Joel Kuhn v. Arrowhead Pharm., Inc. ( 2019 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS JUL 23 2019
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: ARROWHEAD No. 17-56956
PHARMACEUTICALS, INC.
SECURITIES LITIGATION, D.C. No.
______________________________ 2:16-cv-08505-PSG-PJW
JOEL KUHN, On Behalf of Himself and All
Others Similarly Situated, MEMORANDUM*
Plaintiff-Appellant,
v.
ARROWHEAD PHARMACEUTICALS,
INC.; et al.,
Defendants-Appellees.
Appeal from the United States District Court
for the Central District of California
Philip S. Gutierrez, District Judge, Presiding
Argued and Submitted July 9, 2019
Pasadena, California
Before: M. SMITH and FRIEDLAND, Circuit Judges, and AMON,** District
Judge.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Carol Bagley Amon, United States District Judge for
the Eastern District of New York, sitting by designation.
Plaintiff Joel Kuhn appeals the district court’s dismissal under Federal Rule
of Civil Procedure 12(b)(6) of his second amended complaint (SAC) alleging
violations of section 10(b) of the Securities Exchange Act of 1934 and Securities
and Exchange Commission Rule 10b-5 as well as control-person claims under
section 20(a) of the Securities Exchange Act. We have jurisdiction pursuant to 28
U.S.C. § 1291, and we affirm.
“The [Private Securities Litigation Reform Act] significantly altered
pleading requirements in private securities fraud litigation by requiring that a
complaint plead with particularity both falsity and scienter.” In re Vantive Corp.
Sec. Litig., 283 F.3d 1079, 1084 (9th Cir. 2002), abrogated on other grounds as
recognized in South Ferry LP, No. 2 v. Killinger, 542 F.3d 776, 784 (9th Cir.
2008). “[T]o properly allege falsity, a securities fraud complaint must . . . ‘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.’” In re Rigel Pharm., Inc. Sec. Litig., 697 F.3d 869, 877 (9th Cir.
2012) (third alteration in original) (quoting 15 U.S.C. § 78u–4(b)(1)). In doing so,
a plaintiff must “reveal ‘the sources of her information.’” Rubke v. Capitol
Bancorp Ltd., 551 F.3d 1156, 1166 (9th Cir. 2009) (quoting In re Silicon Graphics
Inc. Sec. Litig., 183 F.3d 970, 985 (9th Cir. 1999)).
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To plead scienter, a complaint must allege “particular facts in the complaint
[that], taken as a whole, raise a strong inference that defendants intentionally or
[with] ‘deliberate recklessness’ made false or misleading statements to investors.”
Ronconi v. Larkin, 253 F.3d 423, 429 (9th Cir. 2001) (citing In re Silicon
Graphics, 183 F.3d at 979). “[A] court must consider plausible, nonculpable
explanations for the defendant’s conduct, as well as inferences favoring the
plaintiff,” and “[a] complaint will survive . . . only if a reasonable person would
deem the inference of scienter cogent and at least as compelling as any opposing
inference one could draw from the facts alleged.” Tellabs, Inc. v. Makor Issues &
Rights, Ltd., 551 U.S. 308, 324 (2007).
Plaintiff argues that Arrowhead Pharmaceuticals, Inc., Christopher R.
Anzalone, Bruce Givens, and Kenneth A. Myszkowksi (collectively Defendants)
made misleading statements to investors regarding (1) ARC-520’s general safety
and toxicity risks; (2) FDA’s partial clinical hold on ARC-520’s multiple-dose
study in January 2015; and (3) non-human primate deaths in toxicology studies.
We hold that Plaintiff has failed to adequately plead falsity, and in the alternative
has not adequately alleged scienter.
1. Plaintiff’s allegations relating to Defendants’ statements purportedly
downplaying ARC-520’s toxicity risks are not sufficiently specific to establish
falsity. Plaintiff pointed only to a former Arrowhead employee’s single statement
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to establish dose accumulation toxicity risks and provided no corroborating details
nor other facts. This does not meet the pleading requirements. For similar reasons,
even if Plaintiff had adequately pled falsity, scienter would be lacking, because
Plaintiff fails to specifically allege that Defendants knew any of their statements
were materially misleading.
2. Plaintiff has also failed sufficiently to allege falsity with respect to
Defendants’ statements regarding the FDA’s January 2015 partial clinical hold.
Plaintiff’s contention that the FDA placed a clinical hold on the ARC-520
multiple-dose study because it had concluded that the drug posed an unreasonable
health and safety risk is unsupported by specific allegations. And Plaintiff has not
sufficiently alleged that Defendants’ statements about the hold were misleading.
Alternatively, since Plaintiff has not sufficiently alleged that Defendants knew
about the FDA’s alleged reason for imposing the hold, Plaintiff has failed to allege
scienter.
3. Plaintiff has also failed sufficiently to allege falsity with respect to
Defendants’ failure to disclose, before November 2016, the death of non-human
primates in a toxicology study. Plaintiff’s factual basis for this claim—that the
deaths occurred in “late 2015 or early 2016”—is not supported by sufficiently
specific factual allegations. Thus, Plaintiff’s allegations are not sufficient to
conclude that Defendants’ statements before November 2016 were false or that
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Defendants improperly concealed news of the deaths. Alternatively, because
Plaintiff fails specifically to allege who at Arrowhead knew about the deaths, he
has failed to allege scienter.
4. Plaintiff alleges that Defendants made false statements in order to secure
“a critical, lucrative collaboration deal with Amgen” and to raise $43.2 million in a
secondary offering in August 2016. We have held that “allegations of routine
corporate objectives such as the desire to obtain good financing and expand are
not, without more, sufficient to allege scienter.” In re Rigel, 697 F.3d at 884. In
fact, in Rigel, plaintiffs contended precisely the same thing: that defendants “were
seeking a partner and were planning to raise capital in a stock offering,” and we
found this allegation insufficient to plead scienter. Id. Thus, even if falsity were
debatable, Plaintiff’s allegations here are insufficient to meet the scienter
requirement.
5. Plaintiff argues that the facts of this case are similar to Schueneman v.
Arena Pharmaceuticals, Inc., where we found scienter was properly pleaded. 840
F.3d 698 (9th Cir. 2016). This comparison is unconvincing. In Arena
Pharmaceuticals, defendants “told investors about their confidence in [a drug’s]
approval being based on” the completion of all preclinical animal studies despite
knowing of a rat study that pointed to cancer caused by the drug. Id. at 707. Here,
Plaintiff failed to sufficiently allege that any individual speaker actually knew
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about any dose accumulation or toxicity issues, let alone of FDA concerns about
such issues, outside of conclusory statements in the SAC.
For the reasons discussed, the district court appropriately held that Plaintiff
failed to plead falsity and scienter.
AFFIRMED.
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