS, INC., JOSEPH P. HAGAN, MICHAEL A. NARACHI, and PRESTON KLASSEN, Defendants. AND ALL CONSOLIDATED S
(1) GRANTING IN PART AND DENYING IN PART THE MOVING
DEFENDANTS' REQUEST FOR JUDICIAL NOTICE, (2) DENYING LEAD
PLAINTIFF'S REQUEST FOR JUDICIAL NOTICE, AND (3) GRANTING
IN PART AND DENYING IN PART THE MOVING DEFENDANTS' MOTION
TO DISMISS (ECF Nos. 98, 98-15, 103-1)
Janis L. Sammartino, United States District Judge
before the Court is Moving Defendants Joseph P. Hagan,
Michael A. Narachi, and Preston Klassen's Motion to
Dismiss Consolidated Complaint for Violation of the Federal
Securities Laws ("Mot., " ECF No.
Also before the Court are Lead Plaintiff Karim Khoja's
Response in Opposition to ("Opp'n, " ECF No.
103) and the Moving Defendants' Reply in Support of
("Reply, " ECF No. 105) the Motion, as well as the
Moving Defendants' Request for Judicial Notice
("Defs.' RJN, " ECF No. 98-15) and Reply in
Support of their RJN ("RJN Reply, " ECF No. 106)
and Lead Plaintiffs Declaration of Alayne Gobeille in Support
of His Opposition ("Pl.'s RJN, " ECF No.
103-1), which the Court construes as a request for judicial
notice. The Court vacated the hearing and took the Motion
under submission without oral argument pursuant to Civil
Local Rule 7.1(d)(1). See ECF No. 107. Having
carefully considered Lead Plaintiff s Consolidated Complaint
("CC, " ECF No. 55) and the material appropriately
incorporated by reference, the Parties' arguments, and
the law, the Court GRANTS IN PART AND DENIES IN
PART the Moving Defendants' RJN,
DENIES Plaintiffs RJN, and GRANTS IN
PART AND DENIES IN PART the Moving Defendants'
Motion as follows.
Orexigen is a developmental stage biotechnology firm focusing
on the development of pharmaceutical product candidates for
the treatment of obesity. CC ¶ 7. Orexigen is a small
company with approximately fifty employees. Id.
¶ 33. Its common stock is traded on the NASDAQ.
Id. ¶¶ 33, 131(a). Defendant Narachi is
Orexigen's CEO and a director, id. 134,
Defendant Hagan is Orexigen's Chief Business Officer and
Acting CFO, id. ¶ 36, and Defendant Klassen is
Orexigen's Head of Global Development. Id.
primary obesity treatment candidate is Contrave, id.
¶ 7, which is designed to treat overweight and obese
persons already at high risk for major adverse cardiovascular
events ("MACE"), defined as myocardial infarction
(heart attack), stroke, or cardiovascular death. Id.
¶¶ 8, 87. Contrave is made from two off-patent
generic drugs, bupropion and naltrexone. Id. ¶
66. Orexigen has a collaboration agreement with Takeda
Pharmaceutical Company Limited to develop and commercialize
Contrave in the United States, Canada, and Mexico.
Id. ¶ 7.
submitted a new drug application for Contrave to the United
States Food and Drug Administration ("FDA").
Id. 149. Concerned that Contrave may cause adverse
cardiovascular events because of its effect on blood pressure
and heart rate, id. ¶ 127, in January 2011, the
FDA mandated a randomized, double-blind, placebo-controlled
clinical trial designed to assess the cardiovascular risks
associated with Contrave (the "Light Study") before
the new drug application could be approved. Id.
¶¶ 8, 49. The Light Study's Executive Steering
Committee ("ESC") was chaired by Dr. Steven Nissen,
a Department Chair of Cardiovascular Medicine at the
Cleveland Clinic. Id. at 1 n. 1. Orexigen initiated
the Light Study in June 2012, and completed screening in
December 2012, resulting in approximately 8, 900 patients
randomized for treatment. Id. ¶ 51. The FDA
agreed that if the Light Study's interim analysis
revealed that Contrave did not increase the risk of a major
cardiac event by 40 percent or more, Contrave could be
approved. Id. ¶¶ 51, 96, 126.
November 2013, the Light Study's Data Monitoring
Committee ("DMC") shared with Orexigen the
completed interim results. Id. ¶ 52. The
results, based on ninety-four MACE, which was approximately
25 percent of the planned MACE for the Light Study, indicated
that Contrave reduced cardiovascular events by 41 percent
compared with a placebo. Id. ¶¶ 70, 87.
Specifically, thirty-five Contrave patients experienced MACE,
whereas fifty-nine placebo patients did. Id. ¶
Light Study's ESC, DMC, and Orexigen entered into a data
access plan ("DAP"), pursuant to which all agreed
to limit the number of people within Orexigen who had access
to the interim results to just those individuals who needed
to facilitate submission of Orexigen's marketing
application to the FDA. Id. ¶ 53 & n.10.
The Light Study's statistical review team, however,
subsequently discovered that Orexigen had leaked the positive
interim data to over 100 people. Id. ¶¶
10, 53. Among those to whom the data was leaked was Narachi,
who publicly pledged in a November 25, 2013 Forbes
article, "We're going to honor the integrity of [the
Light Study's] blind so we don't screw it up and get
the final analysis." Id. ¶¶ 9, 52,
58. Others who saw the data included investment bankers and
several representatives from Takeda. Id. ¶ 58.
later confirmed in a September 10, 2014 report that Orexigen
improperly had disseminated unblinded interim data "far
beyond the intended core group." Id. (emphasis
omitted). The Light Study's DMC "found that it [was]
particularly concerning that members of Orexigen's Board
of Directors . . ., who have financial interest in the
outcome of the trial, were also provided full access to the
unblinded data." Id. (emphasis omitted).
Consequently, the FDA required Orexigen to sign a new DAP.
Id. ¶¶ 11, 60.
June 4, 2014 meeting, the FDA reminded Narachi and Klassen
that the 25 percent interim results have "a high degree
of uncertainty and were likely to change with the
accumulation of additional data." Id. ¶
59. The FDA was also concerned that Orexigen's corporate
leaders knew the 25% interim results. Id. ¶10.
The FDA also noted that the unblinding violated
Orexigen's data access plan and that the extent of the
confidentiality breach of interim results in the Light Study
was unprecedented. Id.
2, 2014, Orexigen filed patent application number 14/322, 810
(the "'810 Application") with the United States
Patent and Trademark Office ("USPTO"), listing
Klassen as the "patent applicant" and
"inventor." Id. ¶¶ 12, 61. The
'810 Application covered a new indication-a
cardiovascular benefit-for Contrave based on the 25 percent
interim data. Id. ¶ 66. The '810
Application explicitly included the 25 percent interim Light
Study data, id. ¶¶ 12, 62, and noted:
Surprisingly, rather than increasing the occurrence of MACE
in this high risk patient population, the results indicate
that treatment with [Contrave] decreases the occurrence of
MACE in overweight and obese subjects with cardiovascular
risk factors. Briefly stated, fewer subjects in the
[Contrave] treatment group experienced a MACE even compared
Id. ¶ 62 (alterations in original) (emphasis
omitted). Pursuant to 35 U.S.C. § 122, Orexigen
requested that the USPTO keep the '810 Application
confidential. Id. ¶¶ 12 & n.6, 61.
September 10, 2014, the FDA approved Contrave for commercial
use, id. ¶¶ 14, 55, 126, and in December
2014, the Committee for Medicinal Products for Human Use
("CHMP"), the centralized expert advisory committee
of the European Medicines Agency, adopted a positive opinion
for Contrave and recommended that the European Commission
grant a centralized marketing authorization. Id.
¶ 63. The European Commission also informed Orexigen
that it would review a draft decision granting marketing
authorization for Contrave during a meeting of the Standing
Committee scheduled for March 2015. Id.
January 5, 2015, in hopes that the USPTO's publication of
the 25 percent interim Light Study data would influence
European regulators, Narachi and Klassen rescinded
Orexigen's prior nonpublication request to the USPTO.
Id. ¶¶ 14, 64-65. On January 8, 2015, the
USPTO indicated that the '810 Application was "in
the publication queue." Id. ¶14 (emphasis
omitted). On February 5, 2015, Hagan and Narachi were awarded
a stock option grant of 202, 650 and 635, 150 shares,
respectively, at an exercise price of $5.34, id.
¶ 84, and on February 11, 2015, the USPTO advised
Orexigen that the '810 Application would be issued as a
patent on March 3, 2015. Id. ¶ 67.
February 25, 2015, Klassen informed investors on a conference
call that "there wo[uld]n't be any release of the
[Light Study] information unless pre-specified boundaries
[we]re hit." Id. (emphasis omitted).
Orexigen's February 27, 2015 Form 10-K noted that
"[disclosure of interim results of ongoing clinical
trials, including disclosure of interim results related to
the protection of intellectual property . . . could
significantly affect our product development costs or
adversely impact our ability to maintain or receive
additional regulatory approvals." Id. ¶ 68
(alteration in original) (emphasis omitted).
March 3, 2015, the USPTO issued U.S. Patent No. 8, 969, 371
(the "'371 Patent") from the '810
Application. Defs.' RJN Ex. B, ECF No. 98-4; see
also CC ¶¶ 15, 69. That same day, Orexigen
also filed a Form 8-K with the United States Securities and
Exchange Commission ("SEC") announcing the
publication of the '371 Patent and releasing the 25
percent interim Light Study Results. CC ¶¶ 15, 69,
87. The Form 8-K noted that the '371 Patent
"incorporate[d] data from [the Light Study], " and
that the '371 Patent "contain[s] claims related to a
positive effect of Contrave on [cardiovascular
("CV")] outcomes" based on an "analysis .
. . conducted based on 94 observed an adjudicated [MACE],
which was approximately 25% of the planned MACE for the Light
Study." Id. ¶ 87. The Form 8-K further
explained that the interim analysis "was prospectively
designed to enable an early and preliminary assessment of
safety to support regulatory approval" and that
"[a] larger number of MACE are required to precisely
determine the effect of Contrave on CV outcomes."
Id. Orexigen did not consult the FDA, Dr. Nissen, or
Takeda prior to filing the Form 8-K. Id. ¶15.
thereafter, Forbes reported that FDA senior official
Dr. John Jenkins had stated that the FDA was unaware that
Orexigen's '810 Application contained the 25 percent
interim data and expressed "serious concerns" about
Orexigen's disclosure of the interim data. Id.
¶¶ 93, 118. The FDA reported that it was "very
disappointed by Orexigen's actions" and warned
patients and physicians that it was "critical that the
interim data  not be misinterpreted." Id.
¶ 93 (alterations in original). The FDA noted that
"[e]ndpoints with less than 100 total events are
statistically unreliable and were to be viewed with extreme
caution. Id. ¶118.
March 3, 2015, in response to the Forbes article,
Orexigen published a press release, explaining that it
"filed patent applications based on the results in order
to preserve the potential for additional intellectual
property." Id. ¶¶ 94, 119. It also
explained that "[d]uring the course of the study, the
FDA informed [Orexigen] it had determined that the Light
Study would not serve as the postmarketing requirement for
Contrave; a new trial would be required." Id.
¶ 94. Orexigen added that the new trial would start
"later this year, " and results "are
anticipated by 2022." Id. Orexigen added that
"[t]his morning the USPTO published the patent and
supporting documentation, and [Orexigen] believed it was
appropriate and necessary to make sure this information was
equally available to all investors." Id.
¶¶ 94 (emphasis omitted), 119.
Orexigen's stock had closed at $5.79 per share on March
2, 2015, it closed at $7.64 per share on March 3, 2015,
trading as high as $9.37 per share. Id. ¶¶
16, 89, 117. More than 95.7 million Orexigen shares were
traded on March 3, 2015, a "highly unusual trading
volume, " id. ¶¶ 89, 117, especially
when compared to the average daily trading volume of
approximately 3 million shares per day. Id. ¶16
responded positively to the March 3, 2015 Form 8-K.
Id. ¶¶ 90-91. For example, Analyst Simos
Simeonidis from RBC Capital Markets noted that "[w]e
view the news as very significant" and "[t]he newly
revealed data demonstrated that not only is Contrave safe to
use from a CV standpoint, but it actually appears to have a
CV benefit." Id. ¶ 90 (emphasis omitted).
Consequently, he rated Orexigen's shares to
"outperform." Id. Similarly, analysts at
Piper Jaffray noted that the Light Study's interim
results "[c]ould turn the obesity/metabolic syndrome
market on its head. We see this [cardiovascular outcome trial
("CVOT")] effect as surprisingly positive and it
has several implications, in our view for the potential of
Contrave." Id. ¶¶ 17, 90 (emphasis
omitted). Leerink analyst Paul Matteis reported that
"[t]he data this morning show a statistically
significant Contrave benefit." Id. ¶ 91
(emphasis omitted). Wells Fargo analyst Matthew J. Andrews,
in analyzing the data, noted that "the 'holy
grail' for treating cardiometabolic diseases is
demonstration of a CV mortality benefit, which to date has
not been demonstrated by an obesity therapeutic."
Id. ¶¶ 17, 91 (emphasis omitted).
March 4, 2014, the Wall Street Journal published an
article explaining that the FDA "considers the
preliminary data 'far too unreliable to conclude anything
further about cardiovascular safety.'" Id.
¶96 (emphasis omitted). The article noted that
"LIGHT study data was disclosed inappropriately"
previously and that the FDA consequently had decided that
"Orexigen would have to launch a new study to satisfy
the conditions of the approval of its Contrave drug."
Id. (emphasis omitted). The Wall Street
Journal reported that Dr. Nissen, "the lead
researcher for the study[, ] is upset." Id. Dr.
Nissen noted that "he was not aware of the interim study
results until yesterday, " "the disclosure was not
approved by the data monitoring committee or the trial's
executive committee, " and Orexigen's business
management was not included in the list of individuals with
approved access to the data. Id. (emphasis omitted).
On March 4, 2015, the price of Orexigen's stock closed at
$8.49 per share, id. ¶¶ 16, 97, 120,
"again on unusually high trading volume of more than
40.5 million shares." Id. ¶¶ 97, 120.
5, 2015 Forbes article reported that "[t]here
is widespread speculation that Orexigen used the excuse of
the patent filing to publicly reveal the interim results of
the trial." Id. 170 (emphasis omitted). The
Forbes article further reported that critics
believed that "[disclosing the results, through the
medium of a patent filing and an SEC disclosure, is a deeply
cynical and manipulative action." Id. (emphasis
omitted). Forbes also speculated that Orexigen's
repeated disclosure of the Light Study interim results could
potentially threaten its relationship with the FDA and its
ability to obtain further drug approvals. Id. 1121.
On March 5, 2015, Orexigen's stock closed at $8.01 per
share, down from its opening price of $8.50 per share.
Id. ¶¶ 19, 121.
the close of trading on March 5, 2015, Forbes
published another report, which included criticisms of
Orexigen and its decision to release the interim trial data
by Dr. Jenkins, the FDA's director of the Office of New
Drugs. Id. ¶¶ 18, 122. Dr. Jenkins
criticized the released data as "unreliable, "
"misleading, " and "likely false, " and
warned that Orexigen "could face fines, civil penalties,
or even the withdrawal of Contrave from the market" if
it did not complete the new post-marketing study that the FDA
would require. Id. On March 6, 2015, the price of
Defendant Orexigen's stock dropped to $6.76 per share in
intraday trading and closed at $7.10 per share, "again
on unusually high trading volume." Id.
¶¶ 19, 123, 125.
March 13, 2015, Orexigen filed a Form S-8 Registration
Statement, registering six million shares of common stock at
a proposed maximum offering price of $7.08 per share.
Id. ¶¶ 20, 85; see also
Defs.' RJN Ex. I, ECF No. 98-11, at 3.
March 26, 2015 Form 8-K, Orexigen announced that Contrave had
received marketing authorization in Europe. CC ¶¶
21, 72, 99. Over nine million shares of Orexigen's stock
traded on that day, with stock prices increasing from an
opening price of $6.89 on March 26, 2015, to a closing price
of $7.54 on March 27, 2015. Id. ¶ 72.
March 26, 2015, Light Study researchers discovered that
Contrave's purported 25 percent interim heart benefit
vanished once the additional 50 percent Light Study results
were considered. Id. ¶¶ 21, 74. The Light
Study's ESC unanimously voted to terminate the Light
Study and to release immediately the 50 percent interim data.
Id. ¶¶21, 74, 127. Defendants were shown
the 50 percent interim data demonstrating that the 25 percent
interim cardiovascular benefit had disappeared. Id.
¶¶ 21, 74, 99, 127. Dr. Nissen began to draft a
press release disclosing the 50 percent Light Study data and
termination of the Light Study, which Takeda approved but
Orexigen refused to authorize. Id . ¶¶ 21,
8, 2015, Orexigen filed a Form 8-K containing a press release
announcing its business and financial results for the first
quarter ended March 31, 2015. Id. ¶ 100. The
press release noted that Contrave's "clinical trial
program also includes a double-blind, placebo-controlled
cardiovascular outcomes trial known as the Light Study."
Id. (emphasis omitted). Orexigen also filed a Form
10-Q, id. ¶ 103, noting that its share price
might be impacted by "announcements regarding [its]
clinical trials, including [ ] the Light Study and the
post-marketing required clinical trials, including the new
CVOT, for Contrave." Id. ¶104 (second
alteration in original). The Form 10-Q also represented that
"additional analysis of the interim results or new data
from the continuing Light Study, including safety-related
data, and the additional cardiovascular outcomes trial, may
produce negative or inconclusive results, or may be
inconsistent with the conclusion that the interim analysis
was successful." Id. (emphasis omitted). The
Form 10-Q also noted that "[a]ny failure by [Orexigen]
or delay in completing [its] clinical trials, including the
Light Study, or in obtaining regulatory approvals, could
cause a delay in the commencement of product revenues and
cause [its] research and development expenses to
increase." Id. ¶105.
same day, Orexigen also hosted an earnings conference call
for analysts and investors. Id. ¶¶ 22,
107. In response to a question about whether the Light Study
had been terminated, Klassen represented 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." Id. ¶108
(emphasis omitted). In response to a query about the 50
percent interim data, Klassen responded:
We have passed the 50% time point and as we've stated
before, those results are viewed by the Data Monitoring
Committee and it wasn't a planned look by the sponsors,
like the 25% was. The 25% was special because it was for
regulatory purposes and so we have had 50% time point.
Id. ¶109 (alteration in original). Narachi
The results from the 50% analysis . . . only come out in the
context of wrapping up the trial or as a final analysis. So,
if the decision is made to terminate the trial 1early and
focus resources on the next CVOT, which is what we have been
advocating, then I think results would come out sooner.
Id. ¶110 (emphasis omitted). Narachi also noted
that, "if there was a decision to terminate the [Light
Study]..., that would be a disclosure that we would
make." Id. ¶111 (emphasis omitted).
12, 2015, Orexigen and Takeda announced the discontinuation
of the Light Study, id. ¶¶ 24, 126, but
did not reveal the 50 percent data. Id. ¶¶
24. They noted that they were "pleased that the Light
Study is now being terminated and want[ed] to thank the
patients and all those involved in the study."
Id. ¶ 27 (alteration in original) (emphasis
later, Dr. Nissen and the Cleveland Clinic issued a press
release announcing both the termination of the Light Study
and the 50 percent interim data. Id. ¶¶
24, 75, 126, 127. The 50 percent Light Study data revealed
that at 192 MACE, the difference between the Contrave and
placebo groups shrank to 12 percent and was no longer
statistically significant. Id. ¶127. Dr. Nissen
These results do not confirm the cardiovascular benefits of
Contrave claimed by Orexigen in the patent application based
on the data obtained at the 25 percent time point in the
trial .... These results show neither benefit nor harm for
patients taking the drug, but are consistent with the
requirement by the FDA that the Light Trial demonstrate an
absence of a doubling of cardiovascular risk for patients
taking the drug .... The inconsistency of effects on
cardiovascular outcomes between the first 25 percent and the
second 25 percent of the Light Study clearly illustrates the
risks inherent in pre-judgment of clinical trial results
based upon an interim analysis and demonstrate why interim
results should remain confidential during any ongoing trial.
Id. 1126 (emphasis omitted).
article appearing on Forbes.com, Dr. Nissen claimed
that "[p]atients were misled, investors were
misled." Id. ¶127 (emphasis omitted);
see also Id . ¶25. Dr. Nissen also noted that
Orexigen had refused to approve a press release publicizing
the 50 percent Light Study data for six weeks. Id.
¶¶ 25, 127. An article published in
Medscape on that same day quoted Dr. Nissen as
Essentially, when they [Orexigen] filed the patent the
company chose what they were going to put in there and what
they were going to leave out.... We felt it was in the public
interest to take an unprecedented step and release the 50%
data because we couldn't allow unreliable data to be used
in clinical decision making. We had a duty to the public and
also to the investment community, to tell the truth.
Id. ¶128 (alteration in original); see also
Id . ¶26. The price of Orexigen's common stock
fell from an opening price of $6.75 on May 11, 2015, to $5.02
per share at the close of May 13, 2015. Id.
March 10, 2015, Plaintiff Lisa Colley filed a class action
complaint against Defendants, alleging (1) violation of
§ 10(b) of the Securities Exchange Act of 1934 (the
"1934 Act") and Rule 10b-5, and (2) violation of
§ 20(a) of the 1934 Act. See generally ECF No.
1. The case was originally assigned to United States District
Court Judge M. James Lorenz. See Id . Two related
actions-Stefanko v. Orexigen Therapeutics, Inc., No.
15-CV-00549 JAH (JLB) (S.D. Cal), and Yantz v. Orexigen
Therapeutics, Inc., No. 15-CV-557 CAB (MDD) (S.D.
Cal.)-were filed on March 11, 2015. See ECF No. 4.
12 and 13, 2015, a number of competing motions for
consolidation, appointment of lead plaintiff, and approval of
lead counsel were filed. See generally ECF Nos. 26,
27, 28, 29, 32, 33, 34, 35, 37, 38. On June 15, 2015, Lead
Plaintiff informed Judge Lorenz that his motions were
unopposed. See ECF No. 42. Consequently, Judge
Lorenz granted Lead Plaintiffs motions on June 22, 2015.
See generally ECF No. 43.
26, 2015, Judge Lorenz recused himself from this action,
which was reassigned to this Court. ECF No. 46. On August 20,
2015, Lead Plaintiff filed his Consolidated Complaint,
see generally ECF No. 55, which Defendants ...